Danielle Foley - Associate General Counsel Joshua Comstock - Founder, Chairman and CEO Don Gawick - COO Randy McMullen - President and CFO

John Daniel - Simmons & Company Bradley Handler - Jefferies Waqar Syed - Goldman Sachs Byron Pope - Tudor, Pickering, Holt Sean Mecham - JPMorgan Chase Mulvehill - SunTrust Robinson Humphrey Ken Sill - Seaport Global Securities

Thank you, operator. Good morning, everyone, and welcome to the C&J Energy Services conference call to discuss our results for the third quarter of 2015.

We appreciate your participation. Before we get started, I'd like to direct your attention to the forward-looking statements disclaimer contained in the news release that we put out yesterday afternoon.

A copy of the release is available on the Company's Web site at www.cjenergy.com. In summary, the cautionary notes states that information provided in the news release and on this conference call that speak to the Company's expectations or predictions of the future are considered forward-looking statements intended to be covered by the Safe Harbor provision under the federal securities laws.

Such forward-looking statements are subject to risks and uncertainties, some of which are beyond our control, which could cause our actual results to differ materially from those expressed in or implied by these statements. We refer you to C&J's disclosures regarding risk factors and forward-looking statements in our filings with the SEC for a discussion of the known material factors that could cause our actual results to differ materially from those indicated or implied by such forward-looking statements.

We undertake no obligation to publicly update or revise any forward-looking statements for any reason from these statements going as of the date they were made. Our comments today include non-GAAP financial measures, additional details and reconciliations to the most directly comparable GAAP financial measures are included in our third quarter initially.

As a reminder, today's call is being webcast live and a replay will be available on C&J's website. Please note that the information relayed on this call speaks only as of today, November 5, 2015.

So any time-sensitive information may no longer be accurate at the time of replay. With that, I'd like to turn the call over to Joshua Comstock, Founder, CEO and Chairman of C&J Energy Services.

Thank you, Danny. Good morning, everyone.

Thank you for joining us to discuss our results for the third quarter 2015. With me today are Randy McMullen, our President and Chief Financial Officer; and Don Gawick, our Chief Operating Officer.

I will briefly recap our third quarter results and Don will be an operational review and Randy will discuss our financial results in more detail. I will share our current expectations for the fourth quarter and the New Year to wrap up today's call.

The third quarter of 2015 was another extremely challenging quarter for the North American oilfield services industry due to the sustained weakness in commodity prices at levels that caused further reductions in drilling, completion and production services activities. We reported adjusted net loss of $76.5 million or $0.65 per diluted share representing an approximately 42% decline compare to the second quarter while revenue decrease approximately 16% sequentially to 427.5 million and adjusted EBITDA decrease to a negative 11.4 million.

These results were caused by an overall reduction adjustment activity coupled with the further pricing concession required by the highly competitive environment as well oil prices and the recount continue to fall in operators further tighten capital spending. We took additional steps to control cost and right side of business including idling excess equipment, reducing headcount and closing facilities.

Wanting to be measured not response to the shift and market conditions many of these actions will take in later in the quarter and so did not meaningfully impact our Q3 results, however, our fourth quarter financial results are expected to benefit. In our completion service segment, revenue declined by approximately 23% sequentially, $256.9 million with adjusted EBITDA declining to negative $8.6 million primarily due to lower overall utilization in pricing levels to varying degrees across all service lines and markets.

Our hydraulic fracturing business suffered the most significantly as onshore completion activity fell sharply in July after having shown signs of stabilization and even began to slightly improve at the end of second quarter. Our waterline operations also declined in July although it's a lesser extent initially but utilization and pricing continue to fall off over the course of the quarter.

As set out in our earnings release issue yesterday afternoon, our third quarter results were also significantly impacted by two unrelated atypical detrimental events which we believe may have negatively impacted our hydraulic fracturing operations by as much as estimated $8 million to $12 million first in an effort to maintain and increase the volume by committed work for one of our most active customers, we aggressively reduced pricing which resulted in lower than expected margins. Because the reduced fracturing arrangement was not in full effect until the end of August, and given the inherent lag of gathering costs and revenue in this division of our business, it was not until post quarter end that we determined the issue.

Secondly, we are encouraged significant cost from the premature failure of fluid ends and damage to the associated parts due to the metallurgical defects and our suppliers foragings. And then the problem was also compounded by a change to an alternative lubricant product in an effort to reduce costs that ultimately did not perform to expectations.

The change and lubrication was intended to reduce operating costs while also extending the useful life and reducing the maintenance cost of the cylinder packing. Use of the new lubrication did achieve reduced lubrication packing expense, but unfortunately resulted in equipment damage.

As soon as the issue was discovered, we immediately reverted back to the previous lubrication and worked through the affected equipment and parts. The premature failures not only created additional maintenance and repair expense, but also impacted our operations, including causing downtime and delays.

We are addressing the customer pricing issue with the hope of reaching an acceptable solution and have remedied the equipment situation to the best of our knowledge. Although I am disappointed in the unexpected consequences, I am proud that the innovative ways our employees have responded to the challenge to reduce cost, to assist our company and approximately 1% sequentially to $150.9 million.

However, adjusted EBITDA increased approximately 7% sequentially to $23.6 million. And we increased EBITDA margins by approximately 115 basis points.

Despite lower revenue, as a result of lower utilization and pricing in key basins, we achieved a relatively significant growth in margins due to the operational improvements we have achieved through our restructuring efforts and aggressive cost cutting initiatives. These results clearly demonstrate the strength of our management team and strategy for managing through the downturn while integrating a newly acquired business to drive long term growth.

