CARBO Ceramics' (CRR) CEO Gary Kolstad on Q1 2016 Results - Earnings Call Transcript

| About: CARBO Ceramics (CRR)

CARBO Ceramics, Inc. (NYSE:CRR)

Q1 2016 Earnings Conference Call

April 28, 2016, 11:30 AM ET

Executives

Gary Kolstad - President & CEO

Ernesto Bautista - VP & CFO

Analysts

Blake Hutchinson - Howard Weil

Robin Shoemaker - KeyBanc Capital Markets

Brian Uhlmer - GMP

Trey Stolz - Iberia Capital Partners

Bill Dezellem - Tieton Capital Management

Darren Gacicia - KLR Group

Waqar Syed - Goldman Sachs

Operator

Hello and welcome to today's CARBO Ceramics Incorporated first quarter 2016 earnings conference call. At this time all participants are in a listen-only mode. After today's management remarks we will conduct a question and answer session and instructions will follow at that time. Please be advised this call is being recorded today April 28 of 2016 and your participation implies consent to our recording this call. If you do not agree to these terms simply disconnect.

I would like to remind all participants that during the course of this conference call the company will make statements that provide information other than historical information and will include projections concerning the company's future prospects, revenues expenses or profits. These statements are considered forward looking statements under the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties that could cause actual results to differ materially from these projections. The statements reflect the company's beliefs based on current conditions that are subject to certain risks and uncertainties that are detailed in the company's press release and public filings.

Your host for today's call is Mr. [Gregory Kolstad], President and Chief Executive Officer of CARBO Ceramics Incorporated. Mr. Kolstad, please begin your call.

Gary Kolstad

Thank you and I'm actually Gary Kolstad, but anyway welcome everyone to the first quarter 2016 earnings call. This morning I will provide you an overview of our results and update on the technology and then followed by an outlook on the business. And we'll open it up for questions.

We reported a GAAP net loss of $24.7 million on revenues of $33.1 million. This GAAP net loss includes $5.7 million or $0.25 per share after-tax and $6.5 million or $0.28 per share of after-tax costs associated with slowing and idling production.

Revenues for the first quarter of 2016 decreased 55% compared to the first quarter of 2015. The decrease is primarily attributable to a 57% deduction in the average North America rig count which resulted in decrease in proppant sales volume, associated reductions in the average proppant selling prices and a move to lowest cost completions by E&P operators.

Operating loss for the first quarter of 2016 was $36.1 million compared to $42.5 million in the first quarter of 2015. The improvement was largely due to a $14.4 million decrease in miscellaneous charges and cost cutting measures implemented beginning in early 2015.

Net loss as mentioned for the first quarter was $24.7 million compared to $28.6 million in the first quarter 2015. I’d like to also point out we recently amended our credit agreement. At a high level we replaced our $90 million revolver with a $65 million term note at LIBOR plus seven. Given current market conditions we are pleased to get this completed at an attractive rate and with only one financial covenant. Additional details of the amendment can be found in our 10-Q filed this morning.

Continue low commodity prices further reduced industry activity levels during the first quarter of 2016 as the North American average rig count climbed 57% compared to last year. Given the pressure to reduce costs during the downturn, E&P operators are currently opting for lowest cost completions while the risk of compromising production. In some resource plays E&P operators are also electing not to complete the wells they drilled. These factors negatively impacted our ceramic sales volume during the quarter.

As this oil and gas activity continued to deteriorate, we witnessed an acceleration in the inventory liquidation of stranded low quality Chinese ceramic proppant. Although the near term impact is negative for ceramic sales volume, we believe this liquidation benefits us in the long term as the inventory of this imported Chinese ceramic proppant is sold off. And there has been hardly any import in the last year.

Now I want to spend some time talking about the positive sides of the business, in particular our incredible technology and how we believe it positions us well for the next up-cycle. From both a short and long term standpoint, we're very excited about the increase in value our technology portfolio brings to our clients.

The portfolio continues to push the envelope with respect to increasing production and recovery while reducing lease operating expenses for our clients. The market penetration and interest garnered in today's depressed market is very encouraging.

