C&J Energy Services (CJES) Joshua E. Comstock on Q4 2015 Results - Earnings Call Transcript

| About: C&J Energy (CJ)

C&J Energy Services Ltd. (CJES) Q4 2015 Earnings Call February 23, 2016 10:00 AM ET

Executives

Daniel E. Jenkins - Director – Investor Relations, C&J Energy Services, Inc.

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

Donald Jeffrey Gawick - Chief Operating Officer

Randy McMullen - President & Chief Financial Officer

Analysts

John Matthew Daniel - Simmons & Co. International

James Wicklund - Credit Suisse Securities (NYSE:USA) LLC (Broker)

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

Waqar Syed - Goldman Sachs & Co.

Judson E. Bailey - Wells Fargo Securities LLC

Operator

Good morning, everyone, and welcome to the C&J Energy Services Earnings Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please also note that today's event is being recorded.

I would now like to turn the conference call over to Mr. Daniel Jenkins, Director of Investor Relations. Sir, please go ahead.

Daniel E. Jenkins - Director – Investor Relations, C&J Energy Services, Inc.

Thank you very much, operator. Good morning, everyone, and welcome to the C&J Energy Services conference call to discuss our results for the fourth quarter of 2015. We very much appreciate your participation.

Before we get started, I'd like to direct your attention to the forward-looking statements disclaimer contained in the news release that we put out yesterday afternoon. A copy of the release 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 that speaks to the company's expectations or predictions of the future are considered forward-looking statements intended to be covered by the Safe Harbor provision under the federal securities laws. Such forward-looking statements are subject to risks and uncertainties, some of which are beyond the company's control, which could cause our actual results to differ materially from those expressed in or implied by these statements.

We refer you to the C&J's disclosures regarding risk factors and forward-looking statements in our filings with the SEC for a discussion of the known material factors that could cause our actual results to differ materially from those indicated or implied by such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements for any reason, and these statements speak only as of the date they were made.

Our comments today include non-GAAP financial measures. Additional details and reconciliation to the most directly comparable GAAP financial measure are included in our fourth quarter news release.

As a reminder, today's call is being webcast live and a replay will be available on C&J's website. Please note that information relayed on this call speaks only as of today, February 23, 2016. So any time-sensitive information may no longer be accurate at the time of the replay.

With that, I'd like to turn the call over to Mr. Josh Comstock, our Founder, Chief Executive Officer and Chairman of C&J Energy Services.

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

Thank you, Daniel. Good morning, everyone. Thank you for joining us to discuss our 2015 fourth quarter results. With me today are Randy McMullen, our President and Chief Financial Officer; and Don Gawick, our Chief Operating Officer.

First, I will highlight our 2015 achievements and fourth quarter results. Then Don will discuss our operational results in more detail as well as key developments, accomplishments on certain initiatives, and Randy will discuss our financial results in more detail. I will conclude today's call with some final comments about what we're currently anticipating for the first quarter and the rest of 2016.

As all of you are aware, 2015 was one of the most challenging years for our industry. Unlike our peers, our operational and financial results were impacted. However, for C&J, the year was also one of many transformative accomplishments, and I'm extremely proud of our employees for their tremendous efforts and allowing us to achieve these accomplishments in the phase of what was otherwise great difficulty in our industry. I'll discuss in more detail in a bit.

But, first, let's look at the fourth quarter. Fourth quarter was one to be very proud of. We experienced a continuation of repressed activity and pricing levels that characterized the rest of the year, as commodity prices remained volatile and continued to fall, compounded by the typical year-end seasonal slowdown from the holidays, customer budget exhaustion and inclement weather.

In spite of these challenging conditions, we delivered an improvement in profitability quarter-over-quarter by generating strong utilization levels at the beginning of the quarter and meticulously managing our business through the expected year-end slowdown.

We reported improved adjusted net loss of $52.2 million or $0.45 per diluted share, and adjusted EBITDA increased by over $19 million sequentially to $7.7 million even with a 4% sequential decrease in revenue to $409 million, as we reaped the benefits of the actions we took throughout the year to reduce cost and bring our operations in line with weak customer demand and the anticipated holiday slowdown.

In our Completion Services segment which significantly improved adjustment EBITDA to $2 million in the fourth quarter and held revenue flat at $256.6 million quarter-over-quarter. In our Well Support Services segment, we experienced only a 10% sequential decline in revenue to $135.7 million and adjusted EBITDA essentially remained flat at $22.3 million.

Notably, we increased the EBITDA margin by approximately 80 basis points, which is a testament to the effectiveness of our integration strategy, the strength of our management team, and the commitment of our employees.

The operational adjustments we made during the third quarter and continued to make in the fourth quarter enabled us to protect and grow market share and support overall utilization through year-end, even when facing irrational pricing by competitors who were willing to cut their prices below break-even levels.

In our Other Services segment, which consists of our smaller businesses and service lines, we delivered improved adjusted EBITDA of negative $24.6 million on revenue of $16.7 million.

Even with declining activity levels as a result of the falling rig count and the year-end slowdown, we were able to sequentially grow revenue within two of our most promising R&T initiatives, directional drilling services and artificial lift applications, which Don will share in more details shortly.

Probably most importantly, as it relates to the fourth quarter, we surpassed our minimum bank EBITDA target for the fourth quarter required under our credit facility, which allowed us to carry-over the full $20 million cushion, resulting in a $40 million cure basket available for the first quarter of 2016 as needed.

The first quarter of 2016 EBITDA target is a six-month run rate target of $28 million, of which we achieved approximately $12 million in the first three months, plus we approximately have $5 million of stock comp expense for Q1, leaving the need for approximately $11 million of EBITDA, to which we have the ability to apply the entire $40 million cushion, providing us with breathing room to zero in on the operation of the business.

Before I turn the call over to Don, I want to share a few highlights from 2015. As everyone is aware, as I said earlier, the year was extremely challenging. That was the case regardless of whether or not you happen to complete a transformative transaction such as the combination with Nabors completion and production services business.

While the majority of our peer group had the luxury of focusing solely on the downturn and managing around that, our team at C&J worked tirelessly and accomplished an enormous amount on behalf of our company and our shareholders.

2014 ended with an appeal to the Delaware Supreme Court following the lower court's mandated go-shop. In the face of that, due to extraordinary efforts of our legal team, the board and management, we won a historic and precedent-setting ruling in the Delaware Supreme Court in the beginning of the year.

