NXT Energy Solutions Inc. (OTCQB:NSFDF) Q2 2022 Earnings Conference Call August 15, 2022 4:30 PM ET
Company Participants
George Liszicasz – President and Chief Executive Officer
Eugene Woychyshyn – Vice President of Finance and Chief Financial Officer
Conference Call Participants
Mike Mork – Mork Capital Management
Operator
All participants, thank you for standing by. The conference is ready to begin. 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. All participants will be in listen-only mode for the first part of the conference call with the ability to ask questions after the presentation by the company. [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.
George Liszicasz
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 on today’s 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; 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 our update will be open we will open up the lines 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 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 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.
Eugene Woychyshyn
Thank you, George. As George mentioned, our 2022 second quarter financial statements, and management discussion and analysis were filed on SEDAR’S website on August 11 and will shortly be available in EDGAR.
From financial perspective, the focus remained on supporting the execution of the business development effort and continued control and optimized 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 activity 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 non cash 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 non cash 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 and consulting charges increased to $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 over head costs increased to $112,000 or 13% as the Q2 2021 costs reduced by the Canada Emergency Rent Subsidy. Business development costs for Q2 2022, increased by 34% from Q2 2021 due to meetings with potential customers in Q2, 2022. There was no business development travel in 2021 due to the pandemic.
Stock-based compensation expenses were higher in Q2, 2022 versus 2021 by $56,000 due to higher restrictive 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 to $121,000 or 16% as 2021 costs were reduced by the Canada Emergency Wage Subsidy and partially offset by lower vacation expense in 2022.
Florida professional fees and public company costs increased by $14,000 or 3% due to increased professional fees. Premises administrative costs increased to $123,000 or 41% as 2021 costs are 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 2021 by $86,000, due to higher RSU plan expense offset by lower employee share purchase plan expenses.
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 execution of NXT s commercial pipeline.
I would now like to hand the call back over to George to further discuss their business update and forward plans.
George Liszicasz
Thank you, Eugene. First, I want to convey my sincere hope that everyone is well and continues to stay healthier this time. Our last conference call was three 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 generating significant revenue given the positive business development on multiple fronts over the last two 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 will be starting Nigerian survey in July. However, the NOC of Nigeria, NNPC, decided to undertake a complete restructuring, including merger and personnel 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 Asia and Middle East opportunities. NXT has carried out two consecutive business trips recently to Asia and the Middle East following up on previously identified leads.
The NXT team has made a number of technical and commercial presentations in two countries to the NOCs and various IOCs. I’m 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 SFD method 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 I of its SFD-GT sensor development program and is currently preparing a Phase II submission for the NRC IRAP 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, those NOC and IOC requested further face-to-face this session on exploration and development project. 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 three projects under consideration in the Middle East with three companies. One of them is the National Company of Turkey, and two other companies onshore and offshore activities — with onshore and offshore activities.
Now according to the draft contract terms, the successful completion of each initial project will get 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 airport, 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 the Asia initiatives. The two countries involved there, are India and Indonesia, do 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 nano-tech [ph] labs in the country. As I mentioned the other, maybe I mentioned it yet, but the other company is — other countries Indonesia.
An NXT is planning to work with NOC stakeholders and also with one IOC. We were presented with a prioritized patience with objectives to find new reserves, fast and effective.
Just that, 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 project, 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 Micro-Cap conference, Wednesday, August 17 at 12:15 pm, Eastern Standard Time, 9:15 am, Pacific Standard Time.
Please refer to the press release issued on August 10 for instructions on how to view the presentation. In summary, we want you to know that the company is aware of the cash position situation. If we start the execution of any of these contracts in September, then according to our standard payment schedule, we should be receiving payments before commencement of surveys. And that we believe should elevate the situation.
So 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 the operator, Patrick, to open up the line for questions.
Question-and-Answer Session
Operator
[Operator Instructions] We have a question from Mike Mork from Mork Capital Management. Please go ahead.
Mike Mork
Hi, Eugene, and George. With what you see right now and 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?
George Liszicasz
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 two — Turkey has three 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. We — so there are one, two, three project, but one to five 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 will ask to make a presentation to a significant company with a number of new blocks that we’d like to utilize SFD. So, what happens is that we complete the first project and 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 US$10 million would be something that would just for the first initial project would be reasonable.
Mike Mork
Okay. Yes, that’s fine. Thank you.
George Liszicasz
Thank you very much, Mike.
Operator
[Operator Instructions] There are no further questions registered at this time. I would like to turn the meeting back over to Mr. Liszicasz.
George Liszicasz
Thank you, again, for your participation in this conference call. And I just would like to say that, I think that I wish you know 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.
Operator
Thank you. The conference has now ended. Please disconnect your lines at this time and thank you for your participation.
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