Perma-Fix Environmental Services, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; comparisons are with FY2019. This is an annual report, not a standalone fourth-quarter filing. The company provides regulated waste treatment and environmental remediation services, primarily to government-related customers, through its Treatment and Services segments. Its Medical segment remains in research and development and has no revenue.
Financial performance
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $105.426 million | $73.459 million |
| Gross profit / margin | $15.893 million / 15.1% | $15.584 million / 21.2% |
| Operating income / margin | $3.328 million / 3.2% | $2.969 million / 4.0% |
| Income from continuing operations | $3.149 million | $2.732 million |
| Net income attributable to common stockholders | $2.860 million; diluted EPS $0.23 | $2.315 million; diluted EPS $0.19 |
| Cash from continuing operating activities | $7.867 million | $(4.023) million |
| Cash and restricted cash at year-end | $7.924 million cash; $11.446 million restricted | $0.390 million cash; $11.307 million restricted |
| Working capital | $3.672 million | $0.026 million |
| Total debt | $6.729 million | $3.880 million |
Amounts are reported in U.S. dollars. Total debt includes the $5.318 million remaining PPP loan; it does not represent debt net of cash. The company had no revolver borrowings at year-end and reported approximately $14.220 million of borrowing availability, subject to its borrowing base and reserves. The PNC facility includes a $18 million revolving commitment and a term loan, matures May 15, 2024, and has financial covenants. Restricted cash is held as collateral for facility financial assurance and is not unrestricted liquidity.
Segments and changes versus FY2019
- Services: Revenue rose 127.5% to $75.283 million, primarily from increased project activity and several large projects; gross margin improved to 13.8% from 10.1%.
- Treatment: Revenue fell 25.3% to $30.143 million, and gross margin declined to 18.2% from 30.3%. Management cited COVID-related shipment delays, contractor transitions at certain DOE sites, and a lower average-price waste mix. The stored-waste backlog was approximately $7.631 million, down from $8.506 million.
- Overall revenue growth of 43.5% was concentrated in Services. Gross profit increased only 2.0%, so consolidated gross margin contracted materially. Operating income nevertheless rose to $3.328 million.
- Government-related work represented $96.582 million, or 91.6% of revenue, versus 81.7% in FY2019. One DOE remediation project generated $41.011 million, or 38.9% of FY2020 revenue, and was expected to finish in the first half of 2021.
- Discontinued operations had no revenue and recorded a $0.412 million loss, compared with a $0.541 million loss in FY2019.
Cash, debt, outlook, and risks
- Cash from continuing operations improved from a $4.023 million use in FY2019 to $7.867 million provided in FY2020. Unbilled receivables increased $6.469 million to $14.453 million, while accounts payable increased $6.105 million to $15.382 million.
- The company applied for forgiveness of the entire remaining PPP loan balance; approval by the lender and SBA was pending at the filing date. If not forgiven, repayment obligations could affect liquidity. It also deferred $1.252 million of employer Social Security taxes, due in installments in 2021 and 2022.
- Management said available cash, operating cash flow, and revolver availability were expected to fund operations for the next 12 months, while cautioning that renewed project shutdowns or delayed waste shipments could undermine that outlook. The company planned approximately $2 million of 2021 capital expenditures, subject to possible deferral.
- COVID-19 had restarted previously suspended Services projects by late Q2 2020, but Treatment shipments remained delayed. Management expected a gradual return in receipts beginning in the first half of 2021; it could not reliably estimate the pandemic’s future financial impact.
- The board-approved 2021 executive incentive-plan targets were $101.810 million of revenue and $3.623 million of EBITDA. These are compensation-plan thresholds, not a clear public earnings forecast or guidance.
- Key exposures include reliance on government funding and contracts that may be terminated or renegotiated on short notice; project and customer concentration; competitive bidding and fixed-price cost overruns; environmental permitting, remediation and disposal-site risks; and credit-facility covenant compliance. Government-related contracts accounted for more than 90% of revenue.
- Accrued environmental remediation liabilities were $0.854 million, of which $0.744 million was current; these relate to discontinued-operation sites. Separately, accrued facility closure costs were $6.365 million. Outstanding bonds were approximately $46.388 million and standby letters of credit $3.026 million.
- A Tetra Tech lawsuit naming the company was dismissed without prejudice in January 2021; an amended complaint and motion to dismiss were pending. The company stated it believed it had no liability; its insurer was providing a defense subject to a $100,000 self-insured retention.
- The independent auditor issued an unqualified opinion and reported no critical audit matters. Management assessed disclosure controls and internal control over financial reporting as effective; auditor attestation on internal controls was not required for this smaller reporting company.
Important facts for investors to verify
- Whether the PPP loan was forgiven, the resulting debt repayment schedule, and the company’s ongoing covenant headroom.
- Whether Treatment waste receipts recovered as expected and whether the Services DOE project concluded on schedule, including the replacement of its substantial revenue contribution.
- Collection and conversion to billings of the $14.453 million unbilled receivable balance, and the sustainability and margins of Services growth.
- Progress against the company’s stated liquidity outlook, including cash availability after restricted funds, deferred payroll taxes, remediation spending, and planned capital expenditures.
- Developments in the Tetra Tech litigation, environmental remediation obligations, and continued access to permits, disposal facilities, insurance, and bonding.