Perma-Fix Environmental Services, Inc. (NASDAQ:PESI) Q1 2023 Earnings Call Transcript

Perma-Fix Environmental Services, Inc. (NASDAQ:PESI) Q1 2023 Earnings Call Transcript May 13, 2023

Operator: Greetings. Welcome to the Perma-Fix Fiscal First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. Please note this conference is being recorded. I will now turn the conference over to your host, David Waldman, Investor Relations. You may begin.

David K. Waldman: Thank you, Holly. Good morning, everyone, and welcome to Perma-Fix Environmental Services first quarter 2023 conference call. On the call with us this morning are Mark Duff, President and CEO, Dr. Louis F. Centofanti, Executive Vice President of Strategic Initiatives and Ben Naccarato, Chief Financial Officer. The Company issued a press release this morning containing first quarter 2023 financial results, which is also posted on the Company’s web site. If you have any questions after the call or would like any additional information about the Company, please contact Crescendo Communications at (212) 671-1020. I’d also like to remind everyone that certain statements contained within this conference call may be deemed forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and include certain non-GAAP financial measures.

All statements on this conference call other than a statement of historical fact are forward looking statements that are subject to known and unknown risks, uncertainties and other factors, which could cause actual results and performance of the Company to differ materially from such statements. These risks and uncertainties are detailed in the Company’s filings with the U.S. Securities and Exchange Commission as well as this morning’s press release. The Company makes no commitment to disclose any revisions to forward looking statements or any facts, events, or circumstances after the date hereof that bear upon forward looking statements. In addition, today’s discussion will include references to non-GAAP measures. Perma-Fix believes that such information provides an additional measurement and consistent historical comparison of its performance, a reconciliation of the non-GAAP measures to the most directly comparable GAAP measures is available in today’s news release on our website.

I’d now like to turn the call over to Mark Duff. Please go ahead, Mark.

Mark Duff: All right. Thanks, David, and good morning. First, let me take a moment to address the issues associated with the postponement of this earnings call yesterday. As you know, all relevant information related to the Company’s filings, a filing period must be considered up to the filing of the 10-Q or 10-K. That said, we received certain new information late on Monday evening that required us to review for potential financial impacts. We’re able to complete the review on Tuesday and are happy to be able to report our earnings today. We apologize for any inconvenience or impacts associated with this delay, but deemed the delay necessary to ensure the accuracy of our financial statements. While 2022 was a challenging year due to the lingering effects of COVID-19 pandemic, we believe we’re back on the growth trajectory that we were working so hard for.

We are finally starting to realize improvements in our performance and the momentum we had prior to the pandemic as evidenced by our results this quarter. I’m pleased to report we achieved a 26.3% increase in revenue and an 83.9% increase in gross profit for the first quarter of 2023 compared to the same period last year. Importantly, we also achieved sequential growth of 20% compared to the fourth quarter of 2022 even though the first quarter tends to be traditionally a seasonally weak period for us. We saw steady improvement throughout the quarter including a strong March, which has continued into the second quarter. It’s also worth noting that revenue increased both within our Treatment and our Services segment. The growth in revenue reflects the initiation of several new projects in the first quarter of 2023 that support the backlog in both segments and provide growth opportunities into 2024.

As we’ve recently announced, we were awarded eight new contracts over the past few months totaling approximately $15 million of revenue that’s expected to be recognized in 2023 with additional option phases that have a potential value of over $14 million moving forward. These projects included the deployment of our sole solar technology for providing a remediation solution to the abandoned uranium mine program through the EPA, as well as the remediation of dredging settlements for the Department of Defense in San Diego. Other new contracts have been initiated in support of the Los Alamos National Lab and providing an innovative technology for on-site decontamination support for the decommissioning of a nuclear power plant. In addition to this new backlog, we’ve realized significant increases in bidding activities with recent opportunities requiring our core competencies in support of the DOE remediation programs as well as the Army Corps of Engineers’ cleanup initiatives, U.S. Navy decommissioning projects and several international projects with sustainable revenue potential.

