Perma Fix Environmental Services Inc (PESI) Q3 2020 Earnings Call Transcript

Good day, ladies and gentlemen, and welcome to your Perma-Fix Third Quarter 2020 Business Update Call. At this time, it is my pleasure to turn the floor over to your host, David Waldman, Investor Relations. Sir, the floor is yours.

Thank you, Tara, and good morning, everyone, and welcome to Perma-Fix Environmental Services Third 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 third 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 Cresendo Communications at (212) 671-1020. I'd also like to remind everyone that certain statements contained within this conference call may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and include certain non-GAAP financial measures. All statements on this conference call other than a statement of historical fact are forward-looking statements that are subject to known and unknown risks, uncertainties, and other factors, which could cause actual results and performance of the company to differ materially from such statements. These risks and uncertainties are detailed in the company's filings with the U.S. Securities and Exchange Commission as well as this morning's press release. The company makes no commitment to disclose any revisions to forward-looking statements or any facts, events, or circumstances after the date hereof that bear upon forward-looking statements. In addition, today's discussion will include references to non-GAAP measures. Perma-Fix believes that such information provides an additional measurement and consistent historical comparison of its performance. A reconciliation of the non-GAAP measures to the most directly comparable GAAP measures is available in today's news release on our website. I'd now like to turn the call over to Mark Duff. Please go ahead, Mark.

Thank you, David, and good morning. We became profitable in the third quarter of 2020, thanks to the commitment of our employees and management in implementing our COVID-19 safety plan and meeting the needs of our clients who were primarily working from home. Consequently, our revenue rose by 34% compared to Q3 of 2019, and we reported adjusted EBITDA of around $2 million and net income of approximately $1.4 million. This was achieved despite significant drops in waste receipts due to generator shutdowns over the last six months. As we move into Q4, we are seeing sustainable revenue in our Services Segment with an uptick in waste receipts, especially in December. However, the recent rise in COVID cases presents new challenges and compels us to approach 2021 with caution due to the slowdown in waste generation activities and procurement announcements throughout the industry. Our Services Segment has a strong sales pipeline with active bidding and proposal activities over the last several months, and over $80 million in annual bid values awaiting awards. However, the backlog in both Services and Treatment is creating uncertainty for 2021 as government and commercial clients have not fully resumed operations, impacting procurement actions and related awards. We are pursuing several large bids to maintain sustainable revenues, but until these awards are confirmed, Perma-Fix will adopt a conservative approach to spending and investments to ensure stability until the pandemic recedes. I will now summarize some financial highlights from the third quarter compared to the same quarter in 2019, after which Ben will provide a more detailed financial discussion. Overall, our revenue climbed 34% to $30 million, with Services Segment revenue increasing 86% to $23 million. Treatment Segment revenue was $7 million compared to $10 million in the same period last year due to COVID-19 impacts, which I will elaborate on shortly. We generated adjusted EBITDA of about $2 million, a decrease from $2.4 million during the same period last year. Lastly, we achieved net income attributable to common shareholders of $1.4 million or $0.12 per share for the third quarter of 2020, down from $1.8 million or $0.15 per share from the same period last year. As mentioned, we are proceeding with caution in light of the COVID-19 resurgence, but we remain excited about our growth strategy for 2021, which includes expanding our plants and broadening our client base for nuclear services. I am pleased to report that Perma-Fix has not only sustained our business but also identified new initiatives and opportunities to expand and market share in the upcoming quarters. We have bolstered our marketing and sales organization and established a robust infrastructure for customer management and service. Simultaneously, we are enhancing our offerings to the commercial sector through ongoing permit modifications and innovative treatment approaches to add value, such as deploying and expanding our soil sorter technology throughout Q3, starting with our foundation project with the U.S. Navy in San Diego. All this has been accomplished while our internal COVID-19 safety committee implemented stringent requirements in our operations and business functions to prioritize the health and safety of our staff. While we remain hopeful about our ability to navigate the pandemic and conclude 2020 with significant revenue growth, we are beginning to experience effects from the rise in COVID cases across our primary operational states, including Florida, Tennessee, Washington, and California, leading to a decline in waste generation and subsequent receipts from our clients. This is particularly evident in our waste treatment operations, which have managed efficient operations from backlog receipts but have seen nearly a 50% decrease in new waste inventory this year. Although government-operated facilities have resumed some operations, full-scale activities critical to waste generation remain limited. Our nuclear services segment, however, has performed robustly throughout 2020 with enhanced operations and hiring through Q3, which is expected to continue well into Q1. Project performance has exceeded expectations, with significant growth, strong client feedback, and earned value generation as projects have been completed safely and on schedule. We will continue positioning Perma-Fix for upcoming procurements expected in the coming months. Although I have focused more on caution and challenges recently than in previous quarters, Perma-Fix remains optimistic regarding our growth plans over the next four to six quarters. This optimism is supported by our primary client, the Department of Energy, and the emerging clarity regarding waste management objectives and policies. A few highlights include recent statements from DOE officials suggesting carryover funds for the government’s 2020 fiscal year that could exceed $3 billion in 2021 if an appropriations bill passes, likely this winter. This increase would occur independently of any stimulus budget provisions and represent nearly a 40% increase over proposed congressional budgets. Additionally, several large DOE procurements with requirements for comprehensive waste management solutions and 'in-state contracting models' supporting innovation and technology applications have been published recently. This opens up opportunities for Perma-Fix to team with larger companies on significant site cleanup contracts with greater values. Furthermore, we are making progress at Hanford concerning contract decisions and the opportunity to utilize our advanced capabilities at our Northwest facility to address large-scale challenges as the Hanford sites continue to evolve. As we have emphasized in previous quarters, Perma-Fix has built a strong team of waste management and health professionals committed to growth and innovation for our clients. This foundation has sparked ongoing opportunities in our industry and offers unique solutions as we emerge from this unprecedented pandemic. Completing another successful quarter while increasing revenue compared to 2019 and preparing for Q4 with positive momentum highlights the strength of our company and our ability to adapt our vision to meet market needs and changes. With that, I will now hand the call over to Ben, who will discuss financial details and results. Ben?

