Perma-Fix Environmental Services, Inc. (PESI) Q2 2018 Earnings Report, Transcript and Summary

Greetings, and welcome to the Perma-Fix Environmental Services Second Quarter 2018 and Business Update Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, David Waldman of Crescendo Communications. Thank you, sir. You may begin.

Thank you. Good morning, everyone, and welcome to Perma-Fix Environmental Services Second Quarter Conference Call. On the call 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 second quarter 2018 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 in 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 the statements of historical facts are forward-looking statements that are subject to known and unknown risks and 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 references to non-GAAP measures. Perma-Fix believes that such information provides an additional measurement and consistent historical comparison of its performance. A reconciliation of non-GAAP measures to the most directly comparable GAAP measures is available in today's news release on our website. I'd now like to turn the call over to Mark Duff. Please go ahead, Mark.

Thanks, David. I'm happy to report we achieved another solid quarter with growth in both revenue and profitability. We're beginning to see the impact of our new sales strategies and increased focus on delivering innovative solutions to our clients. As a result, we're seeing enormous potential going forward. It's also important to note we achieved these results despite several activities relating to the closure of our M&EC facility, which impacted both revenue and gross profit. Despite this temporary disruption as we've shipped resources among our facilities, revenue for the second quarter of 2018 increased to $13.2 million versus $12.7 million for the same period last year. Our gross profit included $1.2 million of closure costs related to the M&EC facility. Excluding this expense, gross profit would have increased to $3.3 million versus $2.4 million for the second quarter of 2017. We achieved adjusted EBITDA of $846,000 compared to $586,000 for the same period in '17, and we generated net income attributable to shareholders of $610,000 or $0.05 a share versus a loss of $1.2 million or a loss of $0.10 a share for the same period last year. The transition issues related to our M&EC facility are largely behind with closure activities expected to be ramping down and regulatory approvals expected in September. It's important to note that the completion of plant closure under the applicable regulatory frameworks of both the RCRA and CECRA -- or, excuse me, RCRA and TSCA for M&EC is being accomplished while we transition our primary treatment capabilities to other locations. This transition has occurred successfully while maintaining waste receipt levels at or near those of 2017. While we would like to have closed M&EC months ago, our team has worked very hard to ensure impacts to Perma-Fix performance is minimized until we can begin to realize the benefits of that closure. Turning first to our Treatment segment. We entered the third quarter with a backlog in excess of $7 million, which bodes well for the second half of the year. From a macro perspective, we're encouraged by the improved budget within the Department of Energy that provides $7.1 billion of environmental management activities, which is about $706 million above the $6.4 billion level enacted in fiscal year '17. We're also optimistic that Perma-Fix could realize increased opportunities for waste treatment growth in the latter half of '18 as our client need to spend this money to ensure earned value and secure similar budgets for 2019. We've also seen a pickup amongst defense clients that are beginning to procure -- for the procurement process for remediation projects, which will increase -- provide an increase in nuclear services fueled opportunity over the several last -- over the next several quarters while also providing waste treatment growth. These opportunities support new technology deployments by Perma-Fix, including our soil sorter technology, which segregates contaminated waste streams and clean debris and soils to reduce volumes that must be disposed of in expensive landfills and minimize costs to our clients. We currently have 4 outstanding bids to provide this technology and hope to be operating our soil sorters in the next year. Also within the Treatment segment, our construction activities are continuing at our Perma-Fix Florida facility to accept and treat radioactively contaminated water and additional commercial waste streams, while we've realized some challenges in achieving operational status due to delays in permit approvals. We have already begun to receive waste treatment backlog inventories to support our operations. We're also continuing our expansion program in the hazardous waste processing market, primarily targeting geographically focused opportunities in the Southeast U.S. markets, including specifically Atlanta and surrounding areas, in order to maximize utilization and throughput of our facilities. Well, we're also making progress with installation of our GeoMelt facility -- or, excuse me, GeoMelt