Perma Fix Environmental Services Inc (PESI) Q2 2020 Earnings Call Transcript

Greetings, and welcome to Perma-Fix Environmental Second Quarter 2020 Conference Call. As a reminder, this conference is being recorded. I would now like to turn this conference over to your host, Ms. Alexandera Boudi, Investor Relations. Thank you. You may begin.

Thank you. Good morning, everyone, and welcome to Perma-Fix Environmental Services' Second Quarter 2020 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 second quarter 2020 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 a statement of historical facts are forward-looking statements that are subject to known and unknown risks, uncertainties and other factors which could cause actual results and performance of the company to differ materially from such statements. These risks and uncertainties are detailed in the company's filings with the U.S. Securities and Exchange Commission as well as this morning's press release. The company makes no commitment to disclose any revisions to forward-looking statements or any facts, events or circumstances after the date hereof that bear upon forward-looking statements. In addition, today's discussion will include references to non-GAAP measures. Perma-Fix believes that such information provides an additional measurement and consistent historical comparison of its performance. A reconciliation of the non-GAAP measures to the most directly comparable GAAP measures is available in today's news release on our website. I'd now like to turn the call over to Mark Duff. Please go ahead, Mark.

All right. Thanks, Ally, and good morning, everyone. We achieved profitability in the second quarter of 2020, reflecting the resilience of our employees and managers to stay focused on the implementation of our corporate safety plan to minimize the impact of the COVID-19 virus. As a result, revenue increased 29% over Q2 of 2019, and we achieved adjusted EBITDA of approximately $847,000 despite several negative impacts on waste receipts associated with generator shutdowns. As we enter Q3, we're realizing sustainable revenue in our Services Segment with waste receipts beginning to increase, although a bit slower than anticipated due to the continued impact of COVID on our clients. Our sales pipeline for the Services Segment remains robust with a number of ongoing and significant bidding opportunities and a backlog approaching $50 million for the remainder of 2020. In addition, there are several larger bids worth pursuing to support the sustainable revenues, and we've submitted over $40 million in proposal values in the past several months. This flurry of proposal activity in the Services Sector will support revenue opportunities over the next several quarters if we're successful in these competitions. As recently announced, we're especially pleased that our team, led by Jacobs, was selected by the DOE Office of Environmental Management to participate in a sizable 10-year multiple-award ID/IQ contract to provide nationwide deactivation, decommissioning, and removal facilities and waste management program support. I will now take a moment to address a few financial highlights from the second quarter relative to the same quarter in 2019, and later, Ben will discuss the financial results in a little more detail. Overall, revenue increased 29% to $22 million. Our Services Segment revenue increased 102% to $14.2 million. The Treatment Segment revenue was $7.8 million compared to $10.1 million for the same period last year due to the impact of COVID, which I'll discuss further in a moment. We generated adjusted EBITDA of approximately $850,000 compared to $1 million for the same period last year. And lastly, we achieved net income attributable to common shareholders of $204,000 or $0.02 a share for the second quarter of 2020 compared to $289,000 or $0.02 a share for the same period last year. Before COVID-19 was beginning to unfold in Q1 of this year, we were energetic and enthusiastic about our growth strategy for 2020, which included continued expansion of our plants and broadening our base for nuclear services as well. The impact of working from home for a few months and limited communications with our clients put a significant wrench into our strategy and required adjustments that subsequently demanded real creativity and innovation by our team. I am very pleased to say that Perma-Fix succeeded in not only sustaining our business but identifying new initiatives and opportunities to further expand and increase our market share in the coming quarters. These initiatives include: developing a broader offering to the commercial sector through several permit modifications and treatment approaches that increase value, deployment and expansion of our soil-sorter technology throughout Q2 and continuing operations on several time-sensitive cleanup projects in the field during the