NXT Energy Solutions Q4 2023 Earnings Call Transcript

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Provided by Quartr
April 2, 2024

There are 5 speakers on the call.

Operator

Good day, ladies and gentlemen. My name is Melanie, and I will be your conference operator today. At this time, I would like to welcome everyone to the NXT Energy Solutions Inc. 4th Quarter 2023 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

For the question and answer session, I would now like to turn the meeting over to Mr. Bruce Wilcox, Interim's CEO of NXT Energy Solutions. Please go ahead, Mr. Wilcox.

Speaker 1

Thank you, Melanie. Welcome and thank you everyone for joining us today for NXT Energy Solutions 2023 4th quarter financial and results conference call. My name is Bruce Wilcox, NXT's Interim Chief Executive Officer. Joining me on today's conference call is Mr. Eugene Mr.

Speaker 1

Rashid Tipu, Director of Geosciences for Africa, Asia and the Middle East and Mr. Mohammad Saqib, Operations and Interpretation Manager. So, a little history on me. I joined the NXT Board in 2015. I've had a 40 year career as an investor, primarily as an analystportfolio manager and ultimately CEO of 1 of the oldest long short equity investment firms in the U.

Speaker 1

S. Among other things, I was responsible for all of our investments in the energy sector, both E and P and service companies. I was appointed Interim CEO of NXT in June of last year. As I observed in my opening remarks for the 2023 Shareholders' Meeting, I want to be judged on the progression of our stock price and for reasons that I will outline later, I am optimistic. The purpose of today's call is to briefly discuss the highlights of the release of NXT's 2023 4th quarter financial and operating results and to give some color on our business pipeline prospects.

Speaker 1

Our CFO, Eugene Luchesian, will start with a review and I will follow with perspective on our business outlook. 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 Q4 2023 press release and MD and A issued March 27, 2024. 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 2023 4th quarter were published on March 27 and are available on NXT's website, SEDAR's website and soon will be available on EDGAR's website.

Speaker 1

Now, over to Eugene for the financial

Speaker 2

Thank you, Bruce. First, I'll start with a review of our financial results. During the Q4 of 2023, the company commenced the Turkish SFD survey for an independent oil and gas exploration company in Turkey and recorded SFE related revenues of approximately $2,150,000 for work completed up to December 31, 2023. Cash was $400,000 at December 31, 2023 and net working capital was a negative 1.8 $6,000,000 which was an improvement versus an approximate negative $3,470,000 at September 30, 2023. Accounts receivable were $1,830,000 at December 31, 2023, approximately $1,430,000 of the payments on accounts receivable were received up to March 27, 2024.

Speaker 2

The debentures announced in November 2023 were finalized in January 12, 2024 for a total of US1.87 million dollars US0.72 million dollars of these debentures were received in the Q1 of 2024. Insiders, including all the directors participated in this debenture for a total of $1,522,000,000 Working capital needs for operating activities used approximately $1,470,000 of cash during the 4th quarter and $4,830,000 year to date. For the quarter, NXT recorded a net loss of approximately $430,000,000 or 0 point 1 per share based on 78,000,000 weighted average common shares outstanding. This compares to a net loss of $1,470,000 in Q4 of 2022 or $0.02 per share. Year to date, NXT recorded a net loss of approximately $5,450,000 or $0.07 per share, based on 77,500,000 rated average common shares outstanding.

Speaker 2

This compares to net loss of 6 $730,000 in 20.22 or $0.10 per share. G and A expenses decreased 37 $1,000 or 5% in the Q4 of 2023 compared to 2022 for the following reasons. Salaries, benefits and consulting charges decreased $37,000 or 10% as a portion of some of the salaries were allocated as direct labor expenses support the Turkish SFB survey. When the professional fees and public company costs increased $15,000 or 9% as audit fees are significantly lower due to change of auditor and business development costs decreased $35,000 or 75%. In the Q4 of 2022, the company traveled to the Middle East and Asia to pursue opportunities.