KRYPTOSPHERE technology adoption is moving forward with both KRYPTOSPHERE HD, the high density and LD, the low density being utilized in some of today's highest profile wells over the last few quarters. Going toward KRYPTOSPHERE LD is being incorporated into a number of new completion designs in the US and internationally.

KRYPTOSPHERE HD opportunities are typically associated with large scale complex projects for deep wells with ultra high stress conditions. The timing of that work is often times hard to pinpoint as the planning and execution of those projects are long term and can vary. We do however expect more opportunities to materialize for KH, our KRYPTOSPHERE HD in 2016.

Another growth area of technology we have surrounds our proppant delivered technology suite of products. Within the production assurance platform, the GUARD family of products protect sour wells built -- our clients' wells from build-up of scale salt, paraffin et cetera that choke up production and result in costly remediation work. We have some of our clients that now have wells on line for almost 700 days that you SCALEGUARD without any workovers needed to treat scale build-up. This breakthrough technology delivers tremendous value to our clients in lowering their LOE and increasing production.

We also continue to build out our fracture evaluation services products suite with Quantum. Quantum is an innovative propped reservoir volume or PRB imaging service has seen significant interest from E&Ps. As a result, field testing has been accelerated and multiple jobs are in planning stages for the remainder of 2016.

Quantum fracs will allow E&P operators to visualize the location of the proppant in frac and thereby be able to measure PRB for the first time ever. This will improve decision making in well spacing, perforation cluster spacing, fluid selection and proppant selection. It really enables E&Ps to maximize their EURs and develop the reserves more economically.

One of our most recent commercialized technologies, FUSION is also seeing very strong interest and we have additional work planned in the coming quarters. FUSION’s development dates back a few years to address the requests of two super majors to create a new mobile proppant pack for injection and producing wells. While initially the technology was designed and targeted for wells in the Gulf of Mexico, there are other industry provinces this technology could also address.

Regarding the broader industry backdrop, industry analysts have started to take note in dialogue that efficiencies gained by drilling longer laterals, increasing stage count and pumping more proppant volume may be starting to reach its limits. This is interesting in our view as the industry is primarily focused on one part of a two part equation in what makes these low permeability resource plays produce: increasing reservoir contact while oftentimes optimizing on the second part of the equation: increasing conductivity. If in fact the industry is reaching its limits on increasing reservoir contact, the next logical area for improvement is through increasing conductivity throughout the reservoir.

Increased conductivity is achieved by placing more durable proppant such a ceramic proppant that can withstand the closure stresses or sand based proppants fail, thus we remain steadfast in our efforts to highlight our ceramic proppant be a normalized production studies which show the value of optimizing both the reservoir contact and the conductivity within the fracking reservoir.

We're navigating a tremendous downturn at the moment but I want to take the time to review these differentiated technologies that are aimed at driving increases in our productions -- our clients’ production and recovery and lowering their lease operating expenses.

Now I will turn to the outlook. Given the overall levels of industry activity and expectations that the North America rig count could be downgraded than 30% sequentially, the near term outlook for ceramic proppant remains extremely challenging. In addition, the inventory liquidation of low quality Chinese ceramic proppant in North America will likely lead to additional pressure on our ceramic proppant volumes during the second quarter.

We continue to manage through this downturn with a two pronged approach. First focuses on cash preservation and cost reductions across the organization. Regarding cash burn, we've made great progress in reducing cash burn rates through cost reductions and this effort continues. The first quarter's cash burn, including CapEx was approximately $14 million. Note that in the second quarter we will generate positive cash due to the receipt of our $37 million tax refund.

Although we plan to reduce costs further, the operating outlook may likely deteriorate in the coming quarters and as such our near term quarterly cash burn could remain in the low to mid teens. The types and magnitude of cost reductions vary but primarily can concentrate in the areas of compensation, natural gas distribution and discretionary spend.

The second part focuses on the advancement of our proprietary technologies. As mentioned, KRYPTOSPHERE LD is being engineered into more operators’ completion programs and we see a lot of client interest in KRYPTOSPHERE HD for deep high stress wells in the Gulf of Mexico and international areas.

