Syntroleum Corporation (SYNM)

Q1 2012 Earnings Call

May 3, 2012 11:00 AM ET


Karen Power – SVP and Principal Financial Officer

Gary Roth – President and CEO


Shawn Severson – JMP Securities

Robert Wagner

Tony Chen – AMC

Michael Prouting – 10K Capital

Chris Kovacs – Robert Baird

Nick Biase – Voltage Capital



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» Syntroleum's CEO Discusses Q1 2011 Results - Earnings Call Transcript

Good morning and welcome to the Syntroleum First Quarter 2012 Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Karen Power, Senior Vice President and Principal Financial Officer. Please go ahead.

Karen Power

Good morning and thank you for joining us today. Remarks for today’s call will be presented by Karen Power, Senior Vice President, Principal Financial Officer, who will report the financial results for the quarter ended March 31, 2012, followed by Syntroleum’s President and Chief Executive Officer, Gary Roth.

Before we begin our remarks, I would like to remind everyone that during this call, we will make certain forward-looking statements, as well as use historical information. Words such as believe, estimate, expect, intend, plan, anticipate, could or should are intended to identify forward-looking statements. Although Syntroleum believes that expectations reflected in these forward-looking statements are reasonable, these statements involve risks and uncertainties. Future results may differ materially from those projected in these forward-looking statements. You are encouraged to refer to our SEC filings, including our most recent Annual Report on Form 10-K, for a full disclosure of these risks and uncertainties.

For the quarter ended March 31, 2012, the company reported an operating loss of $786,000 resulting from total revenues of $1.25 million and operating expenses of $2.4 million. The total net loss for the quarter ended was $1.9 million, $830,000 of this loss relates to Dynamic Fuels operations for the three months ended December 31, 2011. We do not consolidate Dynamic Fuels instead we report using the equity method of accounting. Income or losses under the equity method are reported below operating income as income or loss and equity of Dynamic Fuels. For Generally Accepted Accounting Principles we do not report gross revenues associated from Dynamic Fuels because the entity is not consolidated. We will only report our share of the total net income or loss.

As reported in our 10Q, Dynamic Fuels had revenues of $53.6 million, operating expenses and general and administrative expenses of $55.3 million and other expense of $450,000 resulting in a net loss of $2.1 million for the three months ended December 31, 2011 of which we reported 50% in our financials.

During this time period, 8.9 million gallons of renewable fuels were sold and 9.2 million gallons were produced. As of March 31, 2012, Syntroleum’s cash balance was $21.5 million, an additional investments in Dynamic Fuels of $3 million was made in April 2012. Now, I will turn the call over to Gary Roth.

Gary Roth

Thank you, Karen. For the three months ended March 31, 2012, Dynamic Fuels had a net operating loss of $0.02 per gallon and a positive cash margin of $0.11 per gallon at a run rate of 47% of design capacity. Our Mansfield off take agreement, which became effective January 1, 2012 allowed us to receive better product pricing.

In the fourth quarter of 2011, diesel product delivery cost and discounts averaged $0.80 a gallon versus $0.14 per gallon for the first quarter of 2012 resulting in a increase of $0.66 per gallon on average for 2012 diesel sales. This prices specifically exclude approximately a 121,000 gallons of military marine grade diesel sales and the quarter end in March 31, 2012. The same period dynamic deals average net back diesel prices of $5.50 per gallon compared to focus Gulf Coast SME price of $4.84 per gallon and opus full RIN value of $5.64 a gallon.

We define full RIN value as U.S. Gulf Coast ULSD price plus 1.7 times RIN price. RIN price since the beginning of 2012 have averaged a $1.45 and are currently at $1.41. 26% of our sales were fleet sales in the first quarter of 2012 compared to zero in 2011.

We expect to have fleet sale contracts totaling approximately $1.6 million per month by July 1. All of our diesel product is contracted. Dynamic Fuels average blended revenue per gallon in the quarter ended March 31, 2012 was $5.23 compared to $4.87 in the quarter ended December 31, 2011.

Excluding military and jet fuel sales that blended average revenue per gallon was $4.81 in March 31, 2012 compared to $4.69 per gallon on December 31, 2011. The quarter ended March 31, 2012 included shipments to the navy of 163,000 gallons in marine diesel and jet fuel to Port Orchard or Washington. The remaining shipments of 287,000 gallons of jet fuel and marine diesel will be completed at early May. We expect to recognize revenues and collect cash from these remains shipments in the current quarter. Our weighted average fleet stock price for the three months ended March 31 was $0.51 per pound compared to $0.50 per pound for the three months ended December 31, 2011 for $3.93 per gallon compared to $3.83 per gallon for the same period.

The overall prices have increased 4.6% from Q4 2011 to Q1 2012 compared to Dynamic Fuel increase of 2% inclusive of algae oil being stock procured as required for the Navy fuel production. The average price for the feedstock without algae oil purchase for the military run was $0.48 a pan.

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