Prepared remarks
Good morning, and welcome to the Perma-Fix Fiscal Second Quarter 2025 Earnings Conference Call. Please note, this conference is being recorded. I will now turn the conference over to your host, David Waldman of Crescendo Communications. David, the floor is yours.
Thank you, Jenny, and good morning, everyone. Welcome to Perma-Fix Environmental Services Second Quarter 2025 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 2025 financial results, which is also posted on the company's website. If you have any questions after the call or would like any additional information about the company, please contact Crescendo Communications at (212) 671-1020. I'd also like to remind everyone that certain statements contained within the conference call may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and include certain non-GAAP financial measures. All statements on this conference call 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 and on our website. I'd now like to turn the call over to Mark Duff. Please go ahead, Mark.
All right. Thank you, David, and good morning, everyone. We delivered a sequential and year-over-year revenue growth in the second quarter, accompanied by a meaningful improvement in our gross margin. These results reflect continued progress on our operational initiatives, particularly within our Treatment segment, where revenue increased approximately 37% compared to the same period last year. Even more notable was the fact that our waste receipts more than doubled year-over-year to approximately $14 million in Q2 of '25. That said, treatment results were tempered by technical challenges that limited production capacity early in the quarter. These issues have been resolved through automation and process improvements that are already enhancing our throughput, improving safety, and reducing manual labor. We expect to realize the full benefit of these enhancements in the second half of the year.
Importantly, we continue to realize stay shipments from Hanford in support of the cleanup program as well as the tank management mission, which are estimated to be about $3 million of revenue per month. On a related note, the Department of Energy recently announced a delay in the DFLAW facility start-up from August 1 to as late as October 15. Despite the short-term delay, that program represents substantial new revenue streams for us. We remain encouraged by the long-term outlook for DFLAW and the substantial reoccurring revenue and cash flow it is expected to contribute once operational. In our Services segment, project delays occurred earlier in the quarter, largely due to the federal government and federal procurement timing impacting our results. However, field execution and cleanup and remediation work is now tracking on schedule across key DOE and DOD sites. We're also pleased to report that our team was awarded a position on the Navy's $240 million RADMAC III IDIQ contract during the quarter.
This award reinforces our core competencies in radiological cleanup and positions us for a steady stream of potential task order opportunities in the coming quarters. We've also entered the 6-month planning period for the West Valley project as part of the BWXT-led team, where we expect to play a key role in long-term DOE cleanup efforts. While revenue recognition will be tied to DOE's approval of our final performance strategy expected later this year, we view this as a significant multiyear opportunity for our services business. Returning now to PFAS. We made strong progress this quarter on multiple fronts. We expanded demonstration activities with both Fortune 500 companies and large government agencies. And year-to-date, PFAS-related sales have reached approximately $500,000, representing about 30,000 gallons of material so far. Daily operations have resumed at our Perma-FAS unit in Florida, and construction is underway on our Gen 2 system in Oak Ridge, Tennessee, which is designed to sort up to 3,000 gallons of production per day while reducing unit operating costs.
The Gen 2 system will also provide the potential to support mobile field deployment options for use in landfills, waste treatment plants, and remote sites. We continue to be encouraged by the technology's destruction performance and its scalability and the ability to reduce liability for our customers at a competitive price point. Internationally, we have received over $7 million in waste receipts during the past two quarters and continue to see strong interest from customers in Canada, Germany, Mexico, and Italy. Our EUR 50 million contract with the European Union in Italy is progressing through the permitting and preparation phase, and we remain on track to initiate treatment operations in 2026. Across the organization, we remain focused on disciplined cost management and targeted margin improvement initiatives, which have been implemented throughout Q3 as well. These programs are already contributing to improved productivity and are expected to support stronger EBITDA performance in the second half.