SCALEGUARD continues to provide a breakthrough scale control solution for wells, including deep water wells at a lower cost than has ever been possible. We continue stay in front of our clients via our technical marketing team as well as our independent STRATAGEN consultants. Their emphasis on providing up to date production studies which highlight the benefits and value creation in placing high conductivity ceramic proppant in the reservoir.

We estimate that over 50% of the wells drilled in the US will have closure stress greater than 6000 psi, a point at which even the best white sand will start to crush. Using sand in these wells means the production and recovery of these reservoirs will be compromised. Giving the continued deterioration in the industry and with limited visibility on when industry recovery may occur, we believe it is necessary to seek additional source of capital beyond our recently amended credit facility. In addition, we are exploring the monetization of certain technologies to further boost our cash reserves.

During the first quarter we reduced debt by $23 million and ended with $41.5 million in cash. That ending cash balance excludes the income tax refund of $37.4 million that we received in late April. The industry is navigating through unprecedented times but we are focusing on the areas that are within our control.

Many decisions we have made have not been easy, however, have been essential to maintaining an enduring company and will position us well for the next up-cycle.

With that, we’ll turn over to questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from Blake Hutchinson from Howard Weil.

Blake Hutchinson

Gary, I just wanted to kind of start with a big picture question given where you left off with, we're talking about seeking outside capital sources and maybe generate some cash from monetizing technologies. You know more than we do in terms of the changes you’ve made and can make to your cost structure. In terms of broad thinking, is there a volume number in terms of base ceramic production that you're working towards to kind of take back or kind of control your own destiny so to speak, meaning if we can get to 150 million – 150 pounds of proppant, at that point we might be able to be free cash breakeven, or another figure that we should be paying attention to? And again just trying to get the focus back on, what you can do to kind of control that conversation?

Gary Kolstad

I think there's several vectors on that. First of all, we’ve really taken the costs out and with the idling of plants and everything, so our cash burn rate has dropped tremendously and we've idled things. We kind of mentioned before that we’re going to build up some inventory and sell down inventory as we move forward. So you reduce cash spend and you convert inventory into cash. So we've done all that in our -- the amount of let's say annual pounds of base ceramic proppant we have to sell in a year is down a lot less than what it used to be for a cash neutral type basis.

The second thing is that, I think all of us consider that we might be getting towards the bottom of this tremendous depression we've gone through, right? And when I watch what -- it seems like oil wants to migrate a little bit higher, it seems like natural gas wants to migrate a little bit higher, so at some point and maybe it's not ’16, maybe it’s ’17 but the industry will get better. I think the depletion will start to accelerate, so any time we've taken what 78% of the oil rigs out of the US already, it's going to come. So you have the fact that we've lowered the cash burn rate, we closed down facilities, the business we run today does not take any CapEx hardly at all. All of our assets are low maintenance cap. So we can operate at a very very low level. And you have to ignore depreciation of all those other non-cash things. But we've modeled out what we think ’17 might be some theoretical, look at ‘18.

And then there's the third vector on that. And that's what we are incredibly focused on and that's the technology. So during these tough times, yes, the revenue will be low and we'll have all these big assets sitting idle. But the technology is so powerful and it will grow as a percentage of revenue forever forward I think. And even this year with this depression, and I keep using depression because this is in a down cycle, this is depression in the oil and gas industry. I actually think we're going to have more revenue on new technology this year than we did last year which is just incredible given the drop in the rig count. And we've got to get that message out. But I'm very comfortable that so, I hope that helps. We're driving down the costs, the industry at some point will get better. And we have an incredible focus on technology and monetizing it, remember too, does not mean we lose all of it. What it means is that we are still going to manufacture it for somebody who perhaps buys the intellectual property. And so we got a lot of things we can pull. And when I look at our credit agreement, all that, we don't have to panic tomorrow. You saw what we had for cash at the end of the quarter, we got another $37 million. So we'll make our decisions on finding the lowest cost of capital moving forward. And that doesn't need to happen tomorrow by any means. So I'm much more comfortable today than where I was two months ago or something like that. I hope that helps.

