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C&J Energy Services (NYSE:CJES)

Q2 2012 Earnings Call

August 09, 2012 10:00 am ET

Executives

Lisa Elliott - Vice President

Joshua E. Comstock - Founder, Chairman, Chief Executive Officer and President

Randall C. McMullen - Chief Financial Officer, Principal Accounting Officer, Executive Vice President, Treasurer and Director

Theodore R. Moore - Vice President, General Counsel and Corporate Secretary

Donald Jeffrey Gawick - Chief Executive Officer and President

Analysts

Robin E. Shoemaker - Citigroup Inc, Research Division

Douglas Garber - Dahlman Rose & Company, LLC, Research Division

Joe Hill - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

David Anderson

Travis Z. Bartlett - Simmons & Company International, Research Division

Operator

Good day, ladies and gentlemen, and welcome to the Second Quarter 2012 C&J Energy Services Earnings Conference Call. My name is Tony and I will be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Ms. Lisa Elliott with DRG&L. Please proceed, ma'am

Lisa Elliott

Thank you, operator, and good morning, everyone. We are pleased to have you joining us on this conference call to discuss C&J Energy Services Second Quarter Results for 2012.

Before we get started, I'd like to direct your attention to the forward-looking statement disclaimer contained in the news release that C&J put out yesterday afternoon and in this quarterly report on Form 10-Q that was filed with the SEC yesterday afternoon. A copy of that release and quarterly report is available on the company's website at www.cjenergy.com.

In summary, the cautionary note states that information provided in the news release and on this conference call that speaks to the company's expectations or predictions of the future, including projections, assumptions and guidance, are considered forward-looking statements, intended to be covered by the Safe Harbor provision under 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 in or implied by these statements.

I refer you to C&J's disclosure regarding risk factors and forward-looking statements in its SEC filings, including in the previously mentioned quarterly report for a discussion of the known material factors that could cause the 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 today, the day that they were made. Also as a reminder, today's call is being webcast live and a replay will be available at the C&J's website. Please note that information related on this call speaks only as of today, August 9, 2012, so any time sensitive information may no longer be accurate at the time of any replay.

With that, I'd like to turn the call over to Josh Comstock, C&J's CEO and Chairman.

Joshua E. Comstock

Thank you, Lisa. Good morning, everyone. We appreciate you joining us for our earnings call today. With me is Randy McMullen, our Chief Financial Officer, who will review our financial results momentarily; Don Gawick, President of our newly acquired business, Casedhole Solutions, is also here with us and he will be available during the Q&A session at the end of the call. And on that note, let me begin by saying that we are excited about the addition of Casedhole, a leading multiregional provider of wireline and other complementary completion services. On June 7, we closed the acquisition of Casedhole for a total consideration of $271.9 million in cash, net of cash acquired of approximately $7.3 million.

Since C&J's inception in 1997, our long-term goal has been to become a large-scale, geographically diversified provider of the most technologically advanced completion services. We are executing an aggressive growth strategy and the acquisition of Casedhole is a significant step in the furtherance of this goal. Since the Casedhole closing, we have executed on our plans to grow our combined organizations by leveraging our strengths. The integration process has gone smoothly and our sales force is successfully marketing our expanded range of services. We'll talk more about Casedhole later in the call.

Now on the results for the second quarter. Our team generated another solid quarter. Revenue is up 16% and our earnings rose almost 8% sequentially. Despite the impact of increased competition on utilization and pricing, our adjusted EBITDA rose 10% sequentially and our adjusted EBITDA margin held relatively firm at 33%, just a slight decline from 35% last quarter. This growth, once again, demonstrates that our emphasis on the highest level of efficiency and superior execution generates value for our customers, as well as our shareholders.

We're pleased with this quarter's results given the headwinds we, like our peers, have faced. The considerable decline in natural gas prices over the first half of the year caused a relocation of equipment from gas-nominated markets to the oily regions. The surplus of equipment increased competition and put pressure on pricing. Fortunately, even with the influx of equipment, which had a particularly notable impact on the Eagle Ford Shale and Permian Basin, we have seen solid activity levels across these plays. While we anticipate the remainder of the year will continue to be highly competitive, it appears that the migration has run its course and that pricing may be stabilized. Additionally, the vast majority of our assets are operating in oily basins and we have plans to expand into new unconventional resource plays as we expand our asset base. The Casedhole acquisition has provided us entry in the key areas such as the Bakken and has strengthened our position in our existing areas of operations. Our integrated sales force has already received positive customer feedback on our competitive positioning as an independent provider offering comprehensive completion services where each product stands on its own merits. When we offer our services in a combined package, we believe that we have a competitive advantage due to the best-in-class performance of each service line.

