Perma-Fix Environmental Services' (PESI) CEO Lou Centofanti on Q3 2016 Results - Earnings Call Transcript

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Perma-Fix Environmental Services, Inc. (NASDAQ:PESI) Q3 2016 Earnings Conference Call November 18, 2016 11:00 AM ET

Executives

Natalya Rudman - Crescendo Communications

Lou Centofanti - CEO

Ben Naccarato - CFO

Mark Duff - COO and EVP

Analysts

Sam Roboski - SER Asset Management

Doug Dyer - Wolverine Trading

Operator

Greetings, and welcome to the Perma-Fix Environmental Services Inc, Third Quarter 2016 Investor Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation [Operator Instructions]. As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Natalya Rudman of Crescendo Communications. Thank you. You may begin.

Natalya Rudman

Thank you, Christine. Good morning everyone and welcome to Perma-Fix Environmental Services’ Third Quarter 2016 Conference Call. On the call with us this morning is Dr. Lou Centofanti, Chief Executive Officer; Ben Naccarato, Chief Financial Officer; and Mark Duff, Chief Operating Officer and Executive Vice President.

The Company issued a press release this morning containing third quarter 2016 financial results, which is also posted on the Company’s Web site. If you have any questions after the call or would like any additional information about the Company, please contact Crescendo Communications at 212-671-1020.

I'd also like to remind everyone that certain statements contained within this conference call may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements on this conference call, other than the statements of historical fact, are forward-looking statements that are subject to known and unknown risks, uncertainties and other factors, which could cause actual results and performance of the Company to differ materially from such statements.

These risks and uncertainties are detailed in the Company filings within the U.S. Securities and Exchange Commission. The Company makes no commitment to disclose any revisions to forward-looking statements or any facts, events or circumstances after the date hereof that bear upon forward-looking statements.

With that out of the way, I'd like to now turn the call over to Dr. Lou Centofanti. Please go ahead, Lou.

Lou Centofanti

Thank you, Natalya, and welcome everyone. First, I’d like to say we’ve been very disappointed with what has happened to our ongoing business, both in the quarter and the year. Looking back at the start of the year, we had orders that indicated we’re in-store for a very good year. What we have seen though has been a large number of shipments that were delayed and unanticipated spending constraints at the federal level. This was not unique to us as it affected all our peers in this industry as well. Even though budgets were not reduced, work programs were put on hold until after the election. Because of this, it's been a very trying quarter and year. So again, we had to go back to our lender for wavers, which were approved. But it has delayed our financial reporting.

However, as we look ahead, we believe we’ve gotten through most of the unanticipated macro events, and are optimistic about the outlook for the New Year. We’ve begun to see ways that was delayed beginning to ship and expect to see improvements in the fourth quarter. And so as a result our currently anticipated adjusted EBITDA for the fourth quarter of ’16 will be approximately $1 million.

Now, as we look ahead, again we’ve continued to be very good reason to be excited. First and foremost, the project that I get the most questions about is I return last night and spending a week at Hanford, pleased to report that we are near completion of the previously announced demonstration project related to the treatment of high level waste. And again expect that to have to be totally completed by the end of the year. This would represent our first foray and a high level waste treatment, and I can’t emphasize enough the revenue potential from this project, which could eclipse anything we’ve done in the past.

We are on track to complete the initial demonstration as I said in the coming weeks, and look forward to providing additional updates in the near future. In addition to the share of magnitude opportunity, our customer is motivated. Not only are we able to provide customer more practical path forward to treat this waste to the cost savings from our process versus any other alternatives or staggering. I would add one comment is that we are breaking out a lot of new ground, and there are variety because this is a whole new approach. There are a variety of institutional barriers that we must continue to overcome for this project. But we’re very optimistic, and I think we can.

Turning to the service segment, we expect that we experienced some weakness as contracts ended. However, new projects have begun and we’re rapidly building our sales pipeline, especially due to the large part to tremendous efforts of Mark Duff who recently joined us Executive VP. In fact that I’d like now to turn the call over to Mark, who will provide some further insight into where we are within our business development efforts. Mark?

Mark Duff

Per-Fix does remain optimistic regarding growth over the next several quarters due to several changes in near-term objective or clients, and as well as reorganization overall of our business development programs. There is immediate trend in the government sector who we’re seeing over the past few weeks that includes the need to increase the movement of wastes that remained in-stores over the past year to address their objectives, which focus on labor stability as a direct result of the upcoming elections.

