Perma-Fix Environmental Services, Inc. (PESI) Q3 2017 Earnings Report, Transcript and Summary

Greetings, and welcome to Perma-Fix Environmental Third Quarter 2017 Results and Business Update Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host for today's call, David Waldman with Crescendo Communications. Thank you. You may begin.

Thank you, and good morning, everyone and welcome to Perma-Fix Environmental Services Third Quarter 2017 Conference Call. On the call with us this morning are Mark Duff, CEO; Dr. Lou Centofanti, Executive Vice President of Strategic Initiatives; and Ben Naccarato, Chief Financial Officer. The company issued a press release this morning containing third quarter 2017 financial results, which is also posted on the company's website. If you have any questions after the call or would like any additional information about the company, please contact Crescendo Communications at (212) 671-1020. I'd also like to remind everyone that certain statements contained within this conference call may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and include certain non-GAAP financial measures. All statements on this conference call other than a statement of historical fact are forward-looking statements that are subject to known and unknown risks, uncertainties and other factors, which could cause actual results and performance of the company to differ materially from such statements. These risks and uncertainties are detailed in the company's filings with the U.S. Securities and Exchange Commission as well as this morning's press release. The company makes no commitment to disclose any revisions to forward-looking statements or any facts, events or circumstances after the date hereof that bear upon forward-looking statements. In addition, today's discussion will include reference to non-GAAP measures. Perma-Fix believes that such information provides an additional measurement and consistent historical comparison of its performance. A reconciliation of the non-GAAP measures to the most directly comparable GAAP measures is available in today's news release on our website. I'd now like to turn the call over to Dr. Lou Centofanti. Please go ahead, Lou.

Thank you, David and welcome, everyone. I'd like to first take this opportunity to formally congratulate Mark Duff on his recent appointment as CEO. He brings a proven track record, broad experience running companies, leading large projects at DOE and managing growth in our sector. Since joining Perma-Fix over a year ago, Mark has done an outstanding job repositioning our service segment and enhancing our sales organization. He helped advance new technologies and brought new opportunities within the Treatment segment. This will help diversify revenue and drive sales, going forward. I look forward to staying involved and especially in spearheading some of our key strategic initiatives, especially as it relates to advanced technologies and business development. I'm happy to say that transition is happening in an exciting time, with new initiatives the company is pursuing and the growth opportunities ahead. I cannot think of anyone better to help lead the organization in the next phase. I'll then now turn it over to Mark.

