Perma-Fix Environmental Services, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. Amounts below are in U.S. dollars unless otherwise noted.
Business context and results
Perma-Fix provides radioactive, hazardous and other waste treatment and disposal, and environmental and nuclear services. Its two reportable segments are Treatment and Services. Government-related work accounted for 89.0% of revenue, versus 87.1% a year earlier.
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $15.915 million | $23.133 million |
| Gross profit / margin | $1.636 million / 10.3% | $2.356 million / 10.2% |
| Operating loss | $1.883 million | $999,000 |
| Continuing-operations loss, net | $1.249 million | $1.038 million |
| Net loss attributable to common stockholders | $1.343 million | $1.123 million |
| Loss per share, basic and diluted | $0.10 | $0.09 |
| Operating cash flow | $6,000 | $(6.604) million |
Financial position, cash flow and liquidity
- At March 31, cash was $3.925 million; restricted finite-risk sinking fund cash was $11.482 million. Total assets were $72.176 million, total liabilities $32.684 million, and stockholders’ equity $39.492 million.
- Working capital was $2.341 million, down from $4.060 million at December 31, 2021. Continuing-operations operating cash flow was $148,000; discontinued operations used $142,000. Investing activities used $321,000 and financing activities used $189,000.
- Total reported debt was $875,000, including $840,000 on the term loan and $35,000 in notes; there were no revolving-credit borrowings. The company reported approximately $4.544 million of revolving-credit availability at quarter-end, subject to borrowing-base calculations and reserves. Lease liabilities are reported separately.
- Capital spending was approximately $459,000, including $114,000 financed. Management budgeted approximately $2.0 million of 2022 capital expenditures, with projects potentially delayed or deferred.
Material changes versus Q1 2021
- Revenue fell $7.218 million, or 31.2%. Services revenue declined 46.1% to $8.436 million, chiefly due to delayed or curtailed projects and the completion of a large project in Q2 2021. Treatment revenue was nearly flat at $7.479 million.
- Gross profit decreased $720,000. Treatment gross margin declined to 8.5% from 12.3%; Services gross margin increased to 11.8% from 9.2%.
- SG&A rose 6.8% to $3.422 million; as a share of revenue it increased to 21.5% from 13.9%. Research and development expense declined to $96,000 from $150,000, reflecting the prior-year Medical Segment activity; that segment was sold in December 2021.
- The $673,000 continuing-operations income tax benefit was substantially greater than the $17,000 benefit in Q1 2021.
Outlook, risks and unusual items
- Management said it believed available cash, operating cash flow and credit availability should fund operations for the next 12 months, but cautioned that COVID-19 and other delays could undermine that expectation. The company continued to consider cost reductions and nonessential spending limits.
- COVID-related and administrative delays affected Services projects; customer waste-shipment delays continued to weigh on Treatment. Management reported some improvement in project activity late in Q1 and expected deployment of a delayed waste-processing unit to begin in Q2 2022. Timing and revenue impact remain uncertain.
- A March 2022 credit amendment waived the Q4 2021 minimum fixed-charge coverage ratio (FCCR) failure and removed Q1 2022 testing. Testing resumes in Q2 2022, with a 1.15:1 minimum ratio. Until the Q2 test is met and certified, the company must maintain at least $3.0 million of revolving availability. Failure to meet covenants could permit acceleration of debt and termination of further credit.
- PF Canada had approximately $2.722 million in unpaid receivables and unbilled costs from Canadian Nuclear Laboratories, plus a $1.150 million contractual holdback. CNL may seek offsets related to termination costs; the parties were still discussing amounts due. A related bond was approximately C$1.9 million.
- A proposed UK waste-treatment joint venture with Springfields Fuels Limited remained conditional on, among other things, winning a contract, definitive agreements, design and approvals. The anticipated ownership split was 55% SFL and 45% Perma-Fix; Perma-Fix’s investment and funding method had not been determined.
- Risks include inflation and supply-chain cost pressure, dependence on government contracts and funding, waste-shipment and project delays, environmental and permitting obligations, and potential difficulty collecting receivables. The company reported $876,000 of environmental remediation liabilities, all relating to discontinued operations.
- Disclosure controls were deemed ineffective due to a material weakness in controls over revenue recognition for nonstandard and complex contracts. Management was developing and implementing remediation; the weakness remained until remediation is fully implemented and tested.
- In the Tetra Tech lawsuit, negligence, equitable indemnification/contribution and unfair-business-practices claims had been dismissed; intentional interference with contractual relations and inducing breach of contract claims remained. The company said it believed it had no liability; its insurer was providing a defense subject to a $100,000 self-insured retention and policy terms.
Important facts for investors to verify
- Progress on Services project activity, Treatment waste receipts, and deployment and revenue contribution of the new processing unit.
- Collections and final settlement of the PF Canada receivables, unbilled costs and holdback, including any offsets or bond-related claims.
- Compliance with the FCCR and minimum borrowing-availability requirements, and actual borrowing capacity under the receivables-based facility.
- Liquidity assumptions and planned capital expenditures, particularly if delays, inflation or lower revenue persist.
- Remediation and testing of the revenue-recognition material weakness, and whether controls become effective.
- The credit-facility maturity date: the filing’s debt table states May 15, 2024, while the narrative states March 15, 2024.