Flotek Industries Inc/Cn/ Q4 FY2020 Earnings Call

Greetings, and welcome to Flotek Industries Fourth Quarter 2020 Earnings Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce Danielle Allen, Senior Vice President and Chief of Staff for Flotek. Thank you. You may begin.

Thank you, and good afternoon, everyone. Joining me today and participating on the call are John Gibson, Chairman, CEO and President; Michael Borton, Chief Financial Officer; TengBeng Koid, President of Global Business; and Ryan Ezell, President of Chemistry Technologies. On today's call, we will first provide prepared remarks concerning our business and the results for the quarter and full year 2020. Following that, we will answer any questions you may have. This morning, we released our openings announcement for the fourth quarter and full year 2020, which is available on our website. Today's call is being webcast, and a replay will also be available on our website. Please note that any comments we make on today's call regarding projections or our expectations for future events are forward-looking statements. Forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control. These risks and uncertainties can cause actual results to differ materially from our current expectations. We advise listeners to review our earnings release and the risk factors discussed in our earnings filings with the SEC. Also, please refer to the reconciliation provided in our earnings press release as management may discuss non-GAAP metrics on this call. With that, I will turn it over to John.

Thank you, Danielle, and good afternoon to everyone. Before we dive into the quarter and the year, I wanted to provide a quick operational update following last month's severe weather storm. The vast majority of our employees based in Texas, Oklahoma, Louisiana were impacted by the storm, many without electricity and water for days, including myself. It was truly a miserable experience for everyone that was affected. We sustained damage to several of our facilities, and we were unable to access headquarters for nearly a week due to damage to our fire suppression systems, which have since been repaired. Additionally, we've been impacted by broad declarations of force majeure across the chemical supply chain, the first time we have seen such widespread impact of this nature. As a result, there is a rising price environment and limited supplies of certain raw materials. We are fortunate to have trusted supplier relationships and a strong supply chain strategy, which will help us provide uninterrupted service to our important customers, and we are hopeful supply will return to normal in the coming weeks. This is kind of a somber moment here before discussing our results; I would like to give you an update on the board. I'm deeply saddened to report that Kevin Brown, our Director, who joined our Board in June 2020 following the acquisition of JP3, passed away unexpectedly in January. Kevin was a strong contributor to our Board and to the Audit Committee, and I valued his counsel and insights; he is missed. We express our deep condolences to Kevin's family and friends and mourn his loss together. Harsha Agadi was appointed to the Audit Committee to replace Kevin, and additionally, we just announced that our Director, Michelle Adams, has notified the Board that she will not stand for reelection due to existing time commitments outside of her Flotek Board responsibilities. Michelle is a superstar; she has been a steadfast advisor to the Board since 2017, including serving as Compensation Committee Chair. She has provided invaluable advice on matters of cloud-based technologies and the JP3 acquisition. We are fortunate to be able to continue to work with her for the next few months; however, we will miss her presence on the Board. As a result of her departure, we have engaged a search firm to initiate a process for new directors. We will keep you apprised of our progress. Additionally, we've created a new Board committee, the Risk and Sustainability Committee. Last year through our Board assessment process, we identified the need to enhance our risk oversight to build a resilient and sustainable business. While financial risks are typically overseen by the Audit Committee, we have a much broader view of the risks we face as a company today and in the future, including human capital, ESG, cybersecurity, and more. We are excited that the Risk and Sustainability Committee will be chaired by our sitting Director Mike Fucci, which is going to be a really exciting time to work with Mike. As we look back on our 2020 performance, I am inspired by the resilience of our people, our business, and the industries we serve. The challenges were extraordinary, but we remained focused and opportunistic in the face of the pandemic in a very volatile macro environment. It was a transformational year for us for multiple reasons. First, I am proud of the leadership team we've built; they are innovative, accountable, and results-oriented, building Flotek sustainably for the future. Second, we entered the digital transformation space with the acquisition of JP3, which further diversified our revenue stream and represents an excellent long-term growth opportunity. Third, we made quick and nimble decisions to reduce our structural costs and improve our processes to run our business more efficiently and to protect our liquidity. Fourth, we expanded our chemistry portfolio to include planning, disinfecting, and sanitizing product lines following our efforts in the communities where we operate. Through this business, we are utilizing our existing supply chain, existing personnel, and existing facilities to generate margin-accretive revenue. Through all these