Perma-Fix Environmental Services, Inc. (NASDAQ: PESI) — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone fourth-quarter filing; figures below compare full-year 2021 with full-year 2020. Unless noted, amounts are in U.S. dollars.
Business context
Perma-Fix provides treatment and disposal of radioactive, mixed, hazardous and other waste, as well as nuclear, remediation and technical services. In December 2021, it ceased Medical Segment research and development and sold its 60.54% interest in Polish subsidiary PFM Poland for nominal consideration, while retaining PFMC, converted to a Delaware LLC. The Medical Segment had generated no revenue.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $72.191 million | $105.426 million |
| Gross profit / margin | $6.824 million / 9.5% | $15.893 million / 15.1% |
| Operating income (loss) | $(6.769) million | $3.328 million |
| Continuing-operations income | $1.092 million | $3.149 million |
| Net income attributable to Perma-Fix common stockholders | $0.835 million; $0.07 per diluted share | $2.860 million; $0.23 per diluted share |
| Cash from continuing operating activities | $(6.316) million | $7.867 million |
| Cash and restricted finite-risk sinking fund | $15.911 million | $19.370 million |
| Cash on hand | $4.440 million | $7.924 million |
| Working capital | $4.060 million | $3.672 million |
| Debt, excluding lease liabilities | $0.993 million | $6.729 million |
Revenue fell 31.5%. Services revenue declined 47.9% to $39.199 million, while Treatment revenue rose 9.5% to $32.992 million. Treatment gross margin increased to 20.4% from 18.2%; Services gross margin fell to 0.3% from 13.8%. Consolidated gross margin contracted as the sharp Services decline left overhead and lower-margin work weighing on results.
FY2021 results included a $5.381 million gain from forgiveness of the PPP loan and accrued interest, a $3.890 million income tax benefit (including release of deferred-tax valuation allowance), and a $1.062 million loss on deconsolidation of PFM Poland. These items materially affected reported earnings; operating performance was loss-making.
At year-end, the company had no revolving-credit borrowings and reported approximately $8.692 million of borrowing availability, subject to the borrowing base and reserves. Its PNC facility includes an $18 million revolving line and term loan, with maturity in 2024. The lender waived the fourth-quarter 2021 fixed-charge coverage ratio (FCCR) failure in a March 2022 amendment, removed FCCR testing for first-quarter 2022, and revised subsequent testing; a minimum $3 million of revolver availability is required until the specified covenant condition is met. Lease liabilities are additional to reported debt.
Material changes and notable items
- Services revenue decreased $36.084 million, primarily due to COVID-related procurement and award delays, completion or near-completion of major projects, and delayed or curtailed work on new awards. One DOE remediation project that contributed $41.011 million in 2020 was completed in the second quarter of 2021.
- Treatment revenue increased, supported by commercial waste volumes and a $1.286 million government-contract equitable adjustment. Shipments from some customers remained delayed, and supply-chain constraints delayed a new processing unit until the first quarter of 2022.
- The company raised approximately $6.2 million gross ($5.704 million net) through a registered direct offering of 1 million shares in September 2021.
- Government-related work generated $60.812 million, or 84.2% of revenue, versus 91.6% in 2020. Canadian customer revenue increased to $9.277 million from $5.550 million; work under Canadian government task orders was substantially completed.
- Treatment backlog of stored waste was approximately $7.129 million at year-end, down from $7.631 million.
Outlook, risks and contingencies
- Management expected gradual improvement in waste receipts and ramp-up of certain delayed Services projects beginning in the second quarter of 2022. These are expectations, not guaranteed results. A fixed-price Navy ship decommissioning contract awarded in 2021 was valued at approximately $40 million, with work expected over 18–24 months.
- Management stated that cash, operating cash flows and available financing should fund operations for the next 12 months, while noting COVID-19 uncertainty. Planned 2022 capital expenditures were approximately $2 million, subject to available funding and possible deferral.
- A March 2022 UK joint-venture term sheet with Springfields Fuels Limited contemplated 55% ownership for SFL and 45% for Perma-Fix. Definitive terms, approvals, capitalization and the company’s required investment remained unresolved.
- COVID-19, supply-chain delays, inflation and labor costs, seasonal revenue patterns, competitive bidding and fixed-price contract overruns may pressure operations and margins. Government contracts are often terminable for convenience; government-related work concentration is substantial.
- PF Canada was in discussions with Canadian Nuclear Laboratories over approximately $2.640 million of unpaid receivables and unbilled costs and $0.871 million of contractual holdback. CNL may set off certain costs, and a related bond of approximately C$1.9 million was established. Collection and final amounts were unresolved.
- Environmental remediation liabilities for discontinued operations totaled $0.876 million at year-end. The company also disclosed substantial closure and financial-assurance obligations, approximately $50.109 million of outstanding bonds and $3.020 million of standby letters of credit.
- The auditor gave an unqualified opinion on the financial statements but an adverse opinion on internal control over financial reporting. Management and the auditor identified a material weakness in controls over ASC 606 revenue recognition for nonstandard contracts. Management’s remediation plan was not yet fully implemented or tested.
- Other material risks include permitting and environmental liability, disposal-site availability, insurance and bonding access, lender covenant compliance, and the ability to replace completed projects. The Tetra Tech lawsuit remained pending; the company stated it believed it had no liability, and its insurer was providing a defense subject to a $100,000 self-insured retention and policy terms.
Most important facts for investors to verify
- Whether Services project awards convert into revenue and margins as management expected, and whether Treatment waste shipments and the new processing unit support recovery.
- Operating cash generation, receivables collection—especially the disputed PF Canada balances—and actual borrowing availability under the PNC borrowing base.
- FCCR compliance after the temporary waivers and revised covenant tests, including the required minimum revolver availability.
- Progress and independent validation of remediation for the ASC 606 material weakness.
- Final UK joint-venture terms, required Perma-Fix investment and funding source; also any material changes in remediation liabilities, bonds or legal contingencies.
- The contribution of PPP forgiveness and deferred-tax valuation-allowance release to earnings versus recurring operating performance.