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Edited Transcript of CJ.N earnings conference call or presentation 21-Feb-19 3:00pm GMT

Q4 2018 C&J Energy Services Inc Earnings Call

HOUSTON Apr 17, 2019 (Thomson StreetEvents) -- Edited Transcript of C&J Energy Services Inc earnings conference call or presentation Thursday, February 21, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Daniel E. Jenkins

C&J Energy Services, Inc. - VP of IR

* Donald Jeffrey Gawick

C&J Energy Services, Inc. - President, CEO & Director

* Johannes Cornelius Maria van Gaalen

C&J Energy Services, Inc. - CFO

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Conference Call Participants

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* Chase Mulvehill

BofA Merrill Lynch, Research Division - Research Analyst

* Scott Andrew Gruber

Citigroup Inc, Research Division - Director and Senior Analyst

* Thomas Allen Moll

Stephens Inc., Research Division - Research Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and welcome to the C&J Energy Services Fourth Quarter 2018 Earnings Conference Call. (Operator Instructions) Please note this event is being recorded.

At this time, I would like to turn the conference over to Daniel Jenkins, Vice President of Investor Relations. Please go ahead, sir.

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Daniel E. Jenkins, C&J Energy Services, Inc. - VP of IR [2]

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Thank you, operator. Good morning, everyone, and welcome to the C&J Energy Services earnings conference call to discuss our results for the fourth quarter and full year of 2018. With me today are Don Gawick, President and Chief Executive Officer; and Jan Kees van Gaalen, our Chief Financial Officer. We appreciate your participation.

Before we get started, I would like to direct your attention to the forward-looking statements disclaimer contained in both the news release that we issued this morning and the related presentation, both of which are currently posted in the Investor Relations section of the company's website under the Corporate Profile or Event Calendar subheadings.

In summary, the cautionary note states that information provided in the news release, the posted presentation 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 provisions under the federal securities laws. Such forward-looking statements are subject to risk and uncertainties, many 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 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 that they were made.

Our comments today include non-GAAP financial measures. Additional details and a reconciliation to the most directly comparable GAAP financial measures are included in our press release. As a reminder, today's call is being webcast live, and a replay will be available in the Investor Relations section of our website. Please note that information relayed on this call speaks only as of today, February 21, 2019, so any time-sensitive information may no longer be accurate at the time of the replay.

With that said, I'll turn the call over to Don Gawick, President and Chief Executive Officer of C&J Energy Services.

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Donald Jeffrey Gawick, C&J Energy Services, Inc. - President, CEO & Director [3]

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Thanks, Daniel. Good morning, everyone. Thank you for joining us today to discuss our full year and fourth quarter 2018 operational and financial results.

Turning to Slides 3 and 4 of the posted presentation. I would like to focus on a few of our financial and operational highlights for the year. 2018 was another strong year for C&J Energy Services. We accomplished a lot despite the very challenging market conditions we experienced in the back half of the year. We entered the year with strong operational momentum as many of our customers were in the process of increasing both completion and well servicing activities to capitalize on a growing economy and higher oil prices. I am proud to say our operational teams executed at the highest levels, delivering superior service quality to our growing customer base while also achieving the best safety record by incident rates in our company's history.

Additionally, we accomplished many of our strategic objectives by deploying both new and refurbished equipment in all our core product lines, integrating the O-Tex Cementing acquisition, disposing of noncore businesses and deploying new technologies from our R&T division, some of which I will speak to shortly.

We executed on the stock buyback program approved by our Board on July 31 of 2018, repurchasing just over $40 million of C&J common stock in the third and fourth quarters while protecting our strong balance sheet and liquidity position. I am proud of all of our employees' efforts, our overall performance and the annual growth and profitability our organization was able to achieve in 2018.

Staying on Slide 3 and focusing on our financials. We grew consolidated annual revenue to a company record, $2.2 billion, and generated adjusted EBITDA of $284 million, approaching the highest in company history. Through solid execution, we were able to grow both revenue and profitability in all 3 of our operating segments in 2018, which resulted in consolidated annual revenue and adjusted EBITDA growth of 36% and 117%, respectively. Additionally, we generated just over $66 million of free cash flow.