systems at our Perma-Fix Northwest facility through a partnership with the Veolia Nuclear Solutions. Upon completion of construction, installation, start-up testing, the GeoMelt Vitrification system will be used to treat waste drums containing sodium residual waste. We expect this vitrification capability to come in, in Q4 and will provide the capacity to treat non-bulk sodium waste as otherwise represented a waste stream with no path for disposition. Completion of this capability is critical to Perma-Fix and the federal government as it will allow us to address large inventories of radioactive waste currently in storage. We continue to look outside the U.S. as well, and we're seeing a number of new international opportunities that should contribute to our growth. Once waste overseas is treated in our U.S.-based facilities, we'll return the waste in a stable form for final disposal in the country of origin. We anticipate receiving new waste streams from Canada in September and are currently developing proposals for additional projects in Mexico and Italy, which should be awarded later this year. We really have good chance of winning a number of these given our unique capabilities on 4 specific waste streams that are being procured. Within the Services segment, revenue increased by over $900,000 or 30% for the second quarter of '18 versus '17 -- or versus Q2 of '17. We have worked hard to increase our bidding activity and proposal quality within the Services segment, and we expect to see the result of our initiatives coming to fruition over the next two quarters. Whilst Q2 was a bit lighter in proposal activities, including 13 submittals within Services, we've seen an unprecedented surge in July and August with opportunities well suited for Perma-Fix from within the DOE, U.S. Army Corps of Engineers and the Navy. We expect to hear back on more of these projects in the weeks and months ahead. It has taken a while to get Services segment back on track as we respond to these procurements, but I'm encouraged by the near-term outlook as we are currently waiting for awards or announcements for outstanding procurements with total values in excess of $100 million in total revenues. We're also expanding our role in oil and gas markets in Pennsylvania, Ohio, West Virginia for the treatment of naturally occurring radiological material waste, also known as NORM waste, which can be difficult waste streams to manage for oil and gas producers and is a significant byproduct of fracking. This business line has seen progress this quarter as we opened a new office and a facility in West Virginia deep in the heart of the Marcellus Shale region to provide radiological analyses services to fracking operators supporting the natural gas production. As we mentioned last quarter, we continue efforts to develop formal teaming arrangements with other large companies in the industry in order to support the Department of Energy site operating contracts bidding -- bid at both Oak Ridge, Tennessee and Hanford, Washington. Some of these projects are entering the procurement phase within the next few quarters, and we've seen significant -- or, excuse me, we've seen successful teaming arrangements and who are providing a unique value from our projects and new technologies through our fix facility, which provides significant cost savings within the project baseline budgets and schedules. On one final note, let me briefly touch base on medical subsidiary, where we continue to carefully manage costs. As I mentioned, last quarter, we were able to operate on a minimum budget as we've shifted our strategy to focus on international partnering strategy, where we can work with partners that are much better equipped to develop a medical product and advance it through the appropriate regulatory bodies. Our partners continued to advance the process in order to address the regulatory road map. Initially, we're focusing on smaller markets such as Italy and Canada, where the cost and the regulatory hurdles are much lower. This will allow us to show proof of concept with minimal capital expenditures at the subsidiary level. This strategy will allow us to advance the development of our processes without the need to raise near-term capital at the subsidiary level and dilute Perma-Fix' interest in the subsidiary. Once we hit certain milestones in these other markets, we will either pursue the U.S. market on our own or negotiate a partnership on much better terms. So to wrap up, we saw solid growth, improved profitability. Our sales pipeline is strong, and we're encouraged by the improved federal budgets. As a result of our facility upgrades and technology deployments, we are very well positioned to support large procurements within the DOE as well as providing continued support to do test bid initiative at Hanford while providing the potential for significant positive impacts to our revenue base over the next few years. Importantly, some of the projects we're working on could be quite significant and potentially transform the business when they materialize as well. On that note, I'll turn it over -- I'll turn the call over to Ben, who will discuss the financial results in more detail. Ben?

