Perma-Fix Environmental Services, Inc. (PESI) Q4 2012 Earnings Report, Transcript and Summary

Greetings, and welcome to the Perma-Fix Environmental Fourth Quarter and Year End 2012 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Natalya Rudman, from Crescendo Communications. Thank you, Ms. Rudman. You may begin.

Thank you. Good morning, everyone, and welcome to Perma-Fix's Environmental Services Fourth Quarter Conference Call. On the call with us this morning are Dr. Lou Centofanti, Chairman and CEO; and Ben Naccarato, Chief Financial Officer. The company issued a press release this morning containing fourth quarter and 2012 year-end 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. All statements on this conference call, other than the 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 within the U.S. Securities and Exchange Commission. 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. I'd now like to turn the call over to Dr. Lou Centofanti. Please go ahead, Lou.

Thank you, Natalya, and welcome, everyone. We're very active on a number of fronts that could potentially transform the company, including both nuclear services and treatment. First, we have continued to see issuance of a variety of smaller task orders such as the contract we recently were awarded for technical services at the West Valley Demonstration Project. We are very hopeful that larger task orders will be announced in the coming months. Second, we're now bidding on a much broader scope of projects, including government, commercial and international business. For example, we recently received award to provide technical consulting for decontamination of the Fukushima Nuclear Power Plant. We were also selected for a collaborative agreement with the Pennsylvania Department of Environmental Protection to assist with a oil shale gas development radiation study related to hydraulic fracturing. While the dollar amount of these projects is modest, they are important from the standpoint to get our foot in the door, at a place like Fukushima, and provide significant credibility in the market as it relates to radioactive waste and produce water from hydraulic frac-ing. Third and more important, we are making major strides positioning ourselves for treatment of higher activity waste streams. I'm sure all of you have seen the recent announcement of leaks coming from the tank waste at Hanford, which has focused a lot of attention on the tank waste cleanup project. I'd like to point out that our facility at Hanford, the Perma-Fix facility, would be allowed to accept the waste from those leaking tanks today. The facility is set to handle the waste. As you know, we already handle TRU waste. And it's the only commercial facility that can handle TRU. Also, our namesake process, the Perma-Fix process, would be ideal to treat this material since it is not a high-level waste but TRU waste. And also, I'd point out that we have treated tens of millions of gallons of material with this process, and we have tremendous expertise. Somewhat related with the tank waste, as you probably saw, that we also -- we announced we formed a partnership with Kurion to deploy their GeoMelt In-Container Vitrification system at our facility. This would allow us to treat a variety of other highly complex waste streams at Hanford and other sites where vitrification would be required or desired, and have no other commercially available treatment or disposal options. We're very excited about what we see are the various options at Hanford right now. As a result of these and many other similar initiatives under way, we believe we're very well positioned heading into the new year. Although this has been a very challenging year, I'm as positive on the nuclear market as I've been in a long time. Our largest client, the Department of Energy, has been delaying and redirecting funding towards several major construction projects, especially the vitrification plant at Hanford. As I'd mentioned on our last call, this has temporarily affected both Treatment and Services segments. Also, Department of Energy has experienced major high-level personnel issues over the past year, the most major being the appointment of a new secretary. The candidate there is a strong supporter of nuclear energy and very familiar with the nuclear waste issue, especially at Hanford, having served as undersecretary during the Clinton administration. I believe the nuclear waste issue is expected to be an important topic during confirmation hearings, highlighting the pressure to accelerate the cleanup effort, especially at Hanford. In response to the challenges we faced in 2012, we have significantly reduced our operating expense. During the first quarter of 2013 alone, we reduced our overhead and G&A by an additional $4.3 million on an annualized basis. Although we still feel the effects of delayed government spending in the first half of 2013, we expect to achieve improved profitability and cash flow in 2013. As another point, we are continuing to move forward with our medical isotope production process. We have completed a prototype unit previously announced and are continuing to work on the technology. In closing, I'd like to highlight several important points. First, we began to generate positive cash flow in the second half of 2012 and achieved over $3 million of adjusted EBITDA even though this was the most challenging fiscal environment in our history. We believe our ability to generate positive cash flow, coupled with the additional expense reductions we announced, position us extremely well for 2013 and beyond as the overall funding environment begins to improve. Second, we feel we can grow the Service business by capturing market share and expanding our Treatment business, especially on the higher activity side. And when you couple this with the cost savings, that's how we see to improve our earnings. Third, we've increased our sales and marketing focus on non-DOE clients. In particular, we're very active on the international front. We see very significant opportunities ahead, both in Europe and Asia, and we will provide more detail as the specifics unfold. Finally, our balance sheet remains strong, low debt, which has allowed us to weather current market better than others. So to wrap up, 2012 was a very challenging year due to delays in redirected government spending, as well as election uncertainty. Looking ahead to 2013, we see enormous opportunities on the Service side as the pressure builds from a lack of progress in many areas. Looking ahead, we see opportunities of higher activity -- especially in higher activity more complex waste. We're diversifying our revenue streams. We have cut significant operating expense out of the business and expect to achieve improved profitability and cash flow. With all the uncertainties that exist at DOE, the upside could be very significant. As I stated in the opening call, this is probably one of the most exciting times in the company's history, and we see a number of opportunities that could basically transform Perma-Fix. At this point, I'd like to turn the call over to Ben, who will go into more detail on the numbers and then be back to answer questions at the conclusion of the remarks. Ben?

