UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
Or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________________ to_________________
Commission
File No.
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(IRS
Employer | |
(Address of principal executive offices) |
(Zip Code) |
(Registrant’s telephone number)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol | Name of each exchange on which registered | ||
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated filer ☐ Accelerated Filer ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the close of the latest practical date.
| Class | Outstanding at May 2, 2024 | |
| Common Stock, $.001 Par Value |
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
INDEX
| Page No. | |||
| PART I | FINANCIAL INFORMATION | ||
| Item 1. | Condensed Consolidated Financial Statements (Unaudited) |
||
| Condensed Consolidated Balance Sheets - March 31, 2024 and December 31, 2023 | 1 | ||
| Condensed Consolidated Statements of Operations - Three Months Ended March 31, 2024 and 2023 | 3 | ||
| Condensed Consolidated Statements of Comprehensive Loss - Three Months Ended March 31, 2024 and 2023 | 4 | ||
| Condensed Consolidated Statements of Stockholders’ Equity - Three Months Ended March 31, 2024 and 2023 | 5 | ||
|
Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 2024 and 2023 |
6 | ||
| Notes to Condensed Consolidated Financial Statements | 7 | ||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 20 | |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 30 | |
| Item 4. | Controls and Procedures | 30 | |
PART II |
OTHER INFORMATION | ||
|
Item 1. |
30 | |
| Item 1A. | Risk Factors | 30 | |
Item 6. |
31 | ||
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
Condensed Consolidated Balance Sheets
| March 31, 2024 | ||||||||
| (Amounts in Thousands, Except for Share and Per Share Amounts) | (Unaudited) | December 31, 2023 | ||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net of allowance for credit losses of $ | ||||||||
| Unbilled receivables | ||||||||
| Inventories | ||||||||
| Prepaid and other assets | ||||||||
| Current assets related to discontinued operations | ||||||||
| Total current assets | ||||||||
| Property and equipment: | ||||||||
| Buildings and land | ||||||||
| Equipment | ||||||||
| Vehicles | ||||||||
| Leasehold improvements | ||||||||
| Office furniture and equipment | ||||||||
| Construction-in-progress | ||||||||
| Total property and equipment | ||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Net property and equipment | ||||||||
| Property and equipment related to discontinued operations | ||||||||
| Operating lease right-of-use assets | ||||||||
| Intangibles and other long term assets: | ||||||||
| Permits | ||||||||
| Other intangible assets - net | ||||||||
| Finite risk sinking fund (restricted cash) | ||||||||
| Deferred tax assets | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 1 |
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
Condensed Consolidated Balance Sheets, Continued
| March 31, 2024 | ||||||||
| (Amounts in Thousands, Except for Share and per Share Amounts) | (Unaudited) | December 31, 2023 | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Disposal/transportation accrual | ||||||||
| Deferred revenue | ||||||||
| Accrued closure costs - current | ||||||||
| Current portion of long-term debt | ||||||||
| Current portion of operating lease liabilities | ||||||||
| Current portion of finance lease liabilities | ||||||||
| Current liabilities related to discontinued operations | ||||||||
| Total current liabilities | ||||||||
| Accrued closure costs | ||||||||
| Long-term debt, less current portion | ||||||||
| Long-term operating lease liabilities, less current portion | ||||||||
| Long-term finance lease liabilities, less current portion | ||||||||
| Long-term liabilities related to discontinued operations | ||||||||
| Total long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and Contingencies (Note 9 ) | ||||||||
| Stockholders’ Equity: | ||||||||
| Preferred Stock, $ par value; shares authorized, shares issued and outstanding | — | — | ||||||
| Common Stock, $ par value; shares authorized; and shares issued, respectively; and shares outstanding, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Less Common Stock in treasury, at cost; shares | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 2 |
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
| Three Months Ended March 31, | ||||||||
| (Amounts in Thousands, Except for Per Share Amounts) | 2024 | 2023 | ||||||
| Revenues | $ | $ | ||||||
| Cost of goods sold | ||||||||
| Gross (loss) profit | ( | ) | ||||||
| Selling, general and administrative expenses | ||||||||
| Research and development | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other income (expense): | ||||||||
| Interest income | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Interest expense-financing fees | ( | ) | ( | ) | ||||
| Other | — | |||||||
| Loss from continuing operations before taxes | ( | ) | ( | ) | ||||
| Income tax benefit | ( | ) | ( | ) | ||||
| Loss from continuing operations, net of taxes | ( | ) | ( | ) | ||||
| Loss from discontinued operations (net of taxes) (Note 10) | ( | ) | ( | ) | ||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Net loss per common share - basic and diluted: | ||||||||
| Continuing operations | $ | ) | $ | ) | ||||
| Discontinued operations | ) | ) | ||||||
| Net loss per common share | $ | ) | $ | ) | ||||
| Number of common shares used in computing net loss per share: | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 3 |
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited)
| Three Months Ended March 31, | ||||||||
| (Amounts in Thousands) | 2024 | 2023 | ||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Other comprehensive (loss) income: | ||||||||
| Foreign currency translation (loss) gain | ( | ) | ||||||
| Total other comprehensive (loss) income | ( | ) | ||||||
| Comprehensive loss | $ | ( | ) | ( | ) | |||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 4 |
PERMA-FIX ENVIRONMENTAL SERVICES, INC
Condensed Consolidated Statement of Stockholders’ Equity
(Unaudited)
(Amounts in thousands, except for share amounts)
| Accumulated | ||||||||||||||||||||||||||||
| Additional | Common | Other | Total | |||||||||||||||||||||||||
| Common Stock | Paid-In | Stock Held | Comprehensive | Accumulated | Stockholders’ | |||||||||||||||||||||||
| Shares | Amount | Capital | In Treasury | Loss | Deficit | Equity | ||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||
| Net loss | — | — | — | — | — | ( | ) | ( | ) | |||||||||||||||||||
| Foreign currency translation | — | — | — | — | ( | ) | — | ( | ) | |||||||||||||||||||
| Issuance of Common Stock for services | — | — | — | — | ||||||||||||||||||||||||
| Issuance of Common Stock upon exercise of options | — | — | — | — | ||||||||||||||||||||||||
| Issuance of Common Stock upon exercise of warrant | — | — | — | — | ||||||||||||||||||||||||
| Stock-Based Compensation | — | — | — | — | — | |||||||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||
| Net loss | — | — | — | — | — | ( | ) | ( | ) | |||||||||||||||||||
| Foreign currency translation | — | — | — | — | — | |||||||||||||||||||||||
| Issuance of Common Stock for services | — | — | — | — | ||||||||||||||||||||||||
| Issuance of Common Stock upon exercise of options | — | — | — | — | ||||||||||||||||||||||||
| Stock-Based Compensation | — | — | — | — | — | |||||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 5 |
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Three Months Ended March 31, | ||||||||
| (Amounts in Thousands) | 2024 | 2023 | ||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Less: loss from discontinued operations, net of taxes (Note 10) | ( | ) | ( | ) | ||||
| Loss from continuing operations, net of taxes | ( | ) | ( | ) | ||||
| Adjustments to reconcile loss from continuing operations to cash (used in) provided by operating activities : | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of debt issuance costs | ||||||||
| Deferred tax benefit | ( | ) | ( | ) | ||||
| Recovery of credit losses on accounts receivable | ( | ) | ( | ) | ||||
| Issuance of common stock for services | ||||||||
| Stock-based compensation | ||||||||
| Changes in operating assets and liabilities of continuing operations: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Unbilled receivables | ( | ) | ( | ) | ||||
| Prepaid expenses, inventories and other assets | ||||||||
| Accounts payable, accrued expenses and unearned revenue | ( | ) | ||||||
| Cash (used in) provided by continuing operations | ( | ) | ||||||
| Cash used in discontinued operations | ( | ) | ( | ) | ||||
| Cash (used in) provided by operating activities | ( | ) | ||||||
| Cash flows from investing activities: | ||||||||
| Purchases of property and equipment (net of financed amount) | ( | ) | ( | ) | ||||
| Cash used in investing activities of continuing operations | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Repayments of revolving credit borrowings | ( | ) | ( | ) | ||||
| Borrowing on revolving credit | ||||||||
| Proceeds from issuance of Common Stock upon exercise of options/warrant | ||||||||
| Principal repayments of finance lease liabilities | ( | ) | ( | ) | ||||
| Principal repayments of long term debt | ( | ) | ( | ) | ||||
| Payment of debt issuance costs | — | ( | ) | |||||
| Cash used in financing activities | ( | ) | ( | ) | ||||
| Effect of exchange rate changes on cash | ( | ) | — | |||||
| (Decrease) increase in cash and finite risk sinking fund (restricted cash) | ( | ) | ||||||
| Cash and finite risk sinking fund (restricted cash) at beginning of period | ||||||||
| Cash and finite risk sinking fund (restricted cash) at end of period | $ | $ | ||||||
| Supplemental disclosure: | ||||||||
| Interest paid | $ | $ | ||||||
| Income taxes paid | — | — | ||||||
| Non-cash investing and financing activities: | ||||||||
| Equipment purchase subject to finance lease | — | |||||||
| Equipment purchase subject to finance | — | |||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 6 |
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
Notes to Condensed Consolidated Financial Statements
March 31, 2024
(Unaudited)
Reference is made herein to the notes to consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023.