height of the pandemic. This was all accomplished while our internal COVID-19 safety committee drove the implementation of rigid requirements into all our operations, both in the field and in the business side functions to ensure that the health of our staff remained our highest priority. We're very pleased to confirm that Perma-Fix has had only one COVID-19 case to date within our company, and we continue to monitor, isolate and manage potential cases to limit impacts to our workforce and families. By limiting the potential cases of COVID within the company, we've been able to continue with our project work and processing of our waste backlogs. As with most firms, Q2 saw changes in our working environment on a daily basis that made it difficult to plan and communicate with the effectiveness that we're accustomed to in the waste management business. We are fortunate, however, that we had several clients that continued to ship waste from the central operations, including within DoD and at the Hanford site. And we have several projects that continue to be supported ongoing operations in the field and cleanup operations, which underscored the trust of our clients in our project leadership and in our safety program in the field. These relationships had a positive impact on our Q2 results and have provided the opportunity to generate tangible value to our clients during this difficult period in our country when most field service operations were shut down due to COVID. As discussed in the last quarterly call, Perma-Fix was successful in securing a promissory note through PNC Bank in excess of $5 million under the paycheck protection program. These funds allowed Perma-Fix to recall all of our staff, avoid future furloughs and layoffs and assist in maintaining stability through Q2. The availability of this PPP loan allowed Perma-Fix to continue the implementation of our strategic plan for growth by holding onto all our trained workforce, who are highly trained, and experienced in complex nuclear operations and radiological environments. While we continue to remain optimistic about our ability to get through the pandemic, we are beginning to see impacts from increases in the COVID cases in our primary states of operations, including Florida, Tennessee, Washington, and California, all of which have resulted in slower waste generation, procurement actions, and limited communications with the generators and our clients. This is particularly applicable to the waste treatment operations, and yet we have seen a modest increase in receipts through the month of July with anticipated increases in August and September. Our nuclear services segment completed most of our remobilization activities before the end of Q2, which should result in increased revenue in Q3 with sustainable revenue through the next two quarters at least. We will continue to position Perma-Fix for upcoming procurements anticipated to be published over the next few months as the fiscal year closes. Meanwhile, we continue to identify new opportunities to reduce costs and schedule and save the risks that radioactive waste present to our clients through the application of innovative engineering and the use of technology in a cost-effective manner. Last quarter, we discussed the launch of our newest technology, the Perma-Sort system, which has been deployed in San Diego through Q2. This latest technology has been developed to segregate radioactive soils following dewater operations and dredging applications. The performance of the system has exceeded expectations and has provided tremendous value to our clients, processing nearly 9,000 cubic yards a week and over 18,000 tons in just a few months. Our engineering team is moving quickly to fabricate and deploy a second Perma-Sort system in the coming months to support increasing demand. Our growth strategy has not only involved our Services Segment as we continue to realize strategic progress in our Treatment Segment as well. While we've discussed increasing delays in shipments, our waste management team has increased their attention to the commercial sector to resolve several unique challenges in the utility industry and broaden our offering during the quarter. Overall, we've added over 10 new clients during this period in both the Services and the Treatment sectors together. When you take a step back and really evaluate the quarter, I couldn't be prouder of our team. We've delivered and advanced our strategy rather than just sitting back while at home and waiting for the storm to subside during this unprecedented period. Achieving all of this while increasing revenue over 2019 and teeing up Q3 with positive momentum underscores the strength of our company and our ability to adjust our vision to meet market needs and changes. On that note, I'll turn the call over to Ben, who will discuss the financial results in a little more detail.

