NXT Energy Solutions Inc. (OTCQB:NSFDF) Q4 2021 Earnings Conference Call April 4, 2022 4:30 PM ET
George Liszicasz – President and Chief Executive Officer
Eugene Woychyshyn – Vice President-Finance and Chief Financial Officer
Rashid Tippu – Director, Geoscience Africa, Asia and Middle East
Enrique Hung – Director of GeoScience
Conference Call Participants
Michael Mork – Mork Capital Management.
Peter Mork – Mork Capital Management.
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 2021 Fourth 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.
Thank you, Patrick. Welcome, and thank you, everyone for joining us for NXT Energy Solutions 2021 fourth quarter and year-end financial and operating results conference call. This is George Liszicasz, and joining me today conference call is Eugene Woychyshyn, Vice President of Finance and Chief Financial Officer; Dr. Xiang Gui, Director of Research and Development; Enrique Hung, Director of Geosciences for the Americas; Mohammad Saqib, Head of interpretation and Project Engineer; and Rashi 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 2021 fourth quarter and year-end financial and operating results. 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 reader’s advisory, regarding forward-looking information and non-GAAP measures set forth in our Q4 2021 year-end press release and MD&A issued March 31.
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 2021 fourth and year-end were published on March 31, 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 2021 fourth quarter and year-end financial statements, management discussion and analysis and annual information report were filed on SEDAR’s website on March 31 and will shortly be available on EDGAR. From a financial perspective, the focus remained on supporting the execution of the business development effort and continuing to control and optimize costs.
Our financial results were as follows. Cash and short-term investments were $2.81 million at December 31, 2021, and net working capital was $2.82 million. Company received US$200,000 of payments on outstanding accounts receivable in February. Operating activities provided $76,000 of cash during the quarter and used $1.03 million for the year. Revenue for the full year was $3.13 million.
For the fourth quarter, NXT recorded a net loss of approximately $1.57 million or $0.02 per share based on 65.0 million weighted average common shares outstanding. This compares to a net loss of $1.65 million for the fourth quarter of 2020 or $0.03 per share. For 2021, NXT recorded a net loss of approximately $3.12 million or $0.05 per share based on 64.7 million weighted average common shares outstanding. This compares to a net loss of $6.03 million during 2020 or $0.09 per share.
Total operating expenses for the quarter were $1.56 million, including survey costs. This included non-cash expenses of $0.53 million related to amortization and stock-based compensation expenses. Total operating expenses for 2021 were $6.03 million, including survey costs. This included non-cash expenses of $2.06 million related to amortization and stock-based compensation expenses.
G&A expenses increased approximately $50,000 or 6% in the fourth quarter of 2021 compared to 2020 for the following reasons. Salaries, benefits and consulting charges increased $29,000 to the phasing out of the Canada emergency wage subsidy, offset by lower vacation expense. Board professional fees and public company costs decreased $45,000 or 27% due to decreased professional fees. Premises and administrative overhead costs increased $52,000 or 36% to the company, benefiting fully from the Canada Emergency Rent Subsidy in the fourth quarter of 2020. The program ended in early October 2021.
Business development costs increased $35,000 as business development travel resumed in December 2021. There was minimal travel in 2020 due to the COVID-19 pandemic. And stock-based compensation expenses were lower in 2021 versus 2020 by $22,000 due to lower RSU and employee share purchase plan expenses.
G&A expenses decreased $151,000 or 5% for the full year 2021 compared to 2020 for the following reasons. Salaries, benefits and consulting charges increased $102,000 due to the decrease in Canada emergency wage subsidy rate, offset by lower vacation expense, Board and professional fees and public company costs decreased $200,000 due to lower professional fees, premises administrative overhead decreased $80,000 due to receipt of the Canada Emergency Rent Subsidy for most of 2021. Business development costs decreased $92,000 as travel restrictions continued due to the COVID-19 pandemic for most of the year. And Stock-based compensation expenses were higher in 2021 versus 2020 by $119,000 due to recognizing the RSU and the employee share purchase plan expenses for the full year.
Summarize some of the key financial points. We ended the quarter with $2.81 million of cash and short-term investments on hand and a net working capital balance of $2.82 million and we received US$200,000 in February for outstanding receivables with respect to the preexisting SFD data sale, with the remaining US$425,000 is expected to be received shortly. Our main focus continues to be on the execution of NXT’s commercial opportunities.
