Good day, ladies and gentlemen, and welcome to Perma-Fix Environmental Second Quarter 2019 Business Update Call. [Operator Instructions] At this time, it is my pleasure to turn the floor over to your host, David Waldman. Sir, the floor is yours.

Thank you, Kat. Good morning, everyone, and welcome to Perma-Fix Environmental Services second quarter 2019 conference call. On the call with us this morning are Mark Duff, President and CEO; Dr. Lou Centofanti, Executive Vice President of Strategic Initiatives; and Ben Naccarato, Chief Financial Officer. The company issued a press release this morning containing second quarter 2019 financial results, which is also posted on the company's website. If you have any questions after the call or would like any additional information about the company, please contact Crescendo Communications at 212- 671-1020. I'd also like to remind everyone that certain statements contained within this conference call may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and include certain non-GAAP financial measures. All statements on this conference call other than a statement of historical fact are forward-looking statements that are subject to known and unknown risks, uncertainties and other factors, which could cause actual results and performance of the company to differ materially from such statements. These risks and uncertainties are detailed in the company's filings with the U.S. Securities and Exchange Commission, as well as this morning's press release. The company makes no commitment to disclose any revisions to forward-looking statements or any facts, events or circumstances after the date hereof that bear upon forward-looking statements. In addition, today's discussion will include references to non-GAAP measures. Perma-Fix believes that such information provides an additional measurement and consistent historical comparison of its performance. A reconciliation of the non-GAAP measures to the most directly comparable GAAP measures is available in today's news release on our website. Now, I like to turn the call over to Mark Duff. Please go ahead, Mark.

Great. Thanks, David. I'm very pleased to report solid financial results for the quarter. Our revenue increased 30% to $17.1 million. Our gross profit increased by 60%. And we achieved adjusted EBITDA of $1 million, and we generated a positive net income. But more important, we anticipate an even stronger second half of the year. Turning first to the Services segment, revenue increased by 75% to $7.0 million. This improvement reflects the success of our business development initiatives, including the recent award of several substantial contracts commencing in the second quarter of 2019. These wins will include remediation work in Canada, as well as several Department of Energy locations throughout the U.S. It's very important to note that we do not recognize the full benefits of these contracts in the second quarter, which could add an incremental $2 million to $3 million of revenue beginning in the third quarter of 2019. We're relatively also bidding on additional contracts, which we believe will provide significant upside potential in 2019 as well as second half of the year and potentially beyond into 2020 as well. Within the Treatment segment, revenue increased by 10% to $10.1 million due in part to our efforts to diversify our revenue streams. While we're pleased to see both year-over-year and sequential revenue growth, we experienced some continued delays by certain customers, but most of these delays have largely been resolved to support and improve third quarter inventory and backlog for waste processing at each of our facilities. To support our ongoing growth initiatives within both the Treatment and the Services segments, we recently announced the addition of three senior executives with significant experience in the nuclear environmental industries. Specifically, we appointed George Taylor as VP of Waste Services and Business Development and Sales; Chris Reno as Director…

Thank you, Mark. [Indiscernible] revenue, our total revenue from continuing operations for the second quarter was $17.1 million, compared with prior year revenue of $13.2 million. Our Services segment revenue increased by $3 million, a 75% increase over prior year as a result of our increased project work, which was awarded late in the first quarter and early in the second. Our Treatment segment revenue increased as well by $948,000 or 10.4% as a result of primarily improved pricing with the waste received process and disposed. For six months ending June 30, our total revenue is at $28.8 million, compared to $25.8 million in the prior year. Both our segments have increased, compared to prior year with Services segment increasing by 14.7%, again as a result of the increased project work in the second quarter, while our Treatment segment is up 10.5%, primarily due to higher average prices. Our cost of sales was $13.9 million compared to $11.1 million in the prior year. Costs in the Treatment segment decreased by $156,000 from prior year, due to the decrease in the closure expenses at our M&EC facility of about $1 million. The decrease was offset by increased variable costs relating to higher revenue and waste mix totaling $754,000. And in addition, fixed facility costs increased by about $140,000. Our Services segment cost of sales increased by $2.9 million as a result of the increased revenue. Our gross profit for the quarter increased from $2 million in the second quarter of 2018 to $3.3 million in the second quarter of 2019, an increase of $1.3 million or 60.1%. Excluding the $1 million reduction in closure expenses at M&EC, our gross profit increased by $178,000 or 5.5%. Gross profits were impacted by higher revenue in both segments, but offset by lower-margin projects and…

Thank you. [Operator Instructions] And our first question comes from David Newton from Heartland Advisors.

