C&J Energy Services Management Discusses Q2 2013 Results - Earnings Call Transcript

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 |  About: C&J Energy Services, Inc. (CJES)
by: SA Transcripts

Operator

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the C&J Energy Services Second Quarter Earnings Conference Call. [Operator Instructions] This conference is being recorded today, August 1, 2013. And I would now like to turn the conference over to Lisa Elliott with Dennard Lascar. Please go ahead.

Lisa Elliott

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

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

In summary, the cautionary note states that the information provided in the news release and on this conference call that speaks to the company's expectations or predictions of the future, including projections, assumptions and guidance, are considered forward-looking statements intended to be covered by the Safe Harbor provision in the Federal Securities law. Although these forward-looking statements reflect management's current views and assumptions regarding future events, future business conditions and outlook based on current available information, these forward-looking statements are subject to certain risks and uncertainties, some of which are beyond the company's control that could impact the company's operations and financial results and cause C&J's actual results to differ materially from those expressed or implied by these statements.

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

A replay of today's call will be available and accessible via webcast by going to the IR section of C&J's website and also by telephone replay. You can find the replay information for both in yesterday's news release.

As a reminder, information reported on this call speaks only as of today, August 1, 2013, so any time-sensitive information may no longer be accurate at the time of the replay.

And with that, I'll turn the call over to Josh Comstock, C&J CEO and Chairman.

Joshua E. Comstock

Thank you, Lisa. Good morning, everyone. We appreciate you joining us for our second quarter 2013 earnings conference call. With me today are Randy McMullen, our President and Chief Financial Officer; and Don Gawick, our Chief Operating Officer. Following my comments, Randy will discuss our financial results in more detail.

Now on to the second quarter. Although our second quarter results were impacted by the challenges facing the pressure pumping market, our underlying performance was sound. The quality and efficiency of our operations are reflected in the solid margins that we generated in a highly competitive market. We believe that our ability to successfully compete in and manage through this difficult operating environment is a testament to the quality of our equipment, our people and our culture.

In our hydraulic fracturing operations, although revenues declined quarter-over-quarter, available time on location was actually slightly up. Our spot market exposure led to a variety of job mix with higher average standby time per job. Typically, when we discuss activity, we are referring to pumping time and associated stages completed. In that regard, activity was down quarter-over-quarter due to the increased standby time.

Overall utilization varied throughout the quarter with a slight uptick over the second half. Spot pricing remains stable. Two of our fleets experienced pricing reductions in early May as legacy contracts transitioned into new pricing structures based on market terms. Also, with the scheduled expiration of a contract on June 30, all of our frac equipment is now working in the spot market or under agreements that are reflective of current market rates. While the transition of performing more spot work has its challenges, we see significant opportunity to differentiate our services from our competitors' based on our best-in-class efficiency and superior execution.

We have always appreciated our spot work as a valuable marketing tool, enabling us to introduce our premium services to new customers and strengthen our relationships with existing customers. We continue to focus on improving utilization and expanding our customer base by targeting customers who recognize the value C&J provides through efficiency gains that result in significant cost savings to them. We are confident that our ability to execute more effectively and efficiently than our competitors will drive demand for our services as our operational reach and reputation continue to grow within the pressure pumping market.

Our coiled tubing results softened slightly quarter-over-quarter largely due to items that are not expected to impact future quarters. We experienced a drop in activity by certain customers and short-term disruptions in the Mid-Con and Bakken. Demand for our services was also affected by an industry trend toward longer-reach, larger-diameter coiled tubing. We are aligning our equipment with the needs of our customers while continuing to provide the highest level of service. We're confident that the actions we have taken will enable us to capitalize on changing industry trends, and we have already seen improvement in utilization as we enter the third quarter.

Our wireline business, Casedhole Solutions, generated another quarter of outstanding results as we improved on the first quarter's record performance. We introduced our wireline services into new areas and captured high utilization through targeted marketing efforts. Our topdown [ph] operations also have had consistently strong performance and have grown rapidly.

The acquisition of Casedhole represented a key step in C&J's growth and has strengthened our competitive positioning. We have successfully levered Casedhole's customer relationships and expanded geographic presence to introduce our other business lines and offer combined services. We will continue to add wireline capacity in support of Casedhole's rising activity levels as we increase our market share through the expansion of our customer base and geographic footprint.

