This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk00: 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 Third 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. For the question and answer session, if you would like to ask a question, please press star 1 on your device's keypad. If you wish to cancel your question, please press star 2. I would now like to turn the meeting over to Mr. George Lississas, President and CEO of NXT Energy Solutions. Please go ahead, Mr. Lississas.
spk02: Thank you, Patrick. And welcome and thank you, everyone, for joining us today for NXT Energy Solutions Third Quarter 221 Financial and Operating Results Conference call. This is George Licitas, and joining me on today's conference call is Eugene Wojcicin, Vice President of Finance and Chief Financial Officer, Dr. Xiang Gui, Director of Research and Development, Rashid Tipu, Director of Geosciences for Africa, Asia, and Middle East, Enrique Hung, Director of Geosciences for the Americas, and Mohamed Saqib, Head of Interpretation and Project Engine. The purpose of today's call is to briefly discuss the highlights of the release of NXT's third quarter 2021 financial and operating results. Following our update, we will open the line up 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 Q3 2021 press release and MD&A issued November 15th. 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 third quarter of 2021 were published on November 15th and are available on NXT's website, CEDAR's website, and soon will be available on Edgard's website. Now over to Eugene for the financial review.
spk07: Thank you, George. As George mentioned, our third quarter 2021 financial statements and management discussion analysis were filed on CEDAR's website yesterday and will shortly be available on Edgard. From a financial perspective, the focus remained on supporting the execution of the business development effort, continuing to control and optimize costs. For the third quarter, our financial results were as follows. Cash and short-term investments were $2.8 million at September 30, 2021, and net working capital was $4.03 million. The company received $750,000 of payments on outstanding accounts receivable in October 2021. Operating activities used $1.07 million of cash during the quarter and $1.23 million year-to-date. There was no revenue in Q3, but year-to-date revenue was $3.14 million. For the quarter, NXT recorded a net loss of approximately $1.43 million, or two cents per share, based on 64.7 million weighted average common shares outstanding. This compares to a net loss of $1.49 million in the third quarter of 2020, or two cents per share. For year-to-date, NXT recorded a net loss of approximately $1.55 million, or two cents per share, based on 64.6 million weighted average common shares outstanding. This compares to a net loss of $4.37 million during year-to-date 2020, or 7 cents per share. Total operating expenses for the third quarter were $1.51 million, including survey costs. This included non-cash expenses of $0.57 million related to amortization and stock-based compensation expenses. Total operating expenses for year-to-date were $4.63 million, including survey costs, This included non-cash expenses of $1.54 million related to amortization and stock-based compensation expense. G&A expenses increased $22,000 or 3% in the third quarter of 2021 compared to 2020 for the following reasons. Salaries, benefits and consulting charges increased $75,000 due to the decreasing Canada emergency wage subsidy rates offset by lower vacation expense in the third quarter. Awarded professional fees and public company costs decreased $91,000 or 35% due to decreased legal fees. Premises and administrative and overhead costs decreased $52,000 or 26% due to the receipt of the Canada Emergency Rent Subsidy in 2021. Business development costs were minimal in both periods as travel restrictions continued due to the COVID-19 pandemic. And stock-based compensation expenses were higher in 2021 versus 2020 by $91,000 through the implementation of the RSU plan and the employee share purchase plan. G&A expenses decreased $200,000 or 8% year-to-date in 2021 compared to 2020 for the following reasons. Salaries, benefits, consulting charges increased $73,000 due to the decreasing Canada Emergency Wage Subsidy rate Again, offset by lower vacation expense. Award and professional fees and public company costs decreased $156,000 due to lower legal fees. Premises, administrative overhead decreased $132,000 due to receipt of the Canada Emergency Rent Subsidy in 2021. Business development costs decreased $127,000 as travel restrictions continued due to the COVID-19 pandemic. And stock-based compensation expenses were higher in year-to-date 2021 versus 2020 by $141,000, again, due to the implementation of the RSU plan and the employee share purchase plan. To summarize some of the key financial points, we ended the quarter with $2.8 million of cash and short-term investments on hand, a net working capital balance of $4.03 million, and we received $750,000 U.S. dollars in October for outstanding accounts receivable in respect to a pre-existing SFD data sale earlier in the year, with remaining US$650,000 expected to be received later in the fourth quarter. 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.
