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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

Donald Jeffrey Gawick - Chief Executive Officer and President

Analysts

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

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

Robin E. Shoemaker - Citigroup Inc, Research Division

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

Matthew D. Conlan - Wells Fargo Securities, LLC, Research Division

Tom Dillon

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

Walter Chancellor - Stephens Inc., Research Division

C&J Energy Services (CJES) Q3 2012 Earnings Call November 1, 2012 10:00 AM ET

Operator

Ladies and gentlemen, thank you for standing by and welcome to the C&J Energy Third Quarter Earnings Conference Call. [Operator Instructions] Today's conference is being recorded, November 1, 2012. I would now like to turn the conference over to Lisa Elliott of DRG&L. Please go ahead.

Lisa Elliott

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

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 and in the quarterly report on Form 10-Q that was filed with the SEC yesterday afternoon. A copy of the release and the 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 uncertainty, 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 disclosures 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 actual results to differ materially from those in the forward-looking statements. Please note that the company undertakes no obligations to publicly update or revise any forward-looking statements, and as such, these statements speak only as of the date they are made. As a reminder, today's call is being webcast live and a replay will be available on C&J's website. Please note that information related on this call speaks only as of today, November 1, 2012, so any time-sensitive information may no longer be accurate at the time of the replay.

With that, I'll 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 third quarter 2012 earnings conference call, especially our friends on the Eastern Seaboard who are coping with the aftermath of Hurricane Sandy. Here in the Gulf Coast, we know all too well how rough the last few days have been for you, and our thoughts are with you. With me today are Randy McMullen, our President and Chief Financial Officer; and Don Gawick, our newly appointed Chief Operating Officer.

Let me begin by drawing your attention to the 8-K report that we filed with the SEC yesterday afternoon announcing certain changes to our leadership, including Don's appointment. I firmly believe that these changes are essential to achieving my vision for C&J. And so, after much consideration, it was mutually agreed that Brett Barrier should resign as COO. As many of you are aware since 2007, Brett has played a critical role in our transition to a large scale public company with multiple service lines. On behalf of C&J, I would like to thank Brett for his hard work and dedication, and wish him continued success in the future.

In connection with Brett's resignation, our board of directors has appointed Don Gawick, the prior President of Casedhole Solutions, as his successor. Don is a proven executive with more than 32 years of experience in the oilfield services industry. Over the course of his career, the bulk of which was spent at Schlumberger, Don held many leadership roles and his responsibilities included operations and HSE, as well as marketing and business development. Don has worked in numerous service lines with assignments throughout the United States, Canada, Europe, the Far East and Latin America. His diverse experience, both operationally and geographically, will enable us to better leverage our current successes as we explore opportunities across product offerings and internationally. We are extremely pleased to have Don here with us and look forward to the unique perspective he will bring to our executive management team.

Additionally, our current Chief Financial Officer, Randy McMullen, was promoted to the position of President, and he will remain in his role as CFO and as a member of our Board of Directors. This promotion better aligns Randy's title with his current operational responsibilities. I will remain as CEO, as well as Chairman of the Board.

As we continue to grow and take C&J to the next level, strong management is vital, and we have attracted several new key members to our executive team with an average of over 25 years of experience each. Most notably, we recently strengthened the areas of HR, HSE, R&D, operations and sales. We believe that these management changes and new additions will further position the company for the successful execution of our growth strategy and the delivery of long-term value to our shareholders. As I stated before, our ultimate goal always has been to become a large-scale, geographically diversified provider of the most technologically advanced completion systems, and the development of our executive leadership team is one more step toward that goal. We are now well-positioned to accomplish growth needed to achieve the vision that I have for our company and we plan to do just that.

Now, onto the results for the third quarter. We're pleased to have achieved another quarter of strong results given the current headwinds in our industry. As we have noted in the prior quarters, the excess equipment capacity in North American onshore markets has put significant pressure on pricing. The overcapacity continues to be driven by the rig migration from gas-focused areas to oil-rich plays, and has been further impacted by a decline in overall rig count due to customer budget constraints as we approach year-end.

While we anticipate the pricing will continue to be highly competitive for the remainder of the year, we are committed to our disciplined pricing approach. Despite the challenges of the current environment, we maintain a long-term perspective that is supported by our conservative capital structure and contract coverage. As we move towards a more stabilized domestic market over time, we believe that we will have an even greater opportunity to differentiate our services from our competitors based on our best-in-class efficiency and our superior execution. We believe that our fundamental strengths are well-aligned with the industry's broader movement towards more technical demanding jobs that require greater skills and expertise.