In addition to our revenue-generating activities, we're pursuing several large-scale federal and commercial procurement opportunities, including bids with the U.S. Army Corps of Engineers and DOE National Laboratories. Combined, these opportunities represent more than $200 million in potential contract value, with award decisions expected during the first half of '26. Company-wide, our waste backlog currently stands at approximately $13.2 million, providing strong visibility into the second half treatment volumes and services activities. We're also encouraged by evolving PFAS policy and regulatory developments at both the federal and state levels, which continue to support demand for comprehensive destructive technologies like ours. With growing treatment volumes, renewed activity in our Services segment, and commercial traction in PFAS, along with a healthy pipeline of domestic and international opportunities, we believe Perma-Fix is well positioned to deliver improved financial results in the second half of '25 and build long-term momentum heading into '26. With that, I'll now turn over the call to Ben Naccarato to walk through our financial results in more detail. Ben?
Thank you, Mark. I'll start with revenue. Our total revenue from continuing operations for the second quarter was $14.6 million, an increase from $14 million in the same period last year. This reflects a rise of $600,000 or 4.3%. Revenue in the Treatment segment grew by $3.1 million year-over-year, marking a 36.6% increase, driven by higher waste volumes and increased average pricing, which is influenced by waste mix. At the beginning of the quarter, our Treatment segment had a backlog of $10 million and recorded waste receipts and related revenues exceeding $14 million during the quarter, contributing to stronger revenue and a solid backlog heading into the third quarter. However, this revenue growth was partially offset by a $2.5 million decrease in the Services segment due to project delays and the completion of large projects from the previous year. Moving on to gross profit, for the quarter, our gross profit stood at $1.5 million compared to a negative $1.3 million in Q2 of last year, indicating an improvement of $2.8 million.
The increase in revenue and lower variable costs of treated waste positively impacted gross profit, totaling around $3.4 million, although this was partially negated by higher fixed costs at the plants, amounting to $683,000, primarily due to labor increases related to higher waste receipts. In the Services segment, gross profit remained consistent with the prior year, with a small increase of $90,000 as the benefits of lower variable costs and fixed expenses were balanced by the impact of reduced revenue. Regarding SG&A, our SG&A costs for the quarter were $4.1 million, up from $3.5 million last year, with the increase evenly split between marketing and administrative expenses. Marketing costs rose due to greater business development efforts related to PFAS and project bidding. Additionally, some personnel previously focused on operations have transitioned to business development roles supporting PFAS, DFLAW, and our international initiatives.
On the administrative side, the appointment of our COO and the associated travel and benefits significantly contributed to the rise in costs. Our net loss for the quarter was $2.7 million, an improvement from a net loss of $4 million in the prior year. Our basic and diluted earnings (loss) per share were $0.15, recovering from a loss of $0.27 last year. EBITDA from continuing operations for the quarter was a negative $2.3 million, improving from a negative EBITDA of $4.6 million in the previous year. On to balance sheet highlights, our cash at the end of the quarter was $22.6 million. Our waste backlog at the end of June increased to $13.2 million from $7.9 million at the end of last year, and was higher than the $8.7 million reported last June. Our total debt at the end of the quarter was $2 million, excluding debt issuance costs, primarily owed to our main lender, PNC Bank. Finally, a brief summary of cash flow for '25 reveals that cash used by continuing operations was $3.8 million, while cash used by discontinued operations totaled $222,000.
We invested $1.5 million in continuing operations, mostly for capital expenditures, with the remainder for permits and other investments, and $16,000 for discontinued operations. Cash used for financing was $626,000, including approximately $313,000 for monthly term loan and capital lease payments, $148,000 for finance leases, and $194,000 for payments related to our public offering completed in December 2024, offset by a minor increase in option expenses of $49,000. With that, I will now turn the call over to the operator for questions.
Questions and answers
Our first question is from Aaron Spychalla of Craig-Hallum.
First, on the treatment side of things, you talked about some challenges and improvements that have been made. Can you just give a little bit more detail on that and maybe how you think about the margin pickup in the back half and just how you're thinking about overall treatments in the back half of the year?