Speaker 2

While in Q4 'twenty three, the company focused on the Turkish SFD survey. G and A expenses decreased 300 and $16,000 or 8% in 2023 compared to 2022 for the following reasons. Salaries, benefits and consulting charges decreased $176,000 or 10% as the company had one less headcount for the first half of twenty twenty three. In addition, the portion of some of the salaries are allocated to direct labor expense to support the SOP survey. Reordered professional fees and public company costs decreased $65,000 or 8%.

Speaker 2

Audit fees were lower due to company changing its auditor. This was offset by increased professional fees due to the debenture financing. And finally, visit development costs increased $105,000 or 53% due to less travel expense during 2023 versus 2022. The company engaged to more travel to the Middle East and Asia to pursue opportunities in 2022. While in 2023 the company focused on the Turkish survey and attended more virtual meetings.

Speaker 2

The company continues its programs to reduce costs. On March 22, 2024, the company extended its lease on its aircraft an additional 3 years as a capital lease. Under the terms of the lease, the company will own the aircraft at the end of the 3 year term. In addition, we're working with our landlord to reduce our office space by an additional 30% beginning May 1, 2024, thereby reducing total space by approximately 40% compared to the original lease agreement. We will continue to negotiate and rightsize other service provider contracts as they come due.

Speaker 2

The 2023 financial statements and MD and A are filed on SEDAR Plus's website and will file on March 27th and will shortly be available on EDGAR. To summarize the key financial points, we ended the quarter with $400,000 of cash in accounts receivable of approximately $1,830,000 and our forecast continues to be supporting the execution of NXT's commercial pipeline in a cost efficient way. Now, I'd like to turn the call back over to Bruce. Thank you.

Speaker 1

Thank you, Eugene. Well, first, I want to convey my sincere thanks to everyone for their support over the last year. Our last conference call was over 1 year ago and we are pleased to provide an update on our progress since then in our forward plans. We intend to make these investor calls more regular. My opinion is that 2023 will be looked back upon as a watershed period for the company as we continue efforts to increase revenues and ultimately enhance shareholder value.

Speaker 1

In May 2023, NXT announced a strategic alliance partnership with Synergy E&P Technologies Limited, which included an exclusive license to market and distribute NXT's SFD solutions in Africa. Synergy by the way is the successor for the company to PE Energy that executed our 2,000 for whom we did our 2019 survey in Nigeria. In September 2023, NXC announced its first SFD survey contract to Turkey and we have completed all the deliverables. We will be jointly publishing a paper on the survey with the operator once initial drilling of prospects is completed, anticipated to be within 6 months. In October 2023, the company was a finalist for Best Exploration Technology at the World Oil 2023 Gulf Energy Excellence Awards in Houston.

Speaker 1

World Oil is the publisher of widely read Energy Magazine and a number of industry data services. By the way, our competition for that category included Schlumberger, now known as SLB, Halliburton and a couple of companies I'd never heard of. Schlumberger got the award, but we were pleased to be in that company. Most recently, a new sales agency agreement was announced with startup focused on Deep Tech disruptive technologies, which covers the United Arab Emirates. So, through our collective efforts on these and other strategic initiatives, I have increased confidence that 2024 should bode well for the future of the company.

Speaker 1

To get a little more granular on our outlook, we've had a very active business pipeline. We have a very active business pipeline. In total, we currently have outstanding 2 draft contracts, 3 formal written proposals and a number of detailed outlines with customers. Our firm has historically targeted large opportunities almost exclusively with National Oil Companies or NOCs due to their financial strength and ongoing exploration commitments. Smaller scale projects with independent oil companies or IOCs were being secondary primarily because that segment of the industry was suffering financially due to low commodity prices and the lack of consistent exploration activity.