Our third quarter margins are a testament to the viability of this approach, although our increased spot market exposure did drive a decline in hydraulic fracturing revenue due to prevailing conditions. The spot pricing in our primary operating areas was driven down significantly by the aggressive bidding strategies employed by many of our competitors. As I mentioned earlier, our strategy hinges on the quality of our service, which we are not willing to compromise by taking a similar pricing approach. While the transition to performing more spot market work has had its challenges, we are pleased at our progress at better spot market penetration.

A number of new customers have indicated their intent to increase their use of our services because of the efficiencies we achieved on their initial jobs. However, we still anticipate some increased softness further -- later in the fourth quarter given the holiday season and customer budget constraints mentioned earlier. As we continue to demonstrate savings by consistently completing more stages per day for our customers, we believe we will be able to drive increased spot demand for our premium hydraulic fracturing services.

Moving on to our other service lines. Revenue from our coiled tubing business grew quarter-over-quarter due to higher utilization levels as we redeployed assets into the Eagle Ford and Bakken play. In addition to our established relationships with current customers, we were able to leverage Casedhole's position to grow market share in the areas like West Texas. We experienced consistent activity across our existing customer base and did not encounter the utilization pressures noted by many of our competitors in the coiled tubing space.

Our Wireline business, which we commenced with the acquisition of Casedhole Solutions on June 7, also generated strong results as our customer base expanded in the oily basins. We also increased our wireline logging activity, which made a solid contribution for the quarter.

Additionally, Casedhole continued to take market share in its new pumpdown service line. With an expanded geographic presence, we are now competing on a broader scale. Casedhole has helped to facilitate the accelerated expansion of our coiled tubing and fracturing services into the Bakken. Casedhole has a strong and effective sales team and our combined marketing efforts and ability to package our best-in-class completion services, without a loss of quality or efficiency, has strengthened our competitive positioning. Our ability to deliver this level of performance across multiple service lines is an important point of differentiation when bidding against larger service companies.

Now to our Manufacturing business, Total Equipment and Services. During the quarter, much of Total's capacity was dedicated to meeting our internal needs and its results were consistent quarter-over-quarter. Third-party customer demand remains under pressure given the current environment, but as Total works through its backlog, we will bring more of our equipment needs in-house, which will further reduce our costs by fully taking advantage of Total's additional capacity.

In terms of research and development, we are pursuing several new initiatives, although for competitive reasons we will not get into many of the details at this time. We have recently brought on a President of research and technology, and he is currently focused on developing a downhaul [ph] tools business. We are also making considerable progress on our fluids and chemicals business as we look to further reduce input cost and increase our product offerings.

As we expand internationally, we believe these strategic developments will further enhance our competitive advantage by allowing us to provide a broader service to potential customers by offering diverse completion solutions.

With that, I'd like to turn the call over to Randy to discuss the third quarter in more detail.

Randall C. McMullen

Thanks, Josh. Good morning, everyone. We produced another solid quarter, generating $0.91 of earnings per share and $308 million of revenue, achieving an 11% increase in revenue over the prior quarter. There were 2 primary reasons for this increase, as Josh touched on earlier. First, we benefited from a full quarter impact of our recently acquired wireline business, Casedhole Solutions. Casedhole generated $62 million in revenue, and we expect that it will continue to perform strongly moving forward as demand for wireline work has held steady and we are expanding our logging and pumpdown service offerings.

Coiled tubing results improved quarter-over-quarter as equipment was redeployed into more active oil-rich basins including the Bakken Shale. We also gained market share and achieved higher utilization levels in West Texas, a relatively recent area of expansion for our coiled tubing operations, by leveraging Casedhole's existing customer relationships in this area.

Revenue for our hydraulic fracturing services declined 9% sequentially and accounted for approximately 64% of our third quarter revenue. As Josh stated, the decrease in revenue from hydraulic fracturing was largely due to greater spot market exposure within a highly competitive pricing environment. While we had approximately 50% of our hydraulic fracturing fleets operate in the spot market during the quarter, we still achieved healthy margins.

