NXT Energy Solutions Inc.

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. Fourth Quarter 2023 Operating and Financial Results Conference Call. All participants will be in listening 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 telephone's keypad. If you wish to cancel your question, please press star 2. I would now like to turn the meeting over to Mr. Bruce Wilcox, Interim CEO of NXT Energy Solutions. Please go ahead, Mr. Wilcox.

Thank you, Melanie, and welcome and thank you everyone for joining us today for NXT Energy Solutions' 2023 Fourth Quarter Financial and Operating Results Conference Call. My name is Bruce Wilcox, NXT's Interim Chief Executive Officer. Joining me on today's conference call is Mr. Eugene Wichishen, VP of Finance and CFO, Mr. Enrique Hung, Director of Geosciences for the Americas, Mr. Rashid Tipu, Director of Geosciences for Africa, Asia, and the Middle East, and Mr. Mohammed 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 analyst slash portfolio manager, and ultimately CEO of one of the oldest long, short equity investment firms in the U S among other things, I was responsible for all of our investments in the energy sector, both EMP and service companies. I was appointed interim CEO of NXT in June of last year. As I observed 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 fourth quarter financial operating results and to give some color on our business pipeline and prospects. Our CFO, Eugene Wichishin, will start with a financial 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&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 fourth quarter were published on March 27th and are available on NXT's website, CDAR's website, and soon will be available on Edgar's website. Now, over to Eugene for the financial reference.

Thank you, Bruce. First, I'll start with a review of our financial results. During the fourth quarter of 2023, the company commenced the Turkish SFD survey for an independent oil and gas exploration company in Turkey and recorded SFD-related revenues of approximately $2.15 million for work completed up till December 31st, 2023. Cash was $0.4 million at December 31st, 2023, The net working capital was a negative $1.86 million, which was an improvement versus an approximate negative $3.47 million at September 30, 2023. Accounts receivable were $1.83 million at December 31, 2023. Approximately $1.43 million of the payments on accounts receivable were received up to March 27, 2024. The debentures announced in November 2023 were finalized on January 12, 2024, for a total of $1.87 million. $0.72 million of these debentures were received in the first quarter of 2024. Insiders, including all the directors, participated in this debenture for a total of $1.522 million. Working capital needs. For operating activities, used approximately $1.47 million of cash during the fourth quarter and $4.83 million year-to-date. For the quarter, NXT recorded a net loss of approximately $0.43 million, or one cent per share, based on 78 million weighted average common shares outstanding. This compares to a net loss of $1.47 million in the fourth quarter of 2022, or two cents per share. Year to date, NXT recorded a net loss of approximately $5.45 million, or $0.07 per share, based on 77.5 million weighted average common shares outstanding. This compares to a net loss of $6.73 million in 2022, or $0.10 per share. DNA expenses decreased $37,000, or 5% in the fourth quarter 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 expense to support the Turkish SFD survey. Foreign and professional fees and public company costs decreased $15,000, or 9%, as audit fees were significantly lower due to change of auditor. And business development costs decreased $35,000, or 75%, in the Fourth quarter of 2022, the company traveled to the Middle East and Asia to pursue opportunities. While in Q4 23, the company focused on the Turkish SFD survey. G&A expenses decreased $316,000 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 2023. In addition, a portion of some of the salaries are allocated to direct labor expense to support the SFD survey. Awarded professional fees and public company costs decreased $65,000, or 8%. Audit fees were lowered due to the company changing its auditor. This was offset by increased professional fees due to the venture financing. And finally, business development costs decreased $105,000, or 53%. Due to less travel expense during 2023 versus 2022, the company engaged 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. The company continues its programs to reduce costs. On March 22nd, 2024, the company extended its lease on its aircraft for an additional three years as a capital lease. Under the terms of the lease, the company will own the aircraft at the end of the three-year term. In addition, we're working with our landlord to reduce our office space by an additional 30% beginning May 1st of 2024, thereby reducing total space by approximately 40% compared to the original lease agreement. We'll continue to negotiate and rate size other service provider contracts as they come due. Our 2023 financial statements and MD&A are filed on CEDA Plus' website. We're filed on March 27th and will shortly be available in EDGAR. To summarize the key financial points, we ended the quarter with $0.4 billion of cash and accounts receivable of approximately $1.83 million. Our main focus 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.

