Item 1. Business
ITEM
1.
BUSINESS
Company
Overview and Principal Products and Services
Perma-Fix
Environmental Services, Inc. (the Company, which may be referred to as we, us, or our), a Delaware corporation incorporated in December
1990, is an environmental and environmental technology know-how company.
The
principal element of our business strategy consists of upgrading our facilities within our Treatment Segment to increase efficiency and
modernize and expand treatment capabilities to meet the changing markets associated with the waste management industry. Within our Services
Segment, we continue to increase competitive procurement effectiveness and broaden the market penetration within both the commercial
and government sectors. We continue to increase our focus on expansion into both commercial and international markets (see “Foreign
Revenue and Initiatives” below for further discussion of a recently won foreign contract) to supplement government spending in
the United States of America (“USA”), from which a significant portion of our revenue is derived. This includes new services,
new customers and increased market share in our current markets.
We
experienced significant improvement in our 2023 financial results as the lingering effects of COVID-19 began to subside starting in the
early part of 2022. Our Treatment Segment continued to see steady improvements in waste receipts from certain customers who had previously
delayed waste shipments due, in part, from the impact of COVID-19. Within our Services Segment, certain projects which were delayed/curtailed
in the first part of 2022 due, in part, from the lingering effects of the COVID-19, achieved full operational status and improved productivity
in 2023 which positively impacted revenue. Revenues from both of our Segments were also positively impacted from contracts won in 2023
as procurement and planning on behalf of our government clients continued to progress as the lingering effects of COVID-19 pandemic subsided.
Heading
into 2024, we expect to see overall continue steady improvements in waste receipts and increases in project work from certain
existing contracts, contracts won in 2023, and bids submitted in both segments that are awaiting awards. However, due to our
operations which is subject to seasonal factor, we generally experience lower revenue in the first quarter due to overall reduced
activities by our customers from the usual slowdown in operations due, in part, from returning from the holiday periods and poorer
weather conditions. Additionally, due to Congress’s inability to timely approve FY 2024 budget and the extension of the
continuing resolution, certain of our government related customers have informed us that waste shipments will likely be delayed.
Although we expect to see overall improvements in revenue in 2024 as disclosed above, if Congress is unable to enact the full FY
2024 appropriation bills or further extend the continuing resolutions to fund government spending by the late March deadline, the
U.S. government will enter into a partial shutdown. The full impact of any additional continued resolution beyond March or a partial
government shutdown is uncertain. If a partial government shutdown were to occur and were to continue an extended period,
our financial results of operations could be negatively impacted by delays in procurement actions, waste shipments and project
delays on newly awarded projects (See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results
of Operations – for a full discussion of the Company’s results of operations for 2023).
Segment
Information and Foreign and Domestic Operations and Sales
For
2023, we have two reportable segments. In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) 280, “Segment Reporting”, we define an operating segment as:
●
a
business activity from which we may earn revenue and incur expenses;
●
whose
operating results are regularly reviewed by the chief operating decision maker “(CODM”) to make decisions about resources
to be allocated and assess its performance; and
●
for
which discrete financial information is available.
1
TREATMENT
SEGMENT reporting includes:
-
nuclear,
low-level radioactive, mixed (waste containing both hazardous and low-level radioactive waste), hazardous and non-hazardous waste
treatment, processing and disposal services primarily through four uniquely licensed (Nuclear Regulatory Commission or state equivalent)
and permitted (U.S. Environmental Protection Agency (“EPA”) or state equivalent) treatment and storage facilities as
follow: Perma-Fix of Florida, Inc. (“PFF”), Diversified Scientific Services, Inc., (“DSSI”), Perma-Fix Northwest
Richland, Inc. (“PFNWR”) and Oak Ridge Environmental Waste Operations Center (“EWOC”); and
-
Research
& Development (“R&D”) activities to identify, develop and implement innovative waste processing techniques for
problematic waste streams.
For
2023, the Treatment Segment accounted for $43,477,000, or 48.5%, of total revenue, as compared to $33,358,000, or 47.2%, of total revenue
for 2022. See “Dependence Upon a Single or Few Customers” for further details and a discussion as to our Segments’
contracts with government clients (domestic) or with others as a subcontractor to government clients.