Thank you, Mark. Yes, thank you, Mark. Our total revenue from continuing operations for the third quarter was $30.2 million compared to the prior year of $22.5 million, an increase of 33.9%. This $7.7 million increase was the result of a $10 million increase in our projects revenue by the Services Segment or 85.5%. Our continued revenue growth from our projects on the West Coast was the primary driver of this increase. Offsetting this increase was lower revenue from our Treatment Segment, which compared to the prior year as the COVID pandemic continues to impact waste receipts in the quarter, with customer sites slow to resume shipments of waste. For nine months ended September 30, revenue was $77.1 million compared to $51.4 million in the prior year, an increase of $25.7 million or 50% growth over the prior year. Our cost of sales in the quarter was $25.4 million compared to $17.4 million in the prior year or an increase of $8 million. Increased revenue from our Service Segment was the main driver of this increase, accounting for $8.4 million of the increase in direct costs as costs such as labor, subcontractors, and travel were up while fixed costs increased an additional $405,000. These increases were offset partially by a drop in our cost of sales in the Treatment Segment as lower revenue resulted in a reduction of $1.2 million in costs, mostly variable, made up of transportation and disposal; while our fixed facility costs increased $436,000 related to maintenance, regulatory, and depreciation-type expenses. Our gross profit for the quarter was $4.8 million or 15.7% of revenue compared to the prior year third quarter gross profit, which was $5.2 million or 22.9% of revenue. Gross profit in our Service Segment increased approximately $1.8 million but was offset by a drop in the Treatment Segment of $2.2 million. The margin decrease was primarily impacted by the drop in Treatment revenue, though we did see improved waste mix, which partially offset this impact. Increased revenue in the Service Segment and marginal improvement in the profitability of the projects positively offset the drop on the Treatment side. For nine months ended September 30, our gross profit is at $12.7 million or 16.5% compared to $10.9 million or 21.3% in the prior year. Our G&A costs for the quarter were $3.3 million compared to $2.9 million in the prior year. We saw higher wages, incentives, and bid and proposal consulting-type expenses, and they were slightly offset by lower travel and bad debt. Our SG&A expenses for nine months ended September 30 were $8.9 million or 11.6% of revenue compared to $8.5 million in the prior year, which was 16.6% of revenue. Our income from continuing operations net of taxes for the quarter was $1.5 million compared to $1.9 million in the prior year. Year-to-date, our income from continuing operations net of taxes is $3 million compared to the prior year when it was $1.7 million. We had net income attributable to common shareholders of $1.4 million compared to last year's income of $1.8 million. That's for the quarter. Year-to-date, net income attributable to common shareholders is $2.9 million compared to income of $1.4 million in the prior year. Our basic net income per share for the quarter is $0.12, which was down from prior year's $0.15 per share. But our basic net income per share year-to-date is at $0.24 compared to $0.12 in the prior year. Our adjusted EBITDA from continuing operations, as we defined it in our morning's press release, is $2 million compared to $2.4 million in the prior year. While year-to-date, our adjusted EBITDA is $4.7 million compared to $3.5 million year-to-date in the prior year. Turning to our balance sheet as it compares to December 31, 2019. Our cash balance at the end of the third quarter was $4.8 million, which was up from the $390,000 at year-end. This is due to the PPP loan that we received in April. Our accounts receivable and unbilled receivables cumulatively were up approximately $6.6 million, reflecting increased unbilled revenue in the Service Segment at the end of the quarter, which is usually built immediately at the new quarter. Our current liabilities were up $4.9 million, reflecting increased accounts payable and expenses related to the increase in Service Segment business. The increase in our long-term liabilities of $5 million is primarily due to the PPP loan we received in April. Our backlog of waste at the end of the quarter was approximately $7.5 million, which is down from $8.5 million at year-end and down from $10.6 million at the end of the third quarter in 2019. Our services backlog at September 30 was approximately $38 million. And our total debt, excluding debt issuance and debt discount costs, at the end of the quarter was approximately $8.8 million, with $1.6 million owed to our primary lender, PNC Bank; $5.3 million due to PNC Bank for the PPP loan received in April; $523,000 owed on our private shareholder loan; and $1.4 million for other capital leases and loans. Finally, I'll summarize our cash flow activity for the first nine months of 2020. Our cash provided by continuing operations was $3.5 million. Our cash used by discontinued operations was $329,000. Cash used for investing in continuing operations was $1.5 million. Cash provided by investing activities on discontinued operations was $118,000. Cash provided by financing was $2.7 million, and this is broken down as the receipt of the PPP loan of $5.3 million, offset by our monthly payments of our term loan of $320,000, our net payments to the revolver of $321,000, payments to the shareholder loan of $1.5 million, and other lease financing payments of $414,000. With that, I'll now turn the call over to questions.