actions, we increased our focus on our environmental, sustainability, and governance initiatives and culture, prioritizing efforts to protect the environment, health, safety, and security of our operations through our goal of zero incidents; no one should ever go home injured. As a result of these initiatives, we've improved our adjusted EBITDA by more than $7 million year-over-year to a loss of $26 million despite revenue declining by more than half. Now from a macro perspective, the energy industry faced an extraordinarily challenging year across the full hydrocarbon stream due to the oil price crash, COVID-19 demand destruction, and the resulting oversupply of hydrocarbons. Capital budgets for domestic producers declined dramatically by more than 40% year-over-year, according to a report. Our customers prioritized their focus to accelerate debt repayment. More recently, we see added uncertainty domestically related to the administration fees on new drilling on federal land and water, along with the cancellation of the Keystone XL Pipeline as part of new climate change initiatives. However, we are seeing reasons for a more optimistic outlook for the second half of 2021, as COVID-19 stay-at-home restrictions ease more broadly, vaccination adoption rates increase, and more businesses reopen. Although overall capital budgets are projected to remain flat versus 2020, some operators' activity is increasing from the lows of Q3 2020. Segmentation in the market around activity levels was one of our key strategies, and we are targeting E&P companies with consistent programs through 2021, focusing on producing the highest-margin acreage. Many of these producers have maintained tenders throughout 2020. Additionally, crude pricing has shown signs of improvement in the last quarter, with the U.S. Energy Information Administration revising the 2021 forecast to an average price of $61 per barrel for the year. While refinery utilization remains weak overall, rates have been steadily trending up into 2021, and we anticipate this trend will continue as communities reopen around the world. Additionally, we have seen broad signs of recovery in gasoline demand, according to the EIA. In mid-January, gasoline demand saw the largest one-week increase since June 2020, with demand just over 6% behind the five-year average. In the Middle East, we had optimism related to strength in oil prices, and we see increased demand for our specialty stimulation chemicals and opportunities for the adoption of our digital technology. Koid will cover that in a bit. Our energy chemistry business, in particular, had a very strong year in the Middle East with 31% growth over 2019, and we intend to build on that validation. Regarding the gasoline market, we believe there is a permanent change occurring in the mindset of businesses and consumers that will create a continuous demand for professional chemistry products. As the world begins to come back together for social interactions, increased travel, and business events, we believe demand for cleaning and sanitizing supplies will remain high as businesses strengthen their protocols to reestablish trust with consumers while also maintaining vigilance against new variants of the coronavirus that are emerging. With increased business commitments related to ESG, we are well-positioned to partner with businesses seeking to improve their ESG performance. We do this by helping them invest in improving safety, reliability, and efficiency of their operations by increasing natural gas production through the energy transition, and deploying digital real-time technologies that enable process and operational efficiencies, minimizing waste to reduce environmental impact. Furthermore, we offer greener chemistry alternatives to toxic chemicals used in parts of the energy production lifecycle today, and our solutions help reduce environmental risks. As you can see, we are excited to elevate our discussions about ESG, and we look forward to telling you more throughout the year. Now, if you look at the quarterly results, just briefly for the fourth quarter, as we discussed during the last earnings call in November, we expected Q4 earnings to be down as our chemistry technologies were impacted by year-end capital budget exhaustion, the resurgence of COVID-19 on businesses, E&P consolidation, and softness of international activities. We generally performed in line with our expectations, with quarterly revenue and adjusted EBITDA slightly down from Q3. I'm pleased we saw sequential improvement in our data analytics segment in Q4 as we evolved our commercial model and executed on our sales strategy. JP3 is monetizing new opportunities, and we remain excited about the growth they had. Potentially in international markets, we have achieved a significant milestone, securing one of our first international pilots, which TengBeng Koid will highlight in his comments. Now, if we move on to liquidity and cost measures, we continue to take decisive actions guided by our strategic pillars to best position Flotek for the future. Throughout the quarter, we continued to work with our suppliers to negotiate cost of raw materials, renegotiate recent leases, and reduce prices. Protecting our balance sheet remains among our highest priorities, and we have extensive options we are evaluating to bolster financial flexibility. For additional details on the quarter, I'm going to turn it over to TengBeng Koid for further discussion of our data analytics segment; then to Ryan Ezell, who will give us an update on the Chemistry Technology segment; and lastly, to Michael Borton, who will provide a more in-depth discussion of our financial results. With that, I am pleased to turn it over to TengBeng Koid.

