Perma-Fix Environmental Services, Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; this is an annual report, not a standalone fourth-quarter filing. Comparisons are primarily with FY2018. Amounts below are U.S. dollars.
Business context
Perma-Fix provides treatment and disposal of hazardous, radioactive and mixed waste, along with nuclear and technical services. Its reportable segments are Treatment, Services and Medical. The Medical Segment, which is developing medical-isotope technology, generated no revenue and curtailed R&D while seeking funding. The company completed closure and decommissioning of its M&EC facility in 2019.
Key financial metrics
| Metric | FY2019 | FY2018 |
|---|---|---|
| Revenue | $73.459 million | $49.539 million |
| Gross profit / margin | $15.584 million / 21.2% | $8.461 million / 17.1% |
| Operating income (loss) | $2.969 million | ($3.604 million) |
| Continuing-operations income (loss), after tax | $2.732 million | ($1.074 million) |
| Net income (loss) | $2.191 million | ($1.741 million) |
| Net income (loss) attributable to common stockholders | $2.315 million; $0.19 per share | ($1.421 million); ($0.12) per share |
| Cash from continuing operating activities | ($4.023 million) | $2.578 million |
| Cash and restricted finite-risk funds at year-end | $11.697 million combined | $16.781 million combined |
| Total debt | $3.880 million | $3.302 million |
| Working capital | $26,000 | ($6.753 million) |
Year-end cash was $390,000; the remaining $11.307 million of the combined cash and restricted-fund balance was held as collateral for financial assurance and was not equivalent to unrestricted cash. The company reported approximately $8.714 million of additional revolving-credit availability, subject to the borrowing base and other terms.
Material changes versus FY2018
- Revenue grew 48.3%, driven mainly by Services, up 149.4% to $33.095 million; Treatment rose 11.3% to $40.364 million. Services’ share of revenue increased to 45.1% from 26.8%.
- Gross margin rose to 21.2% from 17.1%. Treatment’s reported gross profit benefited from substantially lower M&EC closure costs: $330,000 in 2019 versus $3.323 million in 2018. Excluding those costs, Treatment gross margin increased to 31.2% from 29.0%; Services margin was 10.1%, versus 9.5%.
- SG&A increased 10.4% to $11.862 million, while R&D declined to $750,000 from $1.370 million, primarily because PF Medical reduced activity.
- Operating cash flow from continuing operations turned negative, mainly amid increases in accounts receivable and unbilled receivables as revenue expanded. Net accounts receivable rose to $13.178 million and unbilled receivables to $7.984 million.
- Working capital improved from a $6.753 million deficit to $26,000, aided by a $5 million release of restricted funds after M&EC’s closure, a $2.5 million shareholder loan and lower term-loan payments. The improvement did not eliminate the company’s tight liquidity position.
Outlook, risks and unusual items
- Management said operating cash flows, credit availability and cash on hand should be sufficient for the next 12 months, while noting it was continuing to pursue capital sources and cost reductions. This is management’s expectation, not a guarantee.
- The filing states 2020 incentive-plan targets of $86.201 million in revenue and $6.913 million in EBITDA. These are compensation-plan targets, not presented as formal company guidance.
- The company reported two Canadian Nuclear Laboratories task-order agreements with an aggregate value of approximately $11.5 million, with work expected to finish in 2020. Such government work may be terminated for convenience.
- Government-related work represented 81.7% of FY2019 revenue, up from 72.6% in FY2018. U.S. federal contracts generally may be terminated or renegotiated on 30 days’ notice; Canadian government agreements may also be terminated for convenience.
- COVID-19 had already caused suspension of certain field remediation projects and delays to some waste shipments originally expected in Q1 2020. The company said it could not yet determine the impact; further delays or operating restrictions could materially affect results.
- Credit terms had been amended after prior fixed-charge coverage covenant issues. Covenant testing was modified or waived during 2019; a minimum 1.15:1 fixed-charge coverage ratio was due to resume in Q1 2020. The credit facility matured March 24, 2021, making refinancing and covenant compliance important risks.
- The $2.5 million unsecured shareholder loan bears 4% interest and has principal payments scheduled in its second year; $520,000 was prepaid during 2019. The transaction also involved 75,000 common shares and a warrant for 60,000 shares.
- Accrued environmental remediation liabilities were $927,000, including $817,000 classified as current. The company also faces potential additional cleanup liability, including as a potentially responsible party at third-party disposal sites. Management said existing litigation was not expected to have a material adverse effect.
- The independent auditor issued an unqualified opinion on the financial statements. Management concluded disclosure controls and internal control over financial reporting were effective at year-end; the auditor did not attest to internal-control effectiveness.
Important facts for investors to verify
- Whether operating cash generation improves as the elevated receivables and unbilled balances are billed and collected.
- Actual unrestricted liquidity and borrowing-base availability, including the status and permitted use of restricted financial-assurance funds.
- Compliance with the resumed 2020 debt covenants and the company’s plan for the March 2021 facility maturity.
- Revenue conversion, margins and completion timing for Services contracts, including the Canadian task orders, and exposure to government funding or cancellations.
- The operational and financial effect of COVID-related project suspensions and shipment delays, plus funding prospects for Medical Segment R&D.
- Changes in environmental remediation estimates, disposal costs, and available third-party disposal capacity.