Thank you, Mark, and I'll start with revenue. Our total revenue from continuing operations for the second quarter was $22 million compared to a year earlier, representing an increase of 28.1%. This increase of $4.9 million was driven by our Service Segment, where revenue increased from $7 million in the second quarter of 2019 to $14.2 million in the second quarter of 2020. That's an increase of 101.8%. Year-over-year improvement in project activity, of course, is the main driver for this improvement. In the Treatment Segment, our revenue decreased by $2.3 million or 22.3% as the COVID-related closures of our customers impacted waste receipts in the quarter with most customer sites either restricted or closed throughout most of the quarter. For the six months ended June 30, 2020, our revenue is at $46.9 million compared to $28.8 million, or an increase of $18.1 million or 62.6% growth from the prior year. Looking at the cost of sales in the quarter, they were $18.7 million compared to $13.9 million in the prior year, an increase of $4.9 million. The increased revenue from the Service Segment was the main driver of this increase, which accounted for a $5.7 million increase in direct costs related to project work, while fixed indirect costs also went up by about $509,000. These increases were partially offset by a drop in our cost of sales in the Treatment Segment, where lower revenue resulted in a reduction of $1.4 million of variable expenses, while the fixed facility costs went up marginally. As mentioned in our revenue discussion, the Treatment Segment saw a significant negative impact on our waste receipts due to COVID-19. As a result of the payroll protection program loan, the company was able to avoid layoffs and keep all employees employed despite a significant productivity drop. Since we will recognize the benefit of the PPP loan if or when it is forgiven, it should be recognized that the quarter includes payroll costs incurred totaling about $800,000 that would likely have been cut without the loan. Turning to our gross profit, the gross profit for the quarter was $3.3 million or 15% of revenue compared to the prior year gross profit, which was also $3.3 million, about 19.1% of revenue. Gross profit in the Service Segment increased about $971,000, but that was offset by a similar drop in the Treatment Segment. The gross margin decrease was impacted by the lower mix of Treatment revenue as compared to Service revenue as well as the $800,000 I just mentioned for maintaining labor made possible by the PPP loan. Excluding these additional labor costs, margins year-over-year for the second quarter would have been comparable. For the six months ended June 30, our gross profit is at $8 million or 16.9% compared to $5.8 million or 20% in the prior year. Looking at our G&A costs for the quarter, we were at $2.7 million, which is in line with the prior year. We saw lower subcontract expenses, lower travel and lower bad debt expenses in the sales and admin groups, and that was offset by higher salaries in the corporate and admin departments. For the six months ended June 30, our current year's SG&A expenses are at $5.6 million or 12% of revenue, which is consistent with prior year $5.6 million which was 19.4% of revenue. Our income from continuing operations net of taxes for the quarter is $260,000 compared to $373,000 in the prior year. Year-to-date, income from continuing operations, net of taxes, sits at $1.6 million compared to a loss in the prior year of $177,000. We had net income attributable to common shareholders of $204,000 compared to last year's net income of $289,000. Year-to-date net income attributable to common shareholders is at $1.4 million compared to a loss in the prior year of $383,000. Our net income per share for the quarter is $0.02 which is consistent with the prior year. Net income per share for the year-to-date sits at 12% as compared to a loss of $0.03 per share for the prior year. Our adjusted EBITDA from continuing operations for the quarter, as defined in this morning's press release, was $847,000 compared to $1 million in the prior year. On a year-to-date basis, our adjusted EBITDA is $2.7 million compared to $1.1 million in the year-to-date prior year. Turning to a few balance sheet items as compared to December 31, '19, our cash balance at the end of the second quarter was $5.6 million, which is up $390,000 from $390,000 at year-end. This increase is entirely due to the PPP loan we received in April. Our accounts receivable and unbilled receivables cumulatively are up about $700,000, reflecting increased revenue at the end of the quarter. Our current liabilities were up approximately $524,000, reflecting timing of payments. Our backlog at the end of the quarter was approximately $6.4 million, which is down from $8.5 million at year-end and down from $9.4 million at the end of the second quarter of '19. Our services backlog at the end of June was approximately $48 million. Our total debt, excluding debt issuance and debt discount costs at the end of the quarter was $9.4 million, and this is made up of $1.7 million owed to our primary lender, PNC Bank, $5.7 million due to PNC Bank for the PPP loan received in April, $1.2 million owed to our private shareholder loan, and $845,000 for other finance leases. I'll now summarize quickly our cash flow activity for the first six months of 2020. Cash provided by continuing operations was $3 million, cash used in discontinued operations was $259,000. Our cash used in investing of continuing operations is $1.4 million. Cash provided by investing of discontinued operations was $13,000, cash provided by the financing was $4 million, representing the receipt of the PPP loan of $5.7 million, offset by our monthly payments to the term loan of $212,000, net payments to the revolver of $321,000, payments on the shareholder loan of $832,000, and other lease financing payments of $301,000. With that, operator, I'll now turn the call over to questions.

The first question comes from Howard Brous with Wellington Shields.

Mark, I just want to come back to some of the contracts we talked about in the past. The EPA contract with Jacobs as a prime and as a sub for the remediation of the naval mines. Have you heard anything new about that?

