Synthesis Energy Systems, Inc. (SYMX)

F4Q2010 Earnings Call Transcript

September 16, 2010 8:00 am ET

Executives

Ann Tanabe – VP, IR

Robert Rigdon – President & CEO

Kevin Kelly – Chief Accounting Officer & Controller

Analysts

Bill Burns – Johnson Rice

James Sheehan – Deutsche Bank

Presentation

Operator

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Welcome to the Synthesis Energy Systems conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. (Operator instructions) As a reminder, this conference call is being recorded.

I would now like to turn the conference over to our host, Ms. Ann Tanabe. Please go ahead.

Ann Tanabe

Good morning and thank you for joining Synthesis Energy Systems conference call. My name is Ann Tanabe and I am the Vice President of Investor Relations for SES. Today, we will discuss results for the quarter and year ended June 30th, 2010 and we will provide an update on corporate development. Following our prepared remarks, we will open the line for a brief question-and-answer session.

Before we begin, I would like to remind you that during this call we will be making forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact are forward-looking statements.

Forward-looking statements are subject to certain risks, trends, and uncertainties that could cause actual results to differ materially from those projected. Although we believe that in making such forward-looking statements our expectations are based upon reasonable assumptions, such statements may be influenced by factors that could cause actual outcomes and results to be materially different from those projected. We cannot assure you that the assumptions upon which these statements are based will prove to have been correct.

Please refer to our annual report on Form 10-K to be filed for the year ended June 30th, 2010 for further discussions on risk factors. A copy of our filings can be found on the Securities and Exchange Commission’s Website at www.sec.gov or on our Website at www.synthesisenergy.com.

I will now like to turn the call over to Mr. Robert Rigdon, our President and CEO. Robert?

Robert Rigdon

Thank you, Ann. Welcome everyone to our conference call for the quarter and year ended June 30

th

, 2010. Joining me in Houston this morning is Kevin Kelly, our Chief Accounting Officer and Controller; along with Ann Tanabe, our Vice President of Investor Relations.

Due to our fiscal year ending June 30

th

, it has been a few months since we last updated to you on our progress, and I know many of you have been eager to learn about the advancements we have made with our business initiatives. Before I do that, I would like to turn the call over to Kevin Kelly, who will provide an update of our fourth quarter and year-end financial results. Kevin?

Kevin Kelly

Thank you, Robert. For the fourth quarter of fiscal 2010, total revenues were $1.8 million, which is an increase of 52% compared to the fourth quarter of 2009. Revenues for the fourth quarter decreased 32% compared to the third quarter of fiscal 2010 as a result of an extended shutdown of our customers in ethanol plant resulting in lower product sales at the Hai Hua joint venture plant.

This resulted in a reduction of the energy fee revenue earned during the quarter. However, the plant’s availability to produce syngas for our customer Hai Hua was 93% for the fourth quarter, resulting in approximately $0.8 million of capacity fee revenue. Technology licensing and related services revenue of $0.3 million was generated during the fourth quarter from a feasibility study and other engineering services.

In addition, we received $0.5 million related to our licensing business during the fourth quarter, which has been reported as deferred revenue until we complete the engineering services associated with the initial technology transfer of our first licensing agreement.

Cost of sales and plant operating expenses were $1.5 million for the fourth quarter, a decrease from $2.2 million in the fourth quarter of 2009 and from $2.7 million in the third quarter of 2010 due primarily to improved operations and lower utilization at the Hai Hua plant.

G&A expenses were $2.8 million for the fourth quarter, a 17% decline from the prior quarter and a 13% decline on a year-over-year basis due to organizational improvements resulting in reduced corporate personnel and associated costs. Our operating loss for the fourth quarter ended June 30, 2010, was $3.7 million compared to $6.6 million for the comparable 2009 quarter and $5.2 million for the third quarter of 2010. The operating loss reduction was attributable mainly to decreases in G&A and project and technical development expenses and the operating results at our Hai Hua plant. Excluding non-cash expenses, our operating loss for the fourth quarter was $2.6 million compared to a loss of $3.8 million for the third quarter.

Now for the fiscal year-end results. For the fiscal year ended June 30, 2010, total revenues were $9.3 million compared to $2.1 million for fiscal 2009. This included $7.8 million of product sales at our Hai Hua plant resulting from the plant's increased availability for production, increased syngas volume offtake, and increased byproduct sales including sales of oxygen.

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