Synthesis Energy Systems' (SYMX) CEO Robert Rigdon on Q3 2014 Results - Earnings Call Transcript

| About: Synthesis Energy (SYMX)

Synthesis Energy Systems, Inc. (NASDAQ:SYMX)

Q3 2014 Earnings Conference Call

May 7, 2014 16:15 ET

Executives

Susan Roush - Investor Relations, MDC Group

Robert Rigdon - President and Chief Executive Officer

Charlie Costenbader - Chief Financial Officer

Analysts

Jay Steinhilber - Morgan Stanley

Robert J. Smith - Center for Performance Investing

Operator

Good afternoon and welcome to the Synthesis Energy Systems Incorporated F3Q 2014 Financial Results 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 Susan Roush of MDC Group. Please go ahead. Thank you.

Susan Roush - Investor Relations, MDC Group

Thank you. Good afternoon and thank you for joining Synthesis Energy Systems’ conference call. Today, SES management will discuss financial results of the company’s fiscal third quarter ended March 31, 2014 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 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 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 filed on September 25, 2013 and in subsequent filings for a further discussion on Risk Factors. The SES 10-K and other SEC filings are available on the Securities and Exchange Commission’s website at sec.gov or on the company’s website at synthesisenergy.com.

And now, I will turn the call over to SES’s President and Chief Executive Officer, Robert Rigdon.

Robert Rigdon - President and Chief Executive Officer

Hi, good afternoon everyone. Charlie Costenbader, our Chief Financial Officer and I are conducting the call today from our corporate headquarters in Houston. We achieved two core business objectives for SES during this past quarter. First, we successfully closed the ZCM-SES Clean Energy Technologies joint venture with Zhangjiagang Chemical Machinery Company. The ZCM-SES JV received initial funding from ZCM of RMB53.8 million, which is approximately $8.6 million. This represents the first installment of ZCM’s total contribution of RMB100 million or approximately $16 million. The joint venture is now in business and aggressively pursuing new gasification project customers. In my opinion, the timing couldn’t be better given the Chinese government’s growing focus on cleaner energy and chemical products from coal and renewables. I will be providing more details on why we chose to joint venture this regional market and what we plan to accomplish there. Secondly, we completed an important $15 million financing for the SES parent company. This financing gives us added strength and capability to successfully execute on our strategy of growing our important business verticals, where we believe our technology brings value.

We also made progress on three additional initiatives. First, at ZZ, we have been successfully operating the facility and producing and selling methanol, primarily from coke oven gas. This past quarter, we generated $4.6 million in revenues compared to the previous quarter’s $4.4 million. We recently announced signing an additional coke oven gas supply contract, which will help us further optimize the plant and increase the total methanol production capacity.

Secondly, at our Yima joint venture plant, I met with a new general manager as well as Yima’s principal executive. We are encouraged by what we consider a credible plan by the JV for getting the plant running in a more efficient and optimized manner, which has been a concern of ours for sometime now.

Lastly, we have made progress on our objective of deploying our technology into the vast global distributed power market. Since signing the LOI with Karachi Electric which has since been renamed to K-Electric together with our collaborators GE, IEG and TUTEN we have been executing this plant on the feasibility study which is a necessary step towards achieving our first order in this market segment. Before we proceed with the review of our quarterly financial results, I would like to underscore the point that we continued to advance on our core objectives to build value for all stakeholders. We are delivering revenue from our existing operations and aligning with strategic partners to build our technology platform across multiple market verticals. This positive momentum tells us we are on track and we remain committed to achieving our core objectives.

I would also like to take this moment to acknowledge Kevin Kelly’s contribution to SES as our Chief Accounting Officer and Controller for the past six years. It’s been a real pleasure working with Kevin and we wish him the best success with his great opportunity to become CFO of another local Houston company. As you may have seen from our recent 8-K we have brought on a new Chief Accounting Officer and Controller, Roger Ondreko. We look forward to having Roger to join the SES team at the end of this month.