1. Basis of Presentation
The condensed consolidated financial statements included herein have been prepared by the Company (which may be referred to as we, us or our), without an audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “Commission”). Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations, although the Company believes the disclosures which are made are adequate to make the information presented not misleading. Further, the condensed consolidated financial statements reflect, in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position and results of operations as of and for the periods indicated. The results of operations for the three months ended March 31, 2024 are not necessarily indicative of results to be expected for the fiscal year ending December 31, 2024.
These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, 2023.
The condensed consolidated financial statements include the accounts of our wholly-owned subsidiaries.
Financial Position and Liquidity
The Company’s results of operations in the first quarter of 2024 were impacted by accelerated investments and several events, which included the following:
● Accelerated investments in research and development (“R&D”) on our new technology to treat Per- and Polyfluorinated Substances (“PFAS”);
● Reduced activities by our customers due to poor weather conditions, which resulted in the closure of two of our facilities for a week, including delays in shipments to support backlog;
● Continuing Resolution impacts due to the inability of Congress to pass a Federal Budget through late March 2024, which contributed to delays in procurements, project starts and waste shipment, due to uncertain budget projections by our government clients;
● Completion of two large projects in the Services Segment that were not replaced by new project starts due to delays in mobilization activities until late April; and
● All three primary treatment facilities realized outages in March which impacted revenue as the Company utilized the aforementioned slowdowns for equipment replacement and repairs, program enhancements, and testing to support permit expansion and broader market penetration.
The Company believes that most of these accelerated
investments and unanticipated impacts should have limited duration effects to its financial performance. The Company expects that the
second quarter will not include material continued impact from these activities. With the passage of the Federal Budget in late March
2024 and improved weather conditions, the Company has begun to see steady improvements in waste receipts, project starts that were delayed
and increased procurement activities. The Company’s waste treatment backlog stands at approximately $
The Company’s cash flow requirements for the next twelve months will consist primarily of general working capital needs, scheduled principal payments on its debt obligations, remediation projects, and planned capital expenditures which include its PFAS technology. The Company plans to fund these requirements from its operations, credit facility availability, cash on hand (which will include, when received, cash from outstanding receivables due to our Perma-Fix Canada, Inc. subsidiary from a certain customer - See “Note 9 – Commitments and Contingencies - Perma-Fix Canada, Inc. (“PF Canada”)” for a discussion of this outstanding receivables) and possible other methods. The Company’s ability to utilize its credit facility from its lender is subject to meeting our quarterly financial covenant requirements, among other things. The Company continues to explore all sources of increasing its capital and/or liquidity and to improve its revenue and working capital, including, but not limited to entering into equity transactions. There are no assurances that the Company will be successful in increasing its liquidity through its efforts. The Company is continually reviewing operating costs and reviewing the possibility of further reducing operating costs and non-essential expenditures to bring them in line with revenue levels, when necessary. The Company believes that its cash flows from operations, its available liquidity from its credit facility, and its cash on hand (which will include, when received, cash from the outstanding Canadian receivables noted above) should be sufficient to fund our operations for the next twelve months.
2. Summary of Significant Accounting Policies
Our accounting policies are as set forth in the notes to the December 31, 2023, consolidated financial statements referred to above.
Recently Issued Accounting Standards – Not Yet Adopted
In August 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-05, “Business Combinations—Joint Venture Formations (Subtopic 805-60): Recognition and Initial Measurement.” ASU 2023-05 applies to the formation of a “joint venture” or a “corporate joint venture” and requires a joint venture to initially measure all contributions received upon its formation at fair value. The guidance does not impact accounting by the venturers. The new guidance is applicable to joint venture entities with a formation date on or after January 1, 2025 on a prospective basis. The Company is currently evaluating the impact of this ASU on its consolidated financial statements.
| 7 |
In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” which expands reportable segment disclosure requirements by requiring disclosures of significant reportable segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within each reported measure of a segment’s profit or loss. The ASU also requires disclosure of the title and position of the individual identified as the CODM and an explanation of how the CODM uses the reported measures of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources. Additionally, ASU 2023-07 requires all segment profit or loss and assets disclosures to be provided on an annual and interim basis. The amendments in this ASU are required to be adopted for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 with early adoption permitted, and should be applied on a retrospective basis. ASU 2023-07 will be effective for the Company’s financial statements for the year ended December 31, 2024. This ASU will not have impact on the Company’s consolidated financial condition or results of operations. The Company is evaluating the impact to the related segment reporting disclosures.
In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” which modifies the rules on income tax disclosures to require entities to disclose (1) specific categories in the rate reconciliation, (2) the income or loss from continuing operations before income tax expense or benefit (separated between domestic and foreign) and (3) income tax expense or benefit from continuing operations (separated by federal, state and foreign). ASU 2023-09 also requires entities to disclose their income tax payments to international, federal, state and local jurisdictions, among other changes. The guidance is effective for annual periods beginning after December 15, 2024. ASU 2023-09 should be applied on a prospective basis, but retrospective application is permitted. This ASU will not have impact on the Company’s consolidated financial condition or results of operations. The Company is evaluating the impact to its income taxes reporting disclosures.
3. Revenue
Disaggregation of Revenue
In general, the Company’s business segmentation is aligned according to the nature and economic characteristics of our services and provides meaningful disaggregation of each business segment’s results of operations. The nature of the Company’s performance obligations within our Treatment and Services Segments results in the recognition of our revenue primarily over time. The following tables present further disaggregation of our revenues by different categories for our Services and Treatment Segments:
Revenue by Contract Type
| (In thousands) | Three Months Ended | Three Months Ended | ||||||||||||||||||||||
| March 31, 2024 | March 31, 2023 | |||||||||||||||||||||||
| Treatment | Services | Total | Treatment | Services | Total | |||||||||||||||||||
| Fixed price | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Time and materials | — | — | ||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Revenue by generator
| (In thousands) | Three Months Ended | Three Months Ended | ||||||||||||||||||||||
| March 31, 2024 | March 31, 2023 | |||||||||||||||||||||||
| Treatment | Services | Total | Treatment | Services | Total | |||||||||||||||||||
| Domestic government | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Domestic commercial | ||||||||||||||||||||||||
| Foreign government | — | |||||||||||||||||||||||
| Foreign commercial | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Contract Balances
The timing of revenue recognition and billings results in unbilled receivables (contract assets). The Company’s contract liabilities consist of deferred revenues which represent advance payment from customers in advance of the completion of our performance obligation. The following table represents changes in our contract asset and contract liabilities balances:
| Year-to-date | Year-to-date | |||||||||||||||
| (In thousands) | March 31, 2024 | December 31, 2023 | Change ($) | Change (%) | ||||||||||||
| Contract assets | ||||||||||||||||
| Unbilled receivables - current | $ | $ | | $ | % | |||||||||||
| Contract liabilities | ||||||||||||||||
| Deferred revenue | $ | $ | $ | % | ||||||||||||
| 8 |
During
the three months ended March 31, 2024, and 2023, the Company recognized revenue of $
Remaining Performance Obligations
The Company applies the practical expedient in ASC 606-10-50-14 and does not disclose information about remaining performance obligations that have original expected durations of one year or less.
Within our Services Segment, there are service contracts which provide that the Company has a right to consideration from a customer in an amount that corresponds directly with the value to the customer of our performance completed to date. For those contracts, the Company has utilized the practical expedient in ASC 606-10-55-18, which allows the Company to recognize revenue in the amount for which we have the right to invoice; accordingly, the Company does not disclose the value of remaining performance obligations for those contracts.
The Company’s contracts and subcontracts relating to activities at governmental sites generally allow for termination for convenience at any time at the government’s option without payment of a substantial penalty. The Company does not disclose remaining performance obligations on these contracts.
4. Leases
At the inception of an arrangement, the Company determines if an arrangement is, or contains, a lease based on facts and circumstances present in that arrangement. Lease classifications, recognition, and measurement are then determined at the lease commencement date.
The Company’s operating lease right-of-use (“ROU”) assets and operating lease liabilities include primarily leases for office and warehouse spaces used to conduct our business. The Company’s operating leases also include a building with land utilized for our waste treatment operations which includes a purchase option. Finance leases consist primarily of processing and transport equipment used by our facilities’ operations.