Thank you, John. In the past quarter, we remained focused on executing against our business strategy in the data analytics segment. We continue to demonstrate the value we bring to our customers to meaningfully transform their businesses through real-time data and analysis. As a result of our efforts, we are pleased to deliver a 91.8% increase in revenue sequentially, driven by new sales in North America and maintenance and support services. In Q4, we also made progress on our international market entry plan. As we discussed last quarter, we recently hired an executive based in the Middle East who is leading our international business development efforts. We are encouraged by the meaningful engagement and positive responses we are receiving in the Middle East, Africa, and Asia. Notably, we are pleased to announce that we have secured our first international pilot with a leading oil and gas company in the Middle East, which we have begun planning for deployment. Simultaneously, we are updating our products and systems to meet the expectations and requirements for international deployments. While international fields require longer lead times, penetration in this market is an important component of our growth strategy. We are pleased with the achievement of this important milestone and optimistic about our opportunities over the mid to long term. During the quarter, we made software development enhancements by accelerating our artificial intelligence and machine learning capabilities. One of the first applications we plan to launch in Q2 is the use of machine learning algorithms to improve the time it takes to cut batches and hence, further reduce transmix. Transmix, by the way, is the natural mixing between adjacent batches of different fuels being shipped in a common pipeline. Reprocessing or downgrading our products due to transmix is costly. Customers who implement our technology could potentially save millions due to this reduction in transmix. Additionally, in the fourth quarter, we identified an opportunity to streamline our strengthening process to improve our operational efficiencies, reduce costs to our customers, and accelerate commissioning of our systems. Over the past years, JP3 has built a robust library with more than 30,000 hydrocarbon samples, essential to our real-time hydrocarbon analysis. Given the expensiveness of our samples, we do not need to collect many new ones. As a result, we have streamlined our process so that we sample as needed rather than sampling to build up our library. The result is higher profitability and greater speed to commissioning. Hence, we are making significant progress towards sample-less processing. During the fourth quarter, we added several new customers in the U.S. and Canada. Our new customers generally purchase a system to try out the technology, which typically results in additional systems in the future, once the technology is proven. One new customer we added in Q4 is one of the largest midstream companies in the U.S., and since then, they have purchased four additional systems. I'm excited about our prospects for the future as we continue to enhance our offerings, improve our efficiency in delivering solutions, and seek new customers and markets. JP3 technology is game-changing; it helps our customers increase revenue and improve the safety of their operations. We are headed in the right direction to grow this business. With that, I'm going to pass along the call to Ryan Ezell to discuss our Chemistry Technology segment.