Looking forward to the remainder of 2013, we see many opportunities ahead of us to expand our customer base and service offering. Although we do not expect pricing and utilization to materially improve without a significant increase in rig count, we are encouraged by the indications that pricing has stabilized across all of our services and utilization has remained strong. We believe that activity in the second half of 2013 will remain steady with only the typical holiday slowdown in Q4.

Our fundamental strengths are well aligned with the industry's movement towards longer laterals, multi-well pad drilling and greater service intensity with 24-hour work, and we have the right resources in place to capitalize on this trend. We have reinvested our cash flow in the growth of our business as we successfully broaden our operational reach and depth. Our ability to deliver best-in-class completion of services across multiple service lines without a loss of quality or efficiency differentiates C&J from our competitors and provides a competitive advantage. We will continue to focus on building our market share by providing premium services that generate superior returns over the long term and distinguish C&J as a leading player, bringing value-added services to our customers and delivering long term value to our shareholders.

I will now turn the call over to Randy to discuss our second quarter results in more detail.

Randall C. McMullen

Thanks, Josh. Good morning, everyone. In keeping with our usual format, I will provide additional detail around our financial results.

For the second quarter, we generated $267 million of revenue and $0.38 of earnings per share, inclusive of an after-tax charge of $0.01 per diluted share associated with a noncash inventory write-down related to a decrease in the market value of certain spare parts.

Revenue decreased 3% quarter-over-quarter due to declines in activity levels within our hydraulic fracturing operations. As Josh mentioned, revenue was also impacted by the lower pricing associated with the new agreements for 2 of our dedicated fleets.

Looking at our hydraulic fracturing operations specifically, revenue from these services declined 8% sequentially to $160.5 million, accounting for 60% of our overall second quarter revenue. We performed 7% fewer fracturing stages quarter-over-quarter, and monthly revenue per unit of horsepower declined 11% to $195 in the second quarter. The sequential decline in both completed stages and revenue per horsepower primarily resulted from increased standby time on location, which is billed at a reduced rate, partially offset by a slight uptick in pumping time in the latter half of the second quarter.

Our coiled tubing revenue decreased 11% to $32.5 million compared to the prior quarter as a result of lower activity levels coupled with increasingly competitive pricing. Utilization declined as core customers reduced their activity and we encountered short-term interruptions in the Mid-Con and Bakken. A broad shift towards large-diameter coiled tubing also impacted demand for our services. We are aligning our coiled tubing equipment with the change in industry preference, and we believe we're well positioned to support our customers.

Our wireline business delivered another record quarter. Casedhole Solutions generated $67.7 million of revenue during the second quarter, reflecting a 9% improvement quarter-over-quarter. Average revenue per truck and wireline runs also increased. These strong results were achieved through higher activity levels with existing customers and the expansion of our customer base and operating area. We will continue to invest in the growth of this business.

Our manufacturing operations generated approximately $1.6 million of third-party revenue during the quarter. Although this business has been impacted by equipment overcapacity in the completions industry, we continued to achieve significant cash flow savings from intercompany purchases.

Turning to gross margins. Second quarter gross margins of 32.4% increased approximately 20 basis points sequentially after adjusting for the reclassified expenses that we outlined in the press release, which I will discuss in a moment. Gross margins improved as we benefited from the combined effect of strong performance under legacy term contracts, continued operating efficiencies and judicious cost management.

Moving on to SG&A. SG&A costs increased around 5% quarter-over-quarter to approximately $34 million, representing 12.6% of revenue. The increase in SG&A is due to costs associated with the growth of our business, including vertical integration efforts across our service lines, the build-out of our research and technology capabilities and geographic expansion. These initiatives contributed $2.9 million of additional SG&A expenses. We expect SG&A costs for the remainder of 2013 to come in between $70 million to $75 million with the majority of the increase stemming from investments in our growth initiatives.

During the quarter, we completed a review of our general and administrative expenses and determined that certain of these costs, such as insurance costs associated with personnel charge to direct labor, are more appropriately reflected in the direct cost line item on the P&L. As a result, we have elected to make this change to the P&L, and that has been applied consistently to all periods presented or discussed in our earnings release and on today's call. This new presentation will also be reflected in our full year report on Form 10-Q, which will be filed with the SEC next week. We reclassified $3.2 million and $5.3 million for the second quarter and first quarter of 2013, respectively.

