Good afternoon, ladies and gentlemen, and welcome to the Perma-Fix Third Quarter 2021 Conference Call. It is now my pleasure to turn the floor over to your host, David Waldman, Investor Relations. Sir, the floor is yours..

Thank you. Good afternoon, everyone, and welcome to Perma-Fix Environmental Services Third Quarter 2021 Conference Call. On the call with us this afternoon are Mark Duff, President and CEO; Dr. Lou Centofanti, Executive Vice President of Strategic Initiatives; and Ben Naccarato, Chief Financial Officer.

The company issued a press release this morning containing third quarter 2021 financial results, which is also posted on the company's website. If you have any questions after the call or would like any additional information about the company, please contact Crescendo Communications at (212) 671-1020.

I'd also like to remind everyone that certain statements contained within this conference call may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and include certain non-GAAP financial measures.

All statements on this conference call other than a statement of historical fact are forward-looking statements that are subject to known and unknown risks, uncertainties and other factors, which could cause actual results and performance of the company to differ materially from such statements.

These risks and uncertainties are detailed in the company's filings with the U.S. Securities and Exchange Commission as well as this morning's press release. The company makes no commitment to disclose any revisions to forward-looking statements or any facts, events or circumstances after the date hereof that bear upon forward-looking statements.

In addition, today's discussion will include 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 the non-GAAP measures to the most directly comparable GAAP measures is available in today's news release on our website.

I'd now like to turn the call over to Mark Duff. Please go ahead, Mark..

All right. Thanks, David. And good afternoon. Despite the prolonged impact of the COVID-19 pandemic, I believe we're finally beginning to realize the momentum and stability that we saw in 2019 before the pandemic. As discussed previously, the federal government has been much slower than the commercial sector to resume normal operations.

And this was not unique to us but also has been experienced across our industry by most of our peers as well. Nevertheless, we've started to see an improvement in the business. During the past quarter, we saw a slight increase in our Treatment Segment revenues, which has continued to build heading into the fourth quarter.

We see increasing waste treatment activity both in the commercial and the government clients. Importantly, we are realizing receipts from Hanford and utilities at resemble levels prior to COVID, and bidding activity is also getting to levels also seen in 2019.

It's clear to us there's a significant pent-up demand on waste treatment, and we hope to capitalize on heading into the new year with that pent-up demand. We felt the impact more heavily on our Services Segment this quarter, which has realized an extended hiatus in new contract awards.

However, the government has begun to issue these awards, and we're starting to see increases in services revenue backlog to support the next 18 months. Specifically, we won a number of service contracts, adding to approximately $50 million in project backlog since the start of the third quarter alone.

And these projects will begin to realize revenues starting in Q4 when fuel operations begin to mobilize and we should see that growth really began to pick up in Q1 once mobilizations are complete through this quarter.

We're encouraged by subcontracting goals that the Department of Energy has mandated for some of the larger procurements throughout the complex including small business subcontracting requirements, which plays into our strengths. These goals include meaningful work with metrics that include over 20% of total revenue to be subcontracted.

And these are great opportunities for us and will align with our core competencies. In addition to our growing pipeline, we've also secured numerous what we call IDIQ contracts or multi-award task order contracts, which is also termed as MATOCs.

Generally, there are a limited number of companies that are selected for these contracts, and each one provides an opportunity to bid on task orders over the next five years. We don't typically announce these awards due to the fact that there is uncertain funding levels associated with them, and there's no way to predict backlog.

However, the limited competition and the scope of works provide us a good sense of potential opportunity once the clients get back into the field will begin to understand it better then. These are beginning to mount up now, with nearly a dozen IDIQ awards that we've received in the past year.

And some of these are fairly large, positioning Perma-Fix for future opportunities beginning in 2022. For example, we recently were awarded four separate MATOCs, multi-award task order contracts, with the U.S. Army Corps of Engineers.

Each one of those MATCOs has a ceiling of $95 million, and that will support facility reduction programs at military bases in four separate regions of North America. So just an example of the types of MATOCs that we've been able to win over the past year or year and a half.

At the same time, we continue to define and position ourselves for new procurements and market expansion opportunities with the U.S. Navy, with DoD and DOE.

