Perma-Fix Environmental Services, Inc. (PESI) Q4 2014 Earnings Report, Transcript and Summary

Greetings, and welcome to the Perma-Fix Environmental Services Fourth Quarter and Year-End 2014 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce David Waldman with Crescendo Communications. Thank you, you may begin.

Thank you. Good afternoon, everyone, and welcome to Perma-Fix Environmental Services Fourth Quarter and 2014 Conference Call. On the call with us this afternoon are Dr. Lou Centofanti, Chairman and CEO; and Ben Naccarato, Chief Financial Officer. The company issued a press release this morning containing fourth quarter 2014 as well as fiscal year 2014 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 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. 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, David, and welcome, everyone. I'm pleased to report our fourth quarter and full year 2014 financial results. Having gone through an exceptionally difficult industry-wide period from 2012 through the first half of '14, we've emerged as a stronger company as evidenced by our revenue, margins and backlog. We've turned the corner in the third quarter and experienced solid revenue in the fourth. Nevertheless -- but we continue to see our largest client, DOE, continue to be weak, with several large projects siphoning off away dollars. We have partially offset this weakness by focusing on other markets, including commercial and international. This strategy is working, but it's a slow process. It takes time to develop these markets, and in the meantime, our revenue continues to be a little bit lumpy. Fourth quarter revenue in the Treatment and Services segment increased 37% and 23%, respectively, compared to the same period last year. And at the same time, our gross margin increased more than 100 basis points, 27.6% in the fourth quarter, from 16.7% in the same period last year. In the fourth quarter, we continued to see the benefits of our efforts to streamline the organization. For the fourth quarter, we've generated $2.2 million of EBITDA and achieved $796,000 of net income. While we are pleased with this improvement, we continue to look at additional ways to improve our operating efficiency even further and are not satisfied with these results. We are encouraged by the outlook for 2015 given that our sales pipeline within the Service segment and our backlog within the Treatment segment. In the Service segment, our sales pipeline is improving as evidenced by recent contract wins and additional contracts we're bidding on at the present time. On the Treatment side of our business, we have seen DOE shipping some ways, and we're optimistic about the growth prospects for our Treatment business. However, as I mentioned earlier, we continue to experience some weakness at DOE and would anticipate continued lumpiness. At year-end 2014, our backlog stood at $9.2 million, up from $7.7 million at year end in 2013. In the fourth quarter, we continued to expand commercial and international business to diversify our revenue streams beyond government work, and I'm happy to report these initiatives are continuing to pay off, but slowly. In particular, we're growing our Canadian business. We're expanding in Europe, including the U.K. On our -- with our medical process, we continue to advance our process to produce Tc-99m as evidenced by a patent issued by the Patent Office earlier this year. We've crossed an important threshold with the issuance of this patent. Not only it protects our property but enables us to move forward unencumbered with our mission of solving the global supply chain related to tech 99. Our process enables production of this essential medical isotope for diagnostic procedures in a way that is cost effective and does not require the use of uranium. We view this as exciting and viable opportunity. To date, we have been -- we've successfully developed and demonstrated a -- the process to produce tech 99, but our next step is to scale it up to commercial use. We hope to complete a large-scale version well before the end of 2015 at which time we'll apply to the FDA. Lastly, I'd like to comment on our funding efforts. We are pleased to announce that a consortium we formed to develop next-generation tech 99 generator was awarded a $2.8 million grant of which Perma-Fix Medical, our Polish-based subsidiary, directly received approximately $800,000. We've also entered into a preliminary letter of intent with Digirad, one of the largest national providers of in-office nuclear cardiology imaging services, as a partner. Digirad plans to invest $1 million in the Perma-Fix Medical and will participate in the development and commercialization of our process to produce tech 99. The other milestone, which should occur very shortly, we've been in the process of staffing up and hiring a new senior management team to run Perma-Fix Medical with experience in the tech 99 market. We are very close and expect to announce these appointments in the next several months as we go through some regulatory approval processes for the positions in the Polish company. Overall, we're extremely proud of our accomplishments to date in Medical and look forward to announcing additional major milestones in the near future. As of December 31, 2014, we had a strong cash position with $3.8 million of cash and cash equivalents. We remain focused on strengthening our balance sheet as we continue to pay down and increase our cash position. So to wrap up, we're encouraged by the outlook for '15 given our sales pipeline in Service segment and improved backlog within Treatment segment, which increased by 19.5% to $9.2 million at the end of the fourth quarter. Looking ahead, I'd remind everyone that the first quarter tends to be our weakest period. And as we've -- as we watch the first quarter, we've also seen some shipments being delayed. Nevertheless, we expect to be around break-even EBITDA or possibly a small loss in the first quarter. As we have discussed in the past, we're not only focused on growing our revenue, but also -- we have also cut significantly operating expenses out of the business and continue to look at additional incentives to further streamline the organization. At the same time, we remain very focused on paying down debt and strengthening the balance sheet. We appreciate the support from our investors. We are positioned to grow the company in '15 and are optimistic about the outlook. At this point, I'd like to turn the call over to Ben who will go into more detail in the numbers then I'll be back to answer any questions at the conclusion. So Ben?