Great. Thanks, Lou. Before providing an update on the business, let me first take a moment to thank Lou for his vision and leadership for over 25 years on this and his previous support to me, which has also enabled Perma-Fix become a world premier nuclear waste treatment company in our industry. So thanks, Lou. Turning to our results for the quarter. We made significant progress across both segments by strengthening our offerings, expanding our market share and laying the foundation for growth in our Services segment through new initiatives that will leverage our core competencies. Specifically, we achieved adjusted EBITDA of $654,000 versus $852,000 for the same period last year. Although, we achieved another quarter of positive adjusted EBITDA, we're obviously disappointed with the revenue from our Services segment. Strengthening this segment is critical to maintaining our sustainable growth and will be the focus of our management team and, specifically, myself to leverage our technologies and relationships from the treatment segment to grow the services segment. At the same time, we've implemented numerous organizational changes as well as new initiatives to increase efficiency in marketing and operations that will reduce our cost of goods sold. Within our Treatment segment, revenue increased 22% versus the same period last year as we received higher volume of waste shipments from our government clients. We're implementing a number of new initiatives to expand our suite of service as well. For example, we're offering our clients increased services prior to waste shipments, taking advantage of our fixed-base facilities. We're also working with several industry partners to launch new technologies at our facilities to generate additional revenue using their technology in our currently permitted spaces. These are in our treatment plants in Gainesville, in Hanford and here in Oak Ridge DSSI. At the same time, we continue to make meaningful progress expanding our international and our commercial sales efforts, with particular emphasis on the Canadian markets. This quarter, we were awarded a Master Services Agreement along with several other contractors to support large scale remediation projects in Canada. These projects include technical challenges, which directly align with our current technology portfolio as well as our core competencies. In addition we continue to see strong waste treatment opportunities in Europe as well as Mexico that are expected to generate revenue in 2018, with shipments to our treatment facilities in the U.S. And lastly, we are pursuing a variety of major initiatives related to new waste streams and look forward to discussing these opportunities at the appropriate times in future earnings calls in 2018 as these projects come to fruition. As a result, we anticipate continued improvement in both revenue and profitability heading into the fourth quarter and into the new year. The growth in Treatment was partially offset by weaknesses in our Services segment, as I mentioned. As we mentioned last quarter, we completed a commercial project in December of 2016, which affected our year-over-year comparisons. We also had our largest remediation project delayed in this quarter, which -- in the past, Q3, which resulted in a 2 month schedule slip within the quarter. This project has since begun and we're fully mobilized and operational, and it's expected to maintain stable revenue generation through the spring of next year. Heading into the fourth quarter, we're now seeing improvement in our Services segment. Our project bidding has been very busy, and based on historical win rates, we're confident we'll see benefit from these efforts heading into the new year. In particular, we've witnessed growth in the oil and gas sector as well as the mining sector, with the increased management of what we call natural occurring radiological materials, also referred to as NORM. These are generated from oil and gas and mining activities within these industries. With the proposed win rate of over 60% year-to-date and with our 45 proposals submitted through Q3 of this year, we're now seeing a benefit of our proposal development center and our business development programs, which we've modified in the last year. Turning to our P&L, we continue to carefully manage expenses and identify new areas for cost savings. We're on track to complete the closure of our M&EC facility by January of this coming year, so basically, in about 2 months. We believe we will save an estimated $4 million to $5 million in fixed cost, annually, which is a big deal overall on our balance sheet. And lastly, we continue to explore a variety of strategic options related to our medical subsidiary. We're in active discussions with a variety of potential partners and we'll provide further updates as soon as practical on our Medical. So to wrap up, we remain extremely encouraged by the outlook for both the Services and Treatment segments, and based on our current pipeline, we remain confident that we will both see top and bottom line improvement in the fourth quarter and believe we have set the stage for sustainable growth in 2018 and beyond. Before I turn it over to Ben, I do want to address one other item regarding, specifically, the test bid initiative at Hanford, what we refer to as the TBI project. We noticed a lot of interest from our investors in this. We certainly understand our investors have requested and have a need for more information relative to the progress of this program. However, I want to reiterate that our client, Department of Energy, who's been very supportive of this project, has requested that all inquiries regarding the status of the project be directed to their Public Relations Department. So to assist in providing some background and some underpinning for this important program, we'd like to direct investors to our website, where we've included 3 new links to current public information, and the first link's we've included is to the February 2017, GAO report, which I believe we referred to in prior quarterly calls. This report finds the fiscal risk associated with the current approach for treatment of the Hanford tanks, as well -- as defined by the GAO, along with the recommendation for how to reduce that risk. Secondly, on our website, we have the September 2017 report by the Energy Communities Alliance, also known as the ECA report. This report will provide a recommendation from the communities to DOE, recommending the TBI project, specifically, and has -- again underpins the -- push forward the TBI project. And finally we've included on the link, the September -- excuse me, this Saturday, November 4 article, in the Tri-City Herald in Washington State. The Tri-City Herald had an article that provided additional detail regarding the status of our program and the receipt of the initial 3 gallons of waste from the Department of Energy. Perma-Fix views the article to be accurate and complete, and -- at least at this point. All other inquiries will have to go to DOE. But I do want to underscore, again, that we have completely revised our website and launched a whole new website last night, actually. And we're very proud of it. It has a lot more updated information and presents our current capabilities in a much stronger way. We've included all 3 of these documents and links on our website under the Investor tab and under Company News, so feel free to take a look at that and get more information about the TBI project. With that, I'll turn it over to Ben Naccarato, our CFO.