During the third quarter, we completed 11% fewer stages compared to the previous quarter. Revenue per stage rose approximately 2% sequentially to 132,000 per stage, as larger stages across some of our contracted fleets more than offset the impact of lower revenue per stage for our spot work. 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 $270 in the third quarter, a decline of 12% from $307 in the second quarter. The decrease in revenue per horsepower quarter-over-quarter primarily resulted from lower utilization levels due to our disciplined pricing approach and a competitive spot market environment.

Revenue for our coiled tubing operations increased 13% quarter-over-quarter and we performed 8% more jobs during the third quarter of 2012. Our fleet remained at 18 coiled tubing units during the quarter and we still have 6 new coiled tubing units on order that should be delivered between fourth quarter 2012 and early 2013 for deployment into new basins.

As I mentioned earlier, our new wireline business continues to generate impressive results, contributing $62 million in revenue for the third quarter. Through Casedhole, we currently operate 58 wireline units and 15 pumpdown units, with an additional 7 new wireline units to be delivered and deployed by the end of the first quarter of 2013.

Our manufacturing operations generated $11 million of third party revenue during the quarter. Revenues were down slightly compared to the second quarter, however margins increased. This business remains a very effective cost savings measure for C&J. And Total recently expanded its manufacturing capabilities to include a number of new products such as wireline auxiliary units and advanced fluid ends, both of which provide C&J with higher-quality products and greater flexibility.

Now moving on to gross margin. Our gross margin decreased to about 39%, representing a decline of about 190 basis points from the second quarter. Our gross profit dollars rose 5% sequentially to $119 million during the quarter due to the full-quarter impact of Casedhole, as well as improved coiled tubing and wireline performance.

You'd likely noticed from our press release that we are now reflecting depreciation and amortization as its own line item on our income statements and are no longer showing gross profit. This change has been applied consistently to all periods presented or discussed in our press release and on today's call. This new presentation will also be reflected in our 10-Q to be filed next week.

As a result of this decision, any future discussion of gross profit or gross margin will exclude depreciation and amortization, as we believe this to be a more meaningful metric to the investment community.

SG&A costs increased 41% quarter-over-quarter to $30 million, representing about 10% of revenue. The bulk of this increase occurred in connection with the Casedhole acquisition. Casedhole's large sales force and expansive regional presence are key factors to meeting our strategic growth objectives over the coming years. Similarly, depreciation and amortization expense was up 48% quarter-over-quarter to $14 million, which represented about 5% of revenue. Again, the majority of this increase is directly attributable to the acquisition of Casedhole, which significantly increased our PP&E and intangible assets.

Our adjusted EBITDA decreased 4% from the second quarter of 2012 to $89 million, and adjusted EBITDA margin was 29% in the third quarter versus 33% in the second quarter.

For the balance sheet, at the end of the third quarter, we had a cash balance of approximately $14 million, and $200 million available under our $400 million revolving credit facility. We currently have $190 million outstanding after we pay in $30 million of the $220 million drawn to partially fund the acquisition of Casedhole.

Now on to our cash flow statement. During the third quarter, we generated $85 million of cash from operating activities, and for the first 9 months of 2012, we have generated $177 million.

In terms of capital expenditures, our largest capital outflow was for the growth of our business lines. During the quarter, our capital expenditures were approximately $58 million, of which only $3 million was for maintenance CapEx. For the first 9 months of 2012, our total CapEx was $136 million. We are on track to spend approximately $165 million to $175 million in 2012, including new hydraulic fracturing equipment, coiled tubing units, wireline units and routine capital expenditures. Although we have not yet finalized our 2013 CapEx budget, at this time we expect to focus on further strengthening our balance sheet. Our operating cash flow will be dedicated to funding any remaining balances of our already announced equipment additions and reducing outstanding debt.

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

Joshua E. Comstock

Thanks, Randy. As we move through the remainder of the year and into 2013, we anticipate that the landscape will remain challenging, but we are convinced that we have the right equipment, people, and culture to successfully navigate the current market conditions. Our balance sheet is strong and we remain focused on managing our cost base. We intend to continue to price in line with our leading level of service and maintain our long-term perspective despite the challenging spot market.

I'm excited about where we are as a company today. I believe we are well-positioned to achieve my vision of C&J becoming a large-scale, geographically diversified provider with the most technologically advanced completion services. I am intent on doing just that over the coming years. As always, our focus is on growing the company long-term while creating shareholder value.

At this point, Operator, we'd like to open the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from the line of Joe Hill with Tudor, Pickering & Holt.