Well, Howard, as you know, I've mentioned that it progressed well over the past year, but we recently saw something in the press stating they plan to make an announcement before the end of this quarter. That's the first we have heard anything, and that was about a week ago when they committed to making that award. So that's all the information we have at this time.

Have they put out any other RFPs for additional contracts?

No, they haven't, Howard. And we do expect some for different components of scope, but right now, we've seen nothing. The whole program had a lot of fanfare and hype and then went quiet for like 18 months or 2 years. But it looks like it's kicking back up.

Glad to hear it. Secondly, the Navy contract has that been expanded? Or are you still just working on a few sites?

Well, we have several Navy contracts. One, we're a subcontractor at both, but one is in San Diego with the soil-sorter. We have other contracts in the San Francisco Bay Area that are also getting rolling. So they're all rolling pretty well. And so they're all growing and seem to be doing pretty good, whether there will be significant contract modifications, that still remains to be seen at this point, but they're going very well.

All right. I do want to address one issue. Jacobs lost the tank closure contract to BWX Technologies. And the other bidder was AECOM. Am I correct on that?

The other bidder was Atkins, who was the prime; AECOM was on our team.

The DOE Office of General Counsel sent a letter on July 22 stating, "Following our investigation and addressing other issues as appropriate, DOE will make a new award determination." Can you provide an update on the status of this, especially considering that the appeals were canceled?

No. It's actually, all the information we have, too, Howard, at this point. DOE did say in another meeting informally that they would notify all the proposal offers once the corrective actions were completed, with no indication of schedules or anything. And so far, our team has not been notified of any of those corrective actions. So we're all just anxiously waiting to hear what the phrase, as you stated, new award determination means, and we're just standing by. So yes, we have no other information besides what's public in that letter.

All right. Fair enough. So let me continue, just if we can comment further on this. From my understanding of the DOE, historically, they would not give to, say, Atkins the large contracts that they got from last year and an additional $10 billion to $13 billion this year. That's usually not done. Is that a fair comment based on your knowledge?

I don't know if it is a fair comment, Howard, it is not traditionally done. However, keep in mind that the plateau was awarded to AECOM, and Atkins was a minority member. And this was led by Atkins with AECOM as a minority member. So I really sincerely think that they will award to the best proposal at this point. And I would hate to speculate on any other objective on behalf of DOE at this point.

I thought you also had the best proposal.

We'd like to think that too. Unfortunately, we haven't seen any other proposals. So we'd be speculating.

Our next question comes from the line of Steve Levenson with Big Rock Research.

Just a question on the delayed revenue. Has all the work been completed? Is there product being shipped? Or is this something that will take a few quarters before we can recognize it?

Well, Steve, this is Ben. I guess the way we recognize revenue is in a 3-phase approach: upon receipt of revenue, upon processing, and then upon disposal. And so what we saw in the second quarter was a pretty significant drop in the receipt portion. We did have a backlog that was recognized. But the way we operate is we're kind of constantly replenishing that backlog, and that's why you saw a bit of a smaller number, a bit of a drop in our backlog. So the work that we recognize as revenue is actually work done. If we see a pickup in those receipts in the third quarter, then ideally, we'll have the receipt portion and additional processing that will catch up the year.

Okay, got it. Then on the soil treatment, it sounds like your equipment is successful. They want another one. Does that give you an opportunity to show it off at all? And are there other people looking at it? And I think I asked once before, but I'll ask again if this is something you plan to continue to own and operate or if it's something you could sell as a turnkey device? Are you thinking about that?

Yes, Steve. No, right now, it's a second client that we're building it for, second application. And we're very confident that we've been able to identify some other opportunities as well. So we see being able to turn these things over and keep them working. Until we get to three or four, we kind of see ourselves with three of them and maybe a backup or something like that in the next 18 months or so. We don't foresee leasing this out to anyone. At this point in time, we see us operating them with some of the expertise we have. It does take quite a bit of engineering skill to keep these things moving. The software is proprietary. And that's really the trick of the whole thing is the software and the radioactive source that runs the gate system on the conveyor. So I really would doubt that we would lease it out and not just run it ourselves.

I guess, three to four over the next 18 months is better than one or two now. I guess, is this something where you see dozens of them out there at some point? Do you think there's...