Thank you, Koid. In discussing our Chemistry Technologies segment's performance, I'll first provide highlights on our Energy Chemistry Technologies, followed by highlights on our professional chemistry, which includes our newly launched EPA and FDA registered cleaning, disinfecting, and sanitizing product lines. 2020 has been a transformative year for our Energy Chemistry business as we effectively drove down operational costs, renegotiated logistics and supplier contracts, and accelerated efficiencies in our business processes. As a result, we have built a leaner business that can meet the needs of the oil and gas market today and in the future. During the fourth quarter, we began to reintroduce Flotek to the market to elevate visibility of our enhanced value proposition that focuses on becoming the chemistry partner of choice and delivering operational cost efficiencies and improved well production. We're refining our sales strategy to complement a range of domestic and international customers, including E&P operators and oilfield service companies. Domestically, we are targeting a customer base with sustainable activity in operational programs, particularly in unconditional sale markets, through strategic objectives aligned with Flotek's proven performance and value proposition of cost-effective chemistry solutions that prove production at lower costs per barrel produced. In a recent example, Flotek provided an independent operator with a customized solution to boost traditional asset simulation results for wells brought back online in Andrews County, Texas, using our proprietary reservoir-centric chemistry. In this remediation application, a 20% increase in production was achieved utilizing our customized chemistry with acid treatment versus just the acid treatment alone. Additionally, the 20% increase in production has been sustained over time when comparing it to the control case of sole acids. The execution of our value proposition proves to be economically beneficial by providing a positive return on investment, while technically, it demonstrates that customized chemistry can impact every single variable of the capillary equation by increasing the efficacy of more traditional and repetitive applications implemented through wedge production cases to mitigate decline in this field. In addition to our domestic strategy, our Energy Chemistry business continues to focus on international growth opportunities, driving upside in the business, particularly in the Middle East. We mentioned last quarter that we were named the Chemistry Partner of Choice in the Middle East to provide a broad range of coiled tubing stimulation additives to a major National Oil Company through partnerships with new market and international service companies. While we are in a multi-stage process, we are excited to see growth in the Middle East evolve from this opportunity. Currently, our international business accounts for more than 25% of our current chemistry sales, and we continue to see significant growth opportunities there. Lastly, as John touched upon, we are focused on accelerating our ESG solutions for customer efficacy and profitability. Since 2011, Flotek has utilized its Green Check Chemistry Scorecard to evaluate, track, and report our ESG profile and impacted products. Our patented chemistries are built upon highly effective plant-based solvents offering safer, sustainable alternatives to toxic chemicals made from products containing benzene, toluene, ethylbenzene, and xylene, commonly referred to as BTEX compounds. These compounds are harmful to people, soil, and groundwater, and our greener chemistry solutions create a safer environment for our employees, customers, and communities. We see a strong market opportunity to deliver cost-effective, environmentally friendly, safer chemistry solutions that will diversify our product portfolio while helping operators increase production at a lower cost per barrel. Moving to our professional chemistry product line, I want to take a moment to reflect on what we have accomplished at a rapid pace. In the second quarter of 2020, we launched Flotek's line of FDA-quality hand sanitizers for industrial and consumer applications, which has now expanded to more than ten differentiated products in the janitorial and sanitizing sector, thus diversifying our corporate revenue stream to a high-growth potential market. By leveraging our chemical production capabilities and ISO-certified facilities, we have applied our world-class R&D footprint to deliver an expanding line of high-quality FDA and EPA-registered products that are natural extensions of our chemistry technology portfolio. I am pleased to report on three important milestones for our professional chemistry product lines. The first being a newly executed strategic agreement with a major global manufacturer of specialty and intermediate chemicals. After an extensive evaluation and audit process, Flotek has been approved to produce and package EPA and FDA registered disinfectants and wipes as one of a select group of manufacturers. This agreement also enables Flotek to build upon EPA-approved formulations as part of its innovation pipeline. Secondly, we've invested in building our channel to market to establish a long-term sustainable business strategy by partnering with strategic adviser, former Clorox Executive Matt Laszlo. Matt brings more than 25 years of experience and has served in senior business, sales, and marketing roles across consumer, commercial, retail, e-commerce, and industrial markets. His insights are helping us accelerate our growth and leverage our strengths as we build our business for the long term. Lastly, in the fourth quarter, we're pleased to announce the launch of our new professional chemistry brand, Flotek Protocol, which includes a robust line of surface cleaners, wipes, disinfectants, green degreasers, and sanitizers that are manufactured and produced in the U.S.A., focusing on the application of our proprietary green chemistry to the JanSan world. We invite you to visit our website and explore our new product offerings. In closing, we are pleased that the transformation of our Chemistry Technologies business is taking hold, and we're improving the efficiency of the business as we meet the new needs of our customers. Now I'll turn the call over to Mike Borton to discuss our financial results.