Thank you, Lou. Let me begin with revenue. Our total revenue from continuing operations for the fourth quarter was $17 million compared to $12.7 million in the fourth quarter of 2013, an increase of $4.2 million or 33.2%. Revenue from the Treatment segment increased by $3.4 million or 37.2% as a result of increases both in volume and price. In our Service segment, revenue increased by $821,000 or 23% as the segment continues to make modest progress winning smaller projects. Revenue for the year ended December 31, 2014, decreased by $17.3 million or 23.3%. This shortfall was a direct result of the termination of the Plateau Remediation Contract on September 30, 2013. This contract contributed $17.7 million in 2013, but only $168,000 in 2014. The Treatment segment revenue, though, improved by $6.8 million, but was offset by a drop of approximately $6.2 million in the rest of the Services segment, excluding the Plateau Contract. Turning to our cost of goods sold. Our total cost of sales for the fourth quarter was $12.3 million compared to $10.6 million in the same period last year. Cost of sales from our Treatment segment increased $914,000 or 12% from the fourth quarter of '13. This variance was the result of incremental expenses related to increased revenue. Our Service segment cost of sales increased by $767,000 or 25.2%. Most of this cost increase was related to higher revenue offset partially by lower fixed costs. Cost of sales for the year 2014 were below prior year by $19.4 million or 30%. In the Services segment, the Plateau Remediation Contract, which terminated, accounted for $13.9 million of this increase and then reduced variable expenses from lower revenue accounted for $6 million and lower fixed costs related to cost reduction initiatives accounted for another $1.4 million. The Treatment segment costs increased by $1.9 million due to increased revenue. Gross profit for the quarter was $4.7 million or 27.6% of revenue compared to prior year of $2.1 million or 16.7% of revenue. Our gross profit from Treatment segment increased by $2.5 million, as both volume and improved waste mix contributed to the improvement. In the Services segment, gross profit was relatively flat as the improved gross profits were offset by a reduction -- reduced gross profits from the Plateau Contract loss and the SYA business sold. Our gross profit for the year ended December 31, 2014, improved by $2.1 million versus prior year, primarily from the improvement in the Treatment segment of $4.9 million offset by lower Services segment gross profit, which of course, again, was related to the terminated Plateau Contract. Our total G&A costs for the quarter were $3.1 million or 18% of revenue, down from $3.5 million or 27.8% of revenue last year. Lower payroll and subcontract expenses accounted for most of this decrease. For the 12 months ended December 31, 2014, our G&A costs were $12 million or 20.9% of revenue, down by about $2.5 million from last year. Our income from continuing operations was $741,000 compared to a loss of $30 million in the prior year. Of course, our loss in the continuing operations in the prior year included a goodwill impairment charge of $26.7 million, which represented our total goodwill at the Treatment and Services reporting units. For the year ended December 31, our loss from continuing ops was $3 million compared to a loss of $34.5 million. In addition to $26.7 million goodwill charge mentioned related to the fourth quarter, our '13 loss also included additional goodwill impairment of $1.1 million recorded in the second quarter of '13, which represented goodwill from the Plateau Remediation reporting unit being completed. Income applicable to common shareholders for the quarter was $875,000 compared to last year's net loss of $31.4 million. For the year, the loss was $1.2 million compared to loss in the prior year of $36 million. These results, again, include the goodwill expense as discussed previously. Our total income per share for the quarter was $0.08 compared to a loss per share of $2.75 last year. For the year, the loss per share was $0.11 compared to a loss per share of $3.18 last year. Our adjusted EBITDA from continuing operations for the quarter was $2.2 million compared to $1.5 million in -- a loss of $1.5 million in 2013. For the year, EBITDA was $2.8 million compared to a negative $1.3 million in 2013. Turning to the balance sheet now, I'm going to talk about cash and equivalents, which increased by $3.3 million, reflecting the company's improved cash position and the consolidation of the company's medical company, which raised approximately $1.2 million at year end. Our total receivables were up $2.3 million, primarily due to an increase in unbilled receivables related to our improved revenue in the fourth quarter. Assets from discontinued ops were down $3.1 million, reflecting the collection of insurance proceeds receivable at the end of 2013. Our backlog was up $1.5 million to $9.2 million, an increase of $1.5 million from prior year. Total debt was $11.4 million, of which our facility, our PNC credit lender, made up $9 million of it. We had working capital of $757,000 at year end as compared to a working capital deficit of $2.5 million at the end of prior year. And finally, I'll quickly summarize cash flow. Cash provided for the year from continuing operations was $661,000. Cash used from discontinued operations was $2.1 million. Cash provided by investing activities was $856,000, which consisted of $1.2 million from the sale of our SYA business, offset by capital spending of $464,000. Cash provided from investing activities from discontinued ops was $5.7 million related to the insurance settlement at one of our discontinued operations. And cash used in financing was $1.8 million, consisting of debt payments of $3 million offset by the equity raised by our medical company of $1.2 million. With that, operator, I'll now open the call for questions.