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

Josh, has all the spot market work you guys done to date been 24-hour? Or have you done any 12-hour work yet in the spot market?

Joshua E. Comstock

We've done some 12 hours, but it's mostly 24 hours. Just about everything we're bidding, I'd say 95% plus is 24-hour work.

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

Okay. And can you give me an idea of how much lower the spot market prices are versus what you've got embedded in the contracts at this point?

Joshua E. Comstock

Well, I mean, obviously, it varies from contract to contract and from area to area where you're bidding. We have -- like we said, we've had a disciplined pricing approach, and so we're in the spot market we're typically pricing above where a lot of our competitors are. But I'd say that number, depending on the contract and depending on the job, is anywhere from 10% to 20% below -- spot market below contracts.

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

Got you. And just, finally, have you seen any of your contracted customers backing off their permitted utilization levels to minimums? Or are they still pretty much blowing and going?

Joshua E. Comstock

No, they're still going strong. We've had one customer that had some well issues that didn't utilize 1 month as much as they had been, but they still utilize more than their minimum hours. But no, our customers are blowing and going. And in fact, most of them use more than their minimum hours, and their minimum hours are set at, depending on the contract, on full-month or half-month utilization.

Operator

Our 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 the next 2 fleets that you're taking delivery of. Can you just talk about your outlook for deploying those and if you think the utilization on those initially will be full or you think you'll have to ramp it up in this current oversupplied environment?

Joshua E. Comstock

I mean, we'll definitely have to ramp it up. I mean, our, obviously, Fleet 8, we had intended to deploy that in the third quarter. Now, it's going to be in the fourth quarter in Western Oklahoma. The reasoning for waiting to deploy that fleet is making sure that we get utilization up across all of our spot market fleets before we put more horsepower in the market. The ninth fleet is winter -- is being winterized and it's definitely going to get deployed as soon as we get it, and that's going to the Bakken. And it will take time to ramp those fleets up to full utilization, obviously, building the customer base and showing customers our expertise and superior execution. But we intend to continue to deploy both of those fleets.

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

And in terms of your contracts that rollover over the next year or so, are you having discussions about renewing contracts, or do you think those fleets will enter the spot market or work with those customers that they're working for currently?

Joshua E. Comstock

We believe they will work for the customers that they are working for currently. The one that's set to expire next is already in discussions about a 2-year extension.

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

And just one housekeeping question for Randy. The frac revenue of $196 million, how much of that was from spot market versus the contracted customers?

Randall C. McMullen

Hey, Doug, it's Randy. About 25% of that $195 million, $196 million number was due to -- was from spot.

Operator

Our next question comes from the line of Robin Shoemaker with Citi.

Robin E. Shoemaker - Citigroup Inc, Research Division

So just following up on the last question there. When you do have an expiring contract, do you expect the operator to put that work out for bid that or -- you indicated that you are negotiating a 2-year extension, but are others invited to bid on that? And how -- what would a 2-year contract look like now in terms of a potential margin versus the margin that you have on the current term contract?

Joshua E. Comstock

Well, the first part of your question is, yes, they will put it out to bid, depending on the operator and the E&P company. This particular one is putting it out to only their incumbent frac providers, so they have 3 fleets, 3 different companies. Those are the 3 companies that they went out for pricing for. Depending on the operator, though, you may see them put it out to bid to every frac company out there. That being said, having a history with them and them seeing the performance across that history, gives you an advantage over your competitors who haven't worked for them. The contracts would definitely be different. The contracts won't be take or pay, monthly minimum contracts. It will be more pricing agreements, first call situations like they've been historically.

Robin E. Shoemaker - Citigroup Inc, Research Division

Okay. And I'm certain that in terms of dedicating your fleet to a 2-year pricing agreement, you don't want to lock-in something that's extremely -- or at that is at the very low-level reflected in some of the spot-related work to date, but you have some acceptable margin return on capital in that kind of pricing agreement?

Joshua E. Comstock

That's exactly right. I mean, depending on the contract and when it was originally put in place, you're going to see some pricing concessions, lower pricing, but you're not going to see spot-level pricing on a 2-year contract. And quality E&P companies realize that when they're signing you up for 2 years, just like they did when the market ramped up and they signed us up trying to keep their spot market pricing from running out of control. They understand it on the other side of the coin, too, that you can't sign someone up at extremely low margins and expect it to stay there for 2 years.

