Synthesis Energy Systems' CEO Discusses Q3 2012 Results - Earnings Call Transcript

Synthesis Energy Systems Inc. (SYMX)

Q3 2012 Earnings Conference Call

May 10, 2012 8:30 am ET

Executives

Robert Rigdon – President, Chief Executive Officer

Kevin Kelly – Chief Accounting Officer

Matt Haines – MBS Value Partners

Analysts

Robert Smith - Center for Performance Investing

Jay Steinhilber – Morgan Stanley Smith Barney LLC

Presentation

Operator

Hello, and welcome to the Synthesis Energy Systems Third Quarter 2012 Earnings Call. You will be in a listen-only mode during the presentation. There will be an opportunity afterwards to ask questions. (Operator Instructions) This conference is being recorded.

I now would like to turn the call over to Matt Haines of MBS Value Partners. Please go ahead sir.

Matt Haines – MBS Value Partners

Good morning and thank you for joining Synthesis Energy Systems’ earnings conference call. Today, management will discuss financial results for the fiscal 2012 third quarter ended March 31, 2012, 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.

In addition, in connection with the proposed ZJX/China Energy transaction, SES has filed a preliminary proxy statement and intends to file a definitive proxy statement with the SEC and intends to mail the definitive proxy statement to the stockholders of SES. SES and its directors and officers may be deemed to be participants in the solicitation of proxies from the stockholders of SES in connection with the transaction. Information about the transaction is set forth in the preliminary proxy statement filed, and will be set forth in the definitive proxy statement to be filed by SES with the SEC.

You may obtain the preliminary statement and, when available, the definitive proxy statement, for free by visiting EDGAR on the SEC website at www.sec.gov. Investors should read the definitive proxy statement carefully before making any voting or investment decision because that document will contain important information.

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’s 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’d like to turn the call over to Robert Rigdon, President and CEO. Robert?

Robert Rigdon

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

Over the past quarter, we’ve continued to work diligently to position the Company for significant revenue growth and profitability. We are focused on creating value through a combination of near-term revenue in earnings and long-term growth be a global business verticals and our new China business platform SES China. Over the next 12 months and beyond we’re well positioned to achieve our goals.

First, I’d like to turn the call over to Kevin for a review of our third quarter 2012 financial results.

Kevin Kelly

Thank you, Robert. Since late September 2011, we’ve kept the ZZ joint venture plant idle. As we’ve reported previously Hai Hua has not paid any of the capacity fees owed to the ZZ joint venture since April 2011 and we’ve not recognized any capacity fee revenues since then. For this reason we did not incur the normal operating cost associated with the ZZ plant or have any revenue from the plant during the quarter.

We continue to have discussions 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 we complete the restructuring of the current business arrangement with Hai Hua to create integrated syngas to methanol operation.

We are working diligently on this restructuring. However, it is taking longer than expected due to a number of factors on the Hai Hua side, including our recent corporate restructuring of Hai Hua.

As a result, the third quarter of fiscal 2012 ended March 31, 2012 total revenue was a $100,000 versus $3.1 million for the third fiscal quarter of 2011. The amount of unrecognized capacity fees under the contract with Hai Hua totals approximately $3.6 million as of March 31st. And we are working to recover the value of these fees within the new commercial structure under development with Hai Hua.

Our operating cost decreased significantly due to the ZZ plant being idle and we continue to minimize expenses as much as possible.

Technology licensing and related services revenues for the three months ended March 31, 2012 were $100,000 versus $506,000 for the three months ended March 31, 2011. The change in licensing revenue was due mainly to timing of new orders and technology related services provided during the quarter.

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