In our other Services segment, which consists of our smaller businesses and service lines, revenue declined by approximately 23% sequentially to $19.7 million, and adjusted EBITDA was relatively flat at negative $26.3 million. As our rig count continue to fall and completion activity deteriorated, during the third quarter, we experienced decrease in internal and third party demand for our chemicals, manufacturing and cementing services.

As we did service lines, we took additional steps to further adjust our operations for market conditions at the inherent time lag and cost cutting measures and right sizing those businesses, as activity rapidly declined below expected levels, also impacted the third quarter profitability. Before I turn the call over to Don to discuss operational results in more detail, I'd like to share a few thoughts regarding the recently announced amendments to the revolving credit facility.

Our strategy was focused on negotiating the greatest amount of relief possible for the longest period of time and we are pleased with what we achieved. By obtaining relief from the prior interest coverage and total leverage covenants through June 30, 2017, we believe that we have negotiated favorable terms that provide C&J with ample flexibility to navigate the current downturn.

I also want to address the apparent confusion regarding the negotiated minimum EBITDA targets. It seem to have been construed by some as forward financial guidance.

Those minimum EBITDA targets should not be taken as forward financial guidance. And I would like to emphasize that in fact those minimum EBITDA targets were strategically negotiated with the intention of providing the Company with cushion to meet those targets.

Also keep in mind, that the covenant tests based on the specific negotiated bank definition of EBITDA, which is different from the reported adjusted EBITDA in our financials. In that we are able to add back certain noncash cost that impair our reported EBITDA.

For example, stock compensation expense, which is around $5 million per quarter, is included in the minimum bank EBITDA calculation. To provide a simple illustration for the third quarter, we reported adjusted EBITDA of negative $11.4 million, whereas bank EBITDA, came in at approximately negative $6.4 million, well exceeding the minimum EBITDA target of negative $15 million set by the amended credit facility.

Based upon our third quarter operating performance, and EBITDA numbers reported today, and on our current view of the fourth quarter, we fully expect to deliver greater reported adjusted EBITDA in the fourth quarter. So we are confident that we will exceed the bank minimum EBITDA target of $10 million.

We expect to benefit from significant cost savings during the fourth quarter, which Randy will explain in more detail. And we also have a $20 million cushion available to the extent needed.

Looking beyond the fourth quarter which I will address more in our concluding remarks, we anticipate a modest recovery over the course of 2016. As a result we expect that we will meet or exceed future quarterly minimum EBITDA targets particularly given the $20 million quarterly cushion that we receive in each of the first and second quarters, with the unused portions accumulating for the use through the second quarter.

In other words, any amount of the $20 million cushion not used in the fourth quarter will roll over to increase availability up to $40 million cushion for use in the first quarter. With that, I will turn the call over to Don.

Thank you, Josh. And good morning to everyone joining us on today's call.

To briefly recap, as oil prices showed signs of improvement in May and June, activity levels across our service lines began to strengthen. But, with a precipitous fall in oil prices in July, activity fell dramatically and customers across our operations began to delay previously scheduled work and demand price decreases from their oil field service suppliers.

As a result, we experienced lower overall utilization and pricing to varying degrees across our service lines and markets. That said, we began to see some improvement in both August and September.

And we are pleased to have exited the third quarter in a stronger position than we entered. With that, we will look at our individual operating segments.

In our Completion Services segment, we experience overall lower utilization and pricing. Most significantly with respect to our hydraulic fracturing services.

Specifically, hydraulic fracturing activity decreased dramatically in July, then stabilized at low levels in August, and then began to gradually improve in September. Pricing concessions were necessary in order to improve utilization and protect market share.

Josh explained the two detrimental operational issues that impacted our hydraulic fracturing operations during the quarter, in addition to the difficulties of this operating environment. And revenue was also impacted by several customers electing to source their own consumables.

We continue to implement aggressive control measures focusing on minimizing operate costs, including high grading our fleet as we idled excess equipment, further reducing headcount and closing or consolidating facilities. We will not realize the full benefit of these adjustments until the fourth quarter.

We also work with our supply chain to further adjust costs in line with the highly competitive pricing environment we were operating in. And we achieved additional pricing reductions for profit, which is a major input cost of our hydraulic fracturing operations.

Wireline activity although relatively strong, also fell in July and continued to steadily decline over the course of the third quarter, accompanied by increasing pricing pressure, we protected utilization through pricing concessions and gained market share in key areas as competitors either exited the market or lost work due to service quality issues. We also expanded our oxidizing business and captured steady remedial work, despite significant competition and pricing pressure.

We sought to maintain margins by aggressively cutting costs and our operations also benefited from the use of our in-house manufactured perforating guns. As we discussed last quarter, to our research and technology division, we developed and are now marketing these products at a price that is significantly below market price, generating approximately $1 million in cost savings to our wireline operations during the third quarter.

This in turn enables us to better work with our customers on pricing. Coiled tubing activity remained relatively steady over much of the quarter, but declined in September as several significant customers delay jobs to the fourth quarter.

We experienced the expected uptick in activity entering the fourth quarter and the broader industry pullback in coiled tubing usage has created opportunities to gain market share from small and large competitors, some of whom have exited the market and all of whom are struggling to maintain profitability. Turning to our Well Support Services, activity held fairly steady from second quarter through the third quarter, with a slight increase in utilization for our Well Servicing rigs, offset by a slight decrease in utilization for our Fluid Services.

However we encountered a highly competitive pricing environment in certain of our primary operating basins. And pricing concessions were required to maintain utilization and protect market share.

As Josh mentioned, we are very pleased to have delivered approximately 150 basis point increase in EBITDA margins despite lower revenues. This demonstrates the operational and efficiency improvements the management team has made to the business, as well as, our continued cost cutting efforts, including reductions in headcount and closing of facilities.