Our government clients are now shifting focus to spending on non-labor objectives, including waste disposition over the stores ways that will directly impact our treatment facilities over the next six months, this includes potential for increased inventories and processing. We’re starting to see that shake-up just in the past a few days actually. In our new growth services sector, we've seen a rapid increase in procurement opportunities both in the government and the commercial sectors as a direct result of some of the changes we've made and meeting half of our business development program, and we've seen growth opportunities through ongoing procurements in remediation, radiation protection consulting and cleaning opportunities with larger firms that have not previously recognized the Perma-Fix discriminators and what we actually bring to teaming, for some of the larger projects that have come up in the government sector.

While these procurements can often take several quarters to recognize wins and the associated revenue, we've seen several immediate new opportunities from sole sourcing in both services and waste treatment that will impact our revenue in the next two quarters, which will likely drive us to meet or exceed our plan. So it's kind of a summary. So, Lou, I'll turn it back to you.

Lou Centofanti

Thank you, Mark. As our initiatives within both services and treatment begin to take hold, we continue to look at all aspects of our business to identifiers of cost savings. As previously announced, we are moving forward with the closure of our MNEC facility in Oakridge, Tennessee. We're relocating certain equipment; shifting certain specialized capabilities to our other facilities, which will allow us to easily reroute waste streams with minimal impact to revenue or disruption to our customers. This closure we estimate will save us $2 million to $3 million annually from fixed cost and should fell significantly in our bottom-line.

Turning to our medical subsidiary, very pleased to report we've entered into a -- as you know, a letter of intent private investor, subject to execution of a definitive agreement to purchase $10 million of preferred shares in Perma-Fix Medical, with an option to invest in additional $10 million through the exercise of warrants. We believe this investment will provide us the necessary financing to execute our strategy through commercialization of the Tc-99m technology. The fact this transaction will be nearly twice the current share price of our subsidiary on the Warsaw Exchange, further illustrate the confidences investor has in the technology.

This cash infusion will help us significantly accelerate activities leading-up to and beyond submission of regulatory filings. And also the cash infusion combined with the new management team consisting of Steve Belcher and John Climaco will allow senior management of environmental to now focus 100% of our time and energy on the nuclear waste business. As part of the medical -- as you've also seen, we were pleased to see that we were issued another patent for the Eurasian market, which could represent an attractive market for our technology.

So to wrap it up, this has been a very difficult year for the reasons which we mentioned earlier. There're unanticipated and an industry wide phenomena. Nevertheless, strongly believe we're back on track. With Mark on-board, we see a significant opportunity in the services segment and overall our low level of mixed waste business. We're on a cost of completing a demonstration project to treat small quantity of high level radioactive waste. It could be a monumental achievement on Perma-Fix with the industry as a whole, since it provides a viable cost forward path for the streams that we’re focused on.

With that, I'd like to now turn the call over to Ben, who will go into more detail on the numbers, then I'll be back, myself and Mark and Ben, would be back to answer questions at the conclusion of formal remarks. Ben?

Ben Naccarato

Thanks, Lou. Starting with revenue, our total revenue from continuing operations for the third quarter was $12.9 million compared to last year's third quarter of $17.3 million, a decrease of $4.4 million or 25.4%. The decrease was a result of revenue shortfalls in both our operating segments. Our services segment was down 18.1% as a result of timing of the ongoing projects during the quarter. The largest shortfall came from the treatment segment where revenue was down 29.7%. As Lou mentioned earlier, we continue to see delays in waste shipments, primarily from our government customers.

Turning to cost of goods sold, our cost of sales was $11.1 million for the third quarter compared to $12.4 million in the prior year, a reduction of $1.2 million or 10.1%. In the treatment segment, costs of sales were down $364,000, primarily from the reduction in variable expenses from the lower revenue, and offset slightly by small increase in our facility expenses from $98,000. Costs of sales from our services segment were down $885,000 with the variable expenses relating to the lower revenue of $811,000, and also lower fixed expenses of $74,000.

At the gross profit line, the quarter was $1.8 million compared to $4 .9 million in 2015. This $3.1 million reduction was essentially volume related with lower revenue accounting for $3 million, and a small revenue mix of about $100,000. The SG&A for the quarter was $2.7 million compared to $2.9 million last year, a decrease of approximately $200,000. And lower marketing and property related costs were the main drivers of this decrease.

Our loss from continuing operations for the quarter before taxes was $1.5 million compared to income of $1.3 million last year. Net loss attributable to common shareholders was $1.6 million compared to last year's net income of $1.1 million. Our total loss per share for the quarter was $0.13 compared to income per share of $0.09 in prior year. Our adjusted EBITDA from continuing operations, as defined in this morning's press release, was $152,000 compared to $2.9 million last year.

Turning to the balance sheet, our cash was down $1.4 million, primarily from the losses incurred during the fiscal year. Our unbilled receivables were down $1.8 million, primarily from the reduced incoming waste during the quarter and the year. Our other receivables were down $1 million from amortization of prepaid expenses and the write-off of certain other prepaid expenses related to our M&EC facility. Our impairment of the M&EC tangible and intangible assets explains the drop in the property and equipment and the intangible categories.

