Perma-Fix Environmental Services Inc

NASDAQ:PESI

Earnings Call Analysis

Revenue and Profit Surge with Expanding Operations

The company saw a significant revenue increase to $22.7 million in Q4, up 35.6% from the previous year, largely due to volume growth in both Treatment and Services segments. Yearly revenue rose to $89.7 million, marking a robust growth of about 27%. Gross profit for Q4 improved impressively to $4.3 million from $2 million the prior year. Net income turned positive, with $81,000 for Q4 and $485,000 for the year, compared to substantial losses previously. Earnings per share also reflect this turnaround, with Q4 at $0.01 and annual at $0.04 per share, a significant shift from prior losses. The company is proactively engaging with the DOE and DOD for waste treatment projects and is in discussions with several European entities to seize opportunities, especially in Germany as it decommissions reactors. They anticipate further revenue flows as they scale up operations, especially by the end of 2025.

Strategic Positioning and Growth Opportunities

The company is strategically well-placed, harnessing environmental and waste treatment technologies to serve government, commercial, and international markets. Significant progress is observed in affluent treatment from the Department of Energy (DOE) sites, notably at Hanford. Treatment options are expanding into Europe, Mexico, and Canada, with stable revenue streams anticipated to commence in late 2024, potentially increasing by over $10 million annually starting in 2025.

Financial Resurgence and Shareholder Returns

Revenues have surged, with a 35.6% increase to $22.7 million in the fourth quarter, and net income turnaround to $485,000 from a loss of $3.8 million in the previous year. This rebound is attributed to volume-driven revenue growth across both Treatment and Services segments. Basic and diluted net income per share improved from a loss of $0.13 to earnings of $0.01 per share for the quarter. Additionally, there was a significant increase in Adjusted EBITDA, up from a loss of $3.3 million in the previous year to a positive $3.3 million.

Liquidity, Cash Flow, and Debt Management

Liquidity has experienced a strong boost, with $7.5 million in cash on the books, a leap from $1.9 million at the end of 2022. The company’s cash provided by continuing operations was a substantial $6.7 billion, reflecting efficient operations and strategic financial management. Perma-Fix’s total debt stands relatively low at $2.9 million, excluding debt issuance costs.

Bidding for Large-Scale Projects and Expanding Backlog

The company is actively vying for large projects, including the rebid of the $3 billion West Valley project in New York, with bid results expected in Q4. They are also investigating partnering opportunities on the decommissioning of the enterprise aircraft carrier with an award tentatively scheduled for May 2025. A robust growth plan for bidding on and securing sizeable projects is outlined, with a focus on enhancing backlog and operational efficiencies.

Innovative Technology to Address PFAS Contamination

Perma-Fix is innovating with new technology to tackle PFAS, commonly referred to as 'forever chemicals'. Anticipating a rapidly expanding market, with earnings from this segment projected to reach approximately $2 million by the end of 2024, the company is preparing to file multiple patents, receive clients' samples, and deploy the technology across its facilities. The company expects multiple revenue increases in 2025.

Anticipated Challenges and First-half Headwinds

Despite projected temporary headwinds and lower performance objectives for the first half of 2024, the company remains optimistic about its strategic positioning. Investments are being made to boost growth in the latter half of the year and to ensure a strong outset for 2025. These investments are especially targeted at increasing the backlog and productivity, reducing operating costs, and optimizing margins throughout 2024.

DOE Infrastructure and Removal System Milestones

The company is eyeing milestones associated with the DOE's tank removal systems, essential for the removal of waste and potential treatment opportunities. Tank removal system proposals are imminent, with expectations for awarding in the company's Q3, leading to fabrication and construction milestones that could stretch over the next year.

Expanding European Footprint

Markets in Europe appear ripe for expansion with existing inventory backlogs and significant demand for waste treatment and reduction solutions. Activities and agreements are afoot in various countries including Croatia, Slovenia, Norway, and the U.K. to build backlogs. Expected mature agreements and increased shipments should bolster revenue visibility, starting in the fourth quarter of 2024 and escalating in 2025.

Earnings Call Transcript 2023-Q4

[Operator]

Greetings. Welcome to the Perma-Fix Q4 and Fiscal 2023 Year-end Earnings Conference Call. [Operator Instructions]. Please note, this conference is being recorded.

I will now turn the conference over to your host, David Waldman, Investor Relations. You may begin.

[David Waldman]

Thank you, and good morning, everyone. Welcome to Perma-Fix Environmental Services Fourth Quarter and Year-end 2023 Conference Call. On this call with us this morning are Mark Duff, President and CEO; and Dr. Lou Centofanti, Executive Vice President of Strategic Initiatives; and Ben Naccarato, Chief Financial Officer.

The company issued a press release this morning containing fourth quarter and 2023 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 [phone].

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 and uncertainties and other factors, which could cause actual results and performance of the company to differ materially from such statements. These risks and uncertainties are detailed in the company's filings with the U.S. Securities and Exchange Commission as well as this morning's press release. The company makes no commitment to disclose any revisions to forward-looking statements or any facts, events or circumstances after the date hereof that bear upon forward-looking statements.

In addition, today's discussion will include references to non-GAAP measures. Perma-Fix believes that such information provides an additional measurement and consistent historical comparison of its performance. A reconciliation of non-GAAP measures to the most directly comparable GAAP measures is available in today's news release on our website.

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

[Mark Duff, executive]

All right. Thanks, David, and good morning. I'm pleased to report we achieved a 35.6% increase in revenue and 112.7% increase in gross profit for the fourth quarter. We also generated positive EBITDA and positive net income for both the fourth quarter and the full year. .