Thanks, Mark. I'll begin with our revenue. Our total revenue from continuing operations for the third quarter was $11.8 million compared to the last year of $12.9 million, a decrease of $1.1 million or 9%. Our Treatment segment revenue actually increased by $1.7 million or 22%, and this was due to improved average pricing and also increased volume in the quarter. This increase, however, was offset by the revenue in our Services segment of $2.9 million or 54%. Our Services segment is project-based and can vary depending on the size and timing of projects. We had a delay in one of our key projects, which did not resume until late August. And that, along with the completion of a commercial project we had in 2016, were the main reasons for this variance in revenue. For the 9 months ended September 30, 2017, our total revenue was $37.2 million, which is relatively flat from last year's $37.8 million in the prior year. As with the quarter, our Treatment segment revenue has exceeded prior year while our Services segment revenue has been comparatively down. Turning to our cost of goods sold. Our total cost of sales were $10 million compared to $11.1 million in the prior year. Our Treatment segment cost increased by $936,000. Of this variable cost related to revenue were $481,000, but our fixed costs at facilities were up $455,000 of which. This is entirely attributable to an increase in our reserve recorded at our M&EC closure process. Our Services segment cost were down $2 million, and that is consistent with our lower revenue. On the gross profit line, for the quarter, we were at $1.7 million compared to $1.8 million in 2016. Our Treatment segment gross profit increased by $776,000, and this -- it does include the increased closure expense of $550,000 as discussed previously. Our volume increase and our revenue mix was the primary driver of this improved gross profit in the Treatment segment. Services segment gross profit was down $838,000 and this is entirely due to the decrease in revenue. Year-to-date, our gross profit has improved by $3.2 million as both our volume and our average price in the treatment segments has contributed to $5.2 million of improvements in this segment, while the gross profit in the Services segment has been down by $2 million due to the lower revenue. At the G&A line, our total G&A costs for the quarter were $2.79 million, which is flat from prior year. Our lower labor -- we had lower labor and legal costs, but these were offset by cost related to our annual user conference, which we did not have in 2016. For the 9 months ended September 2017, our G&A expense is $8.3 million compared to $8.2 million the entire year. This increase was due to the fact that 2016, we had a pickup in the second quarter of $360,000 related to a receivable, which had been previously written off, was deemed collectible and dropped back in. Our loss from our continuing operations for the quarter was $2 million compared to a loss of $1.5 million last year. And again, included in this loss are the cost related to the closure reserve of $550,000 and the noncash impairment cost of $672,000 at M&EC, where we wrote off the remainder of the assets at that plant. Also included are $197,000 and $342,000 related to our Medical Isotope segments for Q3 '17 and '16, respectively. Our loss applicable to common shareholder is $2 million compared to last year's net loss of $1.6 million in the quarter. Our total loss per share for the quarter is $0.17 compared to a loss per share of $0.13 the entire year. Our adjusted EBITDA from continuing operations for the quarter as we defined in this morning's press release is $654,000 compared to $152,000 last year. For the 9 months ended September 30, 2017, our adjusted EBITDA was $2.1 million compared to an adjusted EBITDA loss of $1.3 million in the prior year. So we've seen an improvement year-over-year on this metric of $3.4 million. Turning to some key balance sheet items. As compared to year-end 2016, our cash balance has improved by $892,000 as a result of the closure bond transition we did in the second quarter. This allowed the company to free up $5.9 million of cash, which we'd use to secure alternative bonding and also pay down much of our long-term debt. Our unbilled receivables were up $1.6 million and this reflects timing of billing and is pretty much contractually determined. Our intangibles and other assets were down $6.5 million, $5.9 million of which is -- relates to the cancellation of the closure policies, and cash was formally held as a restricted cash and it freed up the restricted cash, as I mentioned earlier. Our waste backlog was at $6.8 million compared to $5.3 million at year-end and $4.6 million at this time last year. Our long-term liabilities were down $5 million as a result of the full payoff of our revolver and the reclassification of certain closure expenses to current at the M&EC facility. Our current debt is at $1.2 million, which is consistent with year-end and prior year third quarter. And our total debt currently sits at $4.3 million. This is excluding debt issuance costs, and this is all due to our primary lender, with $4.3 million all represented by a term loan balance and reflecting 0 balance in our revolver. And finally, I'll summarize our cash flow activity for the 9 months. Our cash provided by continuing operations is $355,000. Our cash used by discontinued operations is $464,000. Our cash provided by investing activities was $5.7 million, of which $200,000 was cap spending. Cash provided by investing activities for discontinued operations was $52,000, and cash used for financing was $4.7 million, of which $914,000 was used to pay down our term loan and $3.8 million was used to pay off the entire revolver balance. With that, operator, I'll now turn the call over to questions.

[Operator Instructions] Our first question comes from Bill Nasgovitz with Heartland Funds.

So it's great to hear that you've put out 45 proposals and 60% win rates. Mark, that sounds very encouraging. And we've paid off the revolver, that's nice to see too. What parts of the business are you most excited about, going forward, Mark?