Thank you, Mark. I'll start with revenue. Our total revenue from continuing operations for the second quarter was $13.2 million compared to $12.7 million in the second quarter last year or an increase of 3.5%. Our Service segment revenue increased $929,000 or 30%, which was partially offset by a reduction in our Treatment segment of $484,000 or 5%. This decrease at Treatment was primary due to the closure of our M&EC facility, which last year recognized $1.7 million of revenue and only $76,000 in this quarter as we continued work towards transitioning the capabilities from that facility over to our other plants. For the six months ended June 30, '18, our total revenue was $25.8 million, consistent with the $25.4 million in the prior year. And again, as with the quarter, the year-to-date Service revenue exceeded the prior year, while the year-to-date Treatment segment was lower than the prior year, primarily due to the reduction at the M&EC facility. On the cost of sales side, our cost of sales were $11.1 million, up from the prior year cost of $10.4 million. Within the quarter, we did book $1.2 million of additional reserves related to the M&EC closure. Without this expense, our cost of sales would have shown a small decrease of approximately $459,000, even though we had more revenue in the quarter. Our gross profit for the quarter decreased by $2.4 million in Q2 of '17 -- I'm sorry, a decrease from $2.4 million in Q2 of last year to $2 million this year, a decrease of $311,000 or 13%. Again, the impact of the $1.2 million reserve for M&EC closure negatively impacted the gross profit. Excluding this increase in the reserve, our gross profit would have increased by approximately $904,000. On the year-to-date, gross profit was $5.4 million compared to $5.1 million last year. And finally, again, this gross profit includes this additional reserve at M&EC, and excluding it, our gross profit improved by approximately $1.5 million on comparable revenue. Our SG&A costs for the quarter were $2.6 million, down from $2.8 million last year, primarily due to lower costs for outside services and bad debt. For six months ended June 30, our SG&A expenses dropped about $264,000 due to lower payroll-related costs. In the second quarter, of note, we booked a net gain of $1.6 million related to the share exchange and cancellation of our preferred shares of our M&EC subsidiary. This transaction removed approximately $1.3 million of M&EC preferred shares from our balance sheet as well as approximately $1 million of accrued dividends. We had income from continuing operations net of taxes for the quarter of $788,000 compared to a loss of $1.2 million last year, an improvement of $2 million. For the six months ended June 30, our income from continuing operations net of taxes was $1 million compared to a loss of $1.9 million in the prior year. We had net income attributable to common shareholders of $610,000 compared to last year's net loss of $1.2 million. And over six months, our net income attributable to common shareholders improved from a loss of $1.9 million in prior year to a profit of $745,000 this year. We had net income per share for the quarter of $0.05 compared to a loss per share of $0.10 in the prior year. Our adjusted EBITDA from continuing operations, as we defined in this morning's press release, was $846,000 compared to $586,000 last year. Our adjusted EBITDA from continuing operations year-to-date is now $1.6 million compared to $1.4 million last year. Turning to the balance sheet. As compared to December 31, 2017, our cash balance at the end of the year was $2.2 million, up from $1.1 million at year-end, reflecting the improved collections of our receivables. Collectively, our accounts receivables [indiscernible] current unbilled receivables dropped $3.4 million, reflecting our improved collection and billing efforts. Our current liabilities were down approximately $1.7 million, reflecting the company's improved liquidity position despite the increase in the closure cost of the $1.2 million. Our backlog at the end of the second quarter was $7.4 million compared to $7.7 million at year-end and $6.5 million in June of 2017. Our current closure reserve at the M&EC facility was $924,000 at the end of the quarter. Our total debt at the end of the quarter was $3.5 million, and that's net of all debt issuance costs, all of which is primarily owed to our credit facility, PNC Bank. Finally, I'll summarize our year-to-date cash flow activity in the second quarter. Our cash provided for continuing operations was $2.7 million. Our cash used by discontinued operations was $322,000. Our cash used for investing in continuing operations was $528,000, of which $554,000 was for cap spending. Cash provided from discontinued ops is $36,000, and cash used for financing was $579,000, which represented primarily from our monthly payments on our term loan of $610,000 and offset by cash receives for the issuance of common stock on exercise of options. With that, operator, I'll now open the call for questions.

[Operator Instructions]. Our first question is coming from the line of Evan Greenberg with Legend Capital.

