Company Reports Net Loss of $36M for Q4 2013, But Optimistic About This Year
Jeremy L. Dillon
RW Monitor
4/18/2014
Perma-Fix Environmental Services this week reported down financial results for the fourth quarter of 2013, and warned in a filing with the Securities and Exchange Commission that its future could be at risk. However, company officials are optimistic about Perma-Fix’s financial performance going forward this year. “Based on historical spending patterns and early indications, we are optimistic the new DOE [Department of Energy] budget will translate to increased spending on discretionary projects, including waste treatment,” Perma-Fix Chairman and CEO Lou Centofanti said in a statement. “With the Congressional budget now resolved, we also believe that the DOE will begin awarding service contracts that have been delayed, and we believe that we are very well positioned on a number of these projects.”
For the fourth quarter of last year, Perma-Fix reported a net loss of $31.4 million, compared to a net loss of $633,000 for the same period in 2012. Perma-Fix’s further quarter 2013 loss included a “goodwill impairment charge” of approximately $26.7 million for the company’s Treatment and Services segments. Perma-Fix also reported a significant drop in revenue for the further quarter of last year—$12.7 million versus $26.7 million for the same period last year. In its SEC filing, Perma-Fix said, “The reduction in our revenue has resulted in our inability to attain profitable operations and have generated negative operating cash flow from operations,” the company said in its filing. “These factors raise substantial doubt about our ability to continue as a going concern. As a result, our independent registered public accounting firm has included an explanatory paragraph regarding our ability to continue as a going concern in their report on our consolidated financial statements for the year ended December 31, 2013.”
The filing went on to say that if Perma-Fix does not raise capital in the near future or increase revenue, it would not have enough money to sustain operations in the next year. “Our ability to continue our operations depends on our ability to generate profitable operations or complete equity or debt financings to increase our capital. There are no assurances that we will be able to increase our revenue and cash flow to a level which supports profitable operations and provides sufficient funds to pay our obligations,” the filing said, adding, “As a result, the Company may be forced to further reduce or even curtail its operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern.”
‘Auditors Are Black and White’
Perma-Fix, though, has described the auditor’s doubt as a case of conservative caution. “Auditors are black and white and they evaluate past numbers and by looking at two years in a row of a loss, in their opinion, they are saying, if you do not change, if you do not improve you will have problems,” Perma-Fix spokesman Anne Smith told RW Monitor. “In the financial world, the Securities Exchange Commission is putting pressure on auditors using the two year loss as a threshold to be more conservative. There are many reasons for the two year losses, which have impacted the industry, and Perma-Fix has reacted, making substantial changes. We have improved and we are optimistic about the future.”
Conference Call Full of Optimism
In a call with investors this week, Perma-Fix offered a more hopeful outlook, indicating that a more stable government budgetary environment would help overcome the challenges of 2013. In fact, Centofanti hinted at service contracts that the company has already received, but is still waiting to announce. “Our service pipeline is significant, and it’s just a matter of waiting for these projects to be issued,” Centofanti said during the earnings call. “We have better visibility on the price line than we’ve had in the past and believe some of these contracts our forthcoming. In fact, we have been notified that we have won several of these contracts and should be able to talk about these in the very near future.” He added later in the call, in response to a question regarding the magnitude of these contracts, that it would receive “approximately $20 million in revenue over the year, year and a half of the projects.” Centofanti did say on the call, though, that the effects on the company’s revenue would not be seen until later on, so the first quarter is “nothing to brag about.” Smith said she thought that the quarterly reports would reflect the company’s contract progress towards the end of the second quarter and beginning of the third quarter.
Perma-Fix attributed the difference in tone between its SEC filing and the investor call to the role of the conference call in informing investors of what could happen in the future. “As stated in the beginning of the conference call, these are forward looking statements, and nothing is guaranteed,” Smith said. “It is our responsibility on the conference call to provide information about moving forward. There is no crystal ball and any optimism discussed on the call, is based upon our knowledge of the market and based upon our best expectations.”
Perma-Fix Negotiates Amendment to Loan Agreement with PNC
In its SEC filing, Perma-Fix also outlined revisions made to a loan agreement it has with PNC Bank. The loan agreement includes a minimum quarterly fixed charge coverage ratio requirement, but the company failed to meet the requirement for the fourth quarter of 2013. In an attempt to remedy the violation of the agreement, Perma-Fix negotiated with PNC on April 14 to “revise the methodology to be used in calculating the fixed charge coverage ratio in each of the subsequent quarters of 2014 and changed the minimum quarterly fixed charge coverage ratio requirement of 1:25 to 1:00 to 1:15 to 1:00 for each of the subsequent quarters of 2014,” the filing said. The new agreement also waived the quarterly fixed charge coverage testing requirement for the first quarter of 2014. The changes will help Perma-Fix while cash is short, but it comes at a cost. PNC reduced the revolving credit facility from $18 million to $12 million, a 33 percent reduction in credit.
‘We Think We Have Something Very Valuable’ With Isotope Technology
In a more promising side to Perma-Fix, the company highlighted its progress in attracting financing for its technology to produce Technetium-99m (Tc-99m) from Molybdenum-99 (Mo-99). Perma-Fix formed the subsidiary Perma-Fix Medical Corporation in February as a means to attract financing to move the project through the regulation process. Centofanti said during the call with investors that the company is seeing a lot of interest from the European market in the product, which will help other investors see the true value of the technology. “The good thing about it from the investor point of view—I’m fairly optimistic about it as I said, things are going well from a money raising point of view—is that you will be able to value it,” Centofanti said.
He went on to say, “Up to now it’s been hard to point any value on our Tech-99 process. When we complete this process, you will be able to see a rough idea of what people have valued the technology. It still in the early stage and we still have a long way to go with it, but this is one of the technologies that is defining. We think we have something very valuable here, and hopefully in the future, our investors will be able to see some sort of value placed on it, even in this early stage.”
