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Edited Transcript of PESI earnings conference call or presentation 1-Apr-19 4:00pm GMT

Q4 2018 Perma-Fix Environmental Services Inc Earnings Call

Atlanta Apr 9, 2019 (Thomson StreetEvents) -- Edited Transcript of Perma-Fix Environmental Services Inc earnings conference call or presentation Monday, April 1, 2019 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Benio Annaldo Naccarato

Perma-Fix Environmental Services, Inc. - CFO, CAO, VP & Secretary

* David K. Waldman

Perma-Fix Medical S.A. - Member of Supervisory Board

* Louis Francis Centofanti

Perma-Fix Environmental Services, Inc. - Executive VP of Strategic Initiatives & Executive Director

* Mark J. Duff

Perma-Fix Environmental Services, Inc. - President & CEO

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Conference Call Participants

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* William John Nasgovitz

Heartland Advisors, Inc. - CIO, Portfolio Manager, Chairman and Director

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Presentation

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Operator [1]

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Greetings. Welcome to Perma-Fix Environment's (sic) [Environmental's] Fourth Quarter and Fiscal 2018 Business Update Conference Call. (Operator Instructions)

Please note this conference is being recorded.

I'll now turn the conference over to David Waldman with Crescendo Communications. Please go ahead, David.

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David K. Waldman, Perma-Fix Medical S.A. - Member of Supervisory Board [2]

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Thank you, Rob.

Good afternoon, everyone, and welcome to Perma-Fix Environmental Services Fourth Quarter and Year-End Conference Call.

On the call with us this afternoon are Mark Duff, President and CEO; Dr. Louis Centofanti, Executive Vice President of Strategic Initiatives; and Ben Naccarato, Chief Financial Officer.

The company issued a press release this morning containing fourth quarter 2018 financial results, which is also posted on the company's website. 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 statements 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 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 the forward-looking statements.

In addition, today's discussion will include reference to non-GAAP measures. Perma-Fix believes that such information provides an additional measurement and consistent historical comparison of its performance. A reconciliation of 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.

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Mark J. Duff, Perma-Fix Environmental Services, Inc. - President & CEO [3]

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Great. Thanks, David.

We had a couple of minor setbacks in the fourth quarter that resulted in isolated impacts on our financial performance. First, there was an unplanned outage of approximately 2 weeks at our Perma-Fix Northwest facility, which has been resolved. Second, we incurred a continued delay and expenses associated with the plant closure of our M&EC facility.

Despite these challenges, which I'll discuss more in a moment, I'm pleased to report that our Treatment Segment revenue increased, and we ended 2019 with a strong backlog and sales pipeline.

On top of this, we have recently been awarded several new projects in early March valued at approximately $17 million for 2019 with significant potential growth in future years as well. These latest contracts significantly increase our funded backlog and will bolster our Services Segment beginning in the second quarter of 2019.

These wins, which will be formally signed and announced in the coming weeks, include remediation work in Canada as well as several DOE, or Department of Energy, locations throughout the United States. We believe these awards are a direct result of the improvements we've made over the last year within our business development organization. Plus, suffice to say we've been very busy in the procurement processes even though it's not always readily apparent through our press releases given the limitation placed on us by some of our customers regarding disclosure.

Also, we completed testing and demonstration of the GeoMelt vitrification unit at our Perma-Fix Northwest facility in the fourth quarter of 2018. We formally commenced commercial operations of the GeoMelt unit through our partnership with Veolia Nuclear Solutions and have completed 6 -- our sixth treatment event for sodium residual waste. This new capacity allows us to address a large inventory of radioactive waste currently in storage and provides us a substantial multiyear backlog from a new incremental waste stream. It also reflects our successes in diversifying our revenue streams.

Also within the Treatment Segment, construction activities are continuing at our Perma-Fix Florida facility to accept and treat radioactively contaminated water and also an additional -- additional commercial waste streams. We've begun to receive water treatment backlog inventories in Florida and should be fully operational this summer after a few delays that we've had in the construction permitting processes.

We're continuing our expansion of the hazardous waste processing markets as well in Florida, primarily targeting geographically focused opportunities in the Southeast U.S. markets in order to maximize utilization and throughput of our facilities.

In terms of the unplanned outage at our Perma-Fix Northwest facility in early December, the shutdown lasted approximately 2 weeks, and the total impact was approximately $800,000. During this time, waste receipts were halted and production activities remained idle while crews addressed some operational controls associated with processing a specific low-level waste stream.

Since this period in December, Perma-Fix Northwest has had -- has realized strong momentum through Q1, and adjustments implemented during the outage have proven to be effective, ensuring the highest level of safety for our workers while maintaining efficient operations.

Regarding the plant closure of the M&EC facility, clearly this has been a larger challenge than anticipated and has resulted in a negative impact to our performance overall for several years. This is due to the costs associated with closure cleanup activities as well as the distraction to our workers and our management team to complete the termination of the permits. I'm pleased to report we have completed the cleanup phase associated with decontamination to support our releasing of the building under the commitments of the closure plan. We're approximately 80% complete in the final verification process and surveys that are required and working directly with the landlord in the state of Tennessee for release of the permits in Q2.

And one final note. We're encouraged by the current direction of the Department of Energy as it relates to procurement processes within the DOE's Office of Environmental Management. The department has adopted a new End State approach to cleanup, which provides a greater emphasis on acceleration of project schedules to include waste management metrics such as waste disposition. This change in procurement strategy is directly aligned with our offering, which reduces the long-term carrying costs associated with the nation's nuclear waste legacy by accelerating commercialization of waste processing and treatment. In fact, the new approach favors advanced, cost-effective technologies, such as our grouting process demonstrated for the Test Bed Initiative in Hanford as well as the large-component dismantlement capabilities we bring to support faster and more efficient off-site processing.

To wrap up, we entered 2019 with treatment backlog of approximately $11.1 million, which bodes well for the rest of the year. We've significantly increased our funded backlog through new contracts in the Services Segment, with over $17 million in new contracts awarded in March alone. And we're actively bidding on a number of additional larger projects even within our Services Segment and look forward to providing further updates as those proposal developments unfold.

