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C&J Energy Services (NYSE:CJES)

Q4 2013 Earnings Call

February 13, 2014 10:00 am ET

Executives

Lisa Elliott - Principal

Joshua E. Comstock - Founder, Chairman and Chief Executive Officer

Randall C. McMullen - President, Chief Financial Officer, Treasurer and Director

Donald Jeffrey Gawick - Chief Executive Officer and President

Analysts

John M. Daniel - Simmons & Company International, Research Division

Robin E. Shoemaker - Citigroup Inc, Research Division

Michael Cerasoli - Goldman Sachs Group Inc., Research Division

Byron K. Pope - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Michael R. Marino - Stephens Inc., Research Division

Brad Handler - Jefferies LLC, Research Division

Brandon Burke Dobell - William Blair & Company L.L.C., Research Division

Marc G. Bianchi - Cowen and Company, LLC, Research Division

Robert J. MacKenzie - Iberia Capital Partners, Research Division

Michael K. LaMotte - Guggenheim Securities, LLC, Research Division

Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the C&J Energy Services Fourth Quarter Earnings Conference Call. [Operator Instructions] This conference is being recorded today, Thursday, February 13, 2014.

I would now like to turn the conference over to our host, Ms. Lisa Elliott with Dennard Lascar Associates. Please go ahead, ma'am.

Lisa Elliott

Thank you, operator, and good morning, everyone. We're pleased to have you joining us on this conference call to discuss C&J Energy's fourth quarter results for 2013.

Before we get started, I would like to direct your attention to the forward-looking statements disclaimer contained in the news release that C&J put out yesterday afternoon, a copy of which is available on the company's website at www.cjenergy.com.

In summary, the cautionary note states that information provided in the news release and on this conference call speaks to the company's expectations or predictions of the future, including projections, assumptions and guidance, that are considered forward-looking statements intended to be covered by the Safe Harbor provision under the Federal Securities law.

Although these forward-looking statements reflect management's current views and assumptions regarding future events, future business conditions and outlook based on current available information, these forward-looking statements are subject to certain risks and uncertainties, some of which are beyond the company's control, that could impact the company's operations and financial results and cause C&J's actual results to differ materially from those expressed or implied by these statements.

I refer you to C&J's disclosure regarding risk factors and forward-looking statements in its SEC filings for a discussion of known material factors that could cause actual results to differ materially from those in the forward-looking statements. Please note that the company undertakes no obligation to publicly update or revise any forward-looking statements, and as such these statements speak only as of the date they were made.

A replay of today's call will be available and accessible via webcast by going to the IR section of C&J's website and also by telephone replay. You can find the replay information for both in yesterday's news release. And as a reminder, information reported on this call speaks only as of today, February 13, 2014, so any time-sensitive information may no longer be accurate at the time of replay.

Now I'd like to turn the call over to Josh Comstock, C&J's CEO and Chairman.

Joshua E. Comstock

Thank you, Lisa. Good morning, everyone. We appreciate you joining us for our fourth quarter and year-end 2013 earnings conference call. With me today are Randy McMullen, our President and Chief Financial Officer; and Don Gawick, our Chief Operating Officer. I will briefly touch on our fourth quarter results, then highlight our achievements for 2013. Following my comments, Randy will discuss the fourth quarter in detail.

Revenue growth for the fourth quarter was driven by strong operating performance across our core service lines. We produced these results with reduced activity in December as a result of holiday- and weather-related downtime. We took advantage of the downtime in our hydraulic fracturing operations to ensure our equipment was in prime mechanical condition and our crews were sufficiently sized for the heavy volume of work scheduled and now completed in January.

Entering 2014, utilization across all of our service lines increased and most dramatically in our hydraulic fracturing business. Based on the progress we made expanding our operations in 2013, which I'll discuss more in a moment, we believe we can deliver a 15% to 20% revenue growth in 2014, as we add equipment over the course of the year, barring any unforeseen negative changes in current conditions.

Looking back at 2013, last year at this time, I shared my belief that 2013 would be a year of transformation for C&J. At each quarter, we provided high-level updates on several strategic initiatives designed to strengthen, expand and diversify our business. The initial results of our investment show our strategy is working, and I'm proud to share our successes with you today.

For a while now, we have made a concerted effort towards expanding in the Middle East. And in yesterday's earnings release, we announced the recent progress we have made in this regard. Acting through our local partner, we were awarded a mid-form coiled tubing contract with the National Oil Company in Saudi Arabia. The initial scale for the work requires 1 coiled tubing unit and associated pumping equipment. And currently, operations are scheduled to begin during the second quarter of 2014.

Given that this is the first project and there will be additional costs associated with establishing operations overseas, we are not expecting this initial phase to be a contributor to our earnings in the near term. However, the Kingdom of Saudi Arabia is a country with huge potential for C&J, and we are confident that our efforts can result in significant earnings over time. This is a valuable opportunity to introduce our best-in-class efficiency and superior execution to the region. We believe that providing the highest level of customer service will lead to a long-term relationship and additional revenue opportunities across multiple services with this key customer.

The Middle East is an attractive, high-priority market for C&J. This first opportunity represents a meaningful step in our endeavor to become a significant, long-term provider of multiple services throughout the region.

During 2013, we worked diligently to provide -- to prove our technical qualifications to potential customers. And we obtained prequalification to formally bid on tenders with multiple national oil companies. We opened our first international office in Dubai and signed key partners as we established a presence in targeted countries.

As a result of our efforts, we now have a signed contract and are now well positioned to capitalize on the opportunity to demonstrate our capabilities outside of the U.S. and accelerate our Middle East expansion.

In addition to our efforts in the Middle East, we are also exploiting compelling prospects in Mexico. And recently, we participated in certain work bids for our core services. We intend to continue to assess potential expansion opportunities presented by Mexico's constitutional reform and are encouraged by what we are seeing in that region.

On the domestic front, over the course of last year, we increased our geographic footprint and grew our core businesses in line with customer demand, and we accomplished this in the face of a declining market. We believe that our commitment to providing superior customer service, execution and efficiency are the key drivers of the market share growth we achieved in each service line.

As we focus on improving utilization and increasing revenue across our operations, we will continue to target high-volume, high-efficiency customers with service-intensive 24-hour work, which is where we better differentiate our services from our competitors.

Reviewing our hydraulic pressuring operations over the year, we successfully deployed an additional 64,000 hydraulic horsepower while managing our transition into the spot market with the expiration of all but one of our legacy take-or-pay contracts. Our remaining contract is scheduled to expire at the end of February, and we are providing services for this customer at reduced rates more consistent with market pricing.