Thank you, Lou. I'll begin with revenue. Our total revenue from continuing operations for the fourth quarter was $26.7 million compared to $32.8 million in the fourth quarter of 2011, a decrease of $6.1 million, or 18.6%. Revenue from our Services segment decreased by $2 million, or 11.6%. Revenue from the acquisition of Safety and Ecology totaled $8.8 million compared to $10.2 million in 2011. The remainder of the variance coming from the Hanford contract, where we had a reduction in scope on our Plateau Remediation Contract that resulted in lower headcount on a time and material contract. In our Treatment segment, we saw our revenue decrease by $4.1 million, or 26.2%. This decrease was directly related to lower waste received from our government customers, primarily the DOE, where the value of our total shipments received year-over-year was down 43%. Revenue for the year ended December 31, 2012, increased by $9.4 million, or 8%, with $45.5 million of additional revenue coming from the acquisition of SEC, which was offset by lower revenue of $16.1 million and $20 million from Hanford and Treatment segment, respectively. Turning to cost of sales. Our cost of sales for the quarter was $23.4 million compared with $26.7 million in the same period last year. Our cost of sales from the Services segment were down $2.2 million in the fourth quarter of '11, with costs from SEC being down $1.2 million and cost at Hanford being down an extra $1 million, both decreases being related to lower revenue. Our Treatment segment costs were also down $1.1 million, reflecting both lower revenue and lower fixed costs related to cost initiatives implemented after the second quarter of 2012. Our gross profit for the quarter was $3.3 million, or 12.3% of revenue, a decrease of $2.8 million, or 45.7%. Gross profit from Services segment increased by $262,000 as small increases at Hanford and our engineering group were offset by the reduction of gross profit at SEC. Gross profit from our Treatment segment decreased by $3 million, with gross margin of 20.4% compared to 34.3% in the prior period. Significantly lower revenue and fixed cost -- in the fixed cost structure of our treatment facility was the main reason for these shortfalls. Gross profit for the full year 2012 was below prior year by $12.6 million as lower revenue in both segments and costs associated with a fixed cost contract had significant effect on our gross profits. Our total G&A costs for the quarter were $4.6 million, or 17.1% of revenue, down from $4.7 million, or 14.4% of revenue, last year. Lower incentive expenses related to profitability were partially offset by higher health claims. For the 12 months ended December 31, our G&A costs were higher than prior year by $2.8 million as higher health costs, higher transition costs, higher legal fees and a full year of SEC costs more than offset lower incentive costs related to profitability. Our research and development expense for the quarter was relatively flat compared to prior year but increased for the full year is due to increased labor and lab expenses related to our isotope project. Our loss from continuing operations for the quarter is $4.3 million compared to income of $5.1 million last year. For the year ended December 31, 2012, the loss was $6.6 million compared to income of $11.6 million in the prior year. Both the quarter and the year-end results include a $3.3 million income tax expense, of which $1.9 million relates to a reserve for an uncertain tax provision. Similarly, 2011 results included a reduction to income tax expense of $4.7 million related to an adjustment to the company's valuation allowance. Our loss from -- applicable to common shareholders for the quarter was $3.5 million compared to last year's net income of $5.6 million. For the year, loss was $6.3 million compared to income in the prior year of $13.8 million. These results also include the same onetime tax adjustments I just discussed. Our total loss per share for the quarter was $0.06 compared to earnings per share of $0.10 last year. For the year, loss per share was $0.11 compared to earnings per share last year of $0.25. Our adjusted EBITDA for the quarter was $77,000 compared to $2.5 million in '11. And for the year, adjusted EBITDA was $3.3 million compared to $16.5 million in 2011. Turning to the balance sheet. Our total cash and equivalents were down $9.2 million. Much of the cash balance, you might recall, in 2011 was a result of upfront invoicing tied to our backlog, which was extremely high last year at $14.6 million. Comparatively, the backlog at the end of 2012 was $8.7 million, reflecting the lower waste shipments. For the quarter ended December 31, cash was actually up $1.3 million from the third quarter as a result of increased cash from operations. Our accounts receivable were down $5.5 million due to improved cash collection and reduced billing. Finite risk sinking fund increased by $1.9 million and our balance now stands at $21.3 million. Our backlog was down $700,000 from third quarter at $8.7 million but down $6 million from prior year. This reflects less new waste received in the quarter than processed. Our total debt was $14.3 million. PNC, our lender, makes up $13.5 million of that total debt. Our working capital dropped by $4.7 million, ending the year at $3.3 million. And finally, I'll summarize cash activity. Our cash from continuing operations used was $2.5 million. Cash used by dispo was $922,000; cash used for capital spending, $412,000; cash received from the SEC acquisition escrow account was $1.5 million; cash used for our finite risk closure policy was $1.9 million; and cash used for financing for continuing operations was $3.5 million. Operator, I'll now turn over the call to questions.