On that note, I'll turn over the call to Ben Naccarato, who will discuss the financial results in more detail. Ben?

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Benio Annaldo Naccarato, Perma-Fix Environmental Services, Inc. - CFO, CAO, VP & Secretary [4]

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Thank you, Mark.

Beginning with revenue, our total revenue from continuing operations for the fourth quarter was $11.7 million compared to last year's fourth quarter of $12.6 million, a decrease of $851,000 or 6.8%.

Our Treatment Segment revenue increased by $333,000 in the quarter compared to prior year due to increases in both receipt and production volume at our plants.

The Service Segment (sic) [Services Segment] was lower than prior year by $1.2 million due to lower project revenue, which is timing related and was impacted by the completion of certain phases of one of our ongoing contracts.

For the year ended 2018, revenue was $49.5 million compared to $49.8 million in 2017. Our Services Segment increased -- revenue increased by $1.2 million as we performed more scope with one of our ongoing customers compared to prior year.

Our Treatment Segment revenue was lower by $1.5 million due to lower processing and disposal revenue compared to prior year. The offset of this drop in revenue, though, at the Treatment Segment was a sharp increase in our opening waste backlog to $11.1 million compared to $7.7 million at the end of '17.

Turning to our cost of sales.

Our total cost of sales was $10.5 million in the fourth quarter compared to $10.8 million in the prior year, a decrease of $322,000 or 3%.

Our Treatment Segment costs increased by $443,000 compared to prior year. Included in this increase was cost of sales of $1 million closure reserve booked at the M&EC facility compared to a smaller increase of $850,000 in Q4.

Cost of sales from our Services Segment were down $765,000, consistent with the drop in project revenue.

Gross profit for the quarter was $1.3 million compared to $1.8 million in 2017. Lower revenue at our Services Segment and the additional costs related to M&EC in the Treatment Segment were the main reasons for this drop.

For the year ended '18, gross profit was $8.5 million compared to $8.6 million in '17. We had a modest improvement in our margin from revenue mix, but that was offset by the impact of the lower volume, and lower fixed costs were offset by the higher M&EC costs.

Our G&A costs for the quarter were $2.7 million compared to $2.8 million last year, a decrease of about $84,000, and lower bad debt was offset by higher marketing and payroll costs.

For the year-end 2018, our G&A costs were $10.7 million compared to $11.1 million in the prior year. And as with the quarter, lower bad debt was offset by higher marketing and payroll costs.

Our research and development expenses were higher than prior year by $396,000, reflecting the write-down of certain assets in our Medical Segment.

Our loss from continuing operations, net of taxes, for the quarter was $2.4 million compared to $340,000 last year. Included in this loss was a $1 million of additional closure reserves booked at M&EC, the continuing operating expenses at M&EC of $308,000 and the write-off of certain assets at our Medical Segment of $455,000.

The net loss from continuing operations for the year ended December 31 was $1.1 million compared to net loss of $3.5 million in the prior year. Excluding all the income and expenses related to M&EC and the write-down of the Medical Segments, net income would have improved by $2.6 million.

Net loss attributable to common shareholders for the quarter was $2.4 million compared to last year's net income of $2.6 million.

For the year ended December 31, net loss attributable to common shareholders was $1.4 million compared to $3.7 million in the prior year.

Our total loss per share for the quarter was $0.20 compared to income per share of $0.02 in the prior year.

And our loss per share for the year ended 12/31/18 was $0.12 compared to $0.31 in the prior year.

Our adjusted EBITDA from continuing operations for the quarter, as defined in this morning's press release, was a negative $167,000 compared to $329,000 last year.

For the year ended August '18, adjusted EBITDA was $2 million compared to $2.4 million in 2017.

Turning to the balance sheet.

In comparison to our year-end of '17, our cash balance dropped by $253,000.

Our current unbilled receivables were down by $1.4 million, reflecting improved billing and the completion of most of the outstanding M&EC invoicing.

Other current assets were down $673,000 due to the reduction of prepaid at M&EC and the write-down of an asset at -- in the Medical Segment.

Intangibles and other assets were down $333,000 due to the elimination of M&EC's long-term unbilled receivables and the write-down of a prepaid asset in our Medical Segment.

Our current liabilities were up $1.9 million primarily due to increased accounts payable related to the M&EC closure.

Our waste backlog sits at $11.1 million compared to $7.7 million at year-end '17.

Our long-term liabilities were down $1.7 million as a result of the elimination of our preferred share dividends payable at M&EC in the second quarter and a decrease in our deferred tax liability, which netted down against our indefinite lived deferred tax assets or tax net operating loss carryforwards generated in 2017.

Our current debt, including capital leases and excluding debt issuance costs, was $1.4 million, with $1.2 million due to our primary lender, PNC Bank.

Total debt at year-end was $3.8 million, including capital leases and excluding debt issuance costs, with $3.4 million due to our primary lender, PNC Bank.

Our current working capital was a negative $6.7 million compared to a negative $2.3 million in '17. A couple things should be noted, however. $5 million of cash collateral which we expect to receive upon closure of the M&EC facility is still listed as long-term asset. And when received, we will use this to reduce the working capital deficit.

In addition, we've just closed on $2.5 million of sub-debts with favorable terms that will further improve our liquidity position.

Next, I'll summarize our cash flow for 2018.

Cash provided by continuing operations at -- continuing operating activities was $2.6 million. Our cash used by discontinued ops was $618,000. Our cash used by investing activities was $1.4 million, primarily on cash spending. Proceeds for (sic) [from] the sale of discontinued ops property was $67,000. Cash used for financing was $580,000 consisting of $1.2 million payment on our term loan and $639,000 received from the revolver.

With that, I'll now turn over the call to questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from the line of Bill Nasgovitz with Heartland Advisors.

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William John Nasgovitz, Heartland Advisors, Inc. - CIO, Portfolio Manager, Chairman and Director [2]

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Ben, did I get this right? For the quarter, there was a $2.6 million improvement? Was that...

