Business context and reporting period
Perma-Fix Environmental Services, Inc. filed this Form 10-K for the fiscal year ended December 31, 2023. It operates through two segments: Treatment, which treats and processes hazardous, radioactive, mixed and other waste; and Services, which provides nuclear, technical, engineering and related services. The filing compares full-year 2023 with full-year 2022; it does not provide a separate fourth-quarter financial summary.
Financial performance and liquidity
| Metric | 2023 | 2022 |
|---|---|---|
| Revenue | $89.735 million | $70.599 million |
| Gross profit / margin | $16.369 million / 18.2% | $9.609 million / 13.6% |
| Operating income (loss) | $0.756 million | $(5.397) million |
| Income (loss) from continuing operations | $0.918 million | $(3.211) million |
| Net income (loss) | $0.485 million | $(3.816) million |
| Cash from continuing operating activities | $6.745 million | $0.164 million |
Revenue increased 27.1%. Treatment revenue rose 30.3% to $43.477 million, primarily from higher waste volumes, partly offset by lower average pricing from the waste mix. Services revenue rose 24.2% to $46.258 million, reflecting projects returning to full operations, better productivity and contracts won in 2023. Gross margin improved to 18.2% from 13.6%; Services margin increased to 20.5% from 11.7%, while Treatment margin was nearly flat at 15.8% versus 15.7%.
At year-end, cash was $7.500 million and working capital was $4.613 million, compared with $1.866 million and $0.818 million, respectively, at December 31, 2022. The balance sheet also included $12.074 million in restricted finite-risk sinking funds; cash plus this restricted balance was $19.574 million. Total debt was $2.748 million, including current and long-term portions, and the revolving credit balance was zero. Reported revolving availability was approximately $10.622 million, inclusive of cash deposited with the lender and net of letters of credit and lender-imposed reductions. Operating lease liabilities were $2.050 million and finance lease liabilities were $1.067 million.
Continuing-operations investing cash use was $1.714 million. Capital equipment purchases were approximately $2.498 million, including $0.784 million financed. The company budgeted approximately $2.0 million in 2024 capital expenditures, which may be delayed or deferred. The Treatment backlog of stored, unprocessed waste was approximately $8.702 million, down from $9.156 million at year-end 2022.
Material changes versus 2022
- Both segments grew, and operating results shifted from a loss to income. SG&A increased only 2.2%, while gross profit rose 70.4%.
- Continuing operating cash flow increased to $6.745 million from $0.164 million. Improved results and working-capital movements contributed; unbilled receivables rose $2.370 million and deferred revenue rose $2.002 million.
- Interest expense increased to $0.323 million from $0.175 million, reflecting the new $2.5 million term loan, higher rates and other borrowing costs.
- Domestic government-related work generated $70.642 million, or 78.7% of revenue, compared with $59.658 million, or 84.5%, in 2022. Foreign-customer revenue was approximately $2.066 million, or 2.3% of total revenue, versus $1.226 million, or 1.7%.
- Discontinued operations recorded a $0.433 million loss, compared with a $0.605 million loss in 2022. Accrued environmental remediation liabilities were $0.845 million at year-end.
Outlook, commentary, risks and unusual items
- Management expects continued improvement in waste receipts and project work in 2024, including work from existing and newly won contracts and pending bids. No numeric revenue or earnings guidance is provided. Management expects seasonally weaker first-quarter activity.
- Some government-related customers advised that waste shipments could be delayed amid the continuing resolution and uncertainty over FY2024 appropriations. A prolonged partial government shutdown could delay procurement, shipments and project work.
- A 50%-owned joint venture with Campoverde was awarded a multi-year European Commission contract valued up to approximately EUR 50 million for radioactive waste treatment in Italy. Work had not begun by year-end; the company expects limited project-management revenue through 2025 and increased revenue beginning in 2026 when treatment phases start. The contract is subject to termination under specified conditions.
- A non-binding term sheet with Springfields Fuels Limited proposes a UK waste-treatment facility partnership, with expected ownership of 55% for SFL and 45% for Perma-Fix. Definitive agreements, approvals, facility design, financing and investment requirements remain unresolved.
- PF Canada had approximately $2.389 million in unpaid receivables from Canadian Nuclear Laboratories at year-end. A settlement is subject to conditions; approximately $0.741 million was received in January 2024, with the balance expected by management during 2024 if conditions are met.
- The company received a $1.975 million Employee Retention Credit refund and approximately $0.060 million of interest in March 2023. The credit had been recorded as other income in 2022; the 2023 receipt improved cash, not 2023 operating revenue.
- The credit facility matures May 15, 2027 and includes a quarterly fixed-charge coverage covenant with a minimum 1.15:1 ratio. The company met applicable covenants in the second through fourth quarters of 2023. Borrowings carry variable rates, and covenant failure could permit acceleration or termination of credit availability.
- Key risks include heavy government and project-based customer exposure, contract termination rights, budget delays, competitive pricing, fixed-price cost overruns, seasonal fluctuations, limited third-party disposal options, permit and insurance requirements, environmental liabilities, and potential difficulty obtaining financing, bonds or financial assurance.
- The independent auditor issued an unqualified opinion on the financial statements. Management reported effective disclosure controls and internal control over financial reporting as of December 31, 2023; the auditor did not attest to internal-control effectiveness.
Most important facts for investors to verify
- Whether 2024 government appropriations and procurement timing support the expected recovery, and whether shipment delays or a shutdown affect results.
- Whether operating cash flow converts into collections, especially the remaining PF Canada settlement receivable, and whether working-capital balances remain manageable.
- Whether Treatment and Services margins are sustainable as project mix, waste volumes, disposal costs, labor and pricing change.
- Whether the Italian contract advances as planned, and whether the UK partnership progresses to definitive agreements with acceptable funding requirements.
- Whether the company maintains covenant compliance, borrowing availability, required permits, insurance, bonds and facility financial assurance.