Clean Diesel Technologies (CDTI) Sells Reno-Based Exhaust, Parts Business; Prelim. Q3 Revs Miss Views

Clean Diesel Technologies (NASDAQ: CDTI) sold substantially all of the assets of its Reno, Nevada-based standard exhaust and specialty parts business on October 20, 2014 for approximately $1.3 million in cash, subject to certain working capital adjustments.

"We continue to execute against our strategic priorities to develop innovative technologies for the emission control catalyst market," said Chris Harris, CDTi President and Chief Executive Officer. "Our Reno operations had no relationship to our core catalyst products or technologies. This sale supports our goal of driving toward profitability through cost reduction and margin expansion initiatives. In fact, the sale of this non-core business aligns perfectly with our objective to focus the business, prioritize resources and control expenses. We are increasing our ability to fund key investments to broaden our substantial and growing intellectual property portfolio and to bring to market new products such as DuraFit™, which targets growth opportunities within the multi-million dollar heavy duty diesel replacement market."

Business Strategy Update

DuraFit, which addresses the growing diesel particulate filter (DPF) replacement market, has experienced considerable interest since its soft launch in June 2014 and the official launch in August 2014, and the Company expects growing demand for this product. Designed and manufactured in North America, DuraFit DPFs are cost-effective, exact-fit alternatives to OEM replacements; they meet or exceed OEM emission requirements, and are fully supported by CDTi's nationwide distributor network and field application specialists.

In addition to DuraFit, the Company anticipates demand for retrofit products will be stronger in the fourth quarter ending December 31, 2014, but that demand will tail off in succeeding quarters. In response to the slowdown in its retrofit business, the Company has streamlined its staffing to better align its cost structure with the anticipated softening demand. Combined with measures taken earlier in the quarter, which included consolidation of various staff positions and relocating its corporate office with existing operations in Oxnard, California, these actions will result in an estimated annual reduction in manufacturing and operating expense of approximately $1.2 million.

CDTi acquired the exhaust and specialty parts asset through its business combination with Catalytic Solutions, Inc. in October 2010. Its customers include leading OEMs and distributors. This asset operated as part of CDTi's Heavy Duty Diesel Systems Division. For the nine months ended September 30, 2014, the exhaust and specialty parts business contributed revenue of approximately $2.8 million and less than $0.2 million of operating profit. The sale was made to an affiliate of NCE Capital, an investment firm which operates Shuttleworth Exhaust Systems.

Preliminary Financial Results for Continuing Operations for the Third Quarter of 2014

CDTi's revenue from continuing operations in the third quarter ended September 30, 2014 was $9.3 million compared to $13.3 million for the prior year quarter. Including discontinued operations, revenue was $10.3 million and $14.2 million, respectively. The lower revenue was largely due to a sharp downturn in retrofit demand at a time when DuraFit sales had not yet begun to ramp. As a result, the Company expects to report a third quarter operating loss from continuing operations of between $2.0 million and $2.5 million, including $0.8 million related to severance and charges.

*** The Street was looking for Q3 revs of $11.6 million and loss of $0.23 per share.

The standard exhaust and specialty parts business will be classified as assets held for sale and discontinued operations in CDTi's financial statements.

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