Business context and reporting period
Perma-Fix Environmental Services, Inc. filed this Form 10-K for the fiscal year ended December 31, 2018. The filing reports annual results; it does not provide a clear standalone fourth-quarter income statement. The company provides hazardous, radioactive and mixed-waste treatment and disposal, environmental and nuclear services, and is developing medical-isotope technology. Its Treatment and Services segments generated revenue; the Medical segment remained in research and development with no revenue.
Key financial results
| Metric | 2018 | 2017 |
|---|---|---|
| Revenue | $49.539 million | $49.769 million |
| Gross profit / margin | $8.461 million / 17.1% | $8.620 million / 17.3% |
| Operating loss | $3.604 million | $4.736 million |
| Continuing-operations loss | $1.074 million | $3.538 million |
| Consolidated net loss | $1.741 million | $4.130 million |
| Net loss attributable to common stockholders | $1.421 million; $0.12 per share | $3.680 million; $0.31 per share |
| Cash provided by operating activities | $1.960 million | $0.442 million |
- Segment revenue: Treatment $36.271 million, down 3.9%; Services $13.268 million, up 10.4%. Treatment was 73.2% of total revenue and Services 26.8%.
- Cash at year-end was $810,000. Restricted finite-risk sinking funds were $15.971 million and are not ordinary available cash.
- Working-capital deficit was $6.753 million, versus $2.268 million a year earlier. Total debt was $3.302 million at year-end; revolving borrowings were $639,000, with reported additional availability of $2.368 million.
- Cash used in continuing-operations investing activities was $1.385 million. Purchases of capital equipment totaled approximately $1.977 million, including $545,000 financed through capital leases.
Material changes versus 2017
- Revenue was nearly flat overall. Treatment revenue fell as the M&EC facility moved into closure: its revenue declined to $155,000 from $6.312 million. The other Treatment facilities increased revenue by approximately $4.678 million as operating capabilities shifted.
- Government waste revenue in Treatment decreased $4.224 million, while other nuclear waste increased $1.944 million. Services growth partly offset the Treatment decline.
- Gross profit declined $159,000. Reported Treatment gross profit included M&EC closure costs of $3.323 million in 2018 versus $1.400 million in 2017. Excluding those costs, management reported improved Treatment gross profit and margin.
- SG&A fell $360,000 and R&D expense fell $225,000, principally because Medical-segment R&D was reduced. The 2018 results also included a $1.596 million gain from exchanging M&EC subsidiary preferred stock for company common stock.
- Cash from operations rose to $1.960 million from $442,000, including approximately $5.4 million of M&EC operating and closure spending in 2018.
Outlook, commentary, risks and unusual items
- Management said late-2018 waste-shipment delays could benefit the first half of 2019. Treatment backlog rose 44.8% to $11.104 million from $7.666 million; timing and complexity affect when stored waste is processed and revenue recognized.
- Management reported several Services contract awards in March 2019, with expected aggregate contract value of approximately $17 million through 2019. This included a Canadian project valued at approximately $9 million that had not yet been executed when the filing was prepared.
- For 2019, management cited a $63.124 million revenue target and $6.777 million EBITDA target in executive incentive plans. These are compensation-plan targets, not a formal company revenue or earnings forecast.
- Management expected operations, credit availability and a subsequent $2.5 million loan to fund needs for the next 12 months, and anticipated release of approximately $5 million from restricted funds after M&EC closure. Both the fund release and regulatory/AIG approvals were uncertain.
- A March 2019 lender amendment waived the 2018 fourth-quarter fixed-charge coverage covenant shortfall and waived first-quarter 2019 testing, while revising later covenant terms. The company warned that an unwaived future breach could permit acceleration of debt and that it might lack liquidity to repay.
- The April 1, 2019 $2.5 million unsecured loan was from shareholder and consultant Robert Ferguson, at 4% interest for two years. Consideration included 75,000 common shares and a warrant for 60,000 shares; default provisions may permit share settlement, subject to stated limits. The lender is related to the company, and the filing said accounting treatment was still being evaluated.
- Other key risks include dependence on domestic government work (70.3% of 2018 revenue), contracts terminable or renegotiable on 30 days’ notice, environmental and facility-closure liabilities, permits and financial-assurance requirements, limited radioactive-waste disposal options, seasonal/project timing, and the Medical segment’s need for financing to resume full R&D.
- Environmental remediation liabilities were $887,000 at year-end, including $50,000 current. M&EC closure liabilities totaled $6.750 million across current and long-term classifications; closure estimates changed as additional cleanup scope was identified.
Most important facts for investors to verify
- Whether the 2019 contract awards were executed, funded and converted into revenue, and whether the backlog was processed and collected as expected.
- Whether the anticipated $5 million restricted-fund release occurred, and the actual terms, accounting treatment and dilution associated with the Ferguson loan and securities.
- Current borrowing availability, covenant compliance, lender waivers and the company’s ability to address its working-capital deficit and scheduled debt payments.
- Actual M&EC final-closure costs and approvals, remaining closure cash needs, and any change in environmental or remediation estimates.
- Whether the Treatment-facility transition sustained volume and margins, and whether Medical R&D obtained funding or a partner.
- The filing reports an unqualified audit opinion on the financial statements and management concluded disclosure controls and internal control over financial reporting were effective; the auditor did not attest to internal-control effectiveness.