The components of lease cost for the Company’s leases were as follows (in thousands):
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2024 | 2023 | |||||||
| Operating Lease: | ||||||||
| Lease cost | $ | $ | ||||||
| Finance Leases: | ||||||||
| Amortization of ROU assets | ||||||||
| Interst on lease liablity | ||||||||
| Total lease cost | $ | $ | ||||||
The weighted average remaining lease term and the weighted average discount rate for operating and finance leases at March 31, 2024 were:
| Operating Leases | Finance Leases | |||||||
| Weighted average remaining lease terms (years) | ||||||||
| Weighted average discount rate | % | % | ||||||
| 9 |
The weighted average remaining lease term and the weighted average discount rate for operating and finance leases at March 31, 2023 were:
| Operating Leases | Finance Leases | |||||||
| Weighted average remaining lease terms (years) | ||||||||
| Weighted average discount rate | % | % | ||||||
The following table reconciles the undiscounted cash flows for the operating and finance leases at March 31, 2024, to the operating and finance lease liabilities recorded on the balance sheet (in thousands):
| Operating Leases | Finance Leases | |||||||
| 2024 | $ | $ | ||||||
| 2025 | ||||||||
| 2026 | ||||||||
| 2027 | ||||||||
| 2028 | ||||||||
| 2029 and thereafter | ||||||||
| Total undiscounted lease payments | ||||||||
| Less: Imputed interest | ( | ) | ( | ) | ||||
| Present value of lease payments | $ | $ | ||||||
| Current portion of operating lease obligations | $ | $ | — | |||||
| Long-term operating lease obligations, less current portion | $ | $ | — | |||||
| Current portion of finance lease obligations | $ | — | $ | |||||
| Long-term finance lease obligations, less current portion | $ | — | $ | |||||
Supplemental cash flow and other information related to our leases were as follows (in thousands):
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2024 | 2023 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flow from operating leases | $ | $ | ||||||
| Operating cash flow from finance leases | $ | $ | ||||||
| Financing cash flow from finance leases | $ | $ | ||||||
| ROU assets obtained in exchange for lease obligations for: | ||||||||
| Finance liabilities | $ | — | $ | |||||
5. Intangible Assets
The following table summarizes information relating to the Company’s definite-lived intangible assets:
| March 31, 2024 | December 31, 2023 | |||||||||||||||||||||||||||
| Weighted Average | Gross | Net | Gross | Net | ||||||||||||||||||||||||
| Amortization Period | Carrying | Accumulated | Carrying | Carrying | Accumulated | Carrying | ||||||||||||||||||||||
| (Years) | Amount | Amortization | Amount | Amount | Amortization | Amount | ||||||||||||||||||||||
| Other Intangibles (amount in thousands) | ||||||||||||||||||||||||||||
| Patents | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||||||
| Software | ( | ) | ( | ) | ||||||||||||||||||||||||
| Total | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||||||
The intangible assets noted above are amortized on a straight-line basis over their useful lives.
| 10 |
The following table summarizes the expected amortization over the next five years for our definite-lived intangible assets:
| Amount | ||||
| Year | (In thousands) | |||
| 2024 (Remaining) | $ | | ||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
Amortization
expenses relating to the definite-lived intangible assets as discussed above were $
The Company has certain stock option plans under which it may award incentive stock options (“ISOs”) and/or non-qualified stock options (“NQSOs”) to employees, officers, outside directors, and outside consultants.
On January 18, 2024, the Company granted ISOs to certain employees under the 2017 Stock Option Plan (“2017 Plan”), for the purchase of up to an aggregate of shares of the Company’s common stock, par value $ (the “Common Stock”). Each ISO granted is for a contractual term of with . The exercise price of the ISO is $ per share, which was equal to the fair market value of the Company’s Common Stock on the date of grant.
| Three Months Ended | ||||||||
| Stock Options | March 31, | |||||||
| 2024 | 2023 | |||||||
| Employee Stock Options | $ | $ | ||||||
| Director Stock Options | ||||||||
| Total | $ | $ | ||||||
At March 31, 2024, the Company had approximately $ of total unrecognized compensation costs related to unvested options for employee and directors. The weighted average period over which the unrecognized compensation costs are expected to be recognized is approximately years.
The summary of the Company’s total Stock Option Plans as of March 31, 2024 and March 31, 2023, and changes during the periods then ended, are presented below. The Company’s Plans consist of the 2017 Plan and the 2003 Outside Directors Stock Plan (the “2003 Plan”):
| Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (years) | Aggregate Intrinsic Value (4) | |||||||||||||
| Options outstanding January 1, 2024 | $ | |||||||||||||||
| Granted | $ | |||||||||||||||
| Exercised | ( | ) | $ | $ | ||||||||||||
| Forfeited | ( | ) | $ | |||||||||||||
| Options outstanding end of period (1) | $ | $ | ||||||||||||||
| Options exercisable at March 31, 2024(2) | $ | $ | ||||||||||||||
| 11 |
| Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (years) | Aggregate Intrinsic Value (4) | |||||||||||||
| Options outstanding January 1, 2023 | $ | |||||||||||||||
| Granted | $ | |||||||||||||||
| Exercised | ( | ) | $ | $ | ||||||||||||
| Forfeited/expired | ( | ) | $ | |||||||||||||
| Options outstanding end of period (3) | $ | $ | ||||||||||||||
| Options exercisable at March 31, 2023(3) | $ | $ | ||||||||||||||
| (1) | |
| (2) | |
| (3) | |
| (4) |
During the three months ended March 31, 2024, the Company issued a total of shares of its Common Stock under the 2003 Plan to its outside directors as compensation for serving on our Board of Directors (the “Board”). The Company recorded approximately $ in compensation expenses (included in selling, general and administration (“SG&A”) expenses) in connection with the issuance of shares of its Common Stock to outside directors.
During
the three months ended March 31, 2024, the Company issued an aggregate shares of its Common Stock from cashless exercises of options
for the purchase of shares of the Company’s Common Stock ranging from $ per share to $ per share. Additionally,
the Company issued shares of its Common Stock from the cash exercises of options for the purchase of shares of the Company’s
Common Stock, at exercise prices ranging from $ per share to $ per share, resulting in proceeds of approximately $
In
connection with a $
| 12 |
Basic loss per share is calculated based on the weighted-average number of outstanding common shares during the applicable period. Diluted loss per share is based on the weighted-average number of outstanding common shares plus the weighted-average number of potential outstanding common shares. In periods where they are anti-dilutive, such amounts are excluded from the calculations of dilutive loss earnings per shares. The following table reconciles the loss and average share amounts used to compute both basic and diluted loss per share:
| Three Months Ended | ||||||||
| (Unaudited) | ||||||||
| March 31, | ||||||||
| (Amounts in Thousands, Except for Per Share Amounts) | 2024 | 2023 | ||||||
| Loss per common share from continuing operations | ||||||||
| Loss from continuing operations, net of taxes | $ | ( | ) | $ | ( | ) | ||
| Basic and diluted loss per share | $ | ) | $ | ) | ||||
| Loss per common share from discontinued operations, net of taxes | ||||||||
| Loss from discontinued operations, net of taxes | $ | ( | ) | $ | ( | ) | ||
| Basic and diluted loss per share | $ | ) | $ | ) | ||||
| Net loss per common share | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Basic and diluted loss per share | $ | ) | $ | ) | ||||
| Weighted average shares outstanding: | ||||||||
| Basic weighted average shares outstanding | ||||||||
| Add: dilutive effect of stock options | — | — | ||||||
| Diluted weighted average shares outstanding | ||||||||
| Potential shares excluded from above weighted average share calculations due to their anti-dilutive effect include: | ||||||||
| Stock options | ||||||||
8. Long Term Debt
Long-term debt consists of the following as of March 31, 2024, and December 31, 2023:
| (Amounts in Thousands) | March 31, 2024 | December 31, 2023 | ||||||
| Revolving Credit facility
dated May 8, 2020, borrowings based upon eligible accounts receivable, subject to monthly borrowing base calculation, balance due
on | $ | — | $ | — | ||||
| Term Loan 1 dated May 8,
2020, payable in equal monthly installments of principal, balance due on | ||||||||
| Term Loan 2 dated July
31, 2023, payable in equal monthly installments of principal, balance due on | ||||||||
| Capital Line dated
May 4, 2021, payable in equal monthly installments of principal, balance due on | ||||||||
| Debt Issuance Costs | ( | )(2) | ( | )(2) | ||||
| Notes Payable up to 2030, annual interest rate of | ||||||||
| Total debt | ||||||||
| Less current portion of long-term debt | ||||||||
| Long-term debt | $ | $ | ||||||
| (1) | |
| (2) |
| 13 |
Revolving Credit and Term Loan Agreement
The
Company entered into a Second Amended and Restated Revolving Credit, Term Loan and Security Agreement, dated May 8, 2020 (“Loan
Agreement”), with PNC National Association (“PNC” and “lender”), acting as agent and lender. The Loan Agreement,
as amended from time to time, provides the Company with the following credit facility with a maturity date of
At
March 31, 2024, the borrowing availability under the Company’s credit facility was approximately $
The Company’s credit facility under its Loan Agreement, as amended, with PNC contains certain financial covenants, along with customary representations and warranties. A breach of any of these financial covenants, unless waived by PNC, could result in a default under our credit facility allowing our lender to immediately require the repayment of all outstanding debt under our credit facility and terminate all commitments to extend further credit. The Company was not required to perform testing of its fixed charge coverage ratio (“FCCR”) requirement for the first quarter of 2024 pursuant to an amendment dated May 8, 2024, to the Company’s Loan Agreement, as amended (see “Note 15 – Subsequent Events – Credit Facility” for this amendment which removed the testing requirement of the FCCR for the first quarter of 2024, among other things). The Company met all of its other financial covenant requirements in the first quarter of 2024.
9. Commitments and Contingencies
Hazardous Waste
In connection with our waste management services, the Company processes hazardous, non-hazardous, low-level radioactive and mixed (containing both hazardous and low-level radioactive) waste, which the Company transports to its own, or other, facilities for destruction or disposal. As a result of disposing of hazardous substances, in the event any cleanup is required at the disposal site, the Company could be a potentially responsible party for the costs of the cleanup notwithstanding any absence of fault on our part.