A couple of things, Bill. One, Canada is going really well for us. Canada is a wide open market. It's got a lot less competition, and our core competencies align directly with the technical challenges they face in Canada, particularly as they just -- they're just getting started with their cleanup program, and we have very key contracts already in place. So we have good relationships with the clients. We've got an office now up there, and it's growing very rapidly. That's really kind of the focus on the Services side as far as I'm excited about. On the Treatment side, we're getting a lot of really good feedback from how we're offering our clients -- as opposed to just receiving waste, we're actually proposing with them to go in earlier in the process, help package the waste, help in the planning stages to not only feed our plants, but to provide more services in front of receipt of waste. And that's going really well. We have a couple of big initiatives in 2018 that will -- we're hopefully going to secure, that will -- I'm going to be talking about it in more detail. But those are 2 things. We're also -- the third thing, would be that, Bill, that we're adding some new capabilities in our plants, which we haven't done in a long time. And these capabilities, as been mentioned in prior calls, will provide for a wider and larger market base for waste treatment. We were getting a little stagnant in years past with basically the capabilities we had. Now we're going to be broadening those capabilities so we can take in different types of waste in addition to what we've already received before. So those are kind of the 3 things I'm most excited about.

Our next question comes from Anthony Marchese, a private investor.

Two questions. One, on your Service segment, are you competing against the same people? Is it that -- are you losing contracts due to price? I'm just trying to understand why the job loss?

Well, Anthony, appreciate your question. Good question. It's been -- the Services segment has kind of reached the trough over the last couple of years with Perma-Fix, and we're building that back. And it takes a little bit of time to build it back because you have to reengage with your clients, build those relationships back that may have been around 4 or 5 years ago, get -- find the key people that you need to do the work and build up your portfolio of capabilities so you can win these bids. But to answer your question, we are -- we have this -- there's a lot of competition. We generally are not necessarily losing on cost. We're very competitive on cost. When we get a debrief, you'll see that we're in the top couple for each bid. I think once we secure more key people, and we get a couple of projects under our belts again, which we have right now, in other words we have some references for ongoing projects, we'll be fine. We're doing some great work in California for Department of Energy. I was out there this week, Monday, and the client's very happy so we have a really good reference there. Same with Canada. So we're building these references back up, and our marketing campaigns are taking a little bit longer to really bear fruit than I thought it would a year ago. But again, as we mentioned and as Bill reiterated, the 45 bids we've got in, we haven't heard about all those yet. And the 60% win rate is not necessarily directly in line with 45, it's basically -- it takes months sometimes to hear on some of these bids. But as they start rolling in, we take a lot of time after every bid to understand why we lost and what we need to improve, so we can do better on the next one.

And the final question. I know you don't give guidance. Is there a possibility that you'd be net income positive in the fourth quarter?

Yes, I can. I'll answer, Anthony. The biggest impact to that is the write-down at M&EC. We've -- our bottom line has been impacted by the accelerated depreciation at the facility. And this quarter, we had a triggering event, so pretty much there won't be much more production and therefore, we wrote down the remainder of the assets. So you're going to see a pretty substantial, in the $600,000 to $700,000 reduction just in G&A costs. So I think it's going to get pretty close. We're still minimizing our medical costs. Those are also sort of noncore costs that hit, and so between those 2, those 2 items, I think you'll see a much -- you'll see significant improvement at the bottom line, yes.

[Operator Instructions] Our next question is from [ Joe Brown ], a private investor.

I have a couple of questions. You have -- well first of all, let me ask you, you have these 2 projects on that you're working on, the one with the government, and the other one with the isotope. How are you doing as far as lining up people or potential investors in that isotope project?

It's Lou Centofanti. The -- as you know, we broke off from our last discussions with a potential investor. And since then, we've really been going down 2 paths. One, continuing to -- with our limited resources, continuing to work on the technology, and that continues to go well. Not much new I can say there. The second is really exploring other options. And we've gone down multiple paths in terms of financing of the unit from, everything from bringing more money in to licensing. And we see some -- we have several, right now, we're exploring. And I can't say much about -- at the moment, but we're hoping that in the very near future, over the next several months, we'll be able to talk a lot more about what our path will be. So at this point, it's -- we've made progress, but nothing that's -- where we can talk about at it at the moment. And hopefully, in the next 6 months, we will be able to.

I have a couple more questions. Well, one of them pertain to, you mentioned in this conference that you had other people use -- putting use in your products and your facilities. Can you explain that a little more? And what's the potential profit on something like that? I mean, it sounds a little strange, but go ahead.