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Benio Annaldo Naccarato, Perma-Fix Environmental Services, Inc. - CFO, CAO, VP & Secretary [3]

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Not improvement, Bill. What I was trying to -- for the year, when you calculate all of the closure expenses and ongoing costs at M&EC and net out some of the positives from the tax credits and the dividends, we -- without M&EC, we would have had an improvement of $2.6 million.

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William John Nasgovitz, Heartland Advisors, Inc. - CIO, Portfolio Manager, Chairman and Director [4]

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Okay. And, well, in terms of this outage for 2 weeks, what specifically was the problem? And what did it cost us in terms of revenues?

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Mark J. Duff, Perma-Fix Environmental Services, Inc. - President & CEO [5]

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Well, Bill, the overall revenue impact was about $800k because we had to shut down. And in that facility, there was a backlog it had at the time for the fourth quarter. It was about $400k a week. We had to make some adjustments in our processes out there to make sure that we had -- given the types of wastes that we are processing, making sure that we contain the contamination properly, and it took about 2 weeks to make the adjustments we needed to make and to make sure that everyone was working safely. It's largely a product of -- or a result of when we get a waste stream, we had to make sure that the right precautions are being taken, the procedures are correct and that no one gets contaminated.

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William John Nasgovitz, Heartland Advisors, Inc. - CIO, Portfolio Manager, Chairman and Director [6]

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Okay. So our treatment backlog is $11.1 million as of the end of the year, is that right?

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Mark J. Duff, Perma-Fix Environmental Services, Inc. - President & CEO [7]

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Correct. Going into the new year, correct.

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William John Nasgovitz, Heartland Advisors, Inc. - CIO, Portfolio Manager, Chairman and Director [8]

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And then funded backlog. You refer to $17 million of new contracts. But what -- roughly, what is the funded backlog?

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Mark J. Duff, Perma-Fix Environmental Services, Inc. - President & CEO [9]

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Ben -- do you have the actual funded backlog, Ben?

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Benio Annaldo Naccarato, Perma-Fix Environmental Services, Inc. - CFO, CAO, VP & Secretary [10]

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The actual -- no, I don't have it with me, but it's probably -- we were sitting at about $7 million before the wins. So it would probably be in the mid-20s.

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William John Nasgovitz, Heartland Advisors, Inc. - CIO, Portfolio Manager, Chairman and Director [11]

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$24 million or so?

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Benio Annaldo Naccarato, Perma-Fix Environmental Services, Inc. - CFO, CAO, VP & Secretary [12]

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Yes.

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William John Nasgovitz, Heartland Advisors, Inc. - CIO, Portfolio Manager, Chairman and Director [13]

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Well, that's encouraging, isn't it?

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Benio Annaldo Naccarato, Perma-Fix Environmental Services, Inc. - CFO, CAO, VP & Secretary [14]

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Yes.

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William John Nasgovitz, Heartland Advisors, Inc. - CIO, Portfolio Manager, Chairman and Director [15]

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Could you just lay out perhaps the potential in terms of the sodium market that we're now in and also the H2O market down there in Florida?

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Mark J. Duff, Perma-Fix Environmental Services, Inc. - President & CEO [16]

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Yes, Bill. The H2O market is lot more subjective because it depends so much on marketing and it's so cost competitive. I would say for us, what that means is if we hit on all cylinders, we can probably do $5 million or $6 million a year there if we -- with a couple of good wins in what we think is our near-term clients. I am pleased to say, though, on the sodium market that, that market is much larger because we don't have a lot of competition. In fact, there's no competition at all. It's just -- really just a matter of what people's or our clients' budgets are. The way that it works at Idaho -- or, excuse me, at Northwest is that we get -- we have a permit for 2 years to do what we call a treatability study. But you're allowed to pretty much demonstrate operational capability of your system while you're getting your permit, which is a very friendly way of supporting new technologies by the state of Washington. And we have about $5 million of backlog for that waste during that 2-year period. But we're viewing Veolia and us together -- after sitting down really analyzing the market out there, we would agree together that the market is close to $100 million in total inventory that's out there in the system now over the next 10 years or so, and that can be accelerated or decelerated depending on budget levels. So to answer your question on the sodium side, $5 million in backlog right now for the next 18 months or so to 2 years and about $100 million over the next 10 years or so for the total market.

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William John Nasgovitz, Heartland Advisors, Inc. - CIO, Portfolio Manager, Chairman and Director [17]

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And we have no competition? So the margins are -- what kind of margins do you expect? And how is it shared with Veolia?

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Mark J. Duff, Perma-Fix Environmental Services, Inc. - President & CEO [18]

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Well, that's largely proprietary, but the margins are good. As far as some of our other margins, it's not as aggressive as some of the other margins we have, but they are -- they're good margins and good sustainability. And that -- the - being the only source for this processing doesn't necessarily mean you can charge whatever you want. You have to be reasonable or they'll leave everything in storage. So, well, we have to balance that out, making sure we're providing a good value. So it is cheaper to treat it and get rid of it than it is to store it. And we work very closely with Department of Energy and particularly the Idaho site to work out a long-term arrangement for treatment of their waste as well as -- or looking at other clients as well.

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William John Nasgovitz, Heartland Advisors, Inc. - CIO, Portfolio Manager, Chairman and Director [19]

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So is it -- is this a 50-50 partnership with Veolia? How -- what are (inaudible)...

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Mark J. Duff, Perma-Fix Environmental Services, Inc. - President & CEO [20]

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Yes, I really can't get in the details on the partnership, Bill, at this point.

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Operator [21]

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Our next question is from the line of [Stephen Fine], a private investor.

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Unidentified Participant, [22]

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Great summary, Mark. I just want to appreciate that. Some of my questions -- I have a lot of questions, and some of them were answered already. On the $5 million in the sinking fund that you're getting back from the closing plant, you say that 80% is finished relative to the final thing. So does it mean that there could be more work done -- that have to be done?

