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

Good day, ladies and gentlemen. My name is Patrick, and I will be your conference operator today. At this time, I would like to welcome everyone to the NXT Energy Solutions 2022 Second Quarter 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, Patrick. Welcome, and thank you, everyone, for joining us today for NXT Energy Solutions 2022 Second Quarter Financial and Operating Results Conference Call. This is George Liszicasz, and joining me today's conference call is Eugene Woychyshyn, Vice President of Finance and Chief Financial Officer; Dr. Xiang Gui, Director of R&D; Enrique Hung, Director of Geosciences for the Americas; and also, we have Rashid Tippu, Director of Geosciences for Africa, Asia and Middle East. The purpose of today's call is to briefly discuss the highlights of the release of NXT's 2022 second quarter financial and operating results. Following update, we will open -- following our update, we will open up the line for questions. Please note, all statements made by the company and management during this call are subject to the reader's advisory regarding forward-looking information and non-GAAP measures set forth in our Q2 2022 press release and MD&A issued on August 11, 2022. All dollar amounts discussed in today's conference call are in Canadian dollars unless otherwise stated. The complete financial and operating results and consolidated financial statements for the 2022 second quarter were published on August 11 and are available on NXT's website, SEDAR's website and soon will be available on EDGAR's website. Now over to Eugene for the financial review.

Thank you, George. As George mentioned, our 2022 second quarter financial statements and management discussion and analysis were filed on SEDAR's website, August 11, and will shortly be available on EDGAR. From a financial perspective, the focus remained on supporting the execution of the business development effort and continued control and optimize costs. Our financial results were as follows: cash and short-term investments were $1.12 million at June 30, 2022, and net working capital was $0.05 million. Accounts receivable payments of approximately $154,000 were received in the quarter and a further $390,000 is anticipated received later in August. Operating activities used approximately $780,000 of cash during the quarter and $1.7 million year-to-date. There is no revenue for the quarter or year-to-date. For the quarter, NXT recorded a net loss of approximately $1.77 million or $0.03 per share based on 65.3 million weighted average common shares outstanding. This compares to a net income of $1.53 million in the second quarter of 2021 or $0.02 per share. Total operating expenses for the quarter were $1.8 million, including SFD-related costs. This includes noncash expenses of $0.55 million related to amortization and stock-based compensation. Total operating expenses for year-to-date 2022 were $3.59 million, including SFD-related costs. This included noncash expenses of $1.05 million related to amortization and stock-based compensation. G&A expenses increased approximately $364,000 or 53% in the second quarter of 2022 compared to 2021 for the following reasons: salaries, benefits, consulting charges increased $137,000 or 46% as Q2 costs were reduced by the Canada Emergency Wage Subsidy and partially offset by lower vacation expense. Board and professional fees and public company costs increased $25,000 or 11% due to increased professional fees. Premises and administrative overhead costs increased $112,000 or 113% as of Q2 '21 costs were reduced by the Canada Emergency Rent Subsidy. Business development costs for Q2 '22 increased by 34% from Q2 '21 due to meetings with potential customers in Q2 '22. There was no business development travel in 2021 due to the pandemic. Stock-based compensation expenses were higher in Q2 '22 versus 2021 by $56,000 due to higher restricted share unit plan accruals. G&A expenses increased approximately $376,000 or 24% year-to-date 2022 compared to 2021 for the following reasons: salaries, benefits and consulting charges increased $121,000 or 16% as 2021 costs were reduced by the Canada Emergency Wage Subsidy and partially offset by lower vacation expense in 2022. Board and professional fees and public company costs increased by $14,000 or 3% due to increased professional fees. Premises administrative costs increased $123,000 or 41% as 2021 costs reduced by the Canada Emergency Rent Subsidy. Business development costs for year-to-date 2022 increased by $32,000 from 2021 due to meetings with potential customers during 2022. Stock-based compensation expenses were higher in year-to-date 2022 versus '21 by $86,000 due to higher RSU plan expense offset by lower employee share purchase plan expenses. To summarize some key financial points. We ended the quarter with $1.12 million of cash and short-term investments on hand and the net working capital balance of $0.05 million, and we received approximately $400,000 for outstanding accounts receivable so far this year, with another approximately $390,000 expect to receive shortly. Our main focus continues to be on the execution of NXT's commercial pipeline. I would now like to hand the call back over to George to further discuss our business update and forward plans.