Next, we reopened negotiation of the transaction on behalf of shareholders and obtained a substantial purchase price reduction. Additionally, we worked through the committed financing debt structure and negotiated a new structure that was in the best interest of our shareholders and our bank group. And we received shareholder approval and closed the transaction in March. Again, we were doing all of this while the industry was deteriorating.

Following close, we implemented a strategic reorganization with a complex international structure to maximize all of the benefits associated with being a foreign-based company. We set up multiple new foreign entities, including a captive insurance organization, finance and leasing companies, IT companies. Within that, we've created NOLs which has allowed us to reclaim taxes as far back as 2013, and also positioned ourselves to significantly reduce our tax burdens even in an environment of robust operations in the eventual market recovery.

We also acquired, during the second quarter, an integrated business that designs, manufactures and installs electrical commercial pump systems and products for artificial lift applications. And we managed through an employee base going from approximately 3,400 people in early March to 9,200 people by closing, and ending the year with approximately 7,000 employees, while implementing a new payroll, an HRIS system, and consolidating our employee base on a new health-and-benefit platform that is better for the company and our employees.

And with the complete confidence and the ability of our management team, we also launched Operation Acceleration, which is the implementation of SAP across the organization to position ourselves for growth in the next up-cycle. We are making great progress on all of those fronts.

This transaction was a massive undertaking, requiring considerable teamwork to absorb an organization three times our size and marry the numerous essential systems and functions, and we did so seamlessly without any disruptions or other issues and ahead of schedule.

Given the rapidly deteriorating operating environment in which we closed, we had to double-down on our efforts to streamline our combined company, to further improve our cost structure, right-size our business to market conditions, and we exited 2016 (sic) [2015] (11:57) with a lean, efficient, fully integrated organization.

We managed the business well, and even with lower-than-expected activity levels due to the swift downturn, we were able to capture greater synergies than originally anticipated and at an accelerated pace. For example, we negotiated substantial price reductions for consumables including proppant, trucking, fuel, and ethane (12:25), which generated procurement synergy savings of over $55 million during the nine-month period of 2015 following closing.

We also leveraged our expanded customer base and geographic footprint to drive revenue synergies. We expect the value of these synergies will mount with the eventual market recovery and increased opportunities to maximize the benefits of our greater scale.

Further, I believe the increased scale, customer base, and geographic footprint of our combined company, coupled with the diversified service offering with the addition of well service business, made us much stronger and better able to manage through this difficult environment and positions us to outperform when the market improves.

Secondly, and as Don will elaborate on momentarily, we also grew and enhanced our service offerings through our R&T initiatives. The progress we made has enabled us to further reduce our cost structure and also create additional opportunities to generate revenue and gain market share through enhanced operational capabilities and efficiencies.

The recent introductions of our LateralScience engineered completions technology and our proprietary downhole directional drilling motor are just a few example of how the efforts and dedication of the entire C&J team have better positioned the company to drive revenue, increase profitability and take market share, both in this environment and once the industry begins to recover.

I want to thank all of our employees for their hard work, dedication and sacrifice on behalf of and for the benefit of C&J and its shareholders. We would not be here without the employees and the work that they've done.

So, with that, I'll turn the call over to Don.

Donald Jeffrey Gawick - Chief Operating Officer

Thank you, Josh, and good morning to everyone joining us on today's call. As we indicated on our third quarter call and you have seen from our fourth quarter results, we upheld much stronger overall utilization levels than most of our competitors and the market in general expected of us.

The actions that we took in the third quarter, building on the strategies deployed through the earlier part of the year, had a positive impact and continue to benefit our performance. I simply cannot stress enough how proud we are of the efforts made by the entire organization and the results that we, working as a team, achieved in order to drive impressive margin improvement in such a difficult environment.

Among the notable accomplishments in the quarter was a significant reduction in costs across all of our service lines and support groups and market share gains in many of our service lines, as we continue to see new clients turning to C&J to meet their service needs.

This is a direct reflection of the quality, dedication, experience and fortitude of our employees and their ability to assess, react and adapt to this increasingly demanding market. I'd like to thank each of them for their unwavering focus on delivering operational excellence in a safe and reliable manner during this difficult time.

Turning to our core service lines, in our Completion Services segment, we grew revenue and enhanced profitability for our hydraulic fracturing division by increasing utilization with higher-margin work, stacking our least productive equipment and aggressively controlling costs.

In our coiled tubing operations, activity levels improved at the beginning of the quarter, but were eventually overcome by the effects of the expected year-end seasonal slowdown, as several major customers canceled or delayed previously scheduled work. Throughout the quarter, our wireline operations experienced decreasing activity levels and continued pricing pressure, as revenue declined throughout the quarter.

In our Well Support Services segment, we drove strong margin improvement, most notably within our fluid services line, as a result of judicious management and aggressive cost-cutting measures to combat the seasonal and weather impact on activity levels coupled with undue pressure from irrational pricing by competitors.

As Josh briefly mentioned, we made substantial progress on several key R&T projects and strategic initiatives that lowered our cost structure, enhanced our service offering and made us more vertically integrated, in addition to contributing revenue to our fourth quarter results.

In 2015, we developed into one of the lowest cost producers of perforating guns in the oilfield service industry, which not only directly improved our operating margins and helped us to maintain market share, but has also created a potentially robust third-party sales opportunity for our organization.

Grounded with the downturn of oilfield services activity, many of our competitors have been able to reduce their operating cost structure as vendors have been forced to provide some relief. But we believe that once the market begins to improve, we'll be able to maintain our current low perforating cost structure, while our competitors' cost structures will eventually rise back to the pre-downturn levels as the other third-party suppliers look for return to sustainable profitability.

Also, we are now manufacturing our proprietary addressable switch technology and deploying these in our wireline division. We were able to design, develop, test, and enhance this technology over a short period of time, which is a testament to the collaboration between our operations and our R&T teams.

By combining our addressable switches with our perforating gun design, we were able to lower our overall cost structure further, gain market share, and enhance the profitability of our wireline division, while creating another opportunity for future third-party sales growth as the market improves.