Legal Matters
In the normal course of conducting our business, the Company may be involved in various litigation. The Company is not a party to any litigation or governmental proceeding which our management believes could result in any judgments or fines against us that would have a material adverse effect on our financial position, liquidity or results of future operations.
| 14 |
Tetra Tech EC, Inc. (“Tetra Tech”)
During July 2020, Tetra Tech EC, Inc. (“Tetra Tech”) filed a complaint in the U.S. District Court for the Northern District of California (the “Court”) against CH2M Hill, Inc. (“CH2M”) and four subcontractors of CH2M, including the Company (“Defendants”). The complaint alleges various claims, including a claim for negligence, negligent misrepresentation, equitable indemnification and related business claims against all Defendants related to alleged damages suffered by Tetra Tech in respect of certain draft reports prepared by Defendants at the request of the U.S. Navy as part of an investigation and review of certain whistleblower complaints about Tetra Tech’s environmental restoration at the Hunter’s Point Naval Shipyard in San Francisco.
CH2M was hired by the Navy in 2016 to review Tetra Tech’s work. CH2M subcontracted with environmental consulting and cleanup firms Battelle Memorial Institute, Cabrera Services, Inc., SC&A, Inc. and the Company to assist with the review, according to the complaint.
The
Company’s insurance carrier is providing a defense on our behalf in connection with this lawsuit, subject to a $
The majority of Tetra Tech’s claims have been dismissed by the Court. Remaining claims include: (1) intentional interference with contractual relations; and (2) inducing a breach of contract. The Company continues to believe it has no liability exposure to Tetra Tech.
Perma-Fix Canada Inc. (“PF Canada”)
During
the fourth quarter of 2021, PF Canada received a Notice of Termination (“NOT”) from Canadian Nuclear Laboratories, LTD. (“CNL”)
on a Task Order Agreement (“TOA”) that PF Canada entered into with CNL in May 2019 for remediation work within Ontario, Canada
(“Agreement”). The NOT was received after work under the TOA was substantially completed and work under the TOA has since
been completed. CNL may terminate the TOA at any time for convenience. At year-end 2023, PF Canada had approximately $
Insurance
The
Company has a
| 15 |
Letter of Credits and Bonding Requirements
From
time to time, the Company is required to post standby letters of credit and various bonds to support contractual obligations to customers
and other obligations, including facility closures. At March 31, 2024, the total amount of standby letters of credit outstanding was
approximately $
10. Discontinued Operations
The Company’s discontinued operations consist of all our subsidiaries included in our previous Industrial Segment which encompasses subsidiaries divested in 2011 and prior and three previously closed locations.
The
Company’s discontinued operations had net losses of $
The following table presents the major class of assets of discontinued operations as of March 31, 2024, and December 31, 2023. No assets and liabilities were held for sale at each of the periods noted.
| March 31, | December 31, | |||||||
| (Amounts in Thousands) | 2024 | 2023 | ||||||
| Current assets | ||||||||
| Other assets | $ | $ | ||||||
| Total current assets | ||||||||
| Long-term assets | ||||||||
| Property, plant and equipment, net (1) | ||||||||
| Total long-term assets | ||||||||
| Total assets | $ | $ | ||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and other liabilities | ||||||||
| Environmental liabilities | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities | ||||||||
| Closure liabilities | ||||||||
| Environmental liabilities | ||||||||
| Total long-term liabilities | ||||||||
| Total liabilities | $ | $ | ||||||
| (1) |
11. Operating Segments
In accordance with ASC 280, “Segment Reporting”, the Company defines an operating segment as a business activity: (1) from which we may earn revenue and incur expenses; (2) whose operating results are regularly reviewed by the CODM to make decisions about resources to be allocated to the segment and assess its performance; and (3) for which discrete financial information is available.
Our reporting segments are defined below:
TREATMENT SEGMENT, which includes:
| - | nuclear, low-level radioactive, mixed waste (containing both hazardous and low-level radioactive constituents), hazardous and non-hazardous waste treatment, processing and disposal services primarily through four uniquely licensed and permitted treatment and storage facilities; and |
| 16 |
| - | R&D activities to identify, develop and implement innovative waste processing techniques for problematic waste streams. |
SERVICES SEGMENT, which includes:
| - | Technical services, which include: |
| o | professional radiological measurement and site survey of large government and commercial installations using advanced methods, technology and engineering; | |
| o | integrated Occupational Safety and Health services including industrial hygiene (“IH”) assessments; hazardous materials surveys, e.g., exposure monitoring; lead and asbestos management/abatement oversight; indoor air quality evaluations; health risk and exposure assessments; health & safety plan/program development, compliance auditing and training services; and Occupational Safety and Health Administration (“OSHA”) citation assistance; | |
| o | global technical services providing consulting, engineering, project management, waste management, environmental, and decontamination and decommissioning field, technical, and management personnel and services to commercial and government customers; and | |
| o | on-site waste management services to commercial and governmental customers. |
| - | Nuclear services, which include: |
| o | technology-based services including engineering, decontamination and decommissioning (“D&D”), specialty services and construction, logistics, transportation, processing and disposal; | |
| o | remediation of nuclear licensed and federal facilities and the remediation cleanup of nuclear legacy sites. Such services capability includes: project investigation; radiological engineering; partial and total plant D&D; facility decontamination, dismantling, demolition, and planning; site restoration; logistics; transportation; and emergency response; and |
| - | A company owned equipment calibration and maintenance laboratory that services, maintains, calibrates, and sources (i.e., rental) health physics, IH and customized nuclear, environmental, and occupational safety and health (“NEOSH”) instrumentation. |
Our reporting segments exclude our corporate headquarters and our discontinued operations (see “Note 10 – Discontinued Operations”) which do not generate revenues.
| 17 |
The table below presents certain financial information of our operating segments for the three months ended March 31, 2024, and 2023 (in thousands):
Segment Reporting for the Quarter Ended March 31, 2024
| Treatment | Services | Segments Total | Corporate (1) | Consolidated Total | ||||||||||||||||
| Revenue from external customers | $ | $ | $ | $ | — | $ | ||||||||||||||
| Intercompany revenues | — | — | ||||||||||||||||||
| Gross loss | ( | ) | ( | ) | ( | ) | — | ( | ) | |||||||||||
| Research and development | ||||||||||||||||||||
| Interest income | — | — | — | |||||||||||||||||
| Interest expense | ( | ) | — | ( | ) | ( | ) | ( | ) | |||||||||||
| Interest expense-financing fees | — | — | — | ( | ) | ( | ) | |||||||||||||
| Depreciation and amortization | ||||||||||||||||||||
| Segment loss before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||
| Income tax benefit | ( | ) | ( | ) | ( | ) | — | ( | ) | |||||||||||
| Segment loss | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||
| Expenditures for segment assets | — | (2) | ||||||||||||||||||
Segment Reporting for the Quarter Ended March 31, 2023
| Treatment | Services | Segments Total | Corporate (1) | Consolidated Total | ||||||||||||||||
| Revenue from external customers | $ | $ | $ | $ | — | $ | ||||||||||||||
| Intercompany revenues | — | — | ||||||||||||||||||
| Gross profit | — | |||||||||||||||||||
| Research and development | ||||||||||||||||||||
| Interest income | — | — | — | |||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||
| Interest expense-financing fees | — | — | — | ( | ) | ( | ) | |||||||||||||
| Depreciation and amortization | ||||||||||||||||||||
| Segment income (loss) before income taxes | ( | ) | ( | ) | ||||||||||||||||
| Income tax benefit | ( | ) | ( | ) | ( | ) | — | ( | ) | |||||||||||
| Segment income (loss) | ( | ) | ( | ) | ||||||||||||||||
| Expenditures for segment assets | — | — | (2) | |||||||||||||||||
| (1) |
| (2) |
12. Income Taxes
The Company uses an estimated annual effective tax rate, which is based on expected annual income, statutory tax rates and tax planning opportunities available in the various jurisdictions in which the Company operates, to determine its quarterly provision for income taxes.
The
Company had income tax benefits of approximately $
| 18 |
13. Variable Interest Entity (“VIE”)
On
December 18, 2023, the joint venture (“JV”) where the Company and Campoverde Srl (“JV partner”) each owns
The Company determines whether joint ventures in which it has invested are VIEs at the start of each new venture and when a reconsideration event has occurred. A VIE is a legal entity that satisfies any of the following characteristics: (a) the legal entity does not have sufficient equity investment at risk; (b) the equity investors at risk as a group, lack the characteristics of a controlling financial interest; or (c) the legal entity is structured with disproportionate voting rights.
The Company consolidates a VIE if it is determined to be the primary beneficiary of the VIE. The primary beneficiary has both the power to direct the activities of the VIE that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.
Based on the Company’s evaluation of this JV and the contractual terms of this arrangement, the Company determined that this JV is a VIE but the Company is not the primary beneficiary. Accordingly, no consolidation of this JV is required by the Company. No capital contributions have been or are expected to be made by either the Company or the JV partner under this JV.
14. Management Incentive Plans (“MIPs”)
On
January 18, 2024, the Board (with Mr. Mark Duff and Dr. Louis Centofanti abstaining) and the Compensation and Stock Option Committee
(the “Compensation Committee”) approved individual MIP for the calendar year 2024 for each of the Company’s executive
officers. Each MIP is effective January 1, 2024 and applicable for year 2024. Each MIP provides guidelines for the calculation of annual
cash incentive-based compensation, subject to Compensation Committee oversight and modification. The performance compensation under each
of the MIPs is based upon meeting certain of the Company’s separate target objectives during 2024. The total potential target performance
compensation payable ranges from
15. Subsequent Events
The Company evaluated subsequent events and transactions that occurred after the balance sheet date through May 9, 2024, the date that these consolidated financial statements were available to be issued. Based upon this review, the Company did not identify any subsequent events that would have required adjustment or disclosure in the consolidated financial statements other than the below.