We'll take our first question from Howard Brous with Wellington Shields.

Congratulations from my perspective on a great quarter considering what's going on out there. A couple of questions about opportunities. And you had mentioned, and I'm not going to quote you, but Hanford contract decisions. Can you discuss what you mean by that in reference to potential opportunities?

Sure, Howard. The worst situation we could be in is being unstable regarding procurements, essentially being on hold while waiting for action because people aren't taking initiative. As we begin to see progress with the awarding of the Plateau contract to the Amentum team, they are currently transitioning, which means several operations are halted, including waste shipments. That should resume in a few weeks. Additionally, the upcoming decision on the tank closure contract in the next few months is expected to have a significant impact. Also, we are optimistic about TBI, as we see positive movement from the DOE regarding that and the accompanying $10 million for the project. We hope to stay on track to receive the next phase 2 shipment of waste, which is 2,000 gallons, at our Northwest facility for processing. Overall, we are looking forward to Q4 and anticipating greater stability, clarity, and continued momentum.

Let's discuss a couple of items that I'm familiar with. The TBI contract is currently on hold. When do you expect it to be re-awarded or awarded?

Yes. Currently, it seems that the Department of Energy is proceeding with it. They are addressing some regulatory challenges on their end. We are prepared to receive and process the waste, similar to how we handled the 3 gallons a couple of years ago. Progress is being made on the regulatory side, and we are hopeful that they will begin pumping it out this summer.

All right. Let me address the question on the EPA contract with the Navajos. Any more information about that?

I'm sorry, Howard, but we don't have any new updates. I expected your question and checked in with some of our team this morning, but they reported no new developments since last quarter. This is a clear example of a contract that appears to be stalled due to COVID and the fact that everyone on the government side has been working from home. So there is no news at all.

I'd like to ask a question, though. My understanding is that there were multiple bidders and some of those bidders were, in fact, rejected, as I understand, from calls to the EPA. Can you comment about that, please?

Yes. We have not confirmed that, but we have been told as well, Howard, that they have shortlisted and that some people who participated in the procurement have been informed that they were not selected. We have not had that verified with the EPA, but that's what we've been told from other bidders.

My understanding is Jacobs is your prime, and you're the sub in that? Is that correct?

Yes. In terms of procurement, we cannot discuss teaming arrangements at this moment. But...

Yes. So let me pull apart a couple of other opportunities. The EWOC contract, can you address that opportunity, please?

Yes, EWOC is a technology and facility designed to support the next phase of the Oak Ridge closure mission by providing transloading for large volumes of mercury-contaminated waste. We are currently waiting for more activity related to mercury remediation in Oak Ridge. The facility is prepared to be utilized as soon as the Department of Energy awards a new task order to the incumbent contractor, which is the UCORP team, or if they grant the closure contract. At this moment, there is no mercury remediation happening, and there are large volume contracts we are anticipating that have not yet been released. We are currently working on smaller projects to maintain some revenue, but we have not secured the larger contracts we were expecting at this time. However, we are starting to generate revenue at EWOC and are using it for other initiatives.

Could you address the magnitude of what EWOC could potentially be as opposed to what it is currently?

Yes. Currently, it's very minimal. We're doing some equipment decontamination and similar activities now. The revenue is limited, targeting a couple of million at most. If we were to use it for transloading large volumes of waste out West, we could see between $5 million and $10 million a year as a very conservative estimate, depending on the volume of waste that the DOE is moving within the Oak Ridge closure.

One, just general conversation about a change in possible administration. Should Biden win the presidency, do you foresee any change in treatment or services by the DOE?

A Biden win would likely bring several positive outcomes for us. We expect that stimulus efforts could improve in the future. Historically, Democratic administrations have been supportive of funding for DOE environmental management programs, and we anticipate this trend will continue. We don't expect a significant shift with changes in administration. However, if Trump does not win, we might face some risks regarding the momentum of our larger projects that we've discussed. Nevertheless, we believe these projects will progress, as there will be a consistent federal staff involved across both administrations, particularly at key sites like the Germany Tower and Forestall headquarters. Therefore, I don't foresee any dramatic impact regardless of the outcome.