Blake Hutchinson

No, I think that's a good answer to rather an open ended question. And then just I guess a more specific question. When we think about the cost savings from taking down terms in Toomsboro, I would guess clearly one of your lower cost plants that you will be ramping up and down, is it reasonable to assume that it would be hard even at each level of production to maybe have that down for more than a quarter and a quarter and a half?

Gary Kolstad

Well, the asset doesn't deteriorate at all. And we know how to run these things better than anybody in the industry. So no, it's strictly the people and really it’s a tough decision, when we've had to let go of these incredible people that really invented ceramic proppant and all the good work they've done over the years. And I hope when things do improve that we get a lot of them back but that's the only issue. The asset itself, it's not a problem bringing it back up.

Blake Hutchinson

But in terms of the inventory bleed down again even at these levels, do you have to flip it back on at some point and probably not – start another prolonged idling for the asset like Toomsboro?

Gary Kolstad

Boy, and maybe this is one way to approach the answer. We've idled Toomsboro. Our definition of idling is something that's less than a year. Hard for us given the limited visibility to say it’s a quarter or two. But at this point it's less than a year. It's all going to be determined on what I think we all hope will be a recovery sooner than later.

Operator

And our next question is from Robin Shoemaker from KeyBanc.

Robin Shoemaker

My question is on this -- the remaining inventory of low quality proppant that’s being I guess sold at fire sale prices. And you’re indicating that it will continue in the second quarter. How do you go about ascertaining how much is left and whether this will extend beyond the second quarter?

Gary Kolstad

Well, we don't know exactly how much is left, the one thing we do know and we tracked it for ten years, we know how much has come into the country and we know that that basically came to a complete stop four quarters ago. We know some of the fellows that bought it. And we know what their balances are and so we're very comfortable, it's a process that has to take place. We even see it in some respects to some of the newer players in the industry look like they're liquidating inventory too. So that's just a process the industry has to go through, it's okay. But I can guarantee you nobody's going to bring ceramic proppant into this country at anything close to the prices we're at today. So you just got to work through it. And some day the sun will shine and the prices will come up and that's just the way it works.

Robin Shoemaker

And wondered if you could give us an estimate -- on your new facility you’ve got a quarterly principal repayment plus interest expense. What would be -- some of those to be, looks like it's something like $4 to $5 million a quarter or something like that but –

Ernesto Bautista

Right, so the interest will accrue at L plus 7 at six. Our variable with respect to the L component LIBOR that is and then our amortization is $3 million, just over $3 million a quarter starting in June. So we'll do just shy of $10 million in amortization payments in 2016 and then it steps up to $3.25 million in March of 2017. So you add about $13 million in both 2017 and 2018.

Operator

We have a question from Brian Uhlmer from GMP.

Brian Uhlmer

I was curious if you could give us a little bit more specifics on how your discussion on monetization of technologies or other things, if you're looking at specific licensing agreements or anything that brings in upfront capital and then how that affects your business down the road, number one? Number two, is there any intrinsic value in Falcon where you can get that sold on and off the books and foreign capital or just a little more specifics on how you pronounce.

Gary Kolstad

Yeah. We're looking at all things of course. And in regards to technology, as I mentioned, yeah we would want to get upfront cash and we have several people interested in some of the things we've mentioned. We still would require with all those that we are the manufacture of the products contained within that technology and that would be of course of a long term nature on the supply side agreement. What it offers them is, if they purchase it is incredible exclusivity of that that technology, so credible value stuff there and everything, so we work on that. Falcon is something that certainly, I mean we talk about all things. There's the issue of plants or whatever.

Ernesto Bautista

Right, so Brian, we've got obviously some idle assets or assets that we could monetize, not just domestically but also in foreign locations. So everything's on the table and obviously what our approach would be, would be to have some amount of upfront cash infusion. If it's technology maybe, the form of the arrangement is a licensing, maybe it's a sale with a manufacturing agreement. We're in early stages on a variety of topics.

In the case of Falcon, just because it's been mentioned it doesn't necessarily mean that it's a sale but perhaps a refocus of the energy onto very cash profitable components of the business which may come with some tough choices as well. But obviously we're looking out longer term.