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Mark J. Duff, Perma-Fix Environmental Services, Inc. - President & CEO [23]

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Yes, and that's a good question, [Steve]. And I -- after reading it out loud, I kind of wondered if it was clear. The way this works is that you have to go through and do complete decontamination and cleaning of the entire facility anywhere there's contamination. And that's been 100% completed. So going through scabble the floors, taking down the drywall, generate a ton of waste, cleaned it all up. And what you have is a lagging -- after that cleanup, you have the final surveys and people going over the Geiger counters basically and survey equipment to -- just to make sure there's nothing residual or nothing was missed. We do that while we're doing the decontamination as well. This is kind of a final step that's required under your permit, to go in with a separate group of people and do that survey. There's 4 different permits. We already finished and closed out 3 of them completely. So we've already done that verification process. It's all done and completely done. Already into the state for closure. We're on the last one. So we finished the cleaning in the last one, and we're about 3 to 4 weeks away from the final verification process of the last one. So it's very low risk that there's any additional cleanup cost. I can't say there's 0% chance. You can find something, a nugget here and there, you might have to clean up, but it's very, very minimal. And the -- a final quality assurance steps. So we're just about done that last verification process.

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Unidentified Participant, [24]

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So you were able to vet what you think is -- could be there?

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Mark J. Duff, Perma-Fix Environmental Services, Inc. - President & CEO [25]

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Yes, we're able -- yes, we're -- basically, it's going through the final -- what we call a final QA step, quality assurance step, to make sure that everything was done, yes.

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Unidentified Participant, [26]

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All right, second question. So regarding the Medical and the write-off of $552 million, I thought in previous earnings reports it was stated that that's over. There's no more costs. So where did that come from?

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Benio Annaldo Naccarato, Perma-Fix Environmental Services, Inc. - CFO, CAO, VP & Secretary [27]

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There were -- [Steve], there was 2 prepaids on the books -- or one was a receivable and one was a prepaid related to the grant that we've -- that we had at the medical company. That grant has been completed, but there was a receivable which we're still discussing with the grant agency on whether we're going to receive it or not. So the -- we thought we felt it prudent to write it off in the event we do not collect it just to move on. The other prepaid that was written off was related to a prepaid fee that was paid to get the grant to bankers. And with the grant being finished with a couple tasks not yet finalized due to technical reasons, we -- again, we wrote off a prepaid. So neither were cash. Both were sort of -- well, the receivable probably was cash not received. But the other one was just for a prepaid from a few years ago.

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Unidentified Participant, [28]

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All right. So Ben, is there value there relative to this medical technology? I mean, is there potential value?

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Louis Francis Centofanti, Perma-Fix Environmental Services, Inc. - Executive VP of Strategic Initiatives & Executive Director [29]

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This is Lou. Yes, let me -- the -- what we see with the technology is yes, there's still value. We have several people still working on the technology pro rata there, working at their cost. So it's not costing us anything. So at this point, we think there is, and so we're still providing support on that part.

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Unidentified Participant, [30]

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All right, with regard to the backlog, there was one comment there that you had, going into this year, an $11 million backlog. And then when Bill was questioning, the number came out to $7 million. So I guess the question should be, we finished -- the first quarter's over. And so basically, was the first quarter basically on normal track? I mean, sales seemed to be around the same amount for the last 3, 4 years. So was at least the first quarter on track relative to, let's say, 2018?

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Mark J. Duff, Perma-Fix Environmental Services, Inc. - President & CEO [31]

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Yes, [Steve]...

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Benio Annaldo Naccarato, Perma-Fix Environmental Services, Inc. - CFO, CAO, VP & Secretary [32]

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[Steve] -- just let me clarify quick, Mark, and then you can take it.

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Mark J. Duff, Perma-Fix Environmental Services, Inc. - President & CEO [33]

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Okay.

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Benio Annaldo Naccarato, Perma-Fix Environmental Services, Inc. - CFO, CAO, VP & Secretary [34]

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The $7 million I mentioned was the backlog for services, not for treatment. We sort of separate to -- the $11 million is just treatment.

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Unidentified Participant, [35]

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Well, that's what I said.

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Benio Annaldo Naccarato, Perma-Fix Environmental Services, Inc. - CFO, CAO, VP & Secretary [36]

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Yes. So...

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Unidentified Participant, [37]

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So you're talking now potentially $35 million with the $17 million that you're going to sign this month?

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Benio Annaldo Naccarato, Perma-Fix Environmental Services, Inc. - CFO, CAO, VP & Secretary [38]

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Might be a little high but close, yes.

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Unidentified Participant, [39]

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Okay, that's wonderful. Yes, Mark, did you have something to say? I'm sorry.

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Mark J. Duff, Perma-Fix Environmental Services, Inc. - President & CEO [40]

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Yes. I mean -- yes, that $11 million is typically viewed as what we have in our inventory sitting on our sites for treatment. So that -- it's waste we've already received or already billed for. But basically, we're -- we have a signed contract and typically have the waste in our possession. So when you have, well, $11 million inventory backlog for treatment, that's pretty much on your site and ready to go.

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Unidentified Participant, [41]

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Well, that's fabulous. All right, I have a bunch of comments, and please bear with me. I've -- they're written and some of them have been answered already. I was going to start out with the GeoMelt system, and I think Bill asked some really pointed questions there. And I think it needs to be pointed out because I went in and researched Veolia, and it seems that this GeoMelt system has been -- there have been people in other countries that have been licensed that, but Perma-Fix has been the only company in the United States licensed for all of the United States. And I think this is a real statement in my mind relating to Perma-Fix special capabilities relative to this. Is there -- and so you were explaining, Mark, about how this is progressing. So this has to be further permitted? Is that what I have to understand here?

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Mark J. Duff, Perma-Fix Environmental Services, Inc. - President & CEO [42]

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It -- yes, Steve. Basically, it's -- we got rolling very quickly under a what we call a treatability study. And what you do is you permit -- and you have a treatability study, which includes a pretty significant amount of quantity you can treat under the treatability study. And you pretty much are in this position where you can do that treatment while you're applying for your operational permits. So the risk of the operational permit is very limited as far as getting it. But it's -- typically, it leverages the production and performance of the treatability study to get your permit. So really want -- as a regulator, they want to see that your technology is going to work, that it's safe, that you have your emissions under control and all those types of things to support your permit request. And then you add that treatment to your overall permit for the site. So it's a -- the modification to your existing permit.