Focusing specifically on our 3 operating segments. In our completion services segment, we grew revenue 31% and adjusted EBITDA 37% compared to 2017. Fracturing revenue increased 29% year-over-year, generating over $1 billion in revenue for the first time in our company's history. In all our completion businesses, we deployed new or refurbished equipment and grew market share. We also continued to focus on our strategy of partnering with efficient customers, and we ended the year back at the low spot fleet count reached in the second quarter.

In our well construction and intervention services segment, we grew revenue approximately 150% and adjusted EBITDA over 220% compared to 2017 largely due to the acquisition of O-Tex in late 2017 that more than doubled the size of our legacy cementing business.

And finally in our well support services segment, excluding our Canadian rig services business that we divested in late 2017 and our artificial lift business that we divested in July of 2018, we grew revenue 14% and adjusted EBITDA just over 130% primarily due to the deployment of additional equipment and disciplined pricing for our services.

Turning to Slide 5 and focusing specifically on the fourth quarter of 2018. Many of the challenges we dealt with in the third quarter continued and intensified as we moved into the fourth quarter, including high levels of customer budget exhaustion, Permian takeaway constraints and year-end seasonality. I'm very proud of our operations team's performance and how they effectively managed our asset base and cost structure in the face of these challenging market conditions while maintaining a strong focus on safety.

In our fracturing business, we were able to allocate equipment to customers with steady or even improving levels of activity, which we saw with certain customers in the Mid-Continent and West Texas.

Overall, we experienced weakening customer demand heading into year-end that resulted in activity gaps and decreased utilization to varying degrees across most of our completions-oriented businesses, most significantly in our wireline and pumping businesses. Activity levels in our well construction and intervention services segment decreased during the quarter as well due to year-end seasonality and the lower overall drilling rig count. Our well support services segment was one of the bright spots in the quarter with continued improvement in both revenue and profitability even with higher-than-expected levels of year-end seasonality. All of this resulted in essentially flat consolidated revenue and adjusted EBITDA decreasing almost 14% year-over-year and consolidated revenue and adjusted EBITDA decreasing sequentially by 14% and 32%, respectively.

In our completion services segment, both revenue and profitability declined sequentially primarily due to customer budget exhaustion, lower activity levels and decreased asset deployment. In our fracturing business, we continued to focus on actively managing our cost structure by temporarily idling 2 horizontal equivalent fleets due to stock market conditions in early October. This enabled us to minimize decremental margins while continuing to focus on delivering excellent service quality and safety.

As we have previously mentioned, our strategy continues to be one of redeploying fleets to large dedicated customers, many of which we are currently working for or have worked for in the past. By early December, we were able to redeploy those temporarily idled fleets to dedicated customers that commenced their 2019 completion programs early, which ultimately resulted in utilization improvement for our fracturing business by quarter end. These redeployed fleets also allowed us to exit the fourth quarter at our third quarter exit rate of 16 horizontal and 2 vertical frac fleets deployed, with the majority of our horizontal fleets dedicated at year end.

In our wireline and pumping businesses, customer budget exhaustion, high levels of year-end seasonality and instances of inclement weather all resulted in lower activity levels in the fourth quarter. Additionally, the general slowing of completion activity in the market going into year-end resulted in our combined wireline and pumping revenue declining by almost 18% sequentially.

In our well construction and intervention services segment, both revenue and profitability decreased sequentially primarily due to customer budget exhaustion, year-end seasonality and drilling rig count declines. All of these factors resulted in unexpected customer shutdowns in our cementing business.

In our coiled tubing business, demand for large-diameter coil remained strong and all of our large-diameter units were deployed throughout the fourth quarter. However, overall activity levels in our coiled tubing business declined due to more severe than expected year-end seasonally, especially in South Texas and the Mid-Continent. Additionally, we experienced unfavorable job mix as completion-driven activity levels slowed going into year end.

In our well support services segment, revenue and profitability increased sequentially primarily due to the deployment of additional assets and disciplined pricing for our services. In our rig services business, we continued to deploy workover rigs into core operating markets such as California and West Texas, and we exited the fourth quarter with our highest deployed workover rig count of the year.