[Operator Instructions] Our first question comes from Al Kaschalk with Wedbush Securities.

Just one housekeeping item. If you could update us on -- there was a plant or facility fire. Just wondering what the status is of either repairing that or where that stands in terms of the business?

At this time, Al, we're going through a closure of the facility.

Sorry, going to what?

Well, we're going in a parallel path, Al, of both selling it and closure. It still has a permit, which has value, so we sort of have a time line of which when it's not operating to close it. So we're kind of going down both paths. But within a year, I believe, or within this year we'll know the final status of that facility.

So does that mean that you're -- so today, there's no real revenue generation?

That's correct, yes. In fact, it's just being kind of -- have very low costs. It's just being maintained at this time.

Got it. Okay. Lou, you talked about the first quarter having some delays in shipments. Could you talk to that? And then is the breakeven a function of the shipment revenue mix? Or are there some other items in there that, from a cost perspective, that would pick you up?

Yes, the big impact was the delay in shipments. We had quite a bit of material come right at the end of the quarter, so we'll see very little revenue or income from those shipments, which initially had been scheduled earlier in the quarter and fairly significant shipments for us. We did receive them, but they were late in the quarter, so they'd have a somewhat negative impact on revenue and income.

Okay. But -- so that's just a period issue, right, because that didn't require a much bigger Q2?

Right. It's just more an issue with timing than it is with losing the business from...

All right. And would you place that at the level that you did in Q1 of last year of about $7.5 million or $7.6 million? Or is it more draconian than that?

Are you talking about revenue or...

That was a Treatment revenue that you reported in Q1 of '14, $7.7 million.

Yes, yes. We expect it'll be a little better than that. It won't be that bad, yes.

Okay. So then for the full year, you're comfortable in a $45 million, $50 million range on Treatment? Or is there enough you're getting from the commercial and the international front to help offset the DOE's issue?

Yes, we're comfortable in that range of number or maybe a little bit lower on the Treatment side, but a little better on the Services side. We see the Services side still with the opportunities picking up. We think that the Treatment side will do what it has historically done, which is peak and valley and usually starts with a slow first, it'll ramp up in second, be more than we need in third and kind of taper in fourth. So we're still comfortable with similar numbers out of Treatment, and we see the improvement coming up from the Service side.

Is there any funding update or commentary, Lou, that you can provide on the DOE or at least the government customer?

Well, we continue to see major inflows of -- the DOE budget, overall, is good. Unfortunately, we see a WIPP recovery for the waste isolation plant in terms of getting that back in operation. It's a high priority in siphoning off significant money. We see the waste treat -- WTP, Waste Treatment Plant at Hanford continuing to be a, I'd say, a black hole for cash at DOE. And the mixed oxide fuel plant continues to consume money. So you have, in one way, 3 major construction or recovery projects going on that continue to negatively impact DOE and it's caused significant problems for DOE on the -- in their environmental program because they are missing at just about every milestone now they have with every state. And unfortunately, we were more tied to all those other programs that are being missed right now. So we see them continuing to try to divert funds back into the environmental side, but -- and we think it won't be too bad a year for us at DOE, but it's -- for their budget, it's not where we're real happy at the moment, more because of the priorities they have at the moment.

So does that mean your -- you will have to fight hard to keep it flat with '14 and 2015 or...

Well, what our focus has been is a refocus. As I've been saying for the last year, we've focused very hard on all the other various markets. There's a lot of work going on internationally. There's a tremendous effort to grow nuclear around the world. And we see a lot of projects where we can be very involved in. There's the international. And then in the U.S., we're also very focused on growing the commercial. And as always in this business, it's -- moving into new markets is never -- can never be real fast. It takes time to develop those leads. We've had success. The last half of '14 was very successful because of those efforts in commercial and international and we think that should continue.

Is that as -- could you give us a little color about that revenue mix, though? Is it a series of contracts, multiyear? Is it one large contract? Is it multiple geographic locations?