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Unidentified Participant, [43]

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Great, all right. And you answered the question. I had a question how large is the market. You answered that. Okay. With -- one other question I have about the GeoMelt is, can this system, this GeoMelt system, be used for the processing of other types of nuclear waste other than this salt rad pipe?

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Mark J. Duff, Perma-Fix Environmental Services, Inc. - President & CEO [44]

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Yes, it's a good question, [Steve]. It's important to note that it is a very robust system. You can put a lot of waste in it. Basically, it's a 5 cubic meter box that you melt at one time. You can only put 30% to 40% of that box can be your waste form and the rest of it has to be basically play sand because it melts it all together into one large monolith. So you -- it's not -- it's a batch process. It's not the type of process used in continuous operation. So it has limitations on very, very large quantities of waste. It just doesn't make a lot of sense. But it does for these types of wastes that the [UE] has a lot of like a drum here and drum there or a piece here and a piece there. You could throw it in there with some sand and you can fire it up. It's -- 220 kilowatts of energy goes into it and makes it into a glass, and it's a very stable waste form you can dispose of. So to answer your question, for sodium waste, it's optimal. And it is for other types of reactive wastes as well, but it certainly doesn't -- it's not the kind of thing you could run like tank wastes or any other type of waste in large quantities through, it just wouldn't be feasible.

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Unidentified Participant, [45]

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All right, there has been a plethora of articles this year in the public domain relating to nuclear waste relevant to Perma-Fix. Based on these articles and other public information, first, I want to applaud people at Perma-Fix for their patience, endurance in developing the business landscape. Moreover, I want to applaud DOE for looking at the nuclear and nuclear waste business in a pragmatic, realistic and cost-effective way as the recent closing of the MOX plant in Savannah that had issues with time lines and cost. With all the environmental issues facing our government, hard decisions have to be made in order to optimize the DOE budget. The Test Bed Initiative has been an exciting prospect for permit -- for Perma-Fix wherein as I read, Perma-Fix can treat in its north -- at its Pacific Northwest plant next to the Hanford reservation low-rad at the Hanford tank farm at some $300 per gallon versus a low-vol cost of $1,000 per gallon at the Vit Plant. I have read numbers that such an effort would save $12 billion in cost saving. And obviously, this could mean hundreds of millions of dollars of sales for Perma-Fix. I understand Phase 1 of this initiative of treating 3 gallons was treated last year. And I note that 90% of the 56 million gallons at the tank farm are estimated by various parties and studies to be low rad. And early this year, there was a public announcement by DOE that Perma-Fix was awarded a 40 -- $4.8 million for Phase 2 of the TBI or the 2,000-gallon sample with a completion date inclusive of building a pretreatment unit treating the waste and filing a report that is due in September. So my question is, how is the Phase 2 work progressing? Is the pretreatment machine finished? And will you meet the September deadline?

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Mark J. Duff, Perma-Fix Environmental Services, Inc. - President & CEO [46]

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We appreciate the questions, [Steve]. The bottom line is that TBI has had a lot of -- made a lot of progress this year. There's 2 components to it, is the Perma-Fix piece as well as the remaining piece. The Perma-Fix piece, we have gotten our permit for our mixer, which was a hurdle for us, as well as our air permit. So we're ready to receive the waste under Phase 2, the 2,000 gallons. DOE is progressing on their permitting side of the house, and they're still working through their process with the state of Washington and -- in getting over these hurdles. So that's the third -- and the second component of the process is the permitting side in DOE. And then the third piece are the other components, which are the tank extraction system that Columbia Energy is supporting along with the rest of the TBI team. And that's made great progress in Columbia Energy. Last time I checked was like a week ago. It was through 90% design and construction, and they have a mockup or -- I believe they actually have the unit completed or 90% completed in a mockup type of form and are testing it now or getting ready to -- so that the -- and engineering and construction of the tank extraction system unit is also moving along very well. So to answer your question, I think it's going to be a little bit of delayed based on some of the permitting side of the house with DOE. It has to get through. There's still some risk there as far as time lines go, but the project is moving along. And currently, the schedule for the 2,000 gallons is this fall. So I think things are still happening. I think we're very encouraged by the fact that I believe that the President's budget had TBI in it as a line item for $10 million for 2020. So we're really pleased that DOE is still recognizing this as a viable supplemental treatment capability for the site.

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Unidentified Participant, [47]

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Okay. All right, there are -- there were articles on a large pretreatment machine being designed for the Vit Plant for separating low- and high-rad nuclear waste at a much higher rate. I think it's 8 to 10 gallons per minute. So what is the status of installation and permitting of this pretreatment machine?

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Mark J. Duff, Perma-Fix Environmental Services, Inc. - President & CEO [48]

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That's not in our scope, [Steve]. It's -- that's within the WRPS contract, so I don't have a status on that. It's -- but I know it's ongoing. They made an award, and they're moving forward. I'm just not sure of the status of it.

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Unidentified Participant, [49]

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So is this machine going to be the pretreatment machine for the Vit Plant site?

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Mark J. Duff, Perma-Fix Environmental Services, Inc. - President & CEO [50]

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I can't -- I'm afraid, [Steve], I can't address what -- the -- all of the objectives associated with that equipment.

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Unidentified Participant, [51]

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Fair. Again, can...

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Louis Francis Centofanti, Perma-Fix Environmental Services, Inc. - Executive VP of Strategic Initiatives & Executive Director [52]

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[Steve], let me respond.

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Unidentified Participant, [53]

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Yes.

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Louis Francis Centofanti, Perma-Fix Environmental Services, Inc. - Executive VP of Strategic Initiatives & Executive Director [54]

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Yes. The [Advantek] unit is there. It's going through its final permitting also. It will be the pretreatment for the -- as it stands today for the -- pretreating the waste before it goes to the Vit Plant or before it comes to us.

