NXT Energy Solutions Inc. (NSFDF) Earnings Call Transcript & Summary

Good day, ladies and gentlemen. At this time, I would like to welcome everyone to the NXT Energy Solutions 2020 Year-end Operating and Financial Results Conference Call. [Operator Instructions] I would now like to turn the meeting over to Mr. George Liszicasz, President and CEO of NXT Energy Solutions. Please go ahead, sir.

Thank you very much, Patricia. Welcome, and thank you, everyone, for joining us today for NXT Energy Solutions Fourth Quarter 2020 Financial and Operating Results Conference Call. This is George Liszicasz. And joining me on today's conference call is Eugene Woychyshyn, Vice President of Finance and Chief Financial Officer; Dr. Xiang Gui, Director of R&D and SFD Sensor Development; Rashid Tippu, Director of Geosciences for Africa, Asia and Middle East; Enrique Hung, Director of Geosciences for the Americas; and Mohammad Saqib, Operations Director and Head of Interpretation. The purpose of today's call is to briefly discuss the highlights of the release of NXT's fourth quarter 2020 financial and operating results. Following our update, we will open up the line for questions. Please note that all statements made by the company and management during this call are subject to reader's advisory regarding forward-looking information and non-GAAP measures set forth in our Q4 2020 results press release and MD&A issued yesterday. All dollar amounts discussed today -- in today's conference call are in Canadian dollars unless otherwise stated. The complete financial and operating results and consolidated financial statements for the fourth quarter of 2020 were published yesterday, March 30, and are available on NXT's website, SEDAR's website and soon will be available on EDGAR's website. Now I would like to turn it over to Eugene for the financial review.

Thank you, George, and welcome, everyone. As George mentioned, our fourth quarter 2020 financial statements, management's discussion and analysis and annual information form were filed on SEDAR's website yesterday and will shortly be available on EDGAR. From a financial perspective, the focus remained on supporting the execution of the business development efforts and continuing to control and optimize costs. We continue to participate in the Canada Emergency Wage Subsidy and the new Canada Emergency Rent Subsidy programs during the quarter. For the fourth quarter, our financial results were as follows. Cash and short-term investments were $3.03 million at December 31, and net working capital was $2.73 million. Operating activities used $0.93 million of cash during the quarter and $3.45 million for the year. There was no revenue earned in the fourth quarter. For the quarter, NXT recorded a net loss of approximately $1.69 million or $0.03 per share based on 64.4 million weighted average common shares outstanding. This compares to a net loss of $1.78 million in the fourth quarter of 2019 or $0.03 per share. For year-to-date, NXT recorded net loss of approximately $6 million or $0.09 per share based on 64.4 million weighted average common shares outstanding. This compares to a net income of $3.77 million in 2019 or $0.06 per share. Total operating expenses for the fourth quarter were $1.54 million, including survey costs. This included noncash expenses of $0.55 million related to amortization and stock-based compensation expenses. Total operating expenses for the year were $6.21 million, including survey costs. This included noncash expenses of $1.8 million related to the amortization and stock-based compensation expenses. G&A expenses decreased $239,000 or 26% in the fourth quarter compared to 2019 for the following reasons. Salaries, benefits and consulting charges decreased $37,000 or 9% through the recording of the Canada Emergency Wage Subsidy. Board and professional fees and public company costs decreased $38,000 or 18% primarily due to decreased legal fees. Overhead costs decreased $47,000 or 24% through the Canada Emergency Rent Subsidy, and business development costs decreased by $117,000 or 97% due to reduced travel as a result of the COVID-19 pandemic. G&A expenses decreased $325,000 or 9% for the year compared to 2019 for the following reasons. Salaries, benefits and consulting charges decreased $216,000 or 13% due to recording of the Canada Emergency Weight Subsidy, receipt of the scientific research and development refundable tax credit and 1 less permanent head count. Board and professional fees and public company costs decreased $63,000 or 7% primarily due to increased professional fees. Overhead costs decreased $73,000 or 9% due to the recording of Canada Emergency Rent Subsidy and decreased costs related to reducing office expenses. Business development costs decreased by $100,000 or 42% due to restrictions on travel from COVID-19. Finally, we commenced the employee share purchase plan in the quarter with an impressive of 75% of the employees participating. To summarize, some key financial points. We ended the quarter with $3.3 million of cash and short-term investments on hand and a net working capital balance of $2.73 million. Net loss for the quarter was $1.69 million and $6 million year-to-date. Cash used in operations was $927,000 for the quarter and $3.45 million year-to-date. Our main focus is on the execution of NXT's commercial opportunities. I would like -- I would now like to hand the call back over to George to further discuss our business update and forward plans.