Yes, Aaron, thank you for your question. We started receiving a significant waste stream from the Hanford operations, specifically from the tank farms rather than the tank closure. This waste stream involves solidification processes that have presented challenges due to being labor-intensive and slow. We have since implemented new equipment, completed training, and secured permits to streamline the process, including coordination with the team managing waste at the Hanford site to ensure proper functioning and performance standards. This took several months, longer than expected. As mentioned last quarter, we had to hire and train a lot of new staff, which contributed to the delays. Fortunately, by mid-quarter in June, we began to stabilize and meet our performance goals. We anticipate that this waste stream will be sustainable through at least 2027. This capability aligns well with our work at the Northwest plant, which is becoming a pivotal asset for us in supporting upcoming projects at Hanford and with various other clients both nationally and internationally as we further grow our operations there.
All right. Regarding Hanford, I noticed the wording in the release as recently as October 15. Could you discuss the confidence in starting up before that date? Additionally, please elaborate on the preparations being made at the Northwest facility to handle those volumes as they begin operations.
Yes. The delay was somewhat unexpected to us because it was so close to the anticipated start date, but it's not really unexpected that they would have a delay in these types of things. But we've heard there were a number of items they were working through that have been publicized by the independent groups that make sure they're ready and that they were finding nitrogen oxide and some of the off-gas systems that they had to deal with and address those concerns. We've been told uniformly that's what they're working on right now. It shouldn't take the entire period. They provide themselves some buffer. That's largely speculation. They're not really discussing what their timeline is. But I know DOE is not going to want to have multiple delays. So we're pretty confident that they should be done well within that period and then get rolling. Once they get rolling, they'll enter the hot commissioning period.
That's where they introduce actual tank waste to the plant. They'll do about a dozen to two dozen canisters. Then they'll test those canisters for performance, ensuring that they meet the standards for which the facility was designed to do. They will also test all the systems to make sure they're working properly and then they'll enter into an operational phase after that. The operational phase will most likely begin sometime in Q4. I'm not sure when and how long it will take between the two phases. That being said, they seem to be on track to enter operational phase before the end of this calendar year and get rolling. Did that address your question, Aaron? I'm not sure if I hit all the points.
Yes. No, it does. I mean maybe just preparations at Hanford to be able to handle everything if you feel comfortable there, investments that you've made and things like that.
Yes. We've completed our preliminary design of the systems we need to have in place for receipt of that waste. So we're ready to go. We will continue to make capital investments as the DFLAW gets rolling into larger quantities. In other words, we'll duplicate the systems we've got and add staff accordingly. But we're ready to go now through at least the operational period. It's still difficult for DOE to really nail down the different types of waste we're going to be getting. They provided estimates along the way on the total quantities that they're expecting, but there's about a dozen different waste streams, and we're not sure how much of each one we will be receiving. So we really have to see how things go during commissioning and early start-up to know how we need to expand so we don't overexpand and support the full operation.
Okay. That makes sense. And then on the Services side of things, you talked a little bit about West Valley in the planning period, a little bit on RADMAC. Just how are you seeing that services segment here in the next couple of quarters? Is West Valley more of an early 2026 start-up in your eyes? Or maybe just some color there would be helpful.
Yes. Services had a negative impact on our performance this quarter particularly. As I mentioned in the notes, there were some delays in getting into the field, as well as some delays in procurements. Both those are largely attributable to changes in administration and a lot of retirements within the federal government's procurement shops. They're working through those things. I understand it's very common within the DoD and DOE with the changes that have been made. The administration is pushing very hard on both those agencies to streamline procurements and make them more efficient. We are starting to see some of that already. Overall, to answer your question specifically, we see that picking up on both the Services side in this quarter and next quarter, particularly in regards to several projects that are just now getting rolling and some procurements that we've just submitted bids on at the end of Q2 and beginning of Q3.
