Syntroleum Corp. (SYNM)

Q1 2011 Earnings Call

May 17, 2011 11:00 AM ET

Executives

Karen Gallagher – Senior Vice President and Principal Financial Officer

Gary Roth – President and Chief Executive Officer

Analysts

Joel Stanton – Private Investor

Jim West – Private Investor

Gary Rumple – Private Investor

Jack Beam – Private Investor

Robert Wagner – Private Investor

Ezra Burn – Private Investor

John Anderson – Private Investor

Kirk Thomson – Private Investor

Chuck Howlett – Private Investor

Mario Poles – Syntroleum

Paul Blaine – Private Investor

Lowes Navarro – Private Investor

Eric Wayne – Private Investor

Operator

Greetings and welcome to the First Quarter 2011 Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Karen Gallagher, Senior Vice President and Principal Financial Officer. Ma'am, you may begin.

Karen Gallagher

Good morning and thank you for joining us today. Remarks for today’s call will be presented by Syntroleum's President and Chief Executive Officer, Gary Roth, followed by myself, who will report the financial results for the quarter ended March 31, 2011. 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.

Now, I'll turn the call over to Mr. Gary Roth.

Gary Roth

Thank you, Karen. We are currently producing at 50 million-gallons per year or 67% of design capacity. We have not experienced any flooding from the Mississippi river; however, it has delayed certain feedstock deliveries.

We expect this curtailment to be alleviating in the coming weeks. As we've discussed in our previous conference call, we've encountered certain mechanical reliability issues. Since our last call, we have implemented the technical changes recommended by our equipment suppliers. Since making those modifications, we have achieved industry standard reliability values. Further run time is required to determine longevity of these modifications.

Market conditions for renewable diesel remain favorable. Industry spot margins are consistent with spot margins we reported on our last call. Actual margins depend on contract terms, delivery point and feedstock slates.

As we reported on our last call, Sinopec has completed re-erection of our Catoosa Demonstration Facility in China and is now in commissioning in start-up with production expected to begin in June. We expect the demonstration of our FT technology on coal-derived syngas could lead to commercial scale development by Sinopec.

We are developing a 10,000 to 15,000-barrel a day domestic supply GTL plant. We are in early stages of discussions with natural gas suppliers, syngas producers and capital providers.

These discussions have lead us to believe the following: one, GTL projects can be constructed in the U.S. with attractive economics. Gas providers are willing to enter into gas-term contracts and the Capital Markets are open to provide risk capital to GTL projects.

In summary, we continued to dedicate a majority of our technical resources to further improving the guys of our plants reliability and to transitioning guys for commissioning start up to commercial operations. We see promise in our FT business.

The start-up of our former Catoosa Demonstration plant by Sinopec will demonstrate our FT technology on coal-derived syngas and we are working to develop a GTL plant in the United States. I will now turn the call over to Karen Gallagher.

Karen Gallagher

Thank you, Gary. I would like to update you on the earnings results for our first quarter. For the quarter ended March 31, 2011, the company reported an operating loss of $1.6 million resulting from total revenues of $849,000 and operating expenses of $2.4 million. The total net loss for the quarter was $3.9 million.

We used $2.1 million in cash from operating activities during the first three months of 2011. Of this amount, $650,000 relates to our standard overhead. The balance relates to receivables for engineering labor and expenses and non-recurring charges such as prepayment of reimbursable raw materials made on behalf of Dynamic Fuels and legal settlements.

The company had a cash balance of $10.4 million at March 31, 2011 compared to $12.5 million at year end 2010. During the quarter, we made no additional contributions to Dynamic Fuels. In May, we contributed an additional $2 million in the form of a working capital loan.

In summary, we continue to focus on the Dynamic Fuels plant. We look forward to continued successful production and growing product acceptance as well as the potential for our GTL technology. Thank you for your attendance today. We will now open up the call for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question is coming from the line of Joel Stanton, a private investor.

Joel Stanton – Private Investor

Good morning, gentlemen. Just curious about the situation with the shaft seals and the compressor valves on your pieces of equipment that have had frequent failures. Have you all considered or are you taking any type of legal action against suppliers due to unreliability of the products?

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