No, there's always so much going on in this industry overall. And there's a limit to applications. It doesn't sort everything; it only sorts a certain source term. We've been doing some R&D, actually, Steve, to broaden that, so we can sort new even non-radiological contaminants. If we can break through on that, then it will expand further.

Okay. But at the very least, you see a continued revenue stream over the product.

Absolutely.

Our next question comes from the line of Howard Landis.

Mark, it seems you're around a $100 million run rate. I'm trying to understand if this is a 10% EBITDA business or if you believe you can achieve better margins over time.

Howard, that really depends on whether our waste receipt or waste treatment segment can catch up. We believe it can, and we are expanding it rapidly. We are adding significantly more commercial waste and expanding our capabilities on the DOE and DoD sides as well. To answer your question, yes, 10% is our goal. However, we might fall slightly short of that, as we don't achieve the same margin on the Services, which currently represents a high percentage of our total revenue. Reaching 10% will be challenging, but it is certainly our goal, and as we increase the waste treatment segment, we will get closer to it.

Okay. And on the Services side, what percentage of those revenues would be either fixed price or time and materials not to exceed where there's some risk to the margins?

Yes. Currently, we have a few fixed unit rate contracts where we receive payment based on the cubic yard of soil removed and disposed of. Overall, for the Services segment, which makes up approximately 70% of our total revenue, we are likely in the 90% to 95% range for time and materials. All of our projects in California, Seattle, and our smaller projects are billed on a time and materials basis, which reduces the risk. We do have a handful of smaller demolition jobs and some cleanup work in Canada that are fixed unit rate or fixed price. I estimate total revenue this year for the fixed price component will be in the range of $5 million to $7 million at most. Do you agree with that, Ben?

Yes. For this year, yes.

Is there much in terms of Time and Materials not to exceed, which at some point becomes difficult to distinguish from the fixed price? Is most of your Time and Materials just Time and Materials?

Just T&M, yes. We don't have a lot of firm dates because in the remediation business, there are many unexpected issues. You discover additional problems while working or during demolition. Typically, those dates get pushed back with change notices, and you collaborate with your clients through those situations. So we don't have many not exceeding limits on our projects.

Our next question comes from the line of Stephen Stein.

Congratulations. Given the challenging state of the world, I was surprised to see such strong results. What's even more impressive is when Ben mentions a service backlog of $48 million to $50 million, which suggests you could be approaching $100 million this year, compared to $70 million last year. I recognize that the service side has its own challenges, but that's quite remarkable. Ben also noted a backlog of $48 million in service. I'm curious, what is the backlog in treatment? Assuming flows are coming in as expected, is there a backlog in treatment?

Yes. Steve, it's about $6.4 million, yes. And that's a quarterly number we monitor all the time, and that is down a little bit, and that's reflective of the slowdown in the receipts.

All right. Fair. But I assume you're in a unique situation because of COVID. How much of the $5 million you received from the government has been utilized?

It's all used.

Okay. So my question is, if you didn't have the $5 million, how would that impact the financials?

Without the $5 million, we would have faced significantly tougher decisions regarding labor. The sales cost figure of $800,000 I mentioned is conservative and truly reflects the notable slowdown in our Treatment segment. Additionally, we would have had to make many other decisions from a corporate perspective to sustain operations. Overall, this could mean an impact of between $1 million and $1.5 million on the quarter.

All right. But you had it, you deserve it. And hopefully, you won't have to pay it back. The one other thing that I saw in the financials going through, there was $140 million for medical. So what's that for?

Not $140 million.

$140,000, I mean.

Yes, yes. And that's just the Medical Segment is still active. It's in somewhat of a mothball mode right now, but there are costs of maintaining. A lot of that cost is internal for efforts by some of the folks in our shop here. To maintain a public company. So it's pretty minimal. It's probably from a cash standpoint, costing us about $6,000 a month.

One of the first questions was from Howard regarding the new opportunities at Hanford, where they are reevaluating the contract. I’ll mention that I’ve heard one reason for dismissing the appeals is due to a potential conflict involving an employee from the award company who allegedly worked for DOE, which raised concerns. I see this as a positive development. What you are doing is impressive; you are building a diversified company. If things work out, that's great. When discussing the permit sort and additional machines, what are your estimates for revenue generation if, for example, I had three machines?