Now let's review the results for each of our lines. In our hydraulic fracturing business, we benefited from the addition of a new 32,000 horsepower fleet, which was deployed in the spot market in late April. Last week, we deployed our hydraulic fracturing fleet in the spot market for work primarily in the Eagle Ford following the July 31 expiration of its previous contract. As mentioned last quarter, we were in negotiations with the customer for a long-term renewal of this contract with an initial 3-month extension. We recently learned due to changes in their drilling program, this customer does not have a need for continuing contractual services beyond July 31. In keeping with our business strategy, we decided to move this fleet into the spot market where it will enable us to introduce our services to new customers. Our relationship with the contractors remains intact and we expect to continue to provide fracturing, coiled tubing, wireline and other services to them on a spot market basis.

Our fleets working under contract continued to perform well during the quarter, generating strong returns and maintaining solid utilization. Because of our contracts, we're generally structured with high minimum hour requirements. The equipment utilization remained high even if the customer chooses to operate within the minimum usage.

We're proud to announce another quarter without any issues or delays related to the delivery of sand or other required raw materials. Although guar prices were extremely volatile during the quarter, we were able to minimize the effects on our margins through protections in our contract, as well as inventory management and purchasing strategies. As mentioned in prior quarters, we are evaluating alternatives to guar and have identified several options, which we may elect to implement in the event of escalating guar prices. As guar prices continue to decline, we expect to see a greater demand for the higher margin cross-linked frac jobs rather than the less complex sleekwater jobs, which many customers have opted for during the recent months. Cross-linked fracturing is more technically challenging and presents an opportunity to better differentiate ourselves from our competitors.

We continue to see fairly strong activity levels across our hydraulic fracturing operations. Looking towards the remainder of the year, we expect the environment to remain competitive in both the spot and contractual markets. We're on track with our plans to deploy 2 more fleets this year, one later this quarter and the other in the fourth, which will bring our total hydraulic fracturing horsepower to more than 300,000 by year end.

Moving on to coiled tubing. Our coiled tubing business maintained solid activity levels during the quarter despite a continued decline in the gas dominated East Texas/North Louisiana region. Our results in Western Oklahoma were also impacted by a pullback in activity from our top customer in this area, as well as the temporary move from 24-hour operations to a 12-hour schedule by one of our top customers in the Eagle Ford until their pipeline mid-stream infrastructure is built out.

We are excited to announce that we have commenced our coil tubing operations in the Bakken with a new customer. Over the past few weeks, our team has leased a new facility, hired sufficient personnel, moved 2 coiled tubing units in the ancillary equipment tasked to work in North Dakota. To successfully achieve those tasks in such a short time frame and to be working today is a further testament to the quality of our team, the synergistic benefits of the Casedhole acquisition in our operations. We believe that the successful expansion of our coiled tubing services in new regions, such as the Bakken, will result in significant long-term growth for this service line and will also present new opportunities for our fracturing services.

We have 6 new coiled tubing units on order for delivery between the third quarter of 2012 and early 2013. This equipment is targeted for deployment in the Bakken and other areas where we can leverage Casedhole's already developed strong customer relationships.

As touched on in the opening of this call, we commenced our wireline services business with the acquisition of Casedhole Solutions on June 7. We began to realize the benefits of this strategic acquisition immediately. Casedhole made a meaningful contribution to our consolidated results for the second quarter, generating $15.1 million in revenue and $4.7 million in adjusted EBITDA over the 23 days following the acquisition through the quarter end. Utilization and pricing for Casedhole's wireline services remained strong.

Through Casedhole, we currently operate 58 wireline units and 13 pumpdown units as well as pressure control equipment. We currently have 7 new wireline units and 2 new pumpdown units on order, which we expect to be delivered and deployed by the end of 2012. We now have an expanded geographic presence in many of the most attractive areas for oil and gas exploration and production activity in the United States, including areas where we previously did not have a presence, such as the Bakken and the Uinta Basins, and the Marcellus, Utica, Avalon and Bone Springs shale play. Casedhole has a strong and effective sales team, and our combined marketing efforts on our expanded range of services are proving successful.