Glad to see all the progress you're making on the cost side and the backlogs have -- they're really good year-over-year, even quarterly had grown. I know business is lumpy. I wanted to get an idea -- there's a recent article in The Wall Street Journal and in Seattle Times about the Hanford facility increased spending of $200 million and whether you're going to see any of that revenue flow through to Perma-Fix. What's the opportunity there for Perma-Fix?

Evan, this is Mark. I'm not sure exactly what you're referring with regards to $200 million. What I think you're referring to is the budget increases for the DOE EM budget, which was resulting in a $200 million increase for the Hanford facility.

That's correct.

Yes. So to answer your question, no. We do -- we are seeing impacts, as we speak, from the budget in regards to additional waste streams that we're currently looking at and providing proposals for the third quarter. But basically, Hanford doesn't have a significant amount of waste in storage that they're funding with that money to come our way that we know of at this point. So kind of -- we see Hanford, as far as the site itself, as largely flat through the quarter. We are seeing impacts at other facility though.

Okay. Do you think that it just takes a while to flow through that bid activity will increase on that over the next year or so?

Yes, we do because '19 is looking good as well. When it comes down to the revenues, it depends on the DOE site managers and their counterparts DOE, whether -- on how they prioritize their budget increases. And we do expect through to next year to see increased waste come out of storage because they do have -- keep a large amount in storage and trickle it out based on how much they want to fund labor versus waste management. And so we do expect that to increase, and we're working with them right now on what FY '19 is going to look like, but we are seeing numbers [indiscernible].

[Operator Instructions]. Our next question is coming from the line of Bill Nasgovitz with Heartland Funds.

So Mark, you mentioned that you've seen an increased activity from the Navy and other governmental bodies. What do you associate that with? Or what's the catalyst?

Well, Bill, on the DOE side, it's historically budget. But outside the DOE, for example, the Navy's got a number of new opportunities that they don't normally have on the radiological waste generation side, and the Navy generates a very sustainable amount of waste each year from nuclear propulsion that is easy to estimate. And we get a certain portion of that every year that they generate. What's new -- what's increased on the Navy side, which is quite interesting, are the opportunities associated specifically in remediation projects in San Francisco as well as other locations around the country, where they're cleaning up sites. And so we're seeing some increase there. On the Corps of Engineers side, they're also doing a number of remediation jobs at formerly used -- or the FUSRAP project, they call it, which are formerly sites that the Army use in defense projects that had radiological components. So we're seeing more remediation projects underway when they generate that waste. That's where we get the opportunities. And as I mentioned, Bill, we're excited about the soil sorting technology. This is a real game changer. And there's a couple out there right now. We've deployed a number in the past. But as they're going to large volume remediation projects, these soil sorters dramatically cut the costs because you're segregating the soil before you go to landfill with it. So you're only sending what has to go. So hope that answers your questions in general, Will.

Could you give us just a general -- like what the size might be or the range of...

I really can't because we got procurements that are out right now but the Navy, in general and overall is going to be spending hundreds of millions in San Francisco. There's a number of projects you can look up online that are very high-publicity projects going on out there. And in the Corps side, the FUSRAP budget, which generally runs around $120 million to $150 million, has seen some substantial increase of, I want to say, 20%, 25%, this year as well. That's where most of the radiological work for the Corps of Engineers comes out of. And in addition to that, we also see -- I haven't mentioned Canada much. We are also seeing this continued growth in our Canada work as well at several sites up there that are in remediation as well.

And what do you anticipate we'll do up in Canada for the year in terms of overall revenues?

It's pretty flat. As far as overall revenue, Canada this year, I'm going to estimate between $2 million and $3 million, and I would hope to significantly increase that, at least, two or threefold for next year based on the types of work that we're bidding and the positions we're in up there.

I came on late, so I might have missed any commentary on Services. Can you give us a little bit more color in terms of the type of contracts and the size of contracts and who we might be bidding with or...