We achieved these results despite significant investments in both our internal bidding organization as well as in research and development. As a result of these investments, I truly believe 2024 is shaping up to be a transformative year for the company. And in 2025, we're poised for major breakout. As I'm sure most of our investors are aware, we are preparing for several large initiatives that we expect will begin to materialize in the second half of this year and set the stage for unprecedented growth.

Let me begin by addressing some of our recent wins, and then we'll provide updates on some of the upcoming opportunities and specifically why we're so excited about the long-term outlook for the business.

Within the Services segment, we realized several new awards from the Buffalo Corp of Engineers. The U.S. Geological Survey, USGS, the U.S. Navy and several commercial clients. We've also developed teaming relationships for several large bid procurements. In addition, our joint venture received full award of the Joint Research Council project to the European Union in the Ispra, Italy facility, which represents a total of up to EUR 50 million over the next 7 years.

Overall, we finished the year with several strategic wins and accomplishments that we believe will support our long-term growth and help us fully diversify our revenue stream.

Within our Treatment segment, we witnessed an increase in volume with steady improvement in waste receipts early in the quarter. This included increased waste shipments within the commercial sector, along with steady sales from our industrial waste programs. While we do not typically provide and do not plan to provide quarterly guidance, I believe it is important to share a more detailed discussion of what we expect in 2024.

We consider this year to be a transitional year based on the business environment and the investments we have made over the past several years [ as far ] for what we believe will be an exciting 2025.

Beginning in the fourth quarter of '23, we started facing certain headwinds that we believe were temporary but will have an impact on the first half of this year. First, as we previously disclosed, during the fourth quarter of '23, we completed our 2 largest service projects at the Princeton Plasma Physics lab and the McKee ship decommissioning project for the Navy. Both these projects were very successful with strong safety records and we achieved our anticipated margins and outstanding client ratings throughout the projects.

That said, with these 2 projects now complete, we have not yet secured all the replacement revenue in the Services segment due to the timing of the awards and opportunities we're waiting on. The gap in work, which we anticipate will last about 4 months has resulted in challenges and weaknesses that will be reflected in our results for the first half of 2024.

In addition, due to the inability of Congress to pass the federal budget, the government has been operating under a continuing resolution, which has contributed to delays in procurement project starts and waste shipments since government clients are holding back budgets due to the uncertainties and the potential of a shutdown in the last 5 months.

January is also a tough month with weather impacts, closing 2 of our facilities for a week and delays in project production in the field as well. That said, February and March have shown some positive trends in both segments. As a result, the next 2 quarters will be weaker than we've anticipated due to the timing of contract as well as delays relating to the past of the 2024 federal budget. However, as things normalize, we remain confident in getting back to our in surpassing our business base goal of $25 million in revenues per quarter.

In addition, we anticipate that the 2024 budget approved last week will provide increased opportunity for Perma-Fix as the enacted budget reflects about a 9% increase over 2023 at the Department of Energy alone.

As I mentioned earlier, we remain particularly optimistic about the second half of the year and could not be more excited about the outlook for the business in 2025 given the magnitude of the projects we're currently working towards. As we've discussed previously, we are rapidly advancing several initiatives that we believe will significantly enhance our revenues and long-term backlog beginning in the second half of '24. And potentially much more than '25.

I'd like to briefly discuss each of these initiatives to provide our investors an overview of the vision for next year. First, we're benefiting from an increased bidding opportunities within our Services segment, including both the government and commercial sectors. We're positive [indiscernible] -- we are positioned for large ongoing procurements within the DOE and the Navy as well as other midsized procurement initiatives for both DOE, DOD and EPA. These large procurement opportunities include proposals to be submitted over the next 2 quarters. We've been able to secure strong [indiscernible] relationships for potential awards anticipated throughout 2025 that will potentially represent substantial increases in sustainable revenue over the next 5 to 10 years.

Second, we're extremely well positioned to provide waste treatment services to support the DOE's hand for closure strategy, including the treatment of effluent from the DFLAW (Direct-Feed Low-Activity Waste) facility once that commences vitrication operations, which should provide vitrification services to about 40% of the tank farm at Hanford.

In January '23, DOE signed a record of decision a rod to treat the effluent waste streams from the law facilities to include our local Perma-Fix Northwest facility for at least the first 10 years of its operations. We remain optimistic about reports coming from DFLAW in regard to startup of these melters the vitrification plant and the supporting systems, which continues to progress towards high commissioning in 2025. As stated in several of the past quarter calls, we're well positioned to treat all of the affluent ways from those operations as defined in the 2023 record decision by the DOE, which estimates specifically to generate up to about 8,000 cubic yards of waste annually. Pulling a hot start-up on the vitrification plant.

As I mentioned in the past, the volume of this waste would more than double the production of all of our plants combined on an annual basis.

Third, the DOE at Hanford has formally recognized the importance of routing relative to the overall closures strategy has a preferred supplement after the current strategy for verification of the 57 million gallons of tank was stored at Hanford. The Hanford Systems Rev. 10 document published in January devoted and developed over the past 3 years by DOE to find a new preferred scenario for the Hanford site closure. That specifically includes vitrification at DFLAW for the east side of the tank farms and the west side to be treated through commercial grouting technology. The system -- the systems [ Rev 10 ] document is currently being implemented to include 2 new tank removal systems to be installed and operated in late '25 and early '26 And One of these real systems will be built, installed and operated to support the DFLAW facility, while the other one will be dedicated to removal of tank waste for shipment to commercial grouting facilities of our disposal off-site.