spk02: Thank you, Eugene. First, I want to convey my sincere hope that everyone is well and continues to stay healthy at this time. As Eugene mentioned, although there were no survey revenues in Q3, we did receive $750,000 from existing data sales, and the third quarter remained very productive for the company on multiple fronts. Progress continues with respect to the development of the SFD-GT, which is the geothermal sensor family, for which NXT receiving advisory services and funding from the National Research Council of Canada's Industrial Research Assistance Program. NXT tested existing SFD sensors under different operating parameters associated with subsurface conditions favorable for geothermal resources. The test results have demonstrated that the development of a dedicated SFD geothermal sensor family can be accelerated. We have a number of companies that are interested in using SFD and currently in the process of negotiating two contracts, one domestic and one international. We are hopeful that the company will be able to update the market with more details very soon. NXT is continuing the development of the processing algorithms that will assist in the attribute mapping interpretation and the integration of SFD data. NXT has begun preliminary work to extend these methods and processes to the raw data and the output shown to potential clients. Based on the positive feedback, now we are reflecting the value in commercial proposals. As previously communicated, these enhancements will help drive the integration of SFD data and results, into the overall upstream exploration cycle. We also recently announced that the patent in India has been officially granted, which has already generated commercial interest in the country and also among operators. The company is currently engaged in discussion with these operators and will update you as warranted. Africa business development. NXT's most promising opportunity still lies in the Nigeria frontier basins and remains our priority as we believe our business with the national company and other international explorers will continue. 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 a friendly ESG manner. Turning our attention to Latin America and Asia with projects where we have made significant progress since our last call. We are optimistic the current negotiations will lead to new and repeat business in Latin America and Asia. We are pleased to report that NXT has made excellent progress with respect to new survey opportunities in Q3 with companies in South and Southeast Asia. We hope to provide the market with further information and update in due course. hydrocarbon SFD survey opportunities continue to progress well within our core areas of focus in Africa, Mexico, Asia, and South America. Additionally, multiple geothermal companies have inquired about our SFD GT services. We remain highly optimistic about the prospects for new surveys and extremely focused on contract execution in order to deliver value to our shareholders. In conclusion, on behalf of our board of directors and the entire NXT team, I want to thank you all of our shareholders for their continued support. We wish the best of health to you and your families. Now I ask Patrick to open up the line for a few questions.
spk00: Thank you. We'll now take questions from the telephone lines. If you have a question and you're using a speakerphone, please lift your handset before making your selection. If you have a question, please press star 1 on your device's keypad. You may cancel your question at any time by pressing star 2. We ask that you please limit yourself to one question and one follow-up. Please press star 1 at this time if you have a question. There will be a brief pause while the participants register for questions. Thank you for your patience. The first question is from Gary DiStefano from Think Equity. Please go ahead.
spk04: Hey, George, Eugene, next team. Congratulations on your continued successes to date. I just wanted to ask a quick question, well, two quick questions, and I'll skip my follow-up. But just one around the general expectations for the split in revenue between service sales and and data sales going forward. The other question is, do you have any anticipation around any other potential revenue verticals going forward as well? I appreciate your time. Thanks.
spk07: I'll answer the first question. It's regards to our split on service revenue versus data sale. We're forecasting most of our sales to be service revenue. but we're always open to sales out of our data library.
spk02: Yes, we are in the process of establishing the domestic and the international verticals. We have been approached by a number of companies now also to join our special purpose vehicle for the domestic one, and also we are working on the international one currently as well. And as soon as we know how things are going to progress, we are going to give you an update. But thank you, Gary, for your question.
spk06: Great. Thank you.
spk00: Thank you. As a reminder, you may press star one if you have a question. The next question is from Michael Mark from Moore Capital Management. Please go ahead.
spk06: Yeah, thanks for the update. It was a good update. I've got two questions. One, once a client has used the SFD technology and has seen the time and the cost advantages, like 10 to 1 or whatever it is, why does it take so long to get the second follow-on contract?
spk02: Thank you, Mike. You know, good to hear from you. Do you want to answer? I can. Okay, you start, and then I continue.
spk03: Historically, hi, Mike. This is Enrique. How are you? Historically, we have seen from the recommendation to the drilling of the exploration well, it takes about four years. And this is maybe the custom or the normal time of explorations. We are trying to accelerate it. We see that the environment of the market is being accelerated, and that brings up to maybe more need for new technologies and tools. And S&P is one of these new tools that it can be to play to accelerate this process or this time cycle.
spk02: Also, the pandemic, you know, was a big part of it.