Operator

Our next question comes from the line of Travis Bartlett with Simmons & Co.

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

I wanted to drill down a little bit further on the lower utilization, on the pressure pumping side during the quarter with the 11% lower stage count in Q3. How much of this was a function of Fleet 7 being moved into the spot market during the quarter versus more broad-based utilization declines across the fleets?

Randall C. McMullen

Hey, Travis, it's Randy. A lot of that had to do with our fleet that rolled off contract, Fleet #2, that rolled off the 2-year agreement that we were under, rolled off at the end of July. That was a big quarter-over-quarter change from a stage production perspective. That fleet went into the spot in August and we had a ramp-up period of finding that fleet a home, and struggled a bit in the month of August with that, but were successful in September of finding consistency and work to get that stage production back up to where it was previously under contract.

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

Right. Okay. And then the second one from me on the margin front. I understand that you guys typically don't give out financial guidance. But when you look at Q4 and take into consideration the [indiscernible] E&P budgets and then the fact that some people believe that there's going to be a more pronounced holiday slowdown during the quarter. Do you see margins bobbing [ph] in Q4? Or do you think the margins could get lower in 2013 as well?

Randall C. McMullen

Our margin outlook is obviously tied to the utilization both -- across all 3 service lines, which is really the key driver for our margin performance. That is a concern for the fourth quarter, given the issues that you touched on and that we touched on in this script around budget constraints and a little bit of abnormal slowdown. Expectations are that, depending on how severe those are, that the first quarter should look a little bit better from a utilization perspective. Obviously, we've got a contract coming up for renewal in the first quarter, so our success around extending that, obviously, plays in to the margin equation as well.

Joshua E. Comstock

Travis, I would just add that it does appear in the spot market that pricing has stabilized.

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

Okay. And then, last one for me here. I mean, obviously, the macro picture remains opaque to say the least into next year, but can you guys just kind of discuss your thoughts for equipment additions beyond what you've announced that you expect to receive by Q1 of 2013?

Joshua E. Comstock

Yes. Right now, I mean, we're -- obviously, it's a discussion that we're having. But right now, we don't have any planned additions in the pressure pumping area for 2013. We're just going to -- having Total Equipment, we can respond quickly and we're looking to expand into some other -- organically, into some other product lines. We're focused on that right now. But we'll know more here after the fourth quarter. It all hinges, in my opinion, on rig count and the only thing that I see substantially moving rig count in an upward direction is going to be natural gas price. And we've seen it tick up here, started to see some gassy players talk about activity in Haynesville for next year, but we'll see. But it's going to have to take an increase in rig count in order to deploy more equipment.

Operator

Our next question comes from the line of Matt Conlan with Wells Fargo.

Matthew D. Conlan - Wells Fargo Securities, LLC, Research Division

So I had a couple of questions. First on Casedhole. You didn't give an EBITDA level this quarter like you did last quarter. Would you say that your margins were in line with where they were, you reported 31% or so EBITDA margins for the 3 weeks you owned it in the second quarter. Was third quarter, full quarter about the same, a little bit higher, a little bit lower?

Randall C. McMullen

Hey Matt, it's Randy. They we are right in line with the 31%.

Matthew D. Conlan - Wells Fargo Securities, LLC, Research Division

Okay, terrific. And you touched on or mentioned international expansion as still a long-term growth strategy. Where do those discussions lie with some potential customers internationally? And where and when should we look for you guys to move equipment?

Joshua E. Comstock

Well, we're pushing forward with that expansion right now. We're making some -- gaining ground there. We expect that we will be invited to tender on a couple of tenders that are going to come out first quarter of next year. If we're invited and if we're successful, you could see equipment working by the third quarter of 2013, which means we would start to move equipment in the second quarter and that would most likely be new equipment for us.

Matthew D. Conlan - Wells Fargo Securities, LLC, Research Division

So you would -- if you were successful, and I assume this is somewhere in the Middle East? So if you were successful, you would continue your construction program to build another fleet to move internationally?

Joshua E. Comstock

That's correct.

Matthew D. Conlan - Wells Fargo Securities, LLC, Research Division

Okay. And correct on the Middle East as well?

Joshua E. Comstock

Yes, that's correct.

Operator

[Operator Instructions] Our next question comes from the line of Tom Dillon with the William Blair.