Our 2013 financial results were negatively impacted by our increased exposure to a highly competitive spot market. However, we successfully expanded our business and maintained profitability by adapting our strategy to address the challenges of the current operating environment. In addition to expanding our customer base through increased sales and marketing efforts, we extended our geographic reach into the Mid-Continent with the deployment of 32,000 hydraulic horsepower in Oklahoma early in the fourth quarter. With the exception of the seasonal slowdown in December, we generated solid activity levels in the fourth quarter, with utilization increasing across our asset base as we entered 2014. We will deploy an additional 20,000 horsepower in early April as we push to further improve utilization.

In coiled tubing, in 2013, we grew our asset base by approximately 33% by adding 6 new coiled tubing units and associated ancillary equipment. Our investments in this business were in line with the continued broadening of our customer base and geographic footprint. A key driver of this growth was the addition of longer-reach, larger-diameter coiled tubing units during the second half of the year. Demand for these units remained strong across our operating areas. Accordingly, in late December, we purchased from a competitor 3 additional high-capacity coiled tubing units and ancillary equipment, which are in like-new condition. And as of yesterday, some of this equipment is already working for our customer, and we expect to deploy the remaining units in the first quarter. The experience and reputation of our coiled tubing business provides a solid position from which to capitalize on expansion opportunities, both domestically and internationally. As I mentioned earlier, we are using our coiled tubing business to introduce our services into the Middle East.

In wireline, over the first 3 quarters of 2013, our operations consistently generated record revenue in EBITDA growth quarter-over-quarter. Since acquiring Casedhole Solutions in June 2012, we have grown this business from a 2012 annual EBITDA of approximately $65 million to a 2013 annual EBITDA of approximately $82 million. These results were achieved by the successful expansion of our wireline and pumpdown capabilities, and we deployed 6 new wireline units and 14 pumpdown units with higher activity rates than in 2013.

We also successfully leveraged the broader customer base and graphic reach of this division to expand our other service lines. During 2013, we added coiled tubing services to our existing wireline operations in the Marcellus shale, and strengthened our coiled tubing, wireline and pressure pumping presence in the Eagle Ford, Bakken and Permian Basin.

Focusing on our growth strategy throughout 2013, we also made significant investments in a number of strategic projects aligned to further develop our vertical integration, service line diversification and technological advancement initiatives. We drove vertical integration and diversification through the acquisition of 2 private companies that complement and enhance our existing service lines.

In April, we acquired a provider of directional drilling technology and related downhole tools. We are preparing to test drilling motors in West Texas, and we are in the early stages of development with additional related products. In December, we acquired a manufacturer of instruments to monitor pressure control, which will enable us to better manage that acquisition by our hydraulic pressuring equipment. We expect that this acquisition will generate significant cost savings to us, and it also provides us with the technical means to design state-of-the-art proprietary frac controls to increase completion efficiencies and better serve our customers. Although these acquisitions led to increased capital expenditures and additional cost, including SG&A and R&D expense, we expect to realize significant returns on these investments over the long term.

We organically built a specialty chemicals business with the long-term goal of becoming a supplier of these products to the oil and gas industry during 2013. We put in place the infrastructure to service our major operating areas and support the growth of this business, including a network of facilities and strong operational and sales teams across Texas, Louisiana, Oklahoma and New Mexico. This business provides meaningful cost savings to our existing operations and is also building a solid book of third-party customers.

In keeping with our focus on innovation, we invested in a new research and technology center which opened in Houston in November 2013. This state-of-the-art facility enables us to further expand our product and service offerings while reducing costs for our core services and increasing completion efficiencies. We have a team of engineers and support staff focused on developing innovative fit-for-purpose solutions that enhance our current services and add value for our customers. We expect to roll out several new products over the course of 2014. We will continue to make further investments to enhance our technological capabilities, which we believe will provide us with a significant advantage over our competitors and allow us to continue to widen the gap between our efficiency levels and that of our peers, which has been a key driver to our success.

Lastly, and most importantly, during the year, we invested in the human capital needed to maximize our expanding asset base, support our strategic initiatives and position ourselves for future growth. While many of our competitors have scaled back in response to the depressed market, we increased our overall headcount by approximately 33% throughout the year, attracting some of the finest talent in the industry. In addition to strengthening our operational and technical teams, as I mentioned earlier, we also invested in the key infrastructure needed to support the growth of our business and expand our sales and marketing, QHSE, HR, legal, finance, and accounting divisions. We know that our assets alone mean little without the underlying value of a talented workforce, all of whom share the same vision for our company.

All in all, I'm very proud of what we accomplished in 2013. We made outstanding progress in our key initiatives, continued to grow our core service lines and maintained solid profitability in spite of a declining market. While there was pressure on our financial results, the strength of our overall performance provided us with a solid foundation for growth in 2013 and beyond. And based on the progress we've made, we are better positioned for the future. I am excited about the opportunities that lie ahead as we continue to focus on building a stronger, more successful company and delivering differentiated value to our customers and our shareholders.

I'll now turn the call over to Randy to run through the fourth quarter operating and financial results.

Randall C. McMullen

Thanks, Josh. Good morning, everyone. During the fourth quarter of 2013, we generated net income of $7.3 million, or $0.13 of earnings per share, on revenue of $265.4 million. Fourth quarter adjusted EBITDA declined 14.9% quarter-over-quarter to $36.5 million.

Net income for the fourth quarter of 2013 was impacted by an abnormally high tax rate for the quarter, due to the timing and deductibility of certain expenses, as well as other year-end true-ups. The effect of these items, combined with the decrease in income in the fourth quarter, resulted in an effective tax rate of 46.9% for the fourth quarter.

Total revenue for the fourth increased sequentially from $261.9 million as a result of solid activity levels in our hydraulic fracturing operations during October and November, and a strong performance by our coiled tubing operations.

Fourth quarter net income and adjusted EBITDA, however, were negatively impacted by increased costs associated with our ongoing strategic growth initiatives, coupled with lower pricing for our hydraulic fracturing services, as well as the seasonal activity disruptions that we experienced at each of our service lines in December.

As Josh mentioned, and we have previously discussed, during 2013, we transitioned to lower-priced spot market work as all but 1 of our legacy take-or-pay hydraulic pressuring contracts rolled off. Our remaining contract is scheduled to expire at the end of February, although we are providing services to this customer at reduced rates more consistent with spot market pricing. This greater spot market exposure also affected our job mix and utilization levels throughout the year. In spite of the challenging market conditions, we grew this business and added horsepower in line with the increasing customer base and geographic reach. We believe we have successfully managed the transition and adjusted to our new operating environment, and 2014 is off to a good start.

Continuing with our hydraulic fracturing operations. Fourth quarter revenue from this service line of $147.2 million represented a 2% sequential increase and accounted for approximately 55% of our overall fourth quarter revenue. Quarter-over-quarter, revenue increased due to higher utilization in the first 2 months of the fourth quarter, although the number of stages performed declined 5% as a result of a job mix that was weighted towards larger stages.