SERVICES
SEGMENT, which includes:
-
Technical
services, which include:
○
professional
radiological measurement and site survey of large government and commercial installations using advanced methods, technology and
engineering;
○
health
physics services including health physicists, radiological engineers, nuclear engineers and health physics technicians support to
government and private radioactive materials licensees;
○
integrated
Occupational Safety and Health services including industrial hygiene (“IH”) assessments; hazardous materials surveys,
e.g., exposure monitoring; lead and asbestos management/abatement oversight; indoor air quality evaluations; health risk and exposure
assessments; health & safety plan/program development, compliance auditing and training services; and Occupational Safety and
Health Administration (“OSHA”) citation assistance;
○
global
technical services providing consulting, engineering (civil, nuclear, mechanical, chemical, radiological and environmental), project
management, waste management, environmental, and decontamination and decommissioning (“D&D”) field, technical, and
management personnel and services to commercial and government customers; and
○
waste
management services to commercial and governmental customers.
-
Nuclear
services, which include:
○
D&D
of government and commercial facilities impacted with radioactive material and hazardous constituents including engineering, technology
applications, specialty services, logistics, transportation, processing and disposal; and
○
license
termination support of radioactive material licensed and federal facilities over the entire cycle of the termination process: project
management, planning, characterization, waste stream identification and delineation, remediation/demolition, final status survey,
compliance demonstration, reporting, transportation, disposal and emergency response.
-
A
company owned equipment calibration and maintenance laboratory that services, maintains, calibrates, and sources (i.e., rental) health
physics, IH and customized nuclear, environmental, and occupational safety and health (“NEOSH”) instrumentation.
For
2023, the Services Segment accounted for $46,258,000, or 51.5%, of total revenue, as compared to $37,241,000, or 52.8%, of total revenue
for 2022. See “Dependence Upon a Single or Few Customers” for further details and a discussion as to our Segments’
contracts with government clients (domestic) or with others as a subcontractor to government clients.
Our
Treatment and Services Segments provide services primarily to research institutions, commercial companies, public utilities, and governmental
entities, including the U.S. Department of Energy (“DOE”) and U.S. Department of Defense (“DOD”). The distribution
channels for our services are through direct sales to customers or via intermediaries.
2
Our
corporate office is located at 8302 Dunwoody Place, Suite 250, Atlanta, Georgia 30350.
Foreign
Revenue and Initiative
As
noted previously, we continue to increase our focus on expansion into international markets.
On
December 18, 2023, the joint venture (“JV”) where we and Campoverde Srl (“JV partner”) each owns 50% of the partnership,
was awarded a multi-year contract valued up to approximately EUR 50 million by the European Commission (the “Contracting Authority”)
for the treatment of radioactive waste from the Joint Research Center in Ispra, Italy. Work under this JV has not started as of December
31, 2023. The scope of work to be performed in the initial phases of this contract will be performed predominately by our JV partner.
Revenue generated by us under the initial phases will be limited to project management support through 2025. We expect to generate an
increase in revenue under this contract starting in 2026 when the waste treatment phases begin. The Contracting Authority may terminate
the contract under certain conditions as set forth in the contract.
During
March 2022, we signed a non-binding joint venture term sheet addressing plans to partner with Springfields Fuels Limited (“SFL”),
an affiliate of Westinghouse Electric Company LLC, to develop and manage a nuclear waste-materials treatment facility (the “Facility”)
in the United Kingdom. The Facility is for the purpose of expanding the partners’ waste treatment capabilities for the European
nuclear market. It is expected that upon finalization of a partnership agreement, SFL will have an ownership interest of fifty-five (55)
percent and our interest will be forty-five (45) percent. The finalization, form and capitalization of this unpopulated partnership is
subject to numerous conditions, including but not limited to, completion and execution of a definitive agreement and facility design,
granting of required regulatory, lender or permitting approvals and updated cost and profitability analysis based on current and forecast
future economic conditions. Upon finalization of this venture, we will be required to make an investment in this venture. The amount
of our investment, the period of which it is to be made and the method of funding are to be determined.
Our
consolidated revenue for 2023 and 2022 included approximately $2,066,000, or 2.3%, and $1,226,000, or 1.7%, respectively, from foreign
customers.
Seasonal
Factors of our Business
Our
operations are generally subject to seasonal factors. See “Risk Factors – Risks Related to our Business and Operations –
Our operations are subject to seasonal factors, which causes our revenues to fluctuate” for a discussion of our seasonal factors.