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 everybody is well and continues to stay healthy at this time. As Eugene mentioned, although there were no survey revenues in Q4, the company did generate $3.13 million of revenue for the year, which was a significant improvement from the $137,000 generated in 2020, but still below our expectations of what we believe this company is capable of generating, given the benefits of our technology offers and the new opportunities that exist in the marketplace today. That being said, the quarter remained a very productive period for the company on multiple fronts.
We were pleased to announce earlier in the summer that energy exploration Veteran, Gerry Sheehan joined our Board of Directors. Gerry brings almost 40 years of experience and knowledge working in international gas exploration, development and production. For the moment, Gerry arrived, he has become an integral part of our team contributing his expertise to the company. We are definitely happy to have him aboard. Since Gerry joined the Board, he has been sharing his expertise in industry network to further our business and actively involved in our business development opportunities. We are very grateful for that.
Regarding the oil and gas front developments, NXT had a very busy start to 2022, pursuing a number of strategic opportunities which gives me a great deal of confidence today that our collective efforts will materialize into future success, both short-term and long-term. Business development efforts have substantially progressed throughout the winter in our core regions of focus in Africa, Asia and South America.
As commodity prices have rebounded, we are witnessing an increased level of exploration activities. NXT remains highly confident in its approach to realize near-term and long-term business opportunities. With respect to the preexisting SFD data sales, in Q2 ’21, the company has completed the sale and delivery of existing SFD data to one of our customers. NXT has received payments of US$1.8 million as of December 31, 2021, US$200,000 in February 2022, with the remaining expected to be received in Q2 2022.
NXT is working on two opportunities in Central Asia. One of these is a fully financed E&P company with significant production and land base. The other one is a junior E&P that is currently securing the necessary financing for their upstream program, which includes an SFD survey. We have submitted commercial bids for SFD surveys to both companies.
With respect to our other Asian projects, we are in discussions with multiple enterprises for SFD survey opportunities, three of these opportunities have advanced beyond the technical discussion stage. Additional work is required, but suffice to say, study progress is being made. We will continue update — we will continue updating our shareholders as warranted.
Africa business development. We recognize Africa as one of the most important continents for sustained hydrocarbon and geothermal exploration. The utilization of SFD will mitigate overall exploration risk, provide time and cost-effective solutions in an environmentally-friendly manner. Pursuant to this, I’m pleased that the significant effort expanded in Nigeria is now projected to cultimate into projects for 2022.
We believe that success in ’22 will lead to further opportunities in 2023 and 2024. I attributed this entirely to the value of the information SFD delivers and the efforts of our partner the GMD of PE Energy, Mr. Daere Akobo. Nigeria’s frontier basins remain our priority as we believe our business with NOC and other international exporters will continue.
NXT is engaged in leveraging the Nigerian experience into upper survey opportunities in the sub-Saharan countries. Underscoring our increased level of confidence, we will soon be undertaking a new airborne survey. And to that end, we have completed an extended airplane maintenance program in order to meet increased survey capacity. In addition, we have also started the appropriate paperwork on aircraft export-import certification and are in the process of obtaining other essential services that are required for foreign surveys. We will keep you informed of our progress.
Continuing with the geothermal development update. As previously announced, NXT received advisory services and funding from the National Research Council of Canada’s Industrial Research Assistance program which was utilized to support the research and development of the SFD technology for geothermal applications. We are grateful to NRC IRAP and their advisers for all their contributions to NXT as we continue to advance our efforts toward attaining commercialization of our SFD GT technology.
The company has successfully completed Phase 1 of the SFD GT sensor development program and currently preparing a submission of Phase II for NRC’s consideration. NXT is actively pursuing SFD GT business opportunities in Canada and abroad, a number of potential clients are considering using SFD GT for prospective.
Now let us turn our attention to Latin America projects. We continue working to be a service provider within the portfolio of a large Houston-based geophysical company that holds corporate service contracts with NOCs throughout Latin America. NXT is also in discussions with the regulatory authority of three Latin American countries with respect to government funded frontier export evaluation programs.
SFD would be used to enhance and/or develop geophysical data banks in these regions, which would be in alignment with the stated objective of increasing exploration and production. We are optimistic the current negotiations are a step to a new and repeat opportunities in Latin America. With respect to Brazil, the company has received notice that its Brazilian patent application has been granted, bringing the total number of countries in which NXT hold patents to 46.
