Perma-Fix Environmental Services, Inc. (NASDAQ:PESI) Q4 2023 Earnings Call Transcript
Perma-Fix Environmental Services, Inc. (NASDAQ:PESI) Q4 2023 Earnings Call Transcript March 13, 2024
Perma-Fix Environmental Services, Inc. misses on earnings expectations. Reported EPS is $0.04 EPS, expectations were $0.12. PESI isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Greetings. Welcome to the Perma-Fix Q4 and Fiscal 2023 Year-End Earnings Conference Call. [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 Waldman: Thank you, and good morning, everyone. Welcome to Perma-Fix Environmental Services fourth quarter and yearend 2023 conference call. On the call with us this morning are Mark Duff, President and CEO; Dr. Lou Centofanti, Executive Vice President of Strategic Initiatives, and Ben Naccarato, Chief Financial Officer. The company issued a press release this morning containing fourth quarter and 2023 financial results, which is also posted on the company's website. If you have any questions after the call it 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 US 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 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. I'm pleased to report we achieved a 35.6% increase in revenue and 112.7% increase in gross profit for the fourth quarter. We also generated positive EBITDA had a positive net income for both the fourth quarter and for the full year. We achieved these results despite significant investment in both our internal bidding organization as well as in research and development. As a result of these investments, I truly believe 2024 is shaping up to be a transformative year for the company. And in 2025, we're poised for a major breakout. As I'm sure most of our investors are aware, we are preparing for several large initiatives that we expect will begin to materialize in the second half of this year and set the stage for unprecedented growth.
Let me begin by addressing some of our recent wins, and then we'll provide updates on some of the upcoming opportunities and specifically why we're so excited about the long-term outlook for the business. Within the services segment, we realized several new awards from the Buffalo Corp of Engineers; the U.S. Geological Survey, USDS; the U.S. Navy; and several commercial clients. We also developed teaming relationships for several large bid procurements. In addition, our joint venture received an award of the Joint Research Council project through the European Union in the Inspra, Italy, facility, which represented a total of up to EUR50 million over the next seven years. Overall we finished the year with several strategic wins and accomplishments that we believe will support our long-term growth and help us fully diversify our revenue stream.
Within our treatment segment, with an increase in volume with steady improvement in waste receipts early in the quarter and this included increased waste shipments within the commercial sector, along with steady sales from our industrial waste programs. While we do not typically provide and do not plan to provide quarterly guidance, I believe that it is important to share a more detailed discussion of what we expect in 2024. We consider this year to be a transitional year based on the business environment and the investments we have made over the past several years. This is what we believe will be an exciting 2025. Beginning in the fourth quarter of '23, we started facing certain headwinds that we believe were temporary, but will have an impact on the first half of this year.
First, as previously disclosed, during the fourth quarter of '23, we completed our two largest service projects at the Princeton Plasma Physics Lab and the McKee ship decommissioning project for the Navy. Both these projects were very successful with strong safety records, and we achieved our anticipated margins and outstanding client ratings throughout the project. That said, with these two projects now complete, we have not yet secured all the replacement revenue in the services segment due to the timing of the awards and opportunities we're waiting on. The gap in work, which we anticipate will last about four months has resulted in challenges and weaknesses that will be reflected in our results in the first half of 2024. In addition, due to the inability of Congress to pass a federal budget, the government has been operating under a continuing resolution, which has contributed to delays in procurements, project starts, and waste shipments, since government clients are holding back budgets due to the uncertainties and the potential of a shutdown of the last five months.
January is also a tough month with weather impacts, closing two of our facilities for a week and delays in project production in the field as well. That said, February and March have shown some positive trends in both segments. As a result, the next few quarters will be weaker, and we've anticipated due to the timing of contracts as well as delays relating to the pass of 2024 federal budget. However, as things normalize, we remain confident in getting back to our -- in surpassing our business base goal of $25 million in revenues per quarter. In addition, we anticipate that the 2024 budget approved last week will provide increased opportunity for Perma-Fix as the enacted budget reflects about a 9% increase over 2023 at the Department of Energy alone.