Both the specs for these removal systems include performance parameters of 3.5 million gallons per year for throughput for pulling waste out of those tanks. Perma-Fix maintains and operates these [indiscernible] -- our [ grouting ] facilities today at the Perma-Fix Northwest facility, which is permitted and outfitted to safely and compliantly go out up to 30,000 gallons per month with the ability to expand that capacity to well over 1 million gallons annually while dramatically reducing cost, risk and schedule compared to the vitrification alone.

It's important to note that our facility at Perma-Fix Northwest offers the only local or regional option for grouting [ tank waste ] near the Hanford site and uses of rail to ship treated waste for off-site disposal. This is a much safer option than shipping untreated tank waste by truck out of state for grouting and disposal, which is specifically designed as a higher risk in the need for documents, including the environmental assessment as well as the [indiscernible] document [indiscernible] developed by DOE.

So when looking at both treatment of affluent from DFLAW and grouting, DOE is making significant progress in Hanford and the other [indiscernible] locations and Perma-Fix is strategically well positioned with technologies to provide increased value towards those objectives.

Fourth, we're expecting our waste treatment offering within the commercial and international markets, including Europe, Mexico and Canada. These opportunities will generate sustained receipts beginning in 2025, providing combined revenues estimated over $10 million annually, which we expect to begin to be realized in late '24. The award of the JRC program in Italy, coupled with our expanding international clients represents continued growth opportunity based on the market for advanced permitted and efficient waste treatment to be provided -- to provide a stable waste forms that minimize long-term storage costs.

The JRC project supports our expansion program in Europe, including existing IDIQ contracts held by Perma-Fix in the U.K. and the application of our treatment technologies in other European markets.

Fifth, we continue to invest in our facilities and capabilities. Specifically, we're implementing several pre activities at our DSSI facility in Eastern Tennessee and will include a multimillion dollar expansion project to allow a broader treatment of reactive waste for our client. Including advanced safety and security systems to address the growing inventory at several client locations.

Additionally, we're investing in sole sorting technology to include fabrication of the second tools order and potentially 1/3 that can be deployed by the end of second quarter of '24.

Sixth and finally, we've made important advances in new technology to treat PFAS contamination. While we look forward to full unveiling our technology and strategy in the coming months, I want to give you a glimpse into what we've been working on. Now for those of you unfamiliar with PFAS, which is an acronym PFAS, which stands for Per-and Polyfluorinated Substances, which are synthetic chemical compound. The market for the treatment and disposal of PFAS is exploding due to the hazards associated with these, what they call forever chemicals. Thousands of sites across the world have been -- have large inventories of chemicals not to mention all the sites within the PFAS contamination that require remediation as well. Estimates for this market very widely. However, the opportunity to provide services and treat PFAS-contaminated waste for the government as well as municipal and commercial clients is estimated to be or exceed over $10 billion over the next 10 years, according to the Environmental Business Journal.

In fact, PFAS instruction represents one of the largest potential markets for environmental cleanup over the past several decades. Our new technology includes 5 patents that have been filed to support the complete destruction of PFAS with no off gas or no toxic effluent emissions. Perma-Fix Co-Founder [ Lou Centofanti ] and his team of engineers and chemists have spent countless hours developing and validating this technology. While we know there are many firms and pursue the PFAS remediation, we're confident that our complete construction technology coupled with our existing network of generators and clients will support rapid expansion of systems to be deployed at each of our plant locations in 2025.

We've already received PFAS from customers and recently completed bench scale testing of our new technology, supported by independent verification, which demonstrated nondetectable presence of contaminants after treatment.

Our engineers recently completed design of a proof-of-concept system that will be tested later this month -- it is actually being tested as we speak, followed by the fabrication phase for our prototype systems currently scheduled for testing and operation in the second quarter of 2024. We'll be spending the coming months conducting system optimization studies to maximize destruction effectiveness while reducing operational costs before we launch our service into the market, at which point we expect to begin generating revenue later this year.

Given the low cost as well as the technological and environmental advantages of our new process, we're already witnessing significant interest from major potential customers as well as regulatory agency. Our estimate for revenues in '24 is approximately about $2 million through the end of the year. However, once the production base -- and based on discussions with our customers, we're hopeful to achieve multiples of this revenue in 2025, as we have the ability to ramp up production rapidly with high margin potential.

And one final note regarding PFAS to put the market opportunity in perspective, I'd like to quote Time Magazine, which headlined and I quote [ the 3M's ] historic $10 billion forever chemical payout is just the tip of the PFAS iceberg. So the market is very strong and very well documented.

So to wrap up, the investments we're undertaking in the first 6 months of 2024 should position Perma-Fix for solid growth in the second half of the year and should position us very well in 2025. At the same time, we're making significant investments as illustrated by the fact R&D is up 67% in 2023 over last year across all of projects.

We believe these and other investments will allow us to reap the rewards of years to come. Meanwhile, we remain focused on increasing backlog and productivity [ while ] reducing operating costs to maximize our margins in 2024.

I'm very proud of our team that we've assembled, which now includes top-notch business development and sales team members as well as experts from across the industry with expertise in chemistry, waste engineering, health physics and fuel operations.

As a side dote and from a macro perspective, 2024 is bringing greater attention to our industry. as we're seeing increases in nuclear power throughout the new plant as well as SMR or small modular reactors, which with a renewed emphasis on long-term solutions for radioactive waste management.