In summary, and with the exception of the issues we encountered with our hydraulic fracturing services. Although disappointed with our financial results, I am pleased with our overall operational performance considering the difficult headwinds working against us.

We have and will continue to take defensive measures to maximize utilization, grow margin and generate liquidity as much as possible. We are relentlessly focused on cost control with a sharp eye on managing the business for real-time response to market shifts and opportunities.

We are also constantly monitoring the markets to ensure we are maintaining a strategic presence in core operating areas, allocating high graded resources in areas where activity is strongest and withdrawing where it does not make economic or strategic sense. I will now to the call over to Randy.

Thanks Don. Good morning everyone.

We generated overall Company revenue of $427.5 million for the third quarter of 2015, with an adjusted net loss of $76.5 million, or a loss of $0.65 per diluted share, after excluding these one-time items; at $367.8 million, or $3.15 per diluted share, after-tax impairment charge related to the impairment of goodwill and intangible assets for our Completion Services and other Services segments; at $5.2 million or $0.04 per diluted shares after-tax charge related to cost associated with our March 2015 combination with the Completion and Production Services business in Nabors Industries; at $2.7 million, or $0.02 per diluted share charge, related to severance facility closures and other one-time expenses, and a $2.6 million, or $0.02 per diluted share one-time charge, associated with incremental insurance reserves incurred as a result of a decision to increase our self insurance deductibles to achieve a risk management structure typical for businesses of our combined Company size and risk profile. Adjusted EBITDA for the third quarter of 2015 was negative $11.4 million.

These results compared to second quarter 2015 results of adjusted net loss of $53.8 million, or a loss of $0.46 per diluted share, after excluding a $0.05 per diluted share after-tax charge related to the transaction cost, $0.01 per diluted share of severance cost, $0.02 per diluted share of customer settlement bad debt write-off charges, and $0.02 per diluted share for inventory write-downs on total revenue of $511.2 million in adjusted EBITDA of $20.3 million. The majority of our third quarter impairment charge was associated with the complete write-down of goodwill from our Completion Services and other services reporting units, with remainder coming from our write-down of some of our intangible assets.

The goodwill impairment charge is the preliminary estimate, and is subject to change in the fourth quarter when we finalize the third value estimates of each of our reporting units. Additionally the allocation of the purchase price to the assets and liabilities of the acquired Nabors business remains preliminary and subject to change in the fourth quarter.

Any changes to the purchase price allocation could impact the ultimate amount of goodwill impairment charge due to flight for the year. Turning to our financial performance, our third-quarter results were negatively impacted by decreased utilization and pricing levels across our operations, resulting from the significant reduction in U.S.

drilling and completion activity, as the rig count continue to declined and operators reacted to the continued weakness in commodity prices. The sudden drop in oil prices through the early part of the third quarter took me by surprise, and some of our strongest customers begin to delay previously scheduled activity.

Also, our Completion Services segment was negatively impacted by additional pricing discounts to key customers in core operating basins, particularly with respect to a key hydraulic fracturing customer. Our hydraulic fracturing service line was also negatively impacted by premature fluid end failures and associated parts as earlier discussed.

During the quarter we worked hard to correct the equipment issues and improve our service rates to mitigate the potential impact to the fourth quarter. With that said, we believe the seasonality will play greater role in the fourth quarter compared to prior years.

And we have implemented a detailed action plan to better manage operational costs by stacking equipment that cannot generate acceptable rates of return, all of which should result in lower operational cost structure that will ultimately increase profitability in the coming quarters. In our Completion Services segment, we generated revenue of 256.9 million, with negative adjusted EBITDA of 8.6 million for the third quarter, compared to revenue of 332.5 million and adjusted EBITDA of 24.5 million for the second quarter 2015.

Our utilization levels were mostly lower and pricing concessions in the quarter were necessary across our service lines to support utilization of the take market share. The Completion Services segment was most affected by the difficult market conditions, specifically our hydraulic fracturing operations as previously discussed.

Focusing on the fourth quarter, activity levels in our Completion Services segment have gotten off to a strong start as each service line was up in October from September. Although we expect the market to remain challenging, and the seasonal holiday impact to be more pronounced, we only expect segment revenues to decline by approximately 5% sequentially.

In our Well Support Services segment, third quarter 2015 revenue was 150.9 million with adjusted EBITDA of 23.6 million, compared to second quarter revenue of 153.1 million, with adjusted EBITDA of 22.2 million. Compared to second quarter results, U.S.

rig hours increased by 3.3% to approximately 137,350, while Canadian rig hours increased by 31.6% to approximately 19,507. U.S.

truck hours declined by 4.1% to approximately 546,320. During the third quarter our Well Support Services segment continue to experience a decline in pricing, particularly for work over rig and fluid hauling services as a result of the sustained weakness in commodity prices.

We continue to support utilization and protect market share through pricing concessions, while repositioning resources in line with current market conditions and customer demands. Despite declining segment revenue throughout the third quarter, gross margin increased every month of the quarter, and we were able to increase the segment EBITDA margin by approximately 150 basis points through improved efficiencies and aggressive cost cutting.

We remain focused on improving efficiencies by restructuring and right-sizing the segment to continue to adjustments in headcount, facilities and asset base. Focusing on the fourth quarter, market pricing remains competitive for most of our all support services segment and we expect the integration to be effected more profoundly by seasonality compare to prior years which is expected to resolve in segment declining by approximately 10% to 14% sequential.

Our other services segment contributed 19.7 million of revenue with negative adjusted EBITDA of 26.4 million compared to second quarter 2015 revenue of 25.6 million with negative adjusted EBITDA of 26.3 million. As a reminder this segment includes our smaller service lines and divisions including legacy C&J's directional drilling services and Middle East operations, Cementing Services from the Nabors transaction, and our Research and Technology division.

