Perma-Fix Environmental Services, Inc. — Q1 2015 Form 10-Q
Business context and period: Unaudited results for the three months ended March 31, 2015, compared with Q1 2014. The company provides radioactive, hazardous and other waste treatment and environmental services through its Treatment and Services segments. Results exclude discontinued operations from continuing-operations revenue.
Financial performance
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Revenue | $13.60 million | $10.54 million |
| Gross profit / margin | $1.48 million / 10.9% | $0.09 million / 0.9% |
| Operating loss | $1.80 million | $3.49 million |
| Continuing-operations net loss | $2.01 million | $3.70 million |
| Net loss attributable to common stockholders | $2.07 million; $0.18 per share | $3.97 million; $0.35 per share |
| Cash used in operating activities | $2.93 million | $1.48 million |
| Cash at period end | $1.13 million | $0.04 million |
Revenue and margins: Revenue increased 29.0%. Treatment revenue rose 27.1% to $9.75 million, principally on higher government waste volumes; Services revenue rose 34.1% to $3.85 million, largely from a nuclear-services contract awarded in 2014. Gross margin improved substantially as revenue increased and fixed costs fell. SG&A declined 10.6% to $2.87 million; R&D increased to $0.40 million, including $0.40 million for medical-isotope technology development.
Cash, liquidity and debt: Cash fell $2.55 million during the quarter. Cash used by continuing operations was $2.70 million, with $0.13 million used in investing and $0.59 million provided by financing. Working capital remained negative at $0.13 million, an improvement from a $0.76 million deficit at year-end 2014. Total debt was approximately $11.98 million, including $1.55 million drawn on the revolving facility; reported revolver availability was $3.02 million. The facility matures October 31, 2016. The company met its first-quarter covenants: fixed-charge coverage ratio 2.79:1 versus a 1.15:1 minimum, and tangible adjusted net worth of $42.90 million versus a $30.00 million minimum.
Total assets were $85.79 million and total stockholders’ equity was $42.90 million at March 31, 2015. The company reported $21.34 million in finite-risk sinking funds and $5.29 million of accrued closure costs.
Material changes and notable items
- Government waste revenue increased 78.7% to $7.05 million; other nuclear waste revenue fell 39.3% to $1.70 million. Government-related work represented 58.0% of continuing-operations revenue, compared with 48.4% a year earlier.
- Services nuclear revenue increased sharply, including approximately $1.90 million from a contract awarded in the second half of 2014. Technical-services revenue declined following the 2014 divestiture of Schreiber, Yonley & Associates.
- Discontinued operations, including the fire-damaged Perma-Fix of South Georgia facility, recorded a $0.22 million loss and no revenue. The company chose not to rebuild that facility and continued to market it for sale.
- Subsequent to quarter-end, Perma-Fix Medical S.A. accepted a Polish research grant of approximately $2.80 million over four years toward a $3.70 million Tc-99m generator project. Perma-Fix Medical expects to receive about $0.80 million of the grant directly; funding is milestone-based.
Outlook, risks and contingencies
Management said it believed it could implement its plans and generate positive cash flow during the remainder of 2015, but provided no quantified earnings or revenue guidance. Planned 2015 capital expenditures were approximately $1.10 million, subject to available financing and possible deferral. Management expected to meet remaining quarterly loan covenants, while warning that covenant failure without a waiver could permit acceleration of debt and create a liquidity shortfall.
- Government demand and funding are significant uncertainties; relevant contracts may be terminated or renegotiated on 30 days’ notice.
- Environmental compliance, remediation, disposal-site, permit and closure obligations may entail additional costs. Accrued environmental remediation liabilities were $1.02 million; the company noted potential liability as a potentially responsible party at third-party sites.
- Outstanding bonds and letters of credit totaled approximately $1.77 million. Facility closure and post-closure financial assurance requirements were approximately $46.39 million.
- Disclosure controls were deemed ineffective due to a material weakness in income-tax accounting controls, related to limited in-house tax expertise and reliance on an outside tax firm. Management anticipated remediation in Q2 2015.
- The company had a preliminary, conditional letter of intent for a possible $1.00 million investment in Perma-Fix Medical S.A.; definitive agreements and required approvals remained outstanding.
Important facts for investors to verify
- Whether the improved gross margin and revenue growth persist, particularly given the mix of government waste and the contribution from a recently awarded Services contract.
- Cash burn, collections, working-capital needs, and whether the company generates positive cash flow as management expected.
- Revolver availability, covenant compliance in subsequent quarters, scheduled debt repayments, and the October 2016 facility maturity.
- Progress on the South Georgia facility sale, related discontinued-operation costs, and environmental remediation obligations.
- Whether the income-tax control weakness was remediated as anticipated and whether further financial-statement corrections are required.
- Receipt of outstanding Perma-Fix Medical subscription proceeds and grant funding, and completion of any proposed strategic investment or project milestones.