I think the biggest potential impact we have is what will happen with the $3 billion they have in carryover. Additionally, will there be any stimulus similar to the ARRA initiative from 2011? These are important questions. As you're likely aware, during the last stimulus package nearly a decade ago, there was a significant focus on waste management and the cleanup of sites, which benefited us. We hope for a similar outcome this time, although it's difficult to predict their specific spending. Regardless of their choice, it will be action-oriented and will generate waste, which will generally be positive for us. Just two more real quick ones. The TBI contract, do we assume it will be awarded or re-awarded? And when do you think that could be based on your best guess?

Yes. I'm not very familiar with the contract details at the moment. However, I know that progress is being made. I expect they will navigate the regulatory process and start the waste removal for the 2,000 gallons by this summer. I can't provide specific details about the contract itself, but it appears to be progressing well. The Department of Energy considers this initiative highly valuable to their overall mission, and we’ve been prepared for this for some time. I hope they will continue to advance this project through the removal of the 2,000 gallons and beyond. Unfortunately, I can't provide a specific timeline for the contract.

We'll take our next question from Steven Vine.

Congratulations on a great quarter. While it's not something I usually mention, you essentially matched last year's sales figures. You reported $38 million in Service and $7.5 million in Treatment. Will the $38 million in Service be completed in the fourth quarter?

No, that won't all be completed in the fourth quarter. It will carry over significantly into next year and at least through the first quarter. The $7 million in the waste treatment area will also roll over quickly. We rely on replenishing that consistently. It serves as an indicator of the waste receipts we are receiving, which, as we mentioned, slowed down due to COVID. However, we did have a strong September in waste shipments, so we observed some increases. It is plateauing now, and we anticipate it will likely slow down in November and December, but typically we see it pick up again after the start of the year, depending on the weather. To answer your question, the $30 million will carry over into the first quarter quite well. We hope to surpass the $100 million mark for revenue in the fourth quarter this year and plan to maintain that positive momentum into next year.

Now am I correct, I look quickly over the numbers, you're paying down debt, right? Like you're paying off loans? So while you're doing this in the midst of all this, you're paying down debt too, which is not enunciated. But am I correct in that perception?

Yes. Yes. Yes, we're taking care of our term loan. We had a term loan and the shareholder loan...

Yes, that's something. In these times, to be able to say that and have your sales increase is fabulous. Let me ask you a question, why is COVID not a problem for Service?

It's not an issue with the service itself, Steven, but rather with the procurement of services. We're currently in the field, even though many of our clients are working from home. Out of our 380 employees, about 150 are actively working in the field, which allows those operations to proceed. However, we are facing some challenges with $80 million in bids that have not yet been awarded. The impact is being felt more on the procurement side. This situation could change quickly, and we might receive a sudden influx of awards, or at least our fair share, which would be positive. However, if COVID continues into the first quarter, we may experience delays, leading to gaps between our projects, which is not desirable. That’s the challenge we are encountering on the services side.

It's clear that you're projected to reach $100 million this year, which is impressive. Assuming that things don't change drastically, do you anticipate achieving $100 million again next year? I would generally expect you to hit $200 million. Considering the current challenges, do you believe you can at least maintain your performance, which would still be quite an achievement if this trend continues?

That's a great question, Steven. Yes, the answer is yes. We think we'll be at a minimum flat. We have been talking for quite some time on these calls that we were really planning on 50% growth every year, and we almost had it this year. We had it last year, and we were close to having it this year. We took a beating here with the waste receipts, but we are planning to at least be flat next year with some modest growth. But we've also submitted a lot of very large bids for big projects, $100 million-plus projects over several years. And a couple of those awards will get us higher and get us to that goal. But our minimum is to break or to see growth over this year, which would be over $100 million.

All right. So presuming you're flat next year, and then you don't have the $5 million that you got from the government, you're going to be alright cash flow?

Yes, we'll be good cash flow. We're expecting better margins. As Ben was kind of mentioning is Services generates a less margin than Treatment, which is obvious because of our assets in Treatment. With getting waste receipts back to normal, getting the EBITDAs up and the margins up, on average, will put us in a position we'll be fine.

All right. So when you mention there's $80 million out there, is the problem that the people aren't available to finalize the bid, or is it that they can't because no one is in the field? Or is it unclear?

No, it's really not so much about the field, Steve, but rather the procurement process. We can't ascertain specifics in our position as we're not privy to inside information. So, when we suggest that the procurement process is taking longer than usual due to COVID, it's just speculation.

All right. So you say the treatment is down. All right. So presuming everything was okay, how much more would treatment have been? Or is that...

Well, it would have been double. It would have been double.

It could have been double?

Yes, it's speculation, Steven, but currently, we were anticipating $38 million to $40 million for 2020. We expect to achieve a bit more than half of that, and I believe we would have reached it. We lost nearly $15 million to $20 million in waste receipts that we would have otherwise received.

We'll take our next question from Howard Landis. Please go ahead, sir.

Good quarter, Mark. Two quick questions. One is, if I hear you right, you're optimistic about the long-term and about '21, but we might expect the next quarter or two to be sort of flat to down. Is that a fair summary? Or am I missing something?

