Perma-Fix Environmental Services, Inc.

Good day, everyone, and welcome to the Permafix fiscal 2022 year-end earnings conference call. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, David Waltman. Sir, the floor is yours.

Thank you, Matt. Good morning, everyone, and welcome to Permafix Environmental Services' fourth quarter year-end 2022 conference call. On the call with us this morning are Mark Duff, President and CEO, Dr. Lou Senefani, Executive Vice President of Strategic Initiatives, and Ben Naccarato, Chief Financial Officer. The company issued a press release this morning containing fourth quarter 2022 financial results, which is also posted on the company's website. If you have any questions after the call or would like any additional information about the company, please contact Crescendo Communications at 212-671-1020. I'd also like to remind everyone that certain statements contained within this conference call may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and include certain non-GAAP financial measures. All statements on this conference call, other than a statement of historical factor, forward-looking statements that are subject to known and unknown risks, uncertainties, and other factors which could cause actual results and performance of the company differ materially from such statements. These risks and uncertainties are detailed in the company's filings with the U.S. Securities and Exchange Commission as well as this morning's press release. The company makes no commitment to disclose any revisions to forward-looking statements or any facts, events, or circumstances after the date hereof that bear upon forward-looking statements. In addition, today's call will include references to non-GAAP measures. Permafix believes that such information provides an additional measurement and consistent historical comparison of its performance. A reconciliation of the non-GAAP measures to the most directly comparable GAAP measures is available in today's news release on our website. I'd now like to turn the call over to Mark Duff. Please go ahead, Mark.