Brian Uhlmer

Okay, and can you walk me through, just trying to get a feel for the last several months, as you walk through working on the ABL and the stock was somewhere anywhere in range of 17 almost to 20s you have. As things were not progressing as probably as well as you might have thought, I believe its dollar value dipping below where you thought it would be. I mean why – why did you assure the equity markets for a portion of your funding requirements at that point in time and how did you determine and this idea was the best option for you when you pledge your substantial amount of assets on an amortizing note?

Ernesto Bautista

Yeah. I think two things that are key to that, Brian. I think one, it was our lowest cost to capital, two is covenant relief which we received both. And all our effort was focused on getting that behind us. As Gary mentioned earlier we're not in a rush at this point to do something else, it will give us a chance to analyze all of our options. And it may very well include other forms of debt that are allowed under the agreement, perhaps even equity. And then the other items that we’ve talked about with respect to monetizing assets. But as far as the facility goes, those were the two key components. If you're in the bank market today, it would surprise me to find out that you're going to expand your facility. I think every institution out there is looking to reduce their exposure in oil and gas and so for us the. critical piece of the negotiation was the lowest cost of capital and covenant relief. If that meant horse trading a bit on liquidity then so be it. And we would again reconvene as a management team and determine our next step or next steps keeping him in mind that without having to rush or without being in panic mode, we can look at other forms of low cost capital as opposed to rushing out to an equity market. Some have and we just decided that we would approach a bit differently.

Operator

Our next question is from Trey Stolz from Iberia Capital Partners.

Trey Stolz

I guess just touching on the cash burn rate. I was just wondering if you could maybe walk us through a little more detail, I think you talked about $14 million this past quarter in low to mid teens going forward. But with the 10-K issued, the receivables went down quite a bit. I was wondering what role the play here and if that’s an issue going forward given the receivables was cut in half, anything you can help us on the cash burn rate please?

Ernesto Bautista

I think Trey, what we were trying to get to was summarizing that cash burn would be in the low to mid teens is that there's a variety of variables that are being considered here. If activity deteriorates you're not going to get as big of a working capital benefit as you might anticipate. Q2 will have a positive cash results simply because of the income tax return. Our goal obviously is one thing and that is build up some inventory and then bleed it out which would help. But what we were trying to provide was kind of the end result, that one possible end result with respect to cash burn on a go forward quarterly basis and that’s at low to mid teens.

Trey Stolz

And then I try to ask this most quarters -- but the other revenue portion, including Falcon and all, the implied number there after looking at pricing information in the Q it’s very very low. Is there anything – I mean I'm getting $1 million to $2 million range, is that about right?

Ernesto Bautista

It's a bit higher than that. You're a bit low, I would say. Obviously in relative terms it's grown from prior quarters as it relates to the consolidated revenue. But I think you're fairly low on that number.

Operator

And our next question is from Bill Dezellem from Tieton Capital Management.

Bill Dezellem

Thank you. I want to talk about inventory liquidation and why you believe now that there's a particular push to limit or pardon me, to liquidate Chinese proppants and as opposed to earlier in the cycle? And then secondarily, where are you feeling as though your customers’ level of inventories are of your product and whether they still have as rig count continues to decline additional liquidation to do or are not?

Gary Kolstad

I think one of the reasons that they have tried to liquidate over the past quarters, with the continued deterioration in rig count and everything, E&P operator service companies, everybody trying to drive the cost down. They went to a level where we're not going to sell our inventory at that. And so they're moving some of their stuff, because it's low quality and stuff and especially some of the Chinese stuff is really bad. But it's going to get pumped if it’s down at such a low cost and in terms of our inventory with clients we deliver just in time. So clients don't really have our inventory. We have it and deliver it whenever they want it.

Operator

[Operator Instructions] We have a question from Darren Gacicia from KLR Group.

