Synthesis Energy Systems' CEO Discusses F2Q12 Results - Earnings Call Transcript

Synthesis Energy Systems Inc. ( SYMX)

Q2 2012 Earnings Call

February 10, 2012 8:30 am ET

Executives

Robert Rigdon – President, Chief Executive Officer

Kevin Kelly – Chief Accounting Officer

Analysts

Jay Steinhilber – Morgan Stanley

Robert Smith – Center for Performance Investing

Presentation

Operator

Good morning and welcome to the Synthesis Energy Systems Inc. Second Quarter 2012 conference call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today’s presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. Please note this event is being recorded.

I would now like to turn the conference over to Matt Haines. Please go ahead.

Matt Haines – MBS Value Partners

Thank you, Sue. Good morning and thank you for joining Synthesis Energy Systems’ Earnings conference call. Today management will discuss financial results for the fiscal 2012 second quarter ended December 31, 2011 and will provide an update on corporate developments. Following management’s prepared remarks, we will open the line for questions.

Before we begin, I would like to remind you that during this call management will be making forward-looking statements within the meaning of Section 27(a) of the Securities Act of 1933 as amended and Section 21(e) 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 the Company believes that in making such forward-looking statements its 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. There can be no assurances that the assumptions upon which these statements are based will prove to have been correct. Please refer to the Company’s annual report on Form 10-K for the year ended June 30, 2011 for a further discussion on risk factors. SES’ 10-K and other SEC filings are available on the Security and Exchange Commission’s website at www.sec.gov or on the Company’s website at www.synthesisenergy.com.

And now, I’ll turn the call over to Robert Rigdon, President and CEO. Robert?

Robert Rigdon

Good morning and welcome to our second quarter fiscal year 2012 earnings call. With me on the call today is Kevin Kelly, our Chief Accounting Officer.

The second quarter was an extremely busy period as we continued to execute on our strategy to create value for our shareholders through our technology licensing and related engineering services and equipment sales, equity partnerships, and participation in low-cost coal resources. Before I provide the update on our recent progress, I’ll turn the call over to Kevin for the quarterly financial update. Kevin?

Kevin Kelly

Thank you, Robert. During the past quarter, we have kept the ZZ joint venture plant idle. For this reason, we did not incur most of the normal operating costs associated with the ZZ plant or have any meaningful revenue from the plant during the quarter. The ZZ plant has successfully demonstrated the capabilities of our U-GAS gasification technology. Our intention going forward is to make the plant a commercial success.

We have discussions ongoing with Hai Hua, our joint venture partner, and we remain optimistic that a mutually beneficial joint venture agreement will be reached that can improve this plant’s financial performance. We intend to restart the plant when an integration of the ZZ joint venture plant and Hai Hua’s methanol plant has been accomplished.

As a result, for the second quarter of fiscal 2012 ended December 31, 2011, total revenue was 183,000 versus 2.9 million for the second quarter of fiscal 2011 ended December 31, 2010. As we have reported previously, Hai Hua has not paid any of the capacity fees owed to the ZZ joint venture since April 2011, and we have not recognized any capacity fee revenue since then. We will recognize capacity fee revenues owed to us when collection of the capacity fees is assured. The amount of unrecognized capacity fees under the contract with Hai Hua totals approximately $2.6 million as of December 31, 2011, and we are working to recover the value of these fees within the new commercial structure under development with Hai Hua.

Technology licensing and related services revenues for the three months ended December 31, 2011 were 164,000 versus 302,000 for the three months ended December 31, 2010. The licensing revenue for the second quarter of fiscal 2012 relates to the feasibility study for Ambre Energy for a coal-to-liquids project in Australia.

I would like to point out that while technology licensing and related services revenues declined for the quarter, these types of revenues fluctuate due to the nature of the licensing business. Based on our current pipeline, we believe these revenues will continue to grow over the long term.

Related to my comments earlier about ZZ, the cost of sales and plant operating expenses were 0.9 million for the second quarter versus 2.6 million in the second quarter of fiscal 2011. During the quarter, we performed approximately 400,000 of non-recurring maintenance. In December, we ceased all major maintenance and furloughed some of our operating personnel and will continue to minimize expenses as much as possible until the final commercial arrangements are completed with Hai Hua.

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