During the fourth quarter, we added new customers, and aside from some seasonal downtime in late December, increased utilization while maintaining our operating strategy of delivering exceptional customer service, superior execution and best-in-class efficiency. In response to the increase in demand from new and existing customers that we experienced early in the fourth quarter, and believing that utilization would continue to improve entering the new year, we committed to add 20,000 hydraulic horsepower during the first part of 2014. In preparation for a heavy volume of fracturing work scheduled for January, we took advantage of our customers' pause in activity around the holidays to ensure our equipment was in prime mechanical condition and our crews were adequately sized to meet the demand.

Entering 2014, we are pleased with current activity levels across our hydraulic fracturing equipment, although we have not seen an increase in pricing. At this time, our strategy for improving profitability for this service line is focused on driving top line growth through high utilization, recognizing that our margins may vary based on the job mix. This strategy includes continuing to target customers who focus on horizontal drilling efficiency, service-intensive 24-hour operations and multi-well pad drilling. We have the experience and resources to capitalize on these trends, and we believe we are well positioned to benefit from the overall strengthening in demand.

Shifting to our coiled tubing operations. Revenue increased 9% quarter-over-quarter to $37.4 million, contributing approximately 14% of our fourth quarter revenue. We performed 8% more jobs, and our coiled tubing revenue improved due to high activity levels throughout the fourth quarter. During the fourth quarter, we introduced our coiled tubing service in the Marcellus Shale, and expanded our presence in the Permian and Bakken, capitalizing on the strong presence of our wireline operations. Our coiled tubing business, like our wireline business, is now operating in all of the major U.S onshore basins.

Wireline operations contributed $74.1 million of revenue during the fourth quarter, making up approximately 28% of our revenue. We have rapidly grown this businesses, which includes pumpdown services, since acquiring it in June 2012.

Over 2013, we produced 3 consecutive quarters of record revenue and EBITDA growth, and added 6 new wireline units and 14 pumpdown pumps. During the fourth quarter revenue -- during the fourth quarter, revenue decreased due to seasonal activity reductions during the holidays, along with severe weather in many of our operating areas. Although the winter weather has continued to cause some disruption, we have seen improved utilization entering 2014. We are adding 2 additional wireline units and 4 more pumpdown units during the first quarter, and we will continue to add capacity as we increase our market share due to the expansion of our customer base and geographic reach.

Our manufacturing business generated $2.2 million of third-party revenue during the fourth quarter compared to $3.1 million in the third quarter. We strategically utilize our manufacturing capabilities to minimize the cost of new equipment, as well as equipment repair, refurbishment and replacement of parts.

In less than 3 years, this business has more than and paid for itself. We acquired Total Equipment in April 2011 for a net purchase price of $27.2 million. And as of December 31, 2013, we have realized approximately $37.3 million of cash flow savings. Through this division, we are also able to integrate key innovations from our research and technology division to continually enhance equipment used by our core service lines.

Fourth quarter gross margin decreased to approximately 28.7%, representing a decline of about 153 basis points from the third quarter, due to lower margins experienced by our stimulation services segment.

Looking specifically at gross margin from our hydraulic fracturing operations, as mentioned earlier, our spot market exposure steadily increased over the year, which impacted pricing and utilization for our services and led to a more varied job mix. Although revenue increased quarter-over-quarter due to higher activity levels in October and November, margins declined due to lower utilization in December.

Margins were also impacted by the full quarter impact of the loss of a highly active customer that significantly reduced its onshore activity midway through the third quarter and as a result no longer needed our services. Although we were able to redeploy this fleet with limited downtime, the economics have not been as beneficial. Based on current visibility for the first quarter, and given the current job mix, we expect gross margins to stay at or near the fourth quarter levels.

Before moving to SG&A, I wanted to point out that as noted in yesterday's release, we have decided to include a new line item on the P&L for research and development expense. This line item reflects costs related to our ongoing research and technology initiatives that were previously classified as SG&A. We think this detail will be meaningful to identifying C&J's commitment to technological advancement.

SG&A cost increased 7% quarter-over-quarter to $37 million compared to $34.6 million in the third quarter of 2013, and $35.6 million in the fourth quarter of 2012. SG&A for our core service lines and corporate segment increased for the fourth quarter, generally in line with previous quarters, due to costs associated with the growth of our business.

We also incurred $2.8 million in research and development expenses for the fourth quarter of 2013 compared to $1.8 million in the third quarter of 2013.

As discussed in prior quarters, our expenses steadily increased over 2013, primarily due to added costs to support our strategic growth initiatives. Inclusive of both SG&A and R&D expenses, these initiatives contributed $7 million of additional cost for the fourth quarter of 2013, and $16.7 million of additional cost for the year ended December 31, 2013.

As we execute our long-term growth strategy and advance on our strategic initiatives, we anticipate that these costs will continue to increase over 2014.

All in, we anticipate that our SG&A and R&D for the first quarter of 2014 will increase 6.5% from the fourth quarter of 2013 and continue to increase, albeit at a lower rate, for the remainder of the year. Even though the capital investments and costs associated with our strategic growth initiatives have impacted margins and are not expected to generate substantial cost savings or revenue in 2014, we are maintaining a long-term perspective.

We believe these investments will increase our ability to generate higher returns and drive shareholder value over the long term.

Our adjusted EBITDA decreased to $36.5 million from $42.9 million in the third quarter of 2013, and adjusted EBITDA margin was 14% in the fourth quarter versus 16% in the third quarter. These decreases resulted from the previously mentioned costs associated with our strategic initiatives, as well as market factors impacting our stimulation services segment. Let me say again, we believe that over the long term, our strategic initiatives will contribute to our growth and profitability, but for now the ongoing costs are impacting our results.

Now let's move on to the balance sheet. At the end of the fourth quarter, we had a cash balance of approximately $14 million, $150 million in borrowings under our credit facility, and $14 million in long-term capital lease obligations. We currently have $175 million outstanding on our credit facility.

After steadily paying down debt for the last 1.5 years, we drew down on our revolver because we saw compelling opportunities to reinvest in our company. Specifically, the rising debt is associated with an increase in our working capital, capital expenditures associated with our core service lines and the acquisitions of a data control equipment manufacturer and additional coiled tubing equipment from a competitor.

Capital lease obligations increased during the quarter as we moved into our new research and technology facility and incurred a $13.5 million capital lease obligation in connection with the commencement of the lease.

Moving on to our cash flow statement. We generated $18 million of cash from operations during the fourth quarter and $187 million for the full year of 2013. The operating and financial results achieved in 2013 provided the resources for us to invest heavily in the future. Our free cash flow and strong balance sheet allows us to be flexible with our approach to organic growth and acquisition opportunities.