These opportunities include work scopes directly within our core competencies and will support the opportunity to provide new solutions and the potential for long-term sustainable revenue within both Treatment and Services Segments. We continue to maintain a solid balance sheet, with cash on hand of more than $7.2 million as of September 30, 2021.

On October 4, we announced a registered direct offering for gross proceeds of $6.2 million. As of September 30, 2021, we received approximately $5.5 million of the gross proceeds from the offering, and the remaining $700,000 coming in after the close of the quarter.

We had approximately $10.8 million of borrowing capacity on our revolving credit facility with PNC as of September 30, 2021. As I mentioned, we believe we have weathered the worst of the storm due to the COVID-19 pandemic, and we're now coming out the other side. That said, I'd like to address why we decided to raise capital when we did.

We didn't enter into this offering lightly, and both management and the Board are very sensitive to dilution. We kept the offering small with a closed group of funds, we believe are fundamental long-term investors, many of whom are current investors. And we believe the terms of the transaction were quite favorable for the company.

We have no desire and no need to raise additional capital for the foreseeable future. In terms of use of proceeds, we see a number of very significant opportunities ahead, especially within the Treatment Segment that would require some upgrades to our current facilities.

This recent funding will allow us to accelerate these facility upgrades in support of potential new revenue streams from Hanford and other government sites that could be meaningful to our Treatment Segment program.

The funding will also support deployment of new technologies and add to capacity of current technologies to support revenue increases as well. In particular, we're very excited about potential opportunities related to the testbed initiative, what we call TBI, also known as the low-level waste off-site disposal program or project.

DOE has prepared and submitted their draft waste incidental to reprocessing evaluation, what they call the WIR, for the TBI demonstration, which provides the regulatory coverage to ship the waste off-site of the handful reservation for processing.

The evaluation demonstrates that the pretreated and solidified waste will be incidental through reprocessing of nuclear fuel and therefore can be managed as low-level waste by DOE. DOE has invited comments on the draft we report during the 90-day comment period that's ongoing right now, and that will wrap up again in 90 days from November 5.

The second phase of the demonstration will include extraction, shipment and transportation of 2,000 gallons of tank waste from – or to our Perma-Fix Northwest facility in Richland, Washington, right next to the Hanford site.

DOE officials have stated shipment of this waste to our facilities should occur by next summer if all continues in the current path in regards to the regulatory process, as I mentioned.

Perma-Fix is confident that this demonstration will underscore the effectiveness of grouting as a supplement to DOE's current vitrification strategy, while at the same time, demonstrating the opportunity for substantial cost savings, increase in immediate capacity to treat large volumes of waste and dramatically reduce the carbon emissions footprint over the current approach.

And this is important for our DOE's core mission. So, to wrap up, COVID has begun to loosen its grip on nuclear services projects as the federal government gains to mobilize back to the offices in both the DOE and the DoD. We expect to see increased spending on waste disposition through pent-up demand.

While we would like to have seen better numbers in Q3, we do believe we are positioned for growth with a solid balance sheet. We continue to invest in our capabilities and our facilities and have built a highly scalable infrastructure to support that growth. As a result, we're very encouraged by the outlook of 2022.

On that, I'll turn it over to Ben Naccarato, who will discuss the financial results in more detail.

Ben?.

Thank you, Mark. Our total revenue from continuing operations for the third quarter was $15.8 million compared to last year's third quarter of $30.2 million. This is a decrease of $14.4 million or 47.6%.

The decrease in revenue was due to the drop in revenue in our Services Segment, which totaled $16.2 million, while our Treatment Segment revenue actually increased over prior year by $1.8 million.

Though volume continued to lag behind prior year, the Treatment Segment increase was the result of higher average pricing for the waste process and for the – and from a request from equitable adjustment, or an REA, which increased revenue. Our drop in revenue in the Service Segment was the result of the completion of most of our larger projects.

And while new contracts have been awarded in the third quarter that they did not start up in time to generate enough revenue to replace those completed projects. On a year-to-date basis, as of September 30, our revenue was down $22 million or 28.5%.

This drop again comes from revenues in the Service Segment due to the completion of these larger projects without the revenue from the new projects to replace them.

Treatment Segment revenue was effectively flat with a drop of less than 2% compared to last year, and we did see improved pricing, which offset the drop in lower – the drop from lower volume. Our gross profit for the quarter was $2.2 million, compared to $4.8 million in the third quarter of 2020.