Now onto our manufacturing business, Total Equipment and Service, which we acquired in April 2011 to vertically integrate and create cost savings. During the quarter, much of Total's capacity was dedicated to meet our internal needs as we move more of our equipment orders in-house. Our advanced winders are now also being manufactured by Total generating substantial cost savings as well as increased availability and access. Additionally, Total has already begun manufacturing wireline and pumpdown equipment for Casedhole and we have also added data vans and hydration units to Total's product line. Further, on August 2, 2012, Total acquired an additional 10 acres of land with an approximately 123,000 square-foot warehouse in Greenville, Texas, which will be used to centralize company-wide inventory management.

With respect to its third-party customers, Total has seen steady activity and maintaines a solid backlog of business. Year-to-date, market conditions have not led to any order cancellations. As always, our R&D efforts are an important point of differentiation for us. We're always seeking solutions to improve quality, efficiency and cost management and we believe that these efforts will continue to be a competitive advantage as we move ahead.

So with that, I'd like to turn the call over to Randy, who will now discuss our second quarter results in more detail.

Randall C. McMullen

Thanks, Josh. Good morning, everyone. We produced another great quarter generating $0.99 of earnings per share, which included $0.01 of transaction cost incurred in connection with the acquisition of Casedhole. Our comparable earnings-per-share results for the second quarter were up $0.08 from $0.92 in the first quarter. We generated $278.4 million of revenue for the quarter, achieving a 16% increase over the prior quarter. There were several reasons for this increase.

First, we benefited from a full quarter impact of the 32,000-horsepower hydraulic fracturing fleet we deployed in mid-February, as well as a partial quarter contribution from an additional 32,000-horsepower fracturing fleet deployed in late April. We've also benefited from our recent acquisition of Casedhole, as Josh outlined earlier. This new service line generated $15.1 million in revenue over the last 23 days of June, following the acquisition on June 7. Lastly, we experienced improved spot market performance from the hydraulic fracturing fleet that was moved into the Eagle Ford from Haynesville.

Revenue for our hydraulic fracturing services rose 16% sequentially and accounted for approximately 78% of our second quarter revenue. As stated, the increase was due to the investments we have made in expanding our hydraulic fracturing fleets, as well as increased utilization for the fleet we moved into the Eagle Ford.

During the second quarter, we completed 1,667 fracturing stages generating $216.4 million of revenue compared to 1,476 fracturing stages and $186.4 million of revenue for the previous quarter. Revenue per stage rose approximately 3% sequentially in the second quarter to $130,000 per stage, up from $126,000 per stage. As we have previously stated, our revenue per stage will fluctuate depending on the type of fracturing jobs we are completing and their underlying complexity. Additionally, our fracturing services generated monthly revenue per unit of horsepower of approximately $307 in the second quarter, down from $319 in the first quarter. The decrease in revenue per horsepower quarter-over-quarter was also primarily from lower utilization levels and competitive pricing in the spot market, which is attributable to the continued migration of equipment into the oily basins.

Now turning to our other service lines. Revenue for our coiled tubing operations declined 12% quarter-over-quarter and we performed 5% fewer jobs during the second quarter of 2012. Our East Texas and Northern Louisiana operations were impacted by the declining activity in the Haynesville and we also experienced significant activity reductions by our top customer in Western Oklahoma.

In addition, one of our top coiled tubing customers has recently moved from 24-hour operations to a 12-hour schedule in the Eagle Ford until their pipeline midstream infrastructure is built out. This customer has indicated that its coiled tubing activity should be back to 24-hour operations by the beginning of the fourth quarter.

Our fleet remained at 18 coiled tubing units during the quarter. As Josh mentioned, since the end of the second quarter, we have moved 2 units in the North Dakota and we have recently put this equipment to work in the Bakken shale. We still have 6 new coiled tubing units on order that should be delivered between late third quarter 2012 and early 2013.

For our new wireline business, Casedhole contributed $15.1 million in revenue over the 23 days following the acquisition. We expect Casedhole's business to be significantly accretive to our consolidated results and to provide yet another vehicle for growth through expansion of geographic reach and product line. Our manufacturing operations generated $11.2 million of third-party revenue and had a margin increase during the quarter. As you might recall, we acquired Total for $27.2 million in April 2011 and since that time it has provided approximately $18 million in cost savings, while generating $4.4 million of EBITDA during that time period.

Moving on to gross margin. Our second quarter gross margin was 38%, which was a sequential decline of about 200 basis points. However, our gross profit dollars rose 11% sequentially to $105 million during the quarter due to the increase in hydraulic fracturing revenue. Our adjusted EBITDA was $92.6 million for the second quarter, increasing 10% from the $84.1 million we produced in the first quarter of 2012. Casedhole contributed $4.7 million of adjusted EBITDA to our consolidated results for the quarter. Excluding Casedhole, our adjusted EBITDA rose about 4%. Our adjusted EBITDA margin was 33% in the second quarter, declining from the 35% we produced in the previous quarter.