Thank you very much, Eugene. First, I want to convey my sincere hope that everybody is well and continues to stay healthy at this time. 2020 was a year that started with high hopes for many of us at NXT. We had just reported one of the best financial performances in our company's history, having successfully completed the 2019 Nigerian SFD survey with flying colors and by all accounts. We were granted also 38 additional patents by the European Union, which brought the total number of NXT patents to 44. Most importantly, we were actively engaged in discussions regarding a number of business development opportunities we felt would have transformed this company's future immeasurably. Well, not to restate the obvious impact of the oil price war or -- and the global pandemic, let's just say that we are happy to have 2020 behind us. In May 2020, NXT started on a new interpretation workflow that includes processing, mathematical transformation and mapping of SFD data with the aim of bringing results closer to the G&G community while reducing the qualitative aspect of SFD interpretation. We are pleased to report that while the work is to be continued on this front, we have seen a number of encouraging indicators that validate the efforts to date. Some output of this process is going to be deployed in our upcoming projects and hope to give you industry feedback later this year. Currently, NXT has decided to keep this IP proprietary, and we'll consider seeking appropriate protection. On the global E&P front, promising news comes in the form of multiple vaccines that have been approved, and global vaccination levels are increasing. Commodity prices are now stabilized, and the worldwide economic recovery is well underway. As a result, NXT has experienced an increased level of business development activities from its customer base. Although discussions are at various stages and certain details are confidential, we remain highly confident in the approach we have taken to realize near-term opportunities with national companies that have a long-term strategic approach to the development of reserves. Let us discuss further highlights on our continued business development efforts. Starting with Africa. The company is pleased to report that finally, we are cleared to plan our trip to Nigeria for senior-level discussions on existing and future projects. During this trip, we plan to close our remaining milestone of our 2019 project and start designing the next SFD surveys based on the technical recommendations. If successful, this should result in short- and long-term revenues. Furthermore, NXT has extended its agreement with PE Energy, our regional representative, to include 6 additional countries in Africa for conducting SFD surveys. This will give NXT a wider exposure to new markets and the ability to leverage the Nigerian best practices and endorsement to enhance our technical leadership across borders. NXT continues its effort toward securing new contracts independently using other existing networks throughout the African region. With respect to Mexico, as you are all aware, Mexico was hit very hard by COVID-19, which required NXT to readjust its business strategy. Based on the latest developments, we are still confident to reach an agreement for the utilization of SFD in Mexico. We're also pleased to report that an SFD recommendation that was provided during the 2012 SFD survey to PEMEX has now been effectively validated via drilling by PEMEX recently. This late success in the Gulf of Mexico continues to demonstrate the robustness and the value of SFD technology in the E&P workflow. Similarly, based on the 2017 2.1 bid round data set, NXT held a joint technical session in 2018 with an international licensee to review their blocks. One of their proposed prospects was discussed in this session and was not recommended by NXT's SFD technology. Recently, the operator still drilled and subsequently announced it as a dry hole. NXT will publicize all drilling results to date that were made on SFD recommendations in the near future. Let us turn our attention to South America. Following technical meetings, the government agency ANCAP of Uruguay has authorized the use of SFD for surveys that are to be conducted onshore and offshore. Uruguay is one of the most promising frontier exploration area in South America. We are pleased to become an approved tool in their exploration programs. With respect to Central America, in Panama, our client in Central America has received approval on its exploration project with SFD. This approval concerns the authorization of a TEA in the project area. The project funding partner is aligned and is presenting financial terms and conditions to the presidents. TEA stands for technical evaluation area. With respect to Asia, in Sarawak, a state of Malaysia, all exploration activities have been halted due to COVID-19. Once the restriction is lifted, NXT plans to resume negotiations with Petros Sarawak to conduct onshore SFD surveys. Middle East and Asia, NXT had a number of successful technical meetings via video conference recently with new potential clients. We will keep you posted on any further developments. In conclusions, we are tremendously proud of our entire team's effort to date, and we are very excited about delivering strong results and growth in 2021 for all of our shareholders. On behalf of our Board of Directors and the entire NXT team, I want to thank all of our shareholders for their continued support. We wish the best of health to you and your families. Now I ask the operator, Patricia, to open the line for us and take a few of your questions. Thank you very much.

[Operator Instructions] Your first question comes from the line of Peter Mork from Mork Capital Management.

Just kind of a quick follow-up. Thanks for the thorough update on the pipeline, George. On -- just regarding that pipeline, in your last investor presentation you guys have up on your site, there's a nice kind of like graphic just of the pipeline with probabilities, a little bit of a time line. I think that presentation is from December. Since that time period, has there been any shifts on that graphic, so to speak?