So while the first half of 2024, looks to be below our performance objectives with a few temporary headwinds, we believe that we're well positioned for a second half of growth of the year with very high hopes for 2025. I can't emphasize this point enough. And we're more encouraged than ever by the long-term outlook for the business with a number of potentially company-changing opportunities in the near-term horizon.

Okay. So on that note, I'll now turn over the call to Ben Naccarato, who will discuss our financial results in more detail. Ben?

[Ben Naccarato, executive]

Thank you, Mark. I'll start with revenue. Our total revenue from continuing operations for the fourth quarter was $22.7 million compared to last year's fourth quarter of $16.8 million, an increase of $6 million or 35.6%. The revenue improvement, which was supported by both operating segments came from our Treatment segment, increasing revenue by $1.6 million or 19%, and that came from increased volume and was offset by slightly lower average pricing.

Our Services segment increased by $4.3 million or 53%, and this came from increased scope from our -- one of our larger projects and the start-up of several smaller projects. For the year ended 2023, our revenue finished at $89.7 million compared to $70.6 million last year. As with the fourth quarter, both our operating segments had substantial increases with the treatment segment increasing by $10.1 million or 30% and the Services segment increasing by $9 million or 24%. Again, consistent with the fourth quarter. These improvements were volume related in the Treatment segment and the result of increased project work in the Services segment.

Turning to our gross profit for the quarter. Our gross profit was $4.3 million compared to $2 million in 2022. The Treatment segment gross profit improved by $564,000 from improved revenue and lower fixed facility expenses. This was offset by higher variable costs related to revenue mix.

In the Service segment, gross profit improved by $1.7 million from higher revenue and improved margin on our project work, and this was slightly offset by higher indirect payroll-related expenses.

For the year ended 2023, our gross profit was $16.4 million compared to $9.6 million in 2022. Both our operating segments gross profit improved with treatment segment improving by $1.6 million and that's from higher revenue, offset by higher variable costs and increased facility expenses. The Service segment gross profit increased by $5.1 million from higher revenue and improved margin on its projects, offset by higher indirect payroll-related expenses.

Our SG&A for the fourth quarter was $4 million compared to $3.6 million in the fourth quarter last year. While our SG&A for the full year finished at $15 million compared to $14.7 million last year. SG&A in the quarter were higher primarily as a result of higher employee incentive expenses booked in the quarter. Similar to the quarter, SG&A expenses were up for the year from employee incentive expenses and other payroll-related expenses offset by lower audit, legal and other consulting fee expenses.

Our net income for the quarter was $81,000 compared to last year's net loss of $1.7 million. For the year ended December 31, net income was $485,000 compared to a net loss of $3.8 million in the prior year. Our basic and diluted net income per share for the quarter was $0.01 compared to a loss per share of $0.13 in the prior year. Income per share for the year ended December 31, 2023, was $0.04 a share compared to a loss per share of $0.29 in the prior year.

Adjusted EBITDA for continuing operations for the quarter, as defined in our -- this morning's press release was $434,000 compared to a loss of $1 million last year. For the year ended 2023, adjusted EBITDA was $3.3 million compared to a loss of $3.3 million in 2022.

Turning to the balance sheet. Our cash on the balance sheet was $7.5 million compared to $1.9 million at the end of 2022, reflecting improved cash from operations and the reload of our term loan by $2.5 million in July of '23.

Our unbilled receivables were up $2.4 million, reflecting increased year-over-year revenue -- December revenue, primarily in the Services segment. Our current liabilities were up $3.2 million from the timing of payments and increased expenditures, particularly in the Services segment.

At December 31, our waste treatment backlog was $8.7 million plus an additional $2 million of unearned revenue for a total of $10.7 million, which is up from $9.2 million at the end of '22 and $9.6 million at September.

Total debt at the year-end was $2.9 million, excluding our debt issuance costs, which is mostly owed to P&C. Next, I'll discuss cash flow activity for '23. Our cash provided by continuing operations was $6.7 billion. Our cash used in our discontinued operation was $597,000. Cash used for investing of continuing operations was $1.7 million, all related to cap spending. Cash provided from financing was $1.7 million which represents proceeds from the reload of our term loan of $2.5 million and proceeds from various option warrant exercises of approximately $300,000 offset by our monthly payments to the term and capital loans of $709,000 and payments related to finance lease liabilities and other debt or approximately $364,000.

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

[Operator]

[Operator Instructions] Your first question for today is from Howard Brous with Wellington Shields.

[Howard Brous, analyst]

There was an article in [ Barron's ] this past Saturday that indicated that the markets with PFAS was about $100 billion, not $10 billion. You missed the comma there, Mark.

[Mark Duff, executive]

Okay. I thought [indiscernible] $100 billion. Okay.

[Howard Brous, analyst]

$10 billion. Let me start with the first question about opportunities. We know about OSMS, are there other very large opportunities like OSMS in the foreseeable future. If you could be a little granular, we'd appreciate that. That's my first question.

[Mark Duff, executive]

Sure. then -- or Howard, I appreciate your question. Yes, we're always sensitive to discussing ongoing procurement, but we are participating in the rebid of the West Valley project in New York, which has been submitted. So we're on a team for that. That's about a $3 billion project over 10 years. We're a teaming partner. [indiscernible] were not prime on that. That's distributed to be awarded in the Q4, Q1 time frame. And also, we tend to be -- we have a very good team that we intend to participate on the enterprise decommissioning project, enterprise is the aircraft carrier, so that the Navy will be decommissioning, and we expect that to be awarded in the proposal once [indiscernible] back out, we expect the proposal to go in later this summer and award in May of '25.