As I mentioned earlier, we remain particularly optimistic about the second half of the year and could not be more excited about the outlook for the business in 2025, given the magnitude of the projects we're currently working towards. As we've discussed previously, we are rapidly advancing several initiatives that we believe will significantly enhance our revenues and long term backlog beginning in the second half of '24 and potentially much more in '25. I'd like to briefly discuss each of these initiatives to provide our investors an overview of the vision for next year. First, we're benefiting from an increased bidding opportunities within our services segment, including both the government and commercial sectors. We're positive we are positioned for large ongoing procurements within the DOE and the Navy as well other midsize procurement initiatives from both the DOD and EPA.
These large procurement opportunities include proposals to be submitted over the next few quarters. So we've been able to secure strong teaming relationships for potential awards anticipated throughout 2025 that would potentially represent substantial increases in sustainable revenue over the next 5 to 10 years. Second, we're extremely well-positioned to provide waste treatment services. This is part to support the DOE's Hanford closure strategy, including the treatment of effluent from DFLAW facility once it commences vitrification operations, which should provide vitrification services to about 40% of the tank farm at Hanford. In January '23, DOE signed a record of decision, a ROD, to treat the effluent waste streams from the DFLAW facilities to include our local Perma-Fix Northwest facility for at least the first 10 years of its operations.
We remain optimistic about reports coming from DFLAW in regard to start-up of the smelters, the vitrification plant, and the supporting systems, which continues to progress towards hot commissioning in 2025. As stated in several of the past quarterly calls, we're well positioned to treat all of the effluent waste from those operations as defined in the 2023 on a record decision by DOE, which estimates specifically this January, up to about 8,000 cubic yards of waste annually upon the hot startup of the vitrification plant. As I mentioned in the past, the volume of this waste would more than double the production of all of our plants combined on an annual basis. Third, the DOE at Hanford has formally recognized the importance of grouting relative to the overall closures strategy as a preferred supplement to the current DOE strategy for vitrification of up to 57 million gallons of tank waste stored at Hanford.
The Hanford System's Rev. 10 document published in January and developed over the past three years by DOE defines a new preferred scenario for the Hanford site closure. That specifically includes vitrification of DFLAW for the east side of the tank farms and the west side to be treated through commercial grouting technology. The System' Rev. 10 is currently being implemented to include two new tank removal systems to be installed and operated in late '25 and early '26. One of these removal systems will be built, installed, and operated to support the DFLAW facility while the other one will be dedicated to removal of tank waste for shipment to commercial grouting facilities after disposal off-site. Both the specs for these removal systems include performance parameters of 3.5 million gallons per year for throughput for pulling waste out of those tanks.
Perma-Fix maintains and operates these our growing facilities today at the 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 that capacity to over 1 million gallons annually while dramatically reducing cost risks in schedule compared to the vitrification alone. It's important to note that our facilities at Perma-Fix Northwest offers the only local or regional object for grouting tank waste near the Hanford site and uses the rail to ship treated waste for off-site disposal. This is a much safer option than shipping untreated tank waste by truck out of state for grouting and disposal, which is specifically designed as a higher risk in the need for documents, including the environmental assessment as well as the document developed by DOE.
So when looking at both treatment of effluent from DFLAW and grouting, DOE is making significant progress in Hanford and the other plant locations in [Technical Difficulty] strategically well positioned technologies to provide increased value towards those objectives. Fourth, we're expanding our waste treatment offering within the commercial and international markets including Europe, Mexico, and Canada. These opportunities will generate sustained receipts beginning in 2025, providing fine revenues estimated over $10 million annually, which we expect to begin to be realized in late '24. The award of the JRC program in Italy, coupled with our expanding international clients, represents continued growth opportunity based on the market for advanced permitted and efficient waste treatment to provide stable waste forms that minimize long-term storage costs.