Steve, that’s probably a reasonable estimate. This is just an estimation that these units will generate between $5 million to $7 million in revenue each year, depending on their operational duration. If they operate throughout the year, the revenue would be higher; however, they typically do not operate year-round. Therefore, I believe a revenue of $5 million per unit is a solid estimate at this time. The key point here, Steve, is that these units provide a genuine solution to a widespread issue by reducing waste sent to costly landfills. We can recycle a significant amount of soil quickly instead of transporting it to offsite landfills. This opportunity is even more exciting for us than the projected $5 million annually, as it enables us to pursue remediation projects more aggressively and positions us favorably for partnerships in larger projects. Consequently, beyond the $5 million in revenue, there will also be additional services associated with it.

And what's the cost of one of these things?

Well, we can't get into that proprietary at this point, but it's a lot less.

Right. So in other words, your payback on this thing. Your payback on the investment is quite quick and so forth, well, as this suggests. Okay. All right. What about the TBI? Where is that?

The TBI continues to be supported by DOE in Hanford headquarters. It's kind of slowed down a little bit with all the TCC issues. It still is in the TCC scope of the contract. DOE right now is still working with the incumbent contractor WRPS who runs the tank farm, and they're continuing to project extraction of waste for the TBI with the $10 million that was set aside for this project in 2020. We're still at this point until further notice; we'll get more information, still anticipating receiving 2,000 gallons by the end of this year. Again, it could take a lot of twists and turns, Steve, but right now, that's the guidance we've gotten from the folks on the project.

You are indicating that you are expanding your service with a backlog of $48 million. You also have a relationship with Jacobs that allows you to bid. I wanted to ask if you are currently bidding with Jacobs as one of the nine bidders or if there are any new developments in that area.

We do have that relationship with them. We're anticipating, DOE announced recently that they anticipated a number of task orders that will come out between now and the end of the calendar year. So we're anxiously waiting for those at all to state they're going to publish a forecast or some type of schedule of task orders. We don't have that yet. So we don't know what that looks like. But all indications from DOE procurement headquarters is that there's a number of task orders being ready to go through that contract, and we'll work with Jacobs to pursue each one of them.

Then you have said in past things, the GeoMelt business could be $100 million. Where is that?

We are currently waiting for the final permit modification related to the treatability study we conducted over the past year and a half with Veolia. We processed a significant amount of sodium that we received from INL in Idaho. After completing that run, we submitted the treatability study permit modification, and now we are waiting for a response from the state. We expect to receive that before the end of this year. Once we have the permit, we will be able to process sodium at a full production rate, allowing us to reach the $100 million potential you mentioned very quickly. Right now, we are in the permitting stage.

Okay. So regarding Hanford, please correct me if I'm wrong, but it seems like you have existing business there as a subcontractor. Is that correct? Under normal conditions?

Yes. We receive a significant amount of waste on a consistent basis from the plateau and a smaller portion from the tank operations. We expect this trend to continue regardless of any contract changes. There may be a month or two delay in receiving waste once the transition is fully underway. However, this is part of our overall cleanup plan to ship some of that waste to our facility at Hanford. We do not anticipate this changing, regardless of who is managing the contract.

There is hope for another opportunity with the tank closure contract. However, even if that doesn't materialize, there is ongoing business at Hanford and the potential for the TBI initiative. As I see it from a technical perspective, theoretically, the TBI could work alongside a completed vitrification plant, allowing for operational efficiency and cost savings. Although the vitrification plant's completion may still be decades away, implementing the TBI initiative could expedite processes and reduce costs. Overall, the situation looks promising.

We would have to agree. We think so, Steve, we refer to the TBI as a supplemental treatment to the waste treatment plant mission. So yes, yes to all your statements.

I'm assuming that in the challenging environment you've outlined, you've developed scenarios for various situations to adapt accordingly. My final question is regarding reports that the Department of Energy has surplus funds. Has that money been carried over into the new fiscal year? Will it impact budgeting, or will it simply enhance the existing budget? Could this potentially lead to more opportunities?

