Perma-Fix Environmental Services, Inc.

Good morning and welcome to the Permafix Fiscal Second Quarter 2025 earnings conference call. At this time all participants have been placed on the listen-only mode and the floor will be open for questions following the presentation. If anyone should require operator assistance during this conference, please press star zero on your phone keypad. Please note this conference is being recorded. I will now turn the conference over to your host David Waldman, of Crescendo Communications. David, the floor is yours.

Thank you Jenny and good morning everyone. Welcome to Permafix Environmental Services Second Quarter 2025 conference call. On the call with us this morning are Mark Duff, President and CEO, Dr. Luz Sannafani, Executive Vice President of Strategic Initiatives, and Ben Nakarado, Chief Financial Officer. The company issued a press release this morning containing Second Quarter 2025 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 -671-1020. I'd also like to remind everyone that certain statements contained within the 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 are then a statement of historical fact or forward-looking statements that are subject to known 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 and performance. A reconciliation of the non-GAAP measures to the most directly comparable GAAP measures is available in today's news release and on our website. I'd now like to turn the call over to Mark Duff. Please go ahead, Mark.

All right. Thank you, David, and good morning, everyone. We delivered a sequential and -over-year revenue growth in the second quarter accompanied by a meaningful improvement in our gross margin. These results reflect continued progress on our operational initiatives, particularly within our treatment segment, where revenue increased approximately 37 percent compared to the same period last year. Even more notable was the fact that our waste receipts more than doubled -over-year to approximately 14 million in Q2 of 25. That said, treatment results were tempered by technical challenges that limited production capacity early in the quarter. These issues have been resolved through automation and process improvements that are already enhancing our throughput, improving safety, and reducing manual labor. We expect to realize the full benefit of these enhancements in the second half of the year. Importantly, we continue to realize state shipments from Hanford in support of the cleanup program as well as the tank management mission, which are estimated to be about $3 million of revenue per month. On a related note, the Department of Energy recently announced a delay in the DF Law Facility startup from August 1st to as late as October 15th. Despite the short-term delay, that program represents substantial new revenue streams for us. We remain encouraged by the long-term outlook for DF Law and the substantial reoccurring revenue and cash flow is expected to contribute once operational. In our services segment, project delays occurred earlier in the quarter, largely due to the federal government and federal procurement timing impacting our results. However, field execution and cleanup and remediation work is now tracking on schedule across key DOE and DOD sites. We're also pleased to report that our team was awarded a position on the Navy's $240 million RADMAC III IDIQ contract during the quarter. This award enforces our core competencies and radiological cleanup and positions us for a steady stream of potential task or opportunities in the coming quarters. We've also entered the six-month period, a planning period for the West Valley project as part of the BDUXT-led team where we expect to play a key role in long-term DOE cleanup efforts. While revenue recognition will be tied to DOE's approval of our final performance strategy, expected later this year, we view this as a significant multi-year opportunity for our services business. Returning now to PFAS, we made strong progress this quarter on multiple fronts. We expanded demonstration activities with both Fortune 500 companies and larger government agencies. In -to-date PFAS-related sales have reached approximately 500k, representing about 30,000 gallons of material so far. Daily operations have resumed at our PermaFAS unit in Florida, and construction is underway on our Gen 2 system in Oak Ridge, which is designed to support up to 3000 gallons of production per day while reducing unit operating costs. The Gen 2 system will also provide the potential to support mobile field deployment options for use in landfills, waste treatment plants, and remote sites. We continue to be encouraged by the technology's destruction performance and its scalability and the ability to reduce liability for our customers at a competitive price point. Internationally, we've received over 7 million waste receipts during the past two quarters and continue to see strong interest from customers in Canada, Germany, Mexico, and Italy. Our 50 million euro contract with the European Union and Italy is progressing through the permitting and preparation phase, and we remain on track to initiate treatment operations in 2026. Across the organization, we remain focused on discipline cost management and targeted margin improvement initiatives, which have continued to be implemented throughout Q3 as well. These programs are already contributing to improved productivity and are expected to support stronger EBITDA performance in the second half. In addition to our revenue generating activities, we're pursuing several large-scale federal and commercial procurement opportunities, including bids with the U.S. Army Corps of Engineers and DOE National Laboratories. Combining these opportunities represent more than $200 million in potential contract value with award decisions expected during the first half of 2026. Company-wide, our waste backlog currently stands at approximately 13.2 million, providing strong visibility into the second half of treatment volumes and services activities. We're also encouraged by evolving PFAS policy and regulatory developments in both the federal and the state levels, which continue to support demand for comprehensive destructive technologies like ours. With growing treatment volumes, renewed activity in our services segment, and commercial traction in PFAS, along with a healthy pipeline of domestic and international opportunities, we believe Permifix is well positioned to deliver improved financial results in the second half of 2025 and build long-term momentum heading into 2026. With that, I'll now turn over the call to Ben Nacarato to walk through our financial results in more detail.