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Unidentified Participant, [55]

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Okay. So then, one can presume that it can be -- it would be used for larger quantities when and if the Test Bed Initiative requires larger quantities of low-rad waste for treatment?

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Louis Francis Centofanti, Perma-Fix Environmental Services, Inc. - Executive VP of Strategic Initiatives & Executive Director [56]

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It would be an -- it would sure be an option when it's (inaudible).

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Unidentified Participant, [57]

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Okay. It's fine. Okay. I know that the same week that Perma-Fix was awarded the second phase of the TBI, the DOE announced 2019 current cost estimate to finish cleaning up Hanford. According to the article, the last cost estimate was in 2016 and was about $130 billion to complete all the Hanford cleanup. The 2019 estimate by DOE was quite shocking in that it tripled on the low side to $400 billion and on the high side to as much as $600 billion. And DOE estimated that work could extend to 2080, which could mean parts or systems of the complete -- completed in Hanford would have to be replaced because of wearing out over time. The article suggests that other ways of processing the waste needs to be explored based on the stark escalated cost increase. So my question is, how do you look at this increased cost estimation of -- by DOE?

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Mark J. Duff, Perma-Fix Environmental Services, Inc. - President & CEO [58]

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Well, we certainly believe, [Steve], that, that plays well for evaluation of alternatives. There's a lot of other factors here and -- that play into this whole initiative. We feel, obviously, that the technology we have would be very applicable to the tank processing for the low-level tank waste. And if you work with DOE to make sure that it's moving forward. We can't really address the articles that came out. We know what you're talking about, they've shown dramatic increases in total life cycle costs, and we believe -- do believe that ours is -- our technology is about 10x less. But the folks in DOE who've been working very closely with us, have been very supportive of us, and we're -- we're just moving through the process to get to a point where we can demonstrate it in a larger scale.

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Unidentified Participant, [59]

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I note that last week, Rick Perry, the Secretary of DOE, was in front of Congress and underscored the state of escalating costs at Hanford and that new approaches are being explored. I have no -- I have no comments on that. I think you've answered that. All right, I now move to the tank closure contract. Question: has the bid date closed? Or has it passed? Has the contract closed?

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Mark J. Duff, Perma-Fix Environmental Services, Inc. - President & CEO [60]

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The -- as far as -- and this is all public information, [Steve], but the RFP -- or, excuse me, the proposals were submitted in response to the RFP on March 21 by all the bidders. And my understanding now, Steve , is that they're just getting ready to enter into an oral presentation session with each of the bidders here in the next couple weeks. That's kind of the status of it.

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Unidentified Participant, [61]

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All right, great. Okay. As I read this bid request, this contract is radically changed by DOE in that is -- that its spirit is to pretreat and treat low-rad waste. Am I still here? Hello?

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Mark J. Duff, Perma-Fix Environmental Services, Inc. - President & CEO [62]

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Yes, [Steve].

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Benio Annaldo Naccarato, Perma-Fix Environmental Services, Inc. - CFO, CAO, VP & Secretary [63]

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Yes, we're here.

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Unidentified Participant, [64]

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Okay, I'm sorry. So I heard of no noise. As I read -- okay, the contract is radically changed by DOE in that its spirit is to pretreat and treat low-rad waste as well as to maintain the 56 million gallons of waste in the tank farm, thus the name change from tank maintenance to tank closure. The present contract that expires this September just involved maintenance of the 56 million gallons for when the Vit Plant was ready to treat the 56 million gallons. But pursuant to winning the new contractor (sic) [contract], the contractor -- aside from continuing to be responsible to maintaining the 56 million gallons in the tank farm, the contractor has to have a pretreatment capability to separate low- and high-rad waste and also provide a delivered cost of shipping the low-rad waste to a treatment facility. And I emphasize the word treatment facility and not Vit Plant. But the key point is that cleaning up waste reduces the maintenance cost of waste in the tank farm. And I read the existing maintenance contract with a $7 million or so per contract per year or I'm assuming $7 billion over 10 years. Anyway, this contract has been now -- expanded cost-wise with a limit of $13 billion for 10 years, which is about $4 billion or $5 billion more potentially, which I would presume would be for pretreatment and treatment of low-rad waste. So here's my question, all right, there are a couple. So what do you guys think of this contract? How do you bid it? And if so, are you bidding in partnership with larger players? And if so, who are they?

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Mark J. Duff, Perma-Fix Environmental Services, Inc. - President & CEO [65]

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Well, those are all great questions, [Steve], and I can't argue, all your numbers are spot on. But I guess I would ask that -- to have some understanding that we are in a procurement situation. We're involved in procurement, and, therefore, we can't tell you anything about the procurement itself, who we are teamed with or anything, so it would all be sensitive information and that -- we hope that we can talk about it here in a couple of quarters, but there's really nothing we could say. It's so procurement sensitive, Steve , at this point.

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Operator [66]

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(Operator Instructions) The next question comes from the line of [Tom Deacon], a private investor.

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Unidentified Participant, [67]

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Yes, I just have one question with regard to TBI. You've had a difference of opinion with the state of Washington where they have been -- they -- you're trying to renew a contract that -- I think you've been working at it for the last 10 years. But anyway, my point is that you potentially could treat the second 2,000 gallons at Hanford or you could ship them to Tennessee. And my question is, when are you going to make that decision? I mean, it sounds like it's up in the air at this point.

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Mark J. Duff, Perma-Fix Environmental Services, Inc. - President & CEO [68]

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Yes. What you're referring to, [Tom], is the renewal of our req for permit, which has been ongoing for -- since 2009, which we are making progress with the state on now and hope to have that in place. But the -- Tennessee was a backup alternative for Perma-Fix Northwest. It's certainly our desire and hope that we would -- we'd be able to do it in Northwest. And at this point, we could accept it there under our current conditions as long as the state supported it under our existing license. And -- but we did receive the permit for our mixer, which was the other thing that was potentially holding it up, and that's been supported by the state as well as our air permits. So we're --- we should be pretty much good to go in Northwest right now as far as I understand. Lou, is there anything you want to add about that?