Speaker 1

Although the company did achieve periodic significant success with the NOCs, this approach resulted in extended periods of inactivity for the company, during which no survey revenue was achieved. This unfortunately resulted among other things in balance sheet stress and a declining share price. This is obviously an unsustainable trajectory. We frequently said, We are elephant hunting. I prefer to think of us as hunting smaller, more plentiful game with an elephant gun in the truck should the need arise.

Speaker 1

So, my vision for the company can be summarized in a handful of key words, actively market, high grade, diversify, monetize, collaborate and grow. So, to define those, with actively market, we have retained the services of a deeply seasoned marketing consultant who was recommended by our largest shareholder. We have subscribed to the Act customer relationship and management software. This is raising our visibility with a wide range of prospects. High grade, high grade, we're ranking prospects with regards to size, timing and collateral benefits like being able to execute several contracts in a single geography.

Speaker 1

Diversify, we diversify by geography. We have concentrated opportunities, particularly in Africa, the Middle East and Southeast Asia. Diversified by company size and type, we will continue to target NOCs, but they are bureaucratic and slow. We are increasingly engaging with IOCs such as our client in Turkey. Surveys may be smaller, but they develop more quickly.

Speaker 1

We are in fairly advanced stages with a number of IOCs worldwide, diversified by agents. So, we currently have 4 agency agreements covering Africa, the Middle East, Indonesia and most recently the United Arab Emirates. Monetize, NXT possesses over 140,000 line kilometers of survey data, which we believe could be marketed to IOCs who are now enjoying much stronger financial positions and are undertaking more robust exploration programs. Collaborate. We have initiated dialogues with other service providers such as seismic survey companies, data library service providers to explore opportunities to work together to our mutual benefit.

Speaker 1

And finally, grow, grow revenues and earnings. In summary, we remain confident in our ability to execute on our SFD survey opportunities. On behalf of our Board NXT, I want to thank all of our shareholders for their continued support. I'll now ask our operator, Melanie, to open the line for us to take your questions.

Operator

Thank you, Mr. Wilcox. We will now take questions from the telephone The first question is from Jerome Haas from Lightwater Partners. Please go ahead. Your line is now open.

Operator

Please go ahead. I'm sorry, we are unable to hear you at this time. If you have a question, please go ahead. Mr. Jerome Haas from Lightwater Partners.

Speaker 3

Hi. This is a question for either Bruce or for Eugene. It's with regards to the Turkish contract. So we note that in Q4 you booked $2,100,000 in revenues and approximately $2,200,000 over the course of the year in survey costs. Also note that you have trade receivables of $1,740,000 So firstly, we assume that those receivables are all related to the Turkish contract.

Speaker 3

But it appears that if we take those numbers without any more survey costs that your margins on a gross basis have fallen to about 40% on that contract versus in 2021, you had about 61% gross margin. So is there something about the Turkish contract that was lower margin?

Speaker 1

Jerome, this is Bruce. How are you doing? I'll take a quick overview stab at that, but I'll let Eugenie give the details. So, we have a remaining balance within the receivables of around numbers about 600,000 dollars which we should be paid very soon. But in terms of the margin, we booked the revenues basically on the percentage of costs that are incurred in comparison to the total cost.

Speaker 1

So, Eugene, can you give Jerome some more color on margin?

Speaker 2

Sure. So, first of all, I'm not going to discuss specific numbers because we are in active negotiation with other potential customers and we'll talk specifically about margins. But on the Turkish survey, what we're experiencing is lower volume for the line kilometers. So you do lose a little bit of the volume based with respect to the cost. But overall, the margins were lower than we expected.

Speaker 3

So when we look at for the year you actually had negative gross margin. I'm not sure how we're supposed to interpret that.

Speaker 2

So our SFPD related costs include the full all the costs, especially in the 1st three quarters when we were still maintaining the aircraft. So, what you're seeing there is the need for us to be keep that aircraft in the air every quarter, so we are covering up full costs. So the actual incremental cost in the survey are together with the fixed cost that we are occurring. So the message which we know and look at kind of cheap here is to get volume. Okay.