Waste backlog for the quarter ended at $4.6 million compared to $4.7 million at year-end, and $5 million in September of 2015. Our current debt, excluding the issuance costs, was $1.2 million down $1.3 million from year-end, and lower than prior year third quarter by $2.5 million. And our total debt, again excluding debt issuance costs, at the quarter end was $10.8 million and was entirely due to our lender PNC Bank.

Finally, I'll summarize our year-to-date cash flow activity for the quarter; our cash used by continuing operations was $1.3 million; our cash used by discontinued operations $710,000; cash used for investing was $150,000, of which a $104,000 was capital spending; our cash provided by investing activities by our discontinued operations was $46,000; and our cash provided for financing was $838,000.

With that, operator, I'll now turn the call over to questions.

Question-and-Answer Session

Operator

Thank you. We will now be conducting a question-and-answer session [Operator Instructions]. Thank you. Our first question comes from the line of Sam Roboski with SER Asset Management. Please proceed with your questions.

Sam Roboski

I guess like all the other shareholders, we're disappointed about what -- about the results; but let's hope we’re going do something good in the future. As far as the medical, the 48.6%, is that -- was the $10 million preferred or the -- what would the rate, the dilution be if there's $20 million of preferred?

Ben Naccarato

If there's $20 million, the investor could own up to 62%.

Sam Roboski

62%, so, it's their option not our option?

Lou Centofanti

Correct.

Ben Naccarato

Yes, it's, 48.6% would be at %10 million.

Sam Roboski

So, that dilutes our -- the value of this investment pretty significantly; I guess, because we haven’t somebody putting money cheaper or what is the rationale? I mean we expected a higher valuation I thought.

Lou Centofanti

This was, as we looked around in terms of where this technology is at this stage, this was a pretty good deal we found in terms of what we could do. So, we end-up with the exercise -- we'll end-up with about 30% in the first stage and after the first and 31 -- little over 31%. And after totally complete, if all warrants are exercised, about almost 25%. So, it is dilution and it is significant dilution. But the Company will also have $20 million, over $20 million in cash to [multiple speakers].

Sam Roboski

Now is this a higher valuation than what did you repaid, or is this a lower valuation?

Lou Centofanti

It's a lower valuation than DGRM. It's higher than the present market value, almost twice the value of the present market value. But lower than DGRM.

Sam Roboski

Now as far as posting of Oakridge, is there any other costs that have to be charged for the closing, any additional costs?

Ben Naccarato

Most of the significant costs have been taken. It is not -- it doesn’t categorize as discontinued operations because it is nuclear. And therefore, the ongoing facility costs are going to have to be absorbed. And they all slowly slow down. If they are closure related, they have been accrued for. But there are certain costs like utilities and just keep in -- and there is some waste still being process there. So, you’ll see a reduction. It’s got -- the $2 million plus, it’s going to scale-up as we go forward you’ll see more of that, and ultimately that sort of a run-rate at the end of the process.

Lou Centofanti

But the other way to look at is Sam though is that -- or at least over the next, probably five months, six months, there’ll be still operations there going on. And at the same time, we’ll be closing. So, we’re doing this in a -- trying to do in a very rational way to minimize the impact, both on the technology customers and the bottom line.

Ben Naccarato

But we do take the entire write-off of the intangible assets that was the biggest hit. And most of the fixed assets have been relived, so they will depreciate out at the end of this process. And that’s why we’re actually seeing a little bit higher depreciation expense from that adjustment.

Sam Roboski

Now the write-down from 42% to 33%, December to September, there is no additional write-downs. And you speak of a $16 million fourth quarter, that’s enough to breakeven or make a profit?

Ben Naccarato

The adjusted EBITDA line?

Sam Roboski

I mean can you make a profit with $16 million in the fourth quarter, or I mean…

Ben Naccarato

We’ve projected a fourth quarter of about $1 million of adjusted EBITDA, and that kicks out medical and discontinued ops and some of the anomalies.

Sam Roboski

But as far as GAAP basis of profit, or is it before taxes is that...

Ben Naccarato

I mean if you ignore the write-downs from M&EC, but with those numbers in the books for the year, of course there will be a lot to share for the year.

Sam Roboski

No, but the fourth quarter will be profitable?

Ben Naccarato

Well, with -- our numbers right now, we’re consolidating medical. So, we have those two assumed, and certain discontinued operations. So that’s why we really try to focus the investors’ attention on the adjusted EBITDA because that’s the number gives you a focus on the cash flows of the current operations.

Sam Roboski

And what is the medical say in the fourth quarter, what is for the nine months, for the first nine months medical?

