Business context and reporting period
Perma-Fix Environmental Services, Inc. filed this unaudited Form 10-Q for the three months ended March 31, 2013. The company provides waste treatment and disposal, nuclear services, and environmental and technical services through its Treatment and Services segments. Unless stated otherwise, financial amounts below are in millions of dollars.
Financial performance and liquidity
| Metric | Q1 2013 | Q1 2012 / comparison |
|---|---|---|
| Revenue | $19.829 | $37.936; down 47.7% |
| Gross profit and margin | $0.537; 2.7% | $4.369; 11.5% |
| Operating loss | $(4.150) | $(1.022) |
| Continuing-operations net loss | $(2.888) | $(0.807) |
| Net loss attributable to common stockholders | $(2.912); $(0.05) per share | $(1.001); $(0.02) per share |
| Cash used in operating activities | $(2.252) | $(8.102) |
| Cash at period end | $2.251 | $2.697 at March 31, 2012 |
| Working capital | $1.956 | $3.307 at December 31, 2012 |
Net cash used in investing activities was $0.125 million; financing activities provided $0.260 million. Cash declined $2.117 million during the quarter. At March 31, total debt on the balance sheet was approximately $14.465 million, including $0.988 million drawn on the revolving facility; reported availability under that facility was $6.303 million. Current assets were $26.432 million and current liabilities were $24.476 million.
Material changes versus the prior comparable period
- Treatment revenue fell 42.8% to $7.341 million, with gross loss of $0.145 million versus gross profit of $2.721 million a year earlier. Services revenue fell 50.2% to $12.488 million; segment gross profit declined to $0.682 million from $1.648 million.
- Management attributed the revenue decline to lower government waste volumes, federal budget reductions and sequestration, deferred projects, and completion or near-completion of large DOE-related nuclear and technical-services contracts.
- Consolidated gross margin contracted to 2.7% from 11.5%. SG&A declined 16.9% to $4.186 million, but research and development expense rose to $0.499 million from $0.353 million.
- Operating cash outflow was lower than in Q1 2012, but the company still used cash in operations and working capital declined from year-end.
Outlook, risks, contingencies and unusual items
- Management gave no specific full-year revenue or earnings guidance. It said government funding uncertainty and contract timing could cause continued revenue fluctuations, and expected to meet financial covenants for the remaining quarters of 2013. The company budgeted approximately $2.5 million of 2013 capital expenditures, with some projects discretionary.
- The first-quarter fixed-charge coverage ratio was 0.63:1 versus a 1.25:1 minimum. On May 9, 2013, PNC waived the first-quarter shortfall and revised the calculation methodology for the remaining 2013 quarters; the minimum requirement remained 1.25:1. A covenant default without waiver could allow acceleration of debt and termination of credit commitments.
- Government-related work represented 79.3% of continuing-operations revenue. CHPRC contributed 30.4% and DOE directly contributed 16.4%. Government contracts may be terminated or renegotiated on 30 days’ notice.
- The EPA alleged improper mixed-waste storage at the PFNWR subsidiary. It proposed a $0.216 million penalty; the company accrued approximately $0.184 million and was negotiating a resolution. The filing also describes potential environmental cleanup and third-party disposal-site liabilities.
- A February settlement with Timios National Corporation cancelled an acquisition-related note with a balance of approximately $1.460 million and replaced it with a new note of approximately $0.230 million. The settlement also released the remaining $0.500 million escrow balance to TNC; related purchase-price adjustments had been recorded retrospectively in 2012.
- Unbilled receivables totaled $6.203 million. The company cautioned that processing delays, including at third-party disposal sites, could extend collection beyond 12 months. Accrued environmental remediation liabilities were $1.573 million.
- Management stated that cash from operations and available credit were sufficient for current obligations, while also noting dependence on government funding, receivable collection, permits, insurance, and continued covenant compliance.
Important facts for investors to verify
- Whether operating cash use and low cash balances improve, and whether the $6.303 million reported revolver availability remains accessible as receivables and borrowing-base eligibility change.
- Compliance with the amended PNC covenant calculations in subsequent 2013 quarters and any further lender waivers or amendments.
- Recovery in federal customer spending and work volumes, especially given the high government revenue concentration and large-contract completions.
- Resolution and final cost of the EPA matter, the PFNWR nonconforming-waste dispute, and other environmental remediation obligations.
- Timely collection of unbilled receivables and whether reduced revenue and gross margins persist.