Thank you, Ryan. As John mentioned previously, our fourth quarter was generally in line with our expectations despite a difficult market environment in the third quarter. In Q4, we faced challenges of global demand and industry pressures impacting both segments. Still, our loss is generally less than last year as we manage our business more efficiently and focus on new ways to create, diversify, and build profitable revenue streams. First of all, I'd like to address the fourth quarter impairment in the Chemistry Technology segment. We reported a loss of $9.4 million for the amended agreement due to adjustments in the company's expected usage. The purchase is related to a take-or-pay contract as part of our contract with the chemical company. The earnings per share impact associated with these entries is a loss of $0.16 per diluted share on a total loss of $0.30 per diluted share. Now let's go through the income statement in more detail. During the fourth quarter, consolidated revenue was $12.1 million, down 5% from $12.7 million in the third quarter and below the $19.5 million of revenue from the same period last year. The decline in revenue was primarily driven by the volatility of the macro environment for U.S. onshore loan and completion activity, impacted by political and economic events in foreign markets as well as product mix in the Chemical Technologies segment. By segment, we saw a 10% decline in revenue supply chain in the Chemistry Technology segment, which was $10.8 million compared to last year's revenue of $19.5 million in the fourth quarter. The decline was largely due to typical fourth quarter seasonality and lower activity levels year-over-year due to ongoing marketplace challenges. The data analytics segment saw a 91.8% increase in sales sequentially, driven by increased new sales in North America. Consolidated operating expenses were $24.3 million in the fourth quarter of 2020, a 17.4% decline sequentially and decreased 42.6% from last year's level of $42.4 million in the fourth quarter. Corporate general and administrative expenses declined $5.2 million to $3.7 million versus $9 million in the fourth quarter last year due to reductions in overall completion, compensation spending, and lower discretionary spending, partially offset by one-time severance charges. Our depreciation and amortization expenses declined $1.8 million to approximately $235,000 in the fourth quarter versus $2 million last year. Research and development costs were $1.5 million in the fourth quarter, generally in line with the third quarter and down from $2.2 million last year. We reported a loss from continuing operations of $17.7 million or a loss of $0.30 per diluted share in the fourth quarter of 2020, compared to a loss of $36.9 million or $0.64 loss per diluted share last year. Our adjusted EBITDA for the fourth quarter was a loss of $6.8 million, which is not only better than last year's fourth quarter loss of $8.5 million. The improvement in adjusted EBITDA is primarily due to lower operating expenses driven by headcount adjustments. As we look into 2021, our goal is to maximize cost efficiencies, grow our top line, and secure the necessary working capital to execute our growth strategy. In doing so, we intend to pursue opportunities to grow our energy-focused products and services internationally, increase domestic market share as the energy market recovers in the latter half of 2021 and expand our green chemistry and ESG-related product offerings. Now let's move on to balance sheet performance. Our cash position remains healthy. We are focused on preserving our liquidity. At the end of the fourth quarter, we had cash equivalents of $38.7 million versus $49.2 million in the third quarter. Several key factors impacted this decline in cash position: operating losses, a $2.5 million earn-out provision related to the acquisition of JP3, capital improvements related to our packaging and bottling equipment for our Chemistry Technology segment, as well as other expenditures. The company had a combined $5.7 million of loans outstanding pursuant to the Paycheck Protection Program related to the CARES Act. Last quarter, we highlighted that one of our priorities was to better manage our inventory position and reduce our fees by 35%. We have taken a small further reduction in this quarter and continue to expect that SKU reduction will result in annual savings between $1.1 million and $1.3 million. At this point, I will pass the call back to John for his final remarks.

Thank you, Mike. Around this time last year, I shared with you that I would only take the bonus in 2020 if the company achieved breakeven or better. We did not. While I certainly could not have fathomed the events that would lie ahead when I made that commitment, it did not change our ambitions or goals. As a result, I declined a bonus in keeping with my promise. Make no mistake; while we didn't achieve the outcome we set our sights on in 2020, I'm very pleased with our accomplishments and the year-over-year improvement in adjusted EBITDA despite lower revenue levels. I'm very grateful to have the support of our Board, our management team, and our employees, and particularly the Board who recognized my leadership and our achievements in the face of the most challenging circumstances I've ever experienced in my career. On January 6, I celebrated my one-year anniversary with Flotek. While I'm typically optimistic, I will admit that there were times my optimism wavered, but it was fleeting because no sooner did a challenge arise than an opportunity presented itself. I cannot tell you how grateful I am for our customers who have entrusted us to support them through this unprecedented year, as well as my deep appreciation for the support I received from our shareholders, many of whom have opened doors and resources for us as we've begun our business transformation. It is our employees who inspire me daily with their courage, ingenuity, and skill. Most importantly, I will always cherish the calls and emails of encouragement that came in at just the right moment. Thank you all. With that, I'd like to open it up for questions.

