管理層發言
Good day, ladies and gentlemen, and welcome to the Perma-Fix Environmental Services Fiscal Second Quarter 2026 Earnings Conference Call. And please note, this conference call is being recorded. I will now turn the conference over to your host, Mr. David Waldman with Crescendo Communications. Sir, the floor is yours.
Thank you, Oli. Good afternoon, everyone, and welcome to Perma-Fix Environmental Services Second Quarter 2026 Conference Call. On the call with us this afternoon 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 afternoon containing second quarter 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 statements 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 afternoon'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. I'd now like to turn the call over to Mark Duff. Please go ahead, Mark.
All right. Thanks, David, and good afternoon, everyone. Thank you for joining us. I want to start by being direct about the quarter. Our second quarter financial results were below expectations. Revenue was $12.9 million, and we reported a net loss of $6.2 million. That is not the quarter we wanted to deliver, and I am going to walk you through exactly what happened and why. But I also want to be clear about something the second quarter delivered the operational milestones we've been working for, for years. And those milestones, not this quarter's results, are what will define where the company is headed. Yesterday, the Department of Energy's Hanford Tank Contractor, H2C, announced the award of the master IDIQ for tank waste operations and closure for grouting and disposal to support the tank retrieval and disposition mission at the site. This mission is one of the most important programs within DOE's Office of Environmental Management and reflects this administration's priority to accelerate the removal of risk associated with the 56 million gallons of waste stored in the tanks at Hanford. The contract carries a maximum value of approximately $4.4 billion with task orders eligible to be issued from 2027 through 2041. And to be clear, that is a ceiling shared among all subcontract holders, not an amount awarded or committed to Perma-Fix. The program is supported by the Tri-Party Agreement with the state and federal regulators to remediate 22 tanks from the 200 West Tank area during that period. In addition, the contract was modified during the RFP process to include other tank and liquid waste streams to provide a contract vehicle for the 200 East Tank area as a supplement to the DFLAW program. While this award is an IDIQ contract vehicle, it will be used by H2C to issue task orders for specific volumes of waste to be dispositioned within the defined periods. H2C also awarded master subcontracts to two other companies, both located out of state. Perma-Fix Northwest is the only facility of the three where these liquids can be grouted near the point of generation without long-haul transport of liquid tank waste. Our Perma-Fix Northwest facility located about a mile from the Hanford site will provide the capacity to meet the goals for tank retrieval and liquid waste processing as the program grows to meet the DOE EM goals and objectives. We've been preparing for this program for some time, upgrading our facilities, procuring large-scale treatment equipment, expanding our workforce through hiring and training and acquiring the rail line parcel that connects Perma-Fix Northwest to the Port of Benton shortline railroad for direct rail shipments of treated waste. Under the performance work statement for the contract, we are required to maintain the capability to treat and dispose of pretreated tank waste at the rate of 100,800 gallons per week over a seven-week period. When annualized, this level is well above our current permanent annual capacity. And that is why we're expanding our current permit that I'll discuss in a moment, which is already underway to support the task orders that will be eligible beginning in January. Let me turn to why we're confident about the second half and beyond. DOE has adopted what it calls the Hanford dual glass-plus-grout strategy. In DOE's own framing, grouting is a proven technology already approved under the Hanford Tri-Party Agreement and the Savannah River site has also treated 13 million gallons of tank waste inventory in the same way. DOE projects the approach will deliver up to 300% more throughput while reducing treatment and disposal costs from roughly $1,200 per gallon to under $50 per gallon in contrast to vitrification costs. DOE has presented a dual-path strategy to stakeholders specifying Perma-Fix Northwest as the grouting provider for the EMF secondary waste effluent stream, which is the material we're receiving today. The H2C contract awarded yesterday will likely be used as a contract vehicle for the EMF beginning in January when the contract becomes active. On volumes, I want to be precise because these numbers get quoted loosely. The glass-plus-grout approach includes acceleration of tank retrieval operations at 100,000 gallons per month using the existing TSCR. The TSCR is the tank-side cesium removal system, which is an ion exchange system, which removes the radioactive component of cesium from the waste stream. And that TSCR is a critical part to pulling the waste out of the tanks currently. By 2028, the advanced modular pretreatment system, also known as AMPS, will be operational reaching a total of 300,000 gallons per month of pretreated tank waste to be shared between the grouting program and the DFLAW facility for treatment. The DFLAW storage tank, known as the AP-106, currently has capacity of over 1 million gallons so the stored pretreated waste can be available for grouting while leaving ample feed for DFLAW operations without a constraint. As inventories are reduced through treatment, the TSCR can replenish the AP-106 at about 100,000 gallons per month through 2027. DOE estimates that roughly 60,000 gallons per month will be available from the AP-106 tank for grouting beginning as early as Q4 of '26, increasing to approximately 130,000 gallons per month by 2028. Here's the point I want to