Yes. This is Bill Nasgovitz at Heartland. So, congratulations on the nice improvement. That’s fantastic isn’t it, to have a profit for the quarter.

Great. Thanks Bill. I was a good quarter. Appreciate it.

Could you be a little more specific? These are three, it sounds like, pretty significant hires here. Could you talk a little bit more in terms of what they might be involved in, in the markets that you're targeting in terms of their expertise and their focus?

Sure, Bill. Each one of these guys come from a different area in our business that most of them knew each other. We had relationships with them. But the first one is taking over for the overall sales job. So, he's the new VP coming from a transportation company, the transports of radioactive waste. So, very familiar with the industry, a long-time leader, very bright guy from Rice University. And he's got a good grasp of programmatic sales and marketing. The other guy, Chris Reno, has been with our competitors for a long time and retired. We brought him back out of retirement to lead proposals and lead large initiatives, part larger bids for us, where a couple of it myself and couple of other guys used to do that. So, it allows us to do more management and better-quality proposals. And then third guy, I'm really excited about, Brian Wood, comes from TVA. And most of his career is spent in the commercial or power utility world, which we don't do a lot of. And most of the folks that are in our industry can tell you that the commercial decommissioning market is starting to heat up with 100 reactors in the country right now, and they're taking down a couple of years or at least moving in that direction. He's already been a big help in us getting on teams and find how we can be a value-added partner for commercial demolition and commercial waste management. So, impacts already the company, and we need a little bit of head space in our revenue generation and our margins, so we could afford to staff up this way. And fortunately, with these new wins, we've got a little more comfort now that we can bring on senior guys like this and be able to have sustainable margins.

How big could that letter market be, that commercial power utility market decommissioning?

These reactors are going to be awarded for probably between $600 million to $800 million for each project through the contract – current contracting approach and is $100 over the next 30 years. So, that's just kind of the decommissioning cut of it. There's a lot of other operational opportunities particularly in water. Most of these reactors generate some water and, along the way, start decommissioning as an operation in the market we want to be in.

Okay. Thank you. I’ll get back in the queue.

Okay. Thank you, Bill.

Thanks, Bill.

Thank you. And the next question comes from Steve Levenson from Big Rock Research. Go ahead Steve.

Thank you. Good morning, everybody.

Good morning.

Good morning.

You mentioned sustainable margins there. I'm just curious about potential for margin expansion? Is there something you can do with costs? Or is it really dependent more on volume?

Well, there's a different answer depending on which area we're talking. In the waste treatment world, we do better on margin with volume because we paid down – or paid off our fixed cost for keeping our facility compliant and operating so the more waste you get, depending on the type of waste, the more opportunity you have for expanding margins over a certain amount each month. On the services side, it's typically you bid on a project one at a time. And that's a more sustainable, I should say, more level margin. I know it's basically competitive on each project. So, that would be more flat. But what it does do is that margin would have less impact. We would have less fixed costs on each one of those projects after we win because it's not a – it's not a linear increase in the G&A as you add projects. It's you add 10 projects and maybe not increase any more than if you added 5. So, I hope that answers your question, Steve.

Yes, I think we might have lost Steve.

And our next question comes from David Newton from Heartland again. One moment.

Bill Nasgovitz again here. Just you mentioned Canada, as this has been an initiative now for a year or so. Can you talk about the progress – more detail in terms of the progress there and the opportunity? And then lastly, in terms of these contracts, some are fixed price. I assume what's the ratio of fixed versus variable? And how do we control? How do you control the risk of cost overruns and mis-bidding some of these contracts? Thank you.

Sure. Yes, Canada, I can't talk a lot about Canada because we have agreements with our clients that all press releases and information about the projects will come through them. But I can say that we're doing some remediation in Canada for some residential houses in Ontario on a fixed unit rate contract. So, there is some risk and are fixed generators are quite as bad as fixed price because we have a lot of different pay items. And you could kind of spread your risk across all the pay items. That contract is more slower starting than we had hoped. We hope to be in the field and working in early May, and we're just getting rolling in the last couple of weeks. So, as our statements, we just went through red. They were a little slower in getting rolling, we'll see more revenue in the third and fourth quarter as opposed to second and the third from these projects. They're all sustainable long-term contracts with lots of opportunities for additional tasks to be added. And they're working very well so far, good client relations and the field work has been very successful. As far as how we manage our risk. We only have right now a couple, I'd say, less than $5 million in fixed-price contracts in the field and the remaining backlog on revenue was just $20 million, $25 million, I would say, for the year, are fixed unit rate and T&M. So, the ones that are fixed price, we have very senior guys on them that have done a lot of fixed price in the past. We win our contracts with adequate contingency and a very formal risk analysis process. So, we understand the risk and mitigate these risks and align funding cost, obviously, budget for those risks. So – so far, we're doing very well on those. And we've met our expectations on these forward fixed price path so far.