Brazil is a compelling opportunity for NXT. The country has an extensive oil and gas contributing over 10% of its GDP. NXT believes this is an attractive market opportunity for its environment of friendly SFD technology and with the Brazilian patent in hand, this will help to accelerate discussions with potential industry partners in the region.
In summary, SFD hydrocarbon survey opportunities continue to progress well, not only within the core areas of focus in Africa, Asia and South America but elsewhere. Additionally, we have made progress with our SFD GT technology and continue to be in discussions with multiple geothermal companies for these services.
We understand that the year has not started as we hoped for, but we are confident the rest of the year should prove fruitful. We did $3 million in revenue, which is $3 million more than the year before. Today, we see clear signs of many suspended exploration programs being reactivated. NXT has to seize the opportunities now that is in front of us. As always, thank you for your patience. Thank you.
On behalf of our Board of Directors, and the entire team at NXT, I want to thank all our shareholders for their continued support. We wish the best of health to you and to your families. Back to you, Patrick.
[Operator Instructions] The first question is from Michael Mork from Mork Capital Management. Please go ahead.
Hi. It’s Mike. Just wanted to know if you can amplify a little bit on the contract potential in Nigeria, the African contract — potential size and possibly the timing because it seems like it’s been pushed back several times. Just wondered if you can get a little closer there.
Yes. Mike, this is Rashid. So, yes, we are working towards a contract like some paper work and some approvals are on [indiscernible] within this year. And based on — this year project was based on the previously work done back in 2019 and also — so that’s where we are. And based on this project we are working towards, we are seeing there will be a potential of next 2 years follow-up project based on the results because they — if you recall, back in 2019, we surveyed two [indiscernible] and Judd, which is a large area and we made several recommendations. So, they are selecting a portion of those recommendation for this year, and we are anticipating this year survey will also add value to the existing data. And then we are looking for next couple of projects in following years here.
Mike, I would like to add — thank you, Rashid. I would like to add that NNPC wants to project itself as a better corporation worldwide. We know the history. So as a result of that, there are some protocols that have been implemented that requires NXT as a service provider to give much more detail, the information on the survey, the budgets, the breakdowns and so on and so forth that previously was required. So that was the, I think, the main reason. But we have met now all requirements, and we are very positive that we are going to get a contract going very soon [indiscernible].
Okay. That sounds good. Just one real quick follow-on question. With oil prices over $100 a barrel, are you doing anything different on your marketing? Or are you getting contacted by some of your old clients who — when the price was $50 a barrel, weren’t that interested. Now it’s a $100, might be interested, have you seen any activity with new clients or old clients that are more interested now with the higher price?
Mike, this is Enrique Hung. Well, I can give you an example for Latin America. They are bumping their exploration budget, both in the E&P unit or business units and in the government. So Latin America looks good. We have three fronts in those countries. We are also linking some of the latest work we did in December 2021 in Asia that has strong relationship with the international activities that can be reflected in Latin America. So, we are very confident. And yes, the oil price is a big push for us. Some of the countries are planning to duplicate their production. So, there’s a long-term and it looks like it’s a good path for us to follow.
Okay. Thank you.
Thank you, Mike. I think that it’s in all — if you look at it overall, the situation, there is a revival, right, in exploration. And we have been contacted by clients and also representatives that we worked with before in a number of countries that the national company or the regulatory body would like to utilize the technology extensively. So, we are very, very positive and hopeful on that. And confident that if they come to us, that’s a very good sign.
[Operator Instructions] The next question is from Thomas [indiscernible]. Please state your company. Your line is open.
Open now, okay. Hey. This is Thomas from [indiscernible]. I’d kind of wanted to play off of Mike’s question. First off, really exciting on the Asian and African front. It’s great to hear that stuff is moving along. So, I’m really excited for 2022. I think I just wanted to ask a little bit about the marketing that you were talking about. And George, you mentioned that you remain really confident in the NXT approach. And I think I’m coming at this fairly ignorantly, I probably don’t know much about how the hydrocarbon market works, so pardon the ignorance, but I wonder if you could just go over kind of the marketing approach because I think the fundamental thing that I and other investors that have been involved for 10 plus years, our feeling is that we have this game changing IP. And I just wonder, do people know about it. I’m reading articles all the time about geothermal exploration. And I’m just wondering what is our strategy there? Either geothermal or hydrocarbon to get the word out to prove the technology. If we’ve got this major disruptor, why don’t people know about it? So happy to take the question offline. Thanks for the answer. Thanks.