Well, that's a great question, Joe. And this is one of the things that's most exciting about what we're doing right now, it has a very strong near-term positive impact. And just to answer your question, we have these soon-to-be 3 facilities that have very significant barrier to entry for companies that have technology. In other words, it's been very difficult to license these type of facilities. We have extra space in several of the facilities. And in this extra space, what we're doing is we're working with companies out there that don't have these kind of facilities but do have cutting-edge technologies that they have patents on that specifically address some of our clients' waste needs. In other words, very focused types of needs for like reactive waste and those types of things. But frankly, there's not a lot of competition out there about. So basically, what we're doing is we're working with these companies to launch their technologies in our license space. We will operate them, we will manage them, we will market them, but we'll work with them in an operating agreement type of basis so that we can expand our capabilities, use our facilities and our trained operators and our market base or our client base, people we want to have relationships with, to be able to broaden our offering in the marketplace. So we're doing that, and 2 different initiatives going on parallel right now, and those are the kinds of things that can result in very, very fast and significant impacts in the future roadmap.

Are these companies that -- do they have clients already? Or they just have a product?

They have clients but may not be for that specific technology. But they have clients -- they're in our business space, in our industry.

So are they competitors?

I guess anybody in the industry can be a competitor as they do different teams and those types of things, but not direct competitors, no.

Okay. And what's the potential revenue out of something like that? I mean, have you realized any profit or revenue from that? Or what do you expect?

No. We're actually -- we're in the final stages of planning and our agreements at this point. We hope to have something, sometime next year, when we'll talk about that more when we get the agreement signed and start moving forward.

Okay. Another question I had was, I think at the last conference, you had said that you were hiring people. You had said this maybe last quarter or 2 quarters ago, you said you were hiring people because you are optimistic. But today, you said that your labor costs are down. So I'm trying to understand, has your headcount gone up? Or what's your latest headcount? And how much has it changed?

It hasn't changed dramatically, Joe. It moves around a little bit here and there. But what Ben was saying in regard to our Services segment is that as we do new additional projects, we have increased labor cost, because we're hiring either actual labor, like laborers and operators, and that's obviously increased your cost of goods sold. So that has gone down because of we don't carry these folks, whether they're union, nonunion, whatever they are, we don't carry these folks with if we don't have projects. So that would show you the labor cost that has gone down. On professional labor, on key staff, on project managers and, specifically, as I mentioned in the last call, we've hired a number of certified health physicists, which are very hard to find, and that's kind of building our practice for the rad protection inside the house. We've hired a number of those each quarter, and that continues to grow. And what that does is it brings to us, when you hire CHP, it brings to you new client potentials, people they work with in the past, those kinds of things. So we are continuing to increase our professional staff, but we have seen some dips along the way in our overall labor hour numbers because of gaps in projects.

So in other words, you've decreased, like less technically qualified people, lower level people, is that what you're saying?

Yes. And I mean, labor, like real labor, like laborers and operators in the field types of things.

, And Joe, I'll just add, the comment about reduced labor was at the G&A and overhead line. And if you remember, we're comparing with last year and we had a severance cost last year from a termination that obviously raises costs when you're comparing. It's G&A that's down for a variety of reasons.

Now other thing I was curious about is you said you were going to be pretty close to making some money in this quarter, maybe free cash flow positive. I don't know. Assuming that you start to make money, and maybe in the first quarter of next year when some of these plant closure costs have gone away and you realize the benefit of closing one of your facilities, assuming that you start making money in the next quarter, or in the first quarter of next year, what would you do with that money? You have a debt of -- you said long-term debt of like $4 million, $4.3 million, something like that. So what would -- when you start to make money, what would be your priority? Would you want to build up your cash hoard, or would you want to pay down more debt, or would you put the money into a couple of these projects that you're working on? You know what I mean?

I'll start and then, Mark can talk more about the ending part.

Your priorities.

Our debt is very reasonable right now. It's got about 4 years left on it at about $100,000 a month, so it wouldn't make a lot of sense to use up all your cash to pay it down. We've got a long-term relationship with our lender. So as we become more cash positive, we have a number of initiatives that Mark can certainly address that, we would want to invest into generating more revenue and more profit.

Some of the initiatives we have would include some new equipment, even some new buildings, some of them would go towards that as well.