Alright, thank you.

Thanks, Bill.

[Operator Instructions] And our next question comes from Robert Brown. Go ahead, Robert.

I have two questions. First of all, under the proposed government budget, how much are they allocating for Hanford, for the Hanford cleanup based on the new federal budget at the two-year budget? And then the second thing I want to ask you about is the Phase II TBI, there was – I was a little confused with – when they're saying that this would take 6 to 9 months for the DOE and the State of Washington to work out the terms, how is that coming? And when do you see a resolution on that?

Those were good questions, Robert. The first one on the Hanford budget, I don't have any numbers in front me, but I know the EDM budget was a total, EDM if I recall about $7.2 billion, which is pretty flat from last year. And I know the Hanford budget was pretty close to where it was last year as well. So, not a lot of change and maybe a couple of points here and there, but it's pretty close. So, the waste we're receiving from Hanford has been pretty flat as well for our Richland facility and with the work that we're doing out there. As far as the TBI goes, as you know, we can't get into a lot of details. But I can say, as you know, the DOE uphold their permit back as announced in early June and wanted to have a strategy – or change their strategy to focus on what they call the DOE Order 435 revision. And what that means to us is that we'll continue with the funding we have to do what we have to do on TBI, which in our case, specific to Perma-Fix is a demonstration of the mixer that we'll use to support the waste processing, as well as the other firms that are in the TBI group company. The other companies will work and perfect the waste extraction system. So those activities are ongoing even though DOE pulled their permit back. And what you read about the delays of 6, 9 months, what that's referring to is, DOE's decision is that TBI by no means dead or stopped, but they pulled their permanent application back from the state for 6 to 9 months to pursue the revision of this DOE order. And once that order is revised and implemented, then DOE will reevaluate whether they want to submit that permit back or if the – depending on how the revision is applied, it may have an impact as well. So, that's why DOE said it's 6-month to 9-month gap until they resubmit that to the state at some point.

And our next question comes from [Stephen Fine]. Go ahead, Stephen.

Good morning, gentlemen. How are you?

Good morning, Stephen.

My first question is, Ben, when you're talking about the $1.2 million last year from the adjustment of the preferred stock, so realistically cannot be factored out. So then, if you factor that out, I mean, doesn't that improve the picture of gross profit or profit this year versus last year?

Yes, Steve, it's $1.6 million, and it's not gross profit because it was sort of below the G&A line if you look at the income statement, but absolutely. And that was the reason for discussing it is. Last year, we probably were in a loss position when you exclude the $1.6 million, which was really just a paper adjustment, it was non-cash. So, yes, so absolutely.

Thank you. Relative to this quarter, the second quarter and the increase in the service, how much of the $17 million in contracts that you signed were in the actual treatment sales.

Of the $17 million, Steve, those are all in nuclear services.

Yes, Nuclear services. I'm sorry, I meant in Services. Your services went up. So, you had said that you were – in the last call, you had said you were signing $17 million in contracts in services. So, how much of that was in the sales for treatment in the second quarter?

I don't have the exact amount, Steve, but it is a small amount, I would say. I would put it in probably out of $7 million, maybe about $5-ish million. We had a, sort of the first quarter was pre the $17 million, and that was about $1.8 million of revenue. And that was sort of ongoing all our projects that we are doing. So, I would say about the difference are the $4 million or $5 million.

Okay. So, when you say there's a $9.4 million backlog, does that – was that treatment? Or does that include this, too?

That's just treatment.

So, you have a $9.4 million. So, you're saying – so you have about – okay, I think you just said that. So, you got $9.4 million backlog in treatment and then you have at least $12 million in service. So, that's where you get the $21 million.

Correct. Well, the – what $21 million, are you talking about, Steve.

Well, yes. Okay. I thought someone mentioned...

So, I think Mark may have noted $20 million. There's been some other work come in as well in the second quarter on top of the $17 million. So, you've got about a $20 million. You've got about close to $20 million in services backlog and about $9 million in your senior treatment segment.

So, you're telling me that with the $27 million that you've already gone through the second quarter, in theory, you're – not in theory, realistically, you're in the high 50s of sales this year.

Well, yes. And that's assuming it's all processed in the same – in the year, but yes.

Okay. Because, you know I'd like to see you get up into the 60s and really make a move forward. Thank you. Nice quarter. Congratulations. Thank you.