We're-- again, like always with our work, it's usually -- we have lots of little contracts that drive us and provide our base and the same is true on international. We have a variety of smaller contracts that are driving it from $1 million, $2 million contracts like we have with -- in the U.K. where we've been chosen to provide all the mercury treatment services for one of their major facilities, and that probably will evolve into a contract to treat all the mercury waste in the U.K., which will go on for long periods to several international contracts we're bidding on for waste treatment that are fairly large, very significant contracts but again, take a lot of time to develop and evolve. In the Service side, again, the same thing. We see a lot of opportunities. We're winning a variety of smaller ones, especially in Canada. And we're bidding on some extremely large ones in Canada so -- on the Service side. So we see a lot. It's hard to talk about them individually because it's -- and again, we have -- we prefer to lump them together and tell you we have an expectation of winning a certain percentage of them, so...

Okay. Then my final question is on the Service side, you announced, I think, it was -- I believe it was February, a contract that you were part of a group of 10 that were awarded, but there have been no lets on the contracting. Can you update us on that contract in particular?

Yes, that was more like what we call an ID/IQ, which in terms of they pick a group of companies that are allowed to do -- then do final bids on any projects that appear. At this point, there have been -- they have not issued any task orders to bid on. We expect some in the near future, but -- and we have a variety of those type of contracts with both the core and with the Department of Energy. So if we win task orders and they're significant enough, we would announce them. That one, there has not been any task orders issued up at this point. We expect some in the near future, though.

Our next question comes from Gregg Hillman with First Wilshire Securities.

A couple of things. Do you expect like a going concern opinion for the year end from the accounts, for the company?

I'm sorry, Gregg, can you say that again?

I think in your 10-K for 2013, you got a going concern. I mean, do you expect the same thing for 2014?

No, I'm happy to report that we should be -- when we file our 10-K, we'll be without a going concern.

Okay. And then just your relationship with your lenders, are there any bullet maturities that you're concerned or -- concerned about, like in maybe 2016? And how are you going to refinance those? And do you think it's going to be okay on the covenant trips for '15 and '16?

Yes, our covenant we feel strongly we've recovered from the issues we had a year ago, and I give full credit to our great relationship with our lender who supported us during this time. As you may know, they modified our covenant program to allow us to build back up and eliminate the bad first quarter we had last year. So as we stand at the end of the year, we've got a healthy covenant number, and we're confident we'll maintain that. As far as the credit facility, it is due for reload about October of 2016. All indications are it's a very positive relationship. I think if I didn't just say it, we've been with them since for about 14 years now. So we've been through highs and lows with them, and we would probably begin discussions on reloading probably toward the end of this year. And they've always worked with us on our needs, and they've been a great partner to this date and I don't expect anything different.

Okay. And then, Lou, could you talk a little bit about the economics of the titanium 99? You said -- I think you said 25 procedures are performed with it -- 25 million every year in the U.S. And what -- I mean, what's the price of it? And how are you going -- are you going to lower -- are you going to get -- be competing on price? Or I don't -- just maybe just kind of go into some parameters about how the business model would work for that.

Yes, the model isn't price driven. I'd like to point -- I always point out that when you look at our process, the basics are -- it's a much more competitive process so that we should have no problem competing on a price level. The real concern in the tech 99 medical imaging business is really supply. You have the Canadian reactor will be going down -- will close down next year. It supplies pretty much all of North America today and that supply will be lost.

Is that permanently or temporary?

Permanently. Yes, in fact, the Canadian government has now made a decision. Their initial reaction was to continue the reactor as a research facility, but they've now made the decision to not renew the license for the facility in '18. So the whole reactor will be permanently closed in '18. It will run for 2 years as a research facility and then be closed. So there's a second reactor in France at the moment that is also being closed. So -- and really, these -- the present suppliers have tried to develop alternate reactor routes, but the loss of the Canadian reactor is going to be fairly monumental to the industry because it supplies such a large, large amount of material very difficult to transport. We are -- the advantage our system has is we don't need the large reactors. We can produce tech 99 in any research reactor in the world, of which there are many.

Okay. Lou, what was the value of that stuff that was sold here from Canada in the last year or the most recent year?

What's the value of the tech 99?

Yes.

Well, remember, the -- that's somewhat proprietary because of the -- it's sold as a very raw material to one company who then reprocesses it and then further supplies it to 2 companies. So it's not easy to get the numbers on the supply. Then the estimates, though, are in the -- in North America for just the generator itself, which is the primary market we are going after, and you're talking $400 million to $500 million a year in revenue.

Well, that's pretty impressive. And then what kind of margins are you talking about? Is it north of 50% margins for this thing?

Margins are different than the industry we're in. There's much more impressive margins, but then of course, you've got a lot of cost below the gross line. But from a kind of gross profit, you're talking in the 30% to 50% kind of numbers.

Okay. And then -- and just the structure of this vehicle, is the thing that -- the heart imaging companies investing their $1 million, is that the same company as the Polish company? Or is that a different company?

They're investing in the Polish company.

Okay, so the Polish company is capitalized now or will be capitalized with, like, $3.8 million?

