Daniel Jenkins - Vice President-Investor Relations Don Gawick - President and Chief Executive Officer Jan Kees van Gaalen - Chief Financial Officer

Jim Wicklund - Crédit Suisse Jud Bailey - Wells Fargo Tommy Moll - Stephens Chase Mulvehill - Bank of America Merrill Lynch Mike Urban - Seaport Global John Daniel - Simmons Energy Daniel Burke - Johnson Rice

Thank you, operator, and good morning, everyone, and welcome to the C&J Energy Services earnings conference call to discuss our results for the third quarter of 2018. With me today are Don Gawick, President and Chief Executive Officer and Jan Kees van Gaalen, our new Chief Financial Officer who joined us in mid-September.

We appreciate your participation. Before we get started, I would like to direct your attention to the forward-looking statements disclaimer contained in the news release that we issued this morning, and is currently posted in the Investor Relations section of the company's Web site.

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 are considered forward-looking statements intended to be covered by the Safe Harbor Provisions under the Federal Securities laws. Such forward-looking statements are subjects -- subject to risk and uncertainties, many of which are beyond the company's control, which could cause our actual results to differ materially from those expressed in, or implied by these statements.

We refer you to C&J's disclosures regarding risk factors and forward-looking statements in our filings with the SEC for a discussion of the known material factors that could cause our actual results to differ materially from those indicated or implied by such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements for any reason, and these statements speak only as of the day they were made.

Our comments today include non-GAAP financial measures. Additional details and a reconciliation to the most directly comparable GAAP financial measures are included in our third quarter earnings press release.

As a reminder, today's call is being webcast live, and a replay will be available in the Investor Relations section on our website. Please note that information relayed on this call speaks only as of today, November 1, 2018.

So any time sensitive information may no longer be accurate at the time of the replay. With that said, I'd like to turn the call over to Don Gawick, President and Chief Executive Officer of C&J Energy Services.

Thanks, Daniel. Good morning, everyone.

Thank you for joining us today to discuss our results for the third quarter of 2018. Before we get started, I wanted to officially welcome and proudly introduce Jan Kees van Gaalen to the C&J community on his first earnings call with us.

We are very excited to have such an experienced financial professional join our team, especially as we continue to focus on SAP integration while streamlining our cost structure and creating value for all of our shareholders. Turning to Slides 3 and 4 of the pre-posted presentation and focusing on operational highlights from the third quarter of 2018, I am proud of our operations team and how they performed despite the challenging market conditions.

We experienced weakening customer demand that resulted in activity gaps and decreased utilization to varying degrees across our completions-oriented businesses, most significantly in our fracturing business. Our Well Construction and Intervention Services segment performed well during the quarter, due to the stable drilling rig count and continued strong customer demand for large diameter coiled tubing.

We experienced improvement in most of our well support services segment businesses, despite being negatively impacted by weather delays and project startup costs. All of this resulted in revenue and adjusted EBITDA increasing year-over-year by 28% and 66%, respectively.

However, revenue and adjusted EBITDA decreased sequentially by 7% and 17%, respectively. In our fracturing business, reduced customer demand resulted in pricing and utilization erosion during the third quarter.

In general, our customers slowed their pace of completion activity, in part due to early budget exhaustion, which resulted in frac utilization falling by approximately 10% sequentially. With the reduction in customer demand and in line with our returns-focused strategy, we idled two horizontal frac fleets in the quarter and cut costs accordingly.

We exited the quarter with 16 horizontal and two vertical frac fleets deployed, with 10 of those horizontal fleets dedicated at quarter end. This was a slight improvement compared to our exit rate in the second quarter of 2018.

Our wireline and pumping businesses ended the third quarter experiencing strong customer demand and continued pricing momentum. However, revenue ultimately declined by just over 2% sequentially, due to industry-wide frac activity gaps, mostly in the month of September.

In our Well Construction and Intervention Services segment, both revenue and profitability increased year-over-year mostly due to the O-Tex acquisition, but decreased sequentially due to select equipment downtime, weather driven delays and higher costs associated with transitioning people and assets to our new cementing facility in the Delaware Basin. In our coiled tubing business, demand for large diameter coil remains strong, but our results were negatively impacted by unexpected downtime impacting three of our large diameter units.