[Operator Instructions] Our first question comes from Jay Albany with SeeThruEquity.

Could you elaborate a little bit more about the frac-ing initiative? That sounds pretty much interesting.

We are advising the state on their developing regulations for frac-ing in Pennsylvania. And part of those regulations deal with the radioactive side. When you frac, you bring up a lot of naturally occurring radioactivity, uranium and thorium and daughters. So we are an adviser to the state there and on the regulations.

Okay, great. And I apologize if you mentioned this, but is there an update on the Los Alamos project?

At this time, there's been no change.

Our next question comes from Bill Nasgovitz with Heartland Funds.

Just going back to this frac-ing. Is that contract profitable? And do you anticipate additional business in that area this year?

Yes, it is profitable. It's basically time and materials. We see a variety of opportunities there for ourselves. One is that the frac-ing waters do contain a variety of radioactive isotopes that are fairly -- in fact, it's probably the most serious problem in frac-ing. And we've independently, separately been working on some processes that would do -- treat those frac-ing waters. So we see a lot of opportunity there, both in advising clients on a time- and materials-type basis and then also in working to solve any problems that are created, especially on the radioactive side.

Okay. On the PNC loan of $13.5 million, are we close to violating loan covenants?

We did not violate our loan covenant in December.

In December. But how close are we? Could you give us some detail?

Well, what do you mean how close are we? We did not trip the covenants.

Well, is there one specific that you could mention in terms of what might we not break here in 2013? What's the most onerous?

Well, the fixed charge ratio is the one that looks at EBITDA and the EBITDA has been weak in 2012.

What specifically is that covenant, fixed charge?

Fixed charge ratio will be 125, and we were at 130 in the quarter -- in the year.

Okay. That doesn't give us much room.

Right, and we are working closely with our lender. We watch that very closely and make sure we're dealing with that.

All right. I missed the first part. I apologize. I came on late. So did you give any guidance here for the year in terms of sales, profitability, hopefully someday?

No. Especially at this point, we see tremendous opportunity. We're seeing a lot of potential work right now, as I mentioned earlier. But it's a little hard at this point, until things shake out just a little bit more here in the quarter. By the end of the first quarter, we should be able to give better guidance, or in our next call when we talk about the first quarter. We need a couple of more months to see how it plays out, both on the bidding side, on the Services side and on the waste side.