Credit Facility
On May 8, 2024, the Company entered into an amendment to its Loan Agreement, as amended, with its lender which provided the following, among other things:
| ● | removes the quarterly FCCR testing requirement for the first and second quarters of 2024; | |
| ● | reinstates the quarterly FCCR testing requirement starting in the third quarter of 2024 and revises the methodology to be used in calculating the FCCR as follows (with no change to the minimum 1.15:1 ratio requirement): FCCR for the third quarter is to be determined based on financial results for the three-months period ending September 30, 2024; FCCR for the fourth quarter is to be determined based on financial results for the six-months period ending December 31, 2024; FCCR for the first quarter of 2025 is to be determined based on financial results for the nine-months period ending March 31, 2025; and FCCR for the second quarter of 2025 and each fiscal quarter thereafter is to be determined based on financial results for a trailing twelve-months period ending basis; | |
| ● | requires
maintenance of a daily minimum $ | |
| ● | in
the event the Company is able to achieve its minimum quarterly FCCR requirement utilizing its financial results based on a trailing
twelve-months period starting with the quarter ending June 30, 2024, the maintenance of a daily minimum borrowing availability requirement
of $ |
In
connection with the amendment, we paid our lender a fee of $
| 19 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Forward-looking Statements
Certain statements contained within this report may be deemed “forward-looking statements” within the meaning of the “Private Securities Litigation Reform Act of 1995”. All statements in this report 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. The words “believe,” “expect,” “anticipate,” “intend,” “will,” and similar expressions identify forward-looking statements. Forward-looking statements contained herein relate to, among other things,
| ● | demand for our services; |
| ● | reductions in the level of government funding in future years; |
| ● | accelerated investments and unanticipated impact on an ongoing basis; |
| ● | base business is well positioned for the second half of 2024; |
| ● | advancement of initiatives to have positive impact beginning in second half of 2024 and more fully realized in 2025; |
| ● | reducing operating costs and non-essential expenditures; |
| ● | ability to meet loan agreement quarterly covenant requirements; |
| ● | cash flow requirements; |
| ● | receipt of remaining Canadian receivable upon completion of conditions/terms of the settlement agreement in 2024; |
| ● | sufficient liquidity to fund operations for the next twelve months; |
| ● | revenue under the Italian project; |
| ● | manner in which the applicable government will be required to spend funding to remediate various sites; |
| ● | successful on international bids; |
| ● | funding of operating and capital expenditures from cash from operations, cash on hand, borrowing availability under our credit facility, financing, and collection of Canadian receivables, when received; |
| ● | our PFAS method is highly scalable process with minimal capital expenditures; |
| ● | our PFAS technology process will exceed current treatment options; |
| ● | installation of operational unit and accepting commercial waste for destruction by the end of the year; |
| ● | funding of remediation expenditures for sites from funds generated internally; |
| ● | compliance with environmental regulations; |
| ● | value of Italian contract; |
| ● | positioning for procurements from DOE and other government agencies; |
| ● | potential effect of being a PRP; and |
| ● | potential violations of environmental laws and attendant remediation at our facilities. |
| 20 |
While the Company believes the expectations reflected in such forward-looking statements are reasonable, it can give no assurance such expectations will prove to be correct. There are a variety of factors which could cause future outcomes to differ materially from those described in this report, including, but not limited to:
| ● | general economic conditions; |
| ● | contract bids, including international markets; |
| ● | material reduction in revenues; |
| ● | inability to meet PNC covenant requirements; |
| ● | inability to collect in a timely manner a material amount of receivables; |
| ● | inability to collect Canadian receivables; |
| ● | increased competitive pressures; |
| ● | inability to maintain and obtain required permits and approvals to conduct operations; |
| ● | inability to develop new and existing technologies in the conduct of operations; |
| ● | inability to maintain and obtain closure and operating insurance requirements; |
| ● | inability to retain or renew certain required permits; |
| ● | discovery of additional contamination or expanded contamination at any of the sites or facilities leased or owned by us or our subsidiaries which would result in a material increase in remediation expenditures; |
| ● | delays at our third-party disposal site can extend collection of our receivables greater than twelve months; |
| ● | refusal of third-party disposal sites to accept our waste; |
| ● | changes in federal, state and local laws and regulations, especially environmental laws and regulations, or in interpretation of such; |
| ● | inability of the federal government to adopt a budget in a timely manner; |
| ● | requirements to obtain permits for treatment, storage and disposal (TSD) activities or licensing requirements to handle low level radioactive materials are limited or lessened; |
| ● | management retention and development; |
| ● | financial valuation of intangible assets is substantially more/less than expected; |
| ● | the need to use internally generated funds for purposes not presently anticipated; |
| ● | inability of the Company to maintain the listing of its Common Stock on the Nasdaq; |
| ● | terminations of contracts with government agencies or subcontracts involving government agencies or reduction in amount of waste delivered to the Company under the contracts or subcontracts; |
| ● | failure of joint venture partner to perform its requirements in connection with the Italian project; |
| ● | changes in the scope of work relating to existing contracts; |
| ● | occurrence of an event similar to COVID-19 having adverse effects on the U.S. and world economics; |
| ● | renegotiation of contracts involving government agencies; |
| ● | disposal expense accrual could prove to be inadequate in the event the waste requires re-treatment; |
| ● | inability to raise capital on commercially reasonable terms; |
| ● | inability to increase profitable revenue; |
| ● | economic uncertainties; |
| ● | non-acceptance of our new technology; |
| ● | new governmental regulations; and |
| ● | risk factors and other factors set forth in “Special Note Regarding Forward-Looking Statements” contained in the Company’s 2023 Form 10-K and the “Forward-Looking Statements” contained in the Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”) of this first quarter 2024 10-Q. |
| 21 |
Overview
As previously disclosed, our results of operations in the first quarter of 2024 were impacted by accelerated investments and several events, which included the following:
● Accelerated investments in research and development (“R&D”) on our new technology to treat Per- and Polyfluorinated Substances (“PFAS”) (see “Known Trends and Uncertainties – New Processing Technology” within this MD&A for a discussion of this technology);
● Reduced activities by our customers due to poor weather conditions, which resulted in the closure of two of our facilities for a week, including delays in shipments to support backlog;
● Continuing Resolution impacts due to the inability of Congress to pass a Federal Budget through late March 2024, which contributed to delays in procurements, project starts and waste shipment, due to uncertain budget projections by our government clients;
● Completion of two large projects in the Services Segment that were not replaced by new project starts due to delays in mobilization activities until late April; and
● All three primary treatment facilities realized outages in March which impacted revenue as the Company utilized the aforementioned slowdowns for equipment replacement and repairs, program enhancements, and testing to support permit expansion and broader market penetration.
We believe that most of these accelerated investments and unanticipated impacts should have limited duration effects to our financial performance. We expect that the second quarter will not include material continued impact from these activities. With the passage of the Federal Budget in late March 2024 and improved weather conditions, we have begun to see steady improvements in waste receipts, project starts that were delayed and increased procurement activities. Our waste treatment backlog stands at approximately $10,580,000 as of March 31, 2024, an increase of approximately $1,878,000 from the December 31, 2023, balance of $8,702,000.
We believe our base business is well positioned for the second half of 2024 and, as previously reported, we continue to advance a variety of additional initiatives that we expect will have a further positive impact on both revenue and earnings beginning the second half of the year that are expected to be more fully realized in 2025. These initiatives include, among other things, positioning ourself for large and mid-size procurements within the U.S. Department of Energy (“DOE”) and U.S. Navy and waste treatment in support of DOE’s Hanford closure strategy, continued investments in our facilities and capabilities to allow for broader waste treatment, and continued expansion of our waste treatment offerings within the international and commercial markets. As previously disclosed, in December 2023, the JV where we and Campoverde Srl (“JV partner”) each owns 50% of the partnership, was awarded a multi-year contract valued up to approximately EUR 50 million by the European Commission (the “Contracting Authority”) for the treatment of radioactive waste from the Joint Research Center in Ispra, Italy. Work under this JV started in the first quarter of 2024. We generated limited revenue under this JV contract in the first quarter of 2024. The scope of work in the initial phases of this contract will be performed predominately by our JV partner. Revenue generated by us under the initial phases will be limited to project management support through 2025. We expect to generate an increase in revenue under this contract starting in 2026 when the waste treatment phases begin.