The JRC project supports our expansion program in Europe, including existing IDIQ contracts held by Perma-Fix in the UK and the application of our treatment technologies in other European market. If we continue to invest in our facilities and capabilities, specifically, we're implementing several upgrade activities at our DSSI facility in Eastern Tennessee. That will include a multimillion dollar expansion project to allow a broader treatment of reactive waste for our clients, including advanced safety and security systems to address the growing inventory at several client location. Additionally, we're investing at the in-source ordering technology to include fabrication of the second source or potentially a third to be deployed by the end of second quarter of '24.
Sixth, and finally, we've made important advances in new technology to treat PFAS contamination. While we look forward to full unveiling our technology and strategy in the coming months, I want to give you a glimpse into what we've been working on. For those of you unfamiliar with PFAS, which is an acronym, PFAS, which stands for polyfluoroalkyl substances, which are synthetic or chemical compound. The markets for the treatment and disposal of PFAS is exploding due to the hazards associated with these, what they call forever chemical. Thousands of sites across the world have large inventories of chemicals. Not to mention all the sites within the PFAS contamination require remediation as well. Estimates for this market vary widely. However, the opportunity to provide services and treat PFAS contaminated waste for government as well as municipal and commercial clients is estimated to be or exceed over $10 billion over the next 10 years according to the Environmental Business Journal.
In fact, PFAS destruction represents one of the largest potential markets for environmental cleanup over the past several decades. Our new technology includes five patents that have been filed to support the complete destruction of PFAS with no off gas, no toxic effluent emissions. Perma-Fix co-founder, Dr. Lou Centofanti and this team of engineers and chemists have spent countless hours developing and validating this new technology. While we know that there are many firms and pursue the PFAS remediation, we're confident that our complete destruction technology, coupled with our existing network of generators and clients will support rapid expansion of system to be deployed at each of our plants locations in 2025. We've already received PFAS from customers.
And we recently completed bench scale testing of our new technology supported by independent verification, which demonstrated an undetectable presence of contaminants after treatment. Our engineers recently completed design and the proof of concept system that will be tested later this month. It is actually being tested as we speak, followed by the fabrication phase for our prototype systems currently scheduled for testing and operation in the second quarter of 2024. We'll be spending the coming months conducting system optimization studies to maximize our destruction effectiveness while reducing operational costs before we launch our service into the market, at which point we expect to begin generating revenue later this year. Given the low cost as well as the technological and environmental advantages of our new process, we're already witnessing significant interest from major potential customers as well as regulatory agency.
Our estimate for revenues in '24 is approximately about $2 million at the end of the year. However, once in production, the base -- and based on discussions with our customers, we're hopeful we'll achieve multiples of this revenue in 2025 as have the ability to ramp up production rapidly with high-margin potential. And one final note regarding PFAS to put the market opportunity in perspective, I'd like to quote Time Magazine, which headlined and I quote 3M's historic $10 billion forever chemical payout is just the tip of the PFAS iceberg. So market's very strong and very well documented. So to wrap up, the investments we're undertaking the first six months of 2024 should position Perma-Fix for solid growth in the second half of the year and should position us very, very well in 2025.
At the same time, we're making significant investments, as illustrated by the fact, R&D is up 67% in 2023 over last year across all projects. We believe these and other investments will allow us to reap the rewards of years to come. Meanwhile, we remain focused on increasing backlog and productivity for reducing operating costs to maximize our margins in 2024. I'm very proud of our team that we've assembled, which now includes top-notch business development and sales team, members as well as experts from across the industry with expertise in chemistry, waste engineering, health physics, and field operations. As a side note and from a macro perspective, 2024 is bringing greater attention to our industry as we were seeing increases in nuclear power throughout the new plant as well as SMR or small modular reactors, which with a renewed emphasis on long-term solutions for radioactive waste management.
For the first half of 2024, looks to be below our performance objectives with a few temporary headwinds, we believe that we're well positioned after a second half of growth of the year with very high hopes for 2025. I can't emphasize this point enough, and we're more encouraged than ever by the long-term outlook for the business with a number of potentially company changing opportunities in the near-term horizon. Okay. So on that note, I'll now turn over the call to Ben Naccarato, who will discuss our financial results in more detail. Ben?