Well, the $3.8 million you might be talking about is the grant that we are working on for that company. The Polish company is capitalized. We did an equity raise at the end of last year. It currently has $1.2 million -- approximately USD 1.2 million in the bank and some other receivables still to come. And the investment would be towards -- would increase that number. And then the $3.8 million that, I believe, you're thinking of is we've discussed a -- we've reported that we were awarded a grant in Poland for approximately $3.8 million, of which about $2.7 million is the grant amount. The whole project is $3.8 million. The grant's about $2.7 million, and this is going to go a long way towards all of the things we've been discussing as the next 6 to 9 months of the development of the product.

And is this company going to be run out of Poland? Or are you going to have like an office in the United States with U.S. managers that you're hiring to run it?

Most of the management oversight R&D is still being done in the U.S. Now with that grant, you'll see most of that money will be spent in Poland working at POLATOM, which is a big reactor where we'll be doing most of the testing in Poland. So it's a -- at the present time, the overall management structure is still pretty much U.S. and Perma-Fix. Now we'll have a new CEO here in the very near future, as I mentioned earlier, but that will be someone from the U.S. out of the tech 99 industry.

Okay. And then the thing about the FDA approval, could this thing get pushed a lot? Or just because of the problems with the supply, the FDA might put it on a fast track?

Well, what we saw with our patent work, the Patent Office moved very rapidly to make a decision, which we were very pleased with because they do have most of the tech 99 on fast track. But I think the FDA has a process, has a time limit, and I'm not expecting significant fast track. I think they have a process they will go through and make sure it's -- everything is correct from their point of view. So -- but we expect, we think we have a path forward. Our system -- the nice thing about our system, compared to the market, is it's almost indistinguishable what our generator would look like with the existing generators is that the only difference is we're changing the holding resin in the column with our resin. So otherwise, they're indistinguishable. The generator will work exactly like the existing generators work. You pour saline saltwater in the top and out the bottom comes tech 99. So it's a very simple process from a user point of view. Our production is a very simple process. It does not require a large robust reactor like the Canadian NRU reactor. And the purification of the material and putting in the column is dramatically simple -- simpler than reprocessing uranium and dealing with all the high-activity isotopes. So there's a whole series of institutional, social nonproliferation issues to go with our process. And then on top of it is economics. So we're very excited about it and see a nice potential market there.

In terms of when it's going to happen, do you think like 2 to 3 years is a reasonable time line for free?

If you're looking to where we can really sell products, yes. I mean, this is -- we've got to apply, we've got to finish the final scale-up and design. We then have to apply to the FDA and the EU regulatory community. And then we can sell product.

Okay. But if the market is going to run out of product before then, given that closure in Canada and stuff like that, I mean will there be like a shortage?

There will be -- it is -- it'll be difficult for us to produce tech 99 in time for the closure of the Canadian NRU reactors. So you'll have a crisis occurring in about a little over a year.

Okay. And is there a place and is there some other thing that could do the same thing as tech 99 out there that could be a substitute for this?

No, it's a very versatile nuclear -- it's 90% of the nuclear isotope market. People have tried for years to come up with something that could replace it or is simpler and it's been very unsuccessful. The radiologists love tech 99, it's a very good isotope. If you can produce it, you'll be able to sell it.

Okay. And then in Perma-Fix, what percentage is this is Medical Perma-Fix?

Yes, we're at 64%.

64%, so that's the lion's share.

[Operator Instructions] Your next question comes from Bill Nasgovitz with Heartland Funds.

So why are these 2, both Canada and France, closing?

I'm sorry, why are what?

Why are the Canadians and French closing these 2 facilities?

Oh, why they're closing, yes. The Canadian reactor is very old, highly subsidized by the Canadian government and in need of either a license renewal or closure. And the Canadian government, because of the cost, has decided on closure. It's pretty irreversible at this point. They would have had to start their renewal process like months ago to even keep it open.

Okay. Just going back to 2014. So Treatment was around $45 million, is that what I heard?

Yes.

And you anticipate that's going to be somewhere in the $40 million to $45 million level for 2015?

Right.

And Services, do you expect that to be up a little bit? What was the 2014 level, I missed that.

It's about $13 million, $14 million.

Yes, so you expect it to be up about 5%, 10% or more?

More.

The hard thing to give you a stronger number is that we're bidding on a lot of projects. And if we just win one of these larger ones, we'll see a fairly significant uptick in Services. If we continue to just win smaller wins, we could talk about a 5%, 10%, 20% increase, but the -- our hope is...

Okay. So if you win a large -- a significant, what is significant to you? You said if you win a significant one, what might the range be?

A five-year project, somewhere between $40 million, $50 million to several hundred million over that period of time.

$40 million, $50 million to a couple of hundred million.

To a couple of hundred million over a 5-year period. Mostly larger wins are longer-term contracts so that it's -- they go for much longer periods of time.

Okay. And then international, what percent of our business today is international? And what was the increase? I think you said it increased over last year.