In our fluids management business, we benefited from the full implementation of several contract wins from the third quarter primarily in California, which were partially offset by lower activity levels in South Texas due to unexpected downtime with saltwater disposal wells.

Shifting the focus to our recent technology initiatives, our R&T division continues to bring operational and cost benefits to our core service lines. In our fracturing business, we have continued our initiative to improve blender life and reliability to the development and design of components that demonstrate considerable gains in operational life and reliability. These components are being installed on our active blenders and are resulting in reduced nonproductive time and lower maintenance costs compared to the first half of 2018.

Our data analytics program is making a significant impact, with 11 of our fracturing fleets now streaming operational data to the cloud via our proprietary MDT control systems. Our operations and asset integrity teams are now able to see our fleet performance data via a Web browser whether they are in the office or out in the field, which now allows for the ability to ensure fleets are always operating at the highest levels of efficiency and safety.

We continue to push new technology to lead the industry in plug and perf operations with the introduction of our Tru-Mill frac plug. The Tru-Mill frac plug has superior milling characteristics due to the compression-molded components instead of filament-wound parts common in most frac plugs. The Tru-Mill frac plugs create finely pulverized particles when milled out that provide excellent flow-back and cleanout characteristics.

Additionally, we have increased our perforating gun manufacturing capacity with the commissioning of our automated robotic manufacturing cell that will allow us to internally manufacture most of the guns utilized in our wireline business.

The financial benefit of our R&T initiatives continue to increase. In 2018 we realized $19 million in cost savings from the products we supplied into our operations, which was a 40% increase in savings compared to 2017. The products developed by our technology team are fit for purpose for the shale market and meet high quality standards as can be attested by our success in selling to third-party customers. The sales of our technology products increased by 140% compared to 2017, exceeding over $30 million.

As we turn our attention to the first quarter, we believe the outlook is mixed. We expect our consolidated financial results to be flat to slightly down sequentially primarily due to market softness in several of our core businesses offsetting the improvement in our fracturing business. As customer budgets have been reset and oil prices have firmed, we expect continued utilization improvement in our fracturing business, especially considering the majority of our horizontal fleets were dedicated as we entered the first quarter.

Additionally, several of those dedicated fleets are with large, efficient customers that have accelerated activity levels as we have moved into the new year. These improvements in our fracturing business give us growing confidence that our completion services segment results will likely bottom in the first quarter and should gradually improve through the rest of 2019 despite the competitive pricing environment.

With that said, in our wireline and pumping businesses, we still anticipate lower overall activity levels as many of our customers in our northern operating basins have delayed completion activities until late in the first quarter due to inclement weather. Additionally, the gradual wrap in industry completion activity and expected lower overall drilling rig count in the first quarter will most likely negatively affect the business in our well construction and intervention services segment. However, we do expect additional improvement in our well support services segment from new customer agreements and increased market share in our core markets of California and West Texas that we recently achieved.

With that, I will turn the call over to JK to review our year-end and fourth quarter financials. Then I will wrap up today's call with additional thoughts on the 2019 operating environment.

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Johannes Cornelius Maria van Gaalen, C&J Energy Services, Inc. - CFO [4]

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Thanks, Don. Good morning, everyone. Turning to Slide 6 in the slide deck. We posted with our earnings release this morning and focusing on our consolidated results, fourth quarter revenue was essentially flat year-over-year. However, it decreased 14% sequentially to $491 million. We generated an adjusted net loss of just over $18 million in the fourth quarter or a loss of $0.27 per diluted share. This compared to adjusted net income of approximately $20 million or $0.31 per diluted share in the prior year period and adjusted net income of approximately $11 million or $0.16 per diluted share in the prior quarter. For the fourth quarter of 2018, we generated adjusted EBITDA of just over $49 million, a decrease of 14% year-over-year and 32% sequentially.

Now turning to Slide 8 and focusing on the business segments. Completion service segment revenue decreased 15% year-over-year and 21% sequentially to approximately $293 million in the fourth quarter of 2018. Segment adjusted EBITDA decreased 39% year-over-year and 33% sequentially to $44 million in the fourth quarter of 2018.