As a result of the aforementioned events which negatively impacted our results of operations for the first quarter of 2024, we incurred an overall decreased in revenue of approximately $6,490,000 or 32.3% to $13,617,000 for the three months ended March 31, 2024 from $20,107,000 for the corresponding period of 2023. Revenue decreased in both segments where Services Segment revenue decreased by $5,605,000 or 53.3% to $4,908,000 from $10,513,000 and Treatment Segment revenue decreased by $885,000 to $8,709,000 or 9.2% from $9,594,000. We incurred a gross loss in the first quarter of 2024 of approximately $620,000 as compared to a gross profit of $3,009,000 in the corresponding period of 2023, reflecting a decrease in gross profit of approximately $3,629,000 or 120.6%, primarily due to decreased revenue in both segments. Selling, General, and Administrative (“SG&A”) expenses increased by $58,000 or 1.7% for the three months ended March 31, 2024 as compared to the corresponding period of 2023 (see below “Results of Operations” for further discussions of our financial results).
| 22 |
Business Environment
Our Treatment and Services Segments’ business continues to be heavily dependent on services that we provide to governmental clients, primarily as subcontractors for others who are prime contractors to government entities or directly as the prime contractor. We believe demand for our services will continue to be subject to fluctuations due to a variety of factors beyond our control, including, without limitation, the economic conditions, the manner in which the applicable government will be required to spend funding to remediate various sites and potential future federal budget issues. In addition, our governmental contracts and subcontracts relating to activities at governmental sites in the United States are generally subject to termination for convenience at any time at the government’s option. Our Italian contract under our JV as discussed above may be terminated by the Contracting Authority under certain conditions as set forth in the contract. Significant reductions in the level of governmental funding or specifically mandated levels for different programs that are important to our business could have a material adverse impact on our business, financial position, results of operations, and cash flows.
We are reviewing methods to raise additional capital to supplement our liquidity requirements (see “Liquidity and Capital Resources” below for a discussion of our liquidity). We continue to aggressively bid on various contracts, including potential contracts within the international markets.
Results of Operations
The reporting of financial results and pertinent discussions are tailored to our two reportable segments: The Treatment and Services.
Summary – Three Months Ended March 31, 2024 and 2023
| Three Months Ended | ||||||||||||||||
| March 31, | ||||||||||||||||
| Consolidated (amounts in thousands) | 2024 | % | 2023 | % | ||||||||||||
| Revenues | $ | 13,617 | 100.0 | $ | 20,107 | 100.0 | ||||||||||
| Cost of good sold | 14,237 | 104.6 | 17,098 | 85.0 | ||||||||||||
| Gross (loss) profit | (620 | ) | (4.6 | ) | 3,009 | 15.0 | ||||||||||
| Selling, general and administrative | 3,544 | 26.0 | 3,486 | 17.3 | ||||||||||||
| Research and development | 296 | 2.2 | 99 | .5 | ||||||||||||
| Loss from operations | $ | (4,460 | ) | (32.8 | ) | $ | (576 | ) | (2.8 | ) | ||||||
| Interest income | 174 | 1.3 | 127 | .6 | ||||||||||||
| Interest expense | (116 | ) | (.8 | ) | (53 | ) | (.3 | ) | ||||||||
| Interest expense-financing fees | (13 | ) | (.1 | ) | (20 | ) | (.1 | ) | ||||||||
| Other | 1 | — | — | — | ||||||||||||
| Loss from continuing operations before taxes | (4,414 | ) | (32.4 | ) | (522 | ) | (2.6 | ) | ||||||||
| Income tax benefit | (956 | ) | (7.0 | ) | (204 | ) | (1.0 | ) | ||||||||
| Loss from continuing operations | $ | (3,458 | ) | (25.4 | ) | $ | (318 | ) | (1.6 | ) | ||||||
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Revenues
Consolidated revenues decreased $6,490,000 for the three months ended March 31, 2024, compared to the three months ended March 31, 2023, as follows:
| (In thousands) | 2024 | % Revenue | 2023 | % Revenue | Change | % Change | ||||||||||||||||||
| Treatment | ||||||||||||||||||||||||
| Government waste | $ | 5,133 | 37.7 | $ | 6,642 | 33.0 | $ | (1,509 | ) | (22.7 | ) | |||||||||||||
| Hazardous/non-hazardous (1) | 1,337 | 9.8 | 1,511 | 7.5 | (174 | ) | (11.5 | ) | ||||||||||||||||
| Other nuclear waste | 2,239 | 16.5 | 1,441 | 7.2 | 798 | 55.4 | ||||||||||||||||||
| Total | 8,709 | 64.0 | 9,594 | 47.7 | (885 | ) | (9.2 | ) | ||||||||||||||||
| Services | ||||||||||||||||||||||||
| Nuclear services | 4,569 | 33.5 | 10,082 | 50.1 | (5,513 | ) | (54.7 | ) | ||||||||||||||||
| Technical services | 339 | 2.5 | 431 | 2.1 | (92 | ) | (21.3 | ) | ||||||||||||||||
| Total | 4,908 | 36.0 | 10,513 | 52.3 | (5,605 | ) | (53.3 | ) | ||||||||||||||||
| Total | $ | 13,617 | 100.0 | $ | 20,107 | 100.0 | $ | (6,490 | ) | (32.3 | ) | |||||||||||||
(1) Includes wastes generated by government clients of $628,000 and $710,000 for the three months ended March 31, 2024 and the corresponding period of 2023, respectively.
Treatment Segment revenue decreased by $885,000 or 9.2% for the three months ended March 31, 2024, over the same period in 2023. The decrease in revenue generated from government clients was primarily due to lower waste volume attributed from the events as discussed in the “Overview” section above which included delays in waste shipments due to poor weather conditions and from Continuing Resolution impact due to the inability of Congress to timely pass the Federal Budget. The increase in other nuclear waste revenue was primarily due to higher waste volume which included increased revenue generated from commercial and international clients. The overall revenue within our Treatment Segment was also negatively impacted by delays in waste treatment production and waste receipts due to temporary outages of our facilities as previously discussed. Overall lower averaged price from waste mix within the Treatment Segment also contributed to the revenue decrease. Services Segment revenue decreased by approximately $5,605,000 or 53.3%. The decrease in revenue in the Services Segment was due in part, to the completion of two large projects which were not replaced by new project starts due to delays in mobilization activities until late April 2024 from the impact of the Continuing Resolution as previously discussed. Additionally, our Services Segment revenues are project based; as such, the scope, duration, and completion of each project vary. Revenues from both segments were also negatively impacted from delays in procurements resulting from the impact of Continuing Resolutions.
Cost of Goods Sold
Cost of goods sold decreased $2,861,000 for the quarter ended March 31, 2024, compared to the quarter ended March 31, 2023, as follows:
| % | % | |||||||||||||||||||
| (In thousands) | 2024 | Revenue | 2023 | Revenue | Change | |||||||||||||||
| Treatment | $ | 8,761 | 100.6 | $ | 8,342 | 87.0 | $ | 419 | ||||||||||||
| Services | 5,476 | 111.6 | 8,756 | 83.3 | (3,280 | ) | ||||||||||||||
| Total | $ | 14,237 | 104.6 | $ | 17,098 | 85.0 | $ | (2,861 | ) | |||||||||||
Cost of goods sold for the Treatment Segment increased by approximately $419,000 or 5.0%. Treatment Segment’s variable costs increased by approximately $506,000 primarily due to higher disposal costs. Treatment Segment’s overall fixed costs were lower by approximately $87,000 resulting from the following: general expenses were lower by $238,000 primarily due to lower utility costs; depreciation expenses were lower by approximately $206,000 due to fully depreciated asset retirement obligations that occurred in the third quarter of 2023 in connection with our EWOC facility; maintenance expenses were lower by approximately $42,000; regulatory expenses were higher by approximately $53,000; salaries and payroll related expenses were higher by $335,000 due to higher headcount; and travel expenses were higher by approximately $11,000. Services Segment cost of goods sold decreased $3,280,000 or 37.5% primarily due to lower revenue. The decrease in cost of goods sold was primarily due to lower salaries/payroll related, outside services, and travel costs totaling approximately $2,870,000; lower material and supplies, lab and regulatory expenses totaling approximately $316,000; lower depreciation expense totaling approximately $115,000; and slightly higher general expenses by approximately $21,000 in various categories. Included within cost of goods sold is depreciation and amortization expense of $404,000 and $726,000 for the three months ended March 31, 2024, and 2023, respectively.
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Gross (loss) profit
Gross profit decreased 3,629,000 for the quarter ended March 31, 2024, compared to the quarter ended March 31, 2023, as follows:
| % | % | |||||||||||||||||||
| (In thousands) | 2024 | Revenue | 2023 | Revenue | Change | |||||||||||||||
| Treatment | $ | (52 | ) | (0.6 | ) | $ | 1,252 | 13.0 | $ | (1,304 | ) | |||||||||
| Services | (568 | ) | (11.6 | ) | 1,757 | 16.7 | (2,325 | ) | ||||||||||||
| Total | $ | (620 | ) | (4.6 | ) | $ | 3,009 | 15.0 | $ | (3,629 | ) | |||||||||
Treatment Segment gross profit decreased by $1,304,000 or approximately 104.2% and gross margin decreased to (0.6)% from 13.0% primarily due to lower revenue from lower waste volume, overall lower averaged price from waste mix and the impact of our fixed costs structure. Services Segment gross profit decreased by $2,325,000 or 132.3% primarily due to decreased revenue resulting from the completion of the two large projects as previously disclosed. The decrease in gross margin from 16.7% to (11.6)% was attributed to overall lower margin projects as the two large completed projects were higher margin projects. Our overall Services Segment gross margin is impacted by our current projects which are competitively bid on and will therefore, have varying margin structures.