No, you got it right, Howard. We're really not expecting it to be, but there's a possibility that Q2 might see a dip. If we notice some improvement with COVID in early Q1 and return to normal operations, as I mentioned earlier about the procurement cycle, we should be fine and won't experience any negative impact. However, we need to see some normalcy in the next three or four months for Q2 to bounce back. Q1 appears strong, and we have good momentum from Q4. It's the Q2 outlook that makes us more cautious.

Got you. And how is the PPP loan going to play out as you see it at this point?

Well, right now, we've got an application in for forgiveness, and it's past the primary lender and with the SBA. And what we've been told is it can be up to 90 days by the SBA, and that clock started on or about the middle of October.

We'll take our next question from Anthony Harpell.

Congratulations on a good quarter. So one question I have is the Washington State Department of Ecology for years has argued that the Hanford Tri-Party Agreement and the 2016 amended consent decree require or are based on the plan to vitrify all of Hanford's radioactive underground storage tank waste. And the state's Department of Ecology on multiple occasions has stated that vitrification is the only acceptable method of treating Hanford's underground low-activity waste. The lead regulator of that department's nuclear waste program has just left the agency after 4.5 years in her seat to pursue a different professional opportunity. Can you please discuss, if you have a point of view, what impact do you expect as a result of her departure on the prospects for treating the supplemental low-activity waste stored in the underground tanks at Hanford through grouting as an additional supplemental method to vitrification?

Well, I'd be hesitant to comment about a regulator, Anthony, on this call. However, I will say that I think the department has made significant strides in their strategy to demonstrate action in their cleanup program. They've also made great strides in progressing with their DFLAW facility and construction of the infrastructure and their overall tank program. So a lot has changed in the last 12 to 18 months in regard to the overall program. And the DOE leadership has focused on this whole initiative as well and are all on the same page. And there's fresh momentum, renewed momentum from what we see. And we are at a distance, Anthony. We're not in the weeds with these things. We're watching from a distance. But we see that all being so positive. And with what's happened with the Savannah River Initiative and the negotiations that are ongoing with the state, that's why we see a lot of optimism moving forward with a supplement to the DFLAW treatment facility, which obviously would include off-site commercial waste treatment of the tank waste. So I don't know how much of it is associated with that manager leaving as much as it is the strategy by DOE and the relationships they have with the regulators overall.

And so when you spoke about the timing of the TBI phase 2 being the summer, is that a conservative expectation? Or is that a more aggressive expectation?

I think that's a conservative estimate. It largely depends on COVID and how much it impacts meetings and the regulators working with DOE on their challenges. Assuming life starts to return to normal around January or February, which may not be a conservative assumption, then I believe summer is a reasonable timeframe. However, if we continue to experience COVID delays throughout Q1, the timeline may shift to the fall.

Okay. And Perma-Fix was part of a team led by Jacobs that was selected by the DOE to participate in a 10-year IDIQ services contract nationwide. Can you just give us an update on to what extent the DOE to date has announced any task orders associated with this contract? And what your expectations are around winning business associated with it?

Yes, Anthony, the Department of Energy has held several meetings and participated in conferences regarding that question. This is a common inquiry during those meetings due to the expectations from everyone involved in that contract. At one point, the DOE indicated that there were several projects lined up and anticipated moving forward with them. However, they have since stated in other meetings that there are now only one or two projects. Therefore, we are unclear about what is actually queued under that contract. It might depend on stimulus funding or how they plan to utilize their carryover backlog. So far, we haven't received any updates or forecasts. Any comments we make about the possibility of Requests for Proposals would be pure speculation and not based on any formal statements from the DOE. What we do know is that we haven't seen anything yet, and without a forecast, it is generally expected to have one if task orders are anticipated.

And again, congratulations on a good quarter.

We'll take our next question from Bob Jetmundsen with Worthscape.com.

Good quarter. I wanted to just ask a quick question about the Perma-Sort system and kind of help me understand how big a market that is and how you sell it and so forth.

Yes. The Perma-Sort system is a technology that we've significantly enhanced over the past year. It allows you to input a quantity of waste, such as a yard, into a hopper where it is transferred onto a conveyor belt. We utilize proprietary software and detection systems that identify radioactivity in the soil using a cesium source. As the material moves along the conveyor belt, the detectors inform the system which direction to guide the waste through gates, sorting it into either a clean or contaminated pile. This process enables rapid sorting at a rate of about 200 tons per hour, significantly reducing the amount of waste that needs to be sent for costly disposal. It allows for efficient separation of contaminated and uncontaminated materials with high accuracy. Currently, we are applying this technology in some dredging projects in San Diego and have completed several other projects as well. This is our fourth or fifth endeavor with the system, and it is the first using our updated technology. There is a substantial market for this system, particularly for radiological waste remediation. We are also conducting research and development to expand our sorting capabilities to include non-radiological contaminants, such as mercury, which is crucial for future projects and bids. By enhancing our software and detection systems, we anticipate a wide range of applications in the market. Presently, we have two ongoing projects valued at under $10 million, but we foresee opportunities to participate in larger projects that are approaching procurement as we provide effective solutions that can yield significant savings. The current performance of this system has surpassed our clients' expectations, helping us to position ourselves for important collaborations in the future.