Adjusted EBITDA decreased 6% for the first quarter to approximately $54 million, and adjusted EBITDA margin was 20% in the second quarter versus 21% in the first quarter.

With regard to the balance sheet, at the end of the second quarter, we had a cash balance of approximately $13 million and $245 million available under our $400 million revolving credit facility. We currently have $150 million outstanding after repaying $70 million of the $220 million drawn in June 2012 to partially fund the acquisition of Casedhole Solutions.

Despite the highly competitive environment, which has impacted pricing and activity levels, we have continued to generate strong cash flows. We have and we'll continue to aggressively reinvest in the enhancement and diversification of our service lines to drive growth and further differentiate C&J from our competitors.

Now on to our cash flow statement. During the second quarter, we generated $33 million of cash flow from operating activities, which decreased from $62 million for the first quarter due to large income tax payments and an increase in our DSO. The increase in DSO was due in part to the increased percentage of revenue from new pricing agreements and spot work as we have transitioned from our legacy term contracts, which had stipulated payment terms.

In terms of capital expenditures, we had $42.5 million of CapEx during the second quarter, a majority of which consisted of construction costs for new coiled tubing and wireline equipment as well as modification and maintenance costs for our coiled tubing and hydraulic fracturing equipment.

We expect our remaining CapEx for 2013 to range from $40 million to $50 million, which will be funded with cash flow from operations. The increase in annual CapEx is related to the growing equipment needs of our service lines. We are adding new capacity to our wireline business and building infrastructure associated with the new equipment. Our coiled tubing spend has increased as well due to modification to our units and the addition of our new support equipment. We have also committed to new equipment within our fracturing operations in order to better accommodate the various market requirements across our operating regions. With these investments, we are preparing ourselves for opportunities that may arise in the near future as we focus on increasing our market share due to the expansion of our customer base and geographic footprint.

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

Joshua E. Comstock

Thank you, Randy. Throughout 2013, we maintained our long-term perspective and focused on the execution of our growth strategy. During the second quarter, we further advanced on a number of strategic initiatives, including cost reduction efforts centered on procurement, distribution and self-sourcing materials to meet our internal needs. We also broadened our vertical integration efforts, enhanced our research and technology capabilities and strengthened our engineering sales force. In terms of our global expansion efforts, last quarter we announced the hiring of our President of International Infrastructure Development. We are pleased with the progress he has made to date, and we have continued to build infrastructure while finalizing facility leases, assembling operational and administrative teams and signing key partners in our targeted regions. We're actively pursuing a number of compelling opportunities, and we are optimistic about our future prospects.

We're proud of the progress we have made towards reaching our short- and long-term goals, and we believe our efforts have strengthened our ability to capitalize on any market improvements. We look forward to reporting our developments on future calls as we continue to grow our company into a leading large-scale, geographically diversified provider of the most technologically advanced services, delivering value to our customers, employees and shareholders. With that, operator, we'll open the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question is from the line of Robin Shoemaker with Citi.

Robin E. Shoemaker - Citigroup Inc, Research Division

Say, Josh, so the status of fleet 1 now, is it in the spot market here in July following the expiration of the term?

Joshua E. Comstock

Yes, that's correct.

Robin E. Shoemaker - Citigroup Inc, Research Division

Okay. And so kind of what I'm getting at is I know you repriced a couple of fleets around the 1st of May, so we would see the full quarter impact. If pricing is kind of stable, as you described, would we see another quarter or 2 of lower revenue per horsepower just because of these rollovers and pricing rollovers?

Randall C. McMullen

It's Randy. From a pricing perspective, obviously having a full quarter impact of the new pricing agreements from an apples-to-apples comparison, we'll have lower pricing in the third quarter for those 2 fleets. And the same applies for the fleet that rolled off the contracts and went into the spot. We don't expect an impact to the utilization of that fleet as that was only a 1/2-month contract, but the pricing under that contract was above current market price.

Robin E. Shoemaker - Citigroup Inc, Research Division

Okay. And have you made any other -- I just want to see if you had any update on what you would intend to do with Fleet #9.