The drop in gross profit was entirely from Service Segment where the reduced project revenue impacted gross profit from both a volume standpoint and margin standpoint. In the Treatment Segment, gross profit was up $1.4 million due to higher revenue, which offset the impact of a little bit lower margins on the waste we treated.

Our fixed costs in both segments were effectively in line with prior year. For the nine months ended September 30, gross profit was $5.5 million compared to $12.7 million in the prior year. This gross profit again was impacted by lower revenue and reduced margins in the Service Segment as well as to, a lesser extent, in the treatment segment.

Our G&A costs for the quarter were $3.3 million, which was in line with $3.3 million in the third quarter last year as lower marketing and business – BNP expenses were offset by higher wages and public company costs. For the nine months ended September 30, our G&A expenses were $9.6 million compared to $8.9 million in the prior year.

Marketing and BNP expenses related to new business opportunities were up compared to last year as were salaries and public company costs. Our net income attributable to common shareholders for the quarter was $1.4 million compared to last year's net income, which was also $1.4 million.

2021 income was driven primarily by the reversal of the company's valuation allowance related to the net operating loss deferred asset, which improved the bottom line by $2.4 million. I'll take a minute to further explain the tax adjustment in more detail.

The company carries a net deferred tax asset made up primarily of net operating losses, which totaled $8.6 million as of December 31. Due to uncertainty of realizing the value of this asset, we have always fully reserved it. We call this full valuation allowance.

In 2021, we determined that it was more likely than not that a certain amount of this deferred tax assets will be realized. As such, we reduced the valuation allowance by $2.4 million, which contributed to a total tax benefit of $2.8 million. Basic income per share was $0.11 compared to $0.12 last year.

Our year-to-date basic income per share was $0.27 compared to $0.24 in 2020.

Our adjusted EBITDA from continuing operations for the quarter, as we defined in this morning's press release, was a loss of $798,000 compared to income of $2 million last year, reflective of the significant revenue drop in the Service Segment and the continued delays in contract awards impacted by COVID.

Turning to the balance sheet, when comparing with year-end, cash on the balance sheet was $7.2 million, down a little bit from $7.9 million at the end of 2020. Our cumulative accounts receivable and unbilled receivables were down $6.6 million, reflecting the reduction in revenue when compared with 2020's Q4 in the Service Segment.

Our current liabilities were down $10.7 million as a result of timing of our payments, the reduction of activity in the Service Segment and the PPP loan forgiveness in the second quarter. Our backlog at the end of September 2021 was $7.1 million, down slightly from $7.6 million at year-end and down from $7.5 million in September 2020.

Total bank debt at the end of the quarter was $1.2 million, which is owed to our credit facility, PNC Bank. Finally, I'll summarize cash flow activity for the year. Our cash used by continuing operations was $4 million. Cash used by discontinued operation was $296,000.

Cash used for investing in continuing ops was $1.1 million, and this is primarily capital spending. And cash provided by financing was $4.8 million, represented by $5.4 million received as part of our share offering. Our monthly payments to the term loan of $330,000 and payments to finance lease and other debt of $321,000.

With that, operator, I'll now turn the question over to you..

Certainly Your first question is coming from Howard Brous from Wellington Shields. Your line is live..

Thank you. Mark, Louis, Ben and David, first of all, I hope that everyone is well, and we're continuing to avoid COVID and anything else that comes along..

Thanks, Howard..

Hi, Howard..

Very welcome. For full disclosure, Wellington Shields was the sole manager of the one million share common stock equity offering at $6.20, and I was the investment banker responsible for the deal. In addition, for full disclosure, members of my immediate family own shares in Perma-Fix. So let me start with a couple of questions.

You remediated one nuclear powered ship.

How many more ships are in the process of decommissioning and what kind of market are we talking about, say, over the next three to five years?.

Yes, Howard, we have been able to secure one of the first ships that the Navy has actually outsourced.

They decommissioned their own ships, or I should say, Navy actually did it internally up until a few years ago, and the Navy realized in a formal way that it would be better off using their talents and building ships and avoid using the same resources for doing decommissioning because the skill set is so much different and it's such a limited skill set overall.