Capital expenditures sequentially increased 75% to $50 million during the fourth quarter of 2013, and depreciation and amortization expense increased 9% quarter-over-quarter to $21 million. For the full year, capital expenditures totaled $158 million and depreciation and amortization expense was $75 million. Our primary use of CapEx during 2014 was for the growth of our core service lines, including manufacturing and maintenance costs for our equipment. D&A expense also increased throughout the year, in line with our capital expenditures.

Our 2014 capital expenditures are expected to range from $200 million to $220 million, the majority of which will be split evenly across our 3 primary service lines, with the remaining $25 million to $35 million for our other businesses and strategic initiatives. It is important to note that if we see any indication of a pullback in demand, we have the flexibility to immediately cease manufacturing and use the components with our existing equipment.

Corresponding with our increase in capital spend, D&A expense is expected to continue to increase. We expect this trend to result in depreciation and amortization expense of $23 million for the first quarter.

Finally, and as I mentioned earlier, our effective tax rate for the fourth quarter came in higher than anticipated, at 46.9%. As we go forward into 2014, we are expecting the first quarter effective tax rate to be approximately 40% due to higher permanent items in proportion to projected income for the year.

At this point, I will turn the call back to Josh for closing remarks.

Joshua E. Comstock

Thanks, Randy. As I mentioned at the beginning of the call, we have been working tirelessly to fundamentally transform C&J from a small pure-play pressure pumping company to what is becoming a diversified and larger-scale global provider of technologically advanced services to the oil and gas industry. We know we are not there yet, but that's where we are headed. We have laid a strong foundation for future growth. As a result of the investments we made in 2013, we believe we are entering 2014 well positioned to capitalize on any future uptick in the industry and continue to grow market share. We are poised to execute on our new opportunities, capitalize on our initiatives and continue to build on this solid foundation.

From an operational perspective, our strategy is clear, and we will continue to focus on increasing utilization and delivering differentiated value to our customers. C&J is in a unique position within our industry with a determined and focused path for continued success. As we progress through the year and beyond, the differentiation and competitive advantage driven by that uniqueness will become even more evident to our customers, our employees, our shareholders and our peers. I'm confident that we will transform C&J into what will be the benchmark for oil and gas service companies, not a bookmark.

In closing, I want to thank and congratulate our employees for their tireless work to achieve our goals over the past year as we continue to build on the foundation laid by our past accomplishments. The company's success is a direct result of their dedication to excellence.

Thanks for joining us today. And we'll open up for calls now, all right?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of John Daniel with Simmons & Company.

John M. Daniel - Simmons & Company International, Research Division

Josh, want to start with just the top line guidance. Although it wasn't formal, you mentioned that objective to grow revenue I think 15% to 20% in '14. Can you -- under that framework, can you just walk us through how much of that will come from the new initiatives, basically the 20,000 horsepower -- the new [indiscernible] coiled tubing that's in Saudi [ph] versus what would come from the existing asset base?

Joshua E. Comstock

That -- under that framework, that was specifically around the core service lines, not taking into account the international operations.

John M. Daniel - Simmons & Company International, Research Division

Okay. Does it take into account the incremental assets you're adding? I presume it would.

Joshua E. Comstock

It does take into account the new core business assets we're adding to the existing operations here in the U.S., which is the additional wireline coil and frac.

John M. Daniel - Simmons & Company International, Research Division

Okay. And then one for you, Randy. Just bigger-picture question on the various strategic initiatives. I understand why they're being made, and we obviously hope and I'm sure they'll be valuable long term, but as we look at it from a modeling perspective and knowing that there's going to be some front-end costs, given the guidance of flat gross margins in Q1, the higher top line revenues, can you help us with -- on the operating margin side. Do you expect that to trend higher in the early part of the year, back half of the year? Just directionally help us out that there.

Randall C. McMullen

Well, as mentioned, we gave some general guidance around SG&A, and as well as D&A for the first quarter. As it relates to SG&A, we don't expect the rate of increase to continue throughout the remainder of the year at the rate that we indicated for the first quarter. It will continue to move up slightly. But as we move throughout the year, we will be able to increase the operating margin with the growth of the top line.

John M. Daniel - Simmons & Company International, Research Division

Okay. Got it. And then one housekeeping, and I'll turn it over to the other guys. Normally, someone will ask, I'll do it, the EBITDA by the segments?

Randall C. McMullen

Yes, for Q4 stimulation well intervention, it's 16.2%; wireline, 29%; and equipment and manufacturing, 11.1%.

Operator

Our next question comes from the line of Robin Shoemaker with Citi.

Robin E. Shoemaker - Citigroup Inc, Research Division

I wanted to ask if you could give us an update now on where you are with the portion of your frac-ing fleet that's 24 hour and the prospects for moving more of your fleets to 24 hour?

Joshua E. Comstock

Robin, all of our fleets, except for one, is 24 hours. That one is not 24 hours because it is a vertical fleet, requested by the customer to be -- not be 24 hours, but it has the capability to be 24 hours. In January, the majority of everything we're doing is 24-hour work.

Robin E. Shoemaker - Citigroup Inc, Research Division

Okay. So in terms of like asset utilization of your fleet, I mean, you're pretty much kind of maximum right now, would that be fair to say?

Joshua E. Comstock

Well, it's all in how you measure utilization, right, so folks are typically measuring utilization by days. And so you can measure utilization by days. You can measure it by stages. The average is probably by days. And so then you get into when you look at it from a stage perspective, you get into effective utilization, and that's where you see a wide gap and a differentiation between us and our peers when it comes to the revenue for horsepower and what we generate. And the fact that we do work 24 hours, you're right in one respect, our utilization is extremely high. However, the things that we are doing to increase our efficiency will allow us to increase our stages per day and then targeting the right customers, which is another thing that we have done very well and our sales and marketing team has done, which is getting those customers with pad drilling, with zipper fracs, wells right next to each other where you're doing less moving and more pumping, and spending more of your time pumping, you can get more stages in a day. So, I mean, you can have the same utilization and you can have a month with the same equipment, same horsepower, same people working 24 hours. Depending on the job mix, you can have a $40 million revenue month and you can have a $70 million revenue month. And we strive to go for those $70 million revenue months. And so there's room there to tick up. And that's the goal. And the more efficient that we become around our stages, not only with our frac equipment and our wireline, and that's -- our initiatives around R&D are driven around the efficiency model that we use operationally around our core services, and increasing that efficiency will even make us further, more effective utilized.

Robin E. Shoemaker - Citigroup Inc, Research Division

Okay, thanks for that. My follow-up then is, on this expanded CapEx now, I'm just curious if you could comment on what's the current best option for -- across frac-ing and coiled tubing, et cetera as build versus buy. I noticed that you acquired some coiled tubing units from a competitor. So is the expansion or the investment that you're making this year is going to involve some new equipment? Or is it more attractive to buy from competitors who may want out of the business?