Joshua E. Comstock

So, we're -- right now, we're still -- we've talked about Bakken, and we're still looking at that. We've been focused on getting the utilization up with this fleet rolling -- Fleet 1 rolling off contract. We want to get the utilization up across all of our fleets before jumping off and taking that fleet up there. That said, we are actively pursuing work for it in our current regions.

Robin E. Shoemaker - Citigroup Inc, Research Division

Okay. And just to clarify, I think you said maybe in the press release that the quarter was progressively better from April, May, June, or June was the best maybe in terms of utilization? So does that trend -- did that trend in June -- better June continue in July?

Joshua E. Comstock

Well, the utilization is -- what we said was the second half of the quarter, we saw a slight uptick. And the utilization varies. We have definitely seen some uptick.

Robin E. Shoemaker - Citigroup Inc, Research Division

Which in the -- affects the third quarter as well, I guess, is the question?

Joshua E. Comstock

Right, it could.

Operator

Our next question is from the line of Byron Pope with Tudor, Pickering, Holt.

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

Josh, the Casedhole strategy is playing out quite nicely. I was just wondering if you could frame for us as you add some additional capacity in coming quarters. In terms of order of magnitude, by how much should we expect that service line's asset base to grow whether in number of units or maybe percentage of -- percentage growth in the asset base?

Joshua E. Comstock

Well, it's hard to say. We have recently decided to add additional units with increased demand we've seen there. And so internally, what we've discussed is we will continue -- as that demand continues to be there, we will continue to add equipment and keep equipment in the queue for that service. They have done a really good job of keeping what they have fully utilized and having quite a few lost jobs. And so we are -- we will continue to add there. Currently, what's the number? Five trucks on order. And originally, we had 58, taken that to 65. So that'll take that to 70 approximately. That could continue to increase as long as the demand is there.

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

Okay. And then with regard to the coiled tubing -- modification to the coiled tubing units, I think of your coiled tubing fleet as being higher-spec assets to begin with. So is it fair to think about the modifications that you're making to some of the units as really only impacting a -- maybe a relatively small percentage of the fleet to address the structural issues or the trend that you noticed that you're seeing in that market?

Joshua E. Comstock

Yes, so we were really -- we've been quite vague for competitive reasons, but we do have our spec coiled tubing units and -- which gives us the ability to make some of these adjustments to them. What we have seen is a trend for not only the large diameter but longer reach, large-diameter tubing. And so it could effectively affect the majority of the units, not just a few of them. And we are working towards having the largest amount -- or we'll put it this way, the largest fleet of large-diameter coiled tubing in the regions we operate, and we're currently close to that. So read into that what you can, but it would affect the majority of our units.

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

Okay. And then last question for me. The -- in Q2, the increased standby time on location, I'm assuming that, that -- this is something that's going to bounce around from quarter to quarter depending on jobs and whatnot. Nothing -- it's not...

Randall C. McMullen

No, that's right. I mean, that's -- with the spot market, current -- with the spot market exposure, before we've been 100% -- or 85% was contracted. We -- the job mix was relatively stable with the spot market exposure. We're working for a much larger customer base now, a much larger variety of jobs. And so the -- that standby time will bounce. The bigger point there is to understand that during the second quarter, we were out on as many jobs -- from an activity perspective, we were out on as many jobs as we were in the first quarter, or as many locations. We just increased standby time versus pumping time.

Operator

Next question is from the line of David Anderson with JP Morgan.

David Anderson

Can you talk a little bit about the higher run of CapEx we've seen and where it's going -- and look out where it's going to be the rest of the year? It sounds like a good chunk of it is going to coiled tubing, but can you talk about what else is behind this increase?

Randall C. McMullen

It's Randy. Yes, the majority of it is with coiled tubing and wireline. But also, as we mentioned on -- in the script, it's also associated with some additional equipment on the frac side just to give us more flexibility and maneuverability in the spot market.

David Anderson

Is there maintenance spending on the frac space in there?

Randall C. McMullen

Well, it's included. But in our forecasts, the maintenance CapEx associated with all 3 service lines hasn't increased.