Several of our vertically-integrated businesses are also part of this segment, including our equipment manufacturing and repair, specialty chemicals business, data acquisition and control instrument provider, and our artificial lift applications provider. Please keep in mind, the corporate overhead and inter-segment eliminations are also included in this segment results.

Our adjusted SG&A expense for the third quarter of 2015 was 53.3 million, comprising approximately 12.5% of revenue, excluding transaction and severance costs which compare to second quarter adjusted SG&A of 55.5 million that represented approximately 11% of revenue. The sequential decrease in SG&A is primarily due to reductions in corporate overhead and closure of duplicative facilities falling closing at the Nabors transaction.

Since the fourth quarter of 2014 on pro forma adjusted basis, SG&A expenses now at approximately 28% and going forward we would expect SG&A expense to decrease slightly in fourth quarter. Excluding onetime items we incurred 4.5 million in research and development expense for the third quarter of 2015 compare to 4.3 million in the second quarter 2015.

The sequential increase in R&D expense pertained to cost associated with previously committed two projects as well as investments in near term opportunities. Going forward we currently expect R&D expense to be approximately 3.5 million to 4 million in the fourth quarter as we better align those R&D initiatives with current market conditions.

Also as Don previously explained, the strategic investments in our research and technology capabilities are now delivering monthly cost savings in some revenue, which we expect will increase over the coming quarters. We remain committed to investing in technologies over a lower cost space for key inputs and improve our operational capabilities and efficiencies, enabling us to continue to widen the gap between us and our peers.

We are confident that these efforts will help us manage though the staff and position C&J to be able accelerate out of the downturn when the market recovers. Depreciation and amortization expense totaled 74.7 million in the second quarter compared to 81.5 million in the second quarter of 2015.

The decrease in D&A expense quarter-over-quarter was driven by true up of deprecation associated with adjustments to the estimated fair value and useful lives of PP&E for the acquired Nabors business. We remain in the process of finalizing the purchase price allocation for the Nabors transaction now as a result, we could experience additional true ups to depreciation or amortization of identified intangible assets in the subsequent quarter as we finalized the purchase price allocation.

Borrowing any further changes to the acquired Nabors business, purchase price allocation, we expect D&A for the fourth quarter to come in between 81 million and 83 million. Moving to our balance sheet, at the end of the third quarter we had a cash balance of approximately 23.1 million with 94 million drawn on our recently amended 400 million revolving credit facility as currently has a 300 million borrowing base as a result newly implemented collateral coverage covenant.

It's worth nothing that our net debt decreased sequentially by approximately 14 million. We feel that our liquidity position actually in the quarter was approximately 217 million comprise the Company with ample liquidity to navigate through these challenging market conditions.

The Company has approximately 1.1 billion outstanding under our two tranche term only facility which has all then blended book interest rate of approximately 8.25%. We had approximately 32.7 million in capital lease obligations at quarter end as well.

We used 800,000 of cash to fund our operations during the third quarter in connection with our negative operating results; however, improvement in working capital balances allowed us to minimize the amount cash to used to fund our operations during the quarter. We expect to continue to benefit from working capital reductions over the next six months and estimate that we can generate approximately 30 million of captions in flow.

In addition throughout 2016, we also anticipate generating approximately 20 million of additional cash flow who will state sales and tax refunds. During the quarter, capital expenditures declined by approximately 65% to 24.2 million compared to 68.7 million during the second quarter of 2015.

Majority of our capital expenditures during the first half to the year consisted of construction cost for previously ordered equipment as well as maintenance and other activities to extend the useful lives. Currently, we expect fourth quarter capital expenditures to be generally in line with the third quarter.

Our effective tax rate was a benefit of 16.4% for the nine month period ended September 30, 2015. The tax rate and resulting benefit as than to statutory rate primarily due to impairment charges in the current quarter that were not taxed that for.

We anticipate no tax exposure in 2015 and further expected NOL generated this year will significantly drive down our cash tax exposure in future periods. Going forward, we will continue to aggressively cut costs and align our businesses with current market conditions, given action plan of stacking additional equipment that is not generating acceptable returns thereby improving profitability and reducing main CapEx that is associated with this equipment.

Additionally we will receive approximately $7 million in a further consumable expense reductions quarter-over-quarter, primarily from sand, which will positively impact margins during the fourth quarter. We will continue to implement tighter management of SG&A and R&D spend and focus on right sizing direct labor costs in line with current market conditions.

Even though we expect revenues to decline sequentially and seasonality to play a more profound role during the fourth quarter compared to prior years, we are encouraged by keeping levels as we exit both the third quarter and October. We believe the cost cutting measures associated with our detailed action plan to enhance profitability and increase margins will deliver greater EBITDA and allow the organization to exceed its minimum EBITDA target for the fourth quarter and beyond.

To explain in more detail our third quarter adjusted EBITDA per our bank definition, which allows for stock comp expense to be added back, was approximately negative $6.4 million. Not only did we not have to use the cushion afforded us during the quarter to meet the test, but we also ensured that the full $20 million cushion will be available to us in Q4 if needed.

We do not feel the full $20 million of cushion will be necessary, due to the previously mentioned cost savings in the fourth quarter. Again, those include $7 million in additional consumable expense reductions, a $2 million to $3 million in decrease in SG&A and R&D expenses, a portion of the atypical issues in our hydraulic frac operations, not recurring in the fourth quarter, and other cost reductions implemented late third quarter, early fourth quarter.

We feel like these reductions will more than offset the profitability decreases associate with the in yearend slowdown, especially taking into account our improved start to the fourth quarter. I will now turn the call back to Josh for closing remarks.