Unusually wet weather in South Texas in September also resulted in equipment being stranded at the well site due to undrivable roads and we had to turn down previously scheduled jobs for this equipment. In our cementing business, customer demand and pricing leverage remains strong, especially in West Texas.

In our Well Support Services segment, revenue and profitability increased nicely year-over-year but was flat sequentially. During the third quarter, even though we deployed more assets and continued to increase pricing for our services, our improved performance was partially offset by a prolonged downtime during the 4th of July holiday week, project start-up costs associated with work won for mostly major integrated customers late in the second quarter and then climate weather in September.

In our rig services business, we deployed more workover rigs in California and West Texas. And we exited the quarter with our highest workover rig count and day rates of 2018.

In our fluids management business, we experienced increased demand and deployed additional trucks primarily in California, but overall revenue and profitability declined due to inclement weather in late September in both the mid-continent and Texas. Shifting the focus to our recent technology initiatives.

Our R&D division continues to bring operational and cost benefits to our core service lines. In our fracturing business, we are installing our Warm Start System on all frac pumps that go through our refurbishment program.

The Warm Start System allows our crews to instantly shut down all of our pumps and restart them from the date of that control center between stages. This environmentally friendly system provides significant fuel savings for our customers and reduces our maintenance cost by less engine idle time on location.

We are also upgrading all blenders with enhanced technology including a longer life discharge pump and discharge manifold, improved controls, upgraded densitometers, and other enhancements. We continue to push new technology to leave the industry and plug-and-perf operations with the rollout of our game changer portless gun system, expanding it from the initial pilot location to three other operating districts.

Due to the enhanced reliability of this system, we anticipate this gun will be run on the majority of our jobs by the middle of 2019. Our in-house manufactured addressable switch, which is used in the game changer gun, achieved a milestone of 1 million switches sold during the third quarter.

We are advancing our program to use data analytics in our fracturing business with several of our fracturing fleets, now streaming data to the cloud with our proprietary MDT control systems. The cloud data allows real-time monitoring of the fleet from any location, and provides data to our asset integrity team to manage and optimize the maintenance and performance of our fracturing equipment.

In closing, due to the changes in market conditions, and customer demand for our completion oriented businesses, we have once again lowered our capital expenditures program to be more in line with our profitability and closer to cash flow neutrality for 2018. As we announced last quarter, we will continue to maintain a balance within our capital deployment strategy of investing in our profitable businesses, maintaining a strong balance sheet and generating positive returns for our shareholders.

Accordingly, we have started the execution of our share buyback program with the purchase of just over $20 million of C&J common stock in the open market during the third quarter. And we expect additional share repurchases to be part of our capital allocation plan into 2019.

With that, I will turn the call over to JK to review our first quarter financials.

Thank you, Don. Good morning, everyone.

I am very excited to have joined C&J and I look forward to working with the C&J team and meeting all of our stakeholders over the coming quarters. Turning to Slide 5 in the slide deck, we posted with our earnings release this morning and focusing on our consolidated results.

Third quarter revenue increased 28% year-over-year, however, decreased 7% sequentially to approximately 568 million. We generated net income of just over 10 million in the third quarter or $0.16 of diluted earnings per share, which was essentially flat year-over-year.

However, represented a 63% decrease sequentially. For the third quarter of 2018, we generated adjusted EBITDA of 73 million, an increase of 66% year-over-year, but a decrease of 17% sequentially.

Turning to Slide 7, and focusing on the business segments. Completion Service segment revenue increased 21% year-over-year, however, decreased 10% sequentially to approximately 373 million in the third quarter of 2018.

In our fracturing business, revenue increased 17% year-over-year but decreased 13% sequentially to 252 million. Segment adjusted EBITDA increased 7% year-over-year, but decreased 21% sequentially to 66 million in the third quarter of 2018.

Turning to Slide 8. Well Construction and Intervention Services segment revenue increased 167% year-over-year, but decreased 4% sequentially to approximately 96 million in the third quarter of 2018.

Segment adjusted EBITDA increased 129% year-over-year, but decreased 13% sequentially to 17 million in the third quarter of 2018. The year-over-year increase was primarily due to our acquisition of the O-Tex Cementing Business in late November 2017.

