Perma Fix Environmental Services Inc (PESI) Q4 2020 Earnings Call Transcript

Good day everyone and welcome to today’s Perma-Fix Fourth Quarter 2020 Conference Call. At this time all participants are in a listen-only mode. Later you will have an opportunity to ask questions during the question-answer session. Please note this call may be recorded. It is now my pleasure to turn today’s program over to Natalie Redman.

Thank you, Emma. Good afternoon, everyone, and welcome to Perma-Fix Environmental Services' Fourth Quarter 2020 Conference Call. On the call with us this afternoon are Mark Duff, President and CEO; Dr. Lou Centofanti, Executive Vice President of Strategic Initiatives; and Ben Naccarato, Chief Financial Officer.

All right. Thanks, Natalie, and good afternoon. We generated solid revenue growth and achieved profitability for 2020 despite the impacts of COVID-19 on our treatment segment. We attributed these results to the strength in our nuclear services segment and our ability to maintain operations throughout the pandemic. I'm very proud of the fact that Perma-Fix successfully implemented our revised COVID safety plan while continuing to meet the needs of our clients during a time when they were largely working from home. In addition, we have improved our approach to worker safety and health programs in our plants and field operations throughout 2020, having achieved an important milestone of over 400,000 hours without a recordable incident. This milestone is significant in our business as a safety record reflects the focus and dedication of our team to ensure conscientious work performance and attention to detail, which directly drives productivity in the field.

Thank you, Mark. Beginning with revenue, our total revenue from continuing operations for the fourth quarter was $28.3 million compared to last year's fourth quarter of $22.1 million, which is an increase of $6.2 million or 28.4%. The increase, as you said, was led by our services segment, where revenue increased by $10.8 million over the prior year as the company continued to operate on numerous projects in both the U.S. and Canada. The increase was offset by a drop in our treatment segment revenue of $4.6 million as waste receipts at our treatment plants continued to be impacted by the COVID-19 pandemic. For the year ended 2020, our revenue was $105.4 million compared to $73.5 million in 2019. As with the fourth quarter, the services segment was the main driver of this increase as revenue increased $42.2 million or 127.5%. Despite the ongoing COVID pandemic, our projects continued to operate during most of the year generating increased revenue, which offset the drop in our treatment segment of $10.3 million. Following a strong start to 2020, the impact of COVID significantly affected our waste received throughout both the second through the fourth quarters resulting in a year-over-year drop in revenue of approximately 25%. Turning to the cost of goods sold, our cost of sales was $25.2 million in the fourth quarter compared to $17.4 million in the prior year, an increase of $7.7 million or 44.3%. This significant increase in project work in the service segment resulted in increased payroll, travel, and subcontractor expenses. Headcount increased approximately 15% over the prior year, while per diem days paid increased by approximately 82%. Conversely, the treatment segment lowered costs related to transportation disposal and materials and supplies due to processing approximately 31% less volume in the quarter. Year-to-date, the cost of sales was $89.5 million compared to $57.8 million in 2019, an increase of $31.7 million or 54.7%.

We'll take our first question from Howard Brous. Your line is open.

First of all, let me congratulate you on achieving $100 million in revenue, Mark, Lou, Ben, in spite of COVID and everything else, so first, congratulations. And also Ben, congratulations on your joining the Board of Directors of Pyrogenesis. Excuse me. So first of all, and hopefully everybody in the family as well and everyone in the firm, any COVID issues?

No, it's good to hear from you. No, everybody's good. We have zero COVID cases in the company right now, which, you know, that wasn't the case several months ago. But we are at zero, and many, many folks are getting vaccinated. So we're hoping to stay on top of that trend.

Good. Congratulations Mark. I'm glad to hear that. That's critically important. In your announcement today, and I just want to address one issue. And I'm quoting from your announcement, we are rapidly advancing several issues within the treatment segment that we believe have the potential to significantly enhance our revenues, while establishing increased market share and large backlog for waste processing. Can you be a little bit more granular in terms of that comment?

Sure, Howard. We always have initiatives going on in each one of our plants to upgrade them and add new capabilities that would expand our inventory and our market share. So we have one opportunity going on in each of our facilities. Now, we have a new program in Florida, called vacuum thermal desorption, which will significantly increase our capability to take specific kinds of waste coming from the DOE with limited competition. That should be up and running by the end of the year, most likely by the end of Q3. That's running very well, very rapidly. We're continuing to complete our construction program; DSSI is going to give us more storage capacity and allow us to expand our classified waste program, which we have a good backlog that we have not yet received, because we've gone to this space in the classified area. We also have expansion going on at our EWOC facility, with some upgrades happening there for several procurements that we have waiting to hear on, and we have some minor modifications going on up in Richland. So, altogether, I think we can start realizing revenue in late Q3 and Q4, but really tee up 2022 for increased waste receipts along with access to new technologies. We are also seeing increased activity on the international front with several new waste streams being prepped for shipment in the next quarter or so. We should start seeing some by the end of Q2 and get some real sustainable waste trimmed internationally. So we're excited about the waste treatment side of the house. It has taken a beating, as you know, and hasn't come back as fast as we'd hoped, but we have been noticing significant shipments and RFP activities recently that give us a lot of optimism that we could be back to normal on waste receipts by the end of Q2.