Ben? Thank you, Mark. I'll start with the revenue. Our total revenue from our continuing operations for the second quarter was $14.6 million compared to last year's second quarter of $14 million. That's an increase of $600,000, or 4.3%. Our revenue in the treatment segment increased by $3.1 million over the prior year, or .6% as the waste volumes increased, as did our average price of waste, which is usually impacted by waste mix. Our treatment segment began the quarter with backlog of $10 million and had waste receipts and related revenues in excess of $14 million during the quarter, which contributed to the improved revenue and the strong backlog entering the third quarter. The increase in revenue was offset by a decrease in revenue at our services segment of $2.5 million. Project delays and completion of large projects in the prior year were the main drivers of this shortfall. Moving to gross profit for the quarter, our gross profit was $1.5 million compared to a negative $1.3 million in Q2 of 24. That's an improvement of $2.8 million. The revenue increase and lower variable costs of the waste treated had a positive impact on gross profit of totaling about $3.4 million, which was partially offset by increased fixed costs at the plants of $683,000. The increased fixed costs were primarily labor related due to increases in waste receipts. In the service segment, gross profit was relatively flat with prior year increasing by $90,000, as the impact of lower variable costs and fixed expenses was offset by the impact on gross profit of lower revenue. The lower variable costs were the result of improved profitability of the projects performed this year, while our lower fixed costs were the result of reductions to our indirect labor. Turning to SG&A, our SG&A costs for the quarter were $4.1 million compared to prior year total of $3.5 million. The increase is evenly split between marketing and admin. Our marketing expense were higher from higher business development expenses related to PFAS and project bidding. In addition, certain personnel formerly focused on operations are being deployed in a business development role supporting PFAS, PFLAW, and our international opportunities. On the admin side, the addition of our COO and the related travel and benefits with that position had the greatest impact on our increased costs. Net loss for the quarter was $2.7 million as compared to prior year's net loss of $4 million. Our total basic and diluted earnings per share or loss per share for the quarter was $0.15 compared to a loss per share of $0.27 in the quarter. As defined in this morning's press release, was a negative $2.3 million compared to negative EBITDA of $4.6 million last year. Turning to some balance sheet items, our cash on the balance sheet at quarter end was $22.6 million. Our waste backlog at the end of June was $13.2 million, which is up from $7.9 million at the end of last year and higher than June 30th, a year ago, with where it was $8.7 million at the time. Our total debt for the quarter at quarter end is $2 million, excluding debt issuance costs, most of which is owed to our primary lender, PNC Bank. Finally, I'll summarize our cash flow for $25 million. Our cash used by continuing operations is $3.8 million. Cash used by discontinued operations is $222,000. Cash used for investing in continuing operations was $1.5 million, most of which relates to capital spending and the remainder on permits and other investments. Our cash used for investing for DiscOps is $16,000. Cash used for in-financing was $626,000, of which is approximately $313,000, which relates to monthly payments on the term and capital loans, finance leases of $148,000, and payments of $194,000 related to our public offering completed in December of 2024. This is offset by a small increase in option expenses of $49,000. With that, I will now turn the call over to the operator for questions.

Thank you very much. We will now be conducting our question and answer session. If you would like to ask a question, please press star 1 on your phone keypad now. A confirmation tone will indicate that your line is in the queue. You may press star 2 if you would like to remove your question from the queue. For any participants using speaker equipment, it might be necessary to pick up your handsets before you press the keys. Please wait a moment while we poll for questions. Thank you. Our first question is coming from Aaron Spichella of Craig Hallam. Aaron, your line is live.

Yeah, good morning, Mark and Ben. Thanks for taking the questions. First, on the treatment side of things, you kind of talked about some challenges, improvements that have been made. Can you just give a little bit more detail on there and maybe how you think about the margin pickup in the back-up and just maybe how you're thinking about overall kind of treatment in the back-up there?