It's not a large number. We're getting -- we've always gotten work from Canada and it's gone up and down, but...

But roughly, what are we doing in international? And what do you think you could do?

Yes, I think we're probably doing in the 10% to 14% kind of range on the Treatment side, $2 million to $4 million to, say, $5 million-ish. And then on the potential side, the Services side and some of these larger contracts Lou mentioned is really where the upside where you'd see it. And Canada has a few big contracts in the range of what Lou just mentioned that are out there. And so it would grossly increase our numbers.

Okay, well, that sounds fantastic. This company certainly does need top line growth, doesn't it?

Yes.

No, we're very much a fixed -- as you know, Bill, especially on the Treatment side, fixed costs. So that if we could produce a little bit of revenue, it has a very dramatic effect on the bottom line.

So have you done anything in terms of -- just on the sales side, have you beefed up the sales leadership or staff on the Services international side?

The -- on the sales on the Service side, we have. We've added a Canadian sales rep part time. And on the international side, we have our U.K. office where we have a business development person working very hard on Europe, U.K. and some other areas that he has expertise in. So -- and also, we've refocused the whole sales group. And in terms of the Service side and have the Service group actually selling now its services directly. So -- and we've seen some good success with that because these are mostly technical sales. So having a technical service group out there selling has had a real -- what we've seen is, we believe, a very good effect. We'll see on these bigger contracts how it works.

So do you have one person responsible now for Services on the sales side, is that it?

Yes, the Head of the Service group is responsible also for the sales in that group.

Okay. Well, good luck on these international Service contracts.

Thank you.

And just one final question, I guess going back to the black hole here at Hanford. At what point -- is there any point -- I know when I was there, how many years ago, 2 or 3 years ago, the number was just astounding. We're talking about billions of dollars with this classification or Lord knows what they were trying to remediate or store these wastes. Is there -- at some point where they just say because it's tremendously over budget or it's just not doing the job, can you give us any color there in terms of what's been spent and what might happen, at some point, when the government finally sees the light?

As you know, this has always been my sort of view of life is that we have a facility on the fence line that, in terms of hitting standards for disposal, we strongly believe that our facility could treat a large volume of that tank waste with the facility we have with rather minor increases in expanding the facility. And we see someday -- I will tell you that someday, I'm convinced, we may end up treating more waste than the WTP, the Waste Treatment Plant. I think it's -- there's this -- there's a major single-minded effort focused on WTP. There's been a fortune put into it, but there's many ways to treat waste, and we think we have simpler ways to treat waste.

So how much has been spent on that, though?

The numbers are -- of the estimates right now are, I believe, the last estimate I've seen was about $14 billion or $15 billion just to build the plant.

Is this treating...

I hope no one from DOE is listening to my speech, Bill, because it's -- but I really feel strongly that we have an option there someday when someone sees the light.

Are they treating waste today after spending $14 billion or $15 billion?

No, there's not been one drop treated. We did -- and as you probably remember, we have made proposals to take 10 or 15 of -- there's like 150 tanks sitting there and we've given DOE and they got very mad at us -- we gave them our proposal we'll take over the next 2 years 10 of the tanks that are sitting there and we could treat them tomorrow. So there are alternatives, but at this point, they're very focused on trying to finish the plant.

And when might that happen?

Finish the plant? The schedule today is about 2022.

Unbelievable. So the waste keeps building or just laying there and...

Actually, it does keep building. They keep trying to reduce volumes by drying it. But as we sit today, the volumes just continue to stay about the same or increase a little bit, and there are a couple that may be leaking of the tanks.

Well, it sounds as if a simpler, cheaper process, I know you don't want to butt heads with one of your -- your largest customer, but my gosh, does Perma-Fix engage a lobbyist? Or do you at all get involved into the politics of this?

Yes, we have a lobbyist, and as you've seen in the past, we have gone in the middle of this and have made proposals. No, I think everything's a moment in time and our time will come here. Like I say, this is a speech I don't like to make in public because it's...

Well, okay. It sounds as if there's tremendous opportunity here if we could capitalize on it.

Our next question comes from Bill Chapman with Morgan Stanley.

I saw an article last week, 4 senators proposed a new nuclear waste agency that the Treasury Department will fund to dispose of spent nuclear fuel. Could you comment on that, please?

Yes, that's more on the high-active -- very high activity side. It's really the -- we have -- in terms of waste disposal, waste treatment, the only thing that doesn't get treated these days are the reactor cores. And it's a fairly small volume, but it contains a lot of the worst stuff there is. And it's sitting at the reactors and storage pools right now. When -- Yucca Mountain was supposed to be the final storage area for those cores, and it was killed with the start of the Obama administration. And what was proposed was to start all over again and find a new site. So that is the beginning of that process to try and to move site. And we are -- due to our interest, especially on the military side in terms of the high-level waste, we'll follow that as it evolves. Probably the first step would be to find a central storage area, which several sites have already proposed, like WCS has proposed a central storage area at their landfill in West Texas. So Congress will go through some process to try to evaluate what to do and that is one of the first steps in doing that. We will be involved from a side issue point of view as it evolves because of our expertise and our interest in it. But I wouldn't see a lot of it in the paper studies for the next several years.

