Perma-Fix Fiscal Third Quarter 2026 Earnings Conference Call - PERMA FIX ENVIRONMENTAL SERVICES INC

Financial Performance:

• Revenue for Q3 2026 reached $17.9 million, a 39% increase from Q2 and a $494,000 year-over-year (YoY) increase from Q3 2025.
• Net loss was $3.5 million ($0.16 loss per share), an increase from the $1.8 million loss ($0.10 per share) in Q3 2025; EBITDA loss widened to $3.1 million from $1.5 million YoY.
• Treatment segment revenue declined $1.5 million YoY due to lower processing volumes and unfavorable waste mix; gross profit in this segment dropped $2.5 million.
• Services segment revenue grew 46% YoY to $6.3 million, with gross margins improving to 12.2% (up from 6.7%) and generating operating income of ~$200,000.
• SG&A expenses totaled ~$4.0 million, a $85,000 decrease YoY, driven by lower marketing/bid costs partially offset by higher legal and admin fees.
• Cash and cash equivalents ended at $14.7 million (vs. $11.8 million at end of 2025); working capital was $1.14 million.
• Cash used by operating activities for the nine months ended September was $10.8 million; investing activities used $6.0 million (primarily $5.7M in capital expenditures).
• Financing provided $20.4 million, largely from a May 2026 equity offering ($21.1M net proceeds).
• Total debt was ~$1.9 million, with only $1.0 million due to primary lender P&C.

Guidance and Future Outlook:

• Management expects the Hanford ETF waste stream to reach full operational capacity in Q4, with revenues from this stream to be recognized over the next few months.
• Price increases implemented in October are expected to favorably impact Treatment segment revenue and margins, with new pricing reflected in the backlog.
• Treatment backlog grew 25% sequentially to $19.6 million, a 65% increase from the end of 2025.
• Services backlog extends through Q2 2027 with steady small project awards keeping staff utilized.
• Management anticipates breaking even in the coming quarters due to improved performance and slowing capital expenditures, reducing the need for further equity raises.
• Long-term goal is to establish permanent capacity at Permafix Northwest to meet DOE grouting needs, targeting full 200 West Area eligibility by 2027/late 2027 pending regulatory approval.

Business Segments and Product Lines:

• Treatment: Received Hanford DFLOL liquid effluent since Q3 start; grouting operations are ongoing. New thermal treatment upgrades in Florida and Tennessee completed in September to handle increased backlog.
• Nuclear Services: Driven by new awards, including a ~$24 million Master Tax Agreement with Lawrence Livermore National Laboratory (announced Q1).
• PFAS: Gen 2 system commissioning began in Q3; expected to be fully operational in H1 2027, tripling PFAS processing capacity. Increased focus on airport fire suppression system change-outs driven by state legislation.
• Hanford IDIQ: Secured one of three Master IDIQ subcontracts (H2C) for treating pre-treated liquid mixed-waste; ceiling value ~$4.4 billion for 50 million gallons through 2041.

Market and Competitive Landscape:

• Permafix Northwest is the only subcontract holder with a permitted facility adjacent to Hanford, offering logistical advantages (on-site grouting vs. liquid highway transport by competitors).
• DOE's "Glass Plus Grout" strategy, supported by the new AMPS facility (online early 2028), aims to accelerate cleanup by 12 years and save $12 billion.
• Regulatory trends in states like Florida are accelerating PFAS demand through phase-out mandates for firefighting foams over the next three years.
• Hanford production is projected to reach 20% capacity by end of 2026, 100% in 2027, and 200% in 2028, driving waste volume growth.

Risks and Challenges:

• Operational Delays: Customer-directed changes to Hanford waste treatment protocols delayed full operations until late September; equipment downtime for scheduled upgrades impacted throughput.
• Regulatory Permitting: Washington State Ecology issued "incompleteness letters" for AP-106 East Area grouting permits, potentially delaying initial receipts by several months.
• Waste Stream Volatility: Unfavorable waste mix and variable costs (approx. 34.5% of revenue) impacted gross margins in the Treatment segment.
• Going Concern: Management noted that accounting standards for "going concern" remain strict due to past quarters of losses and visibility issues, though they express confidence in future cash flow sufficiency.
• Budget Uncertainty: While potential Congressional gridlock (CR) was discussed, management expects Hanford priorities to remain stable due to site-specific mandates and industry commitments.

Management Commentary and Tone:

• Tone was optimistic and confident, emphasizing a "clear step forward" from the first half of the year.
• Management highlighted the resolution of treatment bottlenecks (DFLAW approvals, facility upgrades) and the strategic value of their unique Hanford location.
• CFO Ben Naccarato and CEO Mark Duff expressed comfort with the balance sheet, stating no immediate need for equity raises due to improved profitability visibility.
• Leadership maintained a focus on long-term strategic positioning for the 200 West Area and PFAS market expansion.

Analyst Questions and Answers:

• Aaron Spichala (Craig Hallam): Asked about DFLOL effluent volumes and East Area grouting timelines.
  • Answer: DFLOL EMF waste volumes have doubled to ~16,000 gallons/month (projected to reach 40,000 at full capacity); dry waste ramp-up expected in Q1 2027 as H2C transitions from Bechtel. East Area grouting may face a several-month delay due to permit review incompleteness letters, though DOE remains committed.
• Aaron Spichala: Asked about the impact of the recent election.
  • Answer: Management sees limited immediate impact on Hanford due to high administrative priority for "Glass Plus Grout" and $650B in private sector commitments (SMRs/data centers) driving the need for site cleanup. Strong local congressional support for acceleration is anticipated.
• Edward Le (Goldman Sachs): Asked about the "going concern" disclosure and potential for another equity offering.
  • Answer: The "going concern" language is a rigid accounting standard based on historical losses, not an indicator of imminent failure. Management has no plans for a new equity offering as current cash reserves and future free cash flow projections support operations; they expect to exit the "going concern" classification in coming quarters.

Other Key Points:

• Permafix Northwest purchased an additional mixer to support growing DFLOL volumes, with full capacity upgrades (10M gallons/year) expected operable by Q1 2027 pending permit modifications.
• Total waste receipts for the quarter were ~15.1 million (likely cubic feet/tons, context implies volume), maintaining a strong backlog despite processing delays.
• The company views the transition from construction contractor (Bechtel) to operations contractor (H2C) at Hanford as a key catalyst for increased dry waste receipts.
• Management anticipates the PFAS destruction market to become a "front and center" industry focus following EPA rule promulgation in two years.