Our LateralScience completion technology is rapidly gaining acceptance in the marketplace, with over 30 different operators deploying the technology on approximately 175 wells. The patent-pending technology is proving to be a robust approach to the engineered completion design, allowing our customers to further reduce their overall cost structure while optimizing their completion designs. Early adopters of the LateralScience technology have seen production gains, replaced their wells in the top quartile within their fields, frequently outproducing their geometrically designed wells by over 30%.

We have made substantial improvements to our proprietary downhole directional drilling motor that was just designated as having the highest torque rating in the industry. Recently, several horizontal wells have been drilled from spud to total depth using one bottomhole assembly at rate-of-penetration rates in excess of 100% greater than direct offset wells where conventional directional drilling motors were used.

The performance of our proprietary directional drilling motor eliminated multiple trips out of the hole to change drilling assemblies, which allowed our customers to eliminate drilling days and substantially reduce their overall costs.

We are currently having discussions with some of the largest players in the E&P sector about meeting their directional drilling needs, and we feel confident that we have created a product that not only will save our customers' time and money, but will allow our company to penetrate a multibillion-dollar marketplace and substantially grow our market share.

We have also made solid progress drilling our artificial lift applications business. In addition to offering a wide verity of products that support artificial lift installations, we're also developing a line of electrical submersible pump systems that are optimized for the small casing sizes typical of long horizontal wells. This business is currently being managed through our research and technology division. And although like our other service lines and businesses it has been impacted by the current downturn, we believe that it has significant growth potential both in the U.S. and abroad.

In summary, we realize that as an organization we will not be able to cost-cut our way to prosperity due to this market downturn. We also need to continue to provide products and services that save our customers' time and money, which will provide concurrent opportunities to grow revenue, improve profitability, and increase market share. Over time, consistent investment in our R&T division and our Other Services segment has enabled our organization to become more efficient and to provide greater value to our customers.

In addition to the major achievements that I listed above, we continued to invest in smaller projects that will increase efficiencies and reduce costs. For example, our coiled tubing operations. Our new proprietary coiled tubing agitator is among the strongest in the industry and will allow us to cut approximately 15% to 20% off the cost on a typical job ticket by eliminating the rental cost associated with third-party agitators.

In addition, our new bottomhole assembly on our coiled tubing units for frac plug drill-out has experienced no operational failures and costs approximately 50% less than other commercially available assemblies currently on the market. We have also retrofitted three of our frac fleets with our proprietary MDT pump control systems at about 40% of the cost of other commercial control systems, which will substantially increase reliability, minimize downtime and enhance margins on our operational frac fleets.

We will continue to focus on projects that reduce our overall cost structure, provide greater value to our customers and enable us to take market share by growing our core businesses.

I will now turn the call over to Randy.

Randy McMullen - President & Chief Financial Officer

Thanks, Don, and good morning, everyone. We generated overall company revenue of $409 million for the fourth quarter of 2015, representing a sequential decline of approximately 4%, still, however, substantially better than the declines experienced by many of our peers in the land rig count.

We reported an adjusted net loss of $52.2 million or a loss of $0.45 per diluted share, after excluding certain one-time items detailed in the earnings release. This compares to prior-quarter results of an adjusted net loss of $76.5 million or a loss of $0.65 per diluted share on revenue of 427.5 million. Adjusted EBITDA improved by over $19 million to $7.7 million for the fourth quarter from negative $11.4 million for the third quarter of 2015.

Due to continued downturn in the oil and gas industry and the resulting further deterioration in demand for our services, we determined in the fourth quarter that it is again necessary to test goodwill for impairment and to test PP&E and intangible assets for recoverability, having previously done so in the third quarter and recorded a non-cash pre-tax charge of $394.2 million related to impairment of goodwill and intangible assets within each of our Completion Services and Other Services segments.

For the fourth quarter, certain asset groups within our Completion Services segment and Other Services segment failed the recoverability testings, and we decided it was necessary to record a non-cash pre-tax charge of $393.1 million related to the impairment of PP&E. No impairment write-down was deemed necessary for goodwill and other intangible assets as of quarter-end.

In our Completion Services segment, we generated revenue of $256.6 million with adjusted EBITDA of $10 million for the fourth quarter, compared to revenue of $256.9 million and adjusted EBITDA of negative $8.6 million for the third quarter of 2015. Considering the declining rig count and the slowdown associated with the holidays, we believe it was a meaningful accomplishment to hold revenues flat from Q3 for this segment.

Our hydraulic fracturing division delivered increased revenue quarter-over-quarter, driven by higher utilization and better pricing on some jobs, which was offset by declines in our wireline and coiled tubing divisions.

Utilization levels for our Completion Services segment as a whole greatly improved as we entered the fourth quarter, but were eventually impacted by the expected seasonal year-end slowdown. As activity levels began to slow in our hydraulic fracturing division, we strategically stacked additional equipment and focused on capturing higher overall utilization levels across our active fleet.

Our strategy of concentrating on key customers in core basins, bundling our entire suite of services, aggressively managing our operational cost structure and stacking lower utilized equipment resulted in improved profitability, despite the challenging headwinds we faced in the back half of the quarter. Even with the strong start to the quarter, the results from our coiled tubing operations were negatively impacted by decline in utilization, as several major customers either eliminated or canceled previously scheduled work.

In our wireline division, both pricing and utilization remained pressured throughout the quarter, as the rig count continued to fall and the effects of the expected year-end seasonal slowdown began to sit in.

Turning to the first quarter of 2016, activity levels in our Completion Services segment experienced a significant decline in activity entering the New Year and have remained depressed. We are managing our operations tightly with a keen eye on controlling costs and implementing further cutbacks, including strategically exiting certain operating regions, closing additional facilities, further reducing head count and stacking unproductive equipment.

In our Well Support Services segment, fourth quarter 2015 revenue was $135.7 million with adjusted EBITDA of $22.3 million, compared to third quarter revenue of $150.9 million with adjusted EBITDA of $23.6 million. Compared to third quarter results, U.S. rig hours decreased by 8.5% to approximately 125,700, while our Canadian rig hours increased by 14.9% to approximately 22,480. U.S. truck hours declined by 11.8% to approximately 481,900.

During the fourth quarter, our Well Support Services segment was negatively affected by the expected year-end seasonal slowdown and continued pricing pressure throughout the quarter due to sustained weakness in commodity prices. We continue to support utilization and protect market share through pricing concessions, while repositioning resources in line with current market conditions and customer demand.

