Perma-Fix Environmental Services, Inc. — FY 2013 Form 10-K
Business context and reporting period. The filing covers the fiscal year ended December 31, 2013, with comparative FY 2012 results. Perma-Fix provides radioactive, mixed and hazardous waste treatment, processing and disposal, as well as environmental, technical and nuclear services. Its reportable segments are Treatment and Services. The filing also provides unaudited quarterly results, including Q4 2013.
Financial performance and liquidity
| Metric | FY 2013 | FY 2012 |
|---|---|---|
| Continuing-operations revenue | $74.413 million | $127.509 million |
| Gross profit / margin | $9.816 million / 13.2% | $15.804 million / 12.4% |
| Operating loss | $34.229 million | $4.424 million |
| Loss from continuing operations | $34.471 million | $3.149 million |
| Consolidated net loss | $36.039 million | $3.179 million |
| Cash used in operating activities | $2.716 million | $3.409 million |
| Cash at year-end | $0.333 million | $4.368 million |
| Debt at year-end | $14.283 million | $14.267 million |
| Working capital | $(2.958) million | $2.652 million |
- FY 2013 included $27.856 million of noncash goodwill impairment charges, fully impairing goodwill at the Treatment and SEC reporting units and the CHPRC reporting unit. The company also recorded a $4.760 million tax expense to establish a full valuation allowance on net deferred tax assets.
- Treatment revenue was $35.540 million, down 22.5%; segment gross margin was 15.7%, versus 20.2%. Services revenue was $38.873 million, down 52.4%; segment gross margin increased to 10.9% from 8.0%.
- Federal-government-related work generated $47.557 million, or 63.9% of continuing revenue, versus $101.533 million, or 79.6%, in 2012. CHPRC represented $19.922 million, or 26.8%, of 2013 continuing revenue; its subcontract expired September 30, 2013 and was not renewed.
- Q4 2013 revenue was $12.728 million, gross profit was $2.127 million, loss from continuing operations was $30.035 million and net loss was $31.379 million. Q4 included $26.707 million of goodwill impairment and the valuation-allowance tax charge.
- At year-end, the company had no borrowings on its revolving line and reported $6.642 million of borrowing availability based on eligible receivables. Its PNC facility included a term loan; aggregate debt was $14.283 million. The revolver commitment was reduced from $18 million to $12 million effective April 14, 2014.
Changes, outlook and material matters
- Revenue fell 41.6%, mainly because of lower government spending, sequestration and continuing resolutions, the October 2013 government shutdown, contract completions and the nonrenewal of the CHPRC subcontract. Services accounted for most of the decline. Management also cited lower government waste volumes in Treatment.
- Management said the January 2014 Omnibus spending bill restored some sequestration cuts and provided approximately $5.83 billion for DOE Environmental Management, an estimated $300–$600 million increase in funding availability. It viewed this as a potential source of 2014 revenue and positive cash flow, but gave no formal revenue or earnings guidance and offered no assurance of improvement.
- The independent auditor’s report includes a going-concern explanatory paragraph. Recurring losses, declining revenue, negative operating cash flow, a working-capital deficit and low cash raise substantial doubt about the company’s ability to continue as a going concern. Management said additional capital or higher profitable revenue is needed; failure to obtain financing or grow revenue could leave the company unable to fund operations for the next 12 months and force further reductions or curtailment.
- The company failed its fixed-charge coverage covenant in Q1 and Q4 2013; the lender waived both failures. In April 2014, PNC also waived Q1 2014 testing and revised the remaining 2014 covenant methodology and threshold. Management expected compliance for Q2–Q4, but a future uncured breach could permit acceleration of debt, which the company might not be able to repay.
- A fire at the discontinued PFSG facility on August 14, 2013 left it non-operational. The filing reports $6.859 million of costs through year-end, $3.664 million of insurance recoveries received and a $2.995 million receivable recorded. Insurers paid a further approximately $3.510 million after year-end. The facility was being rebuilt and remained marketed for sale.
- Environmental remediation liabilities were $1.031 million at year-end, including $0.649 million current. The Treatment segment backlog of stored waste was approximately $7.695 million, down from $8.668 million a year earlier; timing and complexity affect processing.
- Other risks include dependence on federal customers and a single major customer, government termination or renegotiation rights on 30 days’ notice, required permits and financial-assurance coverage, limited radioactive-waste disposal options, environmental liability, and collection delays on unbilled receivables. PFNWR’s dispute with Philotechnics over nonconforming waste was being handled through a court-supervised process, with trial scheduled for November 2014 for any remaining issues.
- Subsequent events included the April 2014 PNC amendment and the resignation of the COO, effective March 28, 2014, followed by appointment of a successor. The company also reported acquiring an 80% interest in a Polish subsidiary and forming Perma-Fix Medical Corporation to develop and market its Tc-99m technology.
Most important facts for investors to verify
- Whether revenue, margins and cash generation recovered after the expiration of CHPRC and other major contracts, and whether the 2014 DOE funding translated into awarded and funded work.
- Current liquidity and borrowing availability under the amended PNC facility, covenant compliance, and the status of any additional equity or debt financing.
- Progress toward profitable operations and the company’s ability to meet obligations over the next 12 months, given the auditor’s going-concern warning.
- Final insurance recoveries, rebuilding or sale plans for PFSG, and any remaining fire-related costs or liabilities.
- Recoverability and collection timing of unbilled receivables, Treatment backlog conversion, and any changes in disposal costs or available disposal sites.
- Remaining remediation obligations, regulatory or litigation developments, and any further impairment of permits or other intangible assets.