Money Quotes from Syntroleum

I wanted to  talk a little about one of my favorite companies.  As many of you know I’ve been a long investor on $SYNM.  I only traded out one full position once, but since trading it out in the $3’s, I’ve reacquired my entire position back and then some.

Syntroleum has had an interesting history.  Many people dislike the fact that they are very conservative, don’t pump their stock, don’t care about day to day fluctuations, don’t spend money on promotion, or a good website… etc.  Let me just say, this company at one point used to be like many other American small caps. They did pump their stock, they made promises they couldn’t keep, their last CEO was a great story teller… but over the years they developed, changed CEO’s, and they now operate like a company should.  No b.s., and that’s a big reason I got behind them.
Not to pick on anyone in particular, but RTK is a good example of a company that puts out needless press releases — because quite honestly they need to raise cash, and they have a long road ahead. RTK could very well work out, but it’s going to take a long time … and they are nowhere near as far as SYNM.
They just filed their 10-K, and the numbers were nothing short of awesome.  That said, they did also mention the cost of the delays on their plant which amount to 20 million dollars, however 10 million of it will be fronted by SYNM and the other 10m by Tyson.  It’s important to understand the reason for the delay, and why the cost of 20m is associated with it.  
The delay was likely weather related.  All major pieces of equipment and reactors have been installed, but the project encountered construction delays (of which we all knew about last quarter).  The primary construction delay has been the installation of piping to connect the installed plant equipment.  The cash impact of the delay added $20 million in costs to the total project of which Syntroleum contributes 50% (and Tyson the other 50%).  This $20 million is not for “piping”, but rather the increased working capital for operations staff, and financing costs that were previously expected to be funded by operations.  Both parties have committed to funding the cost overrun in the second quarter of 2010.  

That’s the “bad” news.  ..but that’s not really bad news when you go through the numbers. ..not to mention the fact that all the long term investors knew about the delay.

Some financial highlights from the 10-K:

  • Cash position of $25.0 million compared to a cash position of $10.1 million at December 31, 2008.
  • Receivable balance of $3.3 million compared to a receivable balance of $0.5 million at December 31, 2008.
  • Net cash provided by operating activities was $12.6 million for 2009 compared to net cash used in operating activities of $2.8 million for 2008.
  • Total revenue of $27.4 million for the year ended December 31, 2009 compared to $4.9 million for the same period last year.
  • Total net income of $5.0 million for the year ended December 31, 2009 compared to a loss of $4.1 million for the same period last year.
  • Net income per share of $ 0.07 versus a loss of $0.07 for the year ended December 31, 2009 and 2008, respectively.

The company generated $12.6 million in cash flow from our operating activities, which are derived primarily from the execution of key business transactions, for the year ended December 31, 2009 compared to using $2.8 million in cash flow from operations for the same period last year. Their current receivable balance is $3.3 million from current executed contracts and delivery of technology and equipment. They made a $6.0 million investment in Dynamic Fuels on April 1, 2009.

So in a nutshell the company needs to come up with $10m to fund the delay, and they have $25m in the bank.  Okay let’s go to some money quotes that should make some of you long term traders smile.

“This project continues to progress forward. Plant start up is scheduled for the first half of 2010 and full rate operations are expected during the third quarter of 2010.”

Full rate operations means 75m gallons of fuel will be scaled to produce yearly beginning in 2010.  I fully expect their production to be under contract assuming the company continues to execute.

We continue to operate with 19 employees, of which 13 are engineers.”

In other words, they’re running their business very efficiently.  They don’t spend money on b.s., they don’t promote, they don’t pump & dump, they don’t spend money on un-necessary areas, not until they start making money.

“Unlike conventional biodiesel and ethanol fuels, our Bio-Synfined™ fuel products can be used as a finished product and do not require blending to be used in existing engines.”
This means they could be blended or not.  It’s really up to the vendor/process.  Thus if they are mandated to use a certain amount of “green diesel” in their fuel, they could blend Syntroleum in.  If not, they could go 100%.
“Our products can also be blended with petroleum-based fuels in any ratio. Our products can be transported through existing distribution infrastructures and used in existing automotive diesel engines and jet engines without modification.” 

Jet Engines without modification.  You hear what I’m saying?
“The life cycle greenhouse gas emissions for our fuels are on average 75% less than for petroleum diesel.”

Yes, this is green fuel we’re talking about, and we’re starting to see major government mandates on green fuel technologies.

We expect demand for products created via Syntroleum ® Technologies to result from government legislation.”  
This is a huge statement.  People need to understand that besides tax credits, there are mandates that will be put on major refineries that a portion of their refining will have to include GREEN fuel technology like SYNM.

So that’s basically it.  I own a very large position of SYNM, I don’t plan on selling for awhile, my average is now under $2.40.  My previous average was under $2, I sold all of it over $3.  This latest position is *not* a short term trade for me, and this stock has a longer term horizon.  Please don’t view this as a pump in any way, do your homework, read the history, read the 10-K, etc.  





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