make here. At 60,000 gallons a month, we are inside our existing permitted grouting capacity of 1.2 million gallons per year. Perma-Fix continues to develop and design technology to expand our capabilities with a specific goal of ensuring that our Perma-Fix Northwest plant can accept and process the full volume of waste Hanford provides for grouting, treated locally and shipped by rail for disposal in contrast to our competitors, which will be transporting liquid waste on public highways for treatment and disposal out of state. That expansion is what we need for the West Area tank program, which is a separate and substantially larger opportunity. Across both the East and West Tank areas, DOE totals are targeted to reach 9 million gallons annually by 2030 — 9 million gallons of pretreated waste to be grouted annually. Perma-Fix Northwest has submitted a permit modification request to the State Department of Ecology and is working with these regulators to expand our grouting permit from its existing annual capacity of 1.2 million gallons per year to levels that meet DOE objectives for both the East side and the West side tanks. The facility is in final design and procurement for the upgrades needed to achieve that expanded capacity, which should be ready by the third quarter of 2027. One development worth noting: the H2C procurement decision moved forward in regards to an off-site treatment path rather than construction of a new on-site facility, which was included as an alternative within the H2C RFP. Consistent with that, on June 29, DOE notified the State of Washington Ecology that its near-term selection for treating 200 West Area tank waste is off-site commercial treatment with transport by truck, rail or both. This is a favorable development for a facility positioned as we are. Perma-Fix Northwest sits immediately adjacent to the Hanford site. We're permitted today, we're operating today, and we're receiving Hanford tank waste today for grouting. There's no facility to design or build and no facility to commission. For DOE, that means a treatment path that is available now rather than years from now, the shortest possible transport of liquid waste and no government capital outlay to get there. We believe the combination is difficult to replicate. It's also a distinction worth drawing between grouting near Hanford and shipping this waste material out of state for treatment. Under our approach, the waste is solidified in Richland and only stabilized grout travels on public roads out of state. It leaves Washington as a solid in a form that cannot leak. The alternative is a long-haul transport of liquid tank waste across multiple states to a treatment facility in Texas or Utah. Oregon and regional stakeholders have publicly urged DOE to solidify this material before it leaves the Hanford region and our facility is what makes that possible. It is also work performed by local building trades through our relationship with UA Local 598, which keeps skilled jobs and expertise in the Tri-Cities area. In addition to this critical announcement in early July, subsequent to the quarter end, Perma-Fix began receiving liquid effluent waste from the DFLAW facility at Hanford. I don't want to get too lost in the numbers. It's a culmination of years of permitting, capital investment and operational preparation. We built the capacity, we obtained the permits and we staffed the plant in anticipation of this waste and it's now starting to arrive. We have since begun receiving additional waste streams from DFLAW operations, including dry waste generated by the plant operations, which we're processing for disposal at the local Hanford site landfill. So this is not one system, or one waste stream. It is a growing number of waste streams from a plant that is still ramping up and DOE throughput goals increase each month at the DFLAW operations, and they're working through production issues and associated equipment modifications to reach their objectives for 1 million gallons per year through vitrification at DFLAW. Now let me explain why the quarter looked the way it did. We received the Hanford-related waste streams we expected during the quarter. That part of our plan worked, and you can see that reflected in our backlog. Treatment-related backlog grew by 29% from $12.2 million at March 31 to $15.7 million at June 30. What did not happen on schedule was treatment. Our customer directed changes to the treatment protocol for these waste streams to accommodate a change in disposal facilities. This delayed processing from the second quarter into the third quarter. These changes supported the receipt of the waste for solidification, but did not support processing and subsequent revenue recognition. We already added the personnel and incurred the operating cost to handle these volumes, so the cost landed in our second quarter, while the associated revenue moved into the second half, and that mismatch is the primary driver of the Q2 loss. Two other items contributed. First, several new services projects started later than anticipated. Secondly, we processed our previously stored lower-margin inventory waste, which compressed our treatment margin during that quarter as well. That work is now substantially complete and it frees up capacity ahead of our anticipated tank waste receipts. On the delayed waste streams, we expect to begin processing shortly and to be caught up by the end of the third quarter. So when I say we're encouraged about the second half, here is what is in front of us. The delayed waste we already have on site moves through treatment in the third quarter. DFLAW-related receipts continue to build through the balance of the year and task orders under the Master Subcontract become eligible in January of 2027. Turning to Nuclear Services: this segment is providing a second engine of growth for us, and it's doing something else that really matters. It adds stability while the treatment volumes ramp. Services revenue grew 44% year-over-year in the quarter to $4.6 million from $3.2 million following the approximately $24 million Lawrence Livermore Master Task Agreement announced