By Ian Gilson, PhD, CFA
CDTi (CDTI) reported its third quarter results on November 12, 2013, followed by a conference call. Revenue was above our expectations, and there was a significant increase in operating margins. G&A declined significantly from second quarter levels and R&D declined Y/Y as patent applications were lower but was up slightly from the second quarter.
The company reported an operating profit in the third quarter and the net loss was lower than year ago and below second quarter levels.
The California retrofit market has come to life. Pollution enforcement has picked up and vehicle operators are being fined. KS Industries, a Bakersfield CA construction company, was fined $230,000 for non compliance and inspections have significantly increased at the Otay Mesa US-Mexican crossing. As a result orders for retrofit equipment are increasing and revenue to CDTi is increasing. California retrofit revenue was about $3 million in the third quarter, and non-retrofit business increased slightly to 40% of HDD revenue.
We expect CARB retrofit revenue to increase significantly next year, and then decline as trucks become compliant or are sold out of state. However, the off-the-road business should grow and the new EGR systems should be a significant contributor.
Catalyst sales increased significantly Y/Y, up 39% after adjustment for the metal pricing changes made last year. Honda continues to be the driver of this business.
E Cube, the JV with Pirelli, has been dissolved. The poor business climate in Europe had made it impossible to meet the sales targets and a further review of CDTi's objectives suggested that E-Cube was not the best fit with the strategic plan. The loss from E-Cube was $0.4 million and this was about the same as what CDTi would have lost in Europe without the joint venture.
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