Yeah, I appreciate that question. We started receiving, I think I mentioned this last call, that we started receiving a sizable waste stream from the Hanford operations side of the house. Not the tank closure, but the, actually comes through tank closure, but it's more associated with operations of the tank farms themselves. And this waste stream includes some solidification processes that had to occur. And we're having a difficult time with the process because it was labor intensive, it was going very slow, and we implemented some equipment and did the training and got the permits aligned with it as well as the alignment with the folks that will take the waste from us on the Hanford site to make sure that everything worked properly and the performance of the treatment was adequate. So that took several months we didn't expect it to take. If you remember last quarter, we talked about the fact that we had to hire a lot of people and it took a while to get them trained in place. So that all happened and then we had problems with production. But that has all been resolved in about halfway through the quarter and we really started getting our feet under us in June and meeting our performance goals. So now that waste stream should be sustainable through 27 at minimum and it's really a core competency for the type of work we do with our Northwest plant. All the other waste streams are going well and the Northwest facility is becoming a real anchor for us as expected in support of upcoming projects at Hanford as well, but also many other clients around the country and internationally as we continue to expand the operations there.

All right, thanks for the call there. And then on Hanford, I saw the wording in the release on as late as October 15th. Maybe just talk about it sounds like confidence that that could start up before then and you alluded to it, but just, you know, preparations being made at the Northwest facility to handle those volumes as they start up.

Yeah, you know, the delay was somewhat unexpected to us because it was so close to the anticipated start date, but it's not really unexpected that they would have a delay and these types of things. But we heard that there was a number of items are working through that have been publicized by the independent groups that make sure they're ready and that they were finding nitrogen oxide in some of the off-gas systems that they had to deal with and address those concerns. And we've been told informally that that's what they're working on right now. It shouldn't be the entire period. They give themselves some buffer. That's largely speculation. They're not really discussing what their timeline really is. But I know DOE is not going to want to do multiple delays, so we're pretty confident that they should be done well within that period and then get rolling. Once they get rolling, then they'll enter the hot commissioning period. That's where they introduce actual tank waste to the plant. And they'll do about a dozen to two dozen canisters. Then they'll test those canisters for performance, making sure it meets the standards they've designed the facility to do and test all the systems, make sure they're working properly. And then they'll enter into an operational phase after that. So that operational phase would most likely be time in Q4. I'm not sure when or how long it'll take between the two phases. But it seems like they're on track to be an operational phase before the end of the calendar year and get rolling. Did that address your question, Aaron? I'm not sure if I hit all the points.

Yeah, no, it does. I mean, maybe just preparations at Hanford to be able to handle everything. You feel comfortable there, investments that you've made and things like that.

Yeah, we've completed our preliminary design of the systems we need to have in place for receipt of that waste. So we're ready to go. We will continue to make investments, capital investments as the DFLaw gets rolling into larger quantities. In other words, we'll duplicate the systems we've got and add staff accordingly. But we're ready to go now to do at least the difficult for DOE to really nail down the different types of waste we're going to be getting. They provided estimates along the way on the total quantities that they're expecting. But there's about a dozen different waste streams. And we're not sure how much of each one that we'll be receiving. So we really got to see how things go during commissioning and early startup to really know how we need to expand so we don't over-expand to support the full operation.

Okay, that makes sense. And then on the services side of things, you talked a little bit about West Valley in the planning period, a little bit on RADMAC. How are you seeing that services segment here in the next couple quarters? Is West Valley kind of more of an early 2026 startup in your eyes or maybe just some some call there would be helpful?

Yeah, services had a negative impact on our performance this quarter particularly. As I mentioned in the notes, there were some delays getting into the field and some delays in procurements. Both those are largely attributable to the change in administration and a lot of retirees, a lot of retirements, and uncertainty in the federal government's procurement shops. They're working through those things. I understand it's very common within the DOD as well as DOE with the changes that have been made. The administration, the Trump administration, is pushing very hard on both those agencies to streamline procurements and make them more efficient. We're starting to see some of that already. But overall, to answer your question specifically, we see that picking up on both the services side in this quarter and next quarter, particularly in regards to several projects that are just now getting rolling and some procurements that we've just submitted bids on at the end of Q2 and beginning of Q3. So West Valley is moving a little slower, a lot slower than we thought it would. We thought we'd be working by now. But the way it goes with these types of contracts, what that means is you put together a strategy, a very detailed strategy for the next 10 years of what you're going to get done. And then you line up your costs with that to stay within a funding level. And then the Department of Energy approves that. And we're in that strategy stage, pulling the strategy together for the next 10 years. We're internally involved in the waste management portion of that. And then DOE has to approve that within the funding they've got. So that's where that process is now. So that finishes up here around the first of the year. And then we're anticipating to be implementing that strategy beginning in Q1. So it just depends on if there's changes to our approach or funding that's moving one way or another could impact that. So that's why we're hesitant to really make a real forecast on the revenue we're going to get from West Valley at this point. But we still remain very optimistic. Our scope is very important and one of the primary goals for the site in the next several years. So we're optimistic that we'll play a critical role in there. But it hasn't been nailed down yet overall.