Within our Treatment segment, we benefited from a steady improvement in waste receipts. This was a result of increased waste shipments from DOE and expanding our current waste treatment offering to the commercial utility sector. Along with the oil and gas markets and the growth in our industrial waste programs as well. We recently received a new IDIQ contract with a regional power utility to provide waste treatment services over the next five years. Once this contract is signed, we will open the — this will open the door for new opportunities within utility markets that we’ve not seen in the past. We expect to see continued improvement in waste receipts and an increase in project work through existing contracts, recently won contracts and bids submitted in both segments that are waiting for awards now.

We expect this positive trend to continue over the next several quarters as lingering effects of the COVID-19 pandemic continue to subside. At the same time, we’re rapidly advancing several initiatives that we believe have the potential to significantly enhance our revenues and our long-term backlog. Towards this end, we have realized two important steps towards the Department of Energy, but with Department of Energy, the pursuit of the Hanford tank our remediation mission, these include the amendment of the record decision for the direct feed, low activity waste facility, DFLAW, and the approval of the waste incidental to reprocessing or WIR report, which represent opportunities to provide large scale waste treatment services at Hanford. These announcements underscore the importance of our role in DOE strategy for the treatment of Hanford tank waste through the vitrification program that is currently in the final construction phases and start up.

This waste estimated by DOE to be over 8000 cubic meters annually will be more than double our current annual production rate at our plants combined. And given the fixed cost nature of our business, we have significant positive impact from this on profitability over the next 10 years. The outlook of the Test Bed Initiative what we refer to as TBI, which also is known as the low level waste off-site disposal project, in support of the DOE Hanford tank disposition program continues to be recognized by DOE as a potential supplement to the vitrification mission to provide a solution for the 59 million gallons of tank waste stored at the site. TBI program, which is based on the grounding technology, continues to progress and we expect to receive the next 2000 gallons of tank waste within the next few quarters.

Perma-Fix maintains these capabilities today at our Perma-Fix Northwest facility, which is permitted and outfitted to safely and compliantly grout up to 30,000 gallons per month with the ability to expand to over million gallons a year while dramatically reducing cost compared to vitrification. We’re also pursuing several additional international waste opportunities that we believe will provide sustainable revenue in the latter half of this year in both the Services and Treatment segments. We remain optimistic about the announcement which could be any day now of a key procurement in Italy that would support our expansion program throughout Europe. This announcement in addition to the near-term opportunities we have in Slovenia, Croatia, Mexico, Canada and the UK and Germany will provide an increased market potential that will leverage our technologies and our core competencies.

In addition, we’re pursuing several large waste processing opportunities at large DOE sites that could include waste inventories that have been backed up due to COVID as well as the lack of available technologies to provide high efficiency processing. These waste are expected to provide sustained receipts through the next three or four quarters providing an opportunity from $10 million to $20 million potential annual revenue. Turning back to our financials for a moment, EBITDA in Q1 of 2023 improved to an income of $171,000 compared to a loss of $1.4 million in Q1 of 2022. Aside from our expectations for revenue growth having a positive impact on our EBITDA going forward, we continue to focus on a reduction in our SG&A expenses and billable indirect operating costs.

As a result, we anticipate a meaningful improvement in profitability and cash flow going forward. So to wrap up, it’s clear to us there is a solid federal budget and a significant backlog of demand that we expect to capitalize on going forward. As a result, we remain confident the balance of 2023 will see a significant improvement over 2022. And as I mentioned earlier, we’re seeing continued momentum heading into the second quarter. We continue to invest in our capabilities and our facilities and have a highly scalable infrastructure and believe that we’re in a great position to take advantage of this pent up demand. As we continue to increase revenues, we expect to benefit from the predictable cash flows of our Services segment and high incremental margins within our Treatment segment.

As a result, we believe we’re well positioned to exceed the performance of profitability we had attained prior to the pandemic through increased bidding activities, waste treatment capability expansion and improved federal budgets. On that note, I’ll now turn the call over to Ben, who will discuss the financial results in more detail, Ben.