Right. And then is that an RFP type of process? Or how do you find the customer and the project?

Yes, it's mostly RFP process where they'll have a technical solution required. And sometimes it's just a rate required. Because of our ability to segregate the waste, we'll be able to have a cheaper rate of waste disposal costs. So in both ways, but mostly through the RFP process.

For our next question, we'll return to Steven Vine.

For my fellow stockholders, there's been a report released about six months ago, possibly from the GAO, discussing tank leakage and questioning the longevity of the issue. It acknowledged that one alternative could be TBI, referred to differently in the report. When the DOE responded, they indicated it could be a viable option. As an engineer with 40 years of experience, I find it surprising that a backup system hasn't been brought to your attention. I'm not suggesting they will, and I recognize they could be listening, but it's important to consider if something were to occur. My personal view is that everything I've read suggests this process will take decades. Even if you were to work on this in small increments, it would still save the government money. The significant financial resources currently being injected into our economy are only going to increase the costs associated with the Hanford project. Additionally, there are climate and ecological concerns that could complicate matters further.

I'm not sure if there was a question there, Steve. But yes, we've seen those reports. IGs had reports, the core of engineers had reports as well along the way, along with GAO. And they certainly do highlight alternatives to supplement, I think it's an important word, to supplement the ongoing strategy. And hopefully, we'll start seeing some of that supplementing going on in the next couple of years.

We'll move to our next question from Tristan Barr with MTB Asset Management.

Congratulations on what I believe is your best quarter since Q2 of 2012. It's surprising to see the stock decline despite such a fantastic performance. I think this is largely due to the cautious tone taken in the press release and during this call. Many companies at this time are encouraging optimism and a focus on how results might look in a normalized environment. However, you have been somewhat conservative, warning about potential outcomes if the pandemic persists. You've had an incredible start to the year despite the pandemic, even though you've estimated a loss of $15 million to $20 million in your high-margin Treatment business, which translates to a $3 million to $5 million impact on EBITDA. You've not emphasized that this business hasn't vanished; it's simply delayed, as the waste still needs to be treated and disposed of, remaining at customer sites. Once things resume, so will your operations, and there will be a significant backlog. You’ve led people to expect weakness in Q4 and Q1, but it sounds like Q4 will actually be quite strong, and Q1 should be solid as well. You're cautioning that Q2 could be weak if the pandemic continues and the government doesn't bounce back the business. I don't see why there is such excessive caution when you've made major strides in recovering the Service business. While treatment volumes are out of your control, they will return eventually, and there will be pent-up demand for your high-margin business. Q2 may seem weak now, but that's still a long way off. There are numerous bids available, and when they're awarded, that could quickly change the outlook, making your warnings seem unnecessary. I wish you would take a moment to celebrate the turnaround in the Service business and the impressive work you've done enhancing your position. Acknowledge that, while Q2 may be a challenge, you still have strong expectations for Q4 and Q1. You've been reducing debt, likely to get the PPP loan forgiven, and there are two major potential opportunities for the company, including the re-award of the TCC. Additionally, the DOE, in response to the tank waste audit, mentioned the need to focus on treating the waste rather than delaying it further. This is a very promising statement regarding the TBI. It feels like instead of highlighting the positives, you're focusing too much on potential risks several months down the line.

I appreciate your comments, Tristan, and I understand your perspective. I believe we have a lot to be proud of. I cannot explain the recent drop in stock price, but I will say that we are not the only company public right now that has shown caution concerning COVID. In fact, I challenge you to find many that haven't been cautious. We haven't been cautious until now because we've been doing well and maintaining a strong backlog. The caution we are expressing is linked to the delayed impact of COVID, which raises my concerns. However, as I mentioned in my statement, we have the management team, tools, technology, and capabilities to overcome this. So, even if we do feel the impact, it won't be long-lasting.

I understand the need to be straightforward. However, it seems a bit overly cautious. Is the $15 million to $20 million in Treatment revenue gone?

It's not lost. A very limited amount of it is lost; it's delayed.

Many companies express caution regarding COVID but still provide guidance on what a normalized environment may look like. In a normalized scenario, you mentioned a 50% annual growth rate. Based on your current performance, and not even factoring in the anticipated resumption of waste shipments or the potential benefits from the TBI and TCC, your company appears to be on track for revenues exceeding $120 million, with EBITDA margins around 10%. While it's important to acknowledge the risks to the model, it's equally essential to highlight what the model is and that we will eventually move past COVID. You have been reducing debt, and your cash flow suggests you will navigate this period successfully. It's time to communicate to stakeholders what the future looks like. Considering you are looking at over $120 million in revenue and over $12 million in EBITDA, coupled with two significant contracts that could be awarded anytime, this supports a much higher stock price than $6.50. I agree that acknowledging the risks associated with a global pandemic is crucial, but you should also emphasize how effectively you have managed through it. The delay of $15 million to $20 million in high-margin revenue is significant, and while this has caused a setback, it’s important to recognize the strong foundation your company has for future growth. You should begin to balance the positives with the negatives and showcase your current standing, which looks promising, especially at this price. You have a compelling story to share.