Okay. So the debt would remain the same. All right. And I guess one more question I had is, I mean, if your company -- there's been a long, long process of trying to turn this company around. It's -- I mean, Dr. Lou has been very positive quarter-after-quarter but none of it ever really materialized. But what I'm thinking about here is that if your company starts to make money and starts to look attractive, you have such a low valuation, and you have a high float of stock out there. If somebody wanted to, if they became interested, and it seem to me that your share price is so low, your company is worth what? About $40 million. I mean, somebody could take it over at a very -- I mean, for a very low investment, they could take over your company if they wanted to. And yet there's a lot of float out there. I'm just wondering, is there's any safeguards that you have against somebody coming in and bidding, like, I don't know, $5 a share, some -- to take it over? I mean, is there any safeguards, with -- you know what I mean?

Yes. The company has a rights plan, which would help the board protect against a lowball offer. That's been in place for a number of years. So there is that protection mechanism at the low valuation. We hope that as the profitability starts to kick in, we'll see what we consider a pretty undervalued stock.

It's horribly undervalued, I think the stock is down, as I looked back over the last 8 years, I think you're down 95%. I mean, it's just -- I mean, you did this reverse 5 for 1 reverse split. I mean, it's incredible, what your company is worth today versus what it was worth even 5 or 8 years ago.

Your last question, I guess another option, if we have excess cash, would be buying back stock.

Our next question is from Bill Nasgovitz of Heartland Funds.

Yes, one more here on this plant. So we took another $1.2 million write-down. Are we done taking write-downs on this plant? Or is there more to go?

Well as of our best estimates, Bill, we should be done. We have to estimate and we're within 3 months, so we're getting closer to -- the big unknown is always, with these types of closures, is what your final disposal expense will be, and that was pretty much the gist of the latest increase, which was the $550,000. The $672,000, was really just writing off the asset. And so that's done. And as we hope we've got the right estimates on the closure. We think we're pretty close now to knowing what that number will be. So we don't think there'll be anything so material. They may adjust either way.

So this plant, you indicated in the release you have $4 million in annual expenses. But I believe you said earlier, $4 million to $5 million, so that's a significant amount of money. And that will start to kick in then in Q1? Or that won't be expensed in Q1?

Some will kick in, in $4 million. Because of that $4 million to $5 million, there is depreciation in that. Depreciation was running around $200,000 to $225,000 a month. So about 2.5% to 3% of the numbers you gave.

I guess I'll rephrase my question. So let's just take the $4 million, will that be realized over the course of 2018?

Yes.

Well that's a significant number, isn't it?

Yes.

The company doesn't publish backlog. Mark, are you at all considering, in the future, to give shareholders some idea of the direction of this company, publishing backlog?

We don't publish backlog. We did talk about waste backlog, but as far as funded backlog, it is something we're just starting to focus on a little bit more. As far as publishing that, Ben, I don't know if you have a perspective on that, but it hasn't been that good in the Services Segment. And it's difficult, Bill, because the -- it's difficult to nail that when you're going to actually receive your waste. Contracts come in quickly. We get to work with a client and say, "Hey, we got $3 million worth of waste to ship here," and then you're -- sometimes it comes the next day, sometimes it comes a year later, and you just sign a contract right before it comes. So funded backlog is difficult in the traditional sense, like a Services segment where you have a contract signed and you know you're doing this work, it's a little different on the waste side. It's not quite as strong of an indicator as some other industries. Ben, do you have a perspective?

Yes, on the backlog, we do publish, of course, our waste, and that's really more unearned, that's when we have the waste in hand and we can control their revenue from it. We've -- the lack of the large service projects, where 3 years, where we know we're going to see x amount of revenue in a quarterly basis, that's really what has kept us from publishing that. It is a -- once it becomes a material metric that will help the investors understand what's happening, I think it certainly is a fair game to publish.

Mark, you must have like an internal pipeline or some measure of, I guess, the bidding process.

We do, Bill. We do have on our Services segment, particularly. And we have very well-managed spreadsheets on the waste as well. We're projecting 3 to 6 months ahead at any given time based on marketing and sales that we're chasing. And we adjust win probability and those kinds of things, try to better project where our backlog is going to be on receipts.

Our next question is from [ Chuck Dickinson ], a private investor.

Good morning. I see that the impairment loss on the tangible assets is obviously a noncash charge. Was -- that was $672,000 in the latest quarter. Also the, closure cost that hit the cost of goods sold for the accrual for the M&EC unit of $550,000, was that also a noncash charge?