Next, for the balance sheet. At the end of the second quarter, we had a cash balance of approximately $8 million and a $180 million available under our $400 million revolving credit facility. We currently have $210 million outstanding after repaying $10 million of the $220 million drawn to partially fund the acquisition of Casedhole.

You'll also notice that our goodwill increased $129.9 million and our intangible assets rose $105.6 million due to our acquisition of Casedhole. We have completed our valuation of the Casedhole assets and have included them on our consolidated balance sheet.

Now onto our cash flow statement. During the second quarter, we generated $23.1 million of cash from operating activities and for the first 6 months of 2012, we generated $92.6 million. Our accounts receivable and payables balances increased considerably as a result of the Casedhole acquisition. Collections have improved since the end of the quarter and are currently at normal levels. As planned, our largest outflow of capital was for the growth of our business lines. During the quarter, our capital expenditures were approximately $39 million, of which $3 million was for maintenance CapEx. For the first 6 months of 2012, our total CapEx was $78 million. We are on track to spend approximately $160 million to $170 million on capital expenditures in 2012 including new hydraulic fracturing equipment, coiled tubing units, wireline units and routine CapEx.

Now, I'll turn the call back to Josh.

Joshua E. Comstock

Thanks, Randy. As we wind up our prepared remarks, I would like to reiterate that we continue to see solid levels of demand in the oily basins. Yes, there is more equipment pursuing this work, but there are a healthy number of jobs to be had. We believe that as long as the rig count holds, capacity will stabilize. Although the market will remain competitive, we believe that our level of quality and service will allow us to attract more long-term customers. We have built this company by concentrating on the most complex and technically demanding jobs and consistently performing at the highest level. Our goals remain: to achieve optimal efficiency on every project and to enhance the economics for our customers on every job. We are proud of what we have built and know that we need to prove ourselves everyday to our customers and we are prepared for that challenge. As we move through the remainder of the year, we have the right equipment, people and culture to succeed during challenging times. Our balance sheet is strong and we continue to generate robust levels of cash flow. We are not trimming our growth capital budget at this time. We are going to continue with our already stated 2012 capital plans, including taking delivery of 2 hydraulic fracturing fleets, as well as 6 coiled tubing units and 7 new wireline units. As we have stated previously, our job remains, and will always be, to generate long-term growth and to create shareholder value. We will continue to evaluate every possible avenue open to us to do just that, whether it be organic growth or expanding through an attractive acquisition.

At this point, operator, we would like to open the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Robin Shoemaker of Citigroup.

Robin E. Shoemaker - Citigroup Inc, Research Division

I wanted to -- Josh, I wanted to ask about the 3 months contract you mentioned will not be extended, and I think that was -- had been extended previously under the same terms as the term contract that you had with that customer. So just in terms of the Eagle Ford spot market, how would you describe it now? You guys continue to have a lot of your fracturing capacity in the Eagle Ford and the kind of gap between where you were in the term and what you would expect to achieve in the spot market.

Joshua E. Comstock

Yes, I mean, the spot market, it's still strong. Obviously, pricing has come down as the equipments moved into those basins and has made it more competitive, but what we are seeing is we are bidding more work than we've ever bid before. A lot of that has to do with contracts that are rolling off for our competition with their current customers and so we're bidding new work for new customers. And with the fleet that was contracted and that was under the 3-month extension, once we realized that we weren't going to get a longer-term contract, it made sense for us to get that out in the spot market as some of these other contracts are rolling off for our competition, where we have opportunity to work for new customers and so that's what we did. But all in all, the activity levels are still there, we're bidding more work than we've ever bid. The last months was the highest job bidding that we'd ever done in the history of the company. And so we're seeing the activities, pricing is definitely down. We've done a good job of getting our cost down, so we can reduce our pricing in order to win some of these jobs and we're comfortable going forward. It's going to be shaky, but we're comfortable as long as we can control our costs and compete on price that we'll win out over the long run.

Robin E. Shoemaker - Citigroup Inc, Research Division

Yes, right. Okay. And then on Fleets 8 and 9, I know you had initially signaled that those would be heading to the Permian, is that still likely where those fleets will end up and will they work? You split 1 fleet up, I believe, because the horsepower requirements per fleet are significantly less in the Permian, so will those 2 fleets work as fleets or will they be broken up into smaller units?