Is that tied specifically again -- might be repetitious, is that tied specifically to sequester or...

No, no, well, you've got a variety of uncertainties that are hanging over, at the same time we've seen a fairly normal flow of waste in the first quarter and second quarter or projected for the second quarter. So they're developing fairly normally at this point but we would like to get a better feel for how real that is. It's been a fairly normal first quarter and second quarter projection. But it's a little early to talk about numbers. First quarter has always been a weak quarter for us, but we see second coming out of that, on the waste treatment, especially.

I'm sorry, I missed that. You see what coming out?

We see the sales improving in the second quarter. Our projections at the moment are that they will improve. But before I give guidance, let's see how it all evolves right now.

Just a last question here. Could you amplify a little bit in terms of waste buildup, what's happening out there?

Well, you're seeing because of -- last year was a very slow year from a waste generation point of view. And as much as anything is with sequestration, it's made everybody sort of hunker down and the net effect of that is we think there's somewhat of a backlog building at the sites. They have compliance schedules. They have projects going on that do generate waste and with the weakness on the waste side, we think that's just building up the site and where we know it is. So we see plenty waste out there at the sites, it's when are they going to move it. And the backlogs are building.

All right. So when you say 2012 slow generation of waste, that means from the sites to you?

It was both from the sites to us, and also it was down from '11 in terms of what they actually were generating. But '11 was a real banner year for us. So the net effect we see is that there is -- we think there's a lot of waste building at the sites right now, especially those we have pretty good visibility on, like in Hanford and them. There's a tremendous backlog there if...

Our next question comes from Igor Novgorodtsev with Lares Capital.

I have several questions actually. First of all, obviously, I was reading a local Tri-City Herald newspaper about lay-offs at Hanford site and it specifically mentioned you. It said that 200 drums scheduled for treatment were temporarily held up. So I'm just wondering if you're getting any other revenue from Hanford site apart from these drums. Or your revenue right now is completely on hold until it gets resolved?

Yes, we are. And in fact, the 200 that were held up that we were told that middle of last year, those we really had -- we've been receiving other drums from that project. So those 200 were slowed up but it sort of goes back. They're sitting there and we will receive them at some point in the near future. But it's kind of example that I gave for my earlier statement on that we see there being generated, we see they're there, but the sites are slowing down, have slowed down some of their shipments.

If you don't mind, can you just [indiscernible]

We get a lot of other waste from Hanford. I mean, yes, there is other waste moving and the movement of waste is you see DOE and the contractors constantly shuffling the schedules and slowing some up and sending others out. So depending on their priorities. Now, that's only, like I said, that's one minor -- that's one project at Hanford and there's probably 6 or 7 of those going on at Hanford. So it's just one of many.

Okay, understood. So you think that the revenue from this hold-up is relatively minor as far as what you would expect at the Hanford side?

Yes, from those drums and we'll eventually receive them. It again goes back to timing.

My next question is about SEC settlement, which you announced on February 15, I believe. So you had the settlement that is something around February 12. I'm just wondering about if you expect any further settlements or this was the final settlement and we can expect to see the final settlement on your balance sheet regarding [indiscernible] and cash et cetera?

Yes, that was the final settlement and we are completed there.

Okay. I think when I talked to you during Sidoti conference, it was a while ago, actually I talked to your CFO, he told me that there was a couple of contracts from SEC, which you inherited, that you were taking care of and you think they are going to be worked out by the end of the year. I just wondered if you can give me more color on those contracts or you still have some running unprofitable contracts you would like to close.

Yes, yes. We have one problem contract that has adversely affected us throughout the year. We are at the end of that contract, in the final steps. It's going very well at the moment in terms of going through final closure. So we'll -- we've seen a fairly dramatic drop in our costs there at this stage and so we'll continue to see a minor impact, but it's on the downhill slide.

Okay. And I guess my last question. Perhaps you mentioned but maybe I couldn't hear it clearly, what was your cash flow from operations last quarter, Q4?

For the quarter, cash flow from operations was $3.3 million.

Okay, and that's included $2.2 million roughly tax benefit, right?