Darren Gacicia

Hey good morning. Wanted to ask a question that's kind of a leverage to recovery question frankly. It seems to me is that, the headwind you guys have faced have been kind of – I guess structural trend towards more sand and less ceramic and then probably a well cost versus well return story. And so right now it seems like there's more ceramic going into tailing into wells than maybe kind of being the entire profit solution for a well. Given the fact that we've had commentary throughout earnings season about, slightly better on the macro side but also talked about increase on bringing equipment back in the field, maybe pick your poison on that. What’s the type of dialogue that you have in that conversation, how quickly in terms of the mentality and the switching in decision making, might you expect things to turn, if the second half the year starts to look better, does that mean that ’17 starts to look better from a demand side? A little bit of an open ended question but a little bit of a roadmap of if the world starts to get better, how we should think about your numbers?

Gary Kolstad

I think we have a lot of leverage on the upside, of course. That will be a lot of fun on the upside and I think we can react to it fairly quickly. If you're asking about the industry being able to react, I don't fall into the camp that everybody falls into, about oh my goodness, we've decimated the workforce and never be able to come back. I don't fall into that, and remember I worked for Schlumberger for a couple decades. So we find ways to do this right. It just means compensation, that's all it is. And so the industry can come back at the speed at which the commodity price dictates it should come back. And a lot of people are getting rid of a lot of assets now. Those type of assets that have a low light. That's the wonderful thing about CARBO, right? We build something, the asset has a life that actually we don't even know how long some of these things would last and low maintenance cap. So we love our leverage on the upside and can't wait for it to get there. And I don't know, I feel -- well I don't have any qualms about saying oil can cycle pretty hard again. I just get this feeling, nobody wants $40 oil in the world, nobody. Those people that are maybe putting the pressure on the system right now, they still have their social costs and all that stuff in their fiscal budget. So I'm confident things are going to get better. The speed at which I don't know.

Darren Gacicia

The thing I'm really trying to get to is what is -- like how does that translate into ceramic per well, like that – and what are the types of things we should -- you kind of see happening, starting to increase that, because there you see, this kind of a macro headwind is a little bit of a structural headwind you guys do face. And I'm just trying to get a sense of how you dealt on that moves?

Gary Kolstad

Yeah, the structural side took place whatever eighteen months ago, towards the end of 2014 and so it's -- for us you'll have to stick with fiscal [ph] side which is normal. And then it'll also be once again just like it always is an education process. And we have several examples of -- let me just put it this way. There's one thing you can't change and when you think about it, why did ExxonMobil ask us to develop ceramic proppant in 1976, it was because of the stress of the earth. And that hasn't changed. So once again as I said earlier over 50% of the wells in the US have closure stress from 6000 onwards up to 15000 plus psi. And so we know what we're doing, we know the sand pressures. So they'll be moving back but it will be slow. I think what you'll see for us is a much faster adoption of our technology products and a slower recovery on base ceramic. And I think that will exist throughout the industry. Slow recovery in base ceramics and -- but a high adoption on new technology.

Operator

And our next question is a follow up from Brian Uhlmer from GMP.

Brian Uhlmer

Gary, I want to follow up on that rationale. You’re sitting here talking about potentially selling off technology to bring in capital and maybe kind of manufacturing agreement, that would imply that if you did that someone else had the access to it and then tend to probably the incremental returns that come from technology versus just being a manufacturer. So can you please explain that logic and that rationale for me and how this company looks, if we do something along those lines?

Gary Kolstad

Remember that, the business model will be such that, that technology is so good. It's not going to get commoditized. Okay, so you're not talking about base ceramic, we'll keep the counter prop going because that's the workhorse. It will fight the rig decline –

Brian Uhlmer

That’s not what I'm asking, Gary. What I'm asking is if you sell it to a service company or someone else who owns that technology, won't they get the excess returns out of that, if you only have manufacturing agreements?

Gary Kolstad

I think we will have made ensure that we have a nice margin on the manufacturing side and the contractual business model side of that will ensure that for a very very long term. And since nobody else has it you don't get into the trap you have on base ceramic when you try and build these contracts. When they run into cyclical type of natures they get hurt. This stuff changes the world. And so we will maintain good margins. What we need is volume. And some of the other people if they own this technology, they’ve got very large sales marketing and sales forces, many more contact points than us. So they will get an incredible benefit too and I hope they have great margins, because I think we will too and we will benefit on the volume side.