Now, I will turn the call over to our Chief Financial Officer, Charlie Costenbader for the financial results.

Charlie Costenbader - Chief Financial Officer

Thanks Robert. Good afternoon everyone. The company reported $7.2 million of revenue for the three months ended March 31, 2014 versus $303,000 for the three months ended March 31, 2013. The ZZ plant generated $4.6 million of revenue from sales of 12,664 tons of methanol using coke oven gas feedstock. This current daily methanol production rate with the available feedstock continues to be generally in accordance with our modeled expectations.

The ZZ joint venture experienced a 16% decline in average methanol pricing, down approximately RMB430 per ton from the previous quarter. A curtailment of coke oven gas supplied during the quarter combined with very low methanol prices resulted in a net loss at ZZ for the quarter of $740,591. Current methanol prices have stabilized in a range of RMB26.80 per ton to RMB24.30 per ton. Unlike this reported quarter, since April 1, we have not experienced pricing paid to us below RMB2400 per ton.

This past quarter we have recognized net equipment sales revenue of $2.6 million for which we have received a net $2.05 million related to the supply of the three SES gasifiers to the Yima joint venture. We continue to carry a receivable with offsetting payable for $674,000 which includes the 17% VAT tax due from the Yima joint venture, which will be pass through to the vendors engaged by SES.

The company’s operating loss for the third quarter of fiscal 2014 was reduced to $4 million versus an operating loss of $5 million for the same time period in 2013. The decrease in operating loss was primarily due to a reduction of both G&A expenses and stock based compensation expense.

The net loss attributable to stockholders for the third quarter of fiscal 2014 improved to $4.2 million or $0.06 per share versus the loss of $5.4 million or $0.09 per share for the prior year’s third quarter. As of March 31, 2014 the company had cash and cash equivalents of $21.7 million. The only bank debt in the company is at the project level at the ZZ plant for $3.3 million which we intend to refinance when due in September 2014.

There are no corporate level band debt obligations. This quarter we successfully utilized our shelf registration statement for the first time to raise a gross $15 million to strengthen our balance sheet for the longer term. This financing is also intended to support the engineering and development of the distributed power market vertical and the development of additional market verticals both inside and outside China as well as support the successful launch of our ZCM-SES joint venture.

Finally, SES has restructured its business organization in China to align with the completion of the ZCM-SES joint venture. Since the beginning of our fiscal year 2014, we have reduced our quarterly consolidated G&A from $4 million as of June 30, 2013 to $2.5 million as of March 31, 2014, a 37.5% reduction. Now, with the integration of our SES China business into the ZCM-SES joint venture completed this April, we anticipate our quarterly consolidated G&A to be further reduced to between $1.6 million to $1.8 million per quarter. These G&A reductions from June 30, 2013 to June 30, 2014 would represent a total of up to a 60% reduction in G&A costs.

That completes our financial review. Robert?

Robert Rigdon - President and Chief Executive Officer

I’d like to underscore the fact that the ZCM-SES JV partnership, which we successfully closed at the start of the quarter, was a strategic top priority goal for SES that has now been accomplished. We negotiated the agreements, finalized the documentation and now it’s funded. We have recently completed the successful transition of the required SES employees from the SES Shanghai office into the joint venture. Now, ZCM-SES is working aggressively towards securing the first orders.

This Clean Energy Technology joint venture is important to SES for several reasons. First, ZCM-SES is a platform through which our technology can be deployed into larger scale projects as well as the smaller to medium scale projects that we have focused on in the past. We believe the larger scale projects are now possible due to the combined strength of our two companies, our premiered SES gasification technology combined with the ZCM’s broad regional marketing reach from their significant and existing equipment supply business into the China coal chemical industry.

Secondly, the JV’s mission extends beyond the licensing of our technology to also include other facility equipment. We are positioning the JV to build complete turnkey gasification plants. We believe that this business model can be as much as 10 to 15 times larger in scope per project than we would have been able to develop in the existing legacy gasification business model of licensing our technology. This means that a project which would have provided $10 million in scope or supply for SES through technology fees and supply of proprietary equipment would expand to more than $100 million for the total turnkey scope of supply. This approach improves our competitiveness in the marketplace and if successful can improve our revenues and associated earnings.