So, they started outsourcing that. And they've done two or three ships now in the last several years. The Sturgis was the first one, and there's another one being done in Alabama and then the one that we were able to win called the that we're doing it in the Norfolk Naval Shipyard right now. And that's the big win we had a couple of months ago.

That's off and running very well. To answer your question, if you go to a GAO report, I don't have it in front of me, but GAO reports that there's about 48 ships destined to be decommissioned over the next five years. There are various sizes. They're not all nuclear. I want to say probably 25, I want to say, 12 of them more nuclear.

And so, they're on a rapid pace to do this. Some will be done up at Fusion Sound, specifically the subs, and the ships will be done at various other places. So, it kind of gives you a sense is also to a very large ships that are about two to three years out from funding, which means we'll start planning here on them pretty soon.

That's the limits in the enterprise aircraft carriers. Those are obviously $1 billion-plus projects. And we're excited about the fact that being one or two companies that have done this type of work so far that we have our foot in the door very well.

We'll perform well on this ship that we've got and be in a position to bid and win on some of those 48 that I mentioned as well as perhaps a team on the aircraft carriers that are coming up as well.

So, a very big opportunity overall for this type of market, our skill set, which is waste management, and rate logical protection as it relates to demolition, lines up very, very well with this. With the right teaming partners that have experience with ships, we feel like we have a really good future on this market..

Could you give us a sense of what a ship for your purposes would be in terms of potential revenue?.

It ranks pretty widely, Howard. As I said, our ship that we've got is a tender. It did not have a reactor on it. It took care of about a dozen nuclear subs over about a 40-year period, I believe. The ship is about a third of it is contaminated. In other words, about 150 rooms are contaminated had to be deconned. That's about a $40 million job.

Some of the other ships that had reactors on them will have more contamination. Most of these reactors will have been removed by the Navy and will just be scrapping and cleaning up the rest of it so they can be released.

So anywhere, to answer your question, I think, we're probably one of the smallest ones that has come out, maybe – the first one is about $40 million as well or is $40 million, and there's another one that's around $100 million.

But to answer your question, probably somewhere between $40 million and $150 million is going to be the general range that these things will come in at..

You're basically talking over five years an opportunity of more than $2 billion in cuts of the chase..

Roughly. Yes. Yes, it's hard to say how contaminated some of them are, Howard, but that's probably not really far off, yes. And the GAO report has some numbers like that as well. So, it's pretty well documented what the Navy is going to spend on this initiative and refurbishing their fleet.

And frankly, to refurbish it, there's always so much space for these ships to be stored. The ones that are out of commission or being decommissioned, they don't even place to put them. So, they got to get rid of them to make room for the new ones..

All right. Thank you. Let me continue. There was a contract led out, let me back up. The EPA had a settlement with the Navajo Nation. We've talked about this on prior calls. That settlement, I believe, is certainly in excess of $1 billion. There was a contract that was let out several months ago worth $220 million.

So, are you involved in that contract? And can you comment?.

We are, Howard. We were successful in securing one of those contracts. That's one of the MATOCs I referred to in the script..

Right..

They made three awards. We were one of those awardees, a formal team with a company called Arrowhead is a native American firm out of Navajo region, along with Jacobs, which obviously a large engineering company. And the bottom line is not much has happened through that MATOC, and we were patiently waiting.

The situation is I did do a little research on this just in the last week.

And I was kind of surprised, but the EPA has been running money through the A&E contractor, which is Tetra Tech, and A&E contractors basically got the scope of work to characterize and, so to speak, tee up properties in mind, I should say, to run through the cleanup initiatives.

So, they built characterize them, develop the scope, do a government estimate and put together the task order for EPA to bid out. And they've been spending about $7 million a year over the last 3.5 years on those initiatives. So, it appears that there is a good backlog of properties in mind.

My understanding is probably around the 20 to 25 properties, and that will likely start to see task orders in 2022..

One additional thing that I want to get to the TBI. To Perma-Fix, what's the market opportunity there? You talked about it in the last conference call and implied sometime in 2022 to begin working on it..

That's the vacuum thermal absorption..

Yes..

Yes. That's the VTD unit we're putting in Florida. Yes, I did fail to mention I've talked about probably the last three of these calls. That's going pretty well. That is one of the only real initiatives that we're seeing at this point in time impacted by the supply chain issues.