Despite declining segment revenue throughout the fourth quarter, we were able to increase the segment EBITDA margin by approximately 80 basis points through improved efficiencies and aggressive cost cutting.

Looking at the first quarter of 2016, market conditions for our Well Support Services have remained challenged, as customers continue to focus on lowering their cost structure as commodity prices remain depressed. Our plan is to continue working with our customers in order to sustain utilization and protect market share to the very best of our ability.

Our Other Services segment contributed $16.7 million in revenue with negative adjusted EBITDA of $24.6 million, compared to third quarter 2015 revenue of $19.7 million with negative adjusted EBITDA of $26.4 million. As a reminder, this segment includes our smaller service lines and divisions, including cementing, directional drilling services, artificial lift applications, Middle East operations, and our research and technology division.

Our vertically integrated businesses are also part of this segment, including equipment manufacturing and repair, specialty chemical supply, and data acquisition and control instruments. Please keep in mind that corporate overhead and inter-segment eliminations were also included in this segment's results.

Our adjusted SG&A expense for the fourth quarter of 2015 was $47 million, comprising 11.5% of revenue, excluding transaction and severance costs. This compares to third quarter adjusted SG&A of $53.3 million that represented approximately 12.5% of revenue. The sequential decrease in SG&A was primarily driven by our numerous cost control initiatives, including reductions in head count and the closing of duplicative facilities following the completion of the Nabors transaction.

Since the fourth quarter of 2014, on a pro forma adjusted basis, SG&A expense is down over 36%. And looking ahead, the first quarter of 2016, we would expect the SG&A expense to increase slightly as certain employment taxes reset, increasing labor costs in Q1, but will subside as the year progresses.

Excluding one-time items, we incurred $3.4 million in research and development expense for the fourth quarter of 2015, compared to $4.5 million in the third quarter of 2015. The approximate 26% sequential decrease in R&D expense was driven by our continued cost control efforts and our decision to delay certain R&T initiatives until market conditions improve.

So, the fourth quarter of 2016, we currently expect R&D expenses to be down slightly from fourth quarter levels, and we are prepared to further scale back our R&T division and delay certain projects.

With that said, we remain committed to invest in the technologies that will lower our cost base with key inputs and improve our operational capabilities and efficiencies, enabling us to continue to widen the gap between us and our peers. We are confident that these efforts will help us manage through this down-cycle and position C&J to be able to accelerate out of the downturn when the market recovers.

Depreciation and amortization expense totaled $82.7 million in the fourth quarter, compared to $74.7 million in the third quarter of 2015. Keep in mind that lower D&A expense during the third quarter was driven by the one-time true-up of depreciation associated with adjustments to the estimated fair value and useful lives of PP&E for the acquired Nabors business.

For the first quarter of 2016, we expect D&A expense to decrease materially due to the impairment of PP&E taken during the fourth quarter, resulting in an estimated range of $65 million to $70 million for the first quarter of 2016.

Moving to liquidity and the balance sheet: at the end of the fourth quarter, we had approximately $1.1 billion outstanding under our two tranche Term Loan B facility, with an all-in blended book interest rate of approximately 8.25% and approximately $32 million in long-term capital lease obligations at quarter-end.

We had a cash balance of approximately $26 million, with $121 million drawn on our recently amended $400 million revolving credit facility, which currently has a $300 million borrowing base. In addition, post year-end, we have drawn an incremental $130 million on the revolver and our total borrowings now stand at $250 million with current availability of $36 million.

We currently anticipate that revolver availability along with the current cash balance of approximately $95 million provides us with sufficient liquidity to continue to navigate through this challenging environment.

The majority of the draws during the quarter were associated with simply increasing our cash on-hand and exploring opportunities to further reduce cost by shortening our payment cycles to some of the largest lenders. Obviously, the savings would need to be significant to agree to shorter payment terms.

Our outstanding on the revolver has also increased during the quarter due to an increase in our days sales outstanding, which is primarily a reaction to lower oil prices and nothing to do with collectability concerns, as the majority of our top customers are high credit quality.

In addition to the DSO increase that negatively impacted cash, we also had the annual payment of property taxes due in the fourth quarter, and as I previously mentioned, decreases to our days payable outstanding whereby we received input cost savings through quicker payment terms. We expect to benefit from lower DSO in future periods and do not expect our DPO to change from current levels, again, unless we receive significant cost reductions in turn for shorter payment cycles.

We continue to monitor our accounts receivable balances closely, and we do not have concerns regarding future collections. In addition to working on capital improvement from DSO and the continual focus on reducing our inventory levels, we also expect $23 million of cash inflows from tax refunds during 2016. Going forward, we will continue to evaluate and implement operational measures that will enhance our liquidity position.

Capital expenditures totaled $166.3 million for the year, with $24.8 million incurred during the fourth quarter for maintenance of our existing equipment and other activities to extend their useful lives. Given the operating environment, we plan on limited capital expenditures in 2016, primarily for maintenance purposes, which we currently expect to range from $75 million to $100 million. Please keep in mind that our 2016 capital expenditures estimate is based on future operational activity levels, and if the current market conditions persist, we would expect to spend at the low end of the guidance range.

Our effective tax rate was a benefit of 25.5% for the year. The tax rate and resulting benefit is less than the expected statutory rate, primarily due to impairment charges in the current quarter that were not tax-deductible. We anticipate no cash tax exposure in 2016 and further expect that NOLs generated this year will significantly drive down our cash tax exposure in future periods. We would expect our effective tax rate to range between 25% to 30% in 2016.

In summary, I am proud of the hard work and effort by our organization to deliver an impressive improvement in our financial results for the fourth quarter, despite some really challenging headwinds especially in the back half of the quarter. By focusing all of our efforts on increasing our utilization with higher-margin work, we were able to substantially improve our financial performance, which allowed us to generate $7.7 million of adjusted EBITDA in the quarter and $12.4 million of bank EBITDA, which guarantees that the $440 million EBITDA cure basket will be available to us in the first quarter of 2016.

The continued volatility and further declines in oil prices entering the New Year has caused many of our customers to either announce substantial cuts to their estimated 2016 capital budgets or turn to the drawing board to reassess future capital spending.