At current -- well, in the current period, yes. It's increasing our reserve for future. So we will ultimately -- when we pay down that -- when we close that facility, that will become cash expense.

And how does that -- is that going to expense over time? Or is that a onetime cash cost when you do expense it? How does that work?

Well, as we ship waste, so we will -- as the facility goes to closure in the next 3 to 4 months, we will have to get rid of waste off the site and vendors will charge us, and then we'll pay that out accordingly. So it won't be onetime, $550,000, it will probably be in $50,000 to $100,000 increments per month.

Okay. So a previous caller had said, hopefully, next quarter, you're getting close to -- you'll be cash flow positive. Unless I'm reading this incorrectly, in the current quarter, you already are cash flow positive on the adjusted EBITDA basis. I mean, there's no getting to cash flow positive, you're basically already there.

That's correct. Now keep in mind, that reserve for this disposal number is about $3 million, of which around $2 million is still disposal. So you will see a quarter when we have to spend that money to get it out the door. But you're right, our EBITDA number is up to about $2.1 million. Our adjusted EBITDA number is about $2.1 million, and that loosely represents positive cash. For the year, we were $355,000 from continuing, and that's an improvement of near $1 million quarter -- for the third quarter. So yes, we are seeing positive cash. The cash flow is improving in the company.

Right. And going forward, the $4 million to $5 million of cost savings that you're projecting on an annual basis from the closure of that M&EC facility. How much of that roughly -- of the $4 million to $5 million will be related to depreciation, which is noncash -- a noncash expense anyways, so it really doesn't improve the cash flow. But how much of the cash savings is there in that $4 million to $5 million that you were realizing annually?

About $2.5 million to $3 million would be the traditional depreciation number for the annualized. So you're talking about approximately $2 million of improvement in cash.

Right. Okay. Because I don't really care. I mean, I do care about net income, but I'm much more focused on the cash flow situation and sustainable cash flow situation. It sounds like that'll be a pretty good comp on an ongoing basis to the cash flow numbers and sort of provide a, hopefully, some margin of safety, going forward. Last question I really have, just looking at the current ratio. It's a little bit under 1, I mean it's not significant, for all intents it's about 1, 1.0 roughly. But do you have any concerns there? Or is it cash flow enough that you see going forward in addition to what you have in your current assets? I mean, it's not just current assets or current liability, as you go forward, next quarter going forward hopefully, you'll also be generating some positive cash flow. So assume there's nothing on the current liability side that gives you any cause for concern, and your revolver is totally paid down. You've paid down much of the term loans, so there should be a fair amount of flexibility there. So really, that becomes something not to worry about, I assume, on the current ratio.

And that's correct. That's -- it's entirely impacted by the disposal reserve we discussed. So, so long as -- and we do have availability, the revolver is clean, and we actually have a little extra availability that the bank is kind of holding that we're going to discuss with them as well. So no, I don't have a lot of concerns about the liquidity side of getting through this process. And then that would -- take x out the facility closure, then we'd be in a pretty good position from a working capital standpoint.

One more thing. On the political side of all this, there was a mention made that one of the difficulties have been the lack of personnel being put in place in the current administration that kind of bogs things down a little bit as you try to get some of the government funding flowing. Are you seeing any movement in that? Is there any optimism in there? I mean, do we have to really wait for a change in administrations and a Congress that works in conjunction with the executive office and the right secretary of DOE to get things going? Or I mean, is there -- the bottom line question, has there been an improvement in the problem that's been there, not having appropriate personnel in place to make your job easier when you go to the government, with projects and basically there may not be anybody there to sign off on something.

Yes, I think we did mention that last quarter. And I think we have seen an improvement, which is reflected in some of the movements with the TBI projects. And I think there's been a couple of confirmations in the last 2 weeks at senior levels. So I'd have to say, just to answer your question, yes, we have seen improvement. And I'll also say that I think our business is less dependent on it, where we're going from here.

On the TBI project. You may or may not be able to answer this. I know you're in a very sensitive situation on that. But there was something in that Tri-City Herald article that had mentioned that were this thing to go forward, there might be a situation where the permitting of PESI would have to be a Perma-Fix, would have to be adjusted or updated or amended or something. Can you talk about that at all or not? I mean, I guess what I'm getting at there, is that something that would be and will be open to public comment or something? Is that something that would be a significant hurdle, nothing of significance to worry about? And if you can't talk about it with regard to that specific project, maybe perhaps you had a permitting situation in the past with some other project where you had to go and get the permit updated or changed or amended. And not knowing anything about that process, so I was just curious if that becomes an impediment or something that's just kind of a statutory thing that you have to do?