And so, we have several parts associated with that VTD that have been delayed. We had scheduled to have it up and running before Christmas. It looks like it's going to be more like early to mid-March, and we'll have it up and running – start in January, but running high in March.

So, it's going to get probably an eight- to ten-week delay, but we should start to generate initially some revenue in Q1 if all goes well. We do have high confidence that the parts will be provided. But like I said, just a little bit late..

Right. Last but not least, TBI. You referred to the direct feed low-activity waste and the wear. That you're talking about the 2,000 gallons. In a letter dated August 27 from the Department of Ecology State of Washington to the DOE, they talked about two tests. One is certainly for 2,000 gallons and then analyze it.

And the second test, which is, and they mentioned Perma-Fix in both instances for 500,000 gallons of tank waste, which would be included.

And this is, of course, one, I believe, that there will be some public comment periods on both of these things, but you mentioned in both of these, is that correct?.

That is correct, Howard. And this is a complicated process that we're going through that has lots of room for movement. So, where we are right now as there's a number of things that have to happen to get to 2,000 gallons. And then some decisions that have to be made between – after 2,000 before you get to the 300,000.

So right now, just as a checklist, to get to 2,000, they need to have the TSCR work. And the TSCR is the Tank-Side Cesium Removal system that's going to pull the waste out. So that's supposed to be – construction is supposed to be completed in January, and it's going to be capable of doing about 5 gallons a minute.

So, it should run very well and be very sufficient in providing that waste, and there's high confidence that it'll be running. The second thing is the WIR you mentioned, the Waste Incidental Reprocessing, I mentioned in my script as well. It's out for public comment right now for 90 days.

And what they've demonstrated in that report was that the – once the cesium iodide removed, in other words it's filter treated, then we should be able to handle that waste as a low-level waste and support the 2,000-gallon initiative. The third thing is the environmental assessment that goes through what they call the NEBA process.

That's also, I believe had public comment. I'm not sure if it's open or closed at this point, but should be, it's a few months ahead of the WIR.

And that basically looks at the alternatives to make sure that when DOE makes a decision or the government makes a decision that the alternatives are considering they look at 7 rate alternatives, and they're looking at making sure the alternative for off-site treatment, which is what we're proposing, is viable and doesn't impact the environment.

So that's also going to be done. And then the last thing is RD&D Permit. Once the EA is done and once the WIR is done, they apply for an RD&D Permit and they're scheduled to do that after the WIR closes, which is in the spring. They should have it by summer and then ship in the summer.

So, to answer your question specifically, the difference between the 2,000 gallons and the 300,000 gallons, it's going to depend on public comments. It's going to depend on what the results of the 2,000-gallon demonstration, which in my mind to be quite simple, is going to go very well.

And DOE can make a decision on whether they think the WIR and the EA are sufficient or anything should be modified and amended or something like that to jump from 2,000 to 300,000.

So, it's largely subjective and from what I understand, Howard, I talk to some regulatory experts about this, and they said that, too, that if DOE want to accelerate and send 300,000 gallons, they can with some minor modifications. There's permit or the WIR and the EA and keep this ball rolling.

But that's all predicated on support of the regulator as well. So, in other words, to answer your question specifically, DOE and the regulator have the ability to keep that system rolling or they may decide to do some other evaluations between the two tests. We're hoping that nothing is going to really change between the WIR and the EA.

I mean there's not going to be any new information that really consider overall. So, a worst-case scenario, it'll be some type of modification of these permits or permit process and have a limited period of time and perhaps be able to start treating at full capacity in the 2023-time frame..

It's 500,000 gallons in the documents, not 300,000, by the way..

Yes. The 300,000 they've mentioned in the document correct. That's Phase 3; I may have said 500, yes. Yes, once they get rolling at the operational level, it's going to be more of a monthly burn. So right now, our capacity and our permits without any modifications will take 30,000 gallons a month.

With minor modifications, we can jump that up to 1 million.

So, it just depends on how much they want to ship to us?.

So, is there a good probability that you get the 300,000, 400,000, 500,000 gallons after the 2,000 in your opinion?.

There's a lot of politics involved here, Howard, as we talked about on every call. So, I hate to speculate on that. I'm optimistic that DOE will see the value in this as a supplement to DFLAW. As I've said before, Perma-Fix will get some of the affluent waste from DFLAW as well.