I believe this presents a great opportunity, Steve. I've been speaking with friends at various sites, and it's challenging to gauge their overall spending due to the unusual circumstances over the past few months. They seem to be assessing their spending levels and what tasks they need to accomplish before the fiscal year ends. To answer your question, yes, we are expecting opportunities, with a surge in base shipments anticipated at the end of September aimed at getting waste off-site. Rather than incurring additional labor costs, it tends to be more straightforward to expedite spending by shipping waste off-site. We anticipate this trend will continue into our fourth quarter and the first quarter of the government fiscal year.

Yes, I want to calmly express my appreciation for the hard work everyone is putting in during these challenging times. I understand this personally, and I see the progress you're making, which is commendable. You've had a strong quarter and numerous opportunities, showcasing your creativity and diversification. It's impressive to see your aspirations grow. Congratulations on your achievements.

Thank you, Steve. We appreciate your support. I want to highlight that our company, with about 360 people, has had nearly 130 staff members working away from home over the past few months during the pandemic. I commend our team for their willingness to travel, stay in hotels, and support field operations, contributing to a successful quarter. I never expected such strong support from the team, but everyone has risen to the occasion despite the added risks, working on-site and making things happen even while many sites remain closed. It’s truly our team that has stepped up. Thank you again for your support.

I want to make one last comment since I didn't have the opportunity to speak last time. I used to work in chemical manufacturing, and I became very interested in this area, particularly regarding new developments related to the virus. Through my research, I have concluded that ventilation is crucial. It’s important for your team to be cautious about checking the air conditioning systems in hotels, as I've read numerous articles indicating that the virus can spread in poorly ventilated systems. Therefore, maintaining proper ventilation is vital, along with other measures. Congratulations.

Our next question comes from the line of Tristan Barr with MTB Asset Management.

It's kind of funny, as you know, I typically avoid commenting on calls at the risk of sounding like a cheerleader, but I just have to say that the turn that you guys have shown in the Services business within this pandemic is nothing short of extraordinary. I mean, that backlog number is incredibly impressive. And that $100 million run rate, which seemed like a bit of a reach is now all of a sudden, not necessarily a reality yet, but certainly looks like it's going to come to pass. And I just wanted to say congratulations on that.

Well, thanks, Tristan. Our Executive Vice President for Services, Andrew Lombardo, is largely responsible for that. And there's not a day that goes by where he and I don't marvel at how fortunate we are to have such a good backlog during such a difficult time. So we feel like we're really fortunate because of that as well. But thank you, Tristan, we appreciate your support.

I'm going to switch gears and ask about what you have been doing lately. Despite the impressive performance in the Services sector, I know COVID will impact the Treatment Segment, which I completely understand. However, I have been encouraged to hear multiple times during this call that there are significant opportunities to expand the Treatment Segment, which is your higher-margin business. I would like to explore those opportunities further and gather them in one place. You have the TBI, and it's great to hear you're in the permitting stage with Veolia. Can you share what "pretty quickly" means to you? How much longer do you expect to be in the permitting phase? Once you move into production, how will that flow through to the P&L?

Yes. Right now, our General Manager, or actually our Executive Vice President for Waste Treatment, Richard Grondin, has run our Hanford facility for many years. He's leading that effort. He tells me that due to the good relationship they have with the state, we should see operations begin around the first of the year at the latest and begin to burn almost on a weekly basis with the GML once we get through that permitting phase. That waste is sitting in Idaho; we're ready to go. So we're excited about that. I'd like to be able to think we could get between $10 million and $15 million a year in revenue on that along with our partners at Veolia. We have a great working relationship with them, a really good operating agreement, and that should be very doable. We are getting other sodium waste from INL now here in the Oak Ridge facility as well, but not to the extent we expect to be rolling up in Hanford. I'm not sure if I answered all of your questions, Tristan; the other component is on the commercial sector. We've spent about a year now focusing on getting our foot in the commercial segment and the utility market, power market, along with oil and gas pipeline sludges as well that have significant amounts of norm in it. That's something that we had just traditionally haven't done a large volume on, and we spent a lot of time and effort to increase that. We're starting to get some real traction now, getting some wins in building those relationships, which take a year or two to do. We're going to see that increase as well along with the DOE sustained waste shipments along with that.

