Business context and reporting period
Perma-Fix Environmental Services, Inc. filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2021. The company provides radioactive, hazardous and other waste treatment, technical and nuclear services, largely to government-related customers. Amounts below are in millions of dollars unless stated otherwise.
Key financial metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $16.145 | $22.047 | $39.278 | $46.907 |
| Gross profit / margin | $0.966 / 6.0% | $3.310 / 15.0% | $3.322 / 8.5% | $7.950 / 16.9% |
| Operating income (loss) | ($2.175) | $0.405 | ($3.175) | $1.855 |
| Net income attributable to common stockholders | $3.023 | $0.204 | $1.900 | $1.424 |
| Diluted earnings per share | $0.24 | $0.02 | $0.15 | $0.12 |
- Q2 net income included a $5.381 million gain from forgiveness of the PPP loan and accrued interest; it should not be viewed as representative of operating performance. The quarter also recorded a $0.127 million loss from discontinued operations.
- For the first six months, cash provided by continuing operations was $0.803 million; cash used in discontinued operations was $0.315 million, yielding total operating cash flow of $0.488 million. Capital spending was $0.650 million, and cash plus restricted cash decreased $0.591 million.
- At June 30, cash was $7.312 million, restricted finite-risk funds were $11.467 million, and working capital was $3.394 million. Revolver borrowings were zero; reported borrowing availability was approximately $9.550 million, after a $3.020 million reduction for letters of credit.
- Reported debt was $1.223 million, down from $6.729 million at year-end, primarily because of PPP forgiveness. These figures exclude lease liabilities; finance and operating lease liabilities totaled about $3.382 million.
Material changes versus prior periods
- Q2 revenue fell 26.8% year over year; six-month revenue fell 16.3%. Services revenue declined 40.6% in Q2 and 18.4% for the half, reflecting delayed procurement and awards and the completion of a large project. Treatment revenue declined 1.7% in Q2 and 12.7% for the half, mainly from lower waste volumes and shipment delays.
- Q2 gross profit fell $2.344 million. Services reported a $0.467 million gross loss for the quarter, compared with $1.615 million gross profit a year earlier. Six-month gross profit declined $4.628 million, with margin falling to 8.5% from 16.9%.
- SG&A increased 11.0% in Q2 and 10.2% for the first six months, despite lower revenue. Six-month operating results moved from $1.855 million income to a $3.175 million loss.
- Unbilled receivables declined $7.121 million from December 31, 2020 to $7.332 million, principally as large Services projects were invoiced. Accounts payable declined $3.871 million to $11.511 million.
Outlook, risks and contingencies
- No numerical earnings or revenue guidance was provided. Management expected waste receipts from certain delayed Treatment customers and procurement actions and contract awards to resume or continue in the second half of 2021; it reported an unusually high number of bids awaiting awards. Management said the pandemic’s full financial and liquidity impact remained uncertain.
- Management believed available cash, operations and credit availability should fund operations for the next 12 months, but cautioned that shipment and award delays, COVID-19 impacts, receivable collection, lender reserves or covenant issues could impair liquidity. It was considering cost controls, capital spending deferrals and additional capital sources, including possible equity issuance.
- The company failed its minimum fixed-charge coverage ratio covenant for Q2. The lender waived the failure on August 10, 2021, removed testing for Q3, revised the calculation for specified later quarters, and required at least $3.0 million of revolver availability until the Q4 2021 covenant test was met and certified. A future unwaived breach could permit acceleration of debt and termination of credit commitments.
- Capital expenditures were budgeted at approximately $2.0 million for 2021; the company had spent about $0.679 million through June, including financed equipment. Its Medical Segment had no revenue and limited R&D activity pending new funding or partners.
- Government-related work represented 84.7% of Q2 revenue and 86.1% of first-half revenue. Government contracts may be terminated or renegotiated, and funding levels can fluctuate. Other risks include environmental compliance and remediation, third-party disposal-site liabilities, permits, shipment delays and operating costs. Accrued environmental remediation liabilities were $0.781 million.
- Outstanding bonds totaled approximately $43.561 million, in addition to $3.020 million of standby letters of credit. A lawsuit brought by Tetra Tech against the company and others remained pending on a motion to dismiss an amended complaint; the insurer was defending subject to a $0.100 million self-insured retention. Management stated it believed the company had no liability.
Important facts for investors to verify
- Whether second-half 2021 waste shipments, contract awards and project activity recovered as management expected, and the effect on Services and Treatment margins.
- Whether the company maintained the lender-required borrowing availability and met the revised FCCR tests after the Q2 waiver.
- How much of reported earnings and the debt reduction reflects the one-time PPP forgiveness rather than recurring operations.
- Whether operating cash flow, receivable collections and working capital were sufficient to support planned capital spending and remediation obligations.
- Developments in the Tetra Tech litigation, environmental liabilities, government funding and the Medical Segment’s financing plans.