Joshua E. Comstock

Well, what's in the CapEx right now is building organically. Obviously, owning our own manufacturer, we build cheaper than just about anybody. We're able to build our equipment cheaper than just about anybody in the market from a competitive standpoint. So that gives us an advantage to build new versus buy a competitor. That said, consolidation makes sense if you can get the right assets and the right -- at the right price. And if we see those opportunities, we'll take them like we did in the coiled tubing. We found some like-new equipment at pricing that we thought was substantially lower than what we could build it for. And we also knew that we had work waiting for that equipment and demand for it instantly, and so we could put it to work. And that plays into the value, too, right? So if we can put it to work immediately, we're going to buy -- it makes sense to buy it from a competitor if you have a competitor looking to get out of the business, especially around the coiled tubing. In the wireline and in the frac, the organic build seems to work well. A lot of the frac assets that we're seeing in the market that are available are essentially worn out and are not at a price that would justify buying worn-out assets. If you're only getting the asset.

Operator

Our next question comes from the line of Michael Cerasoli with Goldman Sachs.

Michael Cerasoli - Goldman Sachs Group Inc., Research Division

Pretty positive market commentary this morning. Maybe you can give us more color on where you're most excited about activity growth. Obviously, the oil plays, but are there any specific fields you're more positive on? Or is it just broad based? And I'm thinking, obviously, specifically about like the Permian versus Eagle Ford versus, like say, Bakken.

Joshua E. Comstock

I'll direct that one to Don, our COO. He's sitting here. I'll just -- just a brief comment or my opinion on it, as far as domestically, obviously, the Permian is one that we think has a lot of room to go. There's not a lot of pad drilling. There's still a lot of vertical stuff happening, tons of infrastructure out there, tons of rigs, more rigs moving. Looks like a lot of our customers are spending budgets out there. So that's an area that we think we have room. But I'll let Don speak to what we're seeing because we've really geographically expanded into several areas in the past 2 quarters with not only our pressure pumping but our coiled tubing, so.

Donald Jeffrey Gawick

Yes, thanks, Josh. It varies somewhat across the product lines that -- we've got wireline fairly well established across a number of the -- well, all of the basins at this point. And we're quite strong in each of those. But we continue to see the biggest opportunities there in West Texas and as well in South Texas. Interestingly enough, we continue to grow pretty dramatically there on the wireline side. With respect to frac, we've got big opportunities in West Texas. We've recently moved into Oklahoma. We're seeing a big uptick in our opportunities there and the number of customers that we're able to provide services for. So both of those are significant growth areas for us going forward. Coil, interestingly enough, we moved into the Northeast in the Marcellus where there was, quite frankly, significant demand for our services. And we're seeing that tick up dramatically, other than the weather that's hitting us currently early in the year, but we've got customer demand that's extremely strong. North Dakota continues to grow. Oklahoma is very strong for us and is growing rapidly. And we're seeing a big upswing in West Texas as well. So it's pretty broad based, again depending on the product line. But in general, we've got good growth in multiple areas for each of the core businesses.

Joshua E. Comstock

And then I would just add, from a macro perspective, not just changing [ph]. Obviously, we're very positive about what's happening within C&J. Our wireline and coiled tubing has performed phenomenally. We're starting to see those results out of frac from a activity perspective. And the frac has had to suffer through a transitional time from take-or-pay contracts to getting into the spot market and developing the sales force to do that. And we have been able to do that well. But from a macro perspective, we're starting to feel and see other indicators that would just indicate that things are starting to tick n a direction that are more positive for all of us. I mean, you're hearing it on the -- you're it hearing it from some drillers. You're hearing it from some sand companies. We're hearing from some solely based Permian service companies that they're getting pricing increases or starting to push through pricing increases. And you're hearing from small independent E&P companies in the Permian basin that they're starting to see service price increase within the Permian. And so we're not seeing price increases yet. We're not feeling that. But there are starting to be some indicators that would lead you to believe that there's definitely something changing. And in addition to that, you're hearing E&P companies talk about rig additions. So everything we're feeling from the core business lines, I mean, utilization's good. We have more visibility further out in our frac calendar than we've had in 4 quarters, which is -- anything can happen, right? I'll always give the caveat with a volatile market, anything can happen. It could turn the other way tomorrow, but it's -- we felt this momentum. We talked about it in the third quarter. We had it running through the fourth quarter. Obviously, we had seasonality. We've had some really bad weather. But it's definitely, definitely -- we -- there's a lot of momentum gaining. And so that's -- we're extremely positive about that.

Michael Cerasoli - Goldman Sachs Group Inc., Research Division

That's great. All good signs. And then just real quickly. When you talk about the 15% to 20% revenue growth in 2014, how does that look in 1Q? You're adding equipment pretty much immediately. So I imagine there'll be some uplift. But is that like a mid-single-digit number? Or does most of the growth happen in the back half of the year?

Joshua E. Comstock

Well, obviously, we've not been that specific. We're trying to give a little bit of indication of what we're thinking. The -- I'd say that the majority of our revenue comes from frac, and the frac equipment that we're adding is going to be coming April, deploying in April. So that ought to -- the first set of frac equipment, so that ought to give a little bit of an indication of how it's going to trend. But the majority of that, when we say 15% to 20%, we're talking about the whole year. But the majority of that would come second half.

Michael Cerasoli - Goldman Sachs Group Inc., Research Division

Got it. And then just one last final question on capital allocation. It's good to see organic growth picking up, obviously, the opportunities that you have. And you also mentioned some acquisition potential. Does this take away from any plans to maybe buy back stock?

Joshua E. Comstock

No. We've said all along that we were going to invest in the company, look for opportunities. And if those opportunities weren't there, the stock buyback would be the avenue that we would spend -- use for the excess cash. And so I don't think that it takes away from an opportunity to buy back stock. It just may slow that.

Operator

We have a question from the line of Bryan (sic) [Byron] Pope with Tudor, Pickering, Holt & Company.

Byron K. Pope - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

I just wanted to inquire a little further on the notion of flattish gross margins in Q1, in an environment where you had weather disruptions in Q4. And it sounded like you pulled forward some R&M expenses. And so is there an element of job mix that is working against you in Q1? Just would like a little more color there, if you could.

Randall C. McMullen

Byron, you're right -- it's Randy. It is job mix, specifically as it relates to the fracturing business. Obviously, there's been some seasonality with weather on the other 2 service lines. But primarily for frac, we've seen a tremendous amount of sand being pumped on our recent stages. And as you guys are well aware, sand is a pass-through item. So although a strong contributor to revenue, it's a -- it tends to bring down the overall margin percentages, given that it is a low-margin item.

Operator

Our next question comes from the line of Michael Marino with Stephens Inc.