So those are just a couple of the big business we're playing pretty major roles in. We are still waiting on OSMS. They have going out for what they call final proposal revisions where they ask bidders to answer some questions and provide some feedback. So we are in that process. And -- it's very difficult to project when we plan to award that. But word in the street, and speculation is they expect to award that a little bit later this summer. With transition to be completed at the end of this government fiscal year, which is end of September. So still no word on the award for that yet. So there's a couple of other, we're negotiating teams on right now, but that's generally where we are on the big bids.

[Howard Brous, analyst]

Let me focus on the DOE document that you referred to earlier. Can you confirm that they've adopted scenario #2?

[Mark Duff, executive]

Yes. You're referring to the Hanford Systems document [ Rev. 10 ], they call it yes, which is a 400 bags document includes 2 primary scenarios for their closure strategy. And that's a pretty dramatic change for DOE over the last 3 years. They put that every 3 years. And the first scenario is specifically what they've been moving towards for the last 10 or 15 years, which is vitrification of all of the tanks. And some or in other words, you'd have to [indiscernible] floor running and then they were going to build a new or second DFLAW type of plant treat the other half.

What they've done is they've abandoned that capital project in the scenario or two, where basically, they're saying half the tanks will go to the DFLAW plant and the other half of the tank of all the tanks will go towards routing. But specifically, commercial routing. In other words, DOE does not, at this point, tend to build a grouting plant, but they plan to outsource it.

They have not -- there's an official document that says they're implementing 2, but they have publicly has publicly stated that they are adapting to scenario 2. In fact, they are procuring the waste treatment removal systems that I mentioned as the first step. So there are to be awarded here in the next couple of quarters. And are to be implemented for pulling waste out of the tanks, as I mentioned, in the late '25, '26 time frame. And this design basis are about 7 million gallons a year to be pulled out of tank with both of those combined half going to DFLAW and then the other half going to grouting program.

[Howard Brous, analyst]

That said, if you contract a high-level waste, which is 6 million, 8 million gallons, you're left with 48 million gallons and in the document you're referring to, the comments strongly made is they would split it, as you indicated, which ultimately means 24 million gallons of vitrification and 24 million gallons to be grouted. That's one -- my understanding.

And two, therefore, the rod that was talked about in January of last year, talked about 10 years when effectively at 1 million gallons a year of vitrification you're talking about 20, 25 years or generational long. Is that a fair comment?

[Mark Duff, executive]

Yes, there's a couple of things missing from that comment -- yes, you're correct, about 25 million gallons in total would be a good estimate. But keep in mind that when you pull a gallon of waste out of a tank, you're typically adding 2 to 3 gallons to that waste to [indiscernible] -- to slurry it out. To get it out because it's largely dry or that's case peanut butter kind of consistent cause you got to add water to it and so you expand those gallons significantly as you're pulling it out.

But generally, you're right. duration is quite long. As I mentioned the 7 million gallons a year that the capacity they're pulling out. They don't have the capacity to treat that much. So I'm assuming that 7 million gallons a year as design capacity would not be really attainable. It would be something less than that when you consider downtime and changing out the [indiscernible] columns and those kinds of things that have to happen in an outage quarterly. So it will be a little bit less than that generated, but for quite a bit, actually. But it's a significant amount of waste over a significant amount of time. That will span multiple careers of people.

[Howard Brous, analyst]

So last comment to put a bow on all of this. They specifically in this document, talk about half grounded and half vitrified. And they have to be grounded, is to be shipped to Perma-Fix all of it. And then once it's grouted, shipped to -- I think it's Andrews, Texas, WCS. That's my understanding of the reading the document, it's a long document.

[Mark Duff, executive]

[indiscernible] Maybe a bold prediction. It's -- we have a contract, obviously, for the sport, the rod for DFLAW. And the grounding of the tank farms, which is obviously a second component of the overall strategy. It hasn't been defined specifically for us that they're trying to find other folks to compete with us, which is obviously in the best interest of the taxpayer.

Again, as I've mentioned, we've talked many times, we are the only regional opportunity to do that, and we have agreements with the local unions to use their services as well. We're excited about that. And the alternatives, as we mentioned before, is to ship the untreated waste via tanker truck to off-site facilities that are not in the region. It does take a long time to get a permit from the state in [indiscernible] 10 years plus as estimated. So we feel like we're in a really good position to provide the lowest risk approach as well as the most efficient approach. And we're looking at advanced technologies for the grouting process. And designing the most efficient means of grouting large volume as we expand our plant as the volume increases as delivered to our plan over the year.

So we feel like we're in a great position that seems kind of like a no-brainer, but DOE's got to -- kind of meet their objectives as well, but we're pretty confident we will get the majority of that waste as it starts to be generated from the tank farms.

[Howard Brous, analyst]

Well, one of the issues is shipping through [indiscernible] lands and they said, no. And my understanding, based on the treaty that they have with the United States government at supersede the ICC and the ability to ship it over their territory. So shipping it to [indiscernible] Utah, I don't see that based on the evidence and the comments, I don't see that happening. What about Andrews, Texas?

[Mark Duff, executive]

Yes. The [ Utah tribes ] have been very vocal about shipping untreated tank waste through the reservation, which is required largely to ship by tanker off of the reservation and goes out through Oregon, and they continue to -- the trial continues to be vocal about that. That's a political issue the DOE will have to address. But it certainly makes it very difficult and -- difficult for DOE to use that as an option, which we've gotten good support and letters have been written supporting our facility to do the grouting ship [ and ] solid waste forms by rail, which have been supported. It's much more stable and safer way. And if you do the accident scenarios for that number of trucks, the statistics are a lot different than by rail. .