in the first quarter. We secured additional awards during the second quarter at multiple DOE sites, along with several commercial and international contracts. Together, these services backlog are over $17 million over the next 18 months. There's a second benefit that is easy to miss as well. Much of this work is waste retrieval and retrievable operations generate material that flows through our treatment plants. So services backlog is not just stability, it's also a feeder into our Treatment segment. Last week, we announced a strategic partnership with Mirion Technologies under the Small Business Administration's Mentor-Protégé Program. The logic is straightforward. Cleanup missions across the DOE complex are getting larger and more technically demanding with much more difficult challenges. Our treatment infrastructure, remediation capabilities and project management combined with Mirion's radiation detection technologies and measurement and instrumentation expertise gives us a stronger position to compete for that work. It's a natural extension of where we've been heading and it widens the range of work we can offer. Before I turn things over, a brief word about PFAS. Our PFAS platform continues to advance with completed treatment work for both commercial and government customers and the installation of our Gen 2 unit to expand capacity. Our permanent destruction of PFAS remains one of the clearest unmet needs in this market, and our technology continues to maintain delivery of total destruction with no emissions and a significant value over incineration. While we realized a slowdown in PFAS receipts through May, sales and processing revenues have begun to increase through the summer with several awards from regional airports and commercial generators to support a solid backlog through Q3, including nearly $8 million in future award opportunities within our current pipeline of bids. Finally, a word on capital. In May, we completed a public offering with net proceeds of approximately $21 million, and a portion of that funding will be used for the DFLAW upgrades as well as our grouting upgrades at Perma-Fix Northwest. That capital is going directly into the capacity we've been discussing this afternoon. With that, I'll turn the call over to Ben to take you through the financials in detail. Ben?
Apologies, ladies and gentlemen, we appear to have lost our speaker's line. One moment please while he reconnects. I'm not entirely sure our speaker is aware that his line has dropped at the moment, so please bear with us.
Okay. I'm not sure. My apologies. I was not aware that I had dropped off. I'm not really sure where I left off.
Start at where you were discussing the TSCR.
Okay. All right. So explain what the TSCR was, I assumed, which is the tank-side cesium removal system, which is currently capable of treating or pulling out and retrieving about 100,000 gallons per month to be loaded in the AP-106 tank. By 2028, the advanced modular pretreatment system, also known as AMPS, will be operational reaching a total of 300,000 gallons per month of pretreated tank waste to be shared between the grouting program and the DFLAW facility for treatment. The DFLAW storage tank, again, known as the AP-106 is currently in capacity at over 1 million gallons. So the stored pretreated waste can be available for grouting while leaving ample feed for DFLAW operations without a constraint. As inventories are reduced through treatment, the TSCR can replenish the AP-106 at about 100,000 gallons per month through 2027. DOE estimates that roughly 60,000 gallons per month will be available from the AP-106 tank for grouting beginning as early as Q4 of '26, increasing to approximately 130,000 gallons per month by 2028. Here's the point I want to make here. At 60,000 gallons a month, we are inside our existing permitted grouting capacity of 1.2 million gallons per year. Perma-Fix continues to develop and design technology to expand our capabilities with a specific goal of ensuring that our Perma-Fix Northwest plant can accept and process the full volume of waste Hanford provides for grouting, treated locally and shipped by rail for disposal and in contrast to our competitors, which will be transporting liquid waste on public highways for treatment and disposal out of state. That expansion is what we need for the West Area tank program, which is a separate and substantially larger opportunity. Across both the East and West Tank areas, DOE totals are targeted to reach 9 million gallons annually by 2030, 9 million gallons of pretreated waste to be grouted annually. Perma-Fix Northwest has submitted a permit modification request to the State Department of Ecology and is working with these regulators to expand our grouting permit from its existing annual capacity of 1.2 million gallons per year to the levels that meet DOE objectives for both the East side and the West side tanks. The facility is in final design and procurement for the upgrades needed to achieve that expanded capacity, which should be ready by the third quarter of 2027. One development worth noting, the H2C procurement decision moved forward through this process in regards and awarded for an off-site treatment path rather than construction of a new on-site facility, which was included as an alternative within the H2C RFP. Consistent with that, on June 29, DOE notified the State of Washington Ecology that its near-term selection for treating 200 West Area tank waste is off-site commercial treatment with transport by truck, rail or both. This is a favorable development for a facility positioned as we are. Perma-Fix Northwest sits immediately adjacent to the Hanford site. We're permitted today, we're operating today, and we're receiving Hanford tank waste today for grouting. There's no facility to design or build and no facility to commission. For DOE, that means a treatment path that is available now rather than years from now, the shortest possible transport of liquid waste and no government capital outlay to get there. We believe the combination is difficult to replicate. It's also a distinction worth drawing between grouting near Hanford