So, a perfect world, as DFLAW comes up and gets rolling in December of 2023 and DOE sees the value and the supplement work that we can do at the same time, so that in 2023, they're both running and their empty and tanks at a rapid pace. So, I remain optimistic that there will be limited – a number of hurdles between Phase 2 and Phase 3..

Thanks all I have. Thank you. Good luck..

Thanks Howard..

Thank you. Your next question is coming from Anthony Harper. Your line is live..

Hi, gentlemen. Hope you all are well. Mark, hope you're well..

Hey Anthony..

Can you please explain what difference it makes to Perma-Fix to be named a prime contractor on the Hanford Tank Disposition Contract versus a sub-contractor? And can you please clarify whether Perma-Fix can be named as a subcontractor on that contract, even if Perma-Fix ends up being part of the losing consortium that has bid for that contract?.

Sure, Anthony. First of all, I can't talk anything about the procurement and where we stand on it because it's an open procurement and it's obviously very significant. Lots of NDAs have been signed. So, I'm not going to talk specifically about our role in it.

But in a general sense, being named with the prime or on the procurement or the proposal itself locks a company in four specific scope. So, you know that when you win, you're going to get the scope.

The government requires you to define each company's role in the commitment from the prime to use that company for that role and evaluate you on that basis, and you build your team around that strategy. So being named on any Veolia bid guarantees you certain scope or at least gives you a significant probability for a certain scope when it's awarded.

So, it's a lock-in for sustainable long-term revenue, and in most cases, Anthony, it includes commitment for a significant number of FTEs or employees that you would have in your company. So that's the value. This is a different type of deal with us in the tank closure contract, ITDC has referred to.

Because the scope of work doesn't specifically say, doesn't ask you, it doesn't define the scope in this bid for treatment – supplemental treatment of the tank waste. Because this is literally an IDIQ, that task order will come after the award. So, the only thing you're really bidding on and having to define how you're going to do it is transition.

So, you find, hey, this we're going to transition, and during that period, DOE is going to hand you a handful of task orders and say, okay, here's all the things you got to do. You've got to maintain compliance at tank farm. You got to serve DFLAW.

You've got to run these facilities, deal with the waste and at one-point, one could speculate that there'll be a task order that includes supplemental treatment of tank waste. And again, I'm just painting a picture here.

So, none of this is written anywhere and we would be in a position, if we were on the losing team or the winning team, we would be in a position to support that task order as a subcontractor or on the team. And so again, there's not a lot of options for treatment of that waste outside of DFLAW.

So, one could speculate, hey, if we're in a losing team, the winner would call us and say, give us a quote for treating this waste off-site or supplement – as a supplement to DFLAW, and we would provide that service.

The reason we're so confident because we're the only ones that have a facility, right next to Hanford that could take the waste without transporting the raw waster down the highway. We're permitted and we've demonstrated we can do it, and we've demonstrated performance.

So, with all that in mind, if we're not on the winning team and if we're just a subcontractor then we still are very confident that we would provide that supplemental treatment..

So, I mean it just sounds like it really doesn't, at the end of the day, given the niche that you serve and given the fact that there really is no one else to go to do what you do.

It sounds like it really doesn't matter whether you're a prime contractor or a subprime on the hand for tank closure, I mean is that the bottom line?.

That's the bottom. The bottom line is exactly that, Anthony, is if there are two different initiatives with two different revenue streams, the first is, if we're on the winning bid, that's a nuclear services job. There's the bodies off-site and they're working on the plant, just like anybody else.

The second opportunity is treating the waste off-site at our facility, and that's a separate initiative, independent to each other..

Those are independent of one another.

So, you could be named that – you could be part of the winning consortium and do both services and treatment, and you could be a subprime – subpriming to the other party that wins this contract and do both treatment and services revenues?.

Correct, correct. Those are....

Okay. Got it. And you had mentioned being a small business. And I know – I think you had mentioned that 20% of revenues of a contract award could be or over 20% could be subcontracted. Maybe you could just elaborate on that.

And first, could you help explain under what circumstances are prime contractors of the DOE and DoD subject to small business subcontracting requirements? And are these subcontracting requirements always the same across all projects awarded by a given agency? Or do they vary? And if you could just help give us a sense of to what degree to vary..