Thank you, Steve.

And our next question comes from Robert Manning. Go ahead, Robert.

I'm sorry, my question was asked – answered. Thank you.

Thank you [Operator Instructions] And our next question comes from Todd Helman from Huntington Bank. Go ahead, Todd.

Hi, good morning. Thank you for you time. I wanted to talk a little bit about the capital expenditures for the quarter. I apologize if I missed that note while you all were speaking. And then also, capital expenditures going forward and how those might be financed?

Yes. Capital for the quarter was approximately 80 – for the quarter was only about $90,000. But for the year-to-date, we're at about [312]. There are – as you know, we were sort of waiting on the financing related to the closure money, the $5 million. So, we sort of had a halt on cap spending. So, we are going to ramp up in the foreseeable future. The main priority is going to be the expansion of our facility in Kingston, Tennessee, which is construction-related and will likely be financed through operating capital. And then there's other equipment-related that we primarily expect to finance again through working capital, but potentially would look at financing opportunities, depending on needs.

Great. Thank you for taking my call.

Okay.

And our next question is from Steve Levenson. Go ahead.

Thank you. Sorry about dropping off before, I was on a mobile. At any rate, what I was asking was about the Florida projects, from the time you start, how long does it take, assuming everything goes as planned to get up to your target margins?

I'm sorry, Steve, our target what?

Margins.

Margins. Well, it's a tough question, Steve. Right now, as I mentioned in the notes, we are doing a little better than the design productivity was full processing radioactive water, which generates a much better margins than anticipated and is much more efficient and will allow us to lower our fixed unit rate that we charge for that. Right now, the things are running pretty fast. It's not running 24/7. It's on a 1:1 shift. We have some backlog. I'm not – can't remember off the top of my head how much. But we're bidding a lot of water right now on several different fronts. And I would guess that we'll be running full capacity with a couple of more wins in the next quarter or two depending on how we do on these bids. But to be frank, when you serve a new facility like this, we're competing against a couple of other companies on the water, we have to see our way through what it's going to take to win and refine our cost estimates, as well as refine our operating margins and how much it cost to run the facility. So, I would say over the next two months – next two quarters, we'll get those numbers nailed down pretty well and get a client base that's pretty stable.

Got it. Next one is on the soil separation; can you tell us about the progress on that? I'm sorry, if I missed it if somebody asked before.

No, we haven't talked about it in a while, Steve. We were unsuccessful on a couple of bids on those, we have a couple more in right now, some dredging in San Diego and a couple of other projects in California, Northern California. So, we're still waiting here on those. And I wish that I could tell you, we've got a couple of wins that we're working on, but we're still waiting to hear from clients. It got a lot longer than anticipated. So, we have lost a couple, but we're still waiting here on a couple.

Got it. Last one is I know there's some reluctance to talk about Hanford. Are you actually subject to a nondisclosure agreement or confidentiality agreement that sort of limits what you can say?

We are on several fronts, not only on the TCC, which is a tank closure contract with an open procurement right now. So, it would be inappropriate to discuss that. But the TBI initiative is a DOE initiative that we're a player in. And we respectfully try to limit our discussion on TBI and let DOE talk about that since it's their initiative.

Got it. Thanks very much. Good to see the progress being made.

Thank you, Steve.

And our next question comes from Chuck Dickenson. Go ahead, Chuck.

Good morning, guys. Nice quarter. I have a question on the thrust of the strategy here overall. If you have a budget that looks flattish, as you say, overall, although you don't have all the details, and I'm not sure if some of that still needs to be worked out congressionally in committees or not and also sort of flattish in Hanford. It seems you have two directions that you're looking at here. You want to get a bigger piece of the same pie that is increase your market share for what's already out there without sacrificing margins, of course, and then also develop some new business, bake a new pie, I guess, would be the way to look at it. Maybe that's some of the things that you're doing commercially. Can you give sort of a feel in terms of both of those avenues? How much effort you're putting in both sides? And what the potential you see is for both growing market share in the existing market and also the new business opportunities?