and shipping this waste material out of state for treatment. Under our approach, the waste is solidified in Richland and only stabilized grout travels on public roads out of state. It leaves Washington as a solid in a form that cannot leak. The alternative is a long-haul transport of liquid tank waste across multiple states through treatment facilities in Texas or Utah. Oregon and regional stakeholders have publicly urged DOE to solidify this material before it leaves the Hanford region and our facility is what makes that possible. It is also work performed by local building trades through our relationship with UA Local 598, which keeps skilled jobs and expertise in the Tri-Cities area. In addition to this critical announcement in early July, subsequent to the quarter end, Perma-Fix began receiving liquid effluent waste from the DFLAW facility at Hanford. I don't want to get too lost in the numbers. It's a culmination of years of permitting, capital investment and operational preparation. We built the capacity, we obtained the permits and we staffed the plant in anticipation of this waste and it's now starting to arrive. We have since begun receiving additional waste streams from DFLAW operations, including dry waste generated by the plant operations, which we're processing for disposal at the local Hanford site landfill. So this is not one system, or one waste stream. It is a growing number of waste streams from a plant that is still ramping up and DOE forecast throughput goals increase each month at the DFLAW operations, and they're working through production issues and associated equipment modifications to reach their objectives for 1 million gallons per year through vitrification at DFLAW. Now let me explain why the quarter looked the way it did. We received the Hanford-related waste streams we expected during the quarter. That part of our plan worked, and you can see that reflected in our backlog. Treatment-related backlog grew by 29% from $12.2 million at March 31 to $15.7 million at June 30. What did not happen on schedule was treatment. Our customer directed changes to the treatment protocol for these waste streams to accommodate a change in disposal facilities. This delayed processing from the second quarter into the third quarter. These changes supported the receipt of the waste for solidification, but did not support processing and subsequent revenue recognition. We already added the personnel and incurred the operating cost to handle these volumes, so the cost landed in our second quarter, while the associated revenue moved into the second half, and that mismatch is the primary driver of the Q2 loss. Two other items contributed. First, several new services projects started later than anticipated. Secondly, we processed our previously stored lower-margin inventory waste, which compressed our treatment margin during that quarter as well. That work is now substantially complete and it frees up capacity ahead of our anticipated tank waste receipts. On the delayed waste streams, we expect to begin processing shortly and to be caught up by the end of the third quarter. So when I say we're encouraged about the second half, here is what is in front of us. The delayed waste we already hold on site moves through treatment in the third quarter. DFLAW-related receipts continue to build through the balance of the year and task orders under the Master Subcontract become eligible in January of 2027. Turning to Nuclear Services. This segment is providing a second engine of growth for us, and it's doing something else that really matters. It adds stability while the treatment volumes ramp. Services revenue grew 44 percent year-over-year in the quarter to $4.6 million from $3.2 million following the approximately $24 million Lawrence Livermore Master Task Agreement announced in the first quarter. We secured additional awards during the second quarter at multiple DOE sites, along with several commercial and international contracts. Together, these services backlog are over $17 million over the next 18 months. There's a second benefit that is easy to miss as well. Much of this work is waste retrieval and retrievable operations generate material that flows through our treatment plants. So services backlog is not just stability, it's also a feeder into our Treatment segment. Last week, we announced a strategic partnership with Mirion Technologies under the Small Business Administration's Mentor-Protégé Program. The logic is straightforward. Cleanup missions across the DOE complex are getting larger and more technically demanding with much more difficult challenges. Our treatment infrastructure, remediation capabilities and project management combined with Mirion's radiation detection technologies and measurement and instrumentation expertise gives us a stronger position to compete for that work. It's a natural extension of where we've been heading and it widens the range of work we can offer. Before I turn things over, a brief word about PFAS. Our PFAS platform continues to advance with completed treatment work for both commercial and government customers and the installation of our Gen 2 unit to expand capacity. Our permanent destruction of PFAS remains one of the clearest unmet needs in this market, and our technology continues to maintain delivery of total destruction with no emissions and a significant value over incineration. While we realized a slowdown in PFAS receipts through May, sales and processing revenues have begun to increase through the summer with several awards from regional airports and commercial generators to support a solid backlog through Q3, including nearly $8 million in future award opportunities within our current pipeline of bids. Finally, a word on capital. In May, we completed a public offering with net proceeds of approximately $21 million, and a portion of that funding will be used for the DFLAW upgrades as well as our grouting upgrades at Perma-Fix Northwest. That capital is going directly into the capacity we've been discussing this afternoon. With that, I'll turn the call over to Ben to take you through the financials in detail. Ben?