No, the tax benefit was an expense hit at the end. On a cash flow basis, we saw $3.3 million positive from continuing operations and a net of $1.6 million.

Our next question comes from Wayne Cadwallader with Elkhorn Partners.

I have a couple of questions. One is on the isotope market because you're developing, I guess, a process to develop isotopes. When do you think that might come to market? And what's the size of the market you can possibly address, any sense of that? And you can you give just some ideas around that?

We're-- where we are with that is that we've made a lot of progress. We're continuing to tweak the technology. We have not yet -- it is -- it would require FDA approval. We have not -- as a device, we have not started that process. We're doing -- we have developed what FDA would require, and they're going through sort of all the tests to make sure that will occur. The other side of it, though, is, too, is that we would -- when we get to the right point, we would like a partner in this, and it's someone who is already involved in -- our first thought would be to have a partner in this business who is already in the business. And so -- and probably would not start FDA approval without -- we would prefer to have the partner before that step.

So that could be well over a year from now at least?

Yes. No, it will be -- there's no revenue at this point in terms of selling devices in the next year or so because you have at least a year for FDA approval.

So it's quite a ways out still, anything from that. And then on the frac-ing one, how close is the government possibly to having a regulation to find that it could be passed and come out -- and what -- and if that comes out, what might it look like? Any idea there? And what might it mean there for -- in terms of the types of services you could offer in helping clean that up, the market size?

Difficult -- one is you already have a ban in New York on new wells. This is Pennsylvania, which, it has a major role in the Marcellus Shale in that. It would be hard for me to comment on what Pennsylvania will do or -- I just can't comment on that. We're in the middle of that. I can tell it's -- it's a fairly -- the radioactive part of frac-ing is a serious problem, why these things have happened in terms of New York and why Pennsylvania is now looking at it. And so you will see something happening in terms of regulation because of the radioactivity of that water and where it's going. So...

If Pennsylvania is looking at it, what about all the other states where there's extensive frac-ing going on?

I think it all -- they'll all fall in line once someone like Pennsylvania develops the regulations.

And to get to completion of developing that regulation might be how much longer? Another year out or...

I can't comment. Can't comment.

Our next question comes from Howard Bruce [ph] with Wunderlich Securities.

You're quoting here that you have opportunities. Can you -- following up Bill Nasgovitz's question, can you give us some granularity what are you talking about in terms of opportunities here for Perma-Fix?

Well, of course, the one I did talk about was the tank waste, and that's been in the press, and so you can read there what's going on in the press and the opportunity there. And so the other areas, we have a lot going on, on the international side. We have some very unique services we can offer, and we see a lot of opportunity in various countries like Canada and other places. There are a variety of projects going on under Department of Defense Corps of Engineers, under the FUSRAP program, where we've always had a major role, and there's bids going on and we're -- we hope to have some success there. So if -- and then the -- yes, go ahead.

But Lou, you used the word transformative. Can you give us some granularity and some dollar amount of why it would be transformative? I mean, are we talking something that's for $20 million a year, $30 million a year? Give us some sense?

Well, there are -- we're bidding on projects that could easily do that. It's hard to even give you a number on the -- it's like the tank waste. If we were to be successful there, if they would look to us to assist them in the tank project, it could be very significant. It's a very expensive material to treat and to handle, and they have, as you know, they're spending a fortune trying to build a unit to treat just a minor fraction of the waste. The FUSRAP projects, we see 2 or 3 coming up that are -- will be very significant that we have a very unique position with because they're probably one of the major operators on FUSRAP sites, with the Army Corps of Engineers. Canada is spending a fortune right now, about to spend a fortune of cleaning up a variety of their sites. International, we see tremendous opportunities at Fukushima, tremendous opportunities in the developing worlds, with new reactors coming online where they need -- they're looking much harder at trying to add the services to the reactors to treat a lot of the waste that comes out of those facilities at the front end. So we're seeing just a whole variety of opportunities. It's kind of hard to get real specific because, as you know, we bid on 5 and we get 2, so...

Yes, but 1 of the 2, are they $5 million a year, or are they $30 million a year if you get 1 of the 2?