Michael R. Marino - Stephens Inc., Research Division

Guys, I'm trying to get a better feel for kind of margins, and more as we progress through '14. But if you've got 15% to 20% top line expectations, can you get those gross margins back into the mid-30s later this year?

Joshua E. Comstock

Well, the gross margin is going to be driven by the types of jobs that are getting done and what that -- that, and then obviously, cost savings that we can drive through R&D and then if there's any pricing uptick. And we think other than the typical inflationary cost, the normal inflationary cost that you'd see in a direct cost line, that which we think those are fairly controlled, the gross margin will have to come from pricing or job mix. And as Randy said on the last question, one of the things that we are seeing, which we think actually plays really well to our strength, and if the guys that were covering us 2 years ago, 3 years ago when we went public noticed, at a time when we were pumping a lot of cross-linked, high-sand concentration jobs, you had margins, obviously, albeit at a much higher price. But margins on a -- when you have a high-sand concentration job are lower. Although you have a higher revenue for that job, the margins are lower because of the sand and the chemicals, right? You have -- they're just -- those service margins are much higher. So what we've been pumping for the past year or so has been solid, just slickwater jobs with not a high-sand concentration. I can tell you that in the month of January, we pumped more sand than we've ever pumped in the history of the company. And so sand volumes have definitely moved up, and that at current pricing can keep gross margin down. And so if there was a job -- if the job mix stays like it is, in order to get gross margin up, we're going have to lower direct costs through our R&D efforts, which is what we're focused on. And we're going to have to get some pricing increase.

Michael R. Marino - Stephens Inc., Research Division

Do you need price to get to that 15% to 20% top line?

Randall C. McMullen

No, no, no. The top line revenue growth is based -- that I gave right now -- the 15% to 20% is based off the current core business, with the additions of the equipment at current pricing at the current job mix.

Operator

Our next question comes from the line of Brad Handler with Jefferies.

Brad Handler - Jefferies LLC, Research Division

I guess maybe a quick question, although it doesn't feel like -- it might not be such a quick question. But first, your commentary about your successes in penetrating [indiscernible] in wireline and coiled tubing, I guess I'm curious. It sounds like it's more market share gains in your mind versus industry growth. But can you give us some feel for how you think that is in terms of the mix of that growth for you? Is it market share versus...

Joshua E. Comstock

I can be very clear, without trying to be too arrogant. But I mean when you have other competitors shutting down coiled tubing operations -- you had a very large one in the third quarter announce that they were closing down their coiled tubing operations because they couldn't make a profit. We had a large -- we bought this equipment from a big 4 that was shutting down their coiled tubing operations in North America because they couldn't be competitive. We're buying their equipment and putting it immediately to work, because -- we don't even have time to paint it because we have such demand for it. That's market share. We're clearly taking market share. And we are not having problems getting employees. We're not -- I mean, it's market share growth, and we're doing it -- it's not like taking them and putting them in the Eagle Ford and deploying them where we've always worked. I mean, we're going into new regions for C&J other than -- I mean wireline's been there, but I mean, we're -- Pennsylvania, we've never worked in Pennsylvania with coiled tubing. We're working in Pennsylvania. We're -- several areas across Oklahoma. Up in Utica, we did job in Utica, jobs in Utica. We're -- Bakken, those are all areas that before 2013 we didn't have a presence. And we've added coil or purchased coil from competitors. And, I mean, it's -- that is not industry growth. That's market share. And we own a manufacturer who builds coiled tubing units, and he builds for others. And there's not many coiled tubing units being built.

Brad Handler - Jefferies LLC, Research Division

That's very helpful. That's just helpful to hear you say that. Switching gears, a couple of different directions I'm hoping to go, and I'll try to be fast. The first is, I guess, can you flesh out the notion of your strategic initiatives or the cost of your strategic initiatives. If we think about 2015, and I know you're not trying to give guidance for 2015. But is it kind of -- there's a pace, and you're inexorably building, and you're going to be doing this for the next 2 or 3 years? Or do you reach a certain level and then the costs stabilize, say by the end of '14?

Randall C. McMullen

Brad, it's Randy. Yes, our expectation is we are going to have a stabilization in the spending on these because certain of the initiatives are new product line initiatives where we can start to generate revenue to offset a lot of the costs that have gone into the human capital that we've been building and obviously having to expense to the P&L. And then with our R&D initiatives, clearly that takes time to build up the products and get them field tested and out and successfully deployed. As we move through '14 and definitely into '15, we expect to start to see significant savings from several of those initiatives.

Brad Handler - Jefferies LLC, Research Division

Okay. Right. That's -- and that is the other half of the question, of course, is do we start to see -- is it tangible in terms of margin performance, or I guess some top line opportunities too? But we can start -- you expect that '15 starts to deliver more of the fruit of that effort, right?

Randall C. McMullen

That's correct.

Brad Handler - Jefferies LLC, Research Division

Okay. Fair enough. And then, I'm sorry again, I feel like I'm reaching a little bit here. But out of curiosity, maybe a couple of questions about your recent sand comments. Any commentary about whether you're pumping a lot more 100-mesh versus 20/40. That's [indiscernible] it there. It's just -- so in terms of that mix and whether you think that's sustainable and whether that has an impact -- besides just your commentary about the margins, does that have an impact on your equipment or there's some impact on the business of the same [indiscernible]...

Joshua E. Comstock

Everything right now is still -- I mean say everything. The majority of what we pump is white sand. And depending on the customer, that's how the mix is determined. There's not any real one direction over another as far as the size goes. But from our perspective on pricing, it really doesn't start to change our pricing and impact margins until you go from a white sand to a resin coat to a ceramic. The higher the cost of the sand, the more -- the higher percentage of the job ticket a sand is, which is -- then the lower the margin is on that job, right? So if everything was 100% ceramic, your job ticket is going to be -- if it's $2 million, the majority of that ticket may be sand cost because ceramic is so much more expensive than white sand. But we're not seeing ceramic being pumped. I mean, the majority of what we're pumping is white sand. As far as between 100 mesh and 20/40 and 30/50 and 40/70, it's solely dependent on the customer. And it's not very influential at all on our margin or on pricing.

Operator

Our next question comes from the line of Brandon Dobell with William Blair.

Brandon Burke Dobell - William Blair & Company L.L.C., Research Division

I want to touch on your comments about visibility. Looking out, I guess through '14, it sounded like it's better than it's been a while. Was that for frac? Was that all the service lines? Just trying to get a feel for, I guess, some of the assumptions behind that visibility, or why you feel so confident now as opposed to 2 or 3 quarters ago?

Randall C. McMullen

It's Randy. Generally, it's universal cost all through service lines. We are, I would say the most momentum that we've seen. And the difference between the fourth quarter and the first quarter is on the frac side, but it's a still sort of a universal comment that we are seeing increases across all 3.