Our first question today will come from Daniel Burke with Johnson Rice.

Let's see. John, maybe start with a kind of open-ended one here. And I think you all sort of addressed it. But how are you thinking about cash burn rate in 2021 and ways to mitigate it? And maybe if you can reach that crossover point to just sort of positive cash generation as the year advances?

It's a great question, and liquidity is probably at the front of mind for all of us here in the company. So talking with Mike, one thing to look at from last year is what are the nonrecurring expenses that occurred? If you tally that up, it's going to be in the $28 million to $30 million range of things that we believe won't recur this year. Subtracting that from the approximate $60 million that we spent means that we anticipate spending about somewhere around $30 million this year as well if we have a similar year to last year. We have sufficient cash to make it through 2021. Considering this is a recovery year, it's a little hard to anticipate exactly when the market is going to pick up. But we think that we won't have any unusual cash expenses in 2021. We have several initiatives underway to actually reduce the $30 million we spent additional this year by being tighter on some of the spend we have on supply chain, et cetera. So I anticipate getting out of the year in good shape. We have more than sufficient cash to meet all of our obligations this year.

Okay. And maybe just to stay on the topic of cash. Regarding terpene, you all took a charge in Q4. I think your commitment to purchase terpene increases in '21 versus '20. Can you reassure us that, I guess, after this Q4 charge, you're appropriately reserved for the level of terpene sales that are likely to be achieved in 2021?

Yes, I certainly believe we're appropriately reserved. We are working through strategies to reduce the purchases required for terpene going forward, and I'll have to tell you more about that as we go forward. There are some factors that significantly impact that. We've conducted quite a lot of research, and we've made our products more price competitive and better in performance even with the reduction in the use of terpene required to supply those products. This brings our cost of goods down and improves our margins. At the same time, we're seeing very good performance from these chemicals, actually better than the higher-cost terpene from the past. This reduces the demand for terpene. So it’s imperative for us to decrease the amount of terpene we purchase, ensuring we are not acquiring excess supply, and we're working on a solution for that problem.

Okay. I'll ask a couple more. Maybe one on the JP3 side. I know this has been a transitional period for JP3 as you sort of refashion the sales model. But the business in '18/'19 was running at a $3 million to $4 million quarterly revenue run rate. Can you give us any thoughts on the viability of getting back to that level of revenue as you look to maybe the second half of '21?

I'm pretty excited about it. Probably the best answer will come from Koid. Koid, if you could jump in.

Thank you, John. Thank you, Daniel. We are working both internationally and domestically. On the international front, I think there is significant potential driving growth as we work on that. Domestically, we are also seeing a pickup. Last week, for the first time in a year, I visited a customer's office. In the past, meetings were virtual. Just last week, we were at one of our major customer's locations. This shows a positive inflection as we move forward throughout this year.

There’s an additional noteworthy observation. We had breakfast with a major oil company, and during the conversation, I learned that this was the second in-person meeting they had in 13 months. This highlights the difficulties the company and the entire sector have encountered in increasing sales. With JP3, we are starting to see people holding meetings again. Koid has been traveling, and I’ve received my vaccination. We are making efforts to get our teams vaccinated so that we can meet with customers as they start reopening their offices.

I agree that it will be good to get back to normal. Okay. Maybe just a final one. Just going through the 10-K, I noticed a few instances of material weaknesses identified. Can you maybe address what's going on there and how you'll address those?