Okay. Well, let me ask, too, you mentioned Digirad investing in your Perma-Fix Medical, the Technetium-99 technology. Have they invested in any other technologies for Technetium-99 processes beside yourself just to hedge themselves?

No. No, they looked around and they thought ours was the best. Yes.

Okay. And you still feel good about whatever -- making -- put more resin into the column to get more production of isotopes, you're still confident you've -- whatever changes that can create you guys can redesign around it? Is that how you still feel right now?

Oh, yes. Now we're fairly confident we can get to a -- we can scale the process up for -- to a more commercial size. We've demonstrated at a size, it's a little small for the U.S., North American, European market, but would be sufficient for the rest of the world, but we really would like to get to a size that -- and satisfy the Europe and North America, which is where all our efforts are today is to scale up.

Well, it would seem if Chalk River is closed down, there's going to be a huge increase in shortages of the Tc-99, and then we're going to have outcries in the medical community. Seemed like that would speed up the FDA down the -- to get your process, but you got, of course, be -- have a filing first. But we'll get to that bridge when we come to it. Let me ask you one last -- I'm sorry, go ahead.

Yes, it will create a major issue here like I said in about a major shortage. The present suppliers have worked hard at trying to develop some other international routes. In fact, the reactor we worked with at POLATOM, is a minor supplier for tech 99, but they've looked real hard at ways they might in the short run provide more tech 99 for the present industry. But when you add it all up, it's going to be -- it's a very short half-life, if there are other reactors around, like the ones in Australia, but that's a long ways off and it's hard to get it back, to move a highly radioactive material around the world. So it creates major issues from a transportation logistics point of view if you don't have something close by.

Okay. And let me ask one more question. On your latest investor PowerPoint, you were talking about a spin-off of Perma-Fix Medical to the Perma-Fix shareholders, co-listing it here at the U.S. and then a spin-off of the shares. What circumstances would you be inclined to enact this?

Well, what we see -- we really see 2 goals from a Perma-Fix Medical point of view. One is uplisting it in Poland and to the big board in Poland, the main Warsaw Exchange and then -- we're evaluating. And then the second is to do a listing in the U.S. on NASDAQ, co-listed on NASDAQ. The idea here is over the next 6 to 8 months, we'd review those, see the value in them. But really, the major focus for the Medical is really put in a management team that understands tech 99 so they can speak and my hope here is that will be very shortly, we will be able to announce that. And then the second is developing more strategic partners and completing the scale-up. And then with that, really looking at what's the best strategy moving forward from there. So all of those are moving pieces right now in the process. We would consider a NASDAQ listing in the future. We're just, at this point, not sure the value of it today. We have sufficient capital now to get where we need to get to -- for the application to the FDA, we feel. So the next step would really be do we need more capital to get through that process and then do we have other partners who would join with us to help commercialize it. And what the priorities we see. We have a variety of priorities with a variety of possible paths forward. It's fairly -- given our druthers, we don't want to really recreate a logistical system here. We'd rather have partners that we work with that already have them in place or -- that we could work with.

Our next question comes from Robert Manning, private investor.

Could you give us a little bit more flavor on these large service contracts? I know that some of them have been pending for quite a long while. Are these the same contracts that have been pending for a long while? Have some of those been awarded and these are new contracts? Or are these the same ones? And is there any decision point at which anybody's going to decide any of these?

Yes, most -- pretty much all of them are the same contracts, unfortunately. But several of them -- what we're seeing is they're both core contracts, core of engineers, there are international contracts and there are some DOE contracts. So the -- our experience is that we're hoping the -- you see things move a little more rapidly with the core. The international stuff has a way of dragging. In Canada, we see both slow and fast. It's hard to judge that, but we think that could move in a reasonable period of time. And the DOE contracts we're bidding on have been out for a while and DOE will be running out of time in the very near future in terms of those contracts where they'll have to award something. So it's hard to give you any kind of color on them, but you can imagine we're on the edge of our chair as is anyone.

You say that DOE is going to run out of time, though. It sounds like there may be some deadline there. These others, I think, have dragged on for literally years, right, so we have no way of knowing if they're going to be resolved in 2015. But if you say the DOE has got some kind of a time limit that they're running out of, maybe it means that one of these might actually be awarded this year. What flavor can you give me there?

Oh, well, some of these -- as we sit today, we bid on a lot of contracts. And so, that again, at some point, they're going to be awarded, all right. It's kind of hard to give you a time frame other than there is a, as they say, a couple of them are imminent, but...