We are actively monitoring the market and we will continue to address any cut costs and align our business with the current environment. We will continue to implement tight management of SG&A and R&D spend and focus on right-sizing labor costs in line with demand for our services.

Primary objectives during this prolonged downturn are to service our customers to the very best of our ability, to continue to aggressively reduce our operating cost structure, and to maintain an appropriate amount of liquidity that will allow us to participate in the recovery when it unfolds.

I will now turn the call back to Josh for closing remarks.

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

Thanks, Randy. In closing, I want to reiterate what I believe is an important point that Don made. As an organization, we firmly believe that it simply does not make sense to try to slash our way to prosperity. Like others in the industry, we've already done just about everything we can to reduce our costs and we're tightly managing everything that is within our control.

As our customers also remain extremely focused on lowering their costs, it is crucial to the success of our business and our industry that we be able to provide innovative means to extract oil and gas in the most economical and efficient way possible.

In keeping with our value-driven excellence and execution philosophy, I'm excited to share a few details with you about a collaboration effort between our Completion Services division, R&T division and equipment manufacturing business that I'm personally spearheading.

Without giving away too much, we have made substantial progress in designing a highly practical, technologically advanced approach to hydraulic fracturing on unconventional operations that will enable us to work with our customers to significantly improve the economics of their completion jobs, allowing us both to stay profitable even in a low commodity price environment.

We believe that we can enhance our service capabilities and operational efficiencies, while among other things reducing costs associated with labor, equipment allocation and downtime.

As we have discussed on prior calls, our R&T division and the equipment manufacturing business are central to our overall strategy of proactively managing our costs to maximize our returns, and I look forward to sharing more details with you about this project in the future.

Looking forward, like our peers, we have not experienced any strengthening in market conditions since entering 2016 and, in fact, activity levels have notably declined. We do not expect commodity prices to significantly improve over the near term. And although there are signs that we are reaching a bottom, there is little room to worsen. It is still too early to predict the floor and we are prepared for 2016 to remain extremely challenging.

This downturn has already lasted longer and with greater severity than most anticipated, and in my opinion, making guesses about the duration of the downturn and hoping for a speedy recovery is simply not an effective strategy. We're working hard to ensure we are prepared for all outcomes and we have positioned ourselves to be able to endure these challenging times and remain healthy enough to excel when the market recovers.

We are weighing all of our options to determine the best solution for our company, our employees and our shareholders at all times. We will continue to aggressively manage our business, gain market share by focusing on quality and efficiency of our service execution, while keeping a sharp focus on maximizing shareholder value and positioning C&J for the long-term.

Operator, with that, we'll open the call for questions.

Question-and-Answer Session

Operator

Ladies and gentlemen, at this time we'll begin the question-and-answer session. Our first question today comes from John Daniel from Simmons & Company. Please go ahead with your question.

John Matthew Daniel - Simmons & Co. International

Good morning, guys, and really good job on the top line this quarter. Josh, how much of the Q1 activity decline thus far is the result of the customers shutting down versus potentially work being lost to larger players that may have become perhaps more aggressive on price quarter-to-date and/or accommodating customers via extended payment terms?

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

Well, I can tell you that I'll let Don give you his opinion on it. But I don't believe that we're losing business to larger competitors. In fact, what we have seen and heard in the market, the largest competitors, obviously there's four of them, two are combining, one's working on another deal, and one we don't really know where they're at.

So we're not – when we bid jobs, we're not seeing them, we're not running up against them. Every now and then, we get one that's being acquired that goes in and fells low (40:33) pricing, but we're not – I mean, we're working for the likes of RRC (40:37), big customers like that all over the U.S., and we are not losing customers to predatory big three or four.

In fact, the customers that I talked to are actually focused on getting away from locking-in the big three or four. And so I would argue that we have gained market share because of our greater scale and the fact that we have a diversified service base and we are a strategic alternative to the Halliburtons and (41:21) of the world.

And the other guys that are within our peer group, they do well, not all of them offer the suite of services that we offer. I mean, we've now gotten ourselves in a position that we're offering all the way from the workover side to the production side in the commercial pumps to the directional drilling side, and obviously, we have our global alliance with Nabors.

Nabors is about entities, and they've made clear they're about the entities, an impressive rig that is, in my opinion, as rigs go, is just an incredible piece of technology. And on our side, we are going to – we believe the frac industry obviously didn't get that opportunity to push on technology as it related to equipment because of such a shortfall of equipment in 2010.

And so we're taking advantage of the excess equipment in the market and the work that's out there, and using existing components and parts and pieces to change the way we approach the frac and get less equipment, less people on location and lower costs. And so the decline that we're seeing is – I mean honestly, John, we saw people panic. I mean, everyone panicked when oil hits $30, and in January and – in December held in really – strong for December. January is when people really put the brakes on, got nervous and have continued to be nervous and, as Randy said, continue to reassess budgets.

And I can tell you that I was just recently with an executive of an E&P company for a weekend who told me that he had swallowed his word and said that, with the 50% budget reduction, he can drill and complete the same amount of wells in 2016 that he did in 2015, and that he can do that with half the rigs just due to efficiency gain and then cost reductions across the industry.

And so, from an activity level, I think things are getting – we know, we're seeing things are tough all over right now for March and February – I mean, excuse me, for January and February, but it does appear March is firming up and people have gotten past the deer in the headlights look at $30 oil and stomached it and are getting back to focusing on what they have to do to continue to work, which is, at the end of the day, our rig count has gotten down so low now that we have this huge number of wells in 2014 that were drilled that production is starting to roll over and is going to roll over, and the rig count isn't there to keep up with it and our foreign friends aren't in a position to increase production.

And so, eventually, this is going to come back into balance. Until then, you have customers, fortunately we do, they're blue-chip customers with strong balance sheet that understand that it is smart to continue to work when services are at their lowest. And then you have customers who are not so financially stable, and those customers are the ones that are choosing to slow down and wait.

And Don, I don't know if you have anything to add to that.

Donald Jeffrey Gawick - Chief Operating Officer

Yeah. Thanks, Josh. I would just add maybe a couple of points to back up Josh's point that the principal impact we've seen on our activity levels is undoubtedly the shrinking of the service pie, if you will. I mean, simply, a lot of customers deferring or even canceling specific work that they had planned, until they at least see something much healthier in terms of the commodity prices.

With respect to your question specifically, though we certainly have seen some very aggressive pricing by one or two of the big guys, we've heard the same commentary around things like extended payment terms and a number of things that have been addressed. Hats off to our sales organization and to our operations groups for keeping the service up.

So we see some very, very aggressive push by specifically one company, but a couple tend to do it here and there to have the very aggressive pricing and the favorable payment terms. And we've been very successful at being able to hold off losing customers to that particular ploy, if you will.

And again, I think our relationships and the quality of the service that we provided – and again, staying competitive. Obviously, we've had to keep working at our cost base to stay in the marketplace and stay competitive, but we've held our own very well there. And the downturn in the business really is being driven by a considerable shrinking of the overall business itself.

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

And then, John, I would just – a long-winded answer, but I would just add that it's important to note that when Nabors and C&J combined, we did not have an overlapping customer base. And when we talked about synergies, we talk about procurement synergies and not necessarily self synergies, because it's really a hard number to identify. But we at C&J have not lost any of the core Nabors customers.

And in fact, we've expanded our business with the majority of those core customers and vice versa with the legacy C&J core customers we have brought in services through well servicing and other areas that we didn't have from Nabors into that business. And so we've not lost customers on either side. And they're definitely seeing as, it appears to me, as a viable alternative to a diversified service company that has the services they need and the scale they need to get the pricing where they need it in order for us to get the work.

And so we haven't – the names, I think, we hear a lot are smaller names. When I hear complainings from the sales team, it's the smaller names I hear about, it's not the big names.

John Matthew Daniel - Simmons & Co. International

Okay. Well, let me just row in one quick one and I'll let others jump in on the call here. This one is for you, Randy. Our model and assumptions is that the rig count is down 29% quarter-over-quarter, plus or minus a little bit here or there. You guys did a good job outperforming the rig count in Q4. Would you expect that to be the case in Q1 or not?

Randy McMullen - President & Chief Financial Officer

Well, John, I mean we obviously didn't give guidance in the script because of how things are and how unpredictable everything is. I think, from where we sit today, we would expect revenue to probably be more in line with the rig count.

John Matthew Daniel - Simmons & Co. International

Okay. Thanks, guys. Good job.

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

Thank you.

Operator

Our next question comes from Jim Wicklund from Credit Suisse. Please go ahead with your question.

James Wicklund - Credit Suisse Securities (USA) LLC (Broker)

Good morning, guys.

Randy McMullen - President & Chief Financial Officer

Hey, Jim. Good morning.

James Wicklund - Credit Suisse Securities (USA) LLC (Broker)

Your $393 million impairment, how many horsepower did that impact? And can you give us a little bit of a rundown as to what your fleet is right now? How much is stacked behind fence that can't be cannibalized by zealous employees, how much is being cannibalized and how much of that impairment took in terms of horsepower?

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

Yeah. Well, so, on the impairment side, just to be clear, it wasn't just horsepower, it was PP&E across the board. I don't know if that helps or not. We did not take an impairment based off of a certain amount of horsepower or a certain amount of horsepower that we were parking. We just took a general impairment based off of an impairment test that our accounting firm deemed appropriate, and that impairment was across all PP&E from rigs to horsepower to wireline units to pumps. So it wasn't a specific horsepower situation...

James Wicklund - Credit Suisse Securities (USA) LLC (Broker)

I understand. I'm just trying to figure out how much horsepower was included in the impairment, I guess, is better way to put it.

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

Well, from a...

Randy McMullen - President & Chief Financial Officer

The majority of the impairment was associated with the frac service line.

James Wicklund - Credit Suisse Securities (USA) LLC (Broker)

Okay. Okay. That's helpful.

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

Yeah. I mean, the problem is I don't have an exact number for you for horsepower. I mean, Randy's comments are absolutely right, but that's also the majority of the PP&E from a percentage perspective is frac service, right, because of the amount of equipment. I don't have a – I can't say 100,000 horsepower, 1 million horsepower was impaired. I would say all of the horsepower was impaired to some small degree.

Now, what I believe you're trying to get at is how much horsepower do we have, how much is workable, how much is working and how much is cannibalized. At the end of the quarter, we had 16 horizontal fleets and 3 vertical fleets that we were working 24-hour on the horizontal for the most part, they were all 24-hour fleets, roughly working about 700,000 horsepower...

Donald Jeffrey Gawick - Chief Operating Officer

650,000 horsepower to 700,000 horsepower.

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

Yeah. Right. 700,000 horsepower out of what was once, with Nabors and us combined, max would have been about 1 million horsepower. That number workable was really and truly, after we retired some of the old superior stuff, was a little over 800,000 horsepower, and we are, as Don said, about 650,000 horsepower to 700,000 horsepower right now.

On the cannibalizing front, cannibalizing is a word that can be described in many ways, right? So there's lots of ways to cannibalize. One is just park equipment that you're not using and take parts off of it when you need it. And that's cannibalizing, but it's not real smart to go pull a $50 part or a $200 hydraulic pump or (53:09) – two mechanics to pull it, and then when you get ready to redeploy that equipment, you have to go buy that probably and take two mechanics to put it back on.

So we've been really smart, I believe, having the operational background that we have and the focus on it, about taking the equipment that we intended to retire and we do not intend to put back to work. That's the equipment that we're cannibalizing for the most part. And then we're cannibalizing only the items that make sense to cannibalize, not lights and switches and small items like that.

And so what we don't want to end up with in this situation where we have good equipment that we can't deploy because it's been cannibalized. And so what we're doing is, fleets that we are idling that we intend to redeploy as the market gets better, those fleets are being set aside and managed and not being cannibalize.

And then, additionally, we're working probably more pumps than we need to be working. However, we're doing that to extend the useful life of that equipment and keep it fresh. I mean, I would rather work two pumps 50% of the time than I would work one 100% of the time and park one. Parking the equipment, especially with the hydraulic pumps and some of the other components, parking it and not running at all is sometimes rougher on it than just running it.

And so we probably have more active equipment – or not probably, we do have more active equipment than we need at any one time. However, we think it's just more prudent to keep that equipment active so that when we do need to ramp, we can ramp quickly.

James Wicklund - Credit Suisse Securities (USA) LLC (Broker)

Okay. Josh, that's very helpful. I appreciate it. My follow-up, if I could, you talk about how January was when they really put the brakes on, but March looks like it's starting to firm up. How bad was January and February, and as we go into March, if things are starting to firm up -- and I know you're – I don't want you to – I'm not asking you to commit to where the bottom is, but firming up with all your cuts seems to be a pretty positive statement. Is that the way we're supposed to take it?

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

Well, I would just say that to characterize how bad January and February is would be difficult at best. But I would tell you that it's significant – you saw what happened with the rig count. And the behavior we saw out of customers is consistent with the drop in the past four to six weeks in rig count.

And so you can determine whether how bad the severity of the badness is. I can – we thought it was bad enough in Q3 and Q4, and I can tell you that January with a 30% rig count fall has definitely gotten worse, and so it's bad. And I think it's bad for everyone. I don't think it's a C&J bad problem. I think it's just bad for everyone.

We have seen some momentum gain, a little bit of shift in February. And when I say firm up in March, March is getting back to the workloads, the work bidding, the discussion around activity is getting back more consistent with what we saw through the third quarter and fourth quarter, and less consistent with what we're seeing in January.

James Wicklund - Credit Suisse Securities (USA) LLC (Broker)

Okay. Gentlemen, thank you very much.

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

Yeah. Let me – so, just to be clear, because consistent with when I say third quarter and fourth quarter, I'm saying consistent from a normalized basis. I mean, what's happening when you see 30% of your rig count stop, 30% of your rig count was going down and then they were stopping all of their operations at the same time.

March seems to be – it's more of a normalized environment where rig count is what it is and then the activity around that rig count is firm. And so it's not a situation where you have – March doesn't seem to be like January, which was a situation where you had rig count falling and everything else halting. March seems to be like rig count has stabilized, and then the activity around that rig count has stabilized. In other words, we're not getting "we're going to drill a well, but we're not going to do any other work on it" calls.

James Wicklund - Credit Suisse Securities (USA) LLC (Broker)

Okay. Josh, I appreciate it. That's very helpful. Thank you very much.

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

Thank you.

Operator

Our next question comes from Byron Pope from Tudor, Pickering, Holt. Please go ahead with your question.

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

Morning, guys. Josh, I appreciate your comment about you can't slash your way to prosperity and would argue that completion services companies have taken more than their fair share. But I just want to – in an environment where the top line is going to get hit pretty hard here in Q1, should I take that to mean that for the top-line erosion that you see in Q1 and the cost structure is such that we shouldn't expect much in the way of incremental cost savings? I'm just trying to think through decremental margins, not asking obviously specifically how decremental, but just trying to think through it.

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

Right. So I think I'll let Randy talk about decremental margins to the extent you want, so you probably didn't want him to, but I can tell you that, when I say and Don says you can't slash your way to prosperity, what I mean by that is: no matter what we do from a cuts perspective, that doesn't change the fact that we're in a low commodity price environment and it's too low for E&P operators, even with costs getting as low as they are, for E&P operators to continue and to continue with activities that we need to be profitable and activities that we need to justify service lines or pricing that we need to justify them.

I mean, so for me, when I say you can't cut your way to prosperity, I mean you can't cut your way to prosperity. You can't live in a 10,000 square-foot house your whole life and decide that your pay got cut in half and you want your mortgage to go down in half and think that that's going to solve everything. You've got to get your costs down, which we're doing, and we continue to have levers to pull and we're going to pull those levers. I think we've proven, evidenced by the change in third quarter versus the fourth quarter, although – albeit you need to remember the one-time items in the third quarter.

But we've done an incredible job cutting costs. And our procurement team has done an incredible job. Randy and Don, theirselves -- I tell you I can't take any credit for it because I'm not a big cuts guy. I'm more in the policy and procedure side, cost reduction mode. And so, that's where we're at today. When I talk about you can't cut your way to prosperity, we need to find procedurally ways to accomplish the same goal of the E&P customer, but do that in a much more efficient manner.

I mean, I've built this entire business since 1997 with $200. Everything I've ever done has been based off of driving an efficiency that wasn't yet there, whether it came from building a pump that no one else had that combined two pumps, to building a core unit that was faster than anyone's, to building a frac fleet that was competitive horsepower, 34,000 horsepower versus 50,000 horsepower in the Haynesville, to wireline trucks that are second to none in the industry.

I mean, every one of our core services, we are leading in North America in activity, we believe. And if we're not leading, we're definitely in the top three or four. And so, procedurally, I think drilling is a great example, and I have -- fortunately being partnered with Nabors to an extent. I've gotten to see it. Up until 2010, drilling was considered dumb iron. And from 2010 until now, peak rig count was roughly 1,960 rigs, 2,000 rigs, and there's still 4,000 rigs sitting around.

So drilling, unlike frac where all we had to do was order whatever was available at the time and just get it and charge whatever we want, throw manpower at it, do whatever we want, don't worry about procedures, and not look for the best optimized way to do things, just get it done, drilling had to get competitive. And as you've been around the block a little bit, you look at a 2009 rig, you can't tell them from 1980's rig. If you look at a 2016 rig from a 2010 rig, and they become technological advanced piece of equipment that we used to call dumb iron that were probably the most technological advanced land piece of equipment out there today.

And as a result, when we first drilled the first Eagle Ford wells in 2009 and the Haynesville wells in 2008, 2007, those wells were taking 90 days. We're drilling wells in 12 days as recently with the executive with the large E&P company that said he uses Nabors and Nabors takes 4 days max to move. And if they take more than four days, he doesn't pay them, and he is yet to have to not pay them because four days.

I mean, I can remember when that was 150 truckloads in a 25-day rig down move and rig up. And so drilling has done really well. And I think it's time from our perspectives, and we're uniquely positioned to do it because we're the size and scale that E&P companies trust us and we have a reputation that they'll allow us to try new things. So we're not too big. We have too much equipment then we can't try new things and of all then. And so we're working on that.

There's lots of things that are being done in the industry right now frac and (1:05:15) coiled. Honestly, they were developed and done due to a lack of frac equipment in 2010 and 2011. And they were adapted and things, techniques, procedures adapted to compensate for a lack of frac equipment and not wanting to pay for standby and not wanting to pay for access to the equipment. That we're certainly doing today.

And when you go out on location and you see things that are being done, the splurging that is happening that I call $100 oil splurging, people don't even know it's a splurge. They think they've gotten their costs cut in half, let's say half, but they still have too many of something on location because that was the norm when we were at $100 oil.

And so, procedurally, it's how we're going to get our way to prosperity. And so, when you hear me say you can't cut it, that's what I'm talking about. I'm talking about you – there's only so much you can drive same costs (1:06:35) down. There's only so much you can drive some consumable costs down.

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

Right.

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

And once you get down there, then you've got to figure out how you make yourself last. How do you make it work better? How do you get less people on location? What do you do to really have an impact? I mean, when you look at our costs today, the majority of our costs that are less that we could have a material impact on are labor and R&M. And I mean the rest of the major cost line items have had significant price reductions.

And so, for us, the way to adjust labor and R&M is to figure out exactly what I talked about is that just less people on location, less equipment on location and more reliable, effective equipment. And so, that's why our focus is – as far as being able to still cut, we have levers we can pull. Randy and Don has identified the levers. They've brought them to me, and we will continue to pull levers until we don't have levers to pull.

But at the end of the day, even when you cut everything to bare bones, if the market condition is still like they are, something else has to change besides us cutting and lowering costs, and so it has to change procedurally.

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

Great. Thanks, guys. Appreciate it.

Operator

Our next question comes from Waqar Syed from Goldman Sachs. Please go ahead with your question.

Waqar Syed - Goldman Sachs & Co.

Thanks. And congrats, Josh, again for a great quarter. But looking forward into the first quarter, I know there's still uncertainty, but do you feel that you could be EBITDA-positive or break-even in the first quarter? Or it's going to look more similar to the third quarter?

Randy McMullen - President & Chief Financial Officer

Yeah, Waqar, this is Randy. I mean, we're obviously living in a pretty volatile environment and are reacting to the decrease in activity. We're going to have a quarter this quarter where we're taking costs out during the quarter or leaning more on our vendors about price reductions and then taking some other steps to take costs out. So you'll see the full quarter benefit of that in the second quarter. But, during the first quarter, we're going to be living in an environment of reacting and making changes up and down the cost structure.

Waqar Syed - Goldman Sachs & Co.

Okay. And then, on the Term B1 loan covenants, have you had any discussions with the bank group?

Randy McMullen - President & Chief Financial Officer

No. I mean, we've obviously met our covenant requirement in the fourth quarter and are able to roll the full cushion and then some excess into further test periods.

Waqar Syed - Goldman Sachs & Co.

Okay. And then...

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

Yeah. And then, I mean, I would just add to that, Waqar, as far as – obviously we're aware of our balance sheet situation and we're talking and thinking about it every day. And we're going to stay in front of it. We recently just had our board meeting last week. We approved our budget. That budget was put together with – fortunately, this is an environment where it's hard to just take your best guess, like historically we've done using our knowledge.

And so we've had to take data published by you and guys like you and others and public data and come up with a consensus view that we believe is the right side of the view, and then base that view off of what we know about our customers and our internal operations to develop a budget. We did that. I would argue to an extent that it's the best budget that since I've been in business that I've ever seen done and presented to a board as far as substantiated with backup. It was ran through our outside accounting firm and it was picked apart. It was proven and proven and re-proven.

And assuming today's conditions and assuming some improvement later in the year and, like I said, using public data and being a little less predictive as we've been in the past and more fact-based, guidance-based substantiation around the budget. And at the end of the day, when we look at the budget, currently we're not seeing any covenant busts for 2016 and we're not seeing liquidity cuts for 2016.

Now, as I said, that made some assumptions, and so things can change. I mean, we also weren't seeing $30 oil back in November. So, you know as well as I know, in this industry things can change on a dime. The good thing about us is we've always had our finger on it pretty good. From the ground up, we know the business. We're discussing daily the situation and we're staying ahead of it.

And so, to the extent we need to be talking to the banks, when we need to be talking to the banks we'll be talking to them. And we believe that our last roll-out with the banks went really well and we've built credibility with banks. We've proven we can manage. We've proven we can integrate. And we've proven we can forecast.

And right now we're sitting in a really tough quarter with a really nice big cushion that no one thought we would have due to a quarter that we pulled off that no one expected us to pull off. And we understand exactly where we are and we're managing the entire team is managing daily around that and making sure that we're staying ahead of the game.

Waqar Syed - Goldman Sachs & Co.

And Josh, what portion of your Term B1 loan is now held by the banks? And what's held by other investors?

Randy McMullen - President & Chief Financial Officer

Waqar, we don't give that kind of detail. And it's fluid, so knowing that exact answer right now would be speculating at best.

Waqar Syed - Goldman Sachs & Co.

Yeah. Great. Thank you very much.

Operator

And our next question comes from Jud Bailey from Wells Fargo. Please go ahead with your question.

Judson E. Bailey - Wells Fargo Securities LLC

Thanks. Just a quick follow-up actually on the fourth quarter, if I could. You mentioned that your frac revenue was up sequentially in the fourth quarter. Could you give us just a broad sense of maybe what the percentage was just to calibrate it versus the other businesses, please?

Randy McMullen - President & Chief Financial Officer

Hey, Jud. It's Randy. It was around 10%.

Judson E. Bailey - Wells Fargo Securities LLC

Okay. Thank you. And then, my follow-up, you highlighted a couple of things, Randy, in your comments on cash. I think you said you're anticipating a tax refund, but I didn't catch the amount. Could you give us that? And if you highlighted – I mean are there any other uses or any other insources of cash for this year, like real estate sales you mentioned before? Could you repeat those please?

Randy McMullen - President & Chief Financial Officer

Right. The tax number was $23 million and we've got another couple million in real estate sales. Obviously, if you look at the spread between current assets and current liabilities, there's I think a large opportunity to continue to push through cash through both the inventory and specifically AR, as we've seen a fairly sharp reaction to the environment. And just seeing our DSO go up, we don't expect that to stay at the levels and are managing that down actively.

So, given the bottom-line of those two line items, there's significant opportunity to continue to push cash to the organization through managing those down.

Judson E. Bailey - Wells Fargo Securities LLC

Great. Thanks. I'll turn it back.

Operator

And ladies and gentlemen, we've reached the end of the allotted time for today's question-and-answer session. At this time, I would like to close today's conference call. We do thank you for attending. You may now disconnect your telephone lines.

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