The third reason this joint venture is important that it offers SES the ability to provide higher quality, low cost equipment into projects outside of China as well, such as what we are working on in distributed power. ZCM is a high-quality equipment manufacturer with the necessary quality certifications required for manufacturing equipment for areas around the world, including the U.S. and Europe. ZCM has a port at their manufacturing facility with deepwater access. We intend to take full advantage of that for our global business.

Finally, my aligning was strong, well-established and well-funded Chinese partners in this growth market. We believe that we are ensuring a long life and protection of SES’ intellectual property. Due to the high value of our technology in China, it would have been under intense pressure of infringement. The ZCM-SES joint venture gives SES the dual advantage of being localized throughout China and neighboring regions as a partner in the business, while owning all technology generated from the work.

Now, looking forward, this joint venture is focused on two sales channels. One is to aggressively secure the first orders for proprietary gasification systems on a project-by-project basis and secondly to strategically align SES’ technology with some of China’s largest companies to provide SES gasification technology for the next wave of large scale build-outs in the country. Further with a significant portion of our China team being absorbed into the new JV, we are reducing our cost structure in China, while expanding our capability and casting a wide and comprehensive marketing met. We have been observing shifting market courses in China that will strongly favor Clean Energy Technologies. Many have read recent news articles pretending to Beijing’s need to ease the massive air pollution problem experienced this past winter. There is a renewed focus and with such rapid growth the country can no longer be reliant on (indiscernible) technologies for their energy and power. Indeed, just within the last few weeks, the Chinese legislature announced it’s revising the country’s environmental protection law to allow for stricter punishments against polluters. For us, it’s a matter of being at the right place at the right time with the right technology.

We believe that the ZCM-SES joint venture will have the optimum turnkey solution to provide the gasification project systems that can use China’s local low-quality coals and make a meaningful impact on cleaning up both the air and the water. The Chinese government plans to cleanly transform the way China produces energy and power and we intend to be a big part of the solution for returning blue skies and clean water to the country.

Now, turning over to our two operating plants in China, ZZ and Yima. Since taking control of the methanol unit from Xuecheng Energy on October 31, 2013, the ZZ facility has been producing methanol primarily from coke oven gas. The ZZ joint venture was challenged this quarter with methanol prices hitting as low as RMB2400 per ton, down from a high of over RMB3000 per ton last December. In addition, a very cold winter caused the local government to mandate a temporary shift at coke oven gas to city heating purposes, which curtailed our supply for part of the quarter. Because of this and due to technical constraints of the plant’s design, there was not enough coke oven gas available to blend with ZZ syngas. Therefore, we chose not to run the ZZ gas suppliers during the quarter. This combination of factors led to a challenging three months at ZZ which resulted in the net loss, Charlie just reported.

Nevertheless, ZZ operated well for the quarter producing methanol from coke oven gas in covering its fixed costs. Also we believe we made a good decision while methanol prices were low in late March to accelerate and complete the normal planned maintenance outage which had been scheduled to occur in late April and early May. Now, that it’s complete and coke oven gas supply rates have returned to normal, we are beginning to see the methanol price trending back up to about RMB2600 per ton. That’s good for our methanol sales outlook and we intend to run the ZZ gasification system, which we restarted earlier this week as much as possible during this quarter to provide additional feedstock for the methanol operation.

Another favorable development at ZZ is our recent announcement of the 10-year coke oven gas supply agreement with a new source, Shandong Shenghuo XuLong Coal Chemical Company. Shandong Shenghuo will supply a minimum of 4000 normal cubic meters of coke oven gas per hour with a normal target amount of 5000 normal cubic meters per hour. This represents approximately 30% additional coke oven gas to convert into methanol. And in combination with coke oven gas supplied from Xuecheng Energy’s adjacent coking coal plant and with ZZ syngas from the SES gasifiers is projected to push overall production capability at ZZ up to about 1,110 tons of methanol per year.