Tom Dillon

I wanted to touch on revenue per stage and frac stages for a minute. I'm curious about the type of frac jobs you're completing right now. So can you talk about what you're seeing in terms of level of complexity. And are you seeing the same levels? Or has there been any underlying complexity changes in the market? And then, where do you see it looking out the next couple of quarters?

Joshua E. Comstock

Well, I mean, the level of complexity from a fluids perspective has come down. Every -- as guar rose in price, everyone moved to slickwater, which is a much easier job to pump from an engineering standpoint. However, we have recently seen some of our customers pumping much larger stages, but fewer -- fewer stages, but larger stages, and longer pump times, which is much more difficult from an equipment standpoint, keeping fluid ends in line for long pump times, keeping your sand, your product on location for long pump times. And so from that perspective, they have become more complex. It appears that operators are looking at moving to fewer stages but much larger stages.

Tom Dillon

Okay. And then looking out the next couple of quarters?

Joshua E. Comstock

Yes. I mean, we don't expect any big changes. The one wildcard out there is obviously the guar production has started, the new crop guar dropped from $14 a pound in May to -- it's between $2 and $3 a pound right now. We expect that that could come down even more. When it gets in that range, that brings gel pricing down and makes it affordable for customers to go to cross-link jobs, lower rates of volume on water, higher concentration of fluid and gel loading. And so we have heard some of our customers say when guar gets -- when gel gets to $18 a gallon, we're going to go back to cross-link jobs, and that can drive that revenue-per-stage number up.

Tom Dillon

Okay, that's helpful. And then, maybe you can help us with the Casedhole acquisition in terms of -- you might not answer it, but how should we think about the contribution of revenue from Casedhole next quarter? And then, maybe if you can't answer that, is there much seasonality there in that business that we should be aware of as we model out 2013?

Joshua E. Comstock

Well, I mean, it's the same seasonality that all of us see in the business for all of the services. I mean, this year, the concern is because everyone has worked so diligently throughout the year, efficiencies have been what they were on drilling and frac-ing that a lot of these E&P companies have outspent their budgets or have blown through their budgets faster than normal. And so, we're expecting that you're going to see a December month with holidays in it where folks are taking much more time off than normal. That's still yet to be seen. Some customers have indicated that would be the case. Some have indicated they're going to stay busy throughout the year. But as far as Casedhole results, I mean, we see them staying steady, flat quarter-over-quarter, except for taking into account that seasonality that all of us will -- that will impact all of the service lines. As we add equipment for Casedhole, then obviously those results are going to get better.

Operator

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

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

I wanted to follow-up. You guys mentioned the pumpdown services in the wireline unit. Are those different than the traditional -- or I guess your first business line of pumpdown services? Or are they cross-selling or using them together?

Joshua E. Comstock

Yes. So originally, C&J, and still does, has a pressure pumping line. That line does more than -- it didn't traditionally do pumpdown service, it did wireline lubricator testing, surface equipment testing, pumping for backside, holding backside pressure on frac, pumping sand plugs, just a whole suite of standalone pressure pumping that we did that wasn't associated with pumpdown service. Most of the pumpdown service that we did, we were doing with our frac fleet and still do. Casedhole developed a pumpdown service in January, started that business, that -- and primarily all it does is pumping down plugs and guns in the wireline operation. And we have moved any pumpdown service that C&J was doing, we've just made that move, it's all under the Casedhole umbrella. The third quarter results did not reflect that because that move is taking place today. But C&J did very little pumpdown service prior to Casedhole.

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

And just one quick housekeeping question, I guess, for Randy. The tax rate, going forward, I think it was a little wider than I expected this quarter. How do you see that out for the year and next year?

Randall C. McMullen

Going forward, well, we would expect that rate to range between 34.5% to 35%.

Operator

Our next question comes from the line of Ben Swarmley [ph] with Morgan Stanley.

Unknown Analyst

Just real quick. I think you mentioned that the Casedhole margin was right in line at 31%. I'm just wondering, do you have the EBIT or EBITDA breakout for the stimulation segment?

Randall C. McMullen

You're asking the breakout for the fracturing?

Unknown Analyst

Yes, either for the fracturing or the full stimulation segment.

Randall C. McMullen

The full stimulation segment was approximately -- I think it was right around 30%.

Unknown Analyst

Okay. And just -- I want to make sure that I heard a couple of comments earlier on the call correctly. I think you said -- did I hear correctly that you said 50% of the stages were performed in the spot market?