I can't get into details on specific bids, Bill, because of sensitivity associated with procurements. But we're bidding a lot of work right now. And I can give you numbers of bids. For example, we have 16 bids being developed today in here, which typically we have 4 or 5. And it doesn't mean we're going to win them, but we like to think we have a pretty good idea of our win percentage, and so that's encouraging to me. And so we're seeing a lot of procurement activity. We did go through a little bit of a down period, as I mentioned in my notes, where we didn't do a lot. I think we did 13 bids, as I mentioned, through Q2 alone. So we're way ahead of that for this quarter and should see Services increase in the coming months and quarters. And keep in mind, with Services bids, it can be some period of time before they make the award. So we still have a lot of awards outstanding, as I mentioned, about $100 million in the Q that we're waiting for clients to award. And then we'll easily do that for this quarter as far as additional bids that we'll be putting in.

Could you just, maybe for shareholders, just outline where Services might be? I mean, what do you think is possible looking out 2 or 3 years or so?

Our general strategy as well for John...

And what kind of margins are possible in that business?

They're a lot thinner margins than on the Treatment side, Bill. But generally, our goal is to get to $100 million in the next couple years in total revenue and to have Services be at least 50% of that. And that's very attainable, but we plan to be a lot big -- that's without any really material wins. With the -- what I mentioned on the call was supporting some large businesses on the DOE site contracts, and these are $4 billion to $5 million, $6 billion contracts over 10 years each. And this is the first time in a long time where Perma-Fix has been able to offer up our treatment facilities as part of the overall plan to clean up the site. And that puts us in a position for a lot more significant role and a lot more sustainable revenue and a lot more profitability through volume than we've seen in quite some time. And Perma-Fix had one of these contracts. The CHPRC contract was awarded in 2012 or I think I believe it was -- or ended in 2012. But [indiscernible] for a number of years, and that's the type of contracts we're bidding now with the same type of revenue expectations. So there's a number of material contracts. There's big DOE ones I've mentioned. The RFPs or draft RFPs are due out in Q3 so basically next 2 months, and we're expecting final RFPs and bids to go in, in the springtime and awards within 6 to 9 months after that. So that's kind of the time frame.

Okay. You mentioned less profitable, but what kind of margins can shareholders expect from this if we get to $50 million?

It's tough to say. It's a really difficult answer, Bill, because it is scalable.

A range?

The overall range on Services would likely be up to 5% and 15% -- or maybe up to 20%, 25% depending on the risk that the contract is taking. But 5% to 15% is, at the end of the day, is pretty safe.

Yes. Bill, I'll just add kind of average -- it averages in the 10% range. As Mark said, the bigger and the probably more competitive ones are going to be tighter margins, and then the smaller stuff can be up 15% and 20%. So we see about 10%, 10% on average, 10% to 12%.

The next question is coming from the line of Joe Brown, a Private Investor.

I wondered -- you must have some pretty good visibility on revenue for the current quarter. And I'm just wondering, do you have a range for revenue in this quarter and the third quarter?

Basically, we see ourselves bullish in Q3. And with our backlog, where it is right now at $7 million and growing as well, that provides a lot of clarity on where we should be in the third quarter barring any type of significant delay in receipts, which can always happen. Based on the budgets and some of that lagging revenue from waste that we're processing right now, we expect to beat Q2 and to see a modest increase in profitability as well at a minimum. So we -- Q3 looks good. We're five weeks into it. And we've met our receipt goal pretty much for the quarter, overall, which is obviously seven weeks or so ahead of plan, ahead of schedule. So as long as we continue to see the path that we're on right now for the next seven weeks, we expect to beat last quarter's numbers.

Well, do you think you can hit $15 million in revenue this quarter?

I hate to commit to that, Joe, because I never know exactly what Services proposals are going to be awarded or not. But again, we expect a bullish -- we're bullish over Q2.

Okay. You still had some write-offs pertaining to that shutdown that you had, which affected your earnings last quarter. Are you done with that? Are you adding more write-offs related to that one facility you shut down?

That's the M&EC facility. And I'll let Ben provide specifics. But basically, right now we're at the final throes of expenses. We have some waste we have to dispose of, not much left. I think we've disposed 95% of the waste that we've generated from there. That's where the major cost liabilities lie, is when you clean up a facility like that, you generate a lot of waste that obviously doesn't have revenue associated with it. So that's mostly been removed. Our labor is down to a minimum level. We're basically just doing surveys now to address -- to characterize the facility for turnover and for release. And then we have the regulatory approvals to get through, which the states are very supportive with us on, very supportive. So we expect to be out of there in -- by end of September with minimal additional cost. Ben, do you have anything to add to that?