Well, we agree with you. As you know, Tristan, that we are undervalued at this point, and we do have a lot to boast about in regards to how we've changed. I think we've been doing that. We were hoping to get some of these big opportunities you mentioned awarded and build on them. We haven't had a lot that we expected over the last 9 months. It hasn't happened as they didn't happen with anyone due to the pandemic. So hopefully, we'll start to see that in the next couple of months and be able to do the press releases and get the risk behind us and get that growth back that you're talking about.

I'm pleased to know you share my view on the stock being undervalued. I understand that you and a few others have been actively purchasing shares. I hope the Board members, who clearly have the financial capability, consider investing in the stock to demonstrate their confidence during this dip.

For our next question, we'll return again to Steven Vine.

I recognize Tristan's comments and I share his sense of optimism, but I come from a background as a government contractor, which requires a certain level of humility. As a stockholder for almost four years, I've seen optimism before that didn't pan out, leading to frustration among investors. However, in your defense, Mark, you are now demonstrating humility and exceeding expectations. While I agree with Tristan that the stock is undervalued, I appreciate your cautious approach and the surprises you provide. To my fellow stockholders, I want to convey that my research shows that even if they construct that vitrification plant, it won't be sufficient, and they will still require our services. It's puzzling to me given the risks we face in this earthquake zone and the ongoing debates about climate change. I've also been wondering why the medical aspect hasn't been resolved; it's still present.

Yes, Steve, this is Lou. We are still exploring options regarding our medical strategy. Currently, we are considering several possibilities, including the option to stop pursuing it altogether. We are examining different paths for our approach to medical.

One thing we can say, Steve, with medical, and again this is Mark, is that we have absolutely minimized the cost to the company as much as we possibly can at this point to make sure we don't drain on the other operations and initiatives we got ongoing.

In my view, it should be discontinued because there are now too many competitors who have accomplished what you aimed to achieve. I commend the effort, but it's important to recognize when to stop and pivot. When you mentioned enhancing your infrastructure to pursue opportunities, what does that entail? Please provide a brief explanation. Is it about adding new personnel? That was a significant statement; what does it actually mean?

Yes. And it's a very tangible statement too, Steven. It means a couple of things. Number one that we've added some new professionals on the marketing side of the house, pure marketing as far as branding goes to expand us into different directions. We've hired a couple of additional sales professionals on the waste treatment side that come from the commercial industry to break us more into the utilities and commercial power groups. We're deploying a new CRM system that's more organized and comprehensive to support all the folks that are in business development. So there's a big initiative we've got ongoing. We have a new marketing plan in place. And so it's a more organized and detailed approach to business expansion is what we've got in place. And people in our industry will start seeing that application in the next couple of quarters.

Is there a strategic plan in place? If our aspirations at Hanford don't materialize, do we have a direction for the future? For instance, are we considering merging with another company, acquiring a business, or pivoting to focus more on services? Is this something that's being talked about?

It is discussed at every Board meeting each quarter. We have a list of transformative initiatives that we are pursuing at any given time. TBI is just one of those. There are six or seven others happening simultaneously, ranging from the EWOC facility and deploying new technologies there to capital improvements at various locations and expanding our international work. There are several other initiatives as well. We engage in many different directions at the same time, but we ensure it's manageable enough to continue progressing from quarter to quarter. We present to the Board each quarter on each initiative.

Alright. I have a couple more questions. You mentioned that the tank closure is still being considered. Should I take from that that discussions are ongoing and the DOE is still looking at it? I noticed that they extended the contract for the current tank maintenance team, which seemed unusual because in previous extensions they've stated it would last until they make an award, but this time they didn't include that comment. So my question is, when you say it's still being considered, does that mean they are planning to make an award for it? Because it seems significant.

Yes. It's in the procurement process, Steve. And so basically where it is right now is DOE has publicly said that they're continuing to look inwardly at how they made the selection the first time based on the protest claims. And so they're still in that process. They've been given no indication of which way they're leaning and what they might do. There's an enormous amount of speculation out there about the future or how they might fold it into something else or do something with the overall bid or do a BAFO, whatever they're going to do. I don't think anyone in our industry really has a guess as to what might happen. Or if they do, I actually don't know what it is, which I'm not in the know on these things. So we really have no idea where DOE is going. The participants like Perma-Fix are very simply waiting for further information. And that's really all I can say about that.

Okay. So about a year ago, there was a discussion regarding the Department of Energy definitely classifying low and high. Now that has become a reality. There are low and high classifications, and that has been accepted. Is that still a point of contention in the State of Washington?

Yes. I cannot address that at this point overall.

Alright. I'm going to ask. My last question is this: assuming you reach 2,000 gallons, how long will it take to process that amount?

Probably about a week at the most only because we're in an operational mode. A few days actually, but it's not a lot.