It's some are -- well, they're both. I mean, we have $20 million and $30 million a year projects we're bidding on and we have $5 million projects. Now the $5 million could be as transformative, though, as the others because they're the usually the first step in a whole new product line.

[Operator Instructions] Our next question is a follow-up from Bill Nasgovitz with Heartland Funds.

Going back to this -- you said there's one unprofitable contract left?

Yes.

And how much might that hurt us this year?

Ben?

Much, much less. The impact to the bottom line was about $3 million.

Last year?

In 2012, yes. And it's probably a fraction of that, 10%, 15%, that kind of number. And that's -- and there will actually be some -- there's actually some more revenue. We got past the problem of the project, and now we're at the -- where what we incur costs will also come with some revenues. So that will minimize it a little bit.

Well, that's good to hear. So going forward, how do we prevent getting into multi-million dollar losses again?

We're much more carefully bidding is if I [indiscernible].

I will remind you that it was inherited contract, yes, and just as Lou said, we just need to be real careful with the specs of a contract. This was a tricky one in terms of the specs that caught someone off guard. And all fixed-cost contracts are always tough and you got to be real careful, and that comes with diligence.

Okay, well, and just as a follow-up to the one of the previous questions here. I think -- and shareholders have suffered in this situation for years. And, Lou, it would be very helpful -- we feel the company is unique. It has some special services and opportunities, but here you throw out frac-ing as an opportunity but you have no mention of what the potential target market might be. I know you're talking about governmental bodies here, states and it might take a year or whatever. But gosh, to give shareholders some ray of opportunity, I think, would be certainly a...

Well, the frac-ing one is a difficult -- Bill, the frac-ing one is kind of difficult because we're in a very delicate position here. We are an adviser to the state as it's developing the regulations. So we have to be careful as an adviser what is -- what we do and what we say. But I think in general, there is a very -- it's like that one. I said there's a very big market, but until the state defines the regulation, it will not be clear just what that market is. I mean, there's...

Okay, so are you saying, Lou, that we're going into new business lines and we have no idea what the potential of the market is?

No. No, it's just I can't discuss it.

But why can't you discuss it with shareholders just in broad general terms? I think that's a -- you're a public company. Is it a $1 million opportunity, or is it a $100 million opportunity? Or is it somewhere in between, best case, worst case, middle-of-the-road, come on?

The water problem for frac-ing is an extremely large problem. It will be -- it's probably closer to the $100 million market. Now it's -- but again, we're at the front end assisting with the regulations. And in order -- after those regulations are promulgated, then we'll be able to talk about what -- how to do it and what might be some possibilities here with it. So what we're doing today is an adviser to the state, we're providing them expertise on the rad side, and they are promulgating regulations. So it's -- that's just a tough one to talk about.

All right. But was this presented to the board and they, more or less, gave approval to go after this Pennsylvania opportunity?

Yes. With -- we have...

So there was some discussion of the size of the market and potential profitability?

Well, right. But what you have here is we have a -- our health physics group is -- that we acquired in this acquisition is one of the best in the country. So you have a lot of different people that hire us to be their advisers on radiation control and radiation protection. So -- and that's really what this contract shows as much as anything. Now out of it comes a whole new market in terms of radiation control for frac-ing. And so that's the service side, but then there's a second side about to occur, which will be how do you deal with the waste, how do you -- is there ways to treat it so you don't have to send millions of gallons to a nuclear disposal facility. So to the frac-ing industry, it will be very critical because this is a problem wherever you frac.

Our next question comes from Michael Potter with Monarch Capital Group.

Can you give us a little bit more color on the 8-K filing from February 15 that the prior caller brought up with any further hits or effects from the Homeland settlement on our balance sheet and P&L?

No. The -- because of purchase accounting and going back a year to finalize acquisition, the impact of the settlement is entirely actually going back to 2011. So you'll see the goodwill. The debt is all reduced in 2011 and '12's balance sheet. So we shouldn't see any more impact from that settlement.

Okay, okay. And then the -- with the isotope development, how much did we spend on that in 2012 and what's the budget for 2013?

We spent -- of the close to $2 million, $1.8 million, we probably spent about $600,000 on the isotope. You recall, we've mentioned before that our R&D supports our Treatment segment as a whole, and that the number we show is all our R&D, not just...