Yes, setting that reserve is important for financial reporting, and as of right now we believe that we are fully reserved for it. The difference why we had to book, it was new and that showed up different other ways that we weren't aware of. And the time it took to cut materials up, it's a very laborious procedure. But we are, as Mark said, we're kind of in the stretch drive here, and we believe that should be it.

Okay. I also wanted to ask you about the conversion of those preferred shares. That had an impact on your earnings as well, right? Do you -- it seemed like, in your report, you had to pay off some dividends for those.

Well, we didn't pay off. We had approximately $1 million of dividends on the balance sheet.

Oh, you wrote them off.

And we wrote them off, right. So that was part of the pickup, and then the difference in value between the preferred shares and the common stock we swapped for them added to that profitability. So it was kind of a -- it was a combination of the two.

Obviously, you must follow your stock price, your -- valuation of your stock. And we had -- I think, earlier in the quarter, you got up to like, I don't know, $5.15 and then the stock went backwards all the way down to about, I don't know, $4.30 or $4.40, somewhere around there. So I'm just wondering what -- to what you attribute that. Do you think that's some of those preferred shareholders that got converted or sold off the common stock that they got? Or basically what's your thoughts around that?

Joe, no, those shares are restricted for six months under 144, so those shareholders have to hold them at least that long.

I see.

No, I -- yes, I can't answer. I mean, there was not a lot of news either way. I think it's just the market -- movement in the market.

Yes. As I follow this, it seems -- it also seems to me that because of the low price of your stock and the limited share, it seems like it's very easy to manipulate the stock up and down. Sometimes you see that somebody sells or buys 100 or 200 shares. They can move stock significantly by doing that. I just wondered, have you ever given some thought to how to prevent this manipulation of your stocks up and down like that with just almost a minimum purchase? You know what I'm saying? I mean, I think you understand what I'm saying.

Yes. We've looked hard at that at times because we've had questions from investors on and off. This is Lou Centofanti. And we've also had -- to be honest with you, we've also NASDAQ look at it. And what you see is with the -- you'll see, at the end of the day, some trading going on, but again, it's -- when we've talked to people who look at it real closely, it's usually been computer-generated trading at the end of the day. People are getting out of positions. Very minor loss and there's no...

Yes. I mean, I've seen 100 shares bought or sold, moves the stock 4% or 5%. I mean, that's -- is there any defense against something like that? Or have you ever thought of any strategy to counter that?

We find we have very -- we -- with the trading itself, we have very little control over that. We watch for irregularities and trying to be on top of that. But no, we -- the end of the day, trades are the ones that are the most painful, which we see, and when we've talked to the experts and we've talked to NASDAQ compliance people, they've added and they said there's very little you could do about that.

Our next question is coming from the line of Chuck Dickinson, a Private Investor.

I just wanted to clarify on the M&EC facility. Are your remaining cash costs then to finish up whatever you need to do there? About that number that you quoted on the reserve, $924,000, is that the additional cash that you think you're going to need in sort of a conservative worst-case scenario to close that facility and it will be completely done, targeted by the end of September such that, going forward from the end of September, there will be no further costs related to that?

Correct. That would be on the expense as opposed to cash though. That's expense, yes.

How about the cash cost to finish up closing out the facility?

Cash is -- there are -- there is some in the accounts payable. So it's approximately in the $2 million range. And that's what...

Of that spending, $2 million left to go. And that would include the reserve of $924,000. That's assumed in the $2 million as well.

Correct, correct, yes.

Okay. In your cash balance, I was confused. I couldn't tell if you were giving a cash balance figure of $2.2 million as of the end of December 31, 2017, or as of the end of the most recent quarter here, June 30, that you just reported.

At June 31, our cash balance was $2.2 million.