Now turning to Slide 9. Third quarter revenue of $99 million from our Well Support Services segment was a slight increased year-over-year and sequentially.

Segment adjusted EBITDA increased just over 12x year-over-year, but was largely flat at just under $11 million in the third quarter of 2018. Turning to Slide 10, and moving to expenses.

SG&A expense decreased approximately 16% year-over-year, and sequentially to $50 million in the third quarter of 2018. The sequential decrease was driven by lower employment costs and reduced corporate overhead.

Excluding non-routine costs, adjusted SG&A, as a percentage of revenue, decreased sequentially from 9.4% to 8.7% as we achieved 70 basis points of operating leverage, even with a 7% decline in consolidated revenue. Looking ahead to the fourth quarter.

We expect SG&A expense to range between $50 million and $55 million for the next quarter. Depreciation and amortization expense increased 68% year-over-year and 12% sequentially to approximately $61 million in the third quarter 2018.

The increase was driven by capital expenditures associated with new and refurbished equipment placed into service during both the second and the third quarters of 2018. Looking ahead to the fourth quarter.

We expect D&A expense to range between $63 million and $68 million, reflecting units that will be put into service over the next quarter. From a tax perspective, as we have previously stated, due to our significant NOL position, we expect that we will not be in a cash tax payer position in 2018, and for the next few years outside of nominal state and local taxes.

We also expect our effective tax rate to be close to zero. Now turning to Slide 11, looking at cash flow.

We generated $65 million of cash from operations in the third quarter of 2018. Capital expenditures increased 12% year-over-year, but decreased 5% sequentially to approximately $89 million in the third quarter of 2018.

Capital expenditures remain elevated due to deployment of 3 refurbished frac fleets and select new built units in our other completion-oriented businesses late in the second quarter and early in the third quarter of 2018. Going forward, based on continued challenging market conditions, we decreased our 2018 capital expenditure budget and now expect it to range between $315 million to $325 million.

From the midpoint, we have now reduced our original 2018 capital expenditure budget announced in February 2018 by just under 30%. Our goal is to fund our capital expenditures through operational cash flow and be close to a cash flow neutral in 2018, with a continued focus on generating meaningful free cash flow in 2019.

As Don previously mentioned, our capital deployment strategy continues to balance investing in our profitable businesses, maintaining a strong balance sheet and generating positive returns for our shareholders. During the third quarter of 2018, we purchased approximately $20.3 million or just over 993,000 shares of C&J common stock in open market transactions.

C&J stock purchases were made as part of the company's $150 million stock repurchase program announced on August 2, 2018. Staying on Slide 11 and moving to liquidity and the balance sheet.

Our cash balance was approximately $76 million at the end of the third quarter. Additionally, we had no borrowings outstanding under our credit facility, which had $317 million of borrowing capacity resulting in total liquidity of just under $393 million at quarter end.

In light of the current challenging market conditions, in our completion-oriented businesses, it is important to reiterate that our financial philosophy includes maintaining a conservative leverage position protecting our strong balance sheet, and having ample liquidity to better manage our businesses, and potentially take advantage of opportunities that the market may present. With that, I will turn the call back over to Don for a few closing comments.

Thank you, JK. I'd like to highlight a few points that are included on Slide 12.

The unfavorable market conditions that we experienced in our completion-oriented businesses, late in the third quarter, have worsened in the fourth quarter. In our Completion Services segment in particular, we are not anticipating material improvement in customer demand.

Rather, we expect continued near-term choppiness and weakness through year-end. We also believe that the early onset of customer budget exhaustion will ultimately lead to a seasonal slowdown at our Completion Services segment during the fourth quarter.

Given the challenging headwinds, especially in our fracturing business, we are not anticipating improved sequential results. With that said, based on recent customer conversations, we believe customer demand for our completion-oriented businesses will increase in 2019, although we cannot predict the exact inflection point.

Currently, we have customer indications that a large majority of our frac fleets will be working on a dedicated basis at some point in the first quarter of 2019, which is a positive sign that should allow us to return to more normalized utilization levels over the course of the first half of next year. We are cautiously optimistic and growing more confident that we will experience meaningful improvement across our core businesses at some point in early 2019.

In closing, I want to thank our employees for their continued hard work and dedication. I recently returned from a quick trip to West Texas to visit several of our field locations.