Sure. DOE is really the largest $1 billion contracting agency. And they are very sensitive and understand the value that small businesses bring to our industry and to make sure that they're growing and there's opportunities for them.

And some of these contracts are so gigantic, and it's so difficult to manage, the department looks at it and says, look, we can't really manage ourselves as a department with 100s of small business contracts.

So, what we're going to do is we're going to go to the big boys, the multibillion-dollar contracts and give them goals, and they have to do it, which works out just fine.

On the tank closure contract, the goal is about 20% of revenue, which is about $180 million every year, and what DOE will do is they'll make that prime contractor demonstrate each year as they've subbed out $180 million to small businesses in work. And they'll tie feet to it and tell the prime.

Hey, you guys, you met your goal, you didn't need it, and if you don't meet it, then we're going to docu you some fee and make sure you know there's an incentive. You've got to meet this goal if you want all your fee.

And sometimes that number is as high as 40%, and we've seen those several times where total revenue, 40% of it has to go to small businesses of all various different types of small business too. This isn't just us; it's everything from IT companies to vendors and provide on-site services or even equipment and materials.

So, when you're a prime, and I've been in those shoes a couple of times, where as a second manager, I have to look at it and say, hey, we got to send these things out to a small business for subcontracts and make sure they're participating. And what it does, it limits the competition.

There's only a couple of companies that are in a position to bid on, and it keeps the small businesses growing and make sure there's opportunities for this business to do well. So, it's really important that they take it seriously. DOE has improved their small business program dramatically over the last 10 years overall.

And some sites are better at than others. And every small business out there could tell you who the best ones were and who is the worst, but they're all getting better all the time and it's important for DOE to have that approach..

Do these subcontracting requirements though, apply to every contract they award? Or is there certain minimum thresholds in size?.

They all have small business plans. Every one, it's not a small business set aside, which is not many, but everyone is not has a small business plan that's required to be written by the prime, the winner, that defines how they're going to meet the gold in the RFP.

So yes, they all have some goal, but they do vary in percentages depending on reasonableness..

And is this the same with DoD?.

Yes, to a large degree. I don't know. I now on the environmental side, yes, if you're building your F-35 fighter jets, I don't know if it has the same approach. But certainly on – using on construction and on environmental contracts, yes, they have goals like that..

Okay. Last question. You mentioned that you currently have capacity to do 30,000 gallons of treatment per month.

To ramp that up from 360,000 gallons a year to 500,000 gallons a year and then to 1 million gallons per year, how much CapEx would be required?.

To go from 300,000 to 1 million, we're estimating – we haven't really done all the calculations on this, Anthony, but it's going to be under $1 million to do that. It's a kind of thing you can do it gradually. In other words, there's a series of mixers that are required. We have the space, fortunately and which makes us a lot simpler.

We have the space now designated for it, but we'd have to buy some mixers and buy some infrastructure and address some power issues and that type of thing. But it's not dramatic. And so, we can get the 1 million pretty easy.

When we get to 3 million, which I hope that we're talking about in the next five years, then we're going to have to add some space and some additional buildings, which we'll gladly do. And that we look at that and said, three to five years, if that happens, that will be probably $3 million or $4 million of capital need..

Yes. Thank you. Appreciate it..

Thank you..

Thank you. Your next question is coming from Ryan Hamilton from Morgan Dempsey Capital Management. Your line is live..

Good afternoon and thanks or taking my calls..

Sure, Ryan.

I may have jumped in a little late, so I apologize if some of this might have been touched already.

But are you – on the Navy side, are you putting that business in Services?.

Yes. That's all-in services..

Okay. Sounds good.

On bidding activity, could you maybe touch on the size of the projects that you're seeing and maybe the number of bidders that are submitting bids and maybe how that compares historically?.

Yes. It really ranges, Ryan, across the board on these things like some of these MATOCs we've just won. There's one region that has 10 awards and there's one region that has three awards. And typically, it will be on those MATCOs more than a dozen people bidding it. So, you really don't have a sense of who is really beating against you.

Sometimes it's really hard to find out. On the DOE side of the house, most of the business we've been putting in there would be three or five bidders generally. And for example, the Princeton job that we just won, which is a decommissioning of some equipment up in Princeton University, Princeton Plaza, Physics Lab, it's about a $14 million job.