Ben Naccarato: Thanks, Mark. Let me start with revenue. Our total revenue from continuing operations in the first quarter was $20.1 million compared to last year’s first quarter of $15.9 million that’s an increase of $4.2 million or 26.3%. Our revenue increased by $2.1 million in each of our segments as our Treatment segment began to process the increased waste shipments from backlog that we saw trending upward in the last part of 2022. The improved waste volume received and/or process also led to improvement in the Treatment segment while higher revenue in the Service segment was the result of increased project revenue. Turning to cost of sales. Our total cost of sales were up $17.1 million in the first quarter compared to $14.3 million in the prior year, that’s an increase of $2.8 million or 19.7%.

In the Treatment segment, our variable or incremental expenses were 25.6% of revenue compared to 22% last year and that’s related to higher trends and disposal expenses primarily at our EWOC facility. Our fixed facility costs were also up compared to last year due mostly to depreciation expenses at our EWOC facility as well as unusually high natural gas expenses in the Pacific Northwest, which impacted our Northwest facility. Our incremental expenses in our Services segment were 74% compared to 77% last year due to lower project related expenses. Our gross profit for the quarter was $3 million compared to $1.6 million in 2022, Again, both segments improved with our Treatment segment improving by $614,000 and the Service segment improving by $759,000.

The Treatment segment gross profit improvement came primarily from the higher revenue but was offset by a little bit lower margin related to the waste mix and also the fixed facility costs. Gross profit from the Service segment was the result of both increased revenue and the improvement in the profitability of our project. Our total G&A costs for the quarter were $3.5 million or 17. 3% of revenue compared to $3.4 million or 21.5% of revenue in the prior year. The small increase of $64,000 was primarily due to higher employee benefit expenses offset by lower audit fees, consulting fees and salary. Our net loss for the quarter was $411,000 compared to last year’s net loss of $1.3 million. Our total basic loss per share for the quarter was $0.03 compared to a loss of $0.10 last year.

Our adjusted EBITDA from continuing operations as defined in this morning’s press release was income of $171,000 compared to a loss of $1.4 million last year. I’ll turn to the balance sheet in comparison to year-end 2022, our cash on the balance sheet was $2.4 million compared to $1.9 million at the end of the year. Our accounts receivable and unbilled receivable were both up — were up combined by $2.2 million due to an increase in quarterly revenue compared to our fourth quarter of last year. Our current liabilities were up approximately $1.9 million reflecting increased costs associated with production as well as timing of vendor payments. And our backlog at the end of March 2023 was $9.4 million which is consistent with the $9.2 million at the end of last year, but up from the $6.1 million in March of 2022.

Our total debt at quarter end was $990,000 most of which is owed to our PNC Bank. And finally, our cash flow activity for 2023, our cash provided from continuing operations was $1.8 million. Our cash used by our discontinued operations was $198,000. Cash used for investing in continuing operations was $748,000 most of which was capital spending. Cash used for financing was $204,000 representing our monthly payments to our credit facility at PNC of $137,000 as well as payments for finance, leases and other financing expenses totaling $67,000. With that, I’ll turn the call back to the operator for questions.

Q&A Session

Operator: [Operator Instructions]. Your first question for today is coming from Howard Brous at Wellington Shields.

Operator: Your next question is coming from Brian Russo at Sidoti.

Operator: Your next question for today is coming from Ross Taylor at ARS Investment Partners.

Operator: Your next question for today is coming from [Anthony Harpel] (ph), a Private Investor.

Operator: Your next question is coming from Aaron Warwick at Breakout Investors.

Operator: Your next question is coming from Avi Fisher at Long Cast Advisers.

Operator: Your next question for today is coming from [Chuck Dickison] (ph), a Private Investor.

Operator: Your next question for today is coming from Stephen Fein at Sofein LLC.

Operator: We have reached the end of the question-and-answer session and I will now turn the call over to management for any closing remarks.

Mark Duff: All right. I’d like to thank everyone for participating on our first quarter conference call. We remain extremely confident in the outlook for the business. We appreciate the continued support of our shareholders and we look forward to providing further updates as developments unfold through Q2. Thank you very much.

Operator: This concludes today’s conference and you may disconnect your lines at this time. Thank you for your participation.