SG&A
SG&A expenses increased $58,000 for the three months ended March 31, 2024, as compared to the corresponding period for 2023, as follows:
| % | % | |||||||||||||||||||
| (In thousands) | 2024 | Revenue | 2023 | Revenue | Change | |||||||||||||||
| Administrative | $ | 1,687 | — | $ | 1,670 | — | $ | 17 | ||||||||||||
| Treatment | 1,065 | 12.2 | 1,006 | 10.5 | 59 | |||||||||||||||
| Services | 792 | 16.1 | 810 | 7.7 | (18 | ) | ||||||||||||||
| Total | $ | 3,544 | 26.0 | $ | 3,486 | 17.3 | $ | 58 | ||||||||||||
Administrative SG&A expenses were higher primarily due to higher travel, outside services and general expenses totaling approximately $29,000 which was offset by lower salaries and payroll related expenses totaling approximately $12,000. Treatment Segment SG&A expenses were higher primarily due to overall higher salaries and payroll related expenses by approximately $91,000 which was offset by lower general expenses in various categories. The decrease in Services Segment SG&A was primarily due to lower outside services expenses resulting from fewer consulting and legal matters. Included in SG&A expenses is depreciation and amortization expense of $27,000 and $21,000 for the three months ended March 31, 2024 and 2023, respectively.
R&D
R&D expenses increased by approximately $197,000 in the first quarter of 2024 as compared to the corresponding period of 2023 primarily due to expenses incurred for our PFAS technology (see “Known Trends and Uncertainties – New Processing Technology” within this MD&A for a discussion of this technology).
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Interest Income
Interest income increased by approximately $47,000 in the first quarter of 2024 as compared to the corresponding period of 2023 primarily due to higher interest earned from our finite risk sinking fund and interest income earned from our money market deposit account that we maintained with our lender starting in late 2023. The overall increase in interest income from the above was reduced by interest income received in March of 2023 of approximately $60,000 in connection with the Employee Retention Credit refund that we received.
Interest Expense
Interest expense increased by approximately $63,000 in the first quarter of 2024 as compared to the corresponding period of 2023 primarily due to interest incurred on the $2,500,000 term loan dated July 31, 2023, under our credit facility.
Income Taxes
We had income tax benefits of approximately $956,000 and $204,000 for continuing operations for the three months ended March 31, 2024, and 2023, respectively. Our effective tax rate was approximately 21.7% and 39.1% for the three months ended March 31, 2024, and the corresponding period of 2023, respectively. Our tax rates for the three months ended March 31, 2024, and 2023 were impacted by non-deductible expenses and state taxes.
Liquidity and Capital Resources
Our cash flow requirements during the three months ended March 31, 2024, were primarily financed by our operations, cash on hand, and credit facility availability. Our cash flow requirements for the next twelve months will consist primarily of general working capital needs, scheduled principal payments on our debt obligations, remediation projects, and planned capital expenditures which include our PFAS technology (see “Known Trends and Uncertainties – New Processing Technology” within this MD&A for a discussion of this technology). We plan to fund these requirements from our operations, credit facility availability, cash on hand (which will include, when received, cash from outstanding receivables due to our Perma-Fix Canada, Inc. subsidiary from a certain customer - See “Known Trends and Uncertainties – Perma-Fix Canada, Inc. (“PF Canada”)” for a discussion of this outstanding receivables) and possible other methods. Our ability to utilize our credit facility from our lender is subject to meeting our quarterly financial covenant requirements, among other things. We continue to explore all sources of increasing our capital and/or liquidity and to improve our revenue and working capital, including, but not limited to entering into equity transactions. There are no assurances that we will be successful in increasing our liquidity through our efforts. We are continually reviewing operating costs and reviewing the possibility of further reducing operating costs and non-essential expenditures to bring them in line with revenue levels, when necessary. As of March 31, 2024, our borrowing availability under our revolving part of our credit facility was approximately $2,379,000, which included our cash (deposited with our lender) and was based on our eligible receivables and was net of approximately $3,950,000 in outstanding standby letters of credit and a $750,000 indefinite reduction in borrowing availability that our lender imposed. We believe that our cash flows from operations, our available liquidity from our credit facility, and our cash on hand (which will include, when received, cash from the outstanding Canadian receivables noted above) should be sufficient to fund our operations for the next twelve months.
The following table reflects the cash flow activities during the first three months of 2024:
| (In thousands) | ||||
| Cash used in operating activities of continuing operations | $ | (4,432 | ) | |
| Cash used in operating activities of discontinued operations | (159 | ) | ||
| Cash used in investing activities of continuing operations | (244 | ) | ||
| Cash used in financing activities of continuing operations | (125 | ) | ||
| Effect of exchange rate on cash | (18 | ) | ||
| Decrease in cash and finite risk sinking fund (restricted cash) | $ | (4,978 | ) | |
As of March 31, 2024, we were in a positive cash position with no revolving credit balance. As of March 31, 2024, we had cash on hand of approximately $2,374,000. which included account balances of our foreign subsidiaries totaling approximately $837,000.
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Operating Activities
Accounts receivable, net of credit losses, totaled $8,701,000 as of March 31, 2024, a decrease of $1,021,000 from the December 31, 2023, balance of $9,722,000. The decrease was primarily due to reduced billing from decreased revenues which were negatively impacted by a number of events as previously discussed (See “Overview” within this MD&A). Our accounts receivable at March 31, 2024, included invoices for work performed for a certain Canadian project that remained outstanding for which a settlement agreement has been reached, with collection subject to meeting certain conditions/terms precedent (See discussion under “Known Trends and Uncertainties - Perma-Fix Canada Inc. (“PF Canada”)” below for a discussion of the accounts receivable that remains payable by our customer to PF Canada).
Accounts payable totaled $7,979,000 as of March 31, 2024, a decrease of $1,603,000 from the December 31, 2023, balance of $9,582,000. The decrease in accounts payable was attributed to our overall reduced operations as discussed previously. Additionally, or accounts payable are impacted by the timing of payments as we are continually managing payment terms with our vendors to maximize our cash position throughout our segments.
We had working capital of $255,000 (which included working capital of our discontinued operations) as of March 31, 2024, as compared to working capital of $4,613,000 as of December 31, 2023. The decrease in our working capital was primarily due to the reduction in our cash which was significantly impacted by the revenue decreases in both segments as previously discussed.
Investing Activities
For the three months ended March 31, 2024, our purchases of capital equipment totaled approximately $288,000, of which $44,000 was subject to financing, with the remaining funded from cash from operations and our credit facility. We have budgeted approximately $2,000,000 for 2024 capital expenditures primarily for our Treatment and Services Segments to maintain operations and regulatory compliance requirements and support revenue growth. Certain of these budgeted projects may either be delayed until later years or deferred altogether. We plan to fund our capital expenditures from cash from operations, borrowing availability under our credit facility and/or financing. The initiation and timing of projects are also determined by financing alternatives or funds available for such capital projects.
Financing Activities
We entered into a Second Amended and Restated Revolving Credit, Term Loan and Security Agreement, dated May 8, 2020 (“Loan Agreement”), with PNC National Association (“PNC” and “lender”), acting as agent and lender. The Loan Agreement, as amended from time to time, provides us with the following credit facility with a maturity date of May 15, 2027: (a) up to $12,500,000 revolving credit (“revolving credit”), with the maximum that we can borrow under the revolving credit based on a percentage of eligible receivables (as defined) at any one time reduced by outstanding standby letters of credit and borrowing reductions that our lender may impose from time to time; (b) a term loan (“Term Loan 1”) of approximately $1,742,000, requiring monthly installments of $35,547; (c) a term loan (“Term Loan 2”) of $2,500,000, requiring monthly installments of $41,667; and (d) a capital expenditure line (“Capital Line”) of up to $1,000,000 with advances on the line, subject to certain limitations, permitted for up to twelve months starting May 4, 2021 (the “Borrowing Period”). Amounts advanced under the Capital Line at the end of the Borrowing Period totaled approximately $524,000, requiring monthly installments of principal of approximately $8,700 plus interest, commencing June 1, 2022.
On May 8, 2024, we entered into an amendment to our Loan Agreement, as amended, with our lender which provided the following, among other things:
| ● | removes the quarterly FCCR testing requirement for the first and second quarters of 2024; |
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| ● | reinstates the quarterly FCCR testing requirement starting in the third quarter of 2024 and revises the methodology to be used in calculating the FCCR as follows (with no change to the minimum 1.15:1 ratio requirement): FCCR for the third quarter is to be determined based on financial results for the three-months period ending September 30, 2024; FCCR for the fourth quarter is to be determined based on financial results for the six-months period ending December 31, 2024; FCCR for the first quarter of 2025 is to be determined based on financial results for the nine-months period ending March 31, 2025; and FCCR for the second quarter of 2025 and each fiscal quarter thereafter is to be determined based on financial results for a trailing twelve-months period ending basis; | |
| ● | requires maintenance of a daily minimum $2,250,000 in borrowing availability under the revolving credit through June 29, 2024, and a minimum of $3,000,000 in borrowing availability starting June 30, 2024, through June 29, 2025; and | |
| ● | in the event we are able to achieve the minimum quarterly FCCR requirement utilizing our financial results based on a trailing twelve-months period starting with the quarter ending June 30, 2024, the maintenance of a daily minimum borrowing availability requirement of $3,000,000 as discussed above will be removed. Any subsequent fiscal quarter testing of the FCCR will revert back to a trailing twelve-months period method. |
In connection with the amendment, we paid our lender a fee of $25,000.