David Anderson

Okay. Okay. I just -- a question on the kind of pricing trends. Actually, I [indiscernible] the pricing trends or sort of the operational trends you've been seeing out there. Now you guys get paid by the stage on all your fleets, right?

Joshua E. Comstock

No, our -- we bill -- so you bill for a pumping hour, that's one rate; a standby hour, that's a lower rate; and then you bill for your products, your sand and your chemicals.

David Anderson

Okay.

Joshua E. Comstock

We don't have a per-stage price. It -- essentially, they will all equate to a per-stage price at the end of the job, when you look at how many stages you pumped versus what the total figure was. But we don't bill unless requested by the customer, and then we take all those factors into account to come up with a stage. But we don't bill as a per-stage frac.

David Anderson

So I was asking because some of the others who do get price per stage were talking about maybe that the pace was being slowed down sort of intentionally by the operator, just kind of sort of slow-walking things. I was just curious if you've seen that within any of your customers. In other words, I'm kind of -- just kind of curious of how aggressive they're being in term of these contracts.

Joshua E. Comstock

Yes, I mean, we're not seeing that at all. I mean, at all, not on location. The -- I mean, which is evidenced by the wireline and the success of the wireline. I mean, the wireline is -- almost all of what we do with wireline is plugged [ph] per -- all associated with new well. And they're charging by the run. And so you -- the activity up there, we're not seeing that at all. Once we're on location, it has -- everything we're doing is 24-hour work, and the customer is pushing to get finished as soon as you're rigging up. So we've not seen any change there.

David Anderson

So what percentage are you at 24 hours right now on your fleets? Basically, you kind of -- overall, just kind of a rough number?

Joshua E. Comstock

I mean, it's above 95%. I mean, there are jobs here and there that are not 24-hour, but it's because they're completed in less than 24 hours. So either vertical or -- we -- I can't think of -- I'm looking at Don right now to see if he's known any, but I can't think of any horizontal work that we do that is not 24-hour.

David Anderson

Okay. All right, that's good to know. The -- one last quick question. We've talked about the Middle East. Sometime, I know you guys have been kind of poking around there, trying to get a -- looking for a contractor. Can you just kind of give us an update of kind of where you stand there, kind of where you think you'll be in 12 months kind of thing in terms of Middle East?

Joshua E. Comstock

Yes, we've purposely, again, not given a lot of guidance there, but we are really pleased with the progress we're making there. We would hope that in the next 12 months, that we will definitely have operations in that region.

Operator

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

Michael R. Marino - Stephens Inc., Research Division

Randy, just trying to clarify to make sure I understand things correctly, but you bridged the gap from maybe Q2 into Q3. Revenue from -- or you effectively own [ph] the spot market now, or you will be in Q3, and you lose 2 crews in the mid-quarter. I mean, is that the -- is that effectively kind of what you lose from a top line standpoint, if you could? Could you help us quantify that so that we can get a...

Randall C. McMullen

Yes, what -- just to be clear, we're not -- when we say the spot market, we're just talking about pricing for each of our fleets. We still have fleets that are under dedicated commitments, albeit they're not take-or-pay contracts, but they are pricing agreements that dedicate those fleets to a particular customer. So the 2 that we spoke about that repriced, I mean, that scenario exists. So they are not in the spot. They are working for the same customer day in and day out. They're just doing it under a different form of agreement. The pricing did come down for each of those. One, the magnitude was much less, because it had been repriced in the first quarter. But in the second quarter, we agreed to a further price reduction of about 8% with a commitment through the end of '14 for that particular customer. And then the other customer agreed for an extension to the end of '13. We agreed to a pricing reduction for the services, and that pricing reduction was about 20%. But that was also a contract that was signed early in '11. So that was just bringing that pricing back in line with market. And then the third fleet that was -- that's been mentioned is in the spot. It was previously a 1/2-month contract for a legacy customer, and that has rolled fully into the spot beginning July 1st.

Michael R. Marino - Stephens Inc., Research Division

So, I mean, if I look forward to Q3, I mean, you said that the second half of the quarter was a little more active than the first half of the quarter. And I don't know if that trend is continuing into Q3, but could you potentially offset maybe some of the pricing changes with utilization and hold revenue flat in the fracturing business?