Having this additional coke oven gas available helps ZZ both increase methanol production and reduce methanol unit production costs. It also opens up new optimization options for the facility, which we believe can further improve ZZ’s bottom line performance. Additionally, because this is not a take-or-pay agreement, it allows ZZ to use its best efforts to consume the coke oven gas and it helps de-risk our coke oven gas supply via the flexibility of the second source of feedstock. Importantly, two, it helps us solve environmental concerns in the local area through converting this coke oven gas into a useful and clean product instead of venting or burning it.

With the new coke oven gas coming in this June, we intend to push the production rates hard and keep implementing optimizations to lower production cost. Once at full production rates and with methanol pricing back near its level of last December, we believe ZZ is positioned to deliver cash positive results, which will be meaningful for our business and we intend to take all actions to maximize ZZ’s performance.

Lastly, the ZZ joint venture is advancing the development of its expansion alternatives. We planted down, select a preferred approach during this calendar year, with the intention of securing a partner as well as the necessary investment to diversify and expand the plant production beyond methanol. Although the final decisions have been made, we anticipate this may include liquefied and compressed natural gas for transportation fuel, power, and/or glycol production.

Moving on to our much larger Yima joint venture plant, we are pleased that incredible plan is now being implemented to get the facility running in a more efficient and optimized manner delivering business results. This has been a long-time coming. As I reported last quarter, a new joint venture general manager has been appointed who has significant operations experience and a goal to improve the plans bottom line. Although the Yima joint venture has been producing raw methanol product for little over a year now, the joint venture is now taking bold and decisive action to improve the plant’s performance.

During this quarter, I met with the new GM along with Yima coal industry group’s senior leadership. And he was reported to me that the SES gasifiers have operated well and it met their commercial performance criteria. However, there is a lot more to the plant than just the SES gasification systems and no matter how good our gasification system is, all the adjacent upstream and downstream units must also perform. These other operating areas had even need attention. So, Yima has initiated a short-term outage that should allow the plant to effectively make these improvements. Much of the work is left over items from the construction phase, which were hastily completed or not properly completed. These are commonly called punch list items. Along with the improvements, which have been learned from the past year’s operation, although frustrating in the short-term, in the long-term, Yima appears to be taking prudent action and is on a more positive track. It’s a strong sign of commitment on the part of the Yima who controls the project with a 75% ownership share.

Now, I’ll hand it back over to Charlie to provide us an update on the power business vertical.

Charlie Costenbader - Chief Financial Officer

Since we announced our joint marketing collaboration with GE’s distributed power business in early 2013, our teams have been working diligently to identify and solidify our first customer for our smaller scale power product. Our technical team has spent significant effort with GE’s team to secure and optimize match for our technologies and the GE sales teams in addition to our project development partners have identified K-Electric as our first perspective customer.

On January 7, 2014, we announced that GE, IEG, TUTEN, and SES executed a letter of intent for 90 to 200 megawatts of electricity generation with K-Electric. K-Electric is one of the largest privately owned electric utilities in Pakistan and is making a strong concerted effort to bring more reliable electricity and increased capacity to the power grid for Karachi, Pakistan’s largest city. The project team is developing a feasibility engineering study and financial evaluation of a 200 megawatt coal gasification power generation project and will be completing that shortly to present the results, which we believe will show very favorable economics. The completed feasibility study will serve as the basis for further discussions and negotiations for a syngas power plant contract. This is winding up to be the first opportunity for us to supply our premiere SES gasification technology and equipment into our distributed power market vertical.