Pursuant to our Loan Agreement, as amended, payments of annual interest rates are as follows: (i) interest due on the revolving credit is at prime (8.50% at March 31, 2024) plus 2% or SOFR (as defined in the Loan Agreement, as amended) plus 3.00% plus an SOFR Adjustment applicable for an interest period selected by us; (ii) interest due on each Term Loan 1 and the Capital Line is at prime plus 2.50% or SOFR plus 3.50% plus an SOFR Adjustment applicable for an interest period selected by us; and (iii) interest due on Term Loan 2 is at prime plus 3% or SOFR plus 4.00% plus an SOFR Adjustment applicable for an interest period selected by us. SOFR Adjustment rates of 0.10% and 0.15% are applicable for a one-month interest period and three-month period, respectively, that may be selected by us.
We agreed to pay PNC 1.0% of the total financing under the Loan Agreement, as amended, in the event we pay off our obligations on or before July 31, 2024, and 0.5% of the total financing if we pay off our obligations after July 31, 2024, to and including July 31, 2025. No early termination fee shall apply if we pays off our obligations under Loan Agreement, as amended, after July 31, 2025.
Our credit facility under our Loan Agreement, as amended, with PNC contains certain financial covenants, along with customary representations and warranties. A breach of any of these financial covenants, unless waived by PNC, could result in a default under our credit facility allowing our lender to immediately require the repayment of all outstanding debt under our credit facility and terminate all commitments to extend further credit. We were not required to perform testing of our FCCR requirement for the first quarter of 2024 pursuant to the amendment dated May 8, 2024, to our Loan Agreement, as amended, as discussed above. We met all of our other financial covenant requirements in the first quarter of 2024. We expect to meet our quarterly financial covenant requirements for the next twelve months under our Loan Agreement, as amended, pursuant to the terms of the amendment dated May 8, 2024, as discussed above.
Off Balance Sheet Arrangements
From time to time, we are required to post standby letters of credit and various bonds to support contractual obligations to customers and other obligations, including facility closures. At March 31, 2024, the total amount of standby letters of credit outstanding totaled approximately $3,950,000 and the total amount of bonds outstanding totaled approximately $26,747,000. We also provide closure and post-closure requirements through a financial assurance policy for certain of our Treatment Segment facilities through AIG. At March 31, 2024, the closure and post-closure requirements for these facilities were approximately $23,376,000.
Critical Accounting Policies and Estimates
There were no significant changes in our accounting policies or critical accounting estimates that are discussed in our Annual Report on Form 10-K for the year ended December 31, 2023.
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Recent Accounting Pronouncements
See “Note 2 – Summary of Significant Accounting Policies” in the “Notes to Condensed Consolidated Financial Statements” for the recent accounting pronouncements that will be adopted in future periods.
Known Trends and Uncertainties
Significant Customers. The contracts that we are a party to with others as subcontractors to the U.S federal government or directly with the U.S federal government generally provide that the government may terminate the contract at any time for convenience at the government’s option. Our Italian contract under the JV may be terminated by the Contracting Authority under certain conditions as set forth in the contract. Our inability to continue under existing contracts that we have with government authorities (directly or indirectly as a subcontractor) or significant reductions in the level of governmental funding in any given year could have a material adverse impact on our operations and financial condition. We performed services relating to waste generated by government clients, either indirectly as a subcontractor or directly as a prime contractor to government entities, representing approximately $10,143,000 or 74.5% of our total revenue during the three months ended March 31, 2024, as compared to $17,247,000 or 85.8%of our total revenue during the corresponding period of 2023.
PF Canada. During the fourth quarter of 2021, PF Canada received a Notice of Termination (“NOT”) from CNL on a Task Order Agreement (“TOA”) that PF Canada entered into with CNL in May 2019 for remediation work within Ontario, Canada (“Agreement”). The NOT was received after work under the TOA was substantially completed and work under the TOA has since been completed. CNL may terminate the TOA at any time for convenience. At year-end 2023, PF Canada had approximately $2,389,000 in outstanding receivables due from CNL as a result of work performed under the TOA. A settlement agreement was reached between PF Canada and CNL on the payment of the aforementioned amount by CNL, subject to certain conditions/terms precedents being met, including release of certain liens. We received a partial payment from CNL of the outstanding receivables during the first quarter of 2024. As of March 31, 2024, approximately $1,612,000 in outstanding receivables remain payable by CNL to PF Canada upon completion of the settlement conditions/terms, which the Company believes should occur by the end of 2024.
New Processing Technology. We have successfully completed pilot plant testing on our new, patent-pending process for the destruction of PFAS, commonly known as “forever chemicals.” PFAS compounds do not degrade over time through any natural process or environmental conditions, bioaccumulate, and are harmful to humans and the environment. Our tests were designed to demonstrate the destruction of commercial quantities of PFAS-contaminated liquids and better define the parameters needed to construct the first commercial unit. There are limited current treatment options for these materials and we expect that our process will exceed any of these methods. Some of the sizable markets for PFAS include AFFF (aqueous film-forming foam) firefighting foams, both expired concentrate and flushing liquids, contaminated liquids from PFAS systems, and other water-based separation products from a variety of industrial systems. We believe that our process is highly scalable with minimal capital expenditures or labor costs required since we are employing a non-incineration, chemical-based process. We are now in the process of final design and fabrication for installation of the first operational unit and plan to be operational, accepting commercial waste for destruction by the end of the year. We have established goals for additional units to be installed at each existing treatment plant to follow in 2025.
Environmental Contingencies
We are engaged in the waste management services segment of the pollution control industry. As a participant in the on-site treatment, storage and disposal market and the off-site treatment and services market, we are subject to rigorous federal, state and local regulations. These regulations mandate strict compliance and therefore are a cost and concern to us. Because of their integral role in providing quality environmental services, we make every reasonable attempt to maintain complete compliance with these regulations; however, even with a diligent commitment, we, along with many of our competitors, may be required to pay fines for violations or investigate and potentially remediate our waste management facilities.
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We routinely use third party disposal companies, who ultimately destroy, or secure landfill residual materials generated at our facilities or at a client’s site. In the past, numerous third-party disposal sites have improperly managed waste and consequently require remedial action; consequently, any party utilizing these sites may be liable for some or all of the remedial costs. Despite our aggressive compliance and auditing procedures for disposal of wastes, we could further be notified, in the future, that we are a potentially responsible party (“PRP”) at a remedial action site, which could have a material adverse effect.
We have three environmental remediation projects, all within our discontinued operations, which principally entail the removal/remediation of contaminated soil, and, in most cases, the remediation of surrounding ground water. We expect to fund the expenses to remediate these sites from funds generated from operations. As of March 31, 2024, we had total accrued environmental remediation liabilities of $800,000, a decreased of approximately $45,000 from the December 31, 2023 balance of $845,000. The decrease represents payments for remediation projects. At March 31, 2024, $16,000 of the total accrued environmental liabilities was recorded as current.
| Item 3. | Quantitative and Qualitative Disclosures about Market Risks |
Not required for smaller reporting companies.
| Item 4. | Controls and Procedures |
| (a) | Evaluation of disclosure controls, and procedures. |
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic reports filed with the Securities and Exchange Commission is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and that such information is accumulated and communicated to our management. As of the end of the period covered by this report, we carried out an evaluation with the participation of our Principal Executive Officer and Principal Financial Officer. Based on this recent assessment, our Principal Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) were effective as of March 31, 2024.
| (b) | Changes in internal control over financial reporting |
There was no other change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
| Item 1. | Legal Proceedings |
There are no material legal proceedings pending against us and/or our subsidiaries not previously reported by us in Item 3 of our Form 10-K for the year ended December 31, 2023. Additionally, there has been no other material change in legal proceedings previously disclosed by us in our Form 10-K for the year ended December 31, 2023.
Item 1A. Risk Factors
There has been no other material change from the risk factors previously disclosed in our Form 10-K for the year ended December 31, 2023, except for the following under “Risks Relating to our Financial Performance and Position and Need for Financing.”
Breach of any of the covenants, including the fixed charge coverage ratio under our Loan Agreement, as amended, could result in a default, triggering repayment of outstanding debt under the credit facility and the termination of our credit facility.
From time to time, the Company has failed to meet its minimum quarterly fixed charge coverage ratio requirement under its Loan Agreement, as amended, as in the first quarter of 2024. In these instances, the Company’s lender has either waived the non-compliance or removed the testing requirement for the quarter. The Company’s lender has removed the testing requirement for the fixed charge coverage ratio for the first and second quarters of 2024. If we fail to meet any of our financial covenants going forward, including the minimum quarterly FCCR requirement, and our lender does not waive the non-compliance or remove the testing requirement, our lender could accelerate the payment of our borrowings under our credit facility and terminate our credit facility. In such event, we may not have sufficient liquidity to repay our debt under our credit facility and other indebtedness and/or operate our business.
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| Item 6. | Exhibits |
| (a) | Exhibits |
* Pursuant to Rule 406T of Regulation S-T, the Interactive Data File in Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purpose of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.
| PERMA-FIX ENVIRONMENTAL SERVICES | ||
| Date: May 9, 2024 | By: | /s/ Mark Duff |
| Mark Duff | ||
| President and Chief (Principal) Executive Officer | ||
| Date: May 9, 2024 | By: | /s/ Ben Naccarato |
| Ben Naccarato | ||
| Chief (Principal) Financial Officer | ||
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