Ben Naccarato

Let me just tell you that. For nine months we’re at -- we spent about $1.1 million.

Sam Roboski

So, is it fair now the $300,000 in the fourth quarter?

Ben Naccarato

Probably a little less until the deal is done, we’ve kind of down to hatch it a little over there.

Sam Roboski

Now, there is one thing that I noticed in the last day or so, EnergySolutions in Valhi contest, DoJ’s effort to block waste control specialist acquisition. Are you getting competition in this area from Energy Solutions? And is this acquisition good or bad for Perma-Fix and is Energy Solutions and you and everybody else, is there less money being spent or how does this shake out?

Lou Centofanti

Well we had -- we were very interested in the merger of the two, and have I guess you might say mixed-feelings. WCS is a partner on several projects with us. And we -- I think one from a business point of view, you've seen both of those also badly hurt by the, what we saw with, in the industry. The merger itself, we're just watching it and seeing what happens. I hate to tell you we're negative or positive where there is some pluses and there is some minuses for us.

Sam Roboski

What size is WCS, and to the extent they were a partner with you. Presumably they would no longer be a partner with you and they would be...

Lou Centofanti

We've got very strong contracts with them that if the Energy Solutions has already said they would honor. So at this point -- and it will be very good for whoever owned them, those contracts, including the one on high level waste. The one on high level waste our partner is WCS.

Sam Roboski

So you could gain more business going forward if this deal goes through?

Lou Centofanti

The competition between us and Energy Solutions is not that great. They like large volumes of waste. We compete once in a while and we're partners once in a while. So, again it's not -- it's hard to say what the effects of the merger would be. Now, Justice Department has now brought a lawsuit to stop it, and we'll see how it all ends up.

Sam Roboski

And is it your take the valuation that Energy Solution is putting on waste control specialist, a higher valuation in the marketplace than Perma-Fix without medical?

Lou Centofanti

No, they put a very high value. They're paying a very heavy price for WCS. And so in fact that was one of the questions why are they paying such a high price for a Company with very low revenue. We have probably more revenue than WCS.

Sam Roboski

So what does do for Perma-Fix to finding somebody that's willing to pay a price comparable to what Energy Solutions is paying for Perma-Fix? Are we looking for something like that?

Lou Centofanti

Well, we, as a public company, we're always looking for something like that. But it's -- with the two joining, it would be interesting for the industry, without them joining, it will be probably even more interesting for the industry. It will open for a variety of other opportunities for the industry, if they don't merge.

Sam Roboski

At this point in time, Lou, I'd like to see a higher valuation for Perma-Fix. Good luck. Hopefully, we could see something soon.

Lou Centofanti

Thank you, Sam.

Operator

Our next question comes from the line of Anthony Marquezi, a Private Investor. Please proceed with your question.

Unidentified Analyst

I want to congratulate you on your patience when people monopolize the conversion. In any case, two questions for you; one, could you just go a little further. I mean you’ve explained the quarters of that's history. Could you just go a little further into your high, low quantity but high level waste opportunity? You mentioned early very perfectly that you sought to work through some issues, or potential issues. Could you just take us through a timeline? Okay, you are finishing the fourth quarter; what happens next; what are the hurdles. If you can explain that -- I mean if you can say that without breaking.

Lou Centofanti

We've been -- I’d like to describe this is that we're breaking a lot of new ground here. We're taking treating high level waste. And when finished we’ll actually dispose of it. And you already heard it earlier, our partner is WCS. So that somewhat explains where it's going. Is the -- every step of the way is we're being extremely careful, and because we are breaking a lot of new ground and making sure that everything is perfect. And we've crossed all our Ts and dotted our eyes.

So we are accepting -- it's less than five gallons as a demonstration project, and that it's -- we have just given; we sat; we went through the analysis over the last two-three weeks. So Perma-Fix has now approved the waste coming to our facility. The next step is the customer now has to sign the shipping document that they agree with us, which is usually a very perfunctory operation. But because of the visibility of this project, they will carefully do the same as we've done.

Our hope is within a week, we will receive the material, and then go through a process over the next two weeks of treating it, which normally would take less than a day. And at that stage, it will go for disposal; after it's been verified by an outside firm that it meets all the standards. And again the paperwork will be -- is really the big issue here on every step; it's the technology; it is, at this stage from our point of view, the treated is a no brainer. But the paperwork is more the -- what we’re doing.

When we complete that, the next stage will be we will hope we’re focused on trying to then treat a much large volume, which would be to say approximately 2,000 gallons, which would then occur sometime in ’17. And we’re presently looking at the barriers, the issues to build the next step. Again, it won't be a tremendous money maker for us, but it would be a further step in the process.