Joshua E. Comstock

Now, well actually, we split a fleet up originally because our customer only had vertical work. Now that they've added horizontal work in the Permian, we actually have a fleet that's got 48,000 horsepower instead of 32,000 and it's working as 2 fleets. These 2 fleets that are coming, we will work with them as that 32,000-horsepower fleets on horizontal work. That's the plan. The 9th fleet, given the acquisition of Casedhole and the success we've already had deploying coiled tubing in the Bakken, the 9th fleet is on track to go to the Bakken. We are currently having that fleet winterized, so they can work in that area effectively. The 8th fleet, right now, we're going to deploy it in the Permian and Eagle Ford, it will go back and forth, and then we're looking at basins that Casedhole have presence right now and seeing demand from their customers and we'll decide where we put it for our long-term solution to that fleet.

Operator

Your next question comes from the line of Doug Garber of Dahlman Rose.

Douglas Garber - Dahlman Rose & Company, LLC, Research Division

I wanted to ask you about your contract coverage. Perhaps, how much of your revenue from the fracturing business came from term contracts versus spot contracts? And also, what are you seeing in terms of minimum contract usage? Are people using the minimum and going to the spot market for the rest? Are you willing to work with them in terms of price on the contracts if they're only using the minimum?

Joshua E. Comstock

Well, I'll -- Randy is going to get you that number and I'll address the minimum usage question. Our contracts were designed that the minimum usage is actually, if it's a full-month contract, I mean, it's a full month worth of work. Half-months contract, the minimum hours in that contract are about the most hours you can get with that half-month period, so when our customers choose to use the minimum, we're still working at high levels of utilization. Our customers, our contract customers, are all working above their minimums currently except for 1 and that's just it's drilling program and some months, it's above the minimum and some months it's slightly below, and that's a half-month contract. But for the most part, all of our contracts were working above their minimums.

Randall C. McMullen

And, Doug, only -- during the quarter, the spot revenue was 21% of the total fracturing revenue.

Douglas Garber - Dahlman Rose & Company, LLC, Research Division

Also, Randy, you talked about the revenue per frac job being up 3% in the quarter due to mix, I want to understand going forward, with guar being cheaper, do you anticipate that perhaps -- what direction -- could that be up because of more complex jobs that use guar or do you think thing price and more Permian work could weigh it down, how do you see that over the next 2 quarters?

Randall C. McMullen

Less the mixed bag, I mean, obviously, depending on the type of work, where our expectations are, with guar coming down that we will be performing more cross-linked style jobs, which will move that number up. Albeit it's a balance though with the amount of vertical work that we're also performing in the Permian that can also weigh that down. But quarter-over-quarter, we had an increase in the amount of slickwater work that we did, which was higher in the second quarter than in the first quarter, which would lower that revenue per horsepower number, but then will somewhat offset by the increase in guar. So our expectations are for that number to stay, fairly in line with where it was in the second quarter albeit that's tied closely to utilization. But assuming that we can maintain utilization spot market, our expectation is to remain around that $300,000 per horsepower.

Douglas Garber - Dahlman Rose & Company, LLC, Research Division

And perhaps a little bit more color on guar, where are you seeing current pricing versus kind of the high levels in the second quarter at the peak? And when do you expect that to kind of roll through your P&L from an inventory perspective and be a benefit, actually?

Joshua E. Comstock

Well, on the guar pricing, we've seen numbers or heard of numbers as high as $14 a pound, that was early in the second quarter. C&J never paid that. C&J paid $11 a pound, that's the highest that we've paid. That dropped, we've seen as low as $5 a pound, it trended back up with the rumor of the monsoons in India weren't going to be as substantial as once believed, that trended back up. Right now, it seemed a level around $7 a pound. As far as the inventory, Randy, do you want to address that?

Randall C. McMullen

Yes, we're still working through -- we've done a good job of managing our cost, but we still got some average inventory that we're having to work through both in the month of July and August. We expect to see, from a cost perspective, our gel cost coming down in more of the September timeframe.

Douglas Garber - Dahlman Rose & Company, LLC, Research Division

Okay. And Josh, just one more, kind of working into '13, what are your plans as of now for additional fleets, your priorities in terms of integration and perhaps if you've done any CapEx planning, just trying to get a sense with the new Casedhole footprint, if you're to put your foot on the accelerator add more fleets there?