Thanks Randy. Although I am disappointed with our third quarter results, particularly the problems that occurred within our hydraulic fracturing operations, I am encouraged that our overall performance and activity levels improved in October compared to September as we capitalized on every available opportunity to capture utilization and cut operating costs.

Although it's impossible to predict the severity of the seasonal slowdown that our industry will encounter at yearend, we fully expect to deliver improved EBITDA for the fourth quarter as we reap the benefits of the additional actions we took during the third quarter to reduce costs and bring our operations in line with customer demand and the anticipated holiday slowdown, which we hope to partially offset with the elimination to the extent possible of the anomalies that occurred within our fracturing operations. With respect to 2016, we are optimistic that we will see some improvements in the first quarter, but we're also prepared for industry conditions to remain extremely challenging during the first half of 2016.

We will continue to aggressively manage our business, making adjustments as the market dictates, while keeping a sharp focus on positioning C&J for the long term. Our priorities continue to be to drive revenue by maximizing utilization, improve margins through cost management, and grow market share by focusing on the quality and efficiency of our service execution, and aligning with customers who recognize the cost savings that C&J provides through its efficiency gains and operational excellence.

We have developed a strategic action plan that includes stacking additional equipment and basins with unsustainable pricing, and repositioning assets to areas where activity and pricing is strongest. And if necessary, we are prepared to further scale back our strategic initiatives in both core and noncore businesses.

We are committed and ready to take the necessary steps to ensure we successfully manage through these challenging times, including compliance with our debt obligations and remain healthy enough to excel and outperform when the market recovers. Lastly before we open the call to questions, I think it's worth highlighting just a few of the many things we have accomplished since first engaging with Nabors in February 2014, and noting the tremendous work and commitment by our employees to drive these achievements.

Since early 2014 we have demanded much more from our employees than just our normal duties. We required a lot from all of them to get the Nabors transaction agreed and across the finish line, which everyone knows was no easy task.

Next we had to integrate a company three times our size, growing from roughly 2,000 employees to 8,000 employees overnight, which impacted every aspects of our Business, from IT and accounting to field operations. Additionally as part of this transformational transaction, we took on a completely new division of services and immediately improved its financial performance, and did so in one of the most difficult times for our industry.

We also moved from being a US based Company to a Bermuda based Company, which has required numerous complicated tasks to ensure we are maximizing our international position, including establishing a broad corporate structuring, including leasing and finance companies and Captive Insurance Company. In the midst of all of that, we also entered the artificial lift business by acquiring a small company, developed a state-of-the-art directional drilling tool, designed and began manufacturing our own perforating guns for our wire line operations, and our list of accomplishments and tasks goes on and on.

Interestingly enough, in line with everything we have accomplished since I started at C&J, at every turn, our ability to successfully integrate and managed the acquired Nabors business and accomplish all of these other tasks, were in question. Not only did we successfully do all of this, but the integration was done in record time and during a time period that has been one of the toughest in our industry.

And while doing all of the additional work, operationally, we have maintained an expanded market share in all of our lines by not losing focus on our core values. Additionally, we are also in the middle of a project we call operation acceleration, which is the implementation of an entirely new ERP system.

We are implementing SAP to ensure we are prepared for the next round of growth. As you can see there's been much more going on at C&J than just dealing with a tough market and bank covenants.

And all that has been done successfully in record time and almost flawlessly. And the sole reason for that success is the quality of our employees and the Company's culture.

All of our competitors can buy or build equipment, get customers and successfully operate, but at the end of the day, the difference between companies is based on their people and culture and ours is second to none. Our C&J employees both old and new have been amazing through all of this.

Although they have seen layoffs, pay reductions, faced their own personal financial issues and experienced overall stress due to the market environment we are in, they have stepped up as a team, as their workload has doubled or tripled in many cases, due to the integration and other items I described. They have done so successfully and with little complaint.

They have taken on and defeated every challenge I have thrown at them. That's what makes C&J special, and that's what will make us successful over the long-term.

Our employees give me inspiration every day. Without their sacrifice and commitment, we would just be another service company.

Instead we are C&J. Excellence delivered: it's who we are, it's what we do.

With that, we will open it up for questions.

Josh, I would like you to start with the two operational challenges that were highlighted and relates, as well, in your prepared remarks? And first on the frac pricing situation, I'd be curious what steps have been taken to address that with the customer and just any feedback you may have had at this point from them?

And with respect to the fluid ends, are there any legal remedies you can take with your vendors? I'm assuming that the fluid industry is probably, or at least, essentially behind you at this point.

Yes. Let's do the fluid ends first.

There are actually two issues at the fluid end. One was, it happened before the other, but caused the other to show itself, luckily.

What happened was, we were looking for ways to cut costs and we lubricate these fluid ends, the plungers themselves with grease and our guys found a cheaper lubricant that they thought would work. And we ran it in Oklahoma, which is a less busy area for us, and it worked just fine and then actually saved on packing, so we thought we were good there.

And when we ran the lubricant -- started running it West Texas, where we operate 24/7, at a much higher intensity, we started to see premature fluid end failures. We take the fluid ends off and get them tested to see why they failed and we found out that we had a metallurgy issue with some of the fluid ends forgings that we had received.

We built the fluid ends, but we get the forgings third-party. And so in addition to that, the lubricant we were using was creating heat within the fluid ends, so we exacerbated the problem by taking a weaker forging and adding heat to it.

And heat what caused - causes these fluid ends to crack. The pressure when pumping is what creates heat and heat is -- and movement is what causes them to crack.

And so, West Texas last year, we are averaging as much as 500 hours of fluid and we were seeing fluid and spill as little as 80 hours. And so not only did it impact fluid ends, but all the parts associated with the fluid ends, the plungers, valves, other parts that you would not normally change when we change the fluid end, it impacted them.