As we would look at this, this solves some dramatic problems for the client; we're treating material that is a major headache; it is the problem for their vitrification process; they'd like to do. And we, in a sense, make it very easy then the material that we don't treat. Let's say we do get larger volumes that whatever is left can be then easily vitrified because we've treated the material that is the problem for vitrification. And as you know at Hanford, there's 55 million gallons and we figure that a large significant amount of that would fit into our system; and the remainder would then go to the turn...

Unidentified Analyst

So, this is potentially $1 billion opportunity for you guys long-term?

Lou Centofanti

More than that, but...

Unidentified Analyst

Fine, I understand, it's a long-term opportunity. Final question; I appreciate the timeline. Final question, every conference call I've been on in last two weeks, people ask, I guess I’ll ask, because the change of administration impact. How will the changes of administration impact the various parts of your business? I assume that high level waste is something that any administration would want to see removed. This is not like carbon capture.

Lou Centofanti

No, this is not like carbon capture. This offers a new incoming administration, a dramatic, very-very dramatic savings with a very simple technology. The overall -- I probably answered like everybody does that I've said over the years when people ask me with the administrations, does the republican or democrat help you? And the answer has been, we're dealing with regulations that are in place. And my old story is being an old democrat; democrats like to create new programs and start on new things and don't do good job at running existing operations. Republicans do a great job of running existing operations, and try to solve the problems we've got. So, as we sit today, we don't think we're going to see a big impact. But it's not real clear until they start appointing people and then those people define just what is going to happen. DoE other than carbon capture and the world of nuclear; I mean the world of alternate energies and everything that’s been talked about. But the nuclear clean-up as you're dealing with existing regulations and problems.

Mark Duff

Mark here, just to add to that. I think the real impact really is continued resolution and getting out of the continued resolution side, which really slows down funding stream in the government. And if you take a past budget, particularly as in December 9th, and get out of the contingency or process, that's really what do hold-up our industry moving forward on a waste stream received basis.

Lou Centofanti

And in the advantage there is, right now, they’ll continue to -- continue resolutions till March. But the -- having two houses and a President all of the same party, should mean we end-up with a budget.

Mark Duff

That's right. That’s where the role of this...

Lou Centofanti

Yes, it's kind of hard to plan with continuing resolutions.

Operator

[Operator Instructions] Our next question comes from the line of Doug Dyer with Wolverine Trading. Please proceed with your question.

Doug Dyer

It looks like anti-Savannah site, there is a company called, Parsons, there it's processing the waste there. And I was wondering if they are competing with us with their process at Hanford?

Lou Centofanti

No, they presently have a contract there that in fact will expire here shortly. And they’re doing it on-site, and there are problems at the site with the processing. So we’re very focused on that and watching what they’re doing, more from a technical point of view. And it’s quite a different system there where they’re doing an on-site, they’re allowed to keep it on-site and dispose of it on-site. Yes and what they call sort way this operation. So, we’re very interested in what’s happening there, and also interested in the re-bid.

Mark Duff

There is different waste streams overall....

Lou Centofanti

Yes, it's a much different waste stream with -- actually...

Doug Dyer

But they’re not competing with us it still, correct?

Lou Centofanti

No, they’re not competing with us. No.

Doug Dyer

And then getting to the timeline with regard to the demonstrations, you’ve talked about 2,000 gallons in ‘17. Can you give us a little bit more guidance as to what part of year that would fall-in? And is the current timeline within the expectations that you originally had?

Lou Centofanti

Yes, the timeline as we’ve always expected that we would aim for the 2,000 gallons in 2017. And from our side, we can easily -- we could probably accept it tomorrow. But the big issue for -- it's more on the government side in terms of them focus on it and to recover 2,000 gallons from the tank. And whatever it would take and how they would get it. So the problems at this point with the next step really sit with the client in terms of how they could recover it. And I probably have talked about it. We have a fixed price on this project with ourselves and our one major partner, that’s about $100 a gallon. So, it won’t be a lot of money for us. The whole project will probably run about -- that part of the project will run about $5 million. But it's again mostly because of the paper work we do and the carefulness of the project.

Doug Dyer

And just one quick-one for Mark, before I go; Mark, you said that there would be some type of budgeting differences that will be coming-up here in the results in December possibly to kind of free-up and get passed the continuing resolution?