Permits
and Licenses
Waste
management service companies are subject to extensive, evolving and increasingly stringent federal, state, and local environmental laws
and regulations. Such federal, state and local environmental laws and regulations govern our activities regarding the treatment, storage,
processing, disposal and transportation of hazardous, non-hazardous and radioactive wastes, and require us to obtain and maintain permits,
licenses and/or approvals in order to conduct our waste activities. We are dependent on our permits and licenses discussed below in order
to operate our businesses. Failure to obtain and maintain our permits or approvals would have a material adverse effect on us, our operations,
and financial condition. The permits and licenses have terms ranging from one to ten years, and provide that we maintain a reasonable
level of compliance, renew with minimal effort, and cost. We believe that these permit and license requirements represent a potential
barrier to entry for possible competitors.
PFF,
located in Gainesville, Florida, operates its hazardous, mixed and low-level radioactive waste activities under a Resource Conservation
and Recovery Act (“RCRA”) Part B permit, Toxic Substances Control Act (“TSCA”) authorization, Restricted RX Drug
Distributor-Destruction license, biomedical, and a radioactive materials license issued by the State of Florida. Co-regulated TSCA Polychlorinated
Biphenyl (“PCB”) wastes are also managed for PCB under EPA Approval.
DSSI,
located in Kingston, Tennessee, conducts mixed and low-level radioactive waste storage and treatment activities under RCRA Part B permits
and a radioactive materials license issued by the State of Tennessee Department of Environment and Conservation, Division of radiological
health. Co-regulated TSCA PCB wastes are also managed for PCB destruction under EPA Approval.
3
PFNWR,
located in Richland, Washington, operates a low-level radioactive waste processing facility as well as a mixed waste processing facility.
Radioactive material processing is authorized under radioactive materials licenses issued by the State of Washington and mixed waste
processing is additionally authorized under a RCRA Part B permit. Co-regulated TSCA PCB wastes are also managed for PCB under EPA Approval.
EWOC,
located in Oak Ridge, Tennessee, operates a low-level radioactive waste material processing facility. Radioactive material processing
is authorized under radioactive material licenses issued by the State of Tennessee Department of Environmental and Conservation, Division
of radiological health.
The
combination of RCRA Part B hazardous waste permits, TSCA authorizations, and radioactive material licenses held by us and our subsidiaries
comprising our Treatment Segment is very difficult to obtain for a single facility and make this Segment unique.
We
believe that the permitting and licensing requirements, and the cost to obtain such permits, are barriers to the entry of hazardous waste
and radioactive and mixed waste activities as presently operated by our waste treatment subsidiaries. If the permit requirements for
hazardous waste treatment, storage, and disposal (“TSD”) activities and/or the licensing requirements for the handling of
low-level radioactive matters are eliminated or if such licenses or permits were made less rigorous to obtain, we believe such would
allow companies to enter into these markets and provide greater competition.
Number
of Employees
At
December 31, 2023, we employed approximately 297 employees, of whom 288 are full-time employees and 9 are part-time/temporary employees.
None of our current employees are unionized.
The
Company entered into a Project Labor Agreement (“PLA”) dated June 21, 2023, with UA Plumbers & Steamfitters Local 598.
The goal of this partnership is to supply our PFNWR facility with the organized labor force needed to take on the challenges of providing
a supplement treatment alternative to include concrete-like grout for Hanford’s Low Activity Tank Waste if and when the DOE grants
a contract to PFNWR to treat the Low Activity Tank Waste. This supplemental capability would support DOE’s glassifying process
provided by the Hanford Vitrification Plant for safe transport and disposal off-site.
Environmental,
Social and Governance (“ESG”)
We
have a ESG subcommittee under our Corporate Governance and Nominating Committee to provide guidance on ESG management. Our executive
team is responsible for the continuing development of our ESG strategic roadmap with support from management from key functional areas.
The key areas of focus under our ESG initiatives continue to be health and safety, environmental performance, DEI (diversity, equality
and inclusion), talent retention and development, corporate governance and climate-forward service development that support our customers’
transition to low carbon economy. Our executive team is involved in policy planning and coordination of corporate-wide ESG efforts. See
our website at https://www.perma-fix.com/esg.aspx for some highlights of our ESG initiatives
as well as our policies under our ESG as we continue to improve our ESG initiatives. The information on our website is not part of, or
incorporated by reference in this Form 10-K.