Now turning to Slide 9. Well construction and intervention services segment revenue increased 66% year-over-year but decreased 2% sequentially to approximately $94 million in the fourth quarter of 2018. Segment adjusted EBITDA increased 60% year-over-year but decreased 9% sequentially to approximately $16 million in the fourth quarter of 2018. The year-over-year increase was largely due to our acquisition of the O-Tex Cementing business in late November 2017.

Now turning to Slide 10. Well support services segment revenue increased 13% year-over-year and 5% sequentially to $104 million in the fourth quarter of 2018. Segment adjusted EBITDA increased just under 5x year-over-year and increased 19% sequentially to $13 million in the fourth quarter of 2018.

Turning to Slide 11 and moving to expenses. We decreased SG&A expense approximately 27% year-over-year to $50 million in the fourth quarter, which was essentially flat on a sequential basis. The year-over-year reduction was mostly due to reductions in compensation expense, acquisition-related costs, noncore business divestiture costs, restructuring costs associated with our Chapter 11 reorganization and general corporate overhead. Looking ahead to the first quarter, we expect SG&A expense to range between $54 million and $58 million. This is driven largely by short- and long-term incentive plans accrued for net targets in this quarter.

Depreciation and amortization expense increased 59% year-over-year and 44% sequentially to just over $63 million in the fourth quarter of 2018. The increase was driven by capital expenditures associated with new and refurbished equipment placed into service during both the third and the fourth quarter of 2018. Looking ahead to the first quarter, we expect D&A expense to range between $61 million and $65 million.

Staying on Slide 11, due to the softness in the equity markets and the consequential negative impact on our market capitalization in the fourth quarter, our annual goodwill assessment prompted us to record a noncash impairment of $146 million for the full write-down of goodwill associated with our well construction and intervention services reporting unit. Additionally, we recorded a noncash $21.4 million charge on the retirement of certain fracturing, coil tubing and well servicing assets that we deemed to be obsolete and were challenged economics for further refurbishment based on current market conditions as well as prevailing customer preferences.

From a tax perspective, as we previously reported, due to our significant NOL position, we expect that we will not be a cash taxpayer in 2019 and for the next few years outside of nominal state and local taxes. We also expect our effective tax rate to be close to 0.

Now turning to Slide 12. Looking at cash flow, we generated $78 million of free cash flow in the fourth quarter of 2018 by cutting costs, reducing capital expenditures and managing working capital. Capital expenditures decreased 25% sequentially to just under $67 million in the fourth quarter of 2018. For the year, capital expenditures totaled $311 million, which from their midpoint resulted in a 29% decrease to our original 2018 capital expenditure budget announced in February, highlighting our disciplined approach to capital deployment.

For 2019, we expect capital expenditures to range between $140 million and $180 million, with just under 70% of that focused on the maintenance of our deployed equipment. We plan to spend just above 15% of our 2019 capital budget on growth-oriented expenditures that will be focused on our most profitable, highest-return businesses.

In our coil tubing business, we have placed an order for 2 additional large diameter units that should be delivered in the third quarter of 2019. We plan to fund our capital expenditures through operational cash flow, and we want again to reiterate that we will stay focused on achieving one of our main strategic objectives for 2019, generating free cash flow.

During the fourth quarter, we purchased approximately $20 million or just over 1.4 million shares of C&J common stock in the open market transactions at an average price of $13.85 per share. C&J stock repurchases were made as part of the company's $150 million stock repurchase program announced on August 2, 2018.

Staying on Slide 12 and moving to liquidity on the balance sheet. Our cash balance was approximately $136 million at the end of the fourth quarter. Additionally, we have no borrowings outstanding on our credit facility, which had $235 million of borrowing capacity, resulting in total liquidity of just over $370 million at year-end.

As Don highlighted, no matter what the operating environment looks like for us in 2019, our financial philosophy is focused on generating targeted returns, maintaining a disciplined capital deployment strategy, protecting our strong balance sheet and liquidity position and generating free cash flow.

With that, I will turn the call back over to Don for a few closing comments.