Mark Duff

Yes, continuing with the CR really stipules government spending in regards to new projects, which are now allowed to get rolling as well as a monthly ceiling on spending that site that’s faced with. That coupled with trying to keep labor within each of the major site level through the election year has resulted in sewering a lot of waste at each site. And as Lou mentioned earlier in his discussion and is a talking point, all of our competitors are focusing pain where we’re not seeing waste movement at all. So the sooner our budget get passed, the sooner new projects, new projects soon get moving, sooner they can start moving the waste at a storage, and transport and treatment and dispose. So that does have an impact on us. Most of the impact is just delays. It doesn’t necessarily change our revenue overall on an annual basis, but it does delay it. And we’re seeing a lot of delays associated with playing for CR and hopefully on interventional budgets that is possible. I would believe that December 9th was the first target for the CR to be less or budget to be passed that I guess it's March.

Lou Centofanti

March, yes, right now, the Congress is focused on continuing till March. And then would give the chance to new Congress to come in and try to do something.

Mark Duff

But it should have been March then on that respose.

Operator

Our next question comes from the line of Bill Chapman, a Private Investor. Please proceed with your question.

Unidentified Analyst

Lou, we were talking -- you’ve mentioned 5 gallons on this initial test. We've been talking 50 gallons. Was DoE just wanted to hedge the risk of doing this, of this process, to go from 50 to 5, not that that sounds like that big a deal, but...

Lou Centofanti

It actually ended up as a big deal because of the problems of retrieval in our debt. So that they were able to find -- whatever they found, we said we'll take, because it was more important to demonstrate them to have a set amount. We wanted amount that demonstrates commercial quantities, but...

Mark Duff

...in a representative sense...

Lou Centofanti

Yes, and very representative and then they came up -- the risk was delaying at another six months, while they figure out how to get 50 gallons versus they only got 55 million sitting there. So we're going to -- so that suite we decided to go with whatever they could get us quickly.

Unidentified Analyst

Please comment on the risk longer-term about getting a larger contract and being able to get the quantities out of those tanks, since that's an issue right now?

Lou Centofanti

Well I think they're just a lot of institutional barriers, because we're doing things that no one -- that is not been done. So as I sit here today, I don't see any; but it's things will come up, issues will come up; and that's, as we move through this initial phase, there were a variety of problems that came up, that are all easily solved but they are at the time so. So I don’t know of any at the moment. But it's more the unknown when you're doing a new project, which you know.

But everybody thinks -- the client is very excited about what we're doing. Like I say, it really dramatically changes the whole view of what's there and how you do it. And it makes the existing operations very-very doable; where if they had to treat all the waste we could treat, very serious technical issues. And so it's really a win-win for everyone here, we think.

Unidentified Analyst

Obviously, getting to a larger contract right now it looks more like that could be an issue and with 2018 is that actually best case?

Lou Centofanti

The thought would be is to do a commercial sized project in '17, and then follow that with ongoing operation. As like I say, we can -- there is ways this could be done very rapidly. Again, we could accept 2,000 gallons tomorrow, but there are many barriers that -- or the process has to be further defined as you get in large quantities.

Unidentified Analyst

Now, where is Senator Murray going to be in the focusing in that sense -- in the energy?

Lou Centofanti

Well, she is -- like, I believe the fourth ranking democrat. She is on the appropriations committee. And as always played a big role in knowing what's going on at Hanford, and is very aware of what we’re doing. I think she would be very pleased with any of the results. And she plays a big role in the new Congress, so gets along well with the -- from the bipartition point of view on the committees. And in general, there is a lot of support on both sides of the aisle for the clean-up program. Most of the districts are republican that the sites are in. And so there is strong bipartisan support.

Operator

Our next question comes from the line of Joe Stefan, a Private Investor. Please proceed with your question.

Unidentified Analyst

I joined this conference a little late, so my first question would be how much cash do you have on-hand. How much cash do you have on hand at the end of the third quarter?

Ben Naccarato

$145,000 we're a net borrower. I'll accept cash flows to the revolver.

Unidentified Analyst

So another way to see it, you’re just drawing down more and more on your revolver, right, is that it to keep going?

Ben Naccarato

Yes, when we collect cash, we will pay-down revolver and keep just minimum cash on-hand.

Unidentified Analyst

So how much borrowing power do you still have left out of that revolver, what have you got access to?

Ben Naccarato

Yes, at the end of the quarter, we were at $2.3 million.

Unidentified Analyst

So you have access to $2.3 million before you had the renegotiated, is that it?

Ben Naccarato

Correct.

Unidentified Analyst

So the other thing I was wondering about is, do you have this Meckels program, and you are having this $10 million that's coming in. And I know you've set some of the companies’ money to get that going initially. Now I'm just wondering, are those funds comingled in anyway like is that a whole separate fund $10 million go strictly to medical or is it comingled with the overall companies?

Ben Naccarato

Well, in the term agreement, there is a plan to the medical company owes Perma-Fix in the neighborhood of $2 million plus, and upon closing the deal, there is a plan for that cash to be paid in a short period.

Unidentified Analyst

So you’re going to have an extra $2.5 million available in your CAGR, right?

