Perma-Fix Environmental Services, Inc.

Greetings and welcome to the Permafix fiscal second quarter 2024 earnings conference call. At this time all participants are in a listen-only mode and 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, Mr. David Waldman, Crescendo Communications. Sir, you may begin.

Great, thank you, and good morning, everyone, and welcome to Permafix Environmental Services' second quarter 2024 conference call. On the call with us this morning are Mark Duff, President and CEO of Dr. Lou Senefani, Executive Vice President of Strategic Initiatives, and Ben Naccarato, Chief Financial Officer. The company issued a press release this morning containing second quarter 2024 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 Security Litigation Reform Act of 1995 and include certain non-GAF financial measures. All statements on this conference call, other than a statement of historical fact, are 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 of the 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 day 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 the non-GAAP measures to the most directly comparable GAAP measures is available on today's news release on our website. Now I'd like to turn the call over to Mark Duff. Please go ahead, Mark.

All right, David. Thanks, and good morning, everyone. As anticipated, we continue to experience weakness in Q2 due to ongoing government delays in waste shipments, awarding new task orders, and procuring other projects within our services segment. In addition, we experienced an extended equipment failure at one of our facilities that has taken nearly seven weeks to repair. Those repairs will be completed this week, and we expect to be fully operational by mid-August. Lastly, our earnings During the quarter, we're impacted by deliberate investments in our R&D, sales, marketing, and engineering to support the launch of our newest technology to treat PFAS, which I'll talk about more in a moment. While we were disappointed with the quarter's results, we consider the government issues as being temporary, and we're starting to see improvement heading into the second half of 2024 with improving revenues and productivity each month over the past several months. In the meantime, as we discussed, we're making progress on a number of potentially transformative initiatives. I'd like to first talk in more detail about some of the government headwinds we faced, and then I'll discuss the outlook, including our large projects that we're working on and why we remain so encouraged. As previously discussed, we completed our two largest service projects, the Princeton Plasma Physics Lab and the U.S. Exma Key Project for the Navy in March. However, with those projects completed, coupled with delays in new task orders, we did not have the replacement revenue to make up the gap. It's important to note that the government delays we experienced were not unique to Permafix and have been industry-wide. Much of this drag was due to the extended continuing resolution and Congress's inability to pass a federal budget until March of this year, which led to delays in procurements, project starts, and wage shipments due to funding limitations. These factors, which had a direct impact on our base business, have begun to subside, and we're not anticipated to be long-term trends within the industry. In fact, Congress has approved healthy funding levels for the government fiscal year 25, particularly at Hanford, and we expect to see pent-up demand for our offering in both services and waste treatment in the coming months. At the same time, we continue to diversify our broader commercial and international markets, including both radioactive and hazardous waste. For these reasons and others, I'm confident that the worst is now behind us and we're encouraged by the trends in early Q3, evidenced by our increase in waste shipments or waste receipts and bidding activity. Within the treatment segment, waste receipts were nearly $7 million in Q2 and appear to be regaining momentum with the first half of Q3 trending toward receipts of 10 to 20 million range with several large shipments anticipated. Within the services segment, benefiting from increased bidding opportunities. In addition, our profitability is steadily improving in both segments. Looking ahead, we remain focused on several large growth initiatives, including nuclear services procurements, expansions in our international waste program, as well as deployment of our PFAS technology and capability and the Hanford initiatives. More specifically, we're positioned for midsize and large ongoing procurement initiatives at DOE, DOD, and EPA, We've been able to secure strong teaming positions for both potential awards anticipated within or throughout 2025 that would potentially represent substantial increases in sustainable revenue for the next five to 10 years. For example, we're participating in large procurement opportunities as part of larger teams for the operations and the mission support contract, as well as the West Valley demonstration project near Buffalo, New York, and Navy projects, which are all expected to be awarded over the next several quarters. In addition to our police report, we've achieved several significant milestones by successfully completing two pivotal Department of Energy audits of our Perfix Northwest facility and our DSSI facility over the past few months. Completing these comprehensive audits were essential for our involvement in crucial projects like the cleanup efforts at Hanford and Oak Ridge Reservation and to find our ability to safely and compliantly support the DOE mission regarding the treatment of their waste. We remain committed to supporting the DOE's priorities at Hanford, including the treatment of the effluent, following the hot commissioning of the DF Law Facility, currently anticipated in August of 25, and reiterated by DOE in public meetings and agreements that the Department remains on schedule for this milestone. In addition to the effluent program, the April 29 Tri-Party Settlement Agreement between DOE and the state of Washington and the EPA, Dewey is committed to implementing a grounding program that will support retrieval of 22 tanks in the next 15 years to include treatment through commercial off-site grounding. We remain extremely confident in the likelihood of these programs, which we believe will save millions, billions of taxpayer dollars in support of the Hanford closure mission. Our Permavix Northwest facility, located adjacent to the Hanford site, is the only regional permitted facility that offers the ability to grout the tank waste and ship out of state disposal using rail. Alternative facilities will require a large number of shipments of liquid that's untreated waste out of state with higher environmental risk. It's