Brian Uhlmer

Following up on that, two quick ones, number one, you already have a shelf in place for equity issuance.

Ernesto Bautista

We do not have a shelf in place for equity issuance.

Brian Uhlmer

Okay. Second, on this ABL or revolver, you guys have about $100 million in inventory, if we’re talking about outside in 2017, and starting to increase, you have to increase inventory, then you have to increase working capital and 60, 90 day payment terms depending on how quick your customers pay you. How do we actually grow this business or is the revolver going to be able to expand based off an asset base of receivables, or are you going to be in a position where you can’t build enough inventory to supply your customers?

Ernesto Bautista

Right, so I think I go back to -- we're looking at overall capital need to go out through 2017. And so from -- the variables that you mentioned -- that's why we're contemplating everything. Whether it's potentially putting a shelf on the table that includes a variety of different features, perhaps the public debt, equity, in addition to maybe private debt. But I don't think we're going to get any further along with respect to the existing credit agreement. And then on top of all of that, the other kind of arrow in the quiver is what you were just talking about, and Gary was responding to is, there are other assets that we have, some of which are underutilized and some foreign that we can monetize. That would be helpful in providing more cash reserves for the exact type of environment that you’ve described as we look out into first half of ’17, second half of ‘17.

Gary Kolstad

Everything's on the table, shelf registration, asset sales, technology sales, you name it, everything's on the table. We are going to survive this and so we will do whatever it takes.

Ernesto Bautista

But I think I would emphasize there's not a rush. And I think that's important. What you're describing, Brian, hopefully from your lips to god's ears, it changes immediately. We're not anticipating that and Gary did describe that it’s probably a little bit of a slower recovery for us, let’s say, which gives us a bit of time. And so nothing that we can be picky and trying to overemphasize too much but it does give us a little bit of an opportunity to review the various options that are available to us.

Operator

Our next question is from Waqar Syed from Goldman Sachs & Company.

Waqar Syed

Thanks, this is Waqar. So I am just reading through your revolver covenants. If I understand correctly, you have to have a minimum balance of $40 million in cash by August ’16. Is that correct?

Ernesto Bautista

That's correct. Yes.

Waqar Syed

So you are at right around $43 million, you get about $37 million of tax refunds, your cash burn is around, let's say, in the teens. So you really have to do something in terms of asset sales or whatever in the next two quarters. Is that fair?

Ernesto Bautista

I think that's fair. I don't think that's an unreasonable observation.

Waqar Syed

And then Gary, second question, in terms of your technology sales as a percentage of overall sales, what was that in the fourth quarter and where did it come up to be in the first quarter?

Gary Kolstad

I don't actually know the fourth quarter – what and we don't break it into quarters. We saw good growth in ’15 as a percentage of our proppant business. We will see a growth in relative dollars I believe in 2016 versus 2015 which is, I'm very satisfied with given the depression in the industry and the fact that revenue will be down so much. I actually think our dollar amount I believe it could be higher than last year. So we’re making inroads.

Waqar Syed

And what was the number last year in terms of percentage of revenues?

Gary Kolstad

Did we give percentage of revenues on this one in any of the releases or anything? I don’t think we did it. No.

End of Q&A

Operator

I am showing no further questions at this time. I would like to turn the call back over to Mr. Kolstad for any closing remarks.

Gary Kolstad

Well, thank you all for joining us this morning. A couple of key points, we expect additional pressure as mentioned on our ceramic sales volume in the second quarter given the inventory liquidation of the low quality Chinese ceramic proppant and the expected industry decline of something around 30% of rigs in North America. We're going to continue to make adjustments to progress our cash preservation and cost reduction efforts and the environment, while it may be challenging we expect to manage through it with a focus on maintaining an enduring company. And more than anything I want to leave you with the fact that we created technologies that has tremendous value for our clients and that is a growth vehicle for our company.

And with that, I'd like to thank everyone for joining the call today and we'll see you next time. Thanks.

Operator

This concludes today's call. Thank you for participation. You may now disconnect your lines.

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