Now were they saying a couple of them were imminent a year ago? I'm just interested if we -- are we getting any closer? Or are we not getting any closer?

Bob, let me try. I think some of them we've been talking about expecting the proposals to come out, the request for proposals. Well, what we're trying to say is some of them have come out now, and they're probably similar ones we're waiting on last year and we bid them. So we're waiting this year.

Yes, we're further -- it's probably the right way to say we're much further along in the process. They told us they were coming and they said we want your bid by this date and that never happened. And we're now we've actually bid on them, and we're waiting to hear from the clients.

So they gave us a date we had to have a bid in. Is there any date when they have to make a decision?

No. Well, I shouldn't say that. The only place that occurs is where there's an existing operation going on that will expire. But even there, the client usually has the option of extending those for some period of time while they work on the rebids.

So I guess the bottom line is it's hard to be really precise, but it is your feeling that maybe we'll get a little closer on some of these?

No, it's hard to be precise and our experience with it it's very hard to be precise. But we have enough out there now that are -- we're just waiting for.

Yes, is the number 2 or 3, I mean you can't probably tell exactly if you've got a half a dozen. And how does that compare with a year ago?

We have -- at this time last year, we had almost none outbid and we were waiting for the proposals. Today, we have, I believe, 6 -- 5 or 6 fairly significant.

And is fairly significant is in the range that I think you talked to Bill Nasgovitz about earlier, 5 years, $40 million, $50 million, below that is not significant.

Right. So all we need is one of them, yes.

Yes. Okay, well, we need one of these several hundred million or a couple of $40 million or $50 million. But, okay. So there's a little bit of a buildup there even though the language and the words you use now are the same as the words were used a year ago. But in fact, we are farther along in the process now.

We're further along in the process, yes.

Our next question comes from Gregg Hillman with First Wilshire Securities.

Yes, Lou, I had a question about the -- I guess hospital waste, the company Stericycle, I think, disposes of a lot of hospital waste. Do you have any kind of process or anything that you can bring to the party that's differentiated in that space either for mixed or hazardous?

Well, we do a lot of hospital waste. We do a variety of nuclear hospital waste. It's brought to us by brokers like -- we consider Stericycle a broker. They collect everything and then farm out what they can't treat, which is mostly nuclear. So Vivendi, Stericycle, companies like that, we use those extensively at one of our facilities that treats mostly medical waste. But it's all radioactive, basically, or it's all have some special, very special issue with it.

But you don't have any special process, you just kind of use whatever the current state-of-the-art is?

Well, we have a very special process unique to those kinds of waste and that's why we treat most -- we treat most of the medical nuclear isotope waste that must be treated. It will come to us because we have a special process in our Gainesville facility for that type of waste.

Okay, that's pretty neat. And then...

We get most of that waste.

Okay, that's promising. And then just finally getting back to the tech 99, I mean are you recycling old tech 99 for your reactors? Or what would be the input, I mean, how do you -- I mean, where is it coming from?

You don't recycle it, it's strictly made new. The difference is the existing process starts with uranium, weapons-grade uranium. You take the highly enriched uranium. If you listen to their Iranians, they almost tell our story, is why does Iran want to enrich uranium? It's to make medical isotopes, which is all baloney, but that's their excuse. You take highly enriched uranium, you send it to a reactor, you irradiate it and produce large volumes of molybdenum-99, which is then decayed into Technetium-99m. So that's the existing process.

And what do you do?

What we do is we take natural molybdenum, we put it in a research reactor, we irradiate it and out comes the back end, molybdenum-99, same molybdenum you get out of uranium. Only it's not as concentrated. So the secret to our process we have developed a resin that concentrates it and allows you to put as much in the generator as you can get from the uranium process. So -- and it's a much cheaper process in that you don't have to reprocess the uranium, which is a very, very difficult and really not a very acceptable process because that's the same way you make plutonium and weapons-grade material.

Okay, I see. But your end product's the same as what's on the market today will be?

Our moly-99 that would be in our generator would be equivalent. Unless you're the world's expert in nuclear physics, you would not be able to tell the difference between where it came from, whether it came from the uranium process or our process.

At this time, I would like to turn the floor back over to Dr. Lou Centofanti for closing comments.

I'd like to thank everyone for participating in our fourth quarter conference call. As I mentioned earlier, we've turned a corner. We are very encouraged by the outlook of the business. Revenue is growing, margins are improving, we continue to generate cash flow, we're strengthening our balance sheet and we're in a strong position from a competitive point of view. We have a medical asset that we believe will play a meaningful role in our business in the years ahead. With that, I'd like to thank you again for your support. We look forward to following up with you in the next quarter. Thank you very much.

Thank you. Ladies and gentlemen, this concludes today's conference. You may disconnect your lines at this time. Thank you all for your participation.