Joshua E. Comstock

We're still reviewing CapEx planning. We'll get more serious about that here in the third quarter with having Total Equipment. We can respond quickly to our needs and so those decisions can be pushed off as we watch the market. But I've been very clear that our intention is to grow this company and to do that through growing the asset base in the new geographic locations. And with the acquisition of Casedhole, we now have that footprint. Casedhole's operating in many basins that C&J has no fracturing service and no coiled tubing services, no pressure pumping services and we will -- if the market's holding, if rig count holds, oil price stays where it's at and we see rig counts staying firm, we're going to continue to add equipment and we will make those decisions as the time comes into 2013.

Operator

Your next question comes from the line of Joe Hill from Tudor, Pickering.

Joe Hill - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

How many jobs for Q3 would you expect to lose from the move to 12-hour work from 24-hour work with the 1 customer and how many CTUs are involved?

Randall C. McMullen

That will be flat, Joe, quarter-to-quarter. That was a full quarter impact for us. That started at the beginning of April.

Joe Hill - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Okay. And can you guys talk a little bit about the pricing environment in coil today?

Joshua E. Comstock

We just renewed the contracts for multiple fleets with our top customer and the pricing was flat. And that pricing was -- there have been significant price increases through the last half of last year in the first part of this year, we renewed that pricing. We've not seen pricing impacts in the Eagle Ford and Permian on coiled tubing that others have talked about. The utilization front, obviously, in the Haynesville, there's no work to be had, but as I said, we moved up to the Bakken and we've moved 2 units, both of them are working and that happened in just a matter of 3 weeks time of getting up there and we put the equipment to work quickly, so the demand was there. We're seeing strong demand in the Eagle Ford and Permian. The 24-hour operations versus 12-hour operations, it's the same amount of jobs, as Randy said, you're just shutting down at night and that's impacted, but that's 1 customer and that's due to infrastructure build-out of their pipelines and they're expecting that, that will be caught up and we'll back to the 24 hours in the fourth quarter.

Joe Hill - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Okay. And Josh, can you give us an update on where you stand in the qualifying process for the Middle East bidding you're doing?

Joshua E. Comstock

Yes, we are prequalified in 1 particular country for 1 oil company. We have successfully prequalified and we're in the process of prequalifying for others and as we get prequalified, we believe we'll be invited to tender.

Joe Hill - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Okay. And then, finally, I noticed you guys filed about a $0.5 billion mix shelf this morning, are there any acquisitions we should be thinking about in the pipeline here?

Joshua E. Comstock

No, not at all. Ted, I'll let you address that.

Theodore R. Moore

Yes, sure. We filed that registration statement on [indiscernible]. Now we've been reporting for years, so the SEC rules allow us to file registrations statement for potentially future capital raises without an SEC review, but there are no plans to access the capital markets at the moment.

Joshua E. Comstock

Yes, it just gives us the flexibility, that when opportunities arise, we can move quick.

Operator

Your next question comes from the line of David Anderson with JPMorgan.

David Anderson

Josh, with Fleet 9 now going into the Bakken, obviously, with -- and Casedhole seems to be sort of a driving force going in there, does the coiled tubing -- is there a way to kind of bundle those services? Do you think about these 2 businesses together or is Casedhold really kind of provide the infrastructure and really kind of I guess the beachhead for you to get in the business, can you talk about how you think of those 2 businesses, either together or they're just completely separate in your mind?

Joshua E. Comstock

No, we -- I mean, definitely, the bundling in the coiled tubing and the wireline and the fracturing is a competitive strength for us and we intend to do just that and we actually, depending on the areas that you're in, Bakken being one that you see a lot of appetite for the bundling. And so that's our plan, both services go hand-in-hand with each other and that was one of the reasons for the acquisition of Casedhole, as it gives us the competitive advantage, allows us to compete with our larger competitors by offering a bundled service when necessary.

David Anderson

Are there elements to that you think you need to continue to push that kind of bundled service together or do you think that between the frac-ing and the coiled tubing that, that's going to be enough?

Joshua E. Comstock

Between frac-ing, coiled tubing and wireline, you control the 3 primary services on the completion side of things on all of these wells, so we think that that's good there. Obviously, there's some things that you could do around fluids and sand that may or may not make sense, but for the most part, we think we're in the 3 primary service lines and we're pretty strong.

David Anderson

Now when you think about getting to the Bakken, what do you think about in terms of your biggest challenges to building that up? Is it going to be the geology and understanding kind of how the operationally do these? Is it going to be more on the infrastructure side? Can talk about kind of what are some of the things you need to think about in terms of risks as you move into a new basin?