Ben Naccarato

Correct.

Unidentified Analyst

And so you only have -- you’re only going to end-up with 28%, somewhere around that of the medical company after all this said and done?

Ben Naccarato

On the first tranche it'll be 31-ish, and then if all warrants are exercised, we would go to about 25%.

Unidentified Analyst

I couldn't quite understand the way it was scaled. It's like they were -- they had the opportunity to buy an additional $10 million at a higher share price. I mean the way it was structured. It was kind of convoluted deal?

Ben Naccarato

Yes, they have warrants for an additional 10%. But then we and another investor have certain warrants as well. And that's what our -- and our share price is up; it's higher; it's more like the original Digirad price.

Unidentified Analyst

And what is the -- just what -- any kind of idea of like when is this going to be submitted, I mean, to go through government review. And then beyond that, how long would it potentially take to get approved by the government?

Lou Centofanti

Our thought at this point is that we're delaying a lot of the testing that's needed for FDA submittal because of the cost. And so that on closing, you'd be looking at, at least six months, of work needed to develop the portfolio for the FDA. And so, after closing, you have that period of time and that could vary; that could be nine months or it could be a month or so later. But it's...

Unidentified Analyst

You’re giving yourself a minimum of six months to get it ready for the -- to take out to the government?

Lou Centofanti

Right, lease them up. Our FDA advisors are then telling us that -- through the route we would choose. It would probably take a year and half, maybe less maybe more, for the FDA to analyze it and get back to us. And which we think is a simple process. But nothing with the FDA, I'm sure it's simple.

Unidentified Analyst

So, you're looking at a couple of more years still till you potentially could be start getting some revenue out of that, right?

Lou Centofanti

Correct. And that's why with the investor when we discussed our budget, our path forward, we really wanted two tranches; one was what we think is needed; and the second is if we run into any problems, there's a second tranche that could be exercised to finance the project.

Unidentified Analyst

And I guess my final question is just, you have been forecasting things which you never seem to hit your deadline on it, you never seem to hit the deadline for it. Now this...

Lou Centofanti

Especially, this year to start...

Unidentified Analyst

I understand. Well, I've had shares in the company for quite a few years, and you're seeing to miss a lot of deadlines. So what I'm wondering about is, you had all these delays from the government. How sure are you about the revenue that you're going to get out of it, like the fourth quarter? Is that pretty solid?

Lou Centofanti

The fourth quarter -- it's easy to predict the next quarter. And there we've got pretty good visibility. So I can at least do that. And the usual question now is what we think next year is going to be. And to be honest with you, because of what we’ve just been through, we’re a little more shy in trying to get some guidance until we get into the year because of what we’ve seen over the last year and our ability to predict this year. I was pretty good at predicting the year before. And so when we entered this year I thought we should do even better than we did last year, and that didn’t work out.

Unidentified Analyst

That you have any long-term contracts? I mean if we have the guarantees by the industry?

Lou Centofanti

On the waste side, we do not. The waste side is when you’re dealing with the government, you’ve two ways you can go; you can go cost plus, which is our service business which gives you long-term visibility and reliability; and then fixed price, which is our waste side. Our waste side is fixed price. We can -- we charge what we think is fair. And we have contracts with the government. But then the government will not guarantee anything with a fixed price contract.

Mark Duff

So it's the best action was when I talked earlier about our revised business go program is exactly what we were focusing on is getting and positioning and bidding on longer-term contracts to give us more stability on the either services side. And those are primarily the bids that we’re focusing on right now is long five year contracts that will provide that stability.

Unidentified Analyst

You used to announce periodically at least smaller contracts from time-to-time. And I haven’t seen any announcements of that kind. I don’t know in recent months. What’s the value you would announce publicized, you picked the contract for this stack. They weren’t big. But I mean they came in, and it didn’t seem like you’ve got any of this in waste water...

Lou Centofanti

Well, we actually -- unfortunately we have, but we had clients who were adamant that we not say anything about them. We had one large one, we’re just about to finish, which was almost $10 million, but because of the nature of the work...

Mark Duff

It's commercial client.

Lou Centofanti

And it was a commercial client they were adamant that we not say anything.

Unidentified Analyst

We’ve been -- you’ve been talking a lot about this there is high level waste and you have been talking about. And I’m just talking about never mind the high level waste. But there is just normal course of business. I mean is there opportunities for -- do you see any hope for contracts from other? I mean what about your regulars customers, your new customers, customers that aside from the high level waste...

Mark Duff

There is this impact due to the election as we mentioned early on it, which just slowed this down. But that’s really what our focus has been on. If you look at our client list, over the last two years, it's been pretty focused on Department of Energy and a few DoD, and the commercial clients and that’s what we’re expanding.