So we're pretty confident that the comment you just made will assist in recognizing the value that Perma-Fix is providing to DOE with our local facility.

[Howard Brous, analyst]

Last question, and that is, and I'll rejoin the queue, when you talked about 2025 and PFAS what kind of multiple, if you're doing a couple of million dollars this year, how do you foresee this developing in 2025? And do you have the capacity to do it?

[Mark Duff, executive]

Well, that's a really tough question, Howard. .

[Howard Brous, analyst]

All right. Sorry.

[Mark Duff, executive]

Yes, it's okay. I'm not prepared to give a lot of detail. I know we've got these questions about what does it really mean to us in '25? It's really tough to nail it down because we don't know our throughput yet. We are just finishing treating what they call firefighting foam, where there are AFFF and drum quantities right now in our pilot plant. And we are nailing down the parameters for the unit.

In other words, how much it can -- how fast it can go? What the mixtures need to be to optimize the system? And as I mentioned, we are getting very meaningful results. In other words, we're meeting and demonstrating that we're meeting just about any regulatory limit that's been proposed out there. So in other words, we receiving -- you're seeing total destruction of the PFAS where most of our competitors have a waste stream coming out either an effluent or air emissions or some other type of effluent.

So we're very excited about that. We don't know what that really is going to mean to us next year. As I mentioned, our goal is to develop a plant for treating this AFFF at each of our locations. AFFF, we view as the lowest-hanging fruit of the market. People have hundreds and thousands of drums of AFFF store their facilities all across the country and literally all across Europe. And [ brick -- ] basically every Air Force Base and airport has trained with firefighting foam, which has been one of the bigger causes of the contamination. So we're focused on those first. We are still trying to define what the market will bear in regards to a cost for -- what we can charge per gallon on this versus what our costs are.

So it's really difficult for me to address that with a specific number, Howard. I will say this, as we get -- we're going to be having press releases come out in the coming months and defining this more and more and more. as we get these results. It's moving very, very quickly. We have a lot of people working on it, and it's all been -- we've been checking all the boxes for the parameters we didn't meet up to this point. So we're excited about it. And every day goes by, we're more and more confident that we'll really hit the ground hard running when we get through our final test.

[Operator]

Your next question is from Walter Schenker with MAZ .

[Walter Schenker, analyst]

Just one more point on the PFAS, if that's how you pronounce it. And people have mentioned it was nice to have Barron's article so we could understand more about the market, simply because I like simply -- what you have developed is a methodology to burn, to destroy, the firefighting form as the lowest hanging fruit. Is that like the kindergarten way of looking at it?

[Mark Duff, executive]

No, not really, Walter. We are not burning it. Burning it has been largely banned -- in other words, incineration by DOE and DOD. And the reason they banned it was because of the potential for putting PFAS in the air. And the difficulty in controlling [indiscernible]. Our approach is using chemistry. And there's a strong potential, and we're developing this now, and I'll let Lou jump in if he got something he wants to add something here that we can recycle some of the chemicals we're using in our system, that's kind of Phase 2 of our technology demonstration that would literally pretty much eliminate all the affluent concerns that other technologies have.

So -- there may be -- the heat will certainly -- and pressure will certainly accelerate the chemical reactions we need to occur, but there's no off gas, which is what you'd get if you burned it.

Lou, is there anything you want to add to that?

[Louis Centofanti, executive]

Yes. It's a very simple process basically done in a sealed container, take the liquids dumping our special materials sit for a couple of hours at some temperature and everything is gone. Everything we've screened it on, every floor [ carbon ] we've screened it on has -- this system destroys it, even Teflon. So we're very excited about it. It has lots of applications -- potential applications. And like Mark has said, the #1 application initially that we see the low-hanging fruit is -- are the liquids, either from old materials sitting out there or some of the separation processes that are starting to use for groundwater cleanup in that.

So we see a very large potential market in several different areas. The first one being liquids and then we'll look to -- we're continuing to look at all the other potential applications of the system. We see a lot of applications, potential application.

[Walter Schenker, analyst]

And therefore -- since I was rolling the first time, this market is -- again, potentially billions of dollars or tens of billions of dollars and Perma-Fix is a very small company, and it's nice to do a couple of million or even tens of millions. But that's a almost insignificant against billions. Therefore, it is possible or likely on a longer-term basis that you could license this to one of the very large players?

[Louis Centofanti, executive]

We've kept every option open on how we grow this. The first one is real obvious since we have facilities that are licensed and permitted and all this the liquids one is a very simple starting point for us, where we can learn more about the technology and -- but we are looking at all of the above.

There's a lot of on-site work it could be -- this process could be used that. And we've talked to a variety of larger companies that might be interested in working with us, especially with the on-site market. So yes, you're exactly [indiscernible]. We're keeping all options open at the moment for how we apply this and what route we take.

[Operator]

Your next question for today is from Brian Russo with Sidoti.

[Brian Russo, analyst]

I just wanted to follow up on the Rev. 10 document and grouting, what are the next steps for the DOE or any milestones that we should look out for not in terms of Perma-Fix's role because you have a very strong position, but just timing on when this scenario to could accelerate.

[Mark Duff, executive]

That's a good question for Brian. What it comes down to is my initial answer to that is that the tank removal systems have to be procured and installed. And we met with a firm just yesterday that is one of the players in that market, and they're in competition now. I think the submittals for those proposals is and within days of now. I'm not sure when exactly, but it's very, very soon.

