Business context and reporting period
Perma-Fix Environmental Services, Inc. filed this Form 10-K for the fiscal year ended December 31, 2015; it is an annual report, not a standalone fourth-quarter report. The company provides waste treatment and environmental, technical, and nuclear services, primarily in the United States. Its three reportable segments are Treatment, Services, and Medical. Medical is majority-owned PF Medical, which is developing a technetium-99m medical-isotope process and had no revenue in 2015.
Financial results and liquidity
| Metric | 2015 | 2014 |
|---|---|---|
| Revenue from continuing operations | $62.383 million | $57.065 million |
| Gross profit / margin | $14.351 million / 23.0% | $11.908 million / 20.9% |
| Operating income (loss) | $1.133 million | ($1.719 million) |
| Loss from continuing operations | ($0.063 million) | ($2.992 million) |
| Net loss attributable to common stockholders | ($1.050 million) | ($1.225 million) |
| Cash from continuing operating activities | $1.704 million | $0.661 million |
| Cash and working capital at year-end | $1.435 million cash; $3.091 million working capital | $3.680 million cash; $0.372 million working capital |
Consolidated net loss was $1.927 million in 2015, including a $1.864 million loss from discontinued operations, versus consolidated net loss of $1.304 million in 2014, when discontinued operations reported $1.688 million of income. The 2015 continuing-operations tax expense was $0.543 million despite pretax income of $0.480 million.
Year-end debt was approximately $9.988 million, net of a $0.050 million debt discount. Revolver borrowings were $2.349 million, with approximately $2.687 million of additional availability based on eligible receivables and subject to a $1.500 million lender hold then in effect. Working capital includes discontinued operations. Cash decreased $2.245 million during 2015; total operating activities used $1.158 million, as $1.704 million generated by continuing operations was offset by $2.862 million used in discontinued operations.
Changes versus 2014
- Revenue grew 9.3%, driven by a 43.1% increase in Services revenue to $21.065 million. Treatment revenue declined 2.4% to $41.318 million, mainly from lower other nuclear-waste volumes.
- Services gross margin rose to 16.3% from 9.7%; Treatment gross margin rose to 26.4% from 24.8%. Consolidated SG&A fell 8.2% to $10.996 million, while R&D rose 75.0% to $2.302 million, principally due to isotope development.
- Discontinued operations shifted from 2014 income, which included a $3.842 million PFSG insurance gain, to a 2015 loss. A $0.150 million impairment and $0.201 million regulatory penalty were recorded in 2015, along with a $0.407 million incremental charge for an arbitration award.
- Treatment backlog declined to approximately $4.698 million from $9.228 million. Federal-government-related work represented 57.9% of continuing revenue, down from 60.9%.
Outlook, risks, contingencies, and unusual items
- Management said operating cash flow and credit-facility availability should be sufficient for the next 12 months, while noting there is no assurance. It expected commercial revenue growth to continue into 2016 and continued to pursue international expansion and cost reductions.
- Management expected 2016 Medical Segment costs to be similar to 2015’s $2.114 million. The $80 million revenue and $9.1 million EBITDA figures disclosed for 2016 are board-approved incentive-plan targets, not stated as formal company guidance.
- On March 24, 2016, after year-end, the company amended its PNC facility, extending maturity to March 24, 2021, revising the term loan to about $6.1 million and monthly payments to about $102,000, and releasing $1.0 million of the prior availability hold. The amendment also lowered interest-rate spreads and capped annual capital spending at $3.0 million. The company reported meeting its financial covenants in all 2015 quarters; a future breach not waived by the lender could accelerate repayment.
- Federal contracts and subcontracts are generally terminable or renegotiable on 30 days’ notice. Revenue also has customer concentration: one Services customer, Prologis Teterboro, generated $10.686 million, or 17.1%, of 2015 revenue. The company also relies on limited third-party outlets for commercial low-level radioactive-waste disposal.
- PFSG remains in regulatory closure after its 2013 fire and explosion. The company paid a $1.278 million arbitration award in December 2015, including $0.400 million interest. Environmental remediation liabilities were $0.900 million at year-end, principally associated with PFSG; estimates exclude insurance or third-party recoveries.
- PF Medical received a Polish research grant allocation of approximately $2.547 million over four years, of which about $0.745 million is allocated directly to PF Medical, subject to milestones. Digirad invested $1.0 million and signed a conditional future supply agreement; commercialization still requires development and regulatory approvals. Additional PF Medical financing could dilute the company’s ownership or restrict its rights.
- Other risks include stringent permitting and environmental obligations, potential cost overruns on fixed-price projects, government-budget dependence, insurance and financial-assurance requirements, and the ability to finance operations and meet covenants. The auditor issued an unqualified opinion on the financial statements; management reported effective disclosure controls and internal control over financial reporting. The auditor did not attest to internal-control effectiveness.
Important facts for investors to verify
- Whether the post-year-end PNC amendment produced the stated borrowing availability and whether the company continues to meet all financial covenants.
- Collection timing and recoverability of receivables, including unbilled receivables, and the extent to which customer or disposal-site concentration affects cash conversion.
- Progress, remaining costs, regulatory approvals, grant milestones, and financing needs for PF Medical; assess the conditional Digirad supply arrangement separately from realized revenue.
- Final PFSG closure requirements and remediation costs, and whether the $0.900 million recorded environmental reserve remains adequate.
- Whether Services growth and improved margins are repeatable after the large contract contribution, and whether Treatment volumes and backlog stabilize.
- That reported 2015 results are annual figures: the filing text does not provide a clear standalone fourth-quarter financial-results summary.