So the $10 million to $15 million on the GML, is that inclusive of Veolia's take? Or is that Perma-Fix's revenue alone?

That would be the total revenue, I believe, Tristan, at this point, between this.

Okay. And then this increased commercial business, I mean, obviously, that takes longer, but is also more stable and usually if my research is correct, kind of a more steady revenue stream and a little less dependent on budget vicissitudes. How big do you think that can get, say, for 2021?

Well, that's a tough question. Our goal is to try to reach 10% to 20% in the next two years. It's really challenging because you start with small amounts and hope to scale up. It all depends on whether the waste is operational or comes from a demolition project or contamination event. A good estimate would be that 10% to 20% of our waste segment total would equate to $5 million to $7 million a year, which would be a solid target for 2021.

I want to apologize in advance because I know you have been careful to be conservative. I understand that COVID has thrown a wrench into things, and waste shipments were uncertain before COVID, which has only increased during it. You mentioned something important at the end: you have a substantial Services backlog, and while the treatment backlog is not where you want it to be as we enter Q3, there's a year-end budget flow coming up. This suggests that you anticipate a significant amount of waste to be shipped towards the end of Q3, which makes it sound like Q4 could be quite exciting.

Yes, we would agree with that. We are a little disappointed that Q3 hasn't accelerated more. I think we're all surprised at how this is dragging on. Most of our friends at the DOE sites are moving very cautiously. As a result, we haven't had the receipts we hoped for in July. They are increasing, as we mentioned, but once that starts to improve, we know there's backlog that needs to be addressed. We're hoping to see progress by the end of August or early September, which could lead to a strong Q4 for us.

Again, congratulations, and that's a heck of a turn in the Service sector. And congratulations on the job well done.

Just wanted to follow up on water treatment in Florida. Did COVID have an impact there? What's the outlook for that? Just an update looking forward for the rest of the year?

Steve, we have several promising bids for water that have been delayed due to COVID, and we have not seen those awarded yet. Currently, we are not processing a large amount of water, but we have handled some over the past two quarters. The amounts are not significant, but we are bidding on larger quantities. We are optimistic that when we have this call again in another quarter, we can report that it's operating at a consistent rate.

Our next question comes from the line of James Godfrey with Godfrey Consulting Group.

Congratulations on a great quarter. Equally, if not more important, just a fantastic turnaround over the last 12 to 18 months, it's exciting. I look back, I think, Mark, you mentioned there's now 360 employees. I was wondering if you can recall how many they were there when you took the helm here a little while back.

James, we track that every quarter for our Board meeting. I want to say it was in the 220 to 240 range, so like in that range altogether. And you've gotten up to 380 before COVID hit. So yes, it's been good. It's been really good.

Great. I've been seeing the forest through the trees, that's a really important number. And of course, that workforce is highly talented, very specialized, and of extreme value. So you've done a nice job of building value for all shareholders. Again, I can't thank you enough for that. I'm looking here at a couple of comments that you made. One of them, 10 new clients that you were able to say, that's significant. Can you give a little more color on kind of a mix of that client base? And as far as that's concerned, what kind of potential future opportunities, those new clients might theoretically bring to the table?

I'm glad you pointed that out because it's quite impressive to acquire 10 new clients during COVID when access was limited. We're really excited about this achievement. However, I can't disclose names due to confidentiality, but most of these clients are in the commercial sector. There are a few smaller clients as well, but many have strong growth potential, primarily focusing on characterizing various aspects or components. Our health physics division, led by Andrew Lombardo from the New Brighton, Pennsylvania office, has successfully marketed to the oil and gas sector, as well as the mining, scrap metal, and utility industries. We're starting to see positive results from word of mouth and the development of new relationships that stem from our marketing efforts. It’s an encouraging sign that we could thrive even more once we return to normal after the pandemic.

Ladies and gentlemen, we have reached the end of the question-and-answer session. I would like to turn this call back over to Mr. Mark Duff for closing remarks.

Thank you all for joining our second-quarter conference call. As I mentioned earlier, we successfully navigated what could have been a much more challenging environment due to COVID-19, and we are well positioned as we head into the third quarter. Based on our current sales pipeline, increased bidding activity, and backlog, we are very optimistic about our business outlook. Thank you again for your participation.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a great day.