Then they'll make an award, and I'm speculating exactly the date, but in the next several months, likely in our Q3. And then the milestones for fabrication, construction and implementation of those removal systems will occur over the next year.

So the milestones that you use to track that is really when DOE will be capable of removing the waste. And the interesting part is the -- one removal system will feed the DFLAW as I mentioned, there's an infrastructure of piping on the East side tank farms that will be used to feed the DFLAW plant on the West side tank farms, which is just about 50%, as I mentioned, there's no infrastructure. So it'll pretty much move the system from tank to tank to tank. And then start pumping into [ totes ], because there's no piping infrastructure, and these [ totes ] will be delivered to the treatment facility. So it's a lot simpler, more flexible and can move very rapidly. So I see that the primary milestones associated with that tank removal system that we mentioned.

[Brian Russo, analyst]

And can you just elaborate on the European expansion strategy, you mentioned the JRC earlier in the $10 million of waste shipments that could ramp up, I think, in later in 2024. Any more developments on the U.K. Westinghouse facility?

[Mark Duff, executive]

We are still working towards that and working on the parameters of those agreements as well as considering other options.

In addition to that, we have -- we're putting the agreements together with several other countries in Central Europe that also include dramatically large backlogs of waste and inventory. One thing I've learned in the last 2 years, that, basically every power plant over there has an enormous storage building of waste. And they were sitting on it, waiting for a treatment facility or for a large -- a long-term storage facility we developed. And there's a big market in reducing this volume through incineration and [indiscernible] significant size reduction that would save them lots of money.

In other words, our storage facilities are jammed full. So we're working with individual firms doing partnering with others to build our backlog, and we intend to shift those waste to Perma-Fix Northwest in the interim and working right now with Westinghouse and other organizations over there to meet that need and thinking outside the box on how to do that.

Certainly, the technology we have at our Northwest facility is very applicable, and there's a lot of interest from other companies in Europe now that are managing those waste for their commercial clients and had numerous meetings in the last 2 months trying to address that need. So it is a very expanding market. And we continue to put bids together for other countries, as I mentioned before, Croatia Sylvania and Norway and throughout the U.K. So it's a really growing market.

And again, I have a tough time defining what that really means to us in long-term revenue, but I do see that several of our agreements will be mature by Q4. and we'll start seeing shipments increase in '25.

[Brian Russo, analyst]

And then lastly, could you share with us what the services backlog looks like as of December?

[Ben Naccarato, executive]

[indiscernible] About $14 million.

[Operator]

[Operator Instructions] your next question for today is from Ross Taylor with ARS Investment.

[Ross Taylor, analyst]

First, congratulations on a surprisingly good quarter. I honestly didn't think you guys would be able to -- given all the back or headwinds from the government and the like would be able to put together a quarter like this, this quarter. So great job doing that.

A couple of things. With this PFAS situation, is your process protected by patents or other intellectual property loss?

[Mark Duff, executive]

We do have several patents. [indiscernible] Go ahead, Lou. Sorry go ahead.

[Louis Centofanti, executive]

Yes. I was going to say, we have patents pending. As Mark said earlier, and we expect to be filing quite a few more covering the different applications as we further develop the data for the patents. So -- we think they are. We're in the process. They're pending at the moment. And they cover the U.S. and Europe. The applications are all then sets a date in [indiscernible] stone for both the U.S. and Europe. And then we're looking at what to do in Asia.

[Ross Taylor, analyst]

Okay. And when you pursue the opportunities in that area, are you seeing this as Perma-Fix is going to people or an example like are you going to the DOD, which has obviously a huge problem in this area and trying to basically get a contract with them? Or are you JVing in this area? How do you see going to market with it from a Perma-Fix specific standpoint? .

[Louis Centofanti, executive]

Was -- as Mark said, initially, the focus is on liquids, whether they be out of date products or coming out of fire foam systems today or being generated by some of the separation processes that are presently being used on drinking water and other wastewaters. As we expand we're somewhat open. There's an [indiscernible] market that the facilities give us a tremendous advantage. We already see liquids. PFAS liquids coming through our facilities. So it's a natural that we now have -- would have a destruction process to destroy them and then...

[Ross Taylor, analyst]

Yes. Now -- and so as I said, that's where you're sitting with that. And I'm just trying to get an idea with the economics at these points end up being shared economics? Or is this something that you actually believe at early stages you're going to be able to go out? Your first few wins will be Perma-Fix unique wins, where you'll be catching the whole of it? Or will someone else be the prime in this? I mean has the government and other major players actually already started to pursue these types of cures. So are you looking to get [indiscernible]?

[Louis Centofanti, executive]

Yes. We're hoping to have demonstrations for -- we're already in the process of discussing with DOE, a demonstration project for some of their waste. So -- and the same with DOD. So that's all going on right now. And -- but again, mostly on the liquid side.

The next phase will be focusing on the on-site opportunities that exist out there and we're already starting to explore that with [indiscernible] could move really...

[Mark Duff, executive]

We have some agreements in place, they're not formal JV agreements, but we're working with several companies as partnering that have access or support clients with large inventories. And the process we're going through right now is we're receiving samples from different clients to run through our pilot and bench scale test to show them how well it works. That's kind of the first step is receiving samples from different people, different that have large backlogs of inventory and partnering with firms that we work with regularly that have clients with big backlog. So that's kind of how we're hitting the ground running fast as building that base of inventory that we can -- that will get us going.