So about $600,000 was spent in 2012?

Yes.

And what do you anticipate you'll spend this year?

$200,000 to $300,000.

Okay. And where are we? I mean, we're still looking for a partner. We've been looking for a partner for quite some time. What are the issues? How many people are we speaking to, and when do you anticipate that we will have a partner in place?

The issue really isn't speaking to -- we have several we're talking to but, that's not the issue. The issue is that we're in the middle of a still developing knowledge, you might say, that is needed from my -- from the medical side point of view. So we are still limited in what -- what we're talking, to -- what we're willing to tell people at this point with our partners. So we're still developing information on it while we're discussing with several.

Okay. And generally speaking, Lou, I know you don't want to give out your expectations or estimates for this year, but when do you anticipate that we will return to profitability? Is this a second quarter event, a third quarter event?

It's a second quarter event. We'll see a continued weakness in the first quarter like we usually have seen, and -- but when we have our first quarter call, we should be able to give you better guidance at that point.

Okay. And is there any update on the Los Alamos releases?

No, there's been no release of any task orders from Los Alamos.

Is there any update? Is there any talk coming out of the facility about when that's going to occur?

Nothing.

Our next question comes from Joseph Vaughn [ph], a private investor.

I've got several questions. One of them is that the companies in the frac-ing industry within the last couple of days agreed -- it was the first time that they came together. They all agreed to some tough new standards. I wonder if have you been following that. How would that affect you?

Yes, we were actually there and had been involved. The -- again, they'll be used by the state in helping develop the regulations. It's kind of hard to know exactly what -- I really can't comment on what the state will do at this point.

I mean, this is -- this was for the whole Northeast. It's said they agreed to a set of tough new standards for frac-ing in the Northeast, which in the news articles said could lead to a major expansion in drilling. It was the first time. It's a program that would work like the underwriters, where they put a seal of approval on how they do things. So, I mean, but you're fully aware of that.

Yes.

You just don't know how it's going to affect you just yet?

Yes, yes. It's not clear how all the states will in the end react. It is -- because it's more a state issue, the...

You're working with Pennsylvania. Are they like spearheading this? Are they like a leader in this like California has been -- traditionally was the leader in clean air standards? Are they in the forefront?

They have taken the lead in putting in place regulations, yes. The other either have ignored it, or not ignored it but are watching it or have just stopped it, like New York.

So mostly likely what they come up with -- I mean, other people will likely follow them, is that what you're saying?

We think so.

Okay. I had another question. There was another news item, which I'm not totally clear about, but this mentioned that they might -- those leaking tanks might be sent to Mexico, because it's less expensive. Can you...

No, you don't send transuranic waste anywhere. You can hardly send it across the street.

There was news article, though, that talked about -- I don't know if you followed that or if you saw it. But...

I'm sorry you said New Mexico? I thought you said Mexico.

Yes.

Oh, New Mexico, I'm sorry, I apologize. I thought just -- no, no, we, absolutely. Right now, they're moving -- as TRU waste, it will go to the Waste Isolation Plant, WIPP, in New Mexico. Now that is...

Are they competing with you for that business or...

No, that's a disposal site. It has to be treated before it goes to WIPP.

Okay. Now the other question I had was regarding the isotopes, obviously, there are people competing with you. Can you tell me something about the competition for that business? It's obviously a large market. And I just wondered -- I was trying to figure out what your chances were of actually winning over somebody else.

It is a very complicated market because there are a lot of people out there attempting to do something. I -- the present suppliers have gone to low-enriched uranium, which is a -- will work, although it comes with a variety of problems and issues, and probably is not a good long-term solution. What we've tried to do when we've looked at this is basically develop a technology that is -- mimics the present system, the only difference being is you start with moly instead of enriched uranium.

But you believe that you have the most cost-effective solution? Or what -- I mean, you're going to look at competitive advantages, so is your solution do you think, the most cost competitive? Or it's -- obviously cost is going to be an issue?