Thanks, 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 one year ago, and we were pleased to provide an update on our progress since then and 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. 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 a successor company to PE Energy for whom we did our 2019 survey in Nigeria. In September 2023, NXT 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 six months. In October 2023, the company was a finalist for Best Exploration Technology at the World Oil Awards. 2023 Gulf Energy Excellence Awards in Houston. World Oil is the publisher of a 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, Shlomje got the award, but we were pleased to be in that company. Most recently, a new sales agency agreement was announced with Holocube Limited, known as Kamiya, an Abu Dhabi-based startup focused on, quote, 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. 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 two draft contracts, three 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 expiration commitments. Smaller-scale projects with independent oil companies, or IOCs, were deemed secondary primarily because that segment of the industry was suffering financially due to low commodity prices and the lack of consistent expiration activity. 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, quote, we are elephant hunting, close quote. I prefer to think of us as hunting smaller, more plentiful game with an elephant gun in the truck should the need arise. 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 is recommended by our largest shareholder. We have subscribed to the ACT customer relationship management software. This is raising our visibility with a wide range of prospects. 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. Diversify. We're diversifying 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. We are in fairly advanced stages with a number of IOCs worldwide, diversified by agents. So we currently have four 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 expiration 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. 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 of directors and the entire team at NXT, I want to thank all of our shareholders for their continued support. And then I'll ask our operator, Melanie, to open the line for us to take your questions.

Thank you, Mr. Wilcox. We will now take questions from the telephone lines. If you have a question, please press star 1 on your device keypad. If at any time you wish to cancel your question, please press star 2. Please press star 1 at this time if you have a question. There will be a brief pause while the participant registers for questions. Thank you for your patience. The first question is from Jerome Haas from Light Water Partners. Please go ahead. Your line is now open. Please go ahead. I'm sorry, we were unable to hear you at this time. If you have a question, please go ahead. Mr. Jerome Haas from Lightwater Partners.

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 $2.1 million in revenues and approximately $2.2 million over the course of the year in survey costs. We also note that you have trade receivables of 1.74 million. So, firstly, we assume that those receivables are all related to the Turkish contract. But it would appear that if we take those numbers without any more survey costs, that your margins on a gross basis have fallen to about 42%. on that contract versus in 21, you had about 61% gross margin. So was there something about the Turkish contract that was lower margin?

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

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 it's a lower volume of total line kilometers. So you do lose a little bit of the... the volume base to be able to spread some of the costs. But overall, the margins were lower than we expected.

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.

So our SFE-related costs include the full All the costs, especially in the first three quarters when we were still maintaining the aircraft. So what you're seeing there is the need for us to keep that aircraft in the air every quarter so that we are covering our full costs. So the actual incremental costs of the survey are together with the fixed costs that we are incurring. So the message which... we know and what we're trying to achieve here is to get volume.

All right. Okay. Thank you.

The next question is from Thomas Wood from Wood. Please go ahead. Mr. Wood, please unmute your line. At this moment?

I'm not muted.

I can hear you. Can you not hear me? Yes, I can hear you clearly. Please go ahead.

Okay, great, thanks. Hey, Bruce. Hey, 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. 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, it all felt pretty old-fat, 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 their work, their background, and how that approach is going to be coming into this industry.

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 in marketing, primarily in the technology and related industry. But he's really animated our process. So it's outreach by people email or phone or flyers, conference attending. Les has been to, I believe now, three 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 and My preference is really to talk to somebody typically in the C-suite, you know, like a CEO, CFO, director of exploration, and make them mind points. We can speed up the survey process. We have an approaching 70% commercial success rate on the body of wells that have been drilled on a recommendation since 2009, 30 wells. That's a huge number. It compares to, say, 19% onshore and about 9% offshore for wildcat exploration. So we can save time. We can save money. We can de-risk exploratory acreage. And all of that adds up to much higher returns on the exploration invested capital. That's my pitch, and I have very capable geophysicists on the team, and they can talk about the science, but I think we overemphasize. 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, you know, really to keep us moving and cover a really wide swath of ground. And he's a real taskmaster, I can tell you. Does that help?

Yeah, I think so. I mean, I think... I think if I was to frame it differently, you know, and part of this is like my generation and my connections with people in Silicon Valley, but like this to me feels like it should be also something like tech crunch, you know, and obviously it's completely different industries, but I think from a framing standpoint, like this is such a disruptive, incredible technology. And I mean, I've been following it for over a decade and it's just incredible to me that it's not, you know, 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, you know, youthful disruption, world-changing potential, and certainly, you know, 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's talk about strategy of having some of that kind of startup mentality or energy, or if that seems valuable in terms of your pitch.

I think we've got that, notwithstanding the fact the company's been around for you know, 20 years. Um, but, uh, you know, there's a lot of things that we need to upgrade. We need to upgrade our website, which looks archaic. Um, the content, uh, 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, you know, very, very old school. Um, social media, uh, But, you know, Les is pursuing a lot of different avenues for us. So, you know, we're open to anything that works, that brings business.

Wonderful. Thanks.

Yeah, I appreciate it. Okay.

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

Well, thank you very much, all the attendees, and thank you for three questions. We will be releasing our first quarter under the regulatory time limit, which means before May 15th. And it's our current intention to make these conference calls so regular.

a regular part of the process so thank you very much everybody have a wonderful evening and we'll talk to you soon thank you the conference has now ended please disconnect your lines at this time we thank you for your participation