Ben Naccarato: Thank you, Mark. I'll start with revenue. Our total revenue from continuing operations for the fourth quarter was $22.7 million compared to last year's fourth quarter of $16.8 million, an increase of $6 million or 35.6%. The revenue improvement, which was supported by both operating segments, came from our treatment segment increasing revenue by $1.6 million or 19%, and that came from increased volume and was offset by slightly lower average pricing. Our services segment increased by $4.3 million or 53%. And this came from increased scope from one of our larger projects and the startup of several smaller projects. For the year ended 2023, our revenue finished at $89.7 million compared to $70.6 million last year.
As with the fourth quarter, both our operating segments had substantial increases with the treatment segment increasing by $10.1 million or 30%, and the services segment increasing by $9 million or 24%. Again, consistent with the fourth quarter, these improvements were volume related in the treatment segment and the result of increased project work in the service segment. Turning to our gross profit for the quarter, our gross profit was $4.3 million compared to $2 million in 2022. The treatment segment gross profit improved by $564,000 from improved revenue and lower fixed facility expenses. This was offset by higher variable costs related to revenue mix. In the service segment, gross profit improved by $1.7 million from higher revenue and improved margin on our project work, and this was slightly offset by higher indirect payroll related expenses.
For the year ended 2023, our gross profit was $16.4 million compared to $9.6 million in 2022. Both our operating segments' gross profit improved, with treatment segment improving by $1.6 million, and that's from higher revenue, offset by higher variable costs and increased facility expenses. The service segment gross profit increased by $5.1 million from higher revenue and improved margin on its projects offset by higher indirect payroll-related expenses. Our SG&A for the fourth quarter was $4 million compared to $3.6 million in the fourth quarter last year. While our SG&A for the full year finished at $15 million compared to $14.7 million last year. SG&A in the quarter were higher, primarily as a result of higher employee incentive expenses booked in the quarter.
Similar to the quarter, SG&A expenses were up for the year from employee incentive expenses and other payroll related expenses offset by lower audit, legal, and other consulting expenses. Our net income for the quarter was $81,000 compared to last year's net loss of $1.7 million. For the year ended December 31, net income was $485,000 compared to a net loss of $3.8 million in the prior year. Our basic and diluted net income per share for the quarter was $0.01 compared to a loss per share of $0.13 in the prior year. Income per share for the year ended December 31, 2023, was $0.04 a share compared to a loss per share of $0.29 in the prior year. Adjusted EBITDA for continuing operations for the quarter as defined in our this morning's press release was $434,000 compared to a loss of $1 million last year.
For the year ended 2023, adjusted EBITDA was $3.3 million compared to a loss of $3.3 million in 2022. Turning to the balance sheet, our cash on the balance sheet was $7.5 million compared to $1.9 million at the end of 2022, reflecting improved cash from operations and the reload of our term loan by $2.5 million in July of '23. Our unbilled receivables were up $2.4 million, reflecting increased year-over-year revenue -- December revenue, primarily in the services segment. Our current liabilities were up $3.2 million from the timing of payments and increased expenditures, particularly in the services segment. At December 31, our waste treatment backlog was $8.7 million, plus an additional $2 million of unearned revenue for a total of $10.7 million, which is up from $9.2 million at the end of '22 and $9.6 million at September.
Total debt at the yearend was $2.9 million, excluding our debt issuance costs, which is mostly owed to PNC. Next, I'll discuss cash flow activity for '23. Our cash provided by continuing operations was $6.7 million. Our cash used in our discontinued operation was $597,000. Cash used for investing of continuing operations was $1.7 million, all related to cap spending. Cash provided from financing was $1.7 million, which represents proceeds from the reload of our term loan of $2.5 million and proceeds from various option warrant exercises of approximately $300,000, offset by our monthly payments to the term and capital loans of $709,000 and payments related to finance lease liabilities and other debt of approximately $364,000. With that, operator, I'll turn call over to questions.
Operator: [Operator Instructions]. Your first question for today is from Howard Brous with Wellington Shields.
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