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Louis Francis Centofanti, Perma-Fix Environmental Services, Inc. - Executive VP of Strategic Initiatives & Executive Director [69]

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No -- yes, that's -- I think at this point, the state is supportive of us doing it at our site. So we don't -- the -- Tennessee was the backup if there were problems with our permit. But that doesn't seem to be the case at this point.

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Unidentified Participant, [70]

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So that -- that's real news because the last thing that I read was just a couple -- a few weeks ago in the Tri-City paper there that they have by Hanford. And the Washington -- there was somebody in the ecology department or -- and it sounded like they were -- they wanted to be super, super, super, careful before they allowed you to do that waste rather than shipping it to Tennessee.

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Louis Francis Centofanti, Perma-Fix Environmental Services, Inc. - Executive VP of Strategic Initiatives & Executive Director [71]

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Well, I think it -- I guess, as Mark said, the option is, one, is as we sit today, we have all the permits we need, and they're very well defined and the state has given them to us. If in the end they come up and say you can't do it, then our backup is we move into Tennessee.

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Unidentified Participant, [72]

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That would add costs, though, right? I mean, it's going to -- it adds a certain amount of cost to ship that, doesn't it?

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Louis Francis Centofanti, Perma-Fix Environmental Services, Inc. - Executive VP of Strategic Initiatives & Executive Director [73]

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Minimal. Our shipping costs are fairly minimal. But it's part of the problem.

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Unidentified Participant, [74]

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Really? Okay.

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Louis Francis Centofanti, Perma-Fix Environmental Services, Inc. - Executive VP of Strategic Initiatives & Executive Director [75]

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Yes, yes.

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Unidentified Participant, [76]

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Okay. The other thing I was wondering about is it looks like you're really growing the company, and I think you have -- everybody has to give credit to Mark for the great job that he has done since he's come onboard. Have you -- I know it's tough to get talent, but have you been hiring people like, I mean, higher-level people more? Are you planning on expanding? I mean, you're -- it sounds like you're getting a lot of extra work.

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Mark J. Duff, Perma-Fix Environmental Services, Inc. - President & CEO [77]

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Well, thanks for the kind words, [Tom]. We are -- we do have a great team, and the people have made a lot of adjustments to support these wins. And hopefully, we'll have a bunch more again this year. But yes, we actually are hiring project management positions as well as safety positions and field folks as well. So we have a number of positions open in our website and are in the process of hiring now.

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Unidentified Participant, [78]

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Okay. And my last question is, I think it wouldn't take a whole lot for you guys to get -- with this plant closure behind you and additional work coming, it wouldn't take a whole lot for you guys to become cash flow positive. Can you see that happening this year?

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Benio Annaldo Naccarato, Perma-Fix Environmental Services, Inc. - CFO, CAO, VP & Secretary [79]

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Yes. If all goes to plan with the cash flow expected, we would definitely -- and we were cash flow positive last year as well from operation. So yes, we definitely think we would generate good liquidity in the plan we're -- we see coming up.

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Unidentified Participant, [80]

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Okay. So then...

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Mark J. Duff, Perma-Fix Environmental Services, Inc. - President & CEO [81]

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We're aligned. But [Tom], we are very optimistic we will be very -- with M&EC particularly behind us, this year looks much better.

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Operator [82]

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Our next question is from the line of [Chuck Dickinson], a private investor.

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Unidentified Participant, [83]

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Question. I want to drill down just a little bit further on this permitting process with the Washington department of ecology. And it sounds like it's progressing. I know that you've been working with them on that for an extended period of time. Can you give any more color on both the timing and the likelihood of that permitting, when it's going to occur? And what would happen in the interim if there's any sort of further delay? I don't know how long you can keep going under the current extensions that you have. What I want to have a good feeling about is that you can keep doing everything that you need to do up there in Washington while this process is taking place with the hope that it comes to fruition and end at some point and you either get re-permitted or the new permit.

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Mark J. Duff, Perma-Fix Environmental Services, Inc. - President & CEO [84]

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Yes, [Chuck]. Well, just a couple of things and I'll let Lou jump in, but we'll just kind of give you a status. We just finished our public comment period and had our public hearing here in mid-March. It went very well. There were lots of support from the public and from city officials. And so we're very comfortable where we are in the community and got -- and we have that support. The state has been working well with us the last year or so. There's been disagreements here and there, but we're working through the issues to make sure that the permit that we get, the renewal we get addresses all of the things that have changed in the last 10 years, all the things that have been added, and those have been added formally, and making sure there's -- that it's -- our permit is robust enough to handle what we're doing now and what we'd be planning to get doing. So we're -- the risk is very low. The state has been very supportive. And frankly, Chuck , the state understands the important -- the importance of Perma-Fix as it relates to the closure emission at Hanford. We treat a lot of waste in Hanford that wouldn't have any other alternatives or if it did would be very expensive. So it's an important plant for the environment and for the city as well as the Hanford Site and the DOE mission. So it's -- we feel that support, it's taken a lot longer than we thought, but we're pretty confident they won't have any impact on our ongoing operations or future operations. Lou, is there anything you want to add to that?

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Louis Francis Centofanti, Perma-Fix Environmental Services, Inc. - Executive VP of Strategic Initiatives & Executive Director [85]

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Yes. Yes, the only thing I would add which is really important to understand is that under RCRA, which is the permit that we're working on hazardous materials, our -- we will continue indefinitely into the future under the renewal process. There is -- that will continue. There's no risk that, that -- unless the state said we want you to close. So at this point, as long as we're moving forward, there's no risk to our permit.

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Unidentified Participant, [86]

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Okay. The only other question I have was the -- certain new information here on this Department of Energy End State guidelines or initiative or whatever they come up with here? I mean, you sort of made a real passing reference with regard to how that might favor what you want to do in terms of grouting. Do you want to just leave that comment there? Or would you like to elaborate on that a little bit more? Or -- I don't know that people have a real sense. At least I don't have a real sense about this End State initiative, what exactly it means and just how positive it could potentially be.