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Donald Jeffrey Gawick, C&J Energy Services, Inc. - President, CEO & Director [5]

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Thank you, JK. With the United States now being one of the world's top oil producers, with many of our largest customers having invested heavily in U.S. shale over the past several years, we expect activity levels to gradually improve throughout 2019. We believe this will happen as long as oil prices remain fairly range-bound and don't decrease significantly. Many of our customers have expressed to us that the current $50 to $55 oil environment is right in line with their budgeted expectations. Clearly, we welcome the recent improvement in oil prices, but we acknowledge that continued oil price volatility could create negative headwinds for most if not all of our businesses.

With that said, even as our customers stay disciplined and live within cash flow, we still see ample opportunities to deploy equipment and service our customers' growing needs. In fact, a few of our largest customers, especially in West Texas, have voiced a desire to continue growing their rig count throughout 2019 despite the current volatile oil price environment. As we get further into the year, stable commodity prices, the growing dock well count and the alleviation of persistent takeaway constraints, especially in West Texas, should present future revenue opportunities for our company as most of our customer base should be in a good position to increase activity levels. But no matter what the environment looks like in 2019, we will stay focused on generating targeted returns, lowering capital spending and generating free cash flow.

In closing, I want to thank our employees for their continued hard work and dedication. Despite the challenging market conditions that we faced in the back half of the year, our employees stayed focused on meeting our customers' needs and delivering our products and services with high service quality and safety. Their hard work and dedication enabled us to be successful in 2018 and positions us well for continued success in 2019 and beyond. Thanks again for joining us on our call today. We appreciate your interest in C&J.

Operator, we are now ready to open the call to questions.

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Questions and Answers

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Operator [1]

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[Operator Instructions.] And your first question this morning will be from Tommy Moll of Stephens.

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Thomas Allen Moll, Stephens Inc., Research Division - Research Analyst [2]

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So I wanted to start off on CapEx, specifically where you're highlighting the 30% reduction for maintenance on a per fleet basis for frac. Can you help us understand what some of the drivers are there to be able to bring that down, and then to the extent it's got to do with your cloud-based analytic system? Any more details you can give us on that and whether you think you may ultimately deploy it across more fleets would be helpful.

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Donald Jeffrey Gawick, C&J Energy Services, Inc. - President, CEO & Director [3]

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Yes, so we're seeing really the fruits of some of the investments we've made over the last couple of years in our fleets, where we did a tremendous amount of upgrading. We referred to it last year as not just a refurbishment program for a number of our fleets, but also an ongoing upgrading of fleets in the field. So we've really gotten the fleets high-graded at this point. We're seeing the fruits of that bear out in terms of lower overall maintenance costs, and we certainly are continuing to focus on the notion of analytics, predictive maintenance and really optimizing what we're doing from a cost perspective in terms of overall ongoing costs to keep the fleet running at an optimal level.

In addition, we've got a number of R&T projects over the past while, and we continue to have several more coming up that have lowered our operating costs on an ongoing basis. So those efforts are really starting to pay off for us, and we're certainly seeing a decrease on our ongoing maintenance costs on a per-fleet basis.

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Thomas Allen Moll, Stephens Inc., Research Division - Research Analyst [4]

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Okay, Don. And then as a follow-up, I want to make sure I'm hearing you correctly on completion services bottoming in Q1. I think the takeaway from that is revenue and EBITDA likely down versus utilization for frac, which should be up quarter-over-quarter? So am I correct -- hearing you correctly there, and if so, is the takeaway just there's been a price reset that's going to run through the P&L starting this year?

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Donald Jeffrey Gawick, C&J Energy Services, Inc. - President, CEO & Director [5]

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Yes, so there's several moving parts there with respect to that segment. You're correct on the frac portion. We really saw what we think was the bottom in frac in Q4. We've seen our utilization start to improve, largely -- there's a couple of reasons -- but largely because we've continued to move more and more fleets into a dedicated basis. So we exited Q3 with 6 suites working in the spot. We exited Q4 with only 3. We anticipate by the end of this quarter, we'll have no more than 1 and possibly no fleets working in the spot.