Thank you, Eugene. First, I want to convey my sincere hope that everyone is well and continues to stay healthy at this time. Our last conference call was 3 months ago, and we are pleased to provide you with further updates. As Eugene mentioned, although there were no survey revenues in Q2, we remain highly confident that it will all change during the second half of this year. I believe this company is poised to generate significant revenue given the positive business development on multiple fronts over the last 2 months. Commodity prices should remain strong. Consequently, we are witnessing an increased level of business development and engagement with our customers. Our objective remains the same: to create a substantial revenue flow. Let me review the most current opportunities, starting with the oil and gas front, the Africa business development. During the May call, we forecasted that we would be starting Nigerian survey in July. However, the NOC of Nigeria, NNPC, decided to undertake a complete restructuring, including merger and personal reorganization. According to NNPC, it should be completed by the end of August. NXT has been informed that the first phase of our SFD survey programs has been approved and funds have been allocated. We are confident that our survey will happen shortly, and accordingly, we will update you. Recently, a new opportunity emerged to conduct SFD surveys in East Africa for a large NOC. The NOC has the funding and plans to carry out an SFD survey in Q4 2022. We are working towards finalization of the contract. Now I will continue with the Asia and Middle East opportunities. NXT has carried out 2 consecutive business trips recently to Asia and the Middle East following up on the previously identified leads. The NXT team has made a number of technical and commercial presentations in 2 countries to their NOCs and various IOCs. I am pleased to report that the company expects a number of positive outcomes from these initiatives in the near future. I am also pleased to report that at the invitation of a well-financed Asian geothermal company, NXT team gave a technical presentation on how effectively the SMD matter could be exploited to locate geothermal resources with high potential. The presentation was well received, and we'll follow up with the company shortly. Just to recap on the last call regarding geothermal. NXT has successfully completed Phase 1 of its SSD-GT sensor development program and is currently preparing a Phase II submission for NRC IRAP's consideration. We believe that our efforts in pursuing SFD-GT survey opportunities will be fruitful both domestically and abroad. Let us review the current Middle East opportunities. Following our first trip, both NOC and IOC requested further face-to-face discussions on exploration and development projects. Technical and commercial proposals were also made and submitted and currently under review. And I just would like to give you some flavor of what is really happening. There are 3 projects under consideration in the Middle East with 3 companies. One of them is the national company of Turkey and 2 other companies onshore and offshore activities -- with onshore and offshore activities. Now according to the trough contract terms, the successful completion of each initial project will grant NXT an additional SFD contract with each company. Furthermore, by the recommendation of the NOC, NXT comments, review and selection of the operation base facilities, which would include airports, hangar requirements, flight permits, office space and so on, and this is all held by the national company. We didn't ask for it, they have offered it to us. Maybe it is appropriate now to also say a couple of words about Asia initiatives. The 2 countries involved there are India and Indonesia, 2 potential projects with the state-owned oil companies in India. One of them is active internationally, and we will conduct the initial survey in South America. The other one is a large domestic producer. In this case, NXT was shortlisted by the domestic company to make a technical presentation to a technical board to evaluate SFD and its application. I would like to also mention that our SFD technology was further evaluated by a number of universities and non-[indiscernible] labs in the country. As I mentioned earlier -- maybe I didn't mentioned it yet, but the other company -- the other country is Indonesia. And NXT is planning to work with the NOC stakeholders and also with one IOC. We were presented with the prioritized basins with the objective to find new reserves, fast and effectively. Just as you know, Indonesia has 68 frontier basins. The total area is as big as Texas. Based on the above, it is apparent that developing countries will continue their hydrocarbon exploration. With respect to our Latin America projects, there are some new positive developments, but we feel that it's too early to articulate them. The Sidoti Conference, we are pleased to note that Eugene and I will be presenting at the Sidoti August MicroCap Conference, Wednesday, August 17, at 12:15 p.m. Eastern Standard Time, 9:15 a.m. Pacific Standard Time. Please refer to the press release issued on August 10 for the instructions on how to view the presentation. In summary, we want you to know that the company is aware of the cash position, the situation. If we start the execution of any of these contracts in September, then according to our standard payment schedule, we should be receiving payment before commencement of salaries, and that, we believe, should elevate the situation. To that end, the company remains focused on contract execution. As always, thank you for your continued support of NXT. On behalf of our Board of Directors and the entire team at NXT, I want to thank you all of our shareholders for their continued support. We wish the best of health to you and your families. I now ask as the operator, Patrick, to open up the line for questions. Patrick?

[Operator Instructions] We have a question from Mike Mork from Mork Capital Management.

Eugene and George, with what you see right now in kind of rating the prospects that you have, some 100%, some probably 25%, what would be a realistic estimate for revenues for the next 12 months?

I don't want to run ahead of myself. I would say that Nigeria will happen. And also, I believe that Turkey is going to happen. And those are the 2 -- Turkey has 3 companies that are ready to go. And please remember that all of these projects are going to have continuation of other projects. So the contract will contain a clause in Turkey and also in Indonesia that whenever NXT finishes the first project, it will -- the company grants another survey to NXT. So -- also I would believe that the South America project will take place as well. So there are 1, 2, 3 projects, but 1 to 5 companies that would be involved. So -- and how much it would be? I can't tell because there is also a development right now in South America whereby we were asked to make a presentation to a significant company with a number of new blocks that would like to utilize SFD. So what happens is that we complete the first project then there is another project immediately after that with the same company, and then we start another project with another company in South America. So it's -- I can't tell. But I would say that USD 10 million would be something that would just for the first initial projects would be reasonable.

[Operator Instructions] There are no further questions registered at this time. I would like to turn the meeting back over to Mr. Liszicasz.

Thank you again for your participation in this conference call. And I just would like to say that I think that I wish that we could have done this in 2020 and 2019 because the reception that we have today is incomparable to 2018, 2019, 2017. The technology is extremely well received. It's well reviewed in every country, and we have a tremendous support from all the companies that we have talked to. So I believe that it will open up a new chapter in our revenue generation. Thank you, again.

Thank you. The conference has now ended. Please disconnect your lines at this time, and thank you for your participation.