Why I was so strongly reminded that is the resilience of our people that truly make our company great. Even though the past few months have been challenging for C&J, our people have delivered at a very high level of service quality and safety, which is expected of us by our customers every day.

Thanks, again, for joining us on our call today, and we expect appreciate your interest in C&J. Operator, we're now ready to open the call to questions.

It's Jake on for James. I guess, first, could we talk about -- you, kind of, mentioned that towards the end line of sight is putting some of the fleets back to work, but I was hoping if you could just give a little more color on some of those conversations that you're having with your customers?

Are there any interesting differences amongst some people when they're -- in terms of timing? When they think about putting fleets back to work?

And I think earlier, you guys had talked about maybe the possibility of putting a fleet back to work in South Texas, still in fourth quarter, towards the end of the year. Any color on that would be helpful.

Yes. So we're obviously talking with a number of different customers, and we're seeing really increased demand with respect to people wanting us to step up and give them dedicated fleets in the first quarter.

Interestingly enough, we've had a couple of discussions as well with some customers, saying they'd like to start even before the end of the fourth quarter. And we're seeing that, kind of, tick up here, just in the last week or two.

And it's almost a day-by-day situation where we're getting customers saying Hey, we are expecting to really get quite busy as we come out of the end of the year, and move on with a new budget. So as we sit right now, it's looking like we're going to have demand for virtually all of the fleets that we currently have deployed to be dedicated early in the first quarter.

And quite frankly, it looks like the demand's even a little bit higher than we've got in terms of the currently deployed fleets and growing, sort of, on a weekly basis as we talk to them. So the outlook's looking really pretty strong.

And that, by the way, is in a number of basins. That's not just South Texas, it's not just West Texas, it's mid-con, we're getting demands up in Northeast, or getting questions rather, up in the Northeast and we're seeing opportunities to deploy fleets in multiple basins.

So I'd say the momentum's picking up pretty nicely.

And then, I see you guys have obviously been focused on cash flow generation, capital discipline when we've seen the CapEx budget for '18 come down a number of times. And then, on the -- in your prepared remarks, you were talking about some of the initiatives within the technology group to, kind of, drive some increased cost savings.

We're seeing SG&A come down as well. I was wondering in the context of that, if you can just, kind of, touch on labor cost inflation in '19.

What are you seeing? What do you expect to see?

And then what are, sort of, some of the strategies that you guys have to deal with, the current tight labor market?

Yes, so that's -- there's several components to that question. I'll take them maybe one at a time.

So recently, we've seen the labor pressure in terms of the actual wage inflation really moderate. We certainly saw that early in the year and throughout the middle part of the year, but that's backed off somewhat currently -- in this current environment.

The expectation is that's going to ramp back up as we go into 2019, certainly ramp up by some time, middle to late in the year, as we expect the overall activity to really get quite strong. We're focused on staying competitive in the market.

We certainly plan to go forward next year with a -- an annual merit cycle, but as well stay in touch with the market with regard to prevailing wages and we'll move as required. We're spending a lot of time with respect to what we're doing in recruiting.

One of the things that we've seen a lot of success in, is going to areas that are currently depressed, but have been traditional strong oilfield services markets. And so there's a number of people there with the skills and experience that we want, but there's really not a lot of activity in.

So we've been having good success at hiring those folks and having them work for us on a rotational basis in the basins where we're active. As well we're focused pretty heavily on the veterans and dealing with a number of different facilities, different groups, they are in getting a good reputation, I think, amongst them is a good employer, someone that the other vets could look to as a good place to come back and get very well paid in long-term jobs with a good career path.

So we'll stay plugged into the whole notion of what the market is doing and continue to focus very strongly on the ability to recruit and retain the folks, as the business picks back up.

Quick follow -- I apologize if I missed this, but did you give a number on how many active fleets you have today? And I think you said you had 10 dedicated fleets, but want to make sure I, kind of, caught that.

Yes, so we've got 16 horizontal fleets working today. We've got two vertical fleets working, so we refer to that as sort of 17 equivalent, but it's really 16 of them are specifically working in the horizontal markets.

Of those 16, 10 are working on a dedicated basis.

And it sounds like you're having constructive conversations for early '19. And do you think you can get all 16 working on a dedicated basis?