Joshua E. Comstock

Yes, I mean, the biggest thing was people and infrastructure. I mean, that's the biggest challenge and thankfully, we've been successfully -- we've successfully been able to achieve both in a short period of time, and we've got a facility, thanks to connections that Casedhole had. We got a facility right in the heart of the Bakken. We haven't been able to attract crews and we've done that. The equipment, obviously, there has to be changes made to equipment, we're doing that on -- as our new fleets roll-out, but as long as it's not the dead of winter, our existing fleets work just fine there. But for the most part, it's not the operations. Once we're on the well, you could lift that whole set up, put it in the Eagle Ford, you can't tell the difference. It's just the support, the infrastructure and the personnel.

David Anderson

Okay. We noticed that maybe a couple of those coiled tubing, you had 6 coiled tubing that slipped, might get pushback a little bit, did I misread that? Was there a reason for that? Was that more manufacturing? Was it market -- was it due to any market issues?

Joshua E. Comstock

No, it's not due to market issues. When we bought Casedhole, they had a need for 4 new pumpdown pumps immediately, and so we put Total on getting those out. We've already deployed 2 of them, it's been a month and 2 more are going to deploy pretty quick and that's kind of taken some of the personnel off of the coiled equipment, which has delay in the delivery. But it's just manufacturing capability and delays more than it is any market concern. If that equipment rolls out before the end of the year, we will deploy it before the end of the year.

David Anderson

One last one, kind of more philosophical, as you think out the next couple of years growing this business, one of the things, really, you stand out is on the efficiency side, and maybe also perhaps on how you run the business overall, with each fleet sort of its own business unit. Is there a certain level which just can't be scaled any further? Do you think there's a limit in terms of how big this can get in terms of operations? Is there something like that in your mind that says I can only get so far here or does this kind of continue to go in this direction for as far as you can see?

Joshua E. Comstock

We don't believe there's any limitations to the way we're running the business and the growth that we have planned for the business, and there's no limit to that growth. And so we plan to continue to grow and we're going to operate the same way that every time we've added equipment, we've gotten more efficient, we've gotten better as a company. As we've added Casedhole, we've gotten better as a company and more efficient and were going to continue to grow and become more efficient and the business model works and we've proven it works from 1 fleet to now 7, 8 fleets and 58 wireline trucks and 18 coiled tubing units. And so we think there's no limit to the growth of the company and achieving the efficiency and quality of service that we bring.

Operator

Your next question comes from the line of Travis Bartlett of Simmons & Company.

Travis Z. Bartlett - Simmons & Company International, Research Division

I'm wondering if you guys track margins at the fleet level, and if so how different were margins during the quarter on the partial-month contracts versus the full-month contracts in Eagle Ford?

Randall C. McMullen

Travis, we do track that internally and we obviously, don't disclose that publicly. As far as on a fleet-by-fleet basis, how they looked, honestly, it's fairly consistent with our full-month contracts and again, those -- the margins are always tied to the type of work that you're performing and the volume of sand that you're pumping and the amount of fluids that you're pumping as well. But in general, between our half-month fleet and our fully contracted fleets, the margins look fairly similar.

Travis Z. Bartlett - Simmons & Company International, Research Division

Okay. And then secondly, is there any update on your fluid and manufacturing efforts? And then if so, at what point do you guys expect to entirely self-source fluid-ins?

Joshua E. Comstock

We are, for the most part, self-sourcing the fluid-ins now. We have put our fluid-ins on, I would say, right now, this is just estimate, probably 60% to 65% of our equipment. Our fluid-ins were seeing much longer life, fluid-in replacement. It's trended down and once we have worked through the inventory of other fluid-ins that we had an inventory and we get our fluid-ins on all of our equipment, we hope to see fluid-in replacement trend down even further.

Travis Z. Bartlett - Simmons & Company International, Research Division

Okay, great. And then last one, several of your wireline competitors have alluded to pricing pressures during the quarter, just over the course of this conference call season, are you guys seeing any event, whether it's isolated?

Joshua E. Comstock

Whether it's what? Say the last part.

Travis Z. Bartlett - Simmons & Company International, Research Division

Whether it's an isolated event or just -- any type of pricing pressure out there for wireline?

Joshua E. Comstock

I'll let Don address it, I mean, just my comments are, -- is obviously in the gassy regions, pricing and utilization is down, and I know Casedhole has moved equipment out of those regions, it's more about utilization than it is pricing. But for the -- what we've seen since we've owned the company is that pricing held pretty solid.