All right. Thanks for the color and taking the questions. I will turn it over.

Okay. Thanks, Aaron.

Thank you very much. Our next question is coming from Howard Brouse of Wellington Shields. Howard, your line is live.

Thank you.

Basically

one question. You anticipate production of DF Florida ramp up and what are our associated revenue expectations from now through 2026?

Good morning, Howard. They haven't really given us a lot of detail for the ramp up. But what we've been told informally in meetings and as part of the overall program is again, they'll do the commissioning now. Once operations start, as I mentioned, we'll be in Q4. Operations has been formally defined as about 40% production capacity. So if you remember, the design capacity is a million gallons a year. And at a million gallons a year, they anticipate generating 8,000 cubic meters of waste. And looking at the waste streams that they're talking about here, we're estimating that to be in the 70 to 80 million dollar range for the 8,000 meters. So if you do the math and running at 40% capacity later in Q4, we could anticipate once they get to that point, $2 to $3 million in revenue a month. And they'll be ramping up as fast as they can, as safely as they can over the next 18 months after operations begin to try to get to 70 or 80% operational capacity on the way up to full capacity. So we're anticipating again, not knowing all the volumes of the different types of waste we'll receive, again, just to summarize, $2 to $3 million in revenue upon operational phase startup and then ramp up from there over the next 18 months to 26.

That's all I had. Thank you very much. Best of luck. Thank you.

Bye. Thank you very much. Just a reminder, if there are any remaining questions, you can still join the queue by pressing star one on your phone keypad. Our next question is coming from Aaron Warwick of Breakout Investors. Aaron, your line is live.

Good morning, gentlemen. Just a question on the Navy contract or IDIQ, I should say. Could you give us an idea about the size of it and how many different entities there are that are available to bid on those and just kind of what your expectations are there?

Sure, Aaron. I'm glad you asked that. These IDIQs are very difficult to nail down. We have a lot of IDIQs. Don't see a lot of action. We just submitted a very sizable job with DOE through one of their IDIQs that hasn't seen action in quite a while. This Navy IDIQ for the RadMac 3 is a very active contract. If you do the research, if you just type in, you know, Googling it, it runs out of funding. It's that much used. In other words, they pump a lot of funding through this historically. So it's 240 million and they have six total awards, three large business and three small business. And again, we're a small business. And small businesses get the bid on all the large business task orders, but not vice versa. They can't bid on the small ones. The biggest can't bid on the small ones. So to answer your question, we already got our first task order working on it right now to do here in a couple of weeks. And they don't give a forecasting like that. We don't know how it lines up with the funding. But it's basically to do radiological remediation, mostly in the California coast, initially in Southern California, San Diego area, and then also we're anticipating a number of projects in the Bay Area as well, where there's been long term radiological issues. So to answer your question, it is competitive. Each task order is competitive. We're very comfortable the three small business will be competing with some of the smaller tasks. We know very well. And the type of work that is done within this contract is exactly what we are strongest core competencies are aligned with. We have some technologies in these areas. And but again, they are competitive. And it's really difficult to really define how much revenue we can anticipate on an annual basis. Thank you,

guys.

Thank you,

Aaron. Thank you very much. While we appear to have reached the end of our question and answer session, I will now turn it back over to the management for their closing comments.

All right. Thank you, Jenny. As we move into the second half of 2025, we remain focused on executing against our key strategic priorities, expanding our treatment and PFAS backlogs, driving performance improvements across all our operations and converting large services and federal bid opportunities. The operational investments we made early in the year combined with the progress we're seeing at Permafix Northwest within the PFAS program across our DOE segments and engagements, they all position us to deliver strong results in the coming quarters. While timing around certain federal procurement processes remains variable, our backlog, our field execution and our pipeline visibility continue to improve. So in summary, we remain confident in our ability to deliver a stronger financial performance in the back half of the year supported by the progress we've already achieved. We appreciate your continued support and look forward to updating you again next quarter on our progress. Thank you.

Thank you very much. This does conclude today's conference. You may disconnect your phone lines at this time and have a wonderful day. We thank you for your participation.