Operator

Thank you. The next question is from Thomas Wood from Wood. Please go ahead. Mr. Wood, please unmute your line at this moment.

Speaker 4

I'm not muted.

Operator

I can hear you. Can you hear me? Yes, I can hear you clearly. Please go ahead.

Speaker 4

Okay. Thanks. Hey, Bruce. Hi, everybody. So I think anyone who's been an investor with this company for a long time, as I have believes in the technology and its ability to disrupt what has been like a pretty slow to evolve process and industry.

Speaker 4

But something I spoke at length with George about before his passing was that it felt like the public face of the company, the marketing materials, the brand, everything all felt pretty old fact and I feel like it's probably still that way. So obviously we need to be pretty cost conscious, but I wonder if you could just talk a little bit about some of this new strategy you have with the marketing firm that you guys have engaged And maybe a little bit more about like their work, their background and how that approach is going to be coming into this industry?

Speaker 1

So, thank you. This is Bruce speaking. So, Les Rebar is the name of our marketing consultant. He is a retired independent practitioner with a very long and very successful career is marketing, primarily in the technology and related industry. But he's really animated our process.

Speaker 1

So, it's outreach to by email or phone or flyers, conference attending. Less has been to, I believe now, 3 conferences. And it's just the face to face. And I think the I want to tell you a little bit about my personal approach. So, we always talked a lot about the technology.

Speaker 1

My preference is really to talk to somebody typically in the C suite, like the CEO, CFO, Director of Exploration, they're making more important. We can speed up the survey process. We have approaching 70% commercial success rate on the body of wells that have been drilled on a recommendation since 2,009, 30 wells. That's a huge number compares to say 19% onshore and about 9% offshore for wildcat exploration. So, we can save time, we can save money, we can derisk exploratory acreage and all of that adds up to much higher returns on the exploration invested capital.

Speaker 1

That's my pitch. And I have very capable geophysicists on the team and they can talk about the science. But I think we overemphasized quite frankly, we would sometimes end up in arguments with our potential customers about the details of the technology. So, we have a big enough body to illustrate that this works. And so, Les' job is to really to keep us moving and cover a really wide swath of ground.

Speaker 1

And he's a real tax master, I can tell you. Does that help?

Speaker 4

Yes, I think so. I mean, I think if I was to frame it differently, and part of this is like my generation and connections with people in Silicon Valley. But this to me feels like it should be also something like TechCrunch. And obviously, it's completely different industries. But I think from a framing standpoint, like this is such a disruptive, incredible technology.

Speaker 4

And then I've been following it for over a decade and it's just incredible to me that it's not out there pitching next to the Twitters of the world. Obviously, it's a very different industry, but I just mean in terms of that sort of youthful disruption, world changing potential and certainly George was passionate and I agree that things could get a bit bogged down. But I think what I'm curious about is just in terms of the public face, the branding, the marketing, granted this is a little bit of my background, Just if there is talk about strategy of having some of that kind of start up mentality or energy or if that seems valuable in terms of your pitch?

Speaker 1

I think we've got that, notwithstanding the fact company has been around for 20 years. But there's a lot of things that we need to upgrade. We need to upgrade our website, which looks archaic. The content, I spent a lot of time on going over the content when I first came aboard. And I think the content is good, but the appearance is very, very old school.

Speaker 1

Social media, but less is pursuing a lot of different avenues for us. So, we're open to anything that works that brings business.

Operator

Thank you. There are no further questions registered at this time. I would now like to turn the meeting back over to Mr. Wilcox.

Speaker 1

Well, thank you very much all the attendees and thank you for three questions. We will be releasing our Q1 under the regulatory time limit, which means before May 15th. And it's our current intention to make these conference calls a regular part of the process. So, thank you very much everybody. Have a wonderful evening and we'll talk to you soon.

Operator

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

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Earnings Conference Call
NXT Energy Solutions Q4 2023
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