So we had to work through all of that equipment, replacing all of that. We do that as an expense.

We don't capitalize fluid ends like others, so that was all direct expense. We had crews from all over the region, different regions of mechanics getting equipment back up to snuff.

And then we had to also change all the lubricant back and so that was a big hit, then, additionally you have downtime on jobs because of cracked fluid ends. The reason we gave a range, it's really difficult -- it's not difficult tell when you look what caused the fluid end to fail, but it is difficult to tell how much of the fluid end life was there before it fell, before it got damaged.

So we -- if you ask me personally, I think it's higher. Others think it may be lower.

It is in the -- within the range we gave. On the customer's situation, we have a customer, a large customer, in West Texas, a good customer that had been going from -- had gone from two fleets to four fleets and then back to two frac fleets.

And they came to us in July and said, two of your bigger competitors are offering X pricing to get the work and we are going to increase to four fleets. If you can get to that pricing, we will give you the work.

When we price these jobs, there are three components of the job, your sand, your chemicals, and your services. And depending on the customer and the type of work they do and the type of work we expect they're going to do -- for example if you took a customer that was all slick water, which is mainly services, you would leave your margin on services, and you would reduce your pricing on sand.

But if you had a customer that you thought was going to go to a bunch of sand, you remove your -- you would take your margin hit on your pricing, because all they are seeing, they're seeing the total price. But you take your margin hit on your services and then when they increase sand, you would increase revenue as the jobs got bigger.

We definitely take a strategic look when we are bidding these jobs, and how jobs are pumped, and what we think the customer is going to do. And so when we lowered the pricing, we lowered the pricing in one particular area based on what we thought the customer was going to do.

And that was done throughout August. It was a negotiation that -- and so it started to reduce pricing in August, at the end of August, we had negotiated pricing and then at the same time, one of the areas that we had taken the most margin off of, happened to be one that we did not expect them to increase.

They increased it and it had an extreme impact on the margin. I mean extreme.

And so as a result, once we determined what had happened, and why it had happened, we've gone back to the customer and we're working with the customer right now. I know that we have gotten some of that back, as far as, we've raised our pricing.

There are still talks going on. Back on your question on the forgings; we're talking to the forging company right now and we are hoping we can get some of that back.

The problem we have is once you start pumping through these fluid ends, these forging guys have lots of areas to point out to say, oh no. It wasn't my problem.

You pumped this chemical or you pump this pressure, or you did something that caused this. It's not a metallurgical issue.

It's an argument, it's a negotiation and what will ultimately probably end up happening is credit on future fluid ends.

One last one for me and I will jump back into queue. Randy, given the current market, I understand your reluctance to give a specific EBITDA estimate.

But just a little bit more clarification, when you say you are comfortable hitting the required EBITDA covenants, are you referring to hitting the bank EBITDA of $10 million in Q4? Or are you referring to hitting the cushion adjusted EBITDA?

It is effectively the same thing. You've got a targeted bank EBITDA of 10 million, and any shortfall can be cured with a $20 million cushion basket.

And so, what we are saying is that with an improvement in bank EBITDA from 3Q, not saying specifically where that number will be, but we are, obviously, highly confident that at that level, you pass the fourth-quarter test and use whatever portion of the cushion is necessary to ensure it if it is below the ten.

The street adjusted EBITDA has to be $5 million.

Okay.

With the cushion.

It's probably not an offline question, it's probably worth just holding up now, I think it's really important if you guys can help us understand, do you think you can get there without using the cushion because obviously the concern is that 2016 rolls around in Rockland [ph] is uncertain certainly for the first quarter, frankly this conversation today has certainly been unsettling with respect to your ability to anticipate your customers requirements and the ability to make money off the customers and stuff so, do you think you can get there without using the cushion or do you expect to use the cushion? I think it's really an important question.

Well, the first thing I will comment on is your last statement about that's not been over predict our customers and being unsettling. I think it's about the first time you’ve ever heard this up and out of blast, so we're pretty good at predicting our customers as this happened to be at particular event that it didn't work out the way we thought it was going to work out, and not everyone to be perfect when it comes to that.

As far as using cushion, our goal has to not use any cushion in the fourth quarter. Can we get there?

We're going to do everything we can to get there. If we don't, we're going to use of course [indiscernible].

We do not think at this time that we're going to need to use all of the cushions. We will be rolling cushion forward.

I hope to see none enroll 40 million forward.

May be just an unrelated question but may that can help understand, so in terms of the revenue declines and completion services, how much do you attribute to self sourcing of sand? That was a phenomenon in the second quarter not sure how much there was in the third.

It was a larger impact and I think as we sort of break it out and look at the 30% decline in fracturing revenue, it's a fairly even split between decreasing utilization, decrease on pricing and decreasing in customers pricing.

First of all the minimum EBITDA requirements, as we going to 16 progressively the equipments go up specially as to get into the second half of 16, could you maybe breakdown what you can do internally at that time and what kind of flow how do you expect from the market to get you to the high levels to also EBITDA that you needed in the fourth quarter of 16 to meet the EBITDA requirements?

Okay, Waqar, it's Randy. Obviously, we've got some additional levels that we can pull and we were focusing and emphasizing that in the script.

Primarily, we've got once over signed right that dragging down the possibility of the entity and so our focus will be on continuing to shrink that if necessary and then return improve the profitably of the organization to ensure that we meet those goals and that's without an improvement in the market. Obviously, we're hopeful that there will be some recovery during 2016, but if not, we've got levels that we can pull all across the organization and like I said it's not just downsizing the primary silvers line that's a negative drive on profitability, but it's also additional levers that we can pull both in the other service segments and then some others as well.