West Valley is moving a bit slower than we anticipated. We thought we'd be working by now. But with these types of contracts, again, it's an end-state contract. What that means is you need to put together a strategy, a very detailed strategy for the next 10 years of what you're going to accomplish. Then you align your costs with that to stay within a funding level, and then the Department of Energy approves that. We're currently in that strategy stage, preparing the strategy for the next 10 years. We're deeply involved in the waste management portion of that, and then DOE is to approve it within the funding they have. That process will finish up around the first of the year, and we're anticipating implementing that strategy beginning in Q1. It just depends on whether there are changes to our approach or funding that could impact that. That's why we're hesitant to make a real forecast on the revenue we expect to get from West Valley at this point.
But we still remain very optimistic. Our scope is very important and one of the primary goals for the site in the next several years, so we’re optimistic we play a critical role there, but it hasn't been firmly established yet overall.
Our next question is coming from Howard Brous of Wellington Shields.
Basically, one question. You anticipate production of DFLAW to ramp up? And what are our associated revenue expectations from now through 2026?
They haven't really given us a lot of detail for the ramp-up. But what we've been told informally in meetings and as part of the overall program is, again, they'll do the commissioning now. Once operations start, as I mentioned, will be in Q4, operations have been informally defined as about 40% production capacity. If you remember, the design capacity is 1 million gallons a year. At 1 million gallons a year, they anticipate generating 8,000 cubic meters of waste. Looking at the waste streams they're discussing, we're estimating that to be in the $70 million to $80 million range for the 8,000 meters. So, if you do the math, if they are running at 40% capacity later in Q4, we could anticipate once they reach that point, $2 million to $3 million of revenue a month. They'll be ramping up as fast as they can, as safely as they can over the next 18 months after operations begin to try to achieve 70% or 80% operational capacity on the way to reaching full capacity. To summarize, we anticipate $2 million to $3 million in revenue upon operational phase start-up and then ramp up from there over the next 18 months through '26.
Our next question is from Aaron Warwick of Breakout Investors.
Just a question on the Navy contract or IDIQ, I should say. Could you give us an idea about the size of it and how many different entities there are that are available to bid on those and just kind of what your expectations are there?
Sure, Aaron. I'm glad you asked that. These IDIQs are very difficult to nail down. We have many IDIQs that don't see much action. However, we just submitted a very sizable job through one of their IDIQs that hasn't seen action in a while. The Navy IDIQ for the RADMAC III is quite an active contract. Historical funding runs out, indicating it is heavily funded. It's a $240 million contract, and there are six total awards—three for large businesses and three for small businesses. We're a small business and can bid on all the large business task orders, but not vice versa. To answer your question, we have already received our first task order, which is due here in a couple of weeks. They don't forecast much, so we don't know how it lines up with funding, but it's basically to do radiological remediation in the California Coast, initially in the San Diego area, and then we also anticipate several projects in the Bay Area where there have been long-term radiological issues. The work is competitive among the small businesses, but we feel comfortable competing with the other small businesses in our tasks, as the type of work covered by this contract aligns perfectly with our core competencies. However, it's competitive and challenging to define how much revenue we can anticipate on an annual basis.
While we appear to have reached the end of our question-and-answer session, I will now turn it back over to the management for their closing comments.
Thank you, Jenny. As we move into the second half of 2025, we remain focused on executing against our key strategic priorities, expanding our treatment and PFAS backlogs, driving performance improvements across all of our operations, and converting large services and federal bid opportunities. The operational investments we made earlier in the year, combined with the progress we're seeing at Perma-Fix Northwest within the PFAS program across our DOE segments and engagements, position us to deliver strong results in the coming quarters. While timing around certain federal procurement processes remains variable, our backlog, field execution, and pipeline visibility continue to improve. In summary, we remain confident in our ability to deliver stronger financial performance in the back half of the year, supported by the progress we've already achieved. We appreciate your continued support and look forward to updating you again next quarter on our progress. Thank you.
Thank you very much. This does conclude today's conference. You may disconnect your phone lines at this time and have a wonderful day. We thank you for your participation.