Perma-Fix Environmental Services, Inc. — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; filed March 23, 2023. The company provides radioactive, hazardous and other waste treatment, engineering, remediation and nuclear services through its Treatment and Services segments. Financial amounts below are in U.S. dollars; millions unless stated otherwise.
Financial performance and liquidity
- Revenue: $70.6 million, down 2.2% from $72.2 million in 2021. Treatment revenue rose 1.1% to $33.4 million; Services revenue fell 5.0% to $37.2 million.
- Profitability: Gross profit increased 40.8% to $9.6 million; gross margin improved to 13.6% from 9.5%. Operating loss narrowed to $5.4 million from $6.8 million, while SG&A increased 14.1% to $14.7 million. Treatment gross profit declined to $5.2 million from $6.7 million; Services gross profit rose to $4.4 million from $0.1 million, reflecting higher-margin projects.
- Net results: Net loss was $3.8 million, or $0.29 per share, versus net income of $0.7 million, or $0.07 per share, in 2021. Continuing operations produced a $3.2 million loss versus $1.1 million income. Comparability is affected by 2021’s $5.4 million PPP loan-forgiveness gain and $3.9 million income-tax benefit; 2022 included $2.0 million of expected Employee Retention Credit (ERC) income.
- Cash flow: Continuing-operations operating cash flow was positive $0.2 million, compared with negative $6.3 million in 2021. Cash used in investing was $1.0 million; cash used in financing was $0.9 million. Cash and restricted finite-risk funds together declined $2.5 million to $13.4 million, including $1.9 million of unrestricted cash and $11.6 million of restricted funds.
- Balance sheet and liquidity: Working capital was $0.8 million, down from $4.1 million. Total assets were $70.9 million and total liabilities $33.4 million. Funded debt was $1.0 million; operating and finance lease liabilities totaled approximately $2.5 million. No revolver borrowings were outstanding at year-end; reported availability was $4.3 million, subject to a $3.0 million minimum availability requirement.
- Other measures: Treatment backlog was $9.2 million, up from $7.1 million. Capital expenditures were approximately $1.1 million. Government-related work generated $60.0 million, or 85.0% of revenue.
Material changes and unusual items
- Treatment waste receipts improved from the second quarter, but severe weather and a skilled-worker shortage disrupted shipments and facility operations. Services project activity resumed and reached full operating status, but revenue remained lower after a large 2021 project ended and replacement awards were delayed.
- The company recorded a $1.975 million ERC receivable and other income in 2022; the refund was expected, not reported as collected. The claim may be challenged by tax authorities.
- In March 2023, after year-end, the lender amended the credit facility: the revolving commitment was reduced from $18.0 million to $12.5 million, FCCR testing was waived for Q4 2022 and Q1 2023, and testing resumes for Q2 2023 at a minimum 1.15:1 ratio. The company had failed the Q2 2022 FCCR test, which the lender waived.
- The company reported $861,000 of environmental remediation liabilities for three discontinued-operation sites and $7.966 million of accrued closure obligations for operating facilities. These are distinct obligations.
- Canadian customer CNL receivables of approximately $1.853 million and a $1.060 million contractual holdback remained under negotiation; CNL may seek offsets, and a related bond is approximately C$1.9 million.
- The 2021 internal-control material weakness concerning revenue recognition for nonstandard contracts was reported remediated; management concluded controls were effective at December 31, 2022. The independent auditor issued an unqualified opinion and identified revenue recognition and realizability of deferred tax assets as critical audit matters.
Outlook, commentary and key risks
Management expects continued improvement in waste receipts and increased project work in 2023 from recently won contracts and pending bids, while noting exposure to COVID-19 and economic conditions. It believes available cash, operating cash flow, credit availability and the expected ERC refund should fund operations for the next twelve months, but gives no assurance. Management is also pursuing additional liquidity through credit amendments, term loans or equity, and may defer or cancel some spending. Planned 2023 capital expenditures are approximately $2.0 million.
Key risks include dependence on government-funded contracts and customers; competitive bidding and project timing; contract termination for convenience; cost inflation, labor constraints and supply-chain disruption; facility permits, financial assurance and limited disposal options; environmental liabilities; and liquidity and covenant compliance. The proposed U.K. treatment-facility joint venture remains conditional on contract awards, definitive agreements, approvals and financing; the company expects a 45% interest and an investment requirement if completed.
Most important facts for investors to verify
- Whether the ERC refund was received and whether the claim is accepted without adjustment.
- Collection and final settlement of the CNL receivable and holdback, including any offsets or bond-related costs.
- Available borrowing capacity under the amended, smaller revolver and compliance with the $3.0 million availability floor and upcoming FCCR tests.
- Whether expected 2023 waste receipts, project awards and margins translate into improved operating results and cash flow.
- Updated estimates and funding requirements for facility closure obligations and discontinued-site remediation.
- Whether the U.K. joint venture meets its stated conditions and what capital commitment the company would need to fund.