Can you define the financial opportunities rather than the general opportunities in terms of potential revenue, and let's talk about third, fourth quarter, and importantly, 2022?

Third and fourth quarter is going to be tough to predict, maybe a million or two, three in revenue impact into this year, but we're holding between $5 million and $10 million in additional revenue for 2022 as a base. That's along with many other positive trends we're seeing on different existing capabilities like our water system, where we are starting to receive some water now. It took forever to get that whole program rolling, but it's going good now. We're doing well on the water receipt side and processing side. So between the VTD, classified waste, and EWOC, I don't think $10 million is a big stretch to assume for 2022.

And that's without any of the big opportunities that we've talked about in the past, correct?

That's correct. That's just new ways to receive.

Last but not least, but still in the same vein, you've heard nothing because I've heard nothing on the other issue. Have you?

We have heard nothing, and we're supposed to be sort of seeing past quarters and any day kind of a thing, so we have heard nothing bad in the past quarter. Yeah.

Again, congratulations, to yourself and the team on $100 million in revenue. And that's all I have for the moment. Thank you.

Right, thanks, Howard. I appreciate it.

We will take our next question from Chuck Dickerson. Your line is open.

Thank you for taking my question here. I wondered if you could talk in a little more detail or give a framework of how you're looking at translating service work into additional treatment opportunities? I mean, are we talking here about you go and you do some service work and you discover that there's treatable waste as a by-product of the service you perform, or is it alternatively a situation where the customer is so satisfied with the service work that you perform that they come back to you and say, by the way, we also have some treatment work we'd like to give to you as well? So how do you see that translation unfolding from service into waste treatment opportunities?

You know Chuck, we do have several bids and several jobs that have included extensive nuclear services work in the field, which has resulted in shipments of waste to ourselves for processing. For example, the job at the Harvard Review Hospital, where we did the remediation, we packed everything, shipped it to our facility in Richland, Washington, processed it, and got rid of everything. We're full service, cutting out a lot of inefficiencies, and it worked really well. Other projects will typically involve remediation, and the waste may or may not require treatment. In other words, if it doesn't require treatment, it can be shipped directly for disposal in a landfill. That's normally the largest volume of the waste we handle. However, we are bidding on several jobs that do include some treatment processing. If there's any way we can ship something like large components to our facilities and do the dismantlement off-site, we'll do that. It doesn't always afford that opportunity. But to answer your question, most of the time, it's either one process or the other, with waste treatment or the integral services types of jobs, where we're doing the services in the field; typically, the waste is shipped directly for disposal, so there's not much opportunity for treatment overall. What we do is utilize our waste management professionals and engineers on the services projects to manage the waste and minimize treatment costs as necessary, while optimizing packaging so it can go directly to disposal and save money.

Great. The only other question I had was, do you have a sense of what percent of your workforce in the field has been vaccinated already for COVID? And is that sort of the key item to look at, or do you have to look at vaccination across all of your client base as well? And maybe all this is academic come the end of May or June, as you say things are expected to start ramping up then. So maybe it's not a question that’s really that important, but just kind of a curiosity as to what percent is already vaccinated?

You know, I would be just guessing if I provided a percentage. We do plan on pulling it at some point just to see what percentage we're talking about, but we haven't done that yet. In East Tennessee, we have about a third of the company, running around 20% vaccinated as a population. So I have no idea where our folks are. I do know that in my office, it's much higher than that. We have about 40 folks in our office, on the administrative side. But as far as the plants go, I’d just be guessing—I have no idea, I'm afraid.

Okay, but the waste receipts that you are starting to see trend up, although not back to a normalized level, may have some correlation to people being vaccinated.

That's correct. I would assume that as well.

Okay, thank you.

Thanks.

It appears we have no further questions at this time.

All right. I'd like to thank everyone for participating in our fourth quarter conference call. As I mentioned earlier, we remain bullish on the outlook for the full year. We appreciate the continued support of our shareholders and look forward to providing further updates as developments unfold. Thank you.

This does conclude today's program. Thank you for your participation. You may disconnect at any time.