So we’re in a lot more on the Corps of Engineers, and the Navy, Air Force and Army, as well as some very specific commercial clients in the scrap arena, as well as the mining and the oil and gas arena that generate natural occurring like the materials which is called norm. And we’re seeing the growth in this and in fact this next quarter we’ll see a significant growth most likely in that arena for us. So, we’re expanding out much broader than we have in the past and much more methodically to get that diversification client base.

Operator

Our next question comes from the line of Sam Roboski with SER Asset Management. Please proceed with your questions.

Unidentified Analyst

Let me ask you, I guess I'm sorry I had to jump-off the call I had to take another call. And you may have covered this. Is there any way that do you -- would the transactions that took place with Viola and the transactions taken with Energy Solutions, with your possible need for money using investment bankers, or looking for somebody to acquire Perma-Fix? I don't know if you covered this while I was off, but.

Lou Centofanti

Well, I mean we constantly are getting inquiries. And if they're of any significance or any reality to them, we immediately talk to the investors about them. And now at the moment there's nothing like that going on.

Unidentified Analyst

No, what I understand is to the extent you should seek it out, or have an investment banker help you seek it out to the extent that the valuations put on these other companies seems to be higher than Perma-Fix anyhow. That's my recommendation at this point.

Lou Centofanti

We retain investment bankers now and then to assist us in doing valuations and assist us in what to do. In not too distant past, we have. But at this point, acquisitions are a moment in time.

Unidentified Analyst

I wish that the marketplace could put an appropriate value on what you've done and what you plan to do, because clearly you've done a lot and the marketplace is not valuing you properly. And yet these other companies are getting greater valuations. I wish everybody a happy Thanksgiving, and hopefully sometime in the New Year a better valuation and earnings come through. Good luck everybody.

Lou Centofanti

Okay, thank you.

Operator

Our next question comes from the line of Anthony Marquezi, a Private Investor. Please proceed with your question.

Unidentified Analyst

You mentioned that you'd wind-up with 25, and maybe I'm putting the cup is half full scenario here. But yes you're winding up with 25% to 30% of medical, but at the same time, you're not risking any real shareholder money or your shareholder money to develop the Company. So what do you see, and maybe you've covered this in prior calls. But what do you guys -- give us a 30 second overview. What do you see as the market opportunity? So yes, 25% -- my sense is 25% of a large number is a very large number for shareholders, so maybe I'm -- I don’t think I'm wrong, but if you could just take us through that.

Lou Centofanti

What we've seen here is that the risks of getting to where we were going and bringing in money to do this without our own capital. The Board was very adamant that this makes tremendous sense. And the numbers you say are very large technetium is a -- the whole business, the whole market worldwide is some, depending how you add it up, somewhere between $3 billion and $6 billion a year, and for the technetium market. Now the part we’re focused on is that key part of probably just selling generators, it's a $500 million to $1 billion dollars market a year.

So it's a very significant market. It has tremendous potential, because it controls the whole market. And the whole business of diagnostics technetium is critical. So that was pretty much what you just is was our view, and we look at this without risking any further Perma-Fix funds. We can find out if this will capture, and really change the whole technetium market. So it was -- we try to get to. We needed $10 million to $20 million to get there. And this is we thought a very good way to go, and at the same time, allowing ourselves then to continue to stay very focused on the environmental side of the business; and the other technologies that we've developed that have potential commercial application.

Unidentified Analyst

So you have 11 million shares outstanding, or our 12 million shares outstanding, if you float 4 million shares that only gets you at today's price at $16 million, so. But at the same time, you would also be diluting the shareholders massively. So I don’t disagree with what you did, I think that business is…

Lou Centofanti

We’ve had a variety of independent people look at this and we were trying to get to a point, and the conclusion was this is a pretty good deal for where we need to be.

Unidentified Analyst

And final question, what do you anticipate closing this, or is there an anticipated closing date, at this point?

Lou Centofanti

Well, it's our hope and this is shared by the investors that the hope was by the end of the year.

Unidentified Analyst

Okay, all right. Thank you very much.

Lou Centofanti

But now I assume there is no guarantees there how...

Operator

We have reached the end of the question-and-answer session. I would now like to turn the floor back over to management for closing comments.

Lou Centofanti

Once again, I'd like to thank everyone for participating in our third quarter conference call. To wrap up, we’re encouraged by the outlook of both treatment and services; the significant growth opportunities ahead, especially looking forward to reporting on the outcome of our high level project. We appreciate the support of our investors that agreed to fund our medical, which will help accelerate our path to commercialization, while allowing management of environmental to focus back on 100% of our efforts growing the waste side. Appreciate everybody's patience, support, and look forward to providing you updates in the near future. Thank you.

Operator

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.

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