Perma-Fix Environmental Services, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. The unaudited filing covers the Treatment and Services segments, which provide waste treatment and environmental, technical, and nuclear services. Amounts below are in U.S. dollars unless stated otherwise.
Financial performance and position
| Metric | Q1 2024 | Q1 2023 / prior date |
|---|---|---|
| Revenue | $13.617 million | $20.107 million |
| Gross profit (loss) | $(0.620) million; (4.6)% margin | $3.009 million; 15.0% margin |
| Operating loss | $(4.460) million | $(0.576) million |
| Continuing-operations net loss | $(3.458) million | $(0.318) million |
| Net loss, including discontinued operations | $(3.560) million; $(0.26) per diluted share | $(0.411) million; $(0.03) per diluted share |
| Cash used in operating activities | $(4.591) million, including discontinued operations | Cash provided: $1.564 million |
| Cash | $2.374 million | $7.500 million at Dec. 31, 2023 |
| Working capital | $0.255 million | $4.613 million at Dec. 31, 2023 |
| Reported debt | $2.546 million; no revolving-credit balance | $2.748 million at Dec. 31, 2023 |
At March 31, reported revolving-credit availability was approximately $2.379 million, including cash held with the lender and net of letters of credit and a lender-imposed reduction. The company reported $3.950 million of standby letters of credit and $26.747 million of bonds outstanding. Operating and finance lease liabilities totaled approximately $2.933 million.
Material changes and operating drivers
- Revenue fell $6.490 million, or 32.3%. Services revenue declined 53.3% to $4.908 million, mainly after two large projects ended and replacement starts were delayed. Treatment revenue declined 9.2% to $8.709 million.
- Both segments recorded gross losses: Treatment $(0.052) million versus $1.252 million gross profit a year earlier; Services $(0.568) million versus $1.757 million gross profit.
- Management cited poor weather and temporary facility closures, federal budget/Continuing Resolution delays, delayed government procurements and waste shipments, and March outages at all three primary treatment facilities. Facility outages were used for equipment replacement, repairs, program enhancements, and permit-expansion testing.
- Research and development expense rose to $0.296 million from $0.099 million, primarily reflecting PFAS technology work. SG&A increased modestly to $3.544 million from $3.486 million.
- The company used $4.978 million of cash and restricted finite-risk sinking-fund cash combined during the quarter. Capital expenditures were approximately $0.288 million, including $0.044 million financed.
Outlook, liquidity, and risks
- Management expects no material continued impact in Q2 from the cited temporary disruptions and reports improving waste receipts, delayed project starts, and procurement activity after the federal budget passed and weather improved. Treatment backlog was approximately $10.580 million at March 31, up from $8.702 million at year-end.
- Management believes the base business is positioned for the second half of 2024 and expects additional initiatives to begin benefiting revenue and earnings in the second half, with fuller impact in 2025. These include government procurements, expanded treatment capabilities, and international and commercial opportunities. These are forward-looking expectations, not guarantees.
- The company’s 50%-owned Italian joint venture won a European Commission contract valued up to approximately EUR 50 million. Initial work began in Q1, but the company expects limited revenue through 2025; it expects increased revenue from treatment phases beginning in 2026. The joint venture is not consolidated.
- The company is designing and fabricating its first operational PFAS-treatment unit and plans to accept commercial waste by year-end 2024, with further units targeted for 2025. The technology remains subject to development, operational, market-acceptance, and funding risks.
- Management says cash, operating cash flows, credit availability, and expected collection of Canadian receivables should fund operations for the next 12 months. It is also exploring additional capital, including possible equity transactions; there is no assurance it can raise liquidity or collect receivables as expected.
- On May 8, 2024, after quarter-end, the lender amendment removed fixed-charge coverage ratio testing for Q1 and Q2 2024. Testing resumes in Q3, with a minimum 1.15:1 ratio and revised calculation periods. The amendment also requires daily borrowing availability of at least $2.250 million through June 29, 2024, and $3.000 million from June 30, 2024 through June 29, 2025, subject to the stated condition for removing the latter requirement. Failure to meet covenants could allow the lender to accelerate debt and terminate credit commitments.
- Approximately $1.612 million remains due from Canadian Nuclear Laboratories under a settlement, subject to conditions including lien releases; the company expects completion by year-end 2024. Collection timing is uncertain.
- Environmental risks include potential cleanup obligations as a hazardous-waste handler or potentially responsible party. Accrued environmental remediation liabilities were $0.800 million at March 31. The company also disclosed continuing litigation claims by Tetra Tech; most claims have been dismissed, and the company says its insurer is providing a defense subject to a $0.100 million self-insured retention.
Most important facts for investors to verify
- Whether revenue, margins, project mobilizations, and facility operations recover as management expects after Q1 disruptions.
- Actual liquidity and borrowing availability against the lender’s daily minimums, covenant compliance, and any future lender waivers or amendments.
- Timing and collectability of the remaining $1.612 million Canadian receivable and satisfaction of settlement conditions.
- Progress, cost, commercial acceptance, and operating performance of the PFAS unit, including the stated year-end 2024 target.
- Whether the Italian joint venture reaches treatment phases on schedule and generates meaningful revenue for Perma-Fix as expected from 2026.
- Changes in government funding, contract awards or terminations, remediation obligations, and other environmental or legal exposures.