Perma-Fix Environmental Services, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Financial statement amounts below are in U.S. dollars; unless stated otherwise, figures are in millions. The filing is unaudited.
Business context and reporting period
Perma-Fix provides radioactive, hazardous and other waste treatment, technical and nuclear services, primarily to government-related customers. Its reporting segments are Treatment, Services and Medical; Medical has no revenue and has curtailed research and development because of funding needs.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $15.797m | $30.172m | $55.075m | $77.079m |
| Gross profit / margin | $2.224m / 14.1% | $4.750m / 15.7% | $5.546m / 10.1% | $12.700m / 16.5% |
| Operating income (loss) | ($1.368m) | $1.285m | ($4.543m) | $3.140m |
| Net income | $1.338m | $1.414m | $3.179m | $2.783m |
| Net income attributable to common stockholders | $1.402m | $1.446m | $3.302m | $2.870m |
| Basic earnings per share | $0.11 | $0.12 | $0.27 | $0.24 |
Q3 operating loss reflected lower Services activity; reported net income included a $2.836m income tax benefit. Nine-month results included a $5.381m gain from forgiveness of the PPP loan and a $2.840m income tax benefit, including a $2.351m benefit from releasing part of the deferred-tax valuation allowance.
Cash flow: For the first nine months, continuing operations used $4.031m of cash, discontinued operations used $0.296m, and investing activities used $1.131m. Financing activities provided $4.783m. Cash and restricted finite-risk funds totaled $18.691m at period-end, including $7.222m of cash and $11.469m of restricted funds.
Balance sheet and liquidity: Working capital was $7.147m at September 30, versus $3.672m at December 31, 2020. Total debt was $1.098m, down from $6.729m, principally following PPP loan forgiveness; there were no revolver borrowings. Revolver availability was approximately $10.804m, after a $3.020m reduction for standby letters of credit. Total liabilities were $34.346m and stockholders’ equity was $41.058m. The company also reported $3.297m in operating- and finance-lease liabilities.
Accounts receivable increased $2.157m to $11.816m, while unbilled receivables fell $8.757m to $5.696m, primarily due to invoicing and collection on large Services projects. Accounts payable declined $5.665m to $9.717m.
Material changes versus the prior comparable period
- Q3 revenue fell 47.6%; nine-month revenue fell 28.5%. Services revenue decreased 70.1% in Q3 and 41.1% year to date, reflecting COVID-related procurement and award delays and the completion or near-completion of large projects.
- Treatment revenue rose 25.9% in Q3, supported by a $1.286m contract pricing adjustment and improved commercial waste volume, but was down 1.5% for the nine months amid shipment delays.
- Services posted a Q3 gross loss of $0.263m, a negative 3.8% margin, compared with $3.656m gross profit and a 15.8% margin a year earlier. Treatment Q3 gross margin improved to 28.0% from 15.5%.
- Nine-month operating cash flow changed from $3.503m provided by continuing operations in 2020 to $4.031m used in 2021. The filing attributes working-capital movements in part to receivables, unbilled receivables and payments to vendors.
Outlook, management commentary, risks and unusual items
- Management said it expected new Services projects to begin ramping up in Q4 2021. Awards included a fixed-price Navy ship decommissioning contract valued at approximately $40m, expected to run 18–24 months. This is a contract value, not a revenue forecast; the filing gives no formal financial guidance.
- Management reported a gradual return of waste receipts from certain Treatment customers late in Q3, while warning that COVID-19 could continue to delay shipments, project work and contract awards. It stated that available cash, credit capacity and other resources should fund operations for the next 12 months, but noted this was not assured.
- The credit agreement requires a minimum 1.15:1 fixed-charge coverage ratio (FCCR). The lender waived Q2 2021 noncompliance and removed Q3 testing; testing resumes in Q4 2021 under revised calculations. The company must maintain at least $3m of revolver availability until the Q4 covenant is met and certified. A future covenant breach could allow acceleration of debt and termination of credit commitments.
- The September registered direct offering covered 1,000,000 shares at $6.20 each, for $6.2m gross and approximately $5.701m net proceeds. At September 30, 100,000 shares had been issued; the remaining 900,000 shares and $0.744m proceeds were completed in October. The company planned to use proceeds mainly for working capital and general purposes, including facility expansion and upgrades. Shares outstanding were 13,214,910 on November 4, 2021.
- Government-related customers accounted for 83.8% of Q3 revenue and 85.8% of nine-month revenue. Government contracts may be terminated or renegotiated, and funding changes could materially affect results.
- Environmental risks include potential cleanup liability as a potentially responsible party, permit and regulatory compliance, and remediation obligations. Accrued environmental remediation liabilities were $0.776m. A disclosed lawsuit by Tetra Tech was being defended by the company’s insurer, subject to a $0.100m self-insured retention; management said it believed the company had no liability.
- Standby letters of credit totaled approximately $3.020m and bonds outstanding approximately $50.092m. The company reported no material supply-chain disruption to date, but continued to monitor cost and availability risks.
Most important facts for investors to verify
- Whether the announced Services awards, particularly the approximately $40m Navy project, translate into timely, profitable work and improved segment margins.
- Whether Treatment waste receipts recover and whether COVID-related shipment and contract-award delays persist.
- Q4 2021 and subsequent FCCR compliance, required revolver availability, and continued access to PNC credit.
- Cash conversion and collections, including the movement in accounts receivable and unbilled receivables; operating cash flow was negative for the first nine months.
- The sustainability of reported earnings apart from PPP forgiveness and the valuation-allowance tax benefit.
- Use of offering proceeds, post-offering dilution, and funding needs for the Medical Segment.
- Exposure to government funding and termination decisions, environmental remediation and contingent liabilities.