So clearly, we've seen the bottom on frac. It tends to lead in terms of the completion services, so it heads down first and heads back up first. We're seeing wireline and pump-down be a little bit behind in the cycle, as they have been really kind of bottoming this quarter. We're already seeing some good signs, though, that things are turning. And so if you take the segment as a whole, we really do expect to see fairly flattish revenues and slightly down EBITDAs, and again, due to some of that pricing reset that we did see in the Q4 with the slowdown in the market. But as the business starts to pick back up and we move into the next several quarters, we anticipate seeing pricing start to move up again, especially in the second half.

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Operator [6]

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And the next questions will be from Chase Mulvehill of Bank of America Merrill Lynch.

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Chase Mulvehill, BofA Merrill Lynch, Research Division - Research Analyst [7]

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I guess a quick follow-up to that. If we think about where your maintenance CapEx per fleet is today, where does that sit today, and where ultimately do you think you can get it?

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Johannes Cornelius Maria van Gaalen, C&J Energy Services, Inc. - CFO [8]

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Well, I think the advent of the MDT controls and the monitoring through the cloud services, I think, are going to provide a much better level of predictive maintenance on our equipment. Obviously, the fact that we have 7 new or refurbished fleets, which are really upgraded fleets, now in our fleet and our continuing program in terms of reducing further MPT on the well side, so well handled by our operational team, are going to drive that down further. In terms of any firm numbers, we would not be surprised if we could drive it down a further $0.5 million per fleet. But obviously, that is also depending on the increased demands put on the equipment by the increasing volumes of sand in terms of the pumping schedules.

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Chase Mulvehill, BofA Merrill Lynch, Research Division - Research Analyst [9]

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Okay. And if you decrease that by $0.5 million, where does that get you to now?

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Donald Jeffrey Gawick, C&J Energy Services, Inc. - President, CEO & Director [10]

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Probably $3 million per fleet per year or slightly lower.

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Chase Mulvehill, BofA Merrill Lynch, Research Division - Research Analyst [11]

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Okay. All right. And then if we think about potential reactivations going forward, what kind of EBITDA per fleet would you need before you kind of think about reactivating any stacked fleets?

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Donald Jeffrey Gawick, C&J Energy Services, Inc. - President, CEO & Director [12]

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Yes, so we -- our current thinking for this year is it's unlikely that we see enough of a pricing rebound, barring some unforeseen huge ramp-up in commodity prices that would be big enough to justify it. But we're still sticking with our general target of high teens to $20-ish million of EBITDA per fleet per year. And it would have to be with a customer that had a very rich inventory of activity and that could commit to us for a period of at least a year with that kind of margin. So again, I think it's going to take a little while maybe for the industry to get back to that in our current outlook. But we do anticipate prices starting to move up certainly as we go through the year and especially the back half.

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Chase Mulvehill, BofA Merrill Lynch, Research Division - Research Analyst [13]

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Okay. And then in 1Q in your outlook for kind of flattish to down a little bit for overall, I guess that's an EBITDA number, what kind of EBITDA per fleet is included in that kind of 1Q outlook? What kind of plausible range do you have for EBITDA per fleet?

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Donald Jeffrey Gawick, C&J Energy Services, Inc. - President, CEO & Director [14]

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So we did in the mid-6 range, low to mid-6 range per fleet on average in Q4. And bear in mind we had a couple of fleets that we shut down early in the quarter and then started back up for the last month of the quarter in those. The anticipation going forward is that the numbers continue to improve from that point and head in the right direction. Leading edge pricing today is certainly better than that, but we'll have to move at getting all of our fleets closer to the high end of the range.

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Johannes Cornelius Maria van Gaalen, C&J Energy Services, Inc. - CFO [15]

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Chase, obviously pricing is important, but utilization of the frac fleets is nearly as important, if not more important, at the end of the day. So the fact that we expect to end the first quarter with largely all of our fleets dedicated bar 1 is really going to help in terms of avoiding white space, subject obviously to the customers getting their ducks in a row.

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Chase Mulvehill, BofA Merrill Lynch, Research Division - Research Analyst [16]

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Yes. So if you think about just utilization and ignore kind of pricing and hold it flat, is it plausible to get your $10 million of annualized EBITDA per fleet without any pricing?