Well, Chuck, you completely described our strategy, which is, as you just said, to increase our market share on what we can do now and then add capabilities to what we can do now. Our goal has been for two years now, to be very focused on getting to $100 million in revenue and kind of solve that growth coming from the last year to $50 million to have a 60-40 split on that ratio, which was basically $40 million in service and $60 million in waste. I think it's going to be more as we're getting closer to it, more 50-50, $50 million each and which would basically answer your question, focus on dramatic increases in the services sector, while increasing the waste treatment by 20%, 25%. And I think that's the way it's going. We're very, very excited about our Services segment. And as my 30 years of doing this, I've seen several times, once you win a couple of projects and get a few clients that are very happy with your performance, there's a lot of momentum from that. And we've seen that in the last couple of months. And we'll have some new projects although we can report next couple of quarters. And that will be a result of that momentum and those references and for bringing on new people, strong people that have relationships and all that builds on each other when you see companies really surge in this industry. That's typically what it comes from is that momentum and bringing on new talent that can help to grow. And so, we're finding ourselves in that position right now. And so, it's a really exciting time for us internally. While it's very good, and the company has a buzz about it, we're making the investments we needed to make for a long time on all kinds of things, the management systems and those types of things, as well as technology. So, I hope that answers your question. I kind of rambled on a little bit.

Yes. No, no, it does. It certainly seems like you could be at an inflection point for the business. I don't want to say you're there, but seeing that revenue pop sequentially and year-over-year would give the first glimmer of hope the first green shoot that maybe you are at an inflection point. My other question, second question has to do with joint venture opportunities. You've been reasonably successful in that so far. Is that something that you're going to continue to focus on? And what is the degree of effort and emphasis on that, whether it be a joint venture with someone else that would involve subcontractor work or having them use some of your facility and technological capability?

I assume you're speaking about the GeoMelt. And yes, GeoMelt was a great example. It was a very good relationship with Veolia, I think one of the best I've had ever, and where the partnership was very meaningful all the way through initial design, to start-up and through marketing. So, to answer your question, we do hope to have a couple more of those. We're talking to other folks now that address specific application for upcoming bids for things like mercury treatment in Oak Ridge. We're trying to tie them to specific waste streams and specific challenges, most of it in the DOE that address waste streams with very limited treatment capability now. So, we can easily define the potential return on investment and the technology that needs to be in place. So, we do have a couple more in line. I think they're not in the near term, they're probably a year or two way before anything can be really announced. But we'd certainly see that model as a win-win for us and our partners and frankly the government to be able to treat waste that may not otherwise be able to treat.

To follow-on. One other thing, I'm sorry. You had mentioned, my phone got cut off earlier, that you had not gotten the full benefit of the new contracts realized in Q2. And then you had mentioned a number of an incremental $2 million to $3 million, was that throughout the remainder of 2019 or in the third quarter of 2019?

We expect that to be in the third quarter for the most part, and we hope that would bleed into the fourth quarter as well for expansion.

Okay, thank you.

Thank you.

And our last question comes from [Stephen Fine]. Go ahead, Stephen.

I think the question was answered, but I just would like to expand a little bit. On the partnerships, partnering with other people for bids, is that really – is that something that you've introduced, Mark? Or was that something that the company has done historically? What I mean is partnering in bids.

Yes, as far as people teaming, yes, it's historically done. And most of the services projects was in the Department of Energy and DoD, in fact, just by all of them, require very broad array of disciplines and technical capabilities, most of which, every firm doesn't have. Even large firms like [indiscernible] and Jacobs will have a need for mixes, so they'll partner or team with other companies. And we do the same to reduce our risk, for example, and a good example is some of the projects we won in California, we'll team with small businesses in the region that have – had the equipment, for example, or a niche or a relationship that is necessary for a specific project. So, we pretty much always will do that. There's a couple of exceptions, but for the most part, we'll be teaming with local companies.

Thank you. The second question is, you keep – which I like, you keep talking about this $100 million goal. So, do you have a time line goal for that, let's say, two years, three years, one year?

Well, I get that perspective too much, Steve, on these kinds of things. I try not to do too much of that. But we certainly would hope in the next two or three years, we'll be able to reach that goal.

Alright. And my one final question, I guess, this displays my lack of financial acumen. On the $5 million, Ben, physically, the cash came in, correct?

Correct. Yes.

Okay. So, the cash is being used? Or was it – is the cash physically being used, like, for example, for plant improvements and stuff, they got a new stuff in the plants?

Bit of both. As you know, the closure was very expensive. And so, we have some bills to pay with it, related to the closure, but there is additional, obviously, and that money along with income, positive income that we are certainly planning to earn over the next 6 months will go towards capital improvements.

Okay. Thank you.

At this time, I would like to turn the call back over to management. Thank you.

Alright. I'd like to thank everyone for participating on our second quarter conference call. As I mentioned earlier, we're pleased with our Q2 results and more importantly, the positive impacts from our strategy improvements that we'll continue to improve, provide sustainable growth while expanding our offering over the next several years. So, we are confident that our best is yet to come. Thank you.