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Mark J. Duff, Perma-Fix Environmental Services, Inc. - President & CEO [87]

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Yes, so I'll just say this, [Chuck], and it's all in that RFP, which is quite a lengthy RFP, is the Department of Energy is looking at projects like what we used to call the tank operating contract, which [Steve] had mentioned, the existing contract. And the contractor was not necessarily incentivized as much to close operations and close down. It -- there was -- the way this contract is structured, the changes in the contract structure is -- under this new one is that there's great emphasis on completion on closing tanks. And as it relates to that, as -- what we offer relates to that. We have a technology that would be able to be utilized to close tanks. And so to the extent the DOE is looking for that and an award, we certainly have something to offer in regards to a proven technology that's local.

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Unidentified Participant, [88]

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Right. Lou, had also mentioned -- or maybe you had mentioned that under the Phase 2, that you folks have your permitting side but pretty much ready to go. Assuming the DOE gets approval on what they need to do, is there the sense that if Phase 2 does indeed take place in Washington, that, that greatly enhances the possibility of Phase 3 also being done there? In other words, that sounded like, I think, the department of ecology wanted to say maybe there's a separate permitting process as you go from a Phase 2 to a Phase 3. Am I correct in that? Or is that not really worked out yet?

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Mark J. Duff, Perma-Fix Environmental Services, Inc. - President & CEO [89]

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Yes, it's safe to say, I think, [Chuck], that if you -- if Phase 2 gets rolling, that there's a good potential for it to roll right into an operational phase. Now I think the question you're really asking is what kind of quantities are we talking about. And there may be some limitation on total quantities. You have gallons per year, gallons per month or something like that. But overall, if it -- once Phase 2 gets rolling, you'll -- we'll be in a position to continue -- hopefully continue operations at least for a limited period of time until the next phase or the next level is addressed in regards to quantities.

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Operator [90]

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Our next question is a follow-up from the line of [Stephen Fine], a private investor.

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Unidentified Participant, [91]

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I wasn't done, so -- in all due respect. I -- you brought out one thing that I was asking. Does DOE have any power relative to permitting with the Washington State ecology?

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Mark J. Duff, Perma-Fix Environmental Services, Inc. - President & CEO [92]

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Power is a difficult word to address, [Steve].

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Unidentified Participant, [93]

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Whatever the word is to help effectuate it.

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Mark J. Duff, Perma-Fix Environmental Services, Inc. - President & CEO [94]

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Yes, but they are independent agencies. I know EPO were -- is they have authority under EPA, the state does. And certainly, if DOE was not supportive, it would be difficult to get support of EPA. I think that's a subjective statement. But Lou, do you have anything else you want to add about that being -- the fact...

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Louis Francis Centofanti, Perma-Fix Environmental Services, Inc. - Executive VP of Strategic Initiatives & Executive Director [95]

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No, that's a hard question. I mean, you're -- the...

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Unidentified Participant, [96]

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Okay, all right. All right, I appreciate that. All right.

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Louis Francis Centofanti, Perma-Fix Environmental Services, Inc. - Executive VP of Strategic Initiatives & Executive Director [97]

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(inaudible).

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Unidentified Participant, [98]

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I'm almost done. I'm almost done. So just bear with me. I also note that on 1/3/19, there was an article written in the Tri-Sentinel Herald (sic) [Tri-City Herald] that said there is going to be a contract coming out later in the year that will award a contractor to treat and maintain the one -- the waste once the Vit Plant is done. So my question is, if that is so, then why is DOE awarding such a contract years before the Vit Plant is completed?

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Mark J. Duff, Perma-Fix Environmental Services, Inc. - President & CEO [99]

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Are you referring to -- when you said about awarding a contract, are you talking about the DOE contract (inaudible)?

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Unidentified Participant, [100]

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Well, there was an article in -- and you look this up, in the Tri-City Herald on 1/3/19, and the writer stated that there was a contract coming out or supposedly a new contract coming out later in the year that will create a contractor to treat and maintain the waste once the Vit Plant is done. So the accent of the article was that, hey, the operator, the -- the person who's filling Vit Plant is not going to operate it, there's going to be a bidding process for a contractor. So if that is so -- and if you have no answer, you have no answer. If that is so, I'm just curious why this is being done so early when supposedly the finishing of the Vit Plant thereof is not in the immediate future.

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Mark J. Duff, Perma-Fix Environmental Services, Inc. - President & CEO [101]

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Yes, I'm afraid, [Steve], I'm not sure what they're trying to do in there.

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Unidentified Participant, [102]

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Yes, okay. All right, all right. Leave it alone, leave it alone. All right, leave it alone. I throw it out. All right. I just want to thank you for all your efforts. As a stockholder of Perma-Fix, a concerned citizen of the United States relative to nuclear waste and an engineer whose career centered on hazardous chemicals, it seems clear that a change is needed in treating nuclear waste, particularly in light of cost escalation, other environmental problems facing our government and particularly at Hanford, the chance of an earthquake and/or a black swan event that negate any cleanup and potentially makes the West Coast uninhabitable. We must realize that time is of the essence and the enemy. It seems treatment of nuclear waste must be approached from a different perspective. As a Perma-Fix stockholder and U.S. citizen, I applaud Perma-Fix for positioning to assist and participate in a possible paradigm shift required vis-à-vis treating nuclear waste in a different way that is faster and more cost efficient. So thank you, guys.

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Operator [103]

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Thank you. At this time, I'll turn the floor back to management for closing remarks.

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Mark J. Duff, Perma-Fix Environmental Services, Inc. - President & CEO [104]

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All right, thank you.

I'd like to thank everyone for participating in our fourth quarter conference call and all the questions today.

As I mentioned earlier, our backlog and sales pipeline is growing. We were recently awarded a number of important contracts in our Services Segment and are bidding on many more, several of which could be substantial. And we're working towards several large projects within the Treatment Segment as well that can be transformative. We look forward to updating you again next quarter. Thank you very much.

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Operator [105]

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Thank you.

This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.