Randall C. McMullen

Well, that's the goal. I mean, as I mentioned, we don't expect an impact to the fleet that rolled off. We don't expect a material difference in the utilization of that fleet considering it was spot market. It's our -- I'm sorry, it was a 1/2-month contract. It's had spot exposure for the last few years. So we've been actively marketing that fleet. So we're just sort of increasing the intensity of how we're marketing that. But to answer your question, yes, utilization could stand to increase, and we absolutely could overcome the revenue decrease on those 3 fleets with an increase in utilization.

Michael R. Marino - Stephens Inc., Research Division

Okay. And then shifting gears on coiled tubing, could you remind us again? Your fleet, I thought, was mostly kind of 2-inch units. And I assume you're putting bigger coil on there? And is there a certain size that is better in certain basins? Or any more color there would be helpful just to kind of understand what market you're going after.

Joshua E. Comstock

Well, again, we've tried not to give color for competitive reasons, but it is -- they're going -- in the majority of the basins we're in, there seems to be a trend now for larger than 2-inch, and we are going to -- those units are going to larger than 2-inch units. And that's Eagle Ford and it's Oklahoma and West Texas.

Operator

Our next question is from the line of John Daniel with Simmons & Company.

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

First one for me. Some of your smaller competitors have suggested that customers are looking to pump at higher rates. But these same companies, they say that pumping at the faster rates leads to greater wear on the frac equipment. That's a bit of a concern for them. And they then -- they tell me they like -- well, that the faster pump rates suggest that surcharges might be necessary for those customers. And so I guess my first question is, how broad based are requests by customers today to pump at higher rates? Do you agree that pumping at higher rates is more problematic in terms of the wear and tear on the fleet? And if both of those are yes, do you think there -- that creates the opportunity for surcharges to customers that's sort of the first step to nudging pricing higher?

Joshua E. Comstock

Well, the -- so the rates are all over the place, right? So the -- it depends on the design of the frac. We don't see this trend where customers are shifting to all high-rate jobs by any means. And if they're -- we're -- we've actually started to see some guys go to -- back to some cross-link now or hybrids, which would be a lower rate. And when we see higher rate, it's typically slickwater. And what happens is it's not the rate that has the wear and tear on the pumps, it's slickwater. The sand and water without the gel is what typically hurts the fluid end. The rate itself, we have a -- typically have a rule of thumb of just call it 5 barrels a pump. And so if you're pumping 40 barrels, you're going to put 8 pumps out there. The pressure's all being the same. If you're pumping 90 barrels, you're going to -- or 75 barrels, you're going to put 15 pumps out there. So it's not like each pump is pumping more rate. You use a higher number of pumps. And so the short answer to your question is we don't -- we've typically not had surcharges, and we don't see surcharges for that. You -- but as you -- in higher-rate jobs, rate itself doesn't necessarily hurt the pump. It's slickwater versus cross-link. Slickwater is more damaging on the pumps.

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

Fair enough. Good color. Just 2 quick ones for me. Josh, on the last call, you guys alluded to the desire to expand into some of the new product lines. And, I mean, I know you don't like to give financial guidance for competitive reasons, but can you give us just a general sense as to what the objectives are in terms of targets for these initiatives as you look to 2014? And how much is organic versus how much might come via acquisition?

Joshua E. Comstock

Well, there are several initiatives that we're working on. Some are within the completion segment, around our existing services. Some are in new areas for us such as directional drilling. Right now, the majority of those have been organic. We are definitely looking at acquisition opportunities, looking for acquisition opportunities to expand into some of those services. And we believe that they could be relatively impactful to our business for 2014, especially the efforts we've put in place thus far and the progress we're seeing. And we're pretty excited about the initiatives we've put in place organically.

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

Would you characterize it as slow and steady? Or should we see an acceleration here in a quarter or 2?

Joshua E. Comstock

For conservative reasons, we'll say slow and steady.

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

Okay. Okay. That's fine. Last one. Randy, you mentioned the possibility and objective to hold revenue flat. And I recognize that's not specific financial guidance on your part, but let's just assume that plays out. Do margins in that scenario hold flat as well? Or does the lower pricing lead to somewhat softer margins in Q3?

Randall C. McMullen

Yes, the lower pricing would lead to softer margins, all things considered equal.