The experience so far is looking at all the other proposed options. We think we can be competitive with those other options. And I would -- but I would tell you that the other options, I haven't seen anything out there that offers a good solution. And what we've tried to do is come up with something that is technically sound and will be a good solution. There are a variety of ways people are looking at it, and the other options that people have proposed other that using low-enriched -- or what they call low-enriched uranium, it's still highly enriched, is that will work, but it still brings many problems that we think we can solve.

I see. So you think you have a competitive advantage in that?

We think there's an advantage on the ability to actually do it. So we think the other processes don't have a real good chance on a technical point of view, not from a cost point of view.

Well, yes. But I mean, with the government's focus on cost, cost will be an issue. Okay, so my final question was last year, you had a very irate institutional investor that was selling stock off for a good part of the year, which kind of torpedoed your stock. I just wonder what -- you're in contact -- what kind of feedback are you getting from institutional investors at this point, if any?

Well, I think there's a lot of disappointed investors in terms of -- with our results and what has happened in the industry, and there's no getting over that. But what we see is that we have a very unique set of assets. We have a very unique position in the industry. We have -- the problem we see is we've been through -- we're a lumpy company. And it's -- we treat waste, we provide nuclear services and there's some up and down there. And I -- we've moved into the service side to try to level that off. And we think it's working, although, we're in a very challenging time right now just from the -- what's going on in the industry.

You did have -- do you -- I imagine you do track this. I think you did have a major institution that got in, in the last few months.

Well, we have people buying and people selling all the time, and we've had a couple of our major institutions lighten up and/or move on. And we also, at the same time, have had a few new ones come in. So I think there's been somewhat of a rotation, probably not enough to handle the people who've been in for a while. So it's -- we try to stay in touch with our investor base, and so I understand the frustration there in terms of lumpiness that has occurred.

All right. I was going to ask you something about headcount, too. I don't know if it's that significant. But in terms of your cost cutting that you did in the first quarter where you took $4 million out, what -- how did -- how many employees -- or what percentage of your employee headcount was involved in that cost cutting?

Almost 10%. A very significant number, and it was not -- one, it was somewhat of a rationalization again of our structure, and it was a pretty deep, significant cut.

It's -- I think, it's struck some people that you held off doing any serious cost reduction last year and maybe you were anticipating you were still hopeful of getting some of these contracts that haven't materialized.

We did a fairly significant cut last year also, so...

You did cut last year?

Yes, we had a very significant cut, when was it, Ben, in the 3rd...

In June.

Yes, in June, end of June. So there's been a second very significant cut.

So you don't anticipate cutting any further this year?

No, but we will react to also the market.

Our next question comes from Howard Bruce [ph] with Wunderlich Securities.

Just as a follow-up to Bill Nasgovitz's question and mine. Again, Bill is right, and clearly, it's a public company. There's got to be a contract that's out there that you can give us some granularity and understanding that it's x number of dollars that you have or you're competing. I mean, clearly, to say it's significant or say the word transformative, transformative is such a large word, we need some granularity. It's just not appropriate for you to give us the generalities at this particular point in time. I can understand about the state, and I do understand that, but not the others.

Well, the -- on the frac-ing, it's -- I'd be happy to give you the number of the contract. It was about $300,000 to do the assist. Now -- but I think the question was more on what is the market, what is the -- which is harder to define until you see the regulations. So I think there's really 2 parts to this that was...

No. I was really not focusing on the state contract. I was really focusing on the myriad of other things that I understand the Department of Energy is potentially releasing this year in terms of the treatment. I assume you'll be absorbing 1 or 2 of those.

Well, we have given sort of guidance in the past on what we're bidding on. And as we look at it today is, at DOE, we're bidding on about $150 million, as we said. In FUSRAP in 2013, we're bidding on approximately $600 million, and international, another $1.2 billion? $1.2 billion.

You're part of a team that's bidding on that, not all of you?

Yes, exactly, yes. So very significant numbers. And we have, in the past, given out that number, so I don't feel bad about that. And when they start getting that high, though, also it makes -- I don't want to give you a false impression here.

Ladies and gentlemen, we have come to the end of the Q&A portion at this time. I would like to turn the call back over to management for closing comments.

Well, thank you all very much. We look forward to the next call. We'll, hopefully, have better guidance on some of these bids we're doing and be able to give you more information. Thank you all.

This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.