Donald Jeffrey Gawick

Yes, as Josh said, basically, the gas markets, certainly, have seen a significant impact. We've seen a number of our competitors move their units from the gas areas into the oily areas and certainly, they're trying to enter markets where they may not have the reputation, they don't have the customer contacts. And in some of those cases, they're going in with greatly reduced pricing, but quarter-on-quarter, our prices held firm. The markets that we're in, we've had very good relationships and we're really not seeing that kind of impact on the wireline side.

Travis Z. Bartlett - Simmons & Company International, Research Division

And what's the exposure to gassy markets for wireline at this point?

Donald Jeffrey Gawick

It's fairly minimal. In fact, during the quarter, we took steps to reduce our footprint further. We moved several units out of pure gas markets and again, into oil markets to deploy them more fully and quite frankly, at better pricing. It's -- current percentage of our fleet is working in gas markets, it's in the teens.

Operator

[Operator Instructions] You have a follow-up question from Doug Garber of Dahlman Rose.

Douglas Garber - Dahlman Rose & Company, LLC, Research Division

Wanted to ask you about the potential for debt repayment. It seems like going forward here, your EBITDA should be almost twice your CapEx level. How should we think about your spending? So you think you'll be de-leveraging a little bit from the Casedhole acquisition?

Randall C. McMullen

Doug, this is Randy. Yes, to answer your question. With free cash flow beyond CapEx, we will be reducing our debt levels.

Joshua E. Comstock

And we've already reduced it by $10 million since the acquisition, and we will continue to use free cash flow outside of CapEx to reduce the debt.

Douglas Garber - Dahlman Rose & Company, LLC, Research Division

All right. And people would ask about the pricing, and I guess the wireline and coiled tubing, but in terms of the fracturing spot market, it's pretty clear that it's softening. Can you give us any sort of color or magnitude, perhaps, how much it's softening, I know every job is different, or perhaps where the spot market is versus your term contracts, and I know you're term contracts were all signed at different parts of the cycle, but is there any sort of color there?

Joshua E. Comstock

Yes, I mean, it's difficult because obviously, we didn't have much spot market exposure late last year and so we didn't see as high as -- we didn't experience the high prices that some of our competition got to experience. So it's different -- it's difficult for us to say it's moved out from X to Y. That being said, it's definitely softened. It appears that it's stabilized and we seem to have found the bottom. As I said, we've been bidding a lot of work and we're starting to win more of that work, so it appears that it has stabilized. From where our contracts are, if you look at one of our contracts that were signed early in 2010 to where we're pricing jobs now, it varies on a job-per-job basis, but that pricing is probably down 10% from those early contracts. Obviously, that's much greater for the later contracts, that's a bigger percentage number.

Douglas Garber - Dahlman Rose & Company, LLC, Research Division

All right. And just one housekeeping one for Randy. What was the Casedhole revenue and EBITDA for the entire quarter contribution or would it have been in pro forma?

Joshua E. Comstock

Are you talking about the 23 days or you're talking about, what was their number for the entire quarter?

Douglas Garber - Dahlman Rose & Company, LLC, Research Division

For the whole quarter, if it had -- if you had owned it the entire quarter, just so I can kind of see the run rate going forward.

Randall C. McMullen

Doug, it was -- the revenue for the entire quarter for Casedhole was $53.5 million.

Douglas Garber - Dahlman Rose & Company, LLC, Research Division

And EBITDA as well?

Randall C. McMullen

Margin is right around 30% for the quarter.

Operator

Your next question comes from the line of Michael Marino of Stephens Inc. It appears Michael may have dropped from his line. There are no further questions at this time. This concludes the call. I'll turn it over to Mr. Comstock for closing remarks.

Joshua E. Comstock

I'm going to hand it over to Randy real quick. Randy, go ahead.

Randall C. McMullen

One area that I wanted to address was SG&A, we expected a question, but didn't get one. But for the quarter, SG&A was $22.8 million. Excluding Casedhole on the transaction cost, that number was $19.2 million, so we're sort of a normalized quarter-over-quarter increase of only 5%. Expectations going forward for SG&A, including the amortization, the new amortization expense from the intangibles and Casedhole in general, is approximately $32 million on a full quarterly run-rate basis.

Joshua E. Comstock

All right, well, I want to thank everyone for joining us today. We look forward to talking to you guys next quarter.

Operator

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect, and have a great week.

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