Operator

Our next question is from the line of Ryan Fitzgibbon with Global Hunter Securities.

Ryan Fitzgibbon - Global Hunter Securities, LLC, Research Division

If I could follow up on John's question there. Can you kind of rank order how margins were for wireline, coil and pumping in Q2 and on the transition you'd expect going into Q3?

Randall C. McMullen

Yes, it's -- so we've broken it out before. We grouped together frac and coil in what we call our stimulation segment -- stimulation well intervention segment. For the second quarter, the adjusted EBITDA margin for a stimulation well intervention was 24.6%. For wireline, it was 29.1%. As we transition to the third quarter, we would expect consistency in regards to the wireline segment. And as I just mentioned, with the new pricing, a couple of fleets that will be for the full benefit of the quarter, margins will be a little bit softer for the stimulation segment.

Ryan Fitzgibbon - Global Hunter Securities, LLC, Research Division

Okay, that's helpful. And then in terms of capacity additions that you've took on in Q2 and what's left for the balance of the year, can you line out what -- where you actually took the liberty of on the coil on the wireline side and expectations for second half?

Randall C. McMullen

Yes, as far as the coil equipments that we still are receiving, we expect to have all of that by the end of the third quarter, spread fairly evenly throughout the quarter to third quarter. On the wireline side, the 5 units that were referenced, 2 of those we expect to receive at the -- in the latter part of the third quarter, with the other 3 in the latter part of the fourth quarter.

Ryan Fitzgibbon - Global Hunter Securities, LLC, Research Division

Okay. But then, last question for me. It looks like you guys made a small acquisition in the quarter. Can you disclose what that was?

Randall C. McMullen

It was a new service line within our Research & Technology division.

Ryan Fitzgibbon - Global Hunter Securities, LLC, Research Division

Safe to assume no interest in disclosing more details on that?

Randall C. McMullen

Not at this time.

Operator

Next question is from the line of Tom Dillon with William Blair.

Thomas Dillon

Can you speak to what you're seeing across the different basins outside the short-term interruptions in the Bakken? I was just trying to get a sense for more or less activity you're seeing in specific areas.

Joshua E. Comstock

Yes. I mean, Don, did you want to address that?

Donald Jeffrey Gawick

Sure, yes. This is Don Gawick. We're -- we continue to see relative softness in the pure gas plays. With the possible exception of the Marcellus, it's showing some uptick. Nothing dramatic, but it's improving modestly. And we continue to see a lot of strength in all of the oily or wet plays. And so we're certainly seeing continued strength in South Texas, West Texas, Western Oklahoma. And again, we expect the Bakken to stay strong for the foreseeable future.

Thomas Dillon

Anything specific around the number of stages in some of the oily plays?

Donald Jeffrey Gawick

Yes, we see still some growth in terms of the total number of stages, especially in South Texas and West Texas.

Thomas Dillon

Okay. And then can you remind us if there's any other dedicated contracts rolling off this year and then maybe the timing for 2014 roll-offs? And then if you can, the specific duration for each of those contracts when they're signed?

Randall C. McMullen

Yes, the -- as -- related to the legacy form of contracts, take or pay, we only have one that's still remaining in place, and that's scheduled to expire in the middle of the first quarter 2014. Outside of that, all the other arrangements are either in the spot or in pricing agreements, and those vary between the end of this year and the end of 2014.

Thomas Dillon

Okay. And then last one for me. Do you think Fleet 10 will still be deployed in Q4? Or do you see that kind of slide into the right?

Joshua E. Comstock

Now -- as of right now, we have not made any commitments of fleet yet.

Operator

[Operator Instructions] Our next question is from the line of Rob MacKenzie with Iberia Capital Partners.

Rob MacKenzie

Question for you, Josh. You did about just under 1,600 stages -- frac stages in Q2 and commented that, I think, if you -- the utilization picked up in the back half of the quarter. Can you share with us kind of your current run rate, number one, for stages on a quarterly basis? And two, how high do you think that can get kind of in the next up cycle, given your current equipment, your current contracts, if you put full utilization?