Just to add to that, we've been -- due to the reasons I described in the last part of my script around our employees and everything that they've been dealing with and additional workload that they've had in this environment, which is unusual, to say the least, we have been very reluctant to do anything that negatively impacts employees. There are levers that we can pull, benefits, compensation, and other items that we have not pulled.

Our peers have all pulled those levers and we haven't. We're trying to do everything we can to make sure downturn is least impactful to our employees as possible because of the amount of work that they are doing.

And they're automatically impacted just by time on location, less time on location. A lot of the guys are automatically impacted.

The salary people are doing two times and three times the work, with no bonuses expected and other things. So to Randy's point, we can pull lots of levers.

To your question I think the cushion with what we plan on EBITDA, hitting on EBITDA and some other things that we have in place. We are -- that Q4 target is the area that we are concentrating on the most for next year.

So is it that we have to quantify, that like you mentioned $7 million of cost that you can take out, you have taken out from in the fourth quarter. But let's say a year from now cost-cutting alone, can you give a number, that if things in the market doesn't improve how much you can take out, without maybe going into what the individual item may be, but just the internal restructure, how much cost on a quarterly basis can be take out.

SG&A, we've got quite a bit of administrative side we can take out. Probably pulling a few levers and additional $15 million.

Then on the gross margin side again, with downsizing that one operation that could be as much as 42 to 50 of annual improvement.

Okay.

That is not counting the scale back other initiatives, either, that we can pull.

Just to be clear on SG&A, $50 million is on a quarterly basis?

That was an annual number.

That's annual number, okay. And then $40 million of annual number for on the gross margin side?

A - Randall McMullen Say that again? $14 million?

We saw some asset sales, revenue something close to $40 million in incoming cash from asset sales. Could you give us a some explanation of what that was from?

I'm sorry, Waqar. Can you repeat the question?

In the cash flow table we saw there was some maybe cash gained, about $40 million so, maybe from maybe divestitures.

I'm sorry. I didn't understand your question.

No, that was a working capital true up from the Nabors acquisition.

Morning guys. I will just ask one question, since we are at the top of the hour.

Randy, I think I heard you say that with regard to your detailed action plan, that your decision to stack any further equipment will be based on whether or not you can generate acceptable rates of return. Could you remind us where you are in terms of the amount of stacked horsepower you have today?

It doesn't sound like you necessarily stack any incremental in Q3, and I just wanted to make sure that's a fair characterization, in terms of how we should be thinking about if you have to stack further equipment. It is basically a function of the return profile continuing to erode?

This is Don Gawick, I will take that one. We ended the quarter with about 700,000 horsepower working, which was down from the end of Q2.

And again that was a result of taking a couple of fleets offline, still keeping some of that horsepower in the rotation, so that we've got equipment that we can keep functioning and working in the field as opposed to just completely parking it. The working horsepower at the end of the quarter was 700,000.

Just wanted to talk a little bit more about the customer pricing issue, would you attribute any of this in terms of when you are able to have visibility on it, or as the problem unfolded to the integration process, having to manage a bigger fleet and what is a pretty chaotic market. And just thinking about overtime, are there plans to implement a more robust RFP system, or are there other things you can do to perhaps give yourself more real time information on things like this?

On ERP, like I said, we're in the middle of implementing SAP. That had nothing to do with real time in the frac business with as much frac sand that we're moving around and things that we're doing there is a lag.

There is a lag in trucking, because you are using small private trucking companies. You get a ticket on the job, it is handwritten, but you get an invoice 15 days, 20 days later.

To actually true up the cost and see what happens, when it happens, there is a lag and it is an inherent lag in that business. Now if you say real time data, we can tell you real time data within usually within a day or two of what total company revenue is at any given time and what we think costs are.

However, again jobs, as big as these jobs are, it has nothing to do with the integration. It has to do with the size of the job, the type of the job, the changes during the job.

And in this particular customer, we said $8 million to $12 million. Keep in mind, probably half of that or more was related to the equipment issues.

They were not related to this customer. this particular customer is working four fleets.

You're talking a week or two worth of work before we realize there was a problem. Like I said, it was September when it happened.

And it was right after September when we realized what it was that caused it. And it is not simple.

There is a lot of analysis to go in and figure out exactly what it was, because there are so many moving points on these jobs. They are not just cookie-cutter jobs.

Sand moves, moves for stage, you bid a job a certain way; you get out there and then all of a sudden they may change a job. Anyway, this is not -- I would say that this is not irregular in the industry.

We were just willing to own up to it and say that it happened. And we're not going to let it happen again and it had nothing to do with controls.

It just had to do with miss estimating what we thought the customer was going to do.

Then just one last thing, thinking about the strength that you saw this month in October, or last month, how much of that do you attribute to customers managing their budgets more on a quarterly basis versus how much do you think is market share gains on your part and therefore a bit more sustainable as we go forward?

I will tell you my opinion and Don can tell you his. On the customer side.

I don't know much the NP companies are saying to investors or analysts, but the NP companies we talked to, the majority of them, plan on working while service prices are low. I'm reluctant to say huge seasonal slowdowns.

People who say that are just guessing, because the customers I talk to, no one has said we are going to shut down from Thanksgiving to Christmas. Everyone that we're working for is continuing to work at the same pace as they were working last month or the month before.

And I do -- July and August, obviously, the summer months and people were taking off and not a bunch of pressure on folks and oil prices just dropped again. Customer's mindset changed some.

But right now I think there's a feeling that when things are going to start to tighten around supply and demand, and what I believe you are going to see happening is, after the first quarter, are going to continue to drill now that have drilling rigs on contract. And so after the first quarter, or, into the first quarter, you're going to see more money start to rollout of drilling and into completions, because we booked this huge backlog of wells that are uncompleted and guys have drilling rigs that are contracted that they have to pay for.

