Catalytica Energy Systems, Inc. (NASDAQ: CESI), a provider of emissions solutions for the power generation and transportation industries, reported financial results for the first quarter ended March 31, 2005.
Total revenues for the first quarter of 2005 were $1,299,000, compared with total revenues of $986,000 in the same period of the prior year. Total costs and expenses for the quarter were $4,921,000, compared with $4,323,000 in the first quarter last year. Revenue growth and increased operating expenses between periods reflected a full quarter of SCR services business activities following the Company’s acquisition of SCR-Tech, LLC on February 20, 2004. Net loss for the quarter ended March 31, 2005 was $3,538,000, or a loss of $0.20 per share, compared with a net loss of $3,241,000, or a loss of $0.18 per share, in the same quarter of the prior year.
Cash, cash equivalents, and short-term investments (collectively referred to as “cash”) at March 31, 2005 totaled $32,136,000, a decline of $3,456,000 from December 31, 2004.
“During the quarter, we continued to make excellent progress in advancing development and commercialization efforts associated with our diesel emissions reduction solutions,” said Mike Murry, president and CEO of Catalytica Energy Systems. “Our first quarter results include an increased investment in these activities, which has enabled us to achieve a number of significant program milestones. In a separate release issued earlier this week, we announced successful completion of in-house FTP transient tests of our retrofit solution for mobile diesels, which demonstrated NOx reduction in excess of our 50% target. This accomplishment follows the signing of a Memorandum of Understanding (MOU) earlier this year with a leading diesel retrofit integrator with whom we are now in advanced negotiations relating to joint commercialization opportunities. We also recently completed the first installation of our XononD retrofit solution on a diesel delivery truck and have initiated on-vehicle testing in preparation for a three-month, on-road demonstration in Denton, Texas. This demonstration, which is on track to commence next month, will evaluate the performance of our XononD fuel processing system in combination with a NOx adsorber catalyst while operating on two medium-duty diesel refuse trucks supplied by the City of Denton. Successful results from this third-party field demonstration will position us to pursue EPA verification testing by the end of this year, an important step toward our goal of realizing a commercial product launch by mid-2006.”
The Company also continues to make solid technical advances in the development of its XFP NOx reduction solution for new, over-the-road diesel engines, which has been demonstrated to achieve greater than 90% NOx reduction in full-scale tests on medium and heavy-duty diesel engines. Numerous test activities and demonstration projects are ongoing both in-house and at multiple customer facilities in line with the Company’s objective to secure strategic partnerships for the joint development of its diesel fuel processing technology for the OEM market. Over the past few months, notable progress has been made with leading diesel industry companies evaluating the Company’s NOx reduction approach for OEM engine applications, including successful completion of an on-road demonstration on a Class 8 heavy-duty diesel truck, and the previously announced signing of a MOU with a prospective diesel industry partner for the new engine market.
Murry continued, “Our increased focus on development and commercialization efforts relating to emissions reduction solutions for diesel engines is in line with growing federal government support for clean diesel technologies. As part of new energy legislation and in an effort to boost sales of clean diesel vehicles, President Bush recently called for $2.5 billion in tax incentives over 10 years for fuel-efficient vehicles to include clean diesel vehicles. The proposed legislation also includes provisions for programs to advance the development and demonstration of diesel after-treatment technologies for both the power generation and transportation industries, along with grant programs encouraging both the production of advanced, low-emissions diesel engines and the retrofit of existing diesel-powered vehicles with emissions-control solutions.”
With respect to its SCR catalyst and management services business, Catalytica Energy Systems has recently taken actions to strengthen execution of SCR-Tech’s business strategy in an effort to broaden its reach in the marketplace, develop new sales channels, and further expand its customer base. As part of these actions, the Company announced in March the appointment of Bill McMahon, a seasoned executive and 25-year energy and utility industry veteran, to serve as president of the subsidiary.
“While orders for SCR catalyst cleaning and regeneration services in the coming year have been slow to develop, we continue to be excited about the long-term prospects for the business,” said Murry. “We remain committed to growing our SCR services revenues and believe this recent change in management will help us more fully capitalize on the commercial opportunities that lie ahead for SCR-Tech. Under Bill’s leadership, the SCR-Tech team has made good progress in realigning its sales and marketing activities to position the business to gain a stronger foothold in the developing market for SCR catalyst services. As a result of these efforts, I am pleased to report that we have recently received two new shipments of catalyst from leading utility customers for processing later this year. We are also currently pursuing a number of other sizeable cleaning and regeneration contracts. However, due to lengthy sales cycles combined with the project-based nature of our SCR services business, we may not begin to fully realize the positive impact of these revenue opportunities until next year.”
Catalytica Energy Systems is also reporting today an update on the status of its development program with GE associated with the application of its Xonon Cool Combustion system to the 10 megawatt GE10 gas turbine. In the first quarter, the Company announced the successful completion of full-scale, on-engine tests of a Xonon-equipped GE10 single-shaft gas turbine at the GE test facilities in Florence, Italy. The positive results achieved in these tests included demonstration of NOx emissions consistently below 3 ppm over a range of operating conditions, and below 1 ppm at base-load. Although the product is not yet ready for commercialization, both companies are now discussing prospects for the next program milestone — the first installation of a Xonon-equipped GE10 gas turbine at a customer site and the initiation of endurance field testing to gain further operating experience in advance of a commercial release. Additional details relating to next steps for the program are currently being determined. As previously stated, Catalytica Energy Systems remains committed to advancing Xonon Cool Combustion development and commercialization activities as funded by OEM partners, and anticipates having more visibility in this regard by mid-2005.
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