Perma-Fix Environmental Services, Inc.

Greetings. Welcome to the Permafix Q4 and fiscal 2023 year-end earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, David Wolfman, Investor Relations. You may begin.

Thank you, and good morning, everyone. Welcome to Permafix Environmental Services' fourth quarter and year-end 2023 conference call. On the call with us this morning are Mark Duff, President and CEO, Dr. Lou Senafani, Executive Vice President of Strategic Initiatives, and Ben Naccarato, Chief Financial Officer. The company issued a press release this morning containing fourth quarter and 2023 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 fact or 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, to 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 discussion 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 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. I'm pleased to report we achieved a 35.6% increase in revenue and 112.7% increase in gross profit for the fourth quarter. We also generated positive EBITDA and a positive net income for both the fourth quarter and the full year. We achieved these results despite significant investments in both our internal bidding organization as well as in research and development. As a result of these investments, I truly believe 2024 is shaping up to be a transformative year for the company, and in 2025, we're poised for a major breakout. As I'm sure most of our investors are aware, we are preparing for several large initiatives that we expect will begin to materialize in the second half of this year and set the stage for unprecedented growth. Let me begin by addressing some of our recent wins, and then we'll provide updates on some of the upcoming opportunities and specifically why we're so excited about the long-term outlook for the business. Within the services segment, we realized several new awards from the Buffalo Corps of Engineers, the U.S. Geological Survey, USGS, the U.S. Navy, and several commercial clients. We've also developed teaming relationships for several large bid procurements. In addition, our joint venture received full award of the Joint Research Council project to the European Union and the ISPRA Italy facility, which represents a total of up to 50 million euros over the next seven years. Overall, we finished the year with several strategic wins and accomplishments that we believe will support our long-term growth and help us fully diversify our revenue stream. Within our treatment segment, we witnessed an increase in volume with steady improvement in waste receipts early in the quarter This included increased waste shipments within the commercial sector, along with steady sales from our industrial waste programs. While we do not typically provide and do not plan to provide quarterly guidance, I believe it is important to share a more detailed discussion of what we expect in 2024. We consider this year to be a transitional year based on the business environment and investments we have made over the past several years. This is what we believe will be an exciting 2025. Beginning in the fourth quarter of 23, we started facing certain headwinds that we believe were temporary but will have an impact on the first half of this year. First, as previously disclosed, during the fourth quarter of 23, we completed our two largest service projects at the Princeton Plasma Physics Lab and the McKee Ship Decommissioning Project for the Navy. Both these projects were very successful with strong safety records, and we achieved our anticipated margins and outstanding client ratings throughout the projects. That said, with these two projects now complete, we have not yet secured all the replacement revenue in the services segments due to the timing of the awards and opportunities we're waiting on. The gap in work, which we anticipate will last about four months, has resulted in challenges and weaknesses that will be reflected in our results for the first half of 2024. In addition, due to the inability of Congress to pass a federal budget, the government has been operating under a continued resolution, which has contributed to delays in procurement, project starts, and waste shipment, since government clients are holding back budgets due to the uncertainties and the potential of a shutdown the last five months. January is also a tough month with weather impacts, closing two of our facilities for a week and delays in project production in the field as well, that said. February and March have shown some positive trends in both segments. As a result, the next two quarters will be weaker than we've anticipated due to the timing of contracts, as well as delays relating to the passage of the 2024 federal budget. However, as things have normalized, we remain confident in getting back to our, in surpassing our business-based goal of $25 million in revenues per quarter. In addition, we anticipate that the 2024 budget approved last week will provide increased opportunity for Permafix as the enacted budget reflects about a 9% increase over 2023 at the Department of Energy alone. As I mentioned earlier, we remain particularly optimistic about the second half of the year and could not be more excited about the outlook for the business in 2025 given the magnitude of the projects we're currently working towards. As