Or could it be higher than that? And then, as you just talk with customers, can you give us some color on the pricing dynamics, relative to what we saw a few months ago, or kind of what you're seeing in the spot market today?

Yes. So I'd say we're extremely encouraged by the interest we're getting from the customer base in terms of talking about the first quarter and getting more fleets dedicated.

So our percentage of dedicated fleets is certainly going to go up. I don't really want to hazard a guess as to what that percentage would be.

But I would say right now, based on the conversations we're having, the vast majority of the fleets we're currently running will be dedicated. It's a possibility they all could be dedicated.

There's a reasonable possibility that there'll be more demand than we actually have capacity. So it really is getting quite a bit stronger.

With respect to pricing, we certainly have seen some pressure. I think as you go into the discussion with the customers on what we're doing for 2019, and where the pricing is, currently, versus where it was at the peak.

It has come down somewhat, but we're still able to discuss, with the customers, the ability to move our overall pricing up on an ongoing basis as we see any increases in various input cost to the system. So we do expect to have still a very good EBITDA generation with any of these fleets, and moving back towards the kind of numbers we saw at the peak.

Hopefully sometime late in '19 or perhaps early '20.

And then, my last question is, if you could talk a little bit, you guys have a lot of insight at different completion related lines. Cloud you maybe talk a little bit about what you're seeing for the wireline business and contrast that with maybe even the cementing business, kind of, those two lines as you kind of go through year-end and any prospectivity for early '19 as well?

Yes. So we were really extremely strong with our wireline business, as we entered the third quarter.

We stayed very strong as we went through the first couple of months. We did see some impact on wireline in September, and have continued to see some of that as we enter the fourth quarter.

Just with respect to the overall pace of the completion business and, again, a lot of different frac companies being affected by a slow down, if you will, of the overall pace that we're seeing out there and a number of people ending their programs as the budgets got exhausted. So one advantage we've got is we do get to work not just for ourselves but for virtually all of the frac companies, and it gives us exposure to what's going on in the marketplace very broadly.

So we have a pretty good sense of what's happening overall with activity of the frac market in general. We still feel really good about where the market is going as we go into 2019.

We're less affected in wireline, than we are in frac certainly because we do work for so many customers. We can move pretty quickly from one customer to another with our very large fleet of wireline trucks.

So that's staying considerably stronger than frac and we expect to see a very robust increase in activity going to the first quarter. Cement has stayed quite strong.

The rig count has hung in there, and the new well cementing jobs are still plentiful. We do not just the surface type jobs, we do the long string as well.

And we're continuing to see a good amount of drilling, they're not necessarily completing them all, but they are happy to go ahead and cement the long string. And so that business is really hanging in there, and we expect to see again some -- again, some really good activity for that business going into '19, as we see potentially a ramp-up in overall activity.

The other one I'd just like to comment on is the large diameter coal. That business stays extremely strong for us.

And if we hadn't had some issues with both weather and some mechanical problems caused by the implementation of the new high 10-cell strength tubing that's come to market and the, kind of, wear and tear that we're seeing on our injector head components, we would have been quite a bit stronger in the third quarter. And we actually anticipate that business staying very strong even through the fourth quarter, shy of any potential seasonal elements and holidays and things like that.

But the overall demand is extremely high.

So as expected, frac is slowing down into year-end here with inflection coming in early '19 at least based on some of the early conversations you're having. You did comment earlier, or at least in the slides, regarding the potential to idle some additional fleets in Q4.

How do you balance the decision on whether to do that with the opportunity to keep some of these fleets warm, if you will, to be ready to go back to work on the fully utilized basis pretty quickly in early '19?

Yes. So the decision to idle any fleets really is based on the overall utilization that we're seeing.

And if we have enough gaps in the calendar, we're clearly -- we have an excess of fleets available. At that point, it does make sense to idle them temporarily.

They're certainly in a very warm stack condition. And quite frankly, we can bring back those fleets very quickly, redeploy them.

One of the things that we do, is we stay heavy on the personnel side, even though we're idling the fleets, we're not doing, what I call, a linear reduction in terms of the folks that we've got. So we're trying to keep our people in place and busy.

We have seen some reduction in the overall headcount, but we're well prepared to be able to reactivate several fleets very quickly if we do, in fact, need to idle any additional fleets this quarter.