There were eight bidders, including some large businesses. So, it really ranges depending on it. We've had a couple of jobs we bid with there's no other competition. And so, it just ranges from zero to five to eight at most on a task order..

All right. Sounds good.

One more on the Navy side, is there any opportunity for business on the Treatment side?.

That's a good question. We only talked about the – we do a lot of voice treatment for the Navy to the nuclear propulsion group. We do several million dollars a year. We get all their mixed waste.

But as far as the waste generated from these initiatives, most of it will – the contamination is low enough that you'll simply cut up the scrap metal into smaller pieces and put them in a specialized container, and it can go out for – direct for disposal. So, there's very little waste that needs treatment.

Again, it's – its rate of activity on it is low enough that it can go directly into disposal, and treatment is necessary. That's what we found for most of the ships that we've seen so far..

Is there any opportunity on the sub side, the submarine side?.

The submarine side are amazing engineering feat. The way the submarines work is there's three pieces to a submarine generally. You have all the nuclear components are in the center sleeve, they call it, and then both ends of them can be removed.

And they maintain all of the radiological contamination in that center piece where the reactor is, and it comes out like almost like a ring. And they're able to ship that whole ring for the most part off to Hanford for disposal. And so, there's not a lot of waste generated.

They actually built those things and designed them for or with decommissioning in mind and keep it simple. Ships are not like that. They're usually integrated and all the contamination is through the ship. So again, they haven't done a lot of them. So, I don't know, what I'm talking about is what a very distinguished admiral told me and how it works.

I haven't seen it firsthand. I don't know if they're all like that, but one I'm familiar with there's not that much waste generated from it that is coming to us..

Alright. That's really fascinating. Last one for me. I believe it was either last call or maybe a call before that, you had touched about some business coming in from overseas on the treatment side.

Maybe could you just touch on that, maybe what you're seeing in that market and maybe where you see it going forward?.

Well, I'm glad you asked that, Ryan. It's one of the more exciting things that we're doing, and I didn't talk about it all today. We are seeing a real increase in international waste and interest. There's a really – at this point in time, it is not a treatment facility in Europe.

I like the facility we have in Richland that can incinerate radiological waste and significantly reduce the volume. So, we're starting to see a big influx of interest, and we've received some waste from Germany as well as UK. We have waste from Italy coming in next quarter.

And we have some big bids in the $20 million range ongoing right now all over Europe and we're excited about what that's going to mean to us in 2022 and really get roll into 2023. So, we figured out the logistics for shipping and – which was the big hurdle, how to get the permits you need to go through ports.

And basically, we incinerate or burn it, which size reduces it, well below 90%. Ship it back to them, and they rock it up or, say, ground it up and put it in the long-term stores or they can put it in some disposal facilities as well. So that's really starting to get a lot of traction.

It will open up a lot of markets for us once we get some clients that are used to shipping to us. And I see that as a real incremental opportunity for growth..

What do the margins look like on that compared to domestic?.

They're about the same. We keep them about the same. It's obviously very expensive to ship it, but such as there's no real competition for some of the waste that, we're talking about. They're covering that. It's a lot cheaper for them to do that than to build a facility over that's for sure..

And is it safe to say that European governments are suffering from the same delays as the U.S.

government as far as awarding contracts and a lot movement of this stuff?.

That's absolutely right. They're starting just come out of it. England, we're working with them right now. They're a little bit ahead of everybody as far as procurement and those types of things goes. But the rest of Europe is still a couple of months behind us. But we're meeting with them all the time and talking to them all the time.

And they have regulatory goals like we do to move waste out and get rid of them. And so, I do expect it to really pick up in Q2..

Awesome. Thanks for the time. I really appreciate it. Good luck going forward..

Thank you..

Thank you. There are no further questions in the queue. I will now hand the conference back to management for closing remarks. Please go ahead..

Okay. All my notes are all over my desk here. I will conclude by saying that wraps up our Q3 quarterly conference call. Again, we remain very confident in the outlook for our business going into Q4 as well as the New Year.

We appreciate the continued support of all of our shareholders, and we look forward to providing further updates as they unfold along the way through press releases and our website. So, thank you all for calling in..

Thank you, ladies and gentlemen. This concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation..