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Ladies and gentlemen, thank you for standing by, and welcome to the Badger Daylighting Ltd. 2020 Second Quarter Results Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Paul Vanderberg. Thank you. Please go ahead.
Thanks, Deketria. Good morning, everyone, and thanks for joining Badger's 2020 Q2 Investor Call. With me today is our CFO, Darren Yaworsky; and Jay Bachman, our Vice President of Financial Operations.Badger's 2020 second quarter earnings, MD&A and financial statements were released after the market closed yesterday and are available on the Investors section of our website and also on SEDAR.We are required to note that some of the statements made on today's call may contain forward-looking information. In fact, all statements made today, which are not statements of historical fact are considered to be forward-looking statements. We make these forward-looking statements based on certain assumptions that we consider to be reasonable. However, forward-looking statements are always subject to certain risks and uncertainties, and undue reliance should not be placed upon them as actual results may differ materially from those expressed or implied. For more information about material assumptions, risks and uncertainties that may be relevant to such forward-looking statements, please refer to our Q2 press release and management discussion and analysis, along with Badger's 2019 annual MD&A and the 2009 (sic) [ 2019 ] AIF. Further, such statements speak only as today's date, and Badger does not undertake to update any forward-looking statements.So for Q2, the quarter was, without a question, a time of unprecedented economic and business uncertainty. We focused on 3 major business areas during the quarter: number one, the health and safety of our employees and customers; number two, on reducing cost and on business restructuring; and three, strengthening Badger's financial position. We're very pleased with the progress we made in each of these 3 areas. With health and safety as Badger's overriding focus, I'm proud of our response to the COVID-19 pandemic and our ability to continue to safely service our customers with our essential services through these unusual times. Our ability to continue to safely service customers is a testament to the hard work and dedication of our entire team. The improvements made to operating costs drove better margins, even notwithstanding 17% lower revenue than we had last year. The strength of Badger's proven and flexible business model is reflected in our Q2 financial results. And third, we acted to preserve capital and ensure liquidity given the economic uncertainty, and Badger's financial position continues to be solid.Before I get more into the details, I would like to highlight that our second quarter results include a number of nonrecurring items, which affected margins and net earnings. It was a busy quarter. A detailed summary of these costs and their impact is summarized in the Q2 earnings release. For revenue. Our revenue in Q2 was 83% of the prior year quarter. Revenues were impacted due to the broad economic slowdown as the result of COVID, combined with lower revenues associated with oil and gas. Revenues in the quarter trended positively for each successive month with June revenue trends being more positive than April. And also they were positive on a month-over-month basis and on a year-over-year basis. We were encouraged to see ongoing recovery from March and the improvements in customer activity. We continue to see modest improvements, with July and August month-to-date revenue being approximately 85% to 90% of the prior year comparatives. Revenue and customer activity levels continue to vary regionally due to the variability and the reopening of the economy. Although we are in the early stages of the economic reopening, it's encouraging to see the improvements in customer activity levels.As you know, the majority of work we do is on projects that are already approved, permitted and financed. And we all know that with infrastructure, competing a project is what turns the cash. We continue to stay close to our customers to ensure that we can meet their future needs as activity levels improve.RPT for the second quarter was $23,458 compared to $32,265 in the prior year quarter. As a reminder, RPT for Q1 2020 was $24,966, so Q2 ended up slightly lower. RPT was directly impacted by the reduction in activity due to COVID-19, not a doubt.We continue to focus on fleet optimization and also on labor cost management. This was reflected in the Q2 RPT of $31,000 for those trucks that were operated during the quarter. This really helps put some perspective about our direct labor management. This $31,000 compares to $32,265 RPT for Q2 last year. Fleet optimization and direct labor management continue as a focus for us. This focus will, of course, be helped by any further improvements in customer activity as we go through the rest of the year and into 2021.On gross profit margin, margin was solid in the quarter. I was very pleased, especially considering the 17% lower revenue. Gross margin for the quarter was 34.5%, which is 310 basis points higher than the prior year. The improvement in margin was driven by execution on our cost reduction initiatives, the net benefit of the Canadian Emergency Wage Subsidy program. It's easier for me to say CEWS. And that being offset by our nonrecurring restructuring costs. Excluding the impact of the CEWS and the nonrecurring cost, gross margin in the quarter would have been 32.5%. As a reminder, Badger's prior year quarterly results included a onetime $5 million benefit related to the recovery of the PG&E receivable, which Badger had previously written off. If we take the benefit of the sale of that receivable out of the prior year quarter, Badger current quarter adjusted margin of 32% would have been 420 basis points above last year.We're pleased that the Q2 cost reduction initiatives benefited our financial results so quickly. And as disclosed in our earnings results, we're well positioned for continued improvements in margins and revenues in the second half. We would, though, also like to note that the second half operating expenses will be impacted by a modest increase in dollar spend on direct costs in such areas as sales and admin. As we've seen improvement in activity, we have been selectively bringing back furloughed employees. Overall, though, this is very positive, and any employees that come back will be based on our higher revenues.Also, as noted in the earnings release, the impact of the CEWS program is anticipated to be less meaningful in the second half due to updated program requirements and Badger's revenue improvements. As you know that the program benefits are calculated each month based on a decline in this year's revenue from the corresponding revenue in the month of the prior year. Adjusted EBITDA for the second quarter was $35.6 million compared to $39.2 million last year, with an EBITDA margin of 26.4% compared to 24.3%. Included in adjusted EBITDA is a net benefit of $600,000 related to nonrecurring items, details of which are fully noted in the earnings release. The $600,000 net benefit consists of $5.2 million related to the CEWS program, that being offset by $4.6 million in net restructuring costs. Excluding these items, Q2 2020 adjusted EBITDA margin would have been 26.0% compared to 24.3% last year. Again, this would not reflect a comparison of the accounts receivable recovery in Q2 last year.As we've discussed in the past several quarters, we anticipated a lower G&A expense run rate as 2020 progressed and the required spend on IT and ERP-related cost moderates this year. This trend is playing out as expected, and I'm happy to report that our financial results are now reflecting the lower run rates. G&A as a percentage of revenue for the second quarter, excluding the impact of nonrecurring items, was 6.5% compared to 7% in the prior year. We're pleased that our efforts to leverage our administrative scale post ERP implementation and formation of the shared services center, which was accelerated during the quarter are demonstrating the benefits. As noted in our Q2 quarter release, we're consistent with our Q1 2020 release. And we continue to anticipate our 2020 -- 2021 G&A expense to be approximately $40 million. But of course, we'll continue to review this area for additional opportunities. And as discussed on this call last quarter, we continue to review all aspects of the business in order to drive enhancements in operating performance. Our third focus area in the quarter was maintaining Badger's strong balance sheet and financial flexibility. As part of our COVID response plan to preserve capital and liquidity, we curtailed production of hydrovacs and other capital expenditures. As a result, during Q2, we completed 12 new hydrovacs and retired 13. Badger intends to continue with lower capital spending until we have additional clarity on what's going to happen with the market, the economy and customer activity levels. We, of course, are focused on driving fleet utilization, and we'll certainly be looking to move equipment and drive utilization before we add additional units. We do expect to continue to manufacture a small number of specialty units, combined with a small number of the new Generation 5 hydrovacs throughout the second half. Badger continues to maintain a strong financial and liquidity position. At June 30, the company had an excess of $325 million in total liquidity available through a combination of cash on hand of approximately $25 million and $300 million in committed credit facilities. At the end of Q2, our total debt less cash on hand to EBITDA ratio was 1.2x, well within our financial covenant of 4x under the credit agreements. We also made good progress on management of our accounts receivable portfolio during the quarter. I am particularly pleased with the internal process improvements that Darren and the finance team, together with John Kelly and the operations team, made in Q2. It's been a real partnership. This progress has been supported by improved visibility into operations and improved functionality from our ERP system. And this helped us improve our credit granting, our billing administration and collections processes, front to back. We are looking forward to continued progress on AR in the second half. So a couple of closing comments before we open it up for questions. These are undoubtedly unprecedented times. We anticipate that economic uncertainty will continue until the pandemic is brought under control and society and the economy can return to -- somehow to a state of normalcy. We've taken a range of actions to manage through this environment, which we believe were required and prudent. We're pleased with their results. We focused on health and safety. We positioned our cost structure to reflect lower activity while taking advantage of the ERP system. We preserved capital so that in the near term, we utilize capital efficiently, but more importantly, to ensure that capital is available for future growth and the opportunity we see for Badger services. Despite the unusual environment we're in, nothing since the onset of COVID causes us to change our view of the significant U.S. and Canadian opportunity for nondestructive excavation services and in Badger's long-term growth prospects. In fact, we believe that heightened society safety awareness driven by the virus will ultimately support further demand for nondestructive excavation.Badger's proven business model, supported by our operating scale and flexibility, our diversification of end-use and geographic markets, along with Badger's strong operating track record across all stages of the economic cycle, supports achieving our near-term results and also our long-term growth aspirations. Badger's model proved out in Q2 2020.We remain focused on generating long-term growth and driving shareholder returns. Consistent with our communication in previous quarters, our long-term strategic financial and operational milestones are: number one, to double U.S. revenues from fiscal 2019 levels over the next 3 to 5 years; to target adjusted EBITDA growth of 15% on average over the next 3 to 5 years; to target annualized adjusted EBITDA margins in the 28% to 29% range; and maintaining utilization and targeted revenue per truck in excess of $30,000.So with those comments, let's turn it back to Deketria for questions.
[Operator Instructions] And your first question comes from the line of Yuri Lynk with Canaccord Genuity.
Nice quarter. Just wanted to dig in a little bit more on the margin improvement we saw because there's lots of moving parts. So can you kind of characterize the -- on the one hand, the better available labor, I think, in the quarter and lower labor costs, less over time and that stuff, with some of the more structural changes you're making with back office consolidation and some of these other initiatives you're able to undertake with the ERP in place? So just trying to get a sense of relative contribution and how sustainable it is.
Okay. Yes, good question, Yuri. Just a couple of quick comments on direct labor. The reason that we wanted to share the $31,000 RPT for the quarter on the units we operated was just that, to get some more visibility for investors. And that's really the story. The RPT for the entire fleet including trucks that are parked don't really tell the story. So John and the ops team did a really, really nice job in managing direct labor, and you really get some sense into that from the $31,000 RPT for those trucks that were operated. And Darren, why don't you -- I've been talking a lot. Why don't you comment on the G&A side?
Sure. Yuri, it's nice to hear your voice again. So on the G&A side of things, all of the activity that we implemented in the quarter was actually planned, not only as part of the shared services implementation, but also post ERP effectiveness. And I have to say, I'm really proud of the team and all of the changes that we made, I think, effectively and smartly in the quarter. I think the thread that you might be pulling out on your question is, have we compromised long-term growth with short-term cost cutting? And the simple answer is no. So we've sized the group of -- the G&A group -- or sorry, the sized the G&A cost to support revenue in excess of $1 billion. So we feel like there's a tremendous amount of runway to support our growth without having to add any kind of meaningful cost in the G&A side of things. And they're sustainable cost. I think we're early stage. We anticipated that we would have taken most of the cost out in Q3 and Q4. And I think the hard work of the team, we were able to take out more costs in Q3. And those costs are sustainable to support the long-term growth and value creation for the business.
Yes. And the other part of that, Yuri, back to the direct cost, we have the indirect section of direct cost, which is the staffers as opposed to the labor, the direct labor on the trucks. And as you know, we furloughed or laid off approximately 30% of our nonoperator workforce in this. And we stepped back and took a really hard look at it. After 3 or 4 years of significant growth, it was time to take a look. And we used the downturn as that time to do that. As I mentioned in the comments earlier, we're selectively adding back some positions, but that would be in those areas where we're seeing the revenue recover. And it would be the sales and admin support positions that would be justified by that revenue. So we're going to continue to be pretty tight on that. And we'll see the dollar spend go up, but the plan is any positions added back, while we have this uncertainty, will be linked to revenue opportunities.
Okay. And I think you said in the prepared remarks or in the MD&A that revenue is still tracking, I guess, 10% to 15% lower early in this quarter. Can you just touch on some of the areas or geographies that are showing the most pronounced weakness and some of the ones that are stronger?
Yes. And my comments would be compared to what, and that would be last year. So I'll make those comments based on last year on a regional basis. But the weaker areas, no surprise to anyone on the call, would be our oil and gas focused areas. So you look in Alberta, Saskatchewan. Outside of the municipal work in Alberta, we're doing really well with municipal work, but the oil and gas continues soft, right on down through the Mountain states and into the Permian. So that's where it's fairly soft. No surprise to anyone there. And those are the areas we're down year-over-year. At the same time, though, we have been absolutely delighted with the cost management that our regional managers have maintained in those areas. In fact, we've had some of our best -- actually, we have had our best cost management in those areas, Alberta, the Mountain States region and South Central. So very, very pleased about our management's response there. And on the other end of the spectrum, we've had some of our Midwest markets, Ohio Valley and Upper Midwest that were a little softer this time last year with all the wet weather, has actually been very solid year-over-year. And those are our older, more mature U.S. markets. We have very experienced management there, and they've done a really nice job managing through this, the downturn with COVID and manage expenses, but also in recovering as the markets have recovered. So those would be the bookends. And West Coast continues to be solid. BC is pretty good year-over-year. The Northeast was fairly hammered by COVID, as everybody knows, and that's come back. And down the East Coast, it's been kind of a checkerboard with where really different customers are at different stages, but by and large, recovering from the March lows.
Your next question comes from the line of Maggie MacDougall with Stifel.
A question on working capital improvement, which was pretty significant, adding $17 million to cash from operations. I'm wondering if you can help us understand how much of this was resulting from improved working capital efficiency initiatives that you've undertaken versus just a decrease in operational activity levels during the quarter.
Yes, yes. Maggie, I'm going to let Darren answer this because he and his team have just done a phenomenal job, and my overall comment would be we made really significant progress in the last 4, 5 months with getting improved processes and systems in place for our processes. So -- but Darren can talk about the details. I could not be more pleased on the way this is going.
Maggie, it's nice to hear from you again as well. I won't get into all the technical stuff that we've done, although I'm very proud of what the team has done, and we've moved the needle quite materially. But I think to answer your question quite right off the top is we didn't see a reduction in our working capital requirements because of reduction in sales volume. So if we look at the revenue volume that we had in Q1 versus Q2, they're within a couple of million dollars of each other. So it was all process improvement and being more focused on our collection activities. To put it more simply, what we've done is we've taken a risk-based approach and a more systematic approach to managing the collection of our receivables as well as granting credit, which has helped us really move the needle in 1 quarter. We've also made some changes to the leadership in the staffing and the collections group. And I'll call out Kim Kiggins, who is now the head of the group, has done a great job there. We've also implemented a new collections monitoring tool called Get Paid. To put that into perspective, a collector could typically talk to 100 customers in a week, pre-systems upgrade. They can now touch over 300 customers in a week, and we're a lot more organized on asking for a money back.Probably another data point that's helpful is we really focused on the higher risks first to collect. So when you start looking at our aging buckets, what you're seeing in the Q2 numbers is a meaningful reduction in the sub 90 days. I will tell you, as of Monday, my age report, we've made $6 million reduction in the over 90-day bucket, and in particular $3.5 million reduction in the over 120-day bucket. So we're -- we've done some great work to date, but there's still a lot more work to be done.
So year-to-date, there's been quite a big improvement if I look at the -- just the working capital that's been used. And I'm curious to your last point that there's more work to be done. Should we be expecting a similarly material step change in working capital through the back half of this year? Or would you say you're, I don't know, 3/4 of the way through the improvements?
Geez, you sound like my boss, making me declare myself.
We're going to hold you to it.
I would say that we're going to have some material changes in our cash used to fund working capital. Maybe said differently, we'll be smarter stewards our shareholders' capital. It's going to take some time. The only caveat I will say is I don't know what's going to happen in the global market, in particular, the North American market. We're seeing some signs of social unrest in certain pockets. Don't know how that's going to manifest into people's preservation of cash. But if the world was to stay the same as it is today, I'm pretty confident we'll make some material improvements, but I do want to give myself a little bit of wiggle room.
Okay. One final question on my end is I'm quite curious to hear how your customers have been doing. Realize that you have a very large number of customers, but perhaps just a bit of background in terms of how they've handled through the crisis, how they're preparing for the remainder of the year, and if you've noticed any sort of trends that have developed in that area.
Yes. No. Maggie, great question. That's something very near and dear to our hearts, and we're trying to stay close to all of our customers. And as I discussed in the last quarter, we viewed the activity with COVID as almost like a checkerboard with thousands of squares, and each customer has their own circumstances. We continue to see a range of activity. But generally, people have gotten back to work, and our customers are in the infrastructure business, either providing essential services that are required for day-to-day life or there are projects that they need to get up and running to get them operating, so the cash flow can start going. And that's a real advantage of our essential service focus there. So by and large, that's been the trend. But just some more color, we have a range of customers. We've seen municipalities that have just powered through the crisis. And the intention is we're going to keep all our people working. And then we've had contractor customers who -- large ones that shut down entirely even up for a month back in March when this kicked in, saying, "We don't know exactly what's going to happen. We're going to take a time out for a month until we get all the safety aspects of this right." And of course, they're now -- they've now for months now been back working. But that was the range of response that we saw. But folks are back working now to the extent possible, and that's the real positive trend.I'm delighted with our July and August trending at 85% to 90% so far where we were last year. And as everyone on the call knows, summertimes are busy, outdoor construction season. I would have given my right arm to get back to this level on about April 6. So I think we're in a pretty good spot compared to where we thought we might have been when we were talking the last quarter.
Our next question comes from the line of Matthew Weekes with Industrial Alliance.
So I just wanted to quickly just go back to margins real quick and kind of excluding those onetime things, the benefit in 2019, the restructuring costs this year, the margin improvement was very strong. And I guess I just wanted to ask, were you guys at all surprised by exactly how strong the margins were in the quarter?
Yes. Well, when we went into this, we had our plan. We knew we had to take a really good look at cost. And I think I might have even used the term -- I know I did at the Board meeting in April. I might have used the term on the Q1 call as we're going to take an opportunity to reset and look at a cost reset to the extent possible.And when you look at the type of economic hit that we all took, business gets pretty simple. You focus on those things that are controllable, and you can't worry about what happens with the pandemic, but we can focus on what's controllable. So that's what we did. And we're really pleased with the results. And it wasn't just with the operations. It wasn't just with trying to control direct costs. I mean we went top to bottom on the income statement.So it's kind of like spring cleanup after the winter. After 4 years of a lot of growth, we took that to earnest. And so that reset is going to be there. But there will be some things that will creep back in. I talked about adding back sales and admin positions as revenue required -- recovers. And the CEWS benefit is going to fall off over time. That's a structural calculation. So that's going to fall off over time. But we try to provide visibility in the details in this quarter, so everybody could gauge that. And -- but when taking all those one-offs away, it's a significant movement in margin.And to me -- I've been involved with Badger 4 years now, the operating leverage in this business model is extraordinary. And that's why we've really focused on all the things that we have, getting the platform in place, our systems and processes in place, our ERP system in place. And as these foundational blocks get put into place, future growth and the future of Badger is going to help us leverage all that for better margins in the future. And that's why I've been confident in our target of 28% to 29% EBITDA margin as this goes. And quarters like this give us some visibility into that future. And that's what we're going for, Matthew.
Okay. And maybe just one follow-up question, and you mentioned focus on the things that you can control. Maybe shifting over to something that maybe you can't control as much. Did you see a benefit at all from lower fuel costs in the quarter? Was that an impact? And I think it's been mentioned before that, that fuel is generally your second largest direct expense. Did you see a significant impact at all fuel in the side?
Yes. No, fuel is our third largest expense. And our first largest expense is direct labor on the trucks. Depending on location, 35% to 40% of revenue. Then you have maintenance on the trucks, 6% to 7% of revenue. And then fuel, plus or minus 5% of revenue. So we did see the benefit of lower fuel costs, and that's always a positive. We have continued to make very good progress on fuel surcharges. And those, of course, are lower. As the fuel costs are lower, that we actually have fuel surcharges based on a fuel cost index, so there's visibility to the customers. Even with the lower fuel costs, the fuel surcharges still benefited us. So we're in a good position, but our surcharge implementation percentage has continued to go up throughout all this time frame. So our folks and John's team in the field continues to do a very good job on all of that. And to be able to have a surcharge to offset variability in fuel expense is the ultimate hedging tool. And the organization has done a nice job there.
Okay. So as I understand it, essentially, probably most of that is hedged, and it's only about 5% of revenue anyway. So it wasn't really a hugely material impact on the margin side then?
Yes. No, I'm really pleased with how we've hedged it and the percentage hedging -- the implied percentage hedging and the surcharges that the team has built up. And it's improved in each of the last 3 years since we started it. So it's not as big impact, and it's not as big impact because of our operating success in the surcharges.
And your next question comes from the line of Jonathan Lamers with BMO Capital Markets.
I apologize if I missed this. I'm multitasking today. But on the substantial gross margin improvement for the U.S. business, I understand, like you explained well how a portion was related to getting the fuel surcharges and your fuel costs coming down. But there is a few other good items in there. Is there any way to size how much of that related to overtime pay going down? Because I would assume that if revenue goes back to prior level, you would see -- or even at this level in the future, you would see the overtime pay go back up at some point.
Yes. That's a good question, Jonathan. I'm not really sure how to answer that. The overtime is going to be very local market-specific, and it's not going to be a consistent trend. It would be -- for example, we have a job that we're trying to close out or you have some kind of emergency response that requires a certain amount of work to get done. So that one is not as easy to predict. But for example, overtime in the quarter was lower in general than it would have been in last year when we were busier and operators were more difficult to recruit. But I don't really view that as something that would be a structural difference year-over-year. And it's something that our local area managers always have to think about, do I bring on another operator? How much am I working my staff? And it's that incremental operator add that's really key. So it's -- I don't really view that as something that's going to be structurally different a year from now and I didn't see it as structurally that different a year ago.
Okay. That's helpful color. And again, apologies if I missed this, but just on the revenue outlook, are you seeing any indications that there could be formal restrictions on construction activity or other end market activity in any of your jurisdictions, for example, in the south or the west?
Yes. I mean if you go back to March, we did see some local municipalities attempt to impose total economic shutdown, including construction when the pandemic first hit, and there were some markets in the Northeast that went that direction, but they backed away from it very quickly for a lot of reasons because of essential work that has to get done. So I think everyone has really sorted that out, and we haven't really seen any of that. We have seen some slowness in permit granting in certain jurisdictions because of government employees being working from home. And it seems like in some jurisdictions, working from home with the building agencies and the governments doesn't allow them to do permits. So we've seen some of those type of dislocations, but it's very spotty and city by city specific. So -- but we've been living with that for a few months now. That's nothing really new.
Okay. And I appreciate the color around quarter-to-date revenue being 85% to 90% of prior year. Have you seen any slowing over the past week or 2? People are looking for high-frequency data points.
Yes. Well, we're all looking for the same data points that's why we shared July and August run rate. But I mean, you get different activity week to week, and that's normal in this business. You get a big project. We could have a turnaround at an industrial facility that could drive some regional utilization, and we could be working 24 hours on some turnarounds but those come and go, but that's not any different than Badger's normal business model. And so -- that's why we try to provide that visibility and we're providing as good information as we had yesterday for our directors at the Board meeting in our disclosure. The one thing that all of us just have to live with is the fact that because of the economic uncertainty, our visibility is just not what it used to be, and it's going to be there for a while. And that's why we've been so focused on our cost structure. That's the best thing we can do and the biggest lever we can pull as we continue to manage through this uncertainty. That's the part of Badger's business model that's, to me, so exciting, is that the operating leverage is there in the good times, and we have the flexibility in the bad times.
[Operator Instructions] Your next question comes from the line of Jeff Fetterly of Peters & Co.
A couple of clarification questions. The fuel surcharge that you spoke to a couple of minutes ago, is there a lagging or staggered element to the fuel cost versus the fuel surcharge implementation?
Well, we basically -- we based it on published indices, Jeff. So to the extent that the indices may be lagging their monthly index, so there's not much of a lag.
So for example, in April and May, if you realized very low fuel prices, would the fuel surcharges have been adjusted at a similar pace for those months? Or would you see a potential stagger based on those indices?
Yes. I wouldn't see more than about a month lag.
Okay. The cost reduction side, in the MD&A, you guys talk about sort of $25 million of annualized cost reductions. How much of that would have been realized or implemented in Q2?
Darren, you want to kind of cover that?
Jeff, I just want to make sure I'm understanding your question correctly. When you say would have been implemented as our planned basis or what we have did?
Realized. When you talked about restructuring activities undertaken will generate annualized run rate savings of $10 million in SG&A and $15 million in op costs. How much of that $25 million annualized number did you actually realize in Q2 versus implement and will realize in the second half of the year or beyond?
Okay. I definitely understand your question now. Thank you for the clarity. So I'll definitely answer it from a G&A perspective, and maybe Paul can handle it from a direct cost perspective. When we were giving our forecast or comments in Q1 call, the $10 million reduction in G&A was planned more over Q3 and Q4. We accelerated that, and we feel like the G&A cost reductions have actually been taken out closing out the Q2 quarter. So those are costs that we believe are sustainable across the back half of the year. And Paul, I don't know if you want to take the direct cost question.
Yes. On the direct cost side, I mean, we made most of our furloughs and layoffs and restructuring moves in April. So April was really a very noisy month. And May gave us a partial month of visibility, and we had a much cleaner look at cost in June as we exited the quarter. So that run rate is just about all in place now. So I was pretty anxious to see the May and June cost roll-ups, but that's basically where we stand.
Follow-up to the DSO and AR commentary a few minutes ago. So just so I understand, Darren, you -- when you look at your 90-plus day outstanding AR, you have seen an improvement in terms of quality and collections there. Did I hear that correctly?
Yes. So the improvement in the numbers that I gave were since the disclosure you saw for Q2. So as of Monday, we collected an extra $6 million or reduction, a net reduction in AR by $6 million as of Monday. And over the 120 days, it was $3.5 million. So we continue to see improvements in that aged bucket. There is a fair amount of data cleanup that we did just to make sure that we were doing the right -- having the right conversations and doing the right actions for our customers in that bucket.What I can say from a risk rating perspective, once we apply a risk rating against our overall AR portfolio, over 70% of our roughly 24,000 customers have a risk rating with a score better than BB. So we're finding that the collectibility or at least the probability to default of those counterparties is pretty low, which is translating into likely a higher-than-anticipated success rate in our collections.
Do you have a broader target in mind in terms of where you want to move DSO over the second half of the year or going into next year?
Yes. The second half of the year, it might be a little bit hard to give that kind of target. But for exiting 2021, we'd like to be sub-80-day DSO.
Last thing just on CapEx. Paul, you referenced, obviously, the low run rate that you're expecting in the second half of the year for manufacturing. What do you need to see from an end market standpoint or fleet utilization standpoint to give you comfort to start to ramp up manufacturing again?
Yes. Well, I mean, I don't see it really being any different than we've seen in past cycles. You get into the high 20s and into the $30,000 range. Our activity is going to pick up quite a bit. But as you know, Jeff, and everyone on the call knows, that's going to be different in different regions. And so as you get into the $27,000, $28,000 range, we'll be picking up our activity from there on.
Okay. Great. I appreciate the color. And great job on a very challenging quarter.
Yes, Jeff, the questions on AR are really important. And just one more data point for the folks on the call. With our previous legacy systems, we had several week delay in closing out tickets to actually invoicing. And with our new system, unless there's a master service agreement in place, and we have certain large customers that want weekly or monthly billing, we're doing all of our invoicing daily. So there was a delay that was never reflected in our historical AR in just between the time we actually did the work and paid the cash out in operating expenses and in our billing. So Maggie had asked the question earlier, and Jeff, your question reminded me, I wanted to mention that when Maggie was on the call. So that's the value of our new business platform, and those are the things that you don't see on the financials, but they show up in the cash and the bank account.Well, thank you, everyone. I don't see any other -- Deketria, any other questions in queue?
There are no further questions at this time.
Okay. Thank you. So we appreciate the follow-up and interest in Badger. These are very interesting times. And in interesting times come opportunities, and that's the way Badger is approaching 2020 and 2021.So on behalf of all of us, we thank our customers, our employees, our operating partners, our suppliers and shareholders for your ongoing support. And that's really what makes Badger succeed. So be safe, everyone.
Thank you for your participation. This concludes today's conference. You may now disconnect.