Joshua E. Comstock

Yes, I would just add to that, that obviously the frac is where we had the most momentum to gain and has been the one that's been under the most pressure in the industry. But coiled tubing and wireline have been -- we've just been steady gaining quarter-over-quarter-over-quarter. Frac has really made a -- past couple of quarters, made a strong push in utilization.

Brandon Burke Dobell - William Blair & Company L.L.C., Research Division

Okay. And the market share that you're talking about, or market share gains you're talking about, it sounds like it's a lot of new customers because it's in new areas for you. But is -- am I overstating that? So is it more just same customers, but new basins? Or is it new guys calling you up and it's really truly, kind of new -- new, new market share as opposed to wallet share, I guess?

Donald Jeffrey Gawick

Yes, this is Don Gawick. It's very broadly spread across all 3 product lines with new customers. So quite frankly, we gained a customer in a particular basin that we have not worked for on a regular basis in frac and in coil, and it continues with wireline as well.

Brandon Burke Dobell - William Blair & Company L.L.C., Research Division

Okay. And then final one from me, just -- I'll touch on international. How do you expect that process to work? So moving from a trial, maybe how long does the trial take? What are the next steps to take it from a trial to a bigger opportunity for you? How important do you think this trial is for kind of a broader effort to go to just beyond kind of 1 or 2 units?

Joshua E. Comstock

Yes, I mean we had some confidentiality around what we can disclose based on our contract. But what I will tell you is it is important for us to perform. We think we will perform. And if we perform as we have everywhere else we've ever worked, the opportunity for us to do a much longer-term contract is there. And so we have equipment headed that way. We expect equipment to get to work as soon as it gets there. And if it -- if we perform, the opportunity is there for us to sign something up that would be much, much more long term.

Operator

Our next question comes from the line of Marc Bianchi with Cowen Group.

Marc G. Bianchi - Cowen and Company, LLC, Research Division

Just a follow-up on the question for Saudi. There's not supposed to be a big profit contribution here in the near term. How should we think about this ultimately contributing? Or is there a decrement initially from it? Or is it just not material enough right now to really matter?

Randall C. McMullen

Marc, it's Randy. Well, through '14, it's not going to be very material. Obviously, with any business that you're building, there's going to be some start-up costs that obviously impact the profitability. But as we look at all of '14, it's really not very material.

Operator

And we have question from the line of Rob MacKenzie with Iberia Capital.

Robert J. MacKenzie - Iberia Capital Partners, Research Division

Just my final question, I guess, would be, Josh, if you could give us a little bit more color as to how the 15% to 20% top line growth you laid out is distributed among the product lines? Is it even across them? Is it mostly frac?

Joshua E. Comstock

Well, it's really mostly frac, because frac is the majority of revenue, right? So the frac is 55% of revenues and moves up as utilization and moves up when we add horsepower to frac, right? And so every time we add a fleet, that percentage of revenue moves up. So it will be mostly frac just because of mathematics. But if you looked at it from a market share utilization perspective, it's probably even across all 3. But from a revenue perspective, it's mostly frac. And I would say, it's frac and then evenly split between coiled and wireline.

Robert J. MacKenzie - Iberia Capital Partners, Research Division

And another way to ask a similar question, if I may. You commented earlier that a lot of the new equipment coming in will contribute to that. If you had to put kind of an organic number on what your growth would be this year, given your assumptions, what range would that be in? I mean, just with your base equipment and the business today without the additions?

Joshua E. Comstock

Yes, I mean, that's a tough one without the numbers in front of me. So we'll pass on that one. I mean, follow up with Randy, but we'll pass on that one right now.

Operator

Our next question comes from the line of Michael LaMotte with Guggenheim Securities.

Michael K. LaMotte - Guggenheim Securities, LLC, Research Division

Josh, if I could just follow up on your comments on efficiency. 3 years ago, if someone had told me that the drilling days spud to release in the Eagle Ford would go from 25 to 30, to 12 to 15, I would have said that, that was crazy, and yet that's where we are. Can you give me a sense just in terms of longer term, next 3, 4 years, where you think the completions business is going with respect to efficiency? Could we see improvements of 30%, 40% 50%?

Joshua E. Comstock

Well, I'll first say that I definitely -- you and I, we're in the same boat [indiscernible]. And I also tell you that when we started frac-ing in the Eagle Ford and signed our first contract, we signed it up for, I think it was somewhere around 160 hours, pumping hours for a 24-hour -- 24-day-a-month, 24-hour contract. And we thought getting 160 hours was -- pumping hours was going to be impossible. And we're doing about over 300 with that same fleet now within those days. And I listened to the largest pressure pumper in the U.S. CEO, on his call, say that he didn't think there was much low-hanging fruit left. What I will say is that the equipment that's being utilized to pump these jobs was never designed and still has not been designed to pump at the rates and the time that we are pumping, and so you have still excessive downtime. And the way to eliminate that downtime is to design the equipment for what is now -- what folks want to call unconventional is now conventional. And understand that 360 hours is the average now, and it's not 100 hours a month. And so everything from controls to fluid-ins, to power-ins, to transmissions, to engines, all of these items, valves, seats, all of these items that we use every day that take time to replace, that you're replacing on the job, that causes downtime. And just as it's happened with drilling rigs, the way drilling rigs have done a really good job of not just the drilling process, but making the rigs much more efficient to move, making the rigs more efficient from a life perspective. And so I think that there's -- when we look at the equipment that's been designed and the equipment that's out there, there -- it has not changed, and there's not been many changes done. And we are one of the ones that have led some of those changes, and that's why we've been able to get so many more stages per day than everyone else, is from limiting that downtime. And we think there's quite a bit of room left for us to go. And that is also on the -- now that we control wireline, it's on the wireline side. And if we can do things around pumpdown plugs and around wireline that can speed up that process, as well as limit failures there and limit downtime around frac-ing, a 30% increase is not out of the question. And I -- one thing I've learned over the past 3 years is to never say never again because I do not -- when we got to 200 hours -- I remember signing a contract. A guy wanted an extra 20 hours, and I gave it to him thinking that he could never get it, and I -- he wasn't get anything by me giving it to him. And sure enough, he got there and more. So I know that we can get there. And so those efficiency gains are still out there, and we're focused on them. And that's exactly what our R&T Department's working on now with our ops guys.

Michael K. LaMotte - Guggenheim Securities, LLC, Research Division

Where do you think -- perhaps a sort of simpler numbers just to think about is if your capacity is 350 horsepower and your effective utilization, max utilization is 88%, 90%. Obviously, you're talking about creeping that up several hundred basis points, 100 basis points or 200 basis points a year, correct? Is that the right way to think about the uptime?

Joshua E. Comstock

Yes, but again, it gets back to this utilization and the effective utilization of the equipment, right? And so you got to think of the utilization on the -- from a pumping-hour perspective. But yes, I mean, you're -- if you're pumping 12 hours a day now in a 24-hour period, it's not out of the question to be able to pump 16 hours a day, 18 hours a day.