While very focused on making this particular project a success, there had been additional serious increase that have come into our distribution power vertical from places just like Pakistan that have an immediate need for clean reliable power from abundant natural resources, South Africa with abundant coal waste, Turkey with its desire for EU qualifying clean power using its local lignite, and Japan with its massive shutdown of nuclear plants and the need to replace that load with coal-based clean power. All of these locations will be optimal for our smaller to medium scale clean energy product. You may have read GE’s recent announcement forming their distributed power business, a $100 billion marketing opportunity for GE. This distributed power business is the GE business unit with which we have our marketing agreement and which produces the GE turbines for our product. This initiative is well-positioned with great partners and which has a well-established in-house gas turbine platform.

We are working towards building our project pipeline with GE and we have placed our distributed power business market vertical as the top SES business priority to capitalize on the first project for K-Electric and the larger projects in our pipeline as they move into further stages of development.

Now, back to you Robert.

Robert Rigdon - President and Chief Executive Officer

We have focused a lot of attention today on the numerous updates related to our business activities in China. However, outside China, we are making good progress as well and I hope to be sharing more news about this progress over the next couple of quarters. We believe our power market vertical has a strong business model with upfront earnings potential from the initial projects and long-term holds game changing promise for our business. We are also making good progress on what we believe is another important vertical market. The DRI or direct reduction iron market, where our syngas is uniquely well-suited as a reducing gas and fuel for DRI product, which is used for steelmaking.

We are proud to be accomplishing what we said out to do. Our China joint venture, ZCM-SES is aggressively pursuing its first orders and we plan to maximize all opportunities supported by that strategic partnership. And we have successfully raised $15 million to further strengthen our balance sheet. Although we had a tough quarter at ZZ due to the coke oven gas curtailments combined with low methanol prices, the outlook at ZZ is already improving and we expect ZZ to be an important contributor to our short-term financial results. There is now a plan in place to achieve profitability at Yima, with a new GM who is taking what we believe with the right steps to make it happen and who has Yima’s senior management support.

It’s an exciting growth period for SES. Along with our strategic partners, we believe we will continue to build on the significant progress of this quarter. We believe we have incredible path forward and momentum building to bring our premiere SES gasification technology to commercialization on a global scale and continued to deliver financial results. I look forward to providing you with more progress updates on our next call if not before.

And with that, I’d like to open up the call for questions. Operator?

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. (Operator Instructions) Our first question comes today from Jay Steinhilber with Morgan Stanley.

Jay Steinhilber - Morgan Stanley

Yes, hi guys. Just a couple of questions. First would be regarding the ZZ venture, you mentioned due to the cold weather, the Chinese government, I guess cutback the coke oven gas, is this something that could happen again at any point, if we have another cold spell or now with the second source of coke oven gas? Is this something that really is behind us and that they will be able to provide the coke oven gas if it happens again to the first source?

Robert Rigdon

Okay, great. Thanks for the question. That’s a good one. The coke oven gas curtailment that the government mandated during the quarter was involving sending coke oven gas into the city gas loop, surprisingly that goes into the local city area there and they did not have adequate supply because of the cold weather and therefore they mandated industry to show what similar fuel gases they could into that pipeline system. Now to get right to your question, what’s actually happening in the area this year, it’s been going on for the last two years is natural gas system coming from one of the main lines across China is now at the point where it’s ready to be connected into the city systems there in that Xuecheng area. The government has reported to us that they anticipate over the next two to four months, but that connections will be completed and they will be flowing natural gas. In that scenario, natural gas will be in the city system next winter and they will be off of coke oven gas needs to get back into a situation like this. So, our anticipation is this is the last time this is going to happen. It’s happened in the past, but now because of gas coming there, it should not happen in the future. Additionally as you mentioned the second source of coke oven gas also helps, if something were to happen without source of coke oven gas we are very happy and thankful that we have got the second source now lined up.

Jay Steinhilber - Morgan Stanley

Second question has to do with the K-Electric your partnership with General Electric can you give us some ideas of revenue opportunity and if it does move forward and I know that’s a big if what’s the realistic timing of revenues of the project. And then I have one last question?