Thank you, Mark, and good afternoon, everyone. For the second quarter of 2026, we reported revenue of $12.9 million compared with $14.6 million in the second quarter of 2025. We reported a net loss of $6.2 million compared to a net loss of $2.7 million in the prior year. Both our basic and diluted loss per share was $0.32 compared to losses of $0.15 in the second quarter last year. Within our Treatment segment, revenue declined approximately $3.1 million from prior year. The decrease primarily reflected the lower processing volumes across the segment together with unfavorable waste mix, which resulted in higher treatment and other variable costs and lower gross profit. These operational factors, specifically a customer-directed hold on processing as well as the focus on previously stored waste were the primary drivers of the year-over-year decline in treatment segment revenue and profitability. Despite these short-term challenges, waste receipts continued to improve. New waste receipts increased by $4.1 million over the first quarter, and our treatment backlog ended the quarter at $15.7 million compared to $13.1 million at the end of the second quarter last year. We believe these are important leading indicators and reflect customer demand and provide improved visibility into future processing activity. Our Services segment generated revenue that was $1.4 million higher than prior year, driven by contributions from several new project awards. These gains were partially offset by the completion of certain projects that contributed revenue in the prior year. Gross profit in this segment also improved modestly year-over-year, reflecting the higher revenue, partially offset by increased labor and other indirect costs. Turning to our administrative expenses. SG&A decreased by approximately $379,000 compared with prior year's quarter, primarily reflecting lower marketing, E&P and credit losses, partially offsetting higher legal costs. Turning to the balance sheet and cash flow. We ended the quarter with $20.5 million in cash compared to $11.8 million at year-end 2025, reflecting the successful equity offering completed in May. Working capital also improved to $18.4 million, while treatment backlog increased, as mentioned earlier, to $15.7 million, strengthening both our liquidity and our visibility into future revenue. Our continuing operations year-to-date operating activity used $8.8 million of cash, primarily reflecting the operating losses and normal working capital requirements as we continue to build backlog and execute projects. We invested $2.9 million in capital expenditures and other investing activities with approximately $2.7 million directed towards strategic capital projects that support future growth and operational capabilities. Finally, our financing activities provided $20.9 million of cash primarily from the May equity raise, which strengthened the balance sheet while allowing us to continue investing in key growth initiatives. We ended the quarter with a total debt of approximately $2.1 million, maintaining a conservative capital structure. Before I turn it over, let me address the going concern disclosure in our Form 10-Q, which we included to comply with accounting guidance and because the forecasts we use depend on waste shipments and on project activity directed by the U.S. government customers, which are not guaranteed. Nevertheless, we ended the quarter with $20.5 million in cash, approximately $2.1 million of total debt, and we expect existing liquidity, anticipated operating cash flows and borrowing availability to be sufficient to fund our operations over the next 12 months. In addition, subsequent to the end of the quarter, we amended our credit agreement with PNC Bank to extend the maturity of the facility from May 2027 to May 2030, further strengthening our long-term relationship with our lender. With that, I'll now turn the call over to the operator for questions.
分析師問答
Our first question today is coming from Aaron Spychalla with Craig-Hallum.
First for us, can you talk about potential volumes for grouting as we look later this year, more so into 2027. The RFP kind of talked about some task orders starting in '27. And obviously, it sounds like there's some excess capacity on the East side to be able to handle some grouting. So just if you could elaborate on that, that would be great.
Sure. Thanks, Aaron. Let me see if we can get into some details here. Again, I think everyone understands that DOE hasn't formally awarded any task orders yet. But we're in an interesting situation. DOE has held several stakeholder meetings recently, including one with the State of Oregon back in June and one today with the Hanford Advisory Board in Richland. Both of those can be found on YouTube. In this presentation, along with other presentations along the way, DOE has presented a graphic that is quite clear. This graphic defines their near-term plan to ship waste from the 200 East Area Tank program directly to Perma-Fix Northwest by name. Again, this graphic is part of the dual glass-plus-grout strategy overall. So it's what has been written up in several press releases and letters from the Assistant Secretary, Tim Walsh. And it includes on this graphic a depiction of the AP-106 tank, which is the storage tank again, and shows that they'll be shipping waste for grouting from that tank to Perma-Fix Northwest. And then we'll also be shipping waste from the EMF facility to Perma-Fix Northwest, which they're obviously doing now. Along with that graphic, it also has some anticipated volumes coming out of the TSCR or coming from AP-106, which, again, as I said before, will be replenished by the TSCR. They're anticipating that they'll be able to ship 60,000 gallons per month beginning in 2026, which we anticipate to be late in '26, and to maintain that 60,000 gallons a month for grouting through 2027. So roughly, that's about 720,000 gallons in 2027, assuming they start in January. That also is important to understand: it depends on how much of the AP-106 tank they use for the vitrification. If vitrification gets ramped up, the 100,000 gallon per month capacity that TSCR operates at may be directed to vitrification, in which case the amount available for grouting could change. So we would anticipate, based on the graphic, about 60,000 gallons a month. Again, we don't have a task order, but because of the graphic and the way it's been presented to the public, we're confident that we'll be able to see a task order for that here in the next several months. In addition to that, as I said in the script, the AMPS is coming online in late '27 and is anticipated to be at full speed by 2028. That volume in '28, they're anticipating to be 300,000 gallons a month just from the AMPS itself. Again, a portion of that will go to the vitrification of DFLAW and a portion will come for grouting. On the graphic, it specifically says that DOE anticipates 130,000 gallons a month coming from the AMPS system once it gets up and running in '28. So you can kind of get a sense of what DOE is looking at as far as potential volumes in the near term. And we're very excited about that. And we love them showing that graphic. Like I said, they showed it today at the Hanford Advisory Board meeting. Again, to be clear, it's in DOE's presentations in the public space, but we don't currently have a task order for it. Just to give a little bit more color on the West Side, the numbers are staggering. The West Side Removal System, which is called the WRMS, it's a different system. It's bigger overall, bigger infrastructure. That's designed to go at 3 million gallons a year. So the total capacity for that system plus the AMPS system and the TSCR system, DOE is saying should exceed 6 million gallons a year annually. But their goal is to push those, and they have a plan to do that. DOE has been very vocal that their goal is to get to 9 million gallons a year to be grouted sometime after 2030. So the goals are very high. They have a plan for them. Obviously, there's regulatory considerations along the way. But this administration has been very, very bullish about this program and the importance of showing and demonstrating progress for the $3 billion a year that makes up the Hanford budget and the fact that that's been a long time coming for this program to actually show progress. So we're really excited to be part of it. And this, again, as I said in the script, the fact they didn't make an on-site award takes a lot of risk off the table for us. There's no provision for any other regional new construction as defined by the RFP. So really, it's coming down to our cost versus our competitors and whether the DOE wants to transport liquids out of state for processing.