$2.2 million, okay. And are you seeing anything -- last question -- from the government in terms of -- are all the officials in place within this current administration that would be involved in helping your case along or at least expediting work that needs to be done on cleanup? Because the comment was made, I think, a couple of quarters ago, maybe Lou had made it, that one of the problems that tended to crop up was it's one thing to have the money there, it's another thing to have people in place at their jobs to have the stuff move along. And there was a sense that there were a lot of positions that were still vacant. You really didn't have the personnel in place to see through the work that needed to be done.

Yes, Chuck. There's been significant improvement on the side of the government to fill those positions in the last two quarters and particularly, within the Department of Energy in the EM organization, these positions are filled. We have good relationships with those officials. They know what our facilities can do and the value that Perma-Fix brings to the overall mission. So we're very pleased with who they put in there. We know that they're very strong managers that have been in the industry a long time, know what they're doing, and they're really charging hard, and we're very encouraged by that.

Okay. And are you concerned at all about any of the noise going on about the wall and the potential government shutdown if the administration doesn't get what it wants? I would presume that would be fairly short in nature given the pain that would be exacted? But do you have sort of a contingency plan should the government shut down for a short period of time?

Yes. We don't -- that does not -- as risks go in our business, that's not one of the bigger ones. Obviously, a shutdown can always have some type of impact. But with backlogs that we have, what that would typically do is delay shipments, but the waste still needs to move. And so it wouldn't be that big of an impact -- it shouldn't be that big of an impact on a quarterly basis at least.

Chuck, one last comment on the cash and the M&EC closure. As we reported in prior quarters, upon closure and release of that facility by the state, we will free up $5 million of cash that's currently in restricted securing bonds right now. And so that's -- you can add that to the $2 million we have current.

So that's not already in the cash balance towards it. When that cash is $2.2 million currently, that doesn't include another $5 million potentially that you should have coming?

Correct. We currently carry in -- and it's not real visible on the balance sheet and -- that goes out with the press release. But we have $15.3 million or so, $15-plus million that secures our closure bonds at our facilities, and with -- it's a -- that closure requirement is going to drop significantly with M&EC, which is one of our biggest plants. And so we are -- we've already got an arrangement with our insurance company to release $5 million shortly after we get full release. So that regulatory part at the end of the process that Mark mentioned will trigger a short-term turnaround of cash.

So potentially, if there were no other changes in your cash balance -- and I realize that's a moving target, and hopefully it's a positive target with positive capital flow. But if there's no change from the current balance of $2.2 million, then shareholders could reasonably expect either at the end of the September quarter or certainly by December 31, assuming that the regulatory sign off on that facility, the cash balance could move from $2 million to somewhere closer to $7 million on the balance sheet.

Correct. Now keep in mind the liabilities that I mentioned are higher than they would normally be, but we will be covering those liabilities with the extra cash. Right.

And what are the -- are the liabilities you're talking about the $2 million...

The $2 million, correct, yes, yes.

So you're still going to have net of at least several million -- a few million dollars extra to the cash balance. So then you're looking at a pretty low level of debt, $3.5 million. I think you said on the last conference call, there was really no need to pay it down much further. I mean, you could if you want, but it's low enough now that you wouldn't have to do that. Would the cash then just go to fund the further operational growth organically here? Or would you ever consider buying back some shares if they stayed below the $5 range?

Yes. In the short term with the initiatives we have, it'd be the former. We would look at reinvesting it at least from what we could see visibly. But you're absolutely right. We will be in a much stronger cash position all other things equal.

Yes, okay. Well, that's certainly different from what it used to be when you were carrying close to, what, $15 million to $20 million not that many years ago. So you've done great job of paying down that debt and I'd love to see that continue.

We have reached the end of our question-and-answer session, so I'd like to pass the floor back over to Mr. Duff for any additional concluding comments.

Okay, thank you. I'd like to thank everyone for participating in our second quarter conference call. As I mentioned earlier, we achieved solid growth and profitability in Q2. Our backlog is up. We've increased bidding activity in our Services segment, and we're looking forward to several large projects within the Treatment segment that could be transformative. We look forward to updating you again next quarter and like to thank you again.

Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation, and you may disconnect your lines at this time.