Perma-Fix Environmental Services, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. Amounts below are in millions unless otherwise noted.
Business context
Perma-Fix provides radioactive, hazardous and other waste treatment, technical and nuclear services through its Treatment and Services segments. Government-related work accounted for 85.8% of revenue, compared with 89.0% in Q1 2022. The company cautions that quarterly results are not necessarily indicative of full-year results.
Financial results and liquidity
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Revenue | $20.107 | $15.915; up 26.3% |
| Gross profit / margin | $3.009 / 15.0% | $1.636 / 10.3% |
| Operating loss | $0.576 | $1.883 |
| Continuing-operations net loss | $0.318; $0.02 per share | $1.249; $0.09 per share |
| Net loss, including discontinued operations | $0.411; $0.03 per share | $1.343; $0.10 per share |
| Cash from operating activities | $1.564 | $0.006 |
| Cash used for investing activities | $0.748 | $0.321 |
Treatment revenue rose 28.3% to $9.594 million, primarily on higher waste volumes; Services revenue rose 24.6% to $10.513 million as delayed projects returned to full operations. Gross margin improved in both segments. Cost of goods sold rose 19.7%, less than revenue, while SG&A increased 1.9% to $3.486 million.
At March 31, cash was $2.411 million and working capital was $0.339 million, down from $0.818 million at year-end. The balance sheet also included $11.637 million in restricted finite-risk sinking funds, not ordinary available cash. Total debt was $0.889 million; there was no revolving-credit balance. Revolver availability was approximately $7.133 million, including a lender-required $3.0 million minimum availability. Operating and finance lease liabilities totaled $2.375 million.
Operating cash flow included working-capital movements. Cash and restricted sinking funds together increased $0.612 million during the quarter. The company received its previously claimed $1.975 million Employee Retention Credit refund in March, plus approximately $0.060 million interest; the principal had been recorded as a receivable in 2022.
Material changes, outlook and risks
- On March 21, 2023, the lender reduced the maximum revolver from $18 million to $12.5 million, waived fixed-charge coverage ratio (FCCR) testing for Q4 2022 and Q1 2023, and reinstated quarterly testing beginning Q2 2023. The minimum FCCR remains 1.15:1; the company must maintain $3 million of availability until it meets and certifies the June 2023 test. The facility matures May 15, 2024. Management expects to meet covenants over the next 12 months.
- Management expects continued improvement in waste receipts and project work through the rest of 2023 as pandemic-related delays subside. It budgeted approximately $2 million of 2023 capital expenditures, subject to available financing and possible deferral. Management believes cash, operations and credit availability should fund the next 12 months, while also pursuing additional liquidity; it gave no numerical revenue or earnings guidance.
- A proposed UK nuclear-waste-treatment partnership with Springfields Fuels Limited remains conditional on a contract award, definitive agreements, approvals and other conditions. Perma-Fix expects a 45% interest and would need to invest an amount and on a schedule not yet determined.
- PF Canada is negotiating with Canadian Nuclear Laboratories over approximately $1.855 million of unpaid receivables and a $1.061 million contractual holdback. CNL may seek offsets, including costs associated with a bond of approximately C$1.9 million; the ultimate recovery is unresolved.
- Key exposures include reliance on government customers and contracts terminable for convenience; inflation, labor and supply costs and higher interest rates; collection timing; environmental regulation and potential cleanup or potentially responsible party costs; and credit availability. Outstanding letters of credit were approximately $3.016 million and bonds approximately $27.321 million. Accrued environmental remediation liabilities were $0.861 million, relating to discontinued operations.
- The company reported no litigation management believes would materially adversely affect it. Most claims in the Tetra Tech matter were dismissed; two claims remain, and the insurer is defending subject to a $100,000 retention. The filing added climate-change and banking-system disruption risks. Disclosure controls were assessed as effective at quarter-end.
Important facts for investors to verify
- Whether the company meets the Q2 2023 FCCR test and maintains the required borrowing availability.
- Collection and final settlement of the PF Canada receivable and holdback, including any CNL offsets.
- Whether improving revenue and segment margins persist, given project timing and government funding concentration.
- Actual liquidity needs, capital spending and financing plans ahead of the May 2024 credit-facility maturity.
- Whether the proposed UK partnership advances and what investment or funding commitment it would require.