spk03: accessing people, because if you don't meet people face-to-face, it's much harder to... But you can see in the successful wells in Yararay, the survey was done in 2015. The Discovery well was drilled in 2020. Same with some of the 2012 early surveys in the Gulf of Mexico. They were drilled in 2016 and maybe later, 2018 and 2019. Those are all the corroborated success that we have had with our recommendations worldwide. similar to Argentina, which was maybe shorter time frame. It was not as rich as the other ones.
spk06: Okay, that's very helpful. And my second question is the natural oil companies, they take a little bit longer for obvious reasons, but now since your last two board members have extensive private public company experience, Do you think we can attack the profit sector more now and have both the NOCs and the profit sector as clients?
spk02: Both of our board members have expressed at the last board meeting the introduction of SFD in their domain, basically. One of them would be Africa, which would be further introduction of the technology when we are going to Nigeria. Also, in Indonesia and the surrounding countries there, which would include Malaysia, India, and so on. One of the issues that we have with the repeat surveys is the procurement process is lengthy. and involves not only the EMP companies, but also the government agencies, government offices. And things become a little bit more political rather than commercial. And so as a result of that, you know, you have to, you know, work very, very hard to make sure that we will secure these contracts, which we believe that we are doing. And I'm extremely hopeful that we are going to return to generating contract revenues as opposed to selling our current data that is existing, which is also very good because, you know, you have 99% growth on it. So it has been acquired. interpreted, and so on. So it's a good source of revenue, and it's a wonderful recognition of the value of the SFD technology. So I hope that answers your question, Mike.
spk06: Yes, you did. It was very good. Thank you very much.
spk00: Thank you. The next question is from Thomas Wood from Woodlet. Please go ahead.
spk05: Hey, George. Hey, team. Thanks so much for the updates. I was just wondering if you guys could add a little bit more color to the geothermal stuff. It just seems like that's a really exciting new venture and, if nothing else, very topical right now. And I'm wondering if you could talk about timeline of developing the technology, kind of what some benchmarks are that you're looking for, any plans for marketing or talking about that, just anything more in that realm. Thanks so much.
spk02: Thank you, Tom. Great to hear from you. Dr. Siangui and myself, we are working very hard on the sensor development and also for the geothermal and also testing the technology and evaluating it and so on. We are very pleased, you know, to have the National Research Council assistance. So that is on the development side. Now, the companies are interested in utilizing the technology, which is also very positive. I will ask Bo, you know, just to elaborate on the importance why these geothermal companies could benefit from utilizing the technology first.
spk01: So, like you pointed out, you know, the geothermal is an up-and-coming development for the SFG technology, and it's very important because this is a more long-term solution as we go forward, especially in the power space, which is becoming more important in the overall energy mix. And geothermal is one of those few green or alternative power sources that – is more non-intermittent. It's more baseload, more predictable. So the sooner the SFT occupies the space in that sector, the better it is going to be. And we have some very good results that we've seen from the test surveys that we've undertaken so far as part of the development. So yes, we are quite excited about where this will go. And hopefully that comes to a conclusion very soon.
spk02: Yeah. We are hoping to secure the contract soon. Any follow-up questions, Tom?
spk05: Yeah, just for clarity, so are you guys feeling as though the technology is working now and now it's just a matter of trying it out with some first-time clients, or are there still developmental benchmarks that you guys are looking to accomplish?
spk02: So we believe that the technology as it stands today can be utilized. But we are working on also improving the technical side to suit the geothermal application more. Because there are several factors that are shared. between, and I'm speaking too much, maybe just... One other example.
spk01: Yeah, you know, the porosity, the permeability, the extension. Go ahead. Yeah, it basically comes down from the fact that the hydrocarbon and the geothermal technological requirements are very, very similar, in fact, at the end of the day. And that's what makes the current system usable with a few modifications, of course, needed to make it... fit appropriately into the geothermal space. But the current system, yes, it is deployable the way it is right now. And I think as George pointed out and Enrique pointed out, we're working on finalizing some of the commercial opportunities. And at the same time, you know, work continues on having a dedicated sensor family for the geothermal, which is basically redesigned from the ground up specifically for geothermal applications. It would fit better, it would work better, be faster, be more predictable, and so on. But that's not going to stop us from pursuing the commercial opportunities in the meantime.
spk05: Great. Thank you guys so much. I appreciate it.
spk00: Thank you. The honour for the questions registered at this time. I would like to turn the meeting back over to Mr. Lesissas.
spk02: In that case, if there are no more questions, I would like to thank everyone for participating in our conference call today. And until next time, you stay in good health and your families. And if you have any other questions, please give us a call. We are always available unless we are going to be on the road, which I very much hope so. Thank you very much.
spk00: Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.
Disclaimer