Perma-Fix Environmental Services, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. Unless noted otherwise, financial amounts below are in millions of dollars.
Business context
Perma-Fix provides radioactive, hazardous and non-hazardous waste treatment and environmental services. Its Treatment and Services segments serve government and commercial customers; the Medical segment remains in limited research and development and generated no revenue. Government-related work represented 87.1% of Q1 revenue.
Financial results and liquidity
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $23.133 | $24.860 |
| Gross profit / margin | $2.356 / 10.2% | $4.640 / 18.7% |
| Operating income (loss) | $(0.999) | $1.449 |
| Continuing operations income (loss), net of tax | $(1.038) | $1.308 |
| Net income (loss) attributable to common stockholders | $(1.123) | $1.220 |
| Diluted earnings (loss) per share | $(0.09) | $0.10 |
| Cash used in operating activities | $(6.604) | Cash provided: $3.273 |
- Revenue declined 6.9%. Treatment revenue fell 21.6% to $7.495 million, while Services revenue rose 2.2% to $15.638 million.
- Gross margin fell to 10.2%, primarily reflecting lower Treatment waste volumes and the effect of fixed costs. Services gross margin also declined, to 9.2% from 12.4%.
- SG&A increased 9.5% to $3.205 million; research and development declined to $0.150 million from $0.232 million.
- At March 31, cash was $0.713 million, accounts receivable $20.121 million, and working capital $1.003 million, down from $3.672 million at December 31, 2020. Cash and restricted finite-risk funds together totaled $12.177 million, including $11.464 million of restricted funds.
- Operating cash use included a $10.445 million increase in accounts receivable, partly offset by a $5.224 million decrease in unbilled receivables. Management attributed the receivables movement primarily to invoicing and collection timing.
- Total debt was $6.657 million, including a $5.318 million PPP loan; the balance sheet classified $5.196 million of debt as current. The company reported no revolving-credit borrowings and approximately $10.280 million of borrowing availability, subject to eligible receivables and other limits. Operating and finance lease liabilities totaled approximately $3.361 million.
Material changes versus prior period
- The company moved from $1.194 million of net income to a $1.153 million net loss, and from operating income to an operating loss.
- Treatment revenue was lower mainly because of COVID-19-related waste shipment delays and a less favorable average-price mix. Government waste revenue in Treatment declined 37.9%.
- Services revenue increased modestly, but higher project costs reduced segment gross profit by $0.464 million.
- Operating cash flow shifted from $3.273 million provided to $6.604 million used. Cash and restricted funds declined $7.193 million during the quarter.
- Management reported that the company met its first-quarter loan covenants. A May 4, 2021 credit-facility amendment subsequently allowed specified PPP-funded expenses to be added back in the fixed-charge coverage calculation and provided a capital expenditure line of up to $1.0 million.
Outlook, risks and unusual items
- Management expected a gradual return of delayed Treatment waste receipts during the first half of 2021 and cited increased proposal requests and pent-up demand. It said the full pandemic impact remained uncertain, though conditions appeared to be subsiding toward the end of the second quarter.
- Management believed available cash, facility availability and the new capital expenditure line should fund operations for the next 12 months, while cautioning that COVID-19-related shipment and contract-award delays could undermine that expectation. Planned 2021 capital expenditures were approximately $2.0 million, with projects potentially deferred.
- The $5.318 million PPP loan forgiveness application remained pending with the lender and SBA. If not forgiven, repayment could affect liquidity; the company classified approximately $4.786 million as current based on anticipated payment timing.
- Government customers and contracts are a concentration risk: government-related work comprised 87.1% of revenue, and certain government agreements can be terminated or renegotiated on short notice. COVID-related shipment delays, procurement delays, government funding, receivable collections, permits, operating costs and access to capital are identified risks.
- Environmental exposure includes accrued remediation liabilities of $0.811 million, including $0.659 million current, potential responsibility for cleanup at disposal sites, and facility closure obligations supported in part by insurance. Outstanding letters of credit were $3.026 million and bonds were $42.973 million.
- A lawsuit brought by Tetra Tech against the company and other defendants was ongoing; the company reported that its insurer was providing a defense subject to a $0.100 million self-insured retention and stated it believed it had no liability. Management said it knew of no litigation expected to materially adversely affect the company.
- The Medical segment’s research remains constrained by lack of funding; management said full activity would not resume until funding or partners are secured. The company also reported that its shareholder rights plan expired May 2, 2021 and was not renewed.
Important facts for investors to verify
- Whether and when the SBA and lender approve forgiveness of the $5.318 million PPP loan, and the resulting repayment and covenant effects.
- Whether accounts receivable are collected as expected, given the quarter-end increase to $20.121 million and negative operating cash flow.
- Whether Treatment waste shipments recover and delayed Services contract awards translate into revenue and improved margins.
- Whether liquidity, borrowing availability and covenant compliance remain adequate if operating cash use or government-related delays persist.
- Developments in environmental remediation obligations and the Tetra Tech litigation, including any change in insurance coverage or potential exposure.