we've discussed previously, We are rapidly advancing several initiatives that we believe will significantly enhance our revenues and long-term backlog, beginning in the second half of 24 and potentially much more in 25. I'd like to briefly discuss each of these initiatives to provide our investors an overview of the vision for next year. First, we're benefiting from an increased bidding opportunities within our services segment, including both the government and commercial sectors. We're positioned for large ongoing procurements within the DOE and the Navy, as well as other midsize procurement initiatives for both DOE, DOD, and EPA. These large procurement opportunities include proposals to be submitted over the next two quarters. We've been able to secure strong teaming relationships for potential awards anticipated throughout 2025 that would potentially represent substantial increases in sustainable revenue over the next five to ten years. Second, we're extremely well positioned to provide waste treatment services to support the DOE's Hanford closure strategy, including the treatment of effluent from the DF Law Facility once it commences vitrification operations, which should provide vitrification services to about 40% of the tank farm at Hanford. In January of 23, DOE signed a record of decision, a ROD, to treat the effluent waste streams from the DF Law Facilities to include our local Permafix Northwest facility, for at least the first 10 years of its operations. We remain optimistic about reports coming from DFLAW in regard to startup of these melters at the vitrification plants and the supporting systems, which continues to progress towards hot commissioning in 2025. As stated in several of the past quarterly calls, we're well-positioned to treat all of the effluent waste from those operations as defined in the 2023 Record of Decision by DOE, which estimates specifically to generate up to about 8,000 cubic yards of waste annually upon the hot startup of the vitrification plant. As I've mentioned in the past, the volume of this waste would more than double the production of all of our plants combined on an annual basis. Third, the DOE at Hanford has formally recognized the importance of grouting relative to the overall closure strategy as a preferred supplement to the current DOE strategy for vitrification of the 57 million gallons of tank waste stored at Hanford. The Hanford Systems Rev. 10 document, published in January, and developed over the past three years by DOE, defines a new preferred scenario for the Hanford site closure that specifically includes vitrification at DF Law for the east side of the tank farms and the west side to be treated through commercial grounding technology. The Systems Rev. 10 document is currently being implemented to include two new tank removal systems to be installed and operated in late 25 and early 26. One of these removal systems will be built, installed, and operated to support the DFLAW facility, while the other one will be dedicated to removal of tank waste for shipment to commercial grounding facilities or for disposal offsite. Both the specs for these removal systems include performance parameters of 3.5 million gallons per year for throughput for pulling waste out of those tanks. Permafix maintains and operates our growing facilities today at the Permafix Northwest facility, which is permitted and outfitted to safely and compliantly grow out up to 30,000 gallons per month, with the ability to expand that capacity to well over a million gallons annually. while dramatically reducing cost, risk, and schedule compared to the vitrification alone. It's important to note that our facility at PermFix Northwest offers the only local or regional option for grounding tank waste near the Hanford site and uses rail to ship treated waste for off-site disposal. This is a much safer option than shipping untreated tank waste by truck out of state for grounding and disposal, which is specifically designed as a higher risk in the NEPA document, including the environmental assessment, as well as the WEIRD document developed by DOE. So, when looking at both treatment of effluent from DFLAW and grouting, DOE is making significant progress at Hanford and the other cleanup locations, and Perfect is strategically well-positioned with technologies to provide increased value towards those objectives. Fourth, we're expanding our waste treatment offering within the commercial and international markets, including Europe, Mexico, and Canada. These opportunities will generate sustained Proceeds beginning in 2025, providing combined revenues estimated over $10 million annually, which we expect to begin to be realized in late 2024. The award of the JRC program in Italy, coupled with our expanding international clients, represents continued growth opportunity based on the market for advanced, permitted, and efficient waste treatment to provide stable waste forms that minimize long-term storage costs. The JRC project supports our expansion program in Europe, including existing IDIQ contracts held by Permafix in the UK and the application of our treatment technologies in other European markets. Fifth, we continue to invest in our facilities and capabilities. Specifically, we're implementing several upgrade activities at our DSSI facility in eastern