Robert Rigdon

Okay. That’s another great question. We are not going to project the revenue right now on that because it’s very, very inter-related with the contracts and the pending negotiations that are going to be going with K-Electric and I hope you can understand that. However, I want to try to address your timing part of your question. The way we are approaching the order is to – and we are anticipating that once the contract is signed and our targets are to get that done late this year as we are pushing for this calendar year to be precise is that that will come with a down payment for the scope of supply that will be provided through the what we anticipate to be a consortium the group of companies that we have just mentioned will be collaborating to supply this power plant. SES will have its scope of supply within that power plant, although a big part of that scope we anticipate to be built for us by the ZCM joint venture. So we will get a benefit from it one that side as well. And the business model for this type of arrangement is that we will get a down payment and then we will have progress payments across the course of the construction of the plant. And those progress payments keep us to where we are always positive in our cash position going across the order. I hope that gives you some insight into how that will work.

Jay Steinhilber - Morgan Stanley

So from the time of the contract are we looking at revenues to build the plant over 2 or 3 year period or?

Robert Rigdon

Yes, precisely. Yes, exactly to be clear from the time the contract is signed what we would anticipate is there would be down payment which will be revenues. And then there will be work performed by us and everybody else and there will progress payments if we will at least to the best of my knowledge right now will be booked as revenue as we go across the order which is anticipated to be between 2 and 3 years to get it built and up in running about two and a half years.

Jay Steinhilber - Morgan Stanley

I know you don’t want to mention anything with regards to specifically the K-Electric, but for these type of deals of these size what could we expect on the lower end and what could we expect on the higher end, can you give us just a broad aspect I don’t have the – if I recall from a couple of years ago we are talking $30 million, $40 million, $50 million of project from your conference calls?

Robert Rigdon

Right, I don’t really want to get much more specific than that. The scope of this power plant this is a power plant that’s right now the whole power plant is looking to be relatively close to about 200 megawatts in scale. And will probably cost somewhere between $2,000 to $2,500 a kilowatt in total. But there is a lot of scope involved with that from all the parties and if you do the math on that you will see that’s quite a large number. Our scope in the project is we are trying to take steps now to push our scope as far as we can in terms of our ability to supply equipment. And we believe we can maybe expand on that some because of our new ZCM-SES joint venture, but the numbers that we gave before that you just quoted around $30 million, $40 million or a magnitude are what we would supply in terms of a technology license and proprietary equipment, we are going to try to expand on that.

Jay Steinhilber - Morgan Stanley

Okay, thank you. That’s all I had.

Robert Rigdon

Sure.

Operator

(Operator Instructions) Our next question comes from Robert J. Smith with Center for Performance Investing.

Robert J. Smith - Center for Performance Investing

Hi, good afternoon.

Robert Rigdon

Hello.

Robert J. Smith - Center for Performance Investing

Can you tell me what the issues are at the Yima and how they are going to be – how the fix is going to be put in the timeframe?

Robert Rigdon

Sure. So, look, the Yima project is let me put some context around this. The fixes that we are talking about here are all of them are very straight forward, understandable things that need to be done. There is nothing that’s really challenge in that project that I am aware of. What Yima did in building this project and for those of us like yourself have been following SES for a number of years now, you recall that the Yima grew – it’s a little bit of a history review here. We are building the methanol project and then they got side track for about a year we looked at building a different product, glycol for a while and then switched back to methanol and that put the project in a very accelerated state of project management to get the thing done. And the Yima project manager that was running this at that time looks – it looks to me as I look at it now, left a lot of what we call punch-list items that he could run with, but really not run well with he left them undone, his is going to try to get these things done well although unit was running.

And this is everything from simple stuff like tuning instruments to not completely installing some of the systems that make the units run better in a more optimized way. And so what they did this new general manager comes in and he looks at the situation and he basically says he don’t want to have to keep trying to make these improvements while the plants are running and it’s not running real well, it’s difficult when the plants – that’s a very large plant. It’s not running real well and he actually went back to the Yima’s senior management and he said look let’s just shut it down and let’s just go in and take I think what they are targeting is three months to get this thing done right and start it back up. And he is under a heavy mandate from the Yima Coal Group to have this thing profitable by the end of the summer. So that’s essentially what’s going on and it’s created a lot of frustration for us as well as our team. But if they implement these punch list items to get the improvements done here appropriately, this unit is going to run fine.