Great. And then saw some of the recent modifications, Class II, Class III. Can you kind of talk about how that might impact the glass-plus-grout strategy and any impact to those schedules?
Yes. This is all kind of new to us, too. I know the DOE has spent a lot of time working on getting the East Side accelerated and to meet the goals of the dual strategy. They had to make a couple of changes to their approach, which required some regulatory consideration in the form of permit modifications. So there are two mods: one Class II and one Class III. What surprised us is DOE submitted those mods to the state regulators recently. The state turned this around in just a few days and provided a 60-day public comment period, which is currently scheduled to end in early October. That's a very aggressive turnaround on behalf of the state regulators, which we would speculate underscores the fact that the state is working with DOE on this and is making it happen. If they meet that timeline with the public comment period, barring a large number of substantive comments, then DOE could be in a position to start shipping waste for grouting later in Q4. Again, there are always uncertainties, but the process and the speed at which the regulators are working indicates this was a collaborative effort and that the program can move forward toward the timelines DOE has discussed.
Great. Yes, I hope so. And one more question on — in the RFP announcement, the DOE you mentioned the EMF waste stream to be included in that contract, too. Do you anticipate any impact to the EMF program that you're seeing? It sounds like that started to pick up here. And I know you don't guide quarterly, but just it sounds like pretty constructive on improvements in the third quarter, maybe partially driven by that. If you could talk about that a little bit.
Sure. The EMF contract we have now was one that was put together quickly and was not competitive. So they used an existing contract vehicle, which has the prime for this vehicle as the disposal facility, EnergySolutions. So they're the prime and we do the grouting for EMF and provide that to EnergySolutions and they dispose of it. What we're anticipating is that because of the modification in this H2C award and as defined in the press release, EMF will be a task order within the new contract. We do expect to receive that task order. We would anticipate this is covered in the ROD for DFLAW and that we would treat this waste under a new task order within the new contract and then ship it to the appropriate disposal facility once that task order is initiated after the first of the year. Now right now, people are probably wondering how much DFLAW waste we're getting. DFLAW has been operating at about 10,000 gallons a month on average, which is, as you know, their goal was about 100,000 gallons a month. So it's about one-tenth of the operation currently. We are not getting significant quantities at this point, but that is increasing. I was told they did 35,000 gallons in July and are expecting to exceed that in August. At the 10,000 gallons per month level, we're getting about 200,000 to 250,000 gallons a month in EMF waste and a little less than that for our first shipment of dry waste. So it's nominal at this point, but we do expect that to ramp up. The facility is getting stronger. They're working through their issues. There was an announcement that the feed system has been replaced. They're working through the emission systems. So as they work through these items, DOE is confident they can ramp to a higher percentage of operational capacity in the next couple of quarters, and we'll likely see the quantities of waste significantly increase as they do so.
Good. And then maybe one last one, if I could. Just on the permit expansion. You kind of talked about the timeline in mid-2027. Can you just talk about costs and investments there, investments in the labor force, just as we think about what that looks like and bringing that on?