[Ross Taylor, analyst]

Okay. Does this process require you to have significant capital expenditures? Is it the type of situation where you would need to build something at each facility? Or is it the type of approach that allows you to effectively almost create a mobile or a somewhat mobile capability that you can move from location to location. Or would you be putting it on your own locations and having the materials come to you?

[Mark Duff, executive]

[indiscernible] Go ahead Lou.

[Louis Centofanti, executive]

Yes. Initially, it's the latter. It's easy to put a facility in and it's not expensive. You're basically talking about tanks, reactor tanks at pressurized tanks. So step one is do it ourselves at our facilities, gain knowledge on the process and at the same time, looking at how it can be applied to other applications.

[Ross Taylor, analyst]

Okay. You talked about Europe. You talked about first -- what you see going on, what the potential is out of Germany that I think they've shut down or will have shut down all their new capacity. And I would think that, that would might be the biggest market available in Germany or in Europe or Central Europe. Can you just -- am I right in that read? And when we look at this the European and Central European opportunity, are these where you're going to have a unique JV in each country? Are there -- is there someone in Europe who like the leading player in this, and you'll work with them to pursue these opportunities? How does -- once again, like your go-to-market approach in Europe?

[Mark Duff, executive]

Yes. We have -- we're working in fact, at a conference this week in Phoenix, working with several different entities in Europe that are here participating in the conference. There is at a central organization. There is -- and you're correct, Germany is pretty much the largest near-term market as they're decommissioning, I think they have 17 reactors. They're all in different phases of decommissioning. And they all are generating waste as they be commissioned as well as having significant volumes of waste and storage. And Germany is building a very large long-term storage facility and a former iron mine in Germany that has a very specific acceptance criteria that they have to meet to get their waste into that facility.

So what we're offering to the different clients in Germany is the ability to treat that waste, reduce the volume and i.e., reducing the storage footprint they need just to get it in and making it stable to meet that criteria.

So we're in the process of working with it. There's several organizations involved, and there's numerous waste streams, something that we wouldn't deal with. And there's a lot that we would. So we're working through that right now.

In regards to JV, there'll be more like partnerships and agreements and unlike the Westinghouse situation, which is a JV. But these are all part of the offering we have through Westinghouse and through other organizations as well, depending on what the waste stream looks like. And it's really kind of unfolding at this point, but all pointing towards early '25 to get rolling.

[Ross Taylor, analyst]

Okay. And just a real quick one last, just going back over and looking at DFLAW, what's the correlation between revenues for you? And operations for the vitrification plant is? How quickly do you start to see cash flow from that once they start to get it up are they currently operating it at a low level? And are you seeing some process or some materials come through that? And kind of as it works -- I think they have 2 melters so the thought would be they start one melter and then they start the second melter at a point after that? Is that how it's going to play?

[Mark Duff, executive]

Yes. That's going through what they call cold commissioning right now, which is as opposed to hot commissioning, hot commissioning, they'll use some radioactive surrogates to begin to run through the system. Right now, just kind of give you a schedule. Schedule is not defined very well by DOE. They have a very hard and fast agreement that's really well defined to have the plant operational -- fully operational -- actually, no, I take it back -- operational, which means they have to be vitrifying waste by August of '25. DOE intends to beat that. They've said that publicly in numerous times. And that -- at that point in time, it will be generating -- depending on how many melters are going, up to the 8,000 yards a year that I mentioned.

However, we fully intend that as they go through hot commissioning and start adding radioactive surrogates to the glass that they'll generate waste on that as well. So we anticipate that to begin earlier in '25 as do the demonstration of the technology and the whole process overall to start generating smaller amounts of waste in the scheme of things.

But -- so we see it ramping up through the year and by the end of '25, certainly, we would expect both melters to be operating and be at the annualized rate of of the [indiscernible], which is the 8,000 yard or actually cube meters.

[Ross Taylor, analyst]

So by the end of '25, you would think you'd be at run rate -- there was some talk, I believe, in the Seattle publication that you might see something -- they might see something come out of that in late '24. Is that just a pipe dream?

[Mark Duff, executive]

I did see that, too. And I don't know where they're getting those numbers from. It's very difficult DOE is intentionally avoid committing these things because like investing, you had to commit to -- because you get all accountable. You can hope for your performance.

But the bottom line is that they're working very well. They're very excited about meeting the milestones they're meeting with the melters. They're actually working as anticipated. And -- but DOE have a long ways to go before they get to full operations to get through a lot of readiness reviews like any nuclear plant starting up, which takes a lot of effort and is very difficult.

Having said that, Ross, I would -- I really believe that anything before the first quarter of '25, would be shocking to me, but they might be able to get started, that's hard to say.

[Ross Taylor, analyst]

Okay. And I'll leave it with, once again, congratulations and the PFAS opportunity out of the blue, but really exciting. And just generally, as you said, it looks like we're setting up for really not only exciting, but quite profitable '25. So -- the road's been longer than some people hope for, but it looks like you're well on your way on it.

[Mark Duff, executive]

Yes. We've been very nervous about launching the PFAS status until we got through our bench scale and had an independent -- or result independently validated by a third party. And so it really -- this is an exciting time for us to be able to mention it.

[Operator]

We have reached the end of the question-and-answer session, and I will now turn the call over to management for closing remarks.

[Mark Duff, executive]

All right. Thank you. I'd like to thank everyone for participating on our fourth quarter and year-end conference call. Hopefully, after this call, you share our enthusiasm and confidence in the outlook for the business over the next few years. We look forward to providing further updates as we continue to execute on our strategy. We appreciate the continued support and patience of our shareholders, and we look forward to providing further updates as developments unfold. Thank you.

[Operator]

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