2008 Operating Results:
EBITDA for 2008 was $328,000 as compared to $6.9 million for 2007. This decline in EBITDA year-over-year is attributable primarily to the decline in the overall economy during 2008 and particularly during the fourth quarter of 2008. The following items significantly impacted the 2008 operating results:
Revenues derived from Pure Earth’s Transportation and Disposal segment decreased by $8.6 million, or 21% from $41.0 million in 2007 to $32.4 million in 2008. This decrease occurred primarily during the fourth quarter of 2008 when revenues derived from this segment decreased by 54% as compared to the fourth quarter of 2007. This decline is a result of a downturn in the market for construction and rehabilitation projects in the New York metropolitan area.
Pure Earth restructured its rock crushing operations within the Materials segment by combining two locations into one, canceling an unprofitable rock crushing facility lease and leasing new rock crushing equipment, resulting in increased costs and lost productivity that caused a loss from operations of $1.6 million during 2008, as compared to a loss of $0.5 million during 2007.
Pure Earth’s Treatment and Recycling segment had a loss from operations of $1.1 million in 2008 due to lower revenue per ton pricing, coupled with increased disposal and trucking costs and operating costs, as compared to income from operations of $1.8 million in 2007.
Corporate and overhead costs increased by $1.2 million during 2008 primarily as a result of increased legal and professional fees associated with the preparation and filing of the company’s Form 10 registration statement to become a public reporting company (completed on December 1, 2008) and ongoing litigation, as well as additional salary costs for new sales personnel.
Pure Earth’s interest expense for the year ended December 31, 2008 increased by about $1.0 million, from $0.9 million in 2007 to $1.9 million in 2008. This is primarily the result of additional interest expense relating to a $6.3 million preferred stock financing completed on March 4, 2008, which bears interest at 14%, with mandatory redemption in March 2013.
Pure Earth’s 2008 operating results were also negatively impacted by $1.6 million in noncash impairment charges on idle equipment held within the Treatment and Recycling segment, $0.3 million in expenses for unrealized acquisitions, and an additional $0.6 million in bad debt expense. These additional expenses were offset in part by $1.2 million in income resulting from changes in fair value of outstanding warrants with contingent redemption provisions.
Mark Alsentzer, chief executive officer and president of Pure Earth, stated on the 2008 results, Our revenues and operating results for 2008 were negatively impacted in the fourth quarter of 2008 when our company, like many others, saw a significant decrease in sales activity and new job starts due to the overall economic downturn. During 2008, we had several planned projects and growth initiatives which we had expected to impact operations in 2008, but were negatively impacted by the economy resulting in delays to these projects and in some cases putting these projects on hold for the time being. During the second half of 2008 we began to shift our efforts from external growth to focusing on improving the operating results of our existing portfolio of companies through further integration between segments and reducing operating expenses.
We continued with the integration of the Casie Group operations (acquired on March 30, 2007) into our Treatment and Recycling segment, which contributed $24.9 million in revenues for 2008. During 2008, we hired new management and implemented cost saving initiatives through salary and benefits reductions and the renegotiation of transportation and disposal contracts, which are expected to result in an estimated $1.5 million of cost savings on a prospective basis in 2009. The second area that we focused on was the restructuring of our rock crushing operations, which we believe should result in profitability for the Materials segment in 2009, added Alsentzer.
Acquisitions and New Ventures:
Alsentzer further stated, Despite the downturn in the economy during 2008 and the negative impact to our 2008 operating results, 2008 was also a year of several significant accomplishments through acquisitions and new ventures which we are excited about and believe will have a significant impact on our future operations. These new ventures represent a step forward in our goal of becoming a leader in the recycling and beneficial reuse of a variety of waste streams on a ‘green’ basis to reduce the environmental impact of certain industrial activities and to provide environmentally friendly products to end users.
In March 2008, Pure Earth formed Pure Earth Energy Resources, Inc. (PE Energy) as a start-up business to explore recycling of alternative wastes into fuels and other alternative energy initiatives. The company’s current business strategy to recycle high BTU waste streams into alternative fuels is driven by its efforts to provide lower cost recycling outlets and green recycling alternatives to customers seeking price differentiation or demanding 100% recycling of their waste products, as well as by the significantly higher cost of fossil fuels. Since the date of formation, PE Energy has been in the process of seeking to identify opportunities and sites to begin the treatment and recycling of alternative wastes.
Effective April 1, 2008, Pure Earth, through its wholly owned subsidiary New Nycon, Inc. (New Nycon), completed the purchase of specified assets from Nycon, Inc., a concrete reinforcing fiber company. Simultaneously with this acquisition, New Nycon also introduced a new product called Nycon-G, an eco-friendly reinforcing fiber manufactured from post-consumer carpet waste and developed under a patented process.
In January of 2008, Pure Earth completed the acquisition of its first Brownfield site, located in central Connecticut, which we expect will become operational and begin accepting soils as capping materials in the fourth quarter of 2009.
Pure Earth’s goals for 2009 are to return to profitability by continuing to work towards improving the operating efficiency and effectiveness of our existing operations. The company will focus on taking its alternative fuel and energy initiatives from the developmental stage to becoming operational and on growing some of its newer business lines such as the Concrete Fibers segment. The company has hired several new sales personnel to improve and expand the reach of its marketing programs throughout the company, which the company expects will translate into additional revenue during 2009.
Alsentzer also stated, We also believe that President Obama’s new $787 billion economic stimulus plan could translate into new opportunities across Pure Earth’s operating segments. The earmarking of funds for infrastructure projects, and in particular proposals for shovel-ready projects in New York, New Jersey, Connecticut and Pennsylvania totaling $11.2 billion, fits in well with our existing Transportation and Disposal operations and the expected growth of New Nycon and the Concrete Fibers segment. The stimulus plan is also expected to provide funding for renewable energy plans, which we hope to capitalize on and assist us in the start-up of our PE Energy initiatives, concluded Alsentzer.