Thank you very much, Thomas, and thank you very much for your support. I would just start with the technology itself. How much everything changed in terms of the acceptance of the technology? We have being on a continent literally. And the presentations to a number of companies, I think it was like 12 companies. Each and every one of them is a multibillion-dollar corporation and they required a technical presentation to be given to them. Usually, our technical presentation is about 175 slides. So, we compacted it to 44. We gave the presentation, it was downloaded throughout the continent. We buy institutions, universities and so on, and it came back positive. So, I think that we have reached the point now that the boundary of resistance is breaking down with respect to the technology.
Also, there are a number of technologies that have been now published that relates to SFD. It’s not SFD, but part of it related to SFD, and it clearly shows that the technology can be built. So that’s one part. The other part is that we are trying to get boots on the ground everywhere wherever we believe that there is a significant opportunity that exists. And that in Africa, we have about 6 countries right now where NXT is being represented, right? So, in Asia, there are equally the same number of people, salespersons and so on the ground. And we don’t pay anybody anything until they bring the contract.
So, the next step will be, hopefully, we are going to get a contract going on very shortly that will include super majors and so on that we can work together with them. And I think that’s going to be the final barrier to break onshore, offshore. So, we are very confident that I’m looking forward to it actually, to tell you the truth, that will be the ultimate goal and objective of NXT that they will see how well this technology works.
Okay. Thanks, George. I appreciate it.
Thank you. The next question is from Peter Mork from Mork Capital Management. Please go ahead.
Hey, guys. Thanks for the update again. And, George, I just want to follow-up a little bit on Thomas’ question on the marketing, but specifically related to the geothermal. You guys have all these great case studies on your website. You go down a great demonstration of how the census work over various hydrocarbon deals over the years. I was wondering, are there any plans to do that on the geothermal side? And ultimately, what — how are you guys viewing like a time frame for a pack? And then you talked about that? And just any insights to how they were built? Thanks.
Hi, Peter. Thank you very much for your question. I didn’t understand the first part, I couldn’t hear it very well. So, somebody can …
Not marketing, the SFD GT. Right now, we have about three companies and two countries that are interested in geothermal projects using — I mean projects using SFD surveys to identify high permeability conduits and so on in the subsurface. At the same time, we are trying to move to this Phase II with IRAP, the people who finance the development of the technology, that would include universities, not all technology fabrications and so on and so forth. As you know, we are a small company. So, it is a requirement that we want to do and want to further the technology and from the prototype phase.
And there are a number of fabrication methods that we need to review and create a technology that will not only the geothermal will benefit from, but also the SFD technology itself. So, our goal is every other day, there is another company who does geothermal activities that we can work with. And also financing companies come to us now that they would like a finance project or use the SFD with their existing clients. So, I’m quite confident that in the next couple of months or by Q3, we are going to have projects undertaken and move forward.
Thank you. The next question is from David [indiscernible]. Please state your company. Your line is open.
My name is David [indiscernible]. I remember I’m a shareholder. We’ve had several contracts that seem to get us obviously also that we keep being that hang in there. Where do you going to take the impact our shareholder value because it assumes that the money that we’re getting is — buns up — burn rent, which can impact it? And how long will that?
Thank you, David. It’s Eugene. So, we are — we are again, confident on our commercial opportunities. And as George had explained earlier, that’s where we’re going to be generating our cash from in the short-term.
Okay. Nigeria was supposed to happen a long time ago. And I know it was a question asked earlier, but I couldn’t hear your answer. That’s how long it takes for you guys to impress?
Was that for Brazil or — sorry, that wasn’t clear.
For Nigeria, we are, as George explained in the near short-term, but once we get through a few more hurdles.
Okay. Thank you.
Thank you, David.
Thank you. This concludes the question-and-answer session. I would like to turn the meeting back over to Mr. Liszicasz.
Thank you very much everybody for participating in our Investors Conference Call. And I hope that the next call is going to be business. Thank you again for your support.
Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.