And then, as a follow-up I wanted to shift to regional sand, where you called out the increased contribution in terms of the total sand that you pumped in Q3, specifically in West Texas, where if I'm reading this correctly, sequentially we went from a single-digit contributor to nearly half of the sand you pumped in that basin. Is that going to continue to grind higher here in near term?

And where do you think we plateau? And in the meantime, what's your procurement strategy for the Permian sand, given how quickly the fundamentals and pricing are shifting there?

Yes, so you're absolutely right on your numbers. So we went from 8% -- speaking specifically about the Permian Basin, 8% in the second quarter to 44% this quarter.

We continue to see that ramp-up very dramatically. We've got, essentially, four suppliers that we're working with on the regional sand.

And we do expect to see that number. And we are already seeing it early in the fourth quarter continue to move up.

On the basis of, say, 100 mesh sand, I'd say eventually that goes to virtually 100%. I don't see a reason to be using the Northern White at all with 100 mesh.

To the extent of sand quality is sufficient and we're getting the kind of IP and the EUR results that we have seen with Northern White, say with the 40/70 or the 30/50, depending on the job mix and what the completion design calls for. If that really is of sufficient quality, I think you'll continue to see those numbers go up as well.

My personal feeling is that you won't see that get to 100. I think there's still going to be some requirement of the Northern White in some of the larger sizes over all.

Our strategy is really been one of being very cognizant of the fact that all of this sand was coming to market. It had been delayed somewhat, and that caused a little bit of heartburn, I think, for I some folks early in the year.

And quite frankly, it cost us a little bit of money not to lock ourselves in to some of the contracts that came on board. We've stayed in the spot market, we were very confident we would see the prices continue to fall.

That clearly has happened. It continues to happen.

And we're in a position right now where, as the market prices do come down for the regional sand, our cost to be able to procure that sand will continue to fall as well. So we're -- we feel good about the strategy we took and it's really playing out as expected at this point.

Yes, I guess, first question as we focus on 4Q, I apologize if you have answered this, I missed it. But how many average frac crews do you expect to be deployed in 4Q?

So we're starting the quarter with 16 horizontal and two vertical. Depending on what the market does, and if we do see a deterioration that gets to be a significant, we could idle a fleet or two, and that's something we're watching literally on a day-to-day basis.

It's too early to call at this point, but we're not going to let the gaps get to be too significant with respect to utilization and not react to that. So we will idle fleets as required, but it's very clear that at pretty early part of 2019, we're going to need all of the fleets that we entered the fourth quarter with up and running.

There's even an opportunity to perhaps -- even the more -- sort of, bring back some of other the warm-stacked fleets that we currently have ready to go, which -- that's two that we idled in the third quarter.. So I can't give you a number for the fourth quarter, but I'm very confident that in the first quarter, we'll have all the fleets that we entered Q4 running and possibly more, because the demand is certainly growing on a week-by-week basis.

And we're getting more and more inquiries from our customers.

And then, when we think about 3Q EBITDA for a fleet, any chance you could give us that number, what the EBITDA for a fleet was?

Yes. I think, overall if you take the blended number across all of the fleets, it was just shy of $8 million per fleet on an annualized basis.

And then, if we think about how that progresses in the 3Q, what degradation would you think -- that you see in 4Q versus that $8 million number?

Again, it's too early to tell. I don't want to predict what the number will be.

I would say, though, it's fair to assume that, that number gets a little bit softer in the fourth quarter. The early indications, though, are that in Q1 we see a -- quite a strong rebound and quite frankly pricing that significantly better than that.

In 1Q do you think you get back to that $8 million?

I'd expect at least that, if not a fair bit higher, quite frankly.

And then, you're putting two new dedicated fleets to work in the fourth quarter, if I read that correctly. How does the pricing on these dedicated fleets compared to where the spot market is today?

All right. It's better than the spot.

Last one. You got -- I guess you pointed to 5 mid-con fleets being deployed in the first half of '19.

Can you talk about the visibility and the certainty you have of adding those 5 fleets? And do you need to move any equipment into that basin to satisfy that demand?

So two of them actually will be moved and deployed this quarter, so we'll end the fourth quarter with 4 of those already deployed. The fifth fleet will require mobilization, as that word comes online.