I wanted to make that point so my fellow stockholders understand that you know what you're doing. I believe the stock is undervalued. What you've accomplished is commendable. You've diversified and managed to survive in this challenging environment. You've had a strong quarter and are providing us with hope. Stay humble, please. I disagree with Tristan. While it's beneficial to promote the stock, maintaining humility is crucial because it allows for the evaluation of both the positive and negative aspects. It encourages proactive planning for potential outcomes, which is the kind of company I want to invest in. Congratulations and my sincere appreciation for all your efforts.

We'll take our next question from Chuck Dickenson.

I just wanted to say for the record that I know we're not doing a poll here, but when I heard Tristan go into his little speech there, it sounded like exactly what I was going to say. I mean I'm in 99% agreement with what he said. On the other hand, the 1%, I do understand. If you're looking at Q2, we're talking what? That starts in April, and we're already in November. So it's really not that far away. And if you start to see a little something with regard to procurement, it tells you, well, there might be a little hiccup here, let's get out in front of it. We don't want to surprise shareholders, and we don't want people coming back to us and saying, why did you never tell us that there might have been an issue here. Even though we can actually see on the Treatment side, that's been happening with delayed shipments for at least a couple or a few quarters already. It's just that the outsized opportunities that provide upside to you, and I don't need to go through them again, really outweigh what is probably a fairly ephemeral issue in terms of possible or potential COVID impact that nobody can gauge, that almost every company is going to have to face. So I won't weigh in on that any further. But you did say two things that I thought were very interesting that I had not heard before that are incremental. And the first one being about this carryover of a DOE fund amounting to over $3 billion going into 2021. That's a 40% increase. And obviously, you would have, hopefully, some potential exposure to that. So that's kind of a big item, and I'm glad you highlighted it. The question I would have there is does that money have to be spent next year? Is it likely to be spent? Is there an option where they just say, well, we'll try to redirect that to another department if we have to provide stimulus funds somewhere else? So that's the first question. And then the second thing that you brought up that I thought was very interesting was this whole idea of could there potentially be a new stimulus package that comes out, much like there was a decade ago, which I wasn't aware of, that could also be a huge factor. So those two things.

Yes, Chuck, I appreciate your opening comments regarding Tristan's remarks. To address your question directly, the $3 billion comes from statements the DOE made about a week ago, indicating they have about $3 billion in carryover. It's not a fund that has been appropriated by Congress specifically for 2021; it's money that wasn’t spent in 2020 due to the shutdown and the overall impacts of COVID. As carryover funds, they can't be used until the government signs and enacts a budget, at which point they'd be combined with the approved congressional budget. Historically, congressional budgets have been around $7 billion, so if they proceed with that amount, this $3 billion would be additional to the $7 billion for the 2021 fiscal year. While it's not exactly a fund, the outcome is similar: if they have that carryover, they can spend it. I have no idea how the DOE will allocate it, whether and how they will use it according to their guidelines, or what their rules are, aside from what I’ve seen in the press releases and articles indicating their plans for this funding. Regarding your second comment about potential stimulus, that was purely speculative. If they pursue an infrastructure package with the DOE, which is uncertain, that would be a comparison to the early Obama administration's ARRA enactment. We would expect the department might see similar funding for shovel-ready projects. However, this is all speculation about what the new administration might or might not fund, and we don’t have any concrete information on that. I only mentioned that there is a potential for such measures after the election.

I think it's important to note that under the Trump administration, there has been a potential reduction in the budget for Hanford over the past couple of years. However, Congress has overridden this and emphasized the importance of maintaining the budget for Hanford. The outcome of the upcoming election could change things, especially if a Democratic administration takes over, but historically, this administration has pushed for less funding for Hanford. Am I correct in that assessment?

That's the way I understand it too, Chuck.

Great quarter guys.

For our next question, we'll return to Tristan Barr with MTB Asset Management.

I just wanted to kind of clarify something here. By no means do I think you guys should be all sunshine and only give the positive outlook. I just think it would have been more balanced given the fact that you have the potential for this kind of rather substantial pickup of unspent money from the current year flow into next year. And obviously, the prospect of potential stimulus action being a benefit as well that the kind of caution towards Q2 might have been better expressed on the Q4 call, should this delay in procurements still be around at that point in time. And again, I mean, the amount of money that could potentially flow through, correct me if I'm wrong, I mean, that is also likely to be more now skewed towards Treatment than Services. Is that correct?

It's likely to impact both areas, but it depends on the projects that are funded. It's difficult to determine how the DOE would allocate that money regarding service procurement cleanup projects or simply moving more waste out. It's really hard to say, but you could assume it would involve both.

Alright, thank you. That appears to be all the questions that we have at this time.

Alright. I'd like to thank everyone for participating in our third quarter conference call. As I mentioned earlier, we successfully navigated what could have been a more challenging environment due to COVID-19, and we're well positioned heading into the fourth quarter. Based on our current sales pipeline, our accelerating bidding activity and backlog, and the potential for strong carryover from 2020 funding sources, we remain highly encouraged by the outlook for our business in the coming several quarters. Thank you for participating.

Ladies and gentlemen, this does conclude today's teleconference. We thank you again for your participation. You may disconnect your lines at this time, and have a great day.