Dependence
Upon a Single or Few Customers
Our
Treatment and Services Segments have significant relationships with the U.S. governmental authorities. A significant amount of our revenues
from our Treatment and Services Segments are generated indirectly as subcontractors for others who are prime contractors to government
authorities, particularly the DOE and DOD, or directly as the prime contractor to government authorities. The contracts that we are a
party to with others as subcontractors to the U.S federal government or directly with the U.S federal government generally provide that
the government may terminate the contract at any time for convenience at the government’s option. Our inability to continue under
existing contracts that we have with U.S government authorities (directly or indirectly as a subcontractor) or significant reductions
in the level of governmental funding in any given year could have a material adverse impact on our operations and financial condition.
4
We
performed services relating to waste generated by government clients (domestic), either indirectly for others as a subcontractor to government
entities or directly as a prime contractor to government entities, representing approximately $70,642,000 or 78.7%, of our total revenue
during 2023, as compared to $59,658,000, or 84.5%, of our total revenue during 2022.
Our
revenues are project/event based where the completion of one contract with a specific customer may be replaced by another contract with
a different customer from year to year.
Competitive
Conditions
The
Treatment Segment’s largest competitor is EnergySolutions which operates treatment facilities in Oak Ridge, TN and Erwin, TN and
treatment/disposal facilities for low level radioactive waste in Clive, UT and Barnwell, SC. Waste Control Specialists, which has licensed
treatment/disposal capabilities for low level radioactive waste in Andrews, TX, is also a competitor in the treatment market with increasing
market share. These two competitors also provide us with options for disposal of our treated nuclear waste. The Treatment Segment treats
and disposes of DOE generated waste largely at DOE owned sites. Our Treatment Segment currently solicits business primarily on a North
America basis with both government and commercial clients; however, we continue to focus on emerging international markets for additional
work.
Our
Services Segment is engaged in highly competitive businesses in which a number of our government contracts and some of our commercial
contracts are awarded through competitive bidding processes. The extent of such competition varies according to the industries and markets
in which our customers operate as well as the geographic areas in which we operate. The degree and type of competition we face is also
often influenced by the project specification being bid on and the different specialty skill sets of each bidder for which our Services
Segment competes, especially projects subject to the governmental bid process. We also have the ability to prime federal government small
business procurements (small business set asides). Based on past experience, we believe that large businesses are more willing to team
with small businesses in order to be part of these often-substantial procurements. There are a number of qualified small businesses in
our market that will provide intense competition that may provide a challenge to our ability to maintain strong growth rates and acceptable
profit margins. For international business there are additional competitors, many from within the country the work is to be performed,
making winning work in foreign countries more challenging. If our Services Segment is unable to meet these competitive challenges, it
could lose market share and experience an overall reduction in its profits.
Certain
Environmental Expenditures and Potential Environmental Liabilities
Environmental
Liabilities
We
have three remediation projects, which are currently in progress relating to our Perma-Fix of Dayton, Inc. (“PFD”), Perma-Fix
of Memphis, Inc. (“PFM”), and Perma-Fix South Georgia, Inc. (“PFSG”) subsidiaries, which are all included within
our discontinued operations. These remediation projects principally entail the removal/remediation of contaminated soil and, in most
cases, the remediation of surrounding ground water. These remediation activities are closely reviewed and monitored by the applicable
state regulators.
As
of December 31, 2023, we had total accrued environmental remediation liabilities of $845,000, a decrease of $16,000 from the December
31, 2022, balance of $861,000. The decrease represents payments for remediation projects. As of December 31, 2023, $61,000 of the total
accrued environmental liabilities was recorded as current.
The
nature of our business exposes us to significant cost to comply with governmental environmental laws, rules and regulations and risk
of liability for damages. Such potential liability could involve, for example, claims for cleanup costs, personal injury or damage to
the environment in cases where we are held responsible for the release of hazardous materials; claims of employees, customers or third
parties for personal injury or property damage occurring in the course of our operations; and claims alleging negligence or professional
errors or omissions in the planning or performance of our services. In addition, we could be deemed a potentially responsible party (“PRP”)
for the costs of required cleanup of properties, which may be contaminated by hazardous substances generated or transported by us to
a site we selected, including properties owned or leased by us. We could also be subject to fines and civil penalties in connection with
violations of regulatory requirements.