Yes. We're very encouraged by the relationship with Department of Ecology. As you know, it took more than a decade to get our renewal, and it was a difficult process. They've done very well in the last couple of years here, and they're working with us in a very supportive manner. We started working with them in February for our permit modification to increase our total capacity to meet DOE's total capacity, which right now is about 9 million gallons a year. We've got the designs completed for the mixers that we need to install. We also have poured concrete already, begun to purchase some of the heavy equipment so our folks can get trained on it. And we have started different components of the infrastructure upgrades as well to support the larger volumes. So we have begun making those improvements. The permit right now is expected to take about a year, maybe nine months. So we do hope to have that in place by Q2 of 2027. I think we're on track for that, barring any unforeseen issues. We haven't yet pulled the trigger on the final mixer purchases; we want to see the award first and get a feel for what the contract says. But we are eager to get started. We have a lot of confidence that DOE is going to start meeting the grouting objectives they've defined, and we want to make sure that we can handle all of it and hopefully be in a position to deliver without any constraint to DOE in regards to our processing.
Our next question is coming from Yuan Zhi with B. Riley.
I have a couple of them mainly on today's Master Subcontract. So first, can you please clarify what's your peak processing capacity? And how long does it take to ramp up to that level so that you can meet the H2C demand?
Sure. Right now, our capacity, including our permit and our equipment, is 1.2 million gallons a year, about 100,000 gallons a month. And we are modifying our permit to increase that to over 10 million gallons a year. We expect that to take, as I mentioned, into Q2 next year. It may take a little bit longer to get everything deployed, but we're confident that we'll have that in place when DOE gets to their AMPS operating, as I mentioned, which can operate about 300,000 gallons a month. We'll be ready for that when it starts so that we're in a position to keep up with any waste that DOE might have.
Got it. And maybe a quick follow-up. In addition to the permit from Washington State, any other bottlenecks you see like equipment update or facility expansion will be needed for this ramp?
No — it's a good question. No, we do see the primary critical path is the state. But again, we're modifying a quantity from, I believe, 1.2 million upwards to 10 million. It's a process we already do. We have a similar type of mixer, almost the exact same technology that we're currently using now. So what we're asking for is an increase in quantity and then you address the operational considerations to make that increase. We don't see that as a heavy lift and the state hasn't either so far. So we expect that to go through. Our Northwest plant team has met with the vendors associated with the mixing technology, spent time with them and run surrogate materials that look like the waste we're going to be receiving to ensure the grouting product meets our standards. They've done analytical work as well. Everyone is very comfortable. This is the same mixture that is used at other DOE facilities. So it's a mixture DOE is comfortable with and it's proven. We'll have a significant amount of redundancy with these additional mixers and the mixers we have now, so if one goes down, we can continue operating. That was a big component in the RFP that DOE asked for — they wanted to ensure each awardee could handle redundancy and have a plan to ensure they don't hold DOE up as they generate waste for grouting. We feel we've addressed that.
Got it. And based on the maximum cumulative quantity of 50 million gallons and maximum cumulative value of $4.3 billion, is it reasonable to assume the average revenue per gallon is about $88?
That's a tough question. I can't answer that specifically. And the reason it's difficult is because there are a lot of factors associated with this contract. For example, there are rates for the basic waste streams that are relatively straightforward to grout. There are provisions for certain waste streams that have high organics and metals that will need additional enhancements in treatment, which bear an additional surcharge. There are different types of waste with higher activity levels, Class B and C waste, which are significantly higher cost. So you could probably use $88 as a starting point for a simple estimate, but it could be lower if the waste is all straightforward, or it could be higher if many of the streams require additional treatment or are higher activity. Because of the uncertainty associated with each tank, you can't make a general statement definitively. But that provides a starting point for estimating total volume and price.
Got it. And maybe one last question from us. On the long term, how should investors think about the revenue visibility and potential lumpiness as the Hanford volume scale versus your historical streams and patterns?
I think this is by far the most sustainable waste stream our company has ever seen in terms of long-term nature and the homogeneity of the waste itself. While there are variables, it is still liquid waste that can be transported in specific containers, and you can anticipate timing and resources well. Historically, our business has been lumpier. We expect this to be much more sustainable and consistent than our historical lumpiness. DOE has been clear in the RFP process that there will be outages and that pumping and treating for grouted waste will have periods of production and downtime as they move from tank to tank; the RFP indicated roughly a 50% production factor, meaning they may be up and down as they transition between tanks. That's why DOE wants you to be able to store a lot of it and receive at a high rate and then work through inventory. With the East Side and West Side combined, I think it will smooth out versus single-site lumpiness, and we'll be able to make good forecasts relative to anticipated waste volumes on a year-to-year basis.
Got it. And congrats on winning this master contract.
Thank you.
Our next question is coming from Steven Fein with SoFein LLC.
Congratulations, Mark. Congratulations, guys. I mean this is a culmination of a lot of time and it's amazing that things come together. I've watched this for like the last eight, nine years, and you've pulled this together. All right, so here's my questions. Number one, you say you're going to build a plant and it's going to be done next year. So what will the capacity be then at that plant?
Yes. Again, within our modifications, Steven, we're working within existing buildings. So we're not having to build new buildings. We'll have to do some upgrades to infrastructure, HVAC and power, pour concrete to handle large volumes of trucks coming in and out, and purchase equipment. The primary job is installation of the mixers. The mixers we're installing will be adequate to cover the DOE receipts. I don't want to get into proprietary details, but we're positioned to meet DOE demand and that demand is expected to reach 9 million gallons by 2030. We're preparing to meet that need with the mixers we're installing.