Tennessee. It will include a multimillion-dollar expansion project to allow a broader treatment of reactive waste for our clients, including advanced safety and security systems to address the growing inventory at several client locations. Additionally, we're investing in soil sorting technology to include fabrication of a second soil sorter and potentially a third to be deployed by the end of second quarter 24. Sixth and finally, we've made important advances in new technology to treat PFAS contamination. While we look forward to fully unveiling our technology and strategy in the coming months, I want to give you a glimpse into what we've been working on. For those of you unfamiliar with PFAS, which is an acronym, P-A-F-A-S, which stands for polyfluoroalkyl substances, which are a synthetic chemical compound, the market for the treatment and disposal of PFAS is exploding due to the hazards associated with these, what they call, forever chemicals. Thousands of sites across the world have large inventories of chemicals, not to mention all the sites within the PFAS contamination that require remediation as well. Estimates for this market vary widely. However, the opportunity to provide services and treat PFAS contaminated waste for government as well as municipal and commercial clients is estimated to be or exceed over $10 billion over the next 10 years, according to the Environmental Business Journal. In fact, PFAS destruction represents one of the largest potential markets for environmental cleanup over the past several decades. Our new technology includes five patents that have been filed to support the complete destruction of PFAS with no off-gas or no toxic effluent in its emissions. Permafix co-founder, Dr. Lucina Fani, and his team of engineers and chemists have spent countless hours developing and validating this new technology. While we know that there are many firms in pursuit of PFAS remediation, we're confident that our complete destruction technology, coupled with our existing network of generators and clients, will support rapid expansion of systems to be deployed at each of our plant locations in 2025. We've already received PFAS from customers and recently completed bench-scale testing of our new technology, supported by independent verification, which demonstrated non-detectable presence of contaminants after treatment. Our engineers recently completed design of a proof of concept system that will be tested later this month. It was actually being tested as we speak, followed by the fabrication phase for our prototype systems currently scheduled for testing and operation in the second quarter of 2024. We'll be spending the coming months conducting system optimization studies to maximize destruction effectiveness while reducing operational costs before we launch our service into the market, at which point we expect to begin generating revenue later this year. Given the low cost as well as the technological and environmental advantages of our new process, we're already witnessing significant interest from major potential customers as well as regulatory agencies. Our estimate for revenues in 24 is approximately about $2 million at the end of the year. However, once in production and based on discussions with our customers, we're hopeful we'll achieve multiples of this revenue in 2025 as we have the ability to ramp up production rapidly with high margin potential. And one final note regarding PFAS, to put the market opportunity in perspective, I'd like to quote Time Magazine, which headlined, and I quote, 3M's historic $10 billion forever chemical payout, is just the tip of the PFAS iceberg. So the market's very strong and very well documented. So to wrap up, the investments we're undertaking in the first six months of 2024 should position Permafix for solid growth in the second half of the year and should position us very well in 2025. At the same time, we're making significant investments, as illustrated by the fact R&D is up 67% in 2023 over last year across all of Permatex. We believe these and other investments will allow us to reap the rewards of years to come. Meanwhile, we remain focused on increasing backlog and productivity while reducing operating costs to maximize our margins in 2024. I'm very proud of our team that we've assembled, which now includes top-notch business development and sales team members, as well as experts from across the industry with expertise in chemistry, waste engineering, health physics, and field operation. As a side note, and from a macro perspective, 2024 is bringing greater attention to our industry as we're seeing increases in nuclear power throughout the new plant, as well as SMR or small modular reactors, which with a renewed emphasis on long-term solutions for radioactive waste management. So on the first half of 2024, Looks to be below our performance objectives with a few temporary headwinds. We believe that we're well positioned for a second half of growth of the year with very high hopes for 2025. I can't emphasize this point enough, and we're more encouraged than ever by the long-term outlook for the business with a number of potentially company-changing opportunities in the near-term horizon. Okay, so on that note, I'll now turn over the call to Ben Naccarato, who will discuss our financial results in more detail. Ben?