5
R&D
Innovation
and technical know-how by our operations is very important to the success of our business. Our goal is to discover, develop and bring
to market innovative ways to process waste that address unmet environmental needs. We conduct research internally, and also through collaborations
with other third parties. The majority of our research activities are performed as we receive new and unique waste to treat. Our competitors
also devote resources to R&D and many such competitors have greater resources at their disposal than we do. R&D totaled $561,000
and $336,000 for 2023 and 2022, respectively.
Governmental
Regulation
Environmental
companies, such as us, and their customers are subject to extensive and evolving environmental laws and regulations by a number of federal,
state and local environmental, safety and health agencies, the principal of which being the EPA. These laws and regulations largely contribute
to the demand for our services. Although our customers remain responsible by law for their environmental problems, we must also comply
with the requirements of those laws applicable to our services. We cannot predict the extent to which our operations may be affected
by future enforcement policies as applied to existing laws or by the enactment of new environmental laws and regulations. Moreover, any
predictions regarding possible liability are further complicated by the fact that under current environmental laws we could be jointly
and severally liable for certain activities of third parties over whom we have little or no control. Although we believe that we are
currently in substantial compliance with applicable laws and regulations, we could be subject to fines, penalties or other liabilities
or could be adversely affected by existing or subsequently enacted laws or regulations. The principal environmental laws affecting our
customers and us are briefly discussed below.
The
Resource Conservation and Recovery Act of 1976, as amended (“RCRA”)
RCRA
and its associated regulations establish a strict and comprehensive permitting and regulatory program applicable to companies, such as
us, that treat, store or dispose of hazardous waste. The EPA has promulgated regulations under RCRA for new and existing treatment, storage
and disposal facilities including incinerators, storage and treatment tanks, storage containers, storage and treatment surface impoundments,
waste piles and landfills. Every facility that treats, stores or disposes of hazardous waste must obtain a RCRA permit or must obtain
interim status from the EPA, or a state agency, which has been authorized by the EPA to administer its program, and must comply with
certain operating, financial responsibility and closure requirements.
The
Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA,” also referred to as the “Superfund
Act”)
CERCLA
governs the cleanup of sites at which hazardous substances are located or at which hazardous substances have been released or are threatened
to be released into the environment. CERCLA authorizes the EPA to compel responsible parties to clean up sites and provides for punitive
damages for noncompliance. CERCLA imposes joint and several liabilities for the costs of clean up and damages to natural resources.
Health
and Safety Regulations
The
operation of our environmental activities is subject to the requirements of the OSHA and comparable state laws. Regulations promulgated
under OSHA by the Department of Labor require employers of persons in the transportation and environmental industries, including independent
contractors, to implement hazard communications, work practices and personnel protection programs in order to protect employees from
equipment safety hazards and exposure to hazardous chemicals.
6
Atomic
Energy Act
The
Atomic Energy Act of 1954 governs the safe handling and use of Source, Special Nuclear and Byproduct materials in the U.S. and its territories.
This act authorized the Atomic Energy Commission (now the Nuclear Regulatory Commission “USNRC”) to enter into “Agreements
with states to carry out those regulatory functions in those respective states except for Nuclear Power Plants and federal facilities
like the VA hospitals and the DOE operations.” The State of Florida Department of Health (with the USNRC oversight), Office of
Radiation Control, regulates the licensing and radiological program of the PFF facility; the State of Tennessee (with the USNRC oversight),
Tennessee Division of Radiological Health, regulates licensing and the radiological program of the DSSI facility and the EWOC facility;
and the State of Washington (with the USNRC oversight) Department of Health, regulates licensing and the radiological operations of the
PFNWR facility.
Other
Laws
Our
activities are subject to other federal environmental protection and similar laws, including, without limitation, the Clean Water Act,
the Clean Air Act, the Hazardous Materials Transportation Act and the TSCA. Many states have also adopted laws for the protection of
the environment which may affect us, including laws governing the generation, handling, transportation and disposition of hazardous substances
and laws governing the investigation and cleanup of, and liability for, contaminated sites. Some of these state provisions are broader
and more stringent than existing federal law and regulations. Our failure to conform our services to the requirements of any of these
other applicable federal or state laws could subject us to substantial liabilities which could have a material adverse effect on us,
our operations and financial condition. In addition to various federal, state and local environmental regulations, our hazardous waste
transportation activities are regulated by the U.S. Department of Transportation, the Interstate Commerce Commission and transportation
regulatory bodies in the states in which we operate. We cannot predict the extent to which we may be affected by any law or rule that
may be enacted or enforced in the future, or any new or different interpretations of existing laws or rules.