I would say that the most important project right now remains Nigeria. And actually, that has now even increased in its potential. We cannot discuss certain aspects of this -- of the negotiations and so on, but we are extremely pleased with the results that we have achieved in Nigeria and also the attention that we are getting from the various departments of the Nigerian oil and gas sector.

Great. That's helpful. And in terms of the other -- like you talked about Central America a little bit. You threw a lot of countries like Uruguay. I think that's the first time I've heard that mentioned. Are those -- in terms of timing, are those getting pushed out if we looked at that previous forecast? Are they -- anything moving up? Or is it about the same?

It's about the same. The only thing -- Pete, this is Enrique. The exploration cycle is very slow, and we are doing -- or making our steps further in every country that we can. So Uruguay is just one more or less outside in -- all the G&G communities, in the magazines and all the exploration -- frontier exploration topics. And we happen to contact them, the government of ANCAP, to find out how can we participate. And we did -- in a short time, in 3 or 4 months, we were explaining them in technical discussions and then writing up a contract with ANCAP, which is the government, to authorize the use of SFD inside Uruguay. This same authorization we have in several countries like Colombia, Brazil, Bolivia and Argentina. So it's just one more to come up with. And it's neighboring to Brazil and the Pelotas Basin and neighboring to Argentina. So now we have kind of one more piece in the puzzle to reinforce our exploration efforts.

[Operator Instructions] There are no -- I'm sorry, we have your next question coming from the line of [ Raul Alvarado ] from [ Merahi ].

I have a question. It seems like most of the items in your pipeline, I'm just an investor, come from governments. Do you have any working economic partnerships with major oil companies that do exploration so you can get endorsement from a public company to use your technology? Or are you looking for co-investments with them to create partnerships that would extend your reach? It seems like working with government, the lead time for marketing and business development tends to be very long. I guess that's the nature of exploration. I would be interested in your thoughts about how you're attacking the market and if you could expand in a different way.

Thank you, [ Raul ], and thank you for being our shareholder. The good news is that one of the projects that we are being considered in Nigeria will involve not only major oil companies but super majors. And we are very excited about working with them because this will be the first time that a number of them are going to be involved with SFD, and I think that is what you refer to basically. But we believe that it's going to be successful, and we are going to deliver value to them. And they will eventually now endorse the technology. That's our hope. Regarding the second part of your question, yes, we have extended our participation in certain aspects of the E&P sector. We are looking for royalties. We are looking for participation rights, bonuses and so on in order to make sure that our revenue stream is smoother and more even and we don't have these ups and downs -- not affected as much by the oil prices and so on. So we are actively seeking those opportunities, and we have some. We just have to close them. We have some in Africa as well, also in Central America. So we are looking for these relationships continuously where we can generate additional revenues.

So just -- so the reason you're mostly working for governments is because mostly they are the ones that own the deposits that you're doing exploration. I'm sure you want to protect your intellectual property, but I would think that an endorsement from a major oil company or co-investment with you would be a cross and then it's...

No, I totally agree with you. We are not protecting that intellectual property because we have a patent. So anybody skilled in the art should be able to take a look at the patent and understand how the technology works and so on. It took us about almost 8 years just to receive the patent because of -- just for your information, 90 pages of questions came from the U.S. Patent Office to be answered. So that's how we started out. So it takes some time sometimes. But as I said, we are looking forward to working with the majors and super majors. But the national companies, we work together because they own 90% of the land, so it's a natural fit. They cannot stop exploring because, as you know, many of the African countries and also in Americas, many countries depend on -- their GDP on the oil and gas sector contribution. I hope it answered your question.

[Operator Instructions] We have another question coming from the line of Michael Mork from Mork Capital Management.

Yes. Got a question. You obviously have what looks to be a very amazing technology. And yet, when you have these negotiations, contracts, it seems like it's hard to close. And I just wonder, what is the pushback that you get that stops you from just signing contracts left and right?

Thank you very much, Mike, for the question. From my perspective, from where I'm sitting, it's the COVID. I mean there's no other reason at this time for NXT not to be able to produce the contracts. It's just hard to get into the country. You have these variants all over the place. And I mean if I tell you how we can get into Nigeria, we are planning our trip, it's unbelievable. It's -- but the good news for us is that we are airborne. So once we are in the country, we just stay in a certain hotel, we don't go anywhere and we just conduct all our exploration. Usually, it takes 3 weeks to acquire all the data, and then we are out of the country. So -- but I must tell you that our people here, our team members are up to the task and sacrifice, to tell you the truth. And I'm very, very appreciative of that. You can't buy that with money.

[Operator Instructions] There are no further questions. Please go ahead.

Thank you very much, everyone, for participating in our conference call, investor's conference, shareholder's call. And looking forward to updating you in the near future, about 6 weeks. Thank you again.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.