And we have seen that in a lot of our customers. So we're not seeing quite the activity change that we are hearing on the street and we are hearing other people say.

And that said, there are smaller companies that we work for that are talking about taking days off, and doing things. Now as far as market share gains, we have seen, especially in coiled tubing, we are seeing market share gains month-over-month and we have just deployed the largest, longest 2 5/8 string coiled tubing unit this month.

It has been working every day. We have seen a lot of small competitors closed down.

We have seen Baker. I don't know it to be a fact, but we've heard that Halliburton is slowing they're coil tubing.

So a lot of coil tubing work as been coming our way. And Don can speak to the other service lines.

Just in general to Josh's point, there is certainly a lot of discussion around the slowdown from the Thanksgiving period on, and I think the visibility to that is very mixed, depending on which customers you are working for and which companies you're talking to. The initial indications we're getting is that we're certainly going to see some impact as we always do, due to the seasonality.

But the folks we're working for, by and large, are not looking for a significant slowdown in the period after Thanksgiving and before Christmas. We are getting a more typical slowdown as opposed to where you're hearing from some of the other people, is the feedback we are getting from our customers.

On top of that I can tell you that across the board we saw activity in October at the top line for the dollars to be at least as strong as September, if not stronger. So we've already got October in the bank.

We're staying as busy in November up to this point. In fact we have seen an increase in activity in a couple of our product lines.

And specifically in pressure pumping which is very nice news for us. So being almost halfway through the quarter and with the feedback we are getting from our customers.

We really aren't expecting to see a dramatic downturn at this point. We're prepared for things to go down, we've got contingencies in place, but the evidence at this point is not suggesting that.

And again to Josh's point on the market share issues, we really do continue to pick up a number of new customers and get more of the available market that is out there. It is obviously a shrinking market at this point, but we are managing to stay relatively busy compared to many of our competitors in our various product lines by gaining more share.

And we expect that trend to continue, especially as we see some of the other players exit some parts of the market, and folks have additional operational issues out there. We're replacing people due to service quality problems and having opportunities to go work for some new people.

And we have actually, in some cases, recently had price increases that were pushed through to customers in different service lines.

A follow-up question in regards to what you are talking about October and November so far. So if we think about just Completion Services, how did October look relative to Q3 average monthly run rate of about 85 million?

And then if you could talk about how margins in October are shaping up, as well, for Completion Services?

In October, for Completion Services versus the Q3 average, it was up over 10%.

Okay. Awesome.

And what about margins?

Not speaking to margins, still early in the month, but we obviously are expecting it to be better.

Okay. Good to hear.

And then so how much of your assets are currently being utilized or being secured by the term loans?

All of them.

All of them okay, alright. That's all I have I will turn it back over.

Thank you.

Getting, obviously, some pushback on guidance here, and I'm wondering. People seem to be upset that you did the debt covenant relief, you guided down, you missed consensus on the quarter coming out of that.

And now you're providing guidance that is essentially better than anybody else is providing. And the question is how close or how much cushion is there in your guidance for things being better in Q4 for things actually getting pretty [early] in December versus a typical slowdown?

It sounds like you are guiding, we won't work much over Thanksgiving or Christmas but we are not going to see anybody else -- we are not going to see our customer's drop-off between Thanksgiving and Christmas.

This is Randy. That is the statement we have been making.

That's why we gave the bridge to the improvement that was due to whatever reductions in SG&A and R&D or the reductions in input that we will receive or a portion of those anomalies not happening again. Secondly, the bridge to the improvement, we've given some guidance on the top line perspective for our two major segments, which one of which is on the completion side is obviously much better than what you are hearing from other sectors.

And a lot of that obviously is built around where we are sitting today. What we saw in October and the increase I just mentioned, as well as the visibility that we had in November, and then beyond that, to what Josh was saying, as well as Don, is that the December slowdown does not look to be as significant for us as what others have suggested.

I would just add a couple things. You talk about missing Q3.

You have not ever heard us talk about anomalies, and throw out instances of when we have had problems with jobs, we had significant areas of issues. If you were to give consideration for that, we did not, in my opinion, miss consensus.

When in fact we -- if you gave consideration for 100% of it, we definitely beat it. That said, I've obviously gotten a lot of notes today and yesterday around whether or not the issues had anything to do with the Nabors integration.

Just to be clear, our fluid end issues, that was -- all of that was legacy C&J stuff, and it was done on legacy C&J equipment, by legacy C&J managers. And so it was -- it had nothing to do with integration, had nothing to do with Nabors, it had all everything to do with poor forging from the center wire we had been getting forging store for the past three years and had nothing to do with anything related to Nabors.

All right and I can see that. I think part of the issue we've got here is that as results get close to zero everything becomes magnified.

And it is just --

And I would just say I just want to -- the thing around Nabors is rather note just a second ago it says that, is this integration problems with Nabors, I mean, we have to tell you while servicing business that we have not been ever that is original pool business and immediately got more to just in that business. We've reduced SG&A.

We've got Nabors completions business running better and more efficient and more detailed than ever had before. We had an issue in the third quarter that had to with two mistakes and one bad product.

And that's all it was and so far people to question the integration capability of us integrating Nabors when we done so from March 23 to now, we're completely done and up to an addition service agreement. When it was originally estimated taking year and half for us to do it and some said we couldn't do it and then to your question, and I know you're not one of those, but it's aggregative when people want to just pop up and say stuff like that when this is really one of the -- this integration in my mind and then the history those a lot of things that said in the past and I get other guys around here those said the same thing and folks should give you credit for that.

Yes, we appreciate talking to you guys. We'll see you next quarter.