By next year or by 2030?
By next year, when the mixers are installed. Our permit mod and installation, we're expecting to be up and running by this time next year.
Right. So you also mentioned that the government is saying that stuff could come in different ways and that you may have to store. So what will be your — when you're finished all these upgrades, what will be your storage capacity?
Right now, our storage capacity is about 650,000 gallons. Our permit modification will take that number up to 800,000 gallons. We have sufficient storage capacity to handle receipts and manage processing during outages.
So you're saying that if — let's say you could do 10 million gallons a year, but you would only have storage for 800,000 gallons at a time?
A little bit less than that, yes. We'll be operating at a rapid pace and be able to accept receipts and handle them through processing. If we experience an outage, our storage will allow us to continue accepting waste for a period and then work through inventory.
All right. Would you agree that it's pretty significant that the government is now saying that they're going to grab some of the stuff that was going to go for vitrification?
Yes. DOE has been clear that DFLAW (vitrification) is their primary approach and that grouting is a supplement. But the dual strategy acknowledges the pragmatic reality: with constrained budgets and schedule pressures, grouting can accelerate tank closure at a much lower cost. Regulators are cautious but the administration is focused on progress at Hanford. This approach can save money and accelerate closure compared to relying solely on vitrification.
Is it not true that every gallon of waste that you would get, you would be able to environmentally safely treat that waste, while the vitrification plant, when it processes a gallon, it basically can only vitrify maybe 40% to 50%? I think the average I've read is around 40% efficiency. Do you agree with that point?
I'm not sure where that 40% figure comes from. For grouting, the waste is solidified and stabilized — essentially all of the waste that goes into grouting is solidified. For vitrification, all of the feed stream goes into the vitrification process, but it generates secondary waste streams as part of the treatment process — things like scrubber liquids, secondary liquids, filters and other secondary waste. So it's not that the vitrification plant only 'vitrifies 40%'; rather, vitrification produces secondary wastes through its process that then must be managed. Grouting treats the stream in a way that results in a stabilized solid that can be shipped as solidified grout.
So basically, if the vitrification process generates secondary waste while whatever you get, you process and there's no secondary waste generated — that's a distinct difference. Am I correct on that point?
That's correct. Grouting results in a stabilized solid product for disposal, while vitrification has associated secondary wastes that need separate handling.
And then another point: they talk about volumes. There's 56 million gallons in those tanks. My understanding is they have to add liquid to liquefy the solid mass to be able to process it, which potentially could mean that the total volume to be processed is larger. They estimate roughly three gallons of liquid for every gallon removed, which could mean substantially more total processing volume. Is that consistent with your understanding?
Yes. DOE has publicly estimated at least three gallons of liquid will be required to mobilize and retrieve the solids, so they estimate roughly 200 million gallons in total may need to be processed across the program. That is the figure DOE has referenced in public documents.
So if you're processing 1 million gallons, you could be offsetting a much larger volume that would otherwise go to vitrification. Right?
It's complicated and not perfectly linear. We don't yet know the exact ratios at full scale from DFLAW operations. Right now, DFLAW throughput is low and the secondary waste production scale-up is uncertain. But conceptually, grouting more of the pretreatment flow reduces the volume that must go through vitrification and therefore reduces the secondary waste burden associated with vitrification. The detailed math depends on operations and will vary as systems ramp.
Well, the bottom line is that grouting is a practical, lower-cost path that accelerates closure and reduces risks. I'm glad to see DOE moving in this direction.
We agree. Thank you, Steven.
Unfortunately, ladies and gentlemen, we have reached our allotted time for question and answers. So I'm afraid I will have to turn it back over to management for closing remarks.
Okay. Thank you. Thank you all for your questions, and thank you for joining us this afternoon. I want to leave you with this. The second quarter was disappointing financially. I'm not going to characterize it any other way. We received the waste we said we'd receive and grew backlog 29%. DFLAW receipts have commenced. H2C has awarded a master subcontract for the Hanford tank waste grouting and DOE has named our facility in the plan it presented publicly for the largest waste treatment program at Hanford. We have the capacity, the permits and the balance sheet to support it. We're highly encouraged by the outlook of the second half of 2026, but the opportunity ahead of us is much bigger. Our facility is permitted today for 1.2 million gallons per year, and DOE's plan contemplates 9 million gallons annually by 2030. This is the scale of the program we're building capacity to serve, and it's not a project or a projection. It's a program measured in decades tied to a cleanup mission the federal government is legally obligated to complete. We look forward to updating you on our progress in the future. Thank you.
Thank you. Ladies and gentlemen, this does conclude today's conference, and you may disconnect your lines at this time, and we thank you for your participation.