Yes. [ Chuck ], again, I wish I could answer that for you. And we might be able to by next quarter, but right at this point, we can't address anything associated with TBI.

Our next question is from Bill Nasgovitz with Heartland Funds.

So you mentioned, Mark, perhaps spending some money on facilities. Could -- any idea in terms of CapEx this year? And what your estimate of CapEx is for next year? And then also, R&D this year and what you might spend on R&D next year?

I'll let Ben talk about -- right now we don't have any CapEx -- or we do actually spend it in this quarter, Ben, or can we say for...

We're -- it's pretty minimal, Bill.

For the year?

Yes. For the year, we're at $200,000 for 3 months, and we might get to $0.5 million by end of the year. We've got some -- but it's more facility repairs and sustenance-type capital, so...

I guess I'm more interested next year.

Yes, next year. Next year, we manage our capital pretty tight. As you know from historic, we've never had big -- we'll typically budget about $1 million, $1.2 million for sort of ongoing operations. Anything real significant would be probably borrowed. It would be less...

How about R&D?

On R&D front, Bill, we've got a couple of exciting things going on with -- we received basically some grant money. And we've applied for a number of other types of grant money to do R&D for some very specific hazardous materials out there that the Air Force is dealing with. So specifically with firefighting foam, air bases. And we are -- so we did some R&D there. It's reimbursable R&D that we're very excited about because we're in the absolute cutting edge of that. And if we can put together a verifiable treatment approach, then we'll be in a great position to actually treat this waste probably either in situ or in our facilities. So I would probably say, Ben, outside, notwithstanding Medical, I'm not going to address Medical, but as far as non-Medical R&D, we're probably in the several hundred range for actual treatment technologies. Would you disagree with that, Ben?

Yes, we're at about -- for 9 months, we're at about $338,000, and last year, we're $321,000. So we run a little bit under $100,000 or $100,000-ish quarter.

Okay. So you're not anticipating a big increase in R&D for 2018?

No. The biggest chunk of the line you'd see on the income statement, Bill, is because we consolidate Medical. And that's [indiscernible] come down.

Our next question is from [ Stephen Fine ], a private investor.

Obviously on the Medical thing, if you find an investor -- I mean, what I'm looking -- what I've been looking at your metrics, $1 million would go away, presuming you found someone to take hold of that. So that would obviously be significant. And I think that, that should be taken into account. Secondly, I've been an investor for about 3 quarters. This is my third earnings meeting. The tenor of this meeting, the extent of this meeting excites me. I commend you all. I think there's tremendous opportunity and possibilities. Having the background with government and with hazardous stuff, I commend you. I commend you to go out there and to make the company work but there's also a moral imperative. And you're doing something for society. I know, as one gentleman brought up, the issue with Hanford can't be discussed. But I have followed the sentinel every night, the thing that I see is the courageousness of the Department of Energy, how they are looking at this from a pragmatic standpoint, how they're saying 2/3 of the expenditures that go out there for infrastructure and not for waste. So that in itself having a government who is looking in that way, I think, is very exciting. So again, I thank you as a stockholder, and I'm extremely excited.

We appreciate your input, your thoughts, [ Steve ]. We appreciate that a lot. It means a lot to us.

Ladies and gentlemen, we've reached the end of the question and answer session. At this time, I'd like to turn the call back to Mark Duff for closing comments.

Okay. Thank you. I'd like to thank everyone for participating in our third quarter conference call. As I mentioned earlier, we've achieved another quarter of positive adjusted EBITDA. In fact, our adjusted EBITDA increased more than fourfold from the same period last year. Within our Treatment segment, we've increased 22%, which was offset by a temporary decline in the Services segment, as we mentioned. However, we are fully confident that we'll replace this loss revenue and return to growth in our Services segment very soon. Heading into fourth quarter and then in 2018, we anticipate continued growth in revenue and improved profitability. For the fourth quarter, we expect continued growth and I'd say better net income than the third quarter. So an increasing net income over the third quarter due to the M&EC impairments within the EBITDA we've reported. We are anticipating about $3 million in EBITDA for the year-end as well. We appreciate everyone's continued support and look forward to providing additional updates in the near future. Thank you.

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