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Donald Jeffrey Gawick, C&J Energy Services, Inc. - President, CEO & Director [17]

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Definitely.

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Operator [18]

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(Operator Instructions) The next question will be from Scott Gruber of Citigroup.

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Scott Andrew Gruber, Citigroup Inc, Research Division - Director and Senior Analyst [19]

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Staying on the reduced maintenance cost per spread, which is great to hear, we're hearing similar things from a few others with these next-gen monitoring systems really leading to a material extension in hours of useful life between major refurb and replace events, particularly for the transmission and power ends. I'm assuming you're seeing gains on this front and that's contributing to the reduction in cost. Can you comment and provide some color on just the amount of hours you're able to squeeze out of the key components between major refurb and replace events with the analytics you're doing?

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Donald Jeffrey Gawick, C&J Energy Services, Inc. - President, CEO & Director [20]

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Yes, and again, it's still early days. We're seeing it continuing to improve. So ultimately, I'm not sure where we can get, but we're certainly headed in the right direction. The power end side of the equation, quite frankly, we're still waiting to kind of evaluate just how well we do there. We made some major upgrades working with our third-party suppliers, and we're really improving what we're seeing for performance with their next-gen equipment. So I'll wait to comment on the hours that we're seeing, but we're really seeing it improve dramatically from what we had seen in 2018.

In terms of the major component numbers, again, it's a little bit early to see how far we can take that, but we are definitely seeing improvements across the line in terms of the major components. Some of the things that we've done over the last few years, like changing out what we've done in terms of cooling systems, et cetera, as well have really improved, obviously, the life on our engines, for instance. And again, early to say how big an impact that's going to be, but it's significant already and moving up in the right direction. So as we get a little bit further into the year, we can probably start commenting a little more specifically on what kind of improvements we've seen on a year-on-year basis. But early on, it's already quite impressive.

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Scott Andrew Gruber, Citigroup Inc, Research Division - Director and Senior Analyst [21]

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Great. We'll wait for that color. And you may have answered this in Chase's line of questioning. I may have missed it. But what growth in stage count are you expecting within frac in 1Q versus 4Q?

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Donald Jeffrey Gawick, C&J Energy Services, Inc. - President, CEO & Director [22]

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Actually, we didn't get into that with Chase. In terms of overall count, I don't know that we've got a hard number to give you. I would expect we'll certainly be up at least something in the mid- to high single digits. But we can get back to you on that one.

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Scott Andrew Gruber, Citigroup Inc, Research Division - Director and Senior Analyst [23]

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Okay. And just on well support, now that you guys are consistently producing double-digit EBITDA margin, it sounds like your market position continues to improve here. How should we think about the margin trajectory in that segment over the course of 2019?

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Donald Jeffrey Gawick, C&J Energy Services, Inc. - President, CEO & Director [24]

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I'd say the kind of slow, steady improvement you saw in '18, you should expect to continue to see throughout '19. Nothing -- not moving too quickly, but relentlessly moving higher.

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Johannes Cornelius Maria van Gaalen, C&J Energy Services, Inc. - CFO [25]

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Bringing more rigs to the market, making sure that our rig teams delight in terms of customer performance and safety. Jack is doing a wonderful job on the well support services business, grinding it slowly higher by quarter.

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Scott Andrew Gruber, Citigroup Inc, Research Division - Director and Senior Analyst [26]

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Got it. Good to see. Now one last one for me. Noncash compensation expense in 1Q, where's that going to land?

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Johannes Cornelius Maria van Gaalen, C&J Energy Services, Inc. - CFO [27]

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Approximately $5 million of it is part of the accruals there.

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Operator [28]

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Ladies and gentlemen, this will conclude our question-and-answer session. I would like to hand the conference back over to Don Gawick for his closing remarks.

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Donald Jeffrey Gawick, C&J Energy Services, Inc. - President, CEO & Director [29]

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Thank you, operator. I just want to thank everyone for joining us today on the call and for your continued interest in C&J, and we look forward to speaking with you again after the first quarter. Thank you.

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Operator [30]

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Thank you, sir. Ladies and gentlemen, the conference has concluded. Thank you for attending today's presentation. You may now disconnect your lines.