All right. Thanks, David, and good morning, everyone. 2022 was a transformative year as we built a solid foundation for growth in the upcoming year, and we're finally seeing a return to normalization and the momentum we had prior to the pandemic. The weakness in revenue experience in 2022 was due to the lingering effect of the COVID-19 pandemic on delaying some of the projects in the services and the treatment segments. Nevertheless, we achieved a 58 percent increase in gross profit in the fourth quarter, which was due to improved profitability in the services projects compared to last year. In addition, total gross profit margins increased from roughly 7 to 12 percent. While 2022 was a challenging year, we believe we're back on the growth trajectory primarily due to the recent improvement we've seen in our treatment segment. Within our treatment segment, we've experienced a steady improvement in waste receipts. Specifically, our average receipts per quarter have steadily returned to pre-pandemic levels over the last nine months of the year. This is best reflected in our backlog, which was 9.2 million at year end, significantly higher than prior quarters. This was a result of increased waste shipments from DOE, as well as our efforts to broaden our client base into the commercial utility sector, as well as oil and gas and other industrial markets. It's important to note that the fourth quarter of 2022 was negatively impacted by challenges associated with labor issues and high attrition rates due to the Department of Energy hiring campaigns at several other sites which are near our facilities, as well as supply chain impacts from availability of waste processing materials such as grout mix. We also experienced severe weather impacts due to record low temperatures in the Tri-Cities area of Washington. However, these issues have begun to subside in the first quarter of 2022, excuse me, fourth quarter of 2023, with hiring at each location realizing stability compared to the last two quarters. In addition to the growth of our base business, we're rapidly advancing several initiatives that we believe have the potential to significantly enhance our revenues and our long-term backlog. For instance, We've realized two important steps forward with the Department of Energy in pursuit of our Hanford initiatives that hold significant potential growth for many years. These initiatives include the January 31st amendment of the Record of Decision, or ROD, for the final tank closure and waste management EIS that was originally developed in 2013. as well as an announcement this past Friday for the notice of availability for the waste incidental to reprocessing, what we call the WEIR report, which is in support of the test bed initiative demonstration, what we call TBI. First, I'll touch base on the first amendment. The amendment to the ROD for the direct feed low activity, which we'll refer to as the DF Law Facility, supports the secondary waste program also at the Hanford site, in Washington represents a sizable opportunity over the next decade. And while we can't provide too many specifics at this time, suffice to say that Permafix will provide the recommended treatment solutions for radioactive waste streams produced by the DF Law program once it gets operational. This waste is estimated by DOE to be over 8,000 cubic meters annually. It will begin to be received at Permafix facilities upon a hot startup of the plant currently projected to begin in the late 2024 timeframe. To put this in perspective, this volume of waste would more than double the production of all of our plants combined on an annual basis. And given the fixed cost nature of our business, this could result in very significant cash flows over that next 10-year period. The second step forward, as I mentioned, is the final waste incidental to reprocessing or WEIR document published this week by DOE, which states that the proposed TBI program would demonstrate a supplemental law treatment approach. The WEIR went on to state that based on the final evaluation, DOE determined that the pretreated and solidified waste from the tanks is incidental to reprocessing of spent nuclear fuel. It's not high-level waste. and is to be managed as low-level waste. This progress opens the door for DOE to work with the Washington State Department of Ecology, which is a regulator, to develop and approve the regulatory documents for shipment of the Phase II program. Phase II includes grouting disposal of 2,000 gallons of tank waste, currently anticipated to be shipped before the end of the year. These developments underscore the important role that Permafix will be playing and the long-term mission for Hanford closure in support of both the DF Law Venture Occasion Program as well as the Supplemental Tank Waste Treatment Program that will likely include commercial grouting. As discussed last quarter, the TBI initiative holds the potential to save tens of billions of dollars, taxpayer dollars, as well as eliminate significant carbon emissions and reduce schedules for Hanford cleanup. Permafix maintains these capabilities today at our Permafix Northwest facility which is permitted and outfitted to safely and compliantly grout up to 30,000 gallons a month with the ability to expand well over a million gallons annually while dramatically reducing costs compared to vitrification. Within the services segments, we've reached full operational status on several projects that have been delayed due to the impact of the pandemic. In addition, we've secured important new projects that we expect will begin in the second quarter of 2023. As the impacts from the pandemic continue to fade, the federal government has begun to announce new projects that have been on hold. These procurement cycles are moving forward to support the increased funding levels, which we anticipate will result in a number of additional opportunities to be awarded in the coming quarters. As a result, we have now over $200 million in defined procurement opportunities targeted to be released in the next few quarters. In addition, we continue to await some very large potential strategic awards by the DOE Some of these projects are quite considerable in size, and if selected by DOE, would represent substantial increases in sustainable revenue to align with our core competencies. Some of these upcoming DOE project announcements include the $45 billion Hanford integrated tank disposition contract and the $3 billion operations and site mission support project, which are both likely to be awarded in the second quarter. If we are successful, we would participate as a team member on these large DOE procurements, both of which completely align with our strengths and innovations in radiological protection and waste management. We're also close to announcement of another project that we referred to in past calls through the Joint Research Council in Italy, which this project would support our expansion program in Europe and open the door for deployment of our treatment technologies in these rapidly growing markets in Europe. We've also received several strategic awards over the past few months, specifically associated with our soil sorter technology, including an announcement last week that our team was awarded the first abandoned uranium mine closure task order in support of the new EPA abandoned mine program. While this initial task order represents only about $1 million in revenue for 2023, we're anticipating rapid expansion of the program following deployment of our technology into the first site, which is located in the Northeast Arizona region. Awards have also been realized at several DOE locations that will support backlog generation in 2023. In addition, we're well positioned for several upcoming procurement initiatives for the U.S. Department of Engineers, Corps of Engineers, the U.S. Navy, and several other DOE site projects that are supposed to be secured in the next few quarters. As a result of these factors, it's clear to us that there is significant pent-up demand and that we expect the benefit from improved budgets and carryover spending from last year. As a result, we maintain an optimistic view that 2023 will see a significant improvement over 2022. As I mentioned earlier, we're already seeing signs of that improvement. Turning back to our financials for a moment, adjusted EBITDA for Q4 2022 improved to a loss of $1 million compared to a loss of 1.7 in the prior year, Q4 2021. Aside from our expectations of solid revenue growth having a positive impact on our EBITDA going forward, we continue to focus on a reduction of non-billable indirect operating costs as well as SG&A expenses. As a result, we anticipate a meaningful improvement in profitability and cash flow going forward. At the same time, we continue to invest in our capabilities and our facilities. We've built a solid foundation for growth and a highly scalable infrastructure. As a result, we believe we're in a great position to take advantage of the pent-up demand that we've mentioned. As we continue to increase revenues, we expect to benefit from the predictable cash flows within our services segment and high incremental margins from our treatment segment. Overall, we remain confident in our ability to achieve the growth and stability we experienced prior to the pandemic, given our increasing backlog, our solid pipeline of nuclear services projects, and several potentially transformative events we've mentioned that could materialize over the next coming months and years. On that note, I'll now turn it over to Ben, who will discuss our financial results in a little more detail. Ben?