difficult to define the exact quantity of waste to be removed from these tanks for grouting, but unofficial estimates include expectations for up to approximately 3 million gallons of waste to be processed annually to meet these goals that they've defined for 2040 to be completed. The agreement is unclear about when these operations would commence. However, the recent Hanford Systems 10 document published last winter defines retrieval operations beginning in January of 26. The Tri-Party Settlement Agreement also underscores DOE's commitment to start DF law vitrification plan operations following the completion of the hot commissioning program scheduled for August of 25. This is one of DOE's highest priorities as the department continues to communicate its progress in meetings in regards to their operational milestones. DOE committed in the January 23 record of decision to ship the effluent from DFLAW to Permafix Northwest for a minimum of 10 years with DU estimating up to 8,000 cubic meters of waste to be generated annually from DFLAW when the facility meets full capacity of operations. As I've mentioned in the past, the volume of waste would be more than double the current production of our plants altogether combined on an annual basis. Permavix also continues to advance a number of international waste programs, including the Joint Research Center in Italy, We're the first shipment as anticipated in January of 2025. We're also progressing on other promising opportunities in Europe. Additionally, we've secured new contracts in both Canada and Mexico to treat waste in our U.S. facilities. These projects are valued in excess of $5 million over the next 18 months. In a separate note, we recently announced that we purchased the Environmental Waste Operations Center, also known as EWOC. located just outside Oak Ridge, Tennessee. The strategic value of this purchase is significant both for us, our customers, as well. We previously released this facility for EWOC over the past several years, and we've been acquiring the facility to support our plans to invest in facility upgrades and capitalize on a number of opportunities, including large-scale decontamination projects, waste processing, and transloading from truck to rail for disposal out west. This facility is strategically located in close proximity to both the Y-12 National Security Complex and the Oak Ridge National Laboratory as cleanup programs begin to address large volumes of mercury and other difficult radioactive materials. EWOC is also a target for future implementation of PFAS waste processing capabilities, including regional treatment of PFAS contaminated liquids as we begin to receive larger volumes of these wastes following deployment of our first commercial unit in Florida. In terms of our PFAS technology, we've made significant progress in the design and fabrication of our first permafast commercial unit in collaboration with our partner, Process Baron. This unit is expected to be fully operational later this year, and the Process Baron has proven to be an ideal partner in working closely with us and our engineering team to complete final design concurrently with fabrication to reduce time for completion. As a result, we expect our prototype system to be capable of destroying PFAS in batches of 700 gallons. Most importantly, we're on track and expect to be fully operational in accepting commercial waste for destruction by Q4 this year. established several goals for additional units to be installed at each of our facilities throughout 2025. Based on the performance results defined by our prototype, we will engineer a second generation system to increase throughput and productivity to address larger volumes of PFAS liquids. In addition to earmarking billions of dollars in federal funding, the EPA has taken decisive action to address this problem, including the recent designation of PFAS as a hazardous substance. This designation enables the agency to compel responsible parties to pay for or conduct investigations and cleanup. We believe our process is extremely unique and we've been actively sharing information with EPA about our new process. Unlike traditional disposal methods for PFAS contaminated materials, which compose environmental threats and can be extremely energy intensive, ours will be the first known sealed chemical destruction unit that can accept and destroy PFAS to acceptable levels in the U.S. As we've stated previously, our process achieved PFAS destruction levels of six nines or 99.9999% exceeding anticipated regulatory requirements, and this was demonstrated in our bench scale and our pilot scale approaches. In advance of the commercial operation, we're making significant progress in raising industry awareness and developing backlog anticipation of a Q4 start. We've already received PFAS liquid samples from over a dozen clients, including the federal government. In addition, we're developing several partnering agreements with larger firms and clients that will quickly align our technology with the market demand in early Q4, once we demonstrate that we're able to achieve the same performance metrics that we've already achieved in our pilot facility. We're confident we can replicate these high-performance levels with our operational plant, as discussed. In parallel with this effort, we're rapidly progressing development over both our soil and our biosludge applications, which will use the same technology but require much different engineering considerations overall. We've completed our bench scale demonstrations successfully and are now moving towards our pilot plant testing at 55-gallon volumes. So to wrap up, we're extremely encouraged by the outlook for the business given the level of understanding or outstanding bids awaiting award, as well as our growing waste receipts. In addition, we have a number of active projects that we believe will be transformative to the company in 2025 and beyond. At the same time, we've maintained a solid balance sheet and ended the quarter with over $18.1 million in cash, which we believe provides us the sufficient resource to execute our growth strategy. While we were hesitant to raise funds, and particularly the amount we raised, we ultimately decided that given the magnitude of these projects we're working on, we needed the flexibility to ramp up quickly while these projects start. It was also important to show our customers that we have the balance sheet to support the potentially massive projects ahead of us. While I'm disappointed in our financial performance in the first half of the year, I'm very proud of our team and our ability to navigate through this storm while preparing for what we believe will be an unprecedented opportunity in 2025 and beyond. On that note, I'll turn the call over to Ben, who will discuss the financial results in more detail. Ben.