Robert J. Smith - Center for Performance Investing

Okay, is the Pakistani utility looking at any other competing offers or is they relied upon you or I mean is this - (indiscernible) color on that?

Charlie Costenbader

This is Charlie. As far as we are aware, they are not really looking at any alternatives, that’s one of the benefits of hitting our poses I would say with GE that the reputation of GE is pretty solid in Pakistan .And the LOI that we signed also gives us exclusivity. So I don’t think that they really thought about or nor do they have the ability to really look at alternatives at this point.

Robert J. Smith - Center for Performance Investing

Okay. And your IR effort, do you think that would be ramped up in the nearing future or you are going to have to wait for some kind of in order to come in the size?

Robert Rigdon

Related to power, I think we will ramp that up and log step with the progress that we are making an appropriate log step with the progress that we are making on the project. It’s time we make some progress that we can share with the public and we will get out there and do that.

Robert J. Smith - Center for Performance Investing

Well and then so put your story before more analysts on the street or...?

Robert Rigdon

Okay. Well, what – this is a huge opportunity Robert and that’s probably what you are getting to. We are going to want to see the order materialize where we can see it was certainty. We are out there now to the extent that we believe is prudent to go out and explain what we are doing, what our intentions are regarding this large distributed power market on a global basis. As we lock in on this order and we see this order coming in with certainty. We intend to ramp that up in a big way. This is a big game changing event for our company and we are going to tell the world about it. There will be a lot of media. There will be articles and we will be confident there will be everything that you would normally see associated with this. And we’re involved in this with big large partners we are going to be out there as well because it’s a big business opportunity.

Robert J. Smith - Center for Performance Investing

Can you explain the technology advantages in relationship with CO2 and what’s been discussed more recently in the press?

Robert Rigdon

Sure. So, regarding CO2, Robert, our gasification technology separates naturally as part of our process separates CO2 from the syngas before we send the syngas downstream for using in whatever it’s going to be used for, power production or making chemicals whatever, it’s separated. And because it’s separated then we have the ability to do something with it. And that’s a key differentiator when you are looking at handling coal cleanly, the ability to separate the CO2 and use it for either sequestering it or use it for enhanced oil recovery or using it for production of other products like urea, for fertilizers, things like that.

Robert J. Smith - Center for Performance Investing

And do you have any projection or plans for that use?

Robert Rigdon

We have projects that are in the very, very customers who have projects. Let me be specific. In the very early stages of development who are working with SES today that are moving forward with projects that would use our technology, that would take that CO2 stream and would put that CO2 stream into pipelines that are using it for enhanced oil recovery and sequestering the CO2 making an essentially an ultra-clean fuels facility from coal. And those projects are on the horizon. They are coming. This is one of the biggest benefits of gasification and combined with our ability to do the whole wide range of coal feedbacks puts us in a very good position for the future.

Robert J. Smith - Center for Performance Investing

Hey, Robert, it’s so many kind of irons in the fire, I mean, we are into May in calendar 2014, would you expect that there would be some meaningful order flow before the end of the year?

Robert Rigdon

Yes, we are working on it, but particularly this power application, but not only that, China, what we just did with the joint venture in China, we are expecting order flows there too inside that joint venture. So, absolutely Robert, that’s what we are working, we are doing everything we can to make that happen.

Robert J. Smith - Center for Performance Investing

Okay, thanks so much. Good luck.

Operator

We have arrived the end time and end of our Q&A and I would like to hand it back to Mr. Rigdon to close today’s conference call.

Robert Rigdon - President and Chief Executive Officer

Okay. Well, look thanks everybody for participating on the call and for your questions. And since there are no further questions, we will conclude this quarter’s earnings call. Thank you.

Operator

Thank you. The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.

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