Michael K. LaMotte - Guggenheim Securities, LLC, Research Division

Okay, so from an operation standpoint, you've got your site efficiency as well as your R&M and uptime efficiencies, sort of 2 categories.

Joshua E. Comstock

Exactly.

Michael K. LaMotte - Guggenheim Securities, LLC, Research Division

And then how important is supply chain for your initiatives at this point?

Joshua E. Comstock

It's extremely important, and it's more around logistics and our logistics management. But it is something that we have to work every day. And actually, our customers have done a really good job too around supply chain and infrastructure, making locations bigger, getting water closer, those types of things. And there are some innovative breakthroughs that are coming on the supply chain side around sand that could be helpful.

Operator

Our last question is a follow-up from the line of John Daniel with Simmons & Company.

John M. Daniel - Simmons & Company International, Research Division

Josh, in response to an earlier question, you mentioned that April would be the first set of frac equipment. Should we imply that, that means there's another set of frac equipment behind that?

Joshua E. Comstock

Yes, in that budget, right, so we had 20,000 horsepower that we announced at the end of third quarter that we ordered to be delivered in the first quarters and deployed in April. And then in the budget numbers that we gave you today has another frac fleet that we're hoping that we will deploy June, July-ish.

John M. Daniel - Simmons & Company International, Research Division

Okay, so basically 1 in April, 1 in June or July, we'll call it.

Joshua E. Comstock

Yes, sir.

John M. Daniel - Simmons & Company International, Research Division

Have you decided where you're going to send those yet? Or is that to be determined?

Joshua E. Comstock

Go ahead, Don.

Donald Jeffrey Gawick

Yes, we're predominantly looking to move a majority of that horsepower into West Texas. We've got growing demand there. Somewhat into the Eagle Ford as well. We continue to see an increased demand for our services there as well.

John M. Daniel - Simmons & Company International, Research Division

Got it. Okay, and then, Josh, just a big-picture question for you. Your general thoughts on equipment quality of the U.S. frac fleet? And then a little bit of granularity, which would be just perhaps what you allocated to your maintenance CapEx budget for the frac business in '13, and how that changes as we go into '14.

Joshua E. Comstock

Yes, well, I can tell you that just what you heard on the question before you came on, right? The pumping hours go up, the more efficient we get, the harder it is on equipment. And so you have to spend a lot of money maintaining that equipment. And you have to spend a lot of time maintaining that equipment. And given the fact that margins have been down for a lot of our peers at levels that are way below where we are, some to the point where they're not profitable, what we have seen is a lack of maintenance. And what we have heard from customers, which is -- allows us in a lot of cases to take market share, there's been lots of equipment failures on location, poor performance. And some guys are doing it well, and some guys aren't doing it at all. And that equipment that's not getting done at all is -- and that's another -- it's falling apart. And that's another reason that you've not seen, not just C&J, but you've not seen a lot of consolidation even when you had companies that are going to bondholders and trying to sell and everything else. Everyone thinks, oh, buy the assets. But the assets are in bad, bad shape, right? And so it's -- I think that it sometimes gets mis-underestimated or gets underestimated exactly the toll that this type of work just takes on assets. And if you don't have the profitability to reinvest in your equipment, what's being -- happening to that equipment. And in fact, we even see now when we bid jobs or price jobs, that list, 1.5 years ago, used to be 20 companies deep. Now that list is 6 to 8, and that would be a wide list. And it's typically the quality companies that are on that list, which tells me that E&P companies realize that, "Hey, I tried these guys and their equipment's not -- they had failures." But for us, to answer your maintenance CapEx question, it was $15 million in 2013, going to $25 million in 2014 with the additional equipment. And we had growth. Understanding that we had growth, equipment growth through '13, we added equipment throughout '13.

John M. Daniel - Simmons & Company International, Research Division

At what point do you start having to rebuild, completely rebuild, not just swapping out component parts but [indiscernible]...

Joshua E. Comstock

So our first frac fleet's already been refurbished. And so that frac fleet was delivered in '07, really started doing horizontal work in late '08, probably, for -- and then had a slow '09 and then really started full fledged, horizontal all the time, call it, early 2010. And it was refurbished third quarter of last year. So it -- we really [ph] had a -- about 3-, 3.5-year hard run on it before it had to get refurbished. Now the trailers and stuff were still good, but it's replacing [indiscernible] painting and hoses and that type of stuff --

John M. Daniel - Simmons & Company International, Research Division

Last one from me, and I don't want to sound overly dramatic. But one of your smaller competitors who entered the business in 2011, he made the comment to me that he'll have to rebuild completely his first fleet by early '15, basically 3.5 years under -- his comment to me was that we are really about to face the perfect storm, which is we've got this backdrop of rising demand, increasing service intensity, higher utilization, all of the good stuff. And on the other side of the equation is a bunch of people who haven't properly maintained their equipment, service quality from some companies going down, thus setting up a great opportunity for those companies that have performed well to not only capture market share, but just giving him some confidence that the pricing can move higher. What would your response to his comment be?

Joshua E. Comstock

Well, I would even argue that there's even a more perfect storm because what folks haven't realized is you have in emissions laws where you have Tier 4 engines that you have to go through, you have new transmissions coming out. You have the manufacturers of that type of equipment, the Caterpillars of the world, the Detroits of the world, the Cummins of the world, that obviously, there's been no equipment ordered in the past -- to speak of, in the past 16 months. So they ramped down, and we have seen from our own internal usage that, well, you could get a -- you could buy an engine essentially within 1 week because there was inventory sitting around. Now they're 4 months out. I talked to a manufacturer, a local manufacturer, who you know very well, yesterday. And he told me that he needs 6 months' notice to build a frac fleet, to get engines and transmissions. And so if there's a run, I mean -- and that's 1 frac fleet -- 2 frac fleets. If there is a run on equipment, that equipment's not going to be able to be built in a time frame that is going to outpace the fall of the existing equipment. And so they'll ramp it up, just like they always have, but you will have a period of time that there's going to be a shortage again. And it's just -- we've seen it over and over in our industry. And it's going to happen again as long as we keep a steady drilling rig count. And I would argue if there's any uptick in rig count, there's going to be an imbalance fairly quickly.

All right, thanks. And with that, operator, I guess that's everyone. And we went over about 20 minutes. So we appreciate everybody listening to the call, look forward to talking to you guys next quarter. Thank you.

Operator

Ladies and gentlemen, this concludes the C&J Energy Services Fourth Quarter Earnings Conference Call. If you'd like to listen to a replay of today's conference, please dial (303) 590-3030, and enter access code 4665551. We would like to thank you for your participation. You may now disconnect.

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