Randall C. McMullen

No, I think the question -- the comment that we made in the script was that 50% of our horsepower is currently uncontracted and, therefore, exposed to spot market. And then there was a follow-up question about what percentage of our frac revenues was from the spot, and the answer to that was 25%.

Operator

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

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

Just 2 for me. On the pumpdowns, talking to some of the industry guys out in the field, they say that the larger frac companies are now giving away pumps for free on pumpdown jobs. And I'm just wondering, for those companies that don't have frac equipment, just pure play coil, pure play wireline, would that help explain some of the challenges they're facing?

Joshua E. Comstock

Yes, I mean, it could. I would tell you that, like you said, some operators, they want our frac fleet to do the pump down, and we do that, we've historically done that. Other operators say, we don't want any of the frac pumps doing the pump downs because we don't want to take the chance on sand or any contamination, and they hire a third-party to do that. What I will tell you that Casedhole has continued to add equipment in that pumpdown service and have been able to deploy that. And they actually are doing pump downs outside of their Casedhole wireline jobs. They are doing pump downs on a lot of our frac competitors' jobs and a lot on our wireline competitors' jobs. So that could be a challenge for others, it's not been for Casedhole, they've been able to expand that business. We're adding pumps weekly to that line for them because they can continue to deploy and they're constantly sold out. So if it is a problem for others, it's isolated.

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

And last one for me, Josh, is -- unless Don is there. Can you guys just comment on the supply and the pricing for the perf charges within your wireline business?

Joshua E. Comstock

Say that one more time, you broke up.

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

Just comment, if you will, on the supply and the pricing that you guys are seeing for perforating charges now that you're in the wireline business, just what are the trends there?

Donald Jeffrey Gawick

Yes, this is Don Gawick. So through the course of the year, actually, we've seen supply issues that did exist earlier caused by some steel shortages early in the year. Those have been mitigated. Now, no issue whatsoever around supply on either the guns or the perforating charges. And in fact, we've been able to negotiate some volume discounts, and we've actually managed to get our cost base reduced moving through 2012 on perforated.

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

Okay. Can you put any type of -- quantify the magnitude of the discounts?

Donald Jeffrey Gawick

It typically still single digits, it hasn't been a large move, but it's high single digits.

Operator

[Operator Instructions] Our next question comes from the line of Walt Chancellor with Stephens Inc.

Walter Chancellor - Stephens Inc., Research Division

A quick question on Fleet 9. I know you mentioned that that would go to work ASAP, I think is what you said. Is that still Q4 when you would expect that to be deployed?

Joshua E. Comstock

It's going to be more like Q1. It's taking longer to get it winterized. We're having to make design changes to some of our blending equipment and our chemical hauling equipment to work in that tougher, much tougher colder environment then what we have here. And so we always said it would be at the end of Q4 and not to expect revenue from it until Q1, that's still the case. I mean, it will be probably first part of Q1, and then we'll hope to get it deployed and to work immediately. We're seeing a lot of interest from our customers in the Bakken of us getting a fleet up there for them.

Walter Chancellor - Stephens Inc., Research Division

And then, I guess, just following up on all this Q4 budgeting talk slowdown. In pressure pumping, are you seeing an expectation of a slowdown among your contracted customers as well as the spot customers? Or is this just more of a generalized spot market phenomenon?

Joshua E. Comstock

Well, I mean it's -- we're seeing, all -- I mean, none of us know for a fact that there's going to be a slowdown. It's just expected that a year where most guys have drilled and completed wells faster than they ever expected and they're at their budgets that they're going to take time off for the holidays or use the holidays as an excuse to take time off. Now, we do have some contract customers that have not indicated that they're going to slowdown and expect to hit their minimum monthly hours. We have others that say, "Hey, we're going to take some time off." So I -- it's just E&P company-specific, it doesn't really -- it's not contract or spot-market driven. It's just E&P specific.

Operator

And I'm showing no further questions in the queue at this time. I'd like to turn the call back to you Mr. Comstock for any final remarks.

Joshua E. Comstock

All right. Well, we thank all of you for joining us. We look forward to speaking to you next quarter.

Operator

Ladies and gentlemen, this does conclude our conference for today. If you'd like to listen to a replay of today's call, you may they do so by dialing (303) 590-3030 and entering the access code of 456-8694, followed by the pound sign. Thank you for your participation. You may now disconnect.

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