Joshua E. Comstock

Well, to answer your first part of your questions, slightly up currently. Obviously, that can change quick, as we've seen. When you look at where stage count can go, it just -- it solely depends on the type of work you're doing and then -- and where those assets are located. For example, the Permian is a great opportunity for us. If we start to see the pad drilling that our customers are talking about doing there, that -- and yet -- it has yet to materialize, you can start to see pad drilling and zipper frac-ing. You go from 4 to 5 stages a day to 8 to 10 stages a day with the same assets. And so that stage number, it can get way up there. And to predict exactly what that is, is difficult because just the size of the stages change, and we -- for example, in the Eagle Ford, we've seen one customer go from 2-hour pump stages to 5-hour stages and other customers go from big stages to smaller stages. And so the actual stage number can fluctuate a lot. But with the amount of horsepower we have and with what we're seeing as trends, if we were to see utilization improvements, you'd see a substantial increase in the amount of stages.

Rob MacKenzie

Okay. Along those lines, assuming things continue to improve in terms of utilization, what would you look for to start adding new frac equipment, potentially a new fleet?

Joshua E. Comstock

Yes, I mean, we're -- honestly, we talk about it all the time with our operational folks and our sales team. And we're having weekly meetings, and it's just demand. As we get -- right now, the majority of our fleets are -- the utilization is good. It's -- some of them aren't where we want to see it, at the pricing that we want to see it. And that's because we're developing new customers as we've trended into the spot market. And so, we're working on getting that pricing ticked up, getting the utilization up on those. But as that happens -- and typically, when we get out for new customers, they want us there full-time, and we're seeing that. And as that happens, it -- we quickly lose additional capacity. And so then, there's a need for new additions. And you -- you're obviously seeing some CapEx increase now, which -- around wireline and coil and some frac equipment. That's just to be more flexible in the spot market. But as we see -- as get our equipment utilized at the pricing that we want, we'll continue to add fleet.

Rob MacKenzie

Great. I guess the final question along those lines is, we thought we had seen over the past several quarters again the big guys steal market share from the others through pricing, et cetera. Has that stopped in your view? We think it hasn't. And if so, what does that mean? I think going back to John's question about potential pricing or cost pass-throughs, when might you look at trying to push through higher prices, be it for additional pumps on site or cost inflation internally?

Joshua E. Comstock

Yes, I mean, well, as far as the big guys taking market share, we don't necessarily believe that's the case. Obviously, we have seen -- as pricing softened, they have the ability to bundle, which has helped them in some circumstances. But we think if you looked at -- if they would ever purely disclose just pressure pumping, just frac compared to some of us, you would see that our utilization is probably higher on a per-horsepower basis than those guys. And if you took a snapshot of where the market share was for those guys in 2005 versus where it is for those guys today, it's dramatically, dramatically different. We have definitely, definitely taken market share from them. When I say we, I'm talking about all small caps. And the second part of your question is we -- we're continuing to drive down our costs, and we think that we outperform those guys daily. And with that outperformance, as we get in new customers, we have the ability to demonstrate our capabilities. And when we do that, then that gives us -- and they see the efficiencies we bring and the cost savings we bring to them through those efficiencies, we have the ability to then start to tick up our cost, and -- I mean, on pricing. And just to be clear, we have always, we being C&J, have always been towards the premium side on the pricing. We hear that from our customers all the time. We have been at or above where those big guys are even in good times, and that's because of the efficiencies we bring, and we're able to charge a slight premium for those.

Rob MacKenzie

So would it be unrealistic to expect perhaps some price increases this year?

Joshua E. Comstock

It's -- right now, we're expecting it to stay relatively flat. That's just based on what we're seeing in current trends. But that said, if we see -- we continue to see the attrition we're seeing out of some of our smaller competitors and we see some shift towards a cost where we can average out so we're starting to see some more pad drilling and 24-hour work in Permian, zipper frac, just the more technical, demanding work that transfers to our favor, which then eliminates some of the competition and allows for price increase.

Operator

At this time, there are no further questions in queue. I'd like to turn the call back over to management for closing remarks.

Joshua E. Comstock

All right, we appreciate everyone joining us for the call. We look forward to speaking to you next quarter. Thank you.

Operator

Ladies and gentlemen, that does conclude our conference for today. If you'd like to listen to the telephone replay of today's call, please dial (303) 590-3030 and enter the access code 4627635. We'd like to thank you for your participation, and you may now disconnect.

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