I appreciate that, Daniel. Yes, there are material weaknesses noted, and a lot of it has to do with internal controls. I inherited those controls and have undertaken initiatives to improve our ability to implement meaningful controls. We changed directors and the Audit Committee chair. This year, we intend to bring the internal audit function in-house to provide greater oversight. All identified material weaknesses are things we can remediate immediately and test for completion within 2021. In some cases, it's frustrating because we have controls that would provide necessary oversight, but we need specific controls that meet current requirements. We are reviewing our controls to ensure we have the specific controls needed.

Our next question is coming from Poe Fratt with NOBLE Capital Markets.

Actually, it's a question on the professional chemistry side. When you look at the initiatives that you have, I guess I'm most interested in the product launch with Protekol. Can you sort of quantify the timing and revenue potential of that new product line?

I'll take a stab at it. Ryan's here with me. We do have a full-time consultant, Matt Laszlo, who came over from Clorox. He would say that we’ve done an outstanding job building revenue in the professional chemistry lines. We're prepared to launch, having secured the necessary regulatory approvals. However, we saved the final piece—establishing the sales force—for last. Ryan has been pursuing sales talent, but it’s been challenging due to existing industry dynamics. We have multiple candidates and are poised for growth.

I agree; it’s an important part of our business that we’re excited about. We are strong in our FDA and EPA regulatory functions, and we're seeing the evolution of product sales and diversification of our customer channels. The initial customers, seen as triage solutions, now become repeat customers.

One of the challenges we face is verification of inventory for contracts. We must prove we have products in stock before shipping. This need for verification complicates our operations, but we are avoiding the pitfalls faced by others who made promises they couldn't keep.

Great. And then, Mike, you mentioned that you had two PPP loans outstanding. One at the acquired company and one at Corporate. Can you highlight your process on applying for loan forgiveness within the CARES program? Has that happened? Is there an expectation of when you might get a decision on that?

We are currently filling out the forms to apply for forgiveness. It's likely we will submit this in the next month to the SBA.

Our next question will come from Eric Swergold with Firestorm Capital.

I've got two questions. The first one is for Mike. Could you reiterate for me what the total NOLs are as of year-end? And then for TengBeng, obviously, you didn't sit on your hands, even though you weren't able to travel. Can you talk a little bit about what your prospect looks like now for the data business versus what it looked like nine months ago?

We have roughly about $95 million of NOLs. About half of those are under the old loss carryforward methodology, with half deferring and expiring around 2032 to 2035.

Domestically and in Canada, we see repeat customers coming back in Q4 as well as this quarter. Internationally, we have been doing business development efforts in Asia, Southeast Asia, India, and across the Middle East. Many discussions have led to several proposals, which gives us optimism moving forward.

Our next question comes from John Bair with Ascend Wealth Advisors.

A couple of questions. As you try to transition or embark upon developing greener chemistry alternatives for well stimulation and so forth, can you kind of give us an idea of what the timeline is from sort of engaging a prospective client to them trying the product and testing it?

That's a great question. The company was founded on green chemistry. Customers are prioritizing clean air and clean water initiatives. We have product lines available now. We need to aggressively market these to customers. Many now have clean air and water funds, enabling them to subsidize costs for these technologies to drive interest.

So are those efforts involving both the green chemistry as well as monitoring and sensors? Is this kind of a package deal?

Yes. We're not as bundled and productized as we should be. We have work to do on marketing those bundled solutions to clients. Addressing ESG requirements is now crucial in our discussions with customers, and it’s part of their compensation structures.

And shifting gears, you mentioned that you're running a single 8-hour shift, so there is capacity to expand if demand dictates. Now that you have these FDA certifications, are you seeing any meaningful uptick in inquiries or sales that might necessitate adding another shift?

I wish we were discussing adding another shift. We see order spikes and some overtime needed to meet demands; however, we do not require a second shift right now. When we start adding shifts, that will indicate growing momentum in the market.

This concludes our question-and-answer session. I'd like to turn the call back over to John Gibson for any closing remarks.

Thank you for joining the call. We appreciate the support of our shareholders and have had some loyal customers through this. I want to acknowledge the dedication of our employees who navigated a tough year. There were challenges, but we emerged resilient, and I look forward to conversing with you at the end of Q1. Take care.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.