Quite frankly, we're actually seeing additional interest up there from some customers to continue to add. So for the end -- the quarter, 5 at some point fairly early in '19 and potentially more.

And we're seeing, again, strong demand up there. The thing I really like about the model that we've currently got and the strategy we're employing, is that we're mostly adding dedicated fleets for customers we're already working for.

So there's already a good strong relationship there, a good understanding of the logistical requirements, et cetera. And quite frankly, a good process to be very efficient and highly utilized.

And so it's a pretty low-risk approach to expanding our overall footprint, and it's really going with customers that we continue to have more and more interest from them to be using more of our services, as they're very happy with the service quality and safety that we've been demonstrating for them.

Yes, coming in from the outside, I would say the company and what I've seen over the last 1.5 months, really partnering with the customers, the people we have been working for and where we have this special relationship going forward. That's the strength of the teamwork that I see here.

I'm going to squeeze one more in. It should be a quick one.

Sand contracts, any concerns do you have within your sand contracts about beings upside down or anything?

No, not a bit. We're really in great shape and our supply chain guys have done a fantastic job of keeping us in good shape and good contact with what the market is doing.

So no problems there at all.

My questions were answered. Thank you.

Thank you for the slides you posted today. They're very helpful.

Thank you, John. That's the early contribution from our new CFO.

Thank you, John.

Two quick questions on the coil business. Just, first, I'd like your thoughts on the 2-inch and smaller markets and just the outlook for those units going forward.

No one talks about it, probably because no one is using them, and so just a long-term outlook? And also your thoughts on the dissolvable plugs and the adoption rates.

Two good questions. And you're right, no one talks about that small-diameter business.

I will say that we've actually seen a little bit of an uptick in the small diameter and it's really tied back to the old traditional workover-type business. And as we've seen commodity prices come up, we have seen our well servicing business get slowly better and rates moving up and we're deploying more and more rigs, et cetera.

So we are seeing a little bit of support for the small-diameter coiled tubing units. But in general, there's an awful lot of units sitting out there most of them are parked against the fence, tremendous amount of capacity.

Our expectation there is, that we see only modest upside with respect to that market in general. And I don't expect to see anything radical in the foreseeable future.

With respect to dissolvable plugs, there's been an awful lot of talk around those. We've certainly been involved with a number of jobs and a number of specific wells where they've been tried.

I'd say there's still a mixed success rate on that. There's been some issues at times, and other times they've worked well.

A lot of folks are working on getting those things to perform and to be cost effective and to minimize any difficulties with -- I think it remains to be seen just how far the industry gets with that. But it's an area where certainly there would be an impact on the drill out, and the use of the large diameter coils, that's really what we're doing with a large diameter coil units, as an industry.

But overall, I think there's going to continue to be a healthy and robust demand for the large diameter coil. As we continue to see the laterals get longer and we're certainly still seeing that in several of the basins.

The need to go to, quite frankly, the work-over rigs and stick pipe is going to continue to grow somewhat as well, because there are limitations to how far out you can get, even with the largest coiled tubing units. So I think both of those actually have some upside with respect to the market.

And, again, I do believe that we're going to continue to see more people focusing on the dissolvable plugs. But until they really get to be a little more robust, I don't see any significant impact on the coil business.

Turning to your rig business, as you, again, as the trend for -- to the more longer lateral wells and the need for more stick pipe, what do you -- can you tell us how many of your workover rigs right now are doing drill outs? And what that opportunity set is over the next several quarters?

I don't -- I mean, just a ballpark guess would be great. And then, not to view much in the way of ordering pumps to support that business for it to tackle that completions market.

Yes. So really, the rigs that we've got right now that are dedicated to the completion side of the business, and just specifically focused on growing out plugs is still a pretty small number.

We don't have all lot of units deployed that way. Quite frankly, to get a significantly larger number of units deployed in the market, we would have to upgrade pumps and you've got some issues around things like mastitis et cetera and the ability to actually service the requirements to do that work.

So to grow that significantly, we would have to see the capital infusion into the business.

I wanted to ask for just a little more detail on the cementing business. Appreciate the details on slide, you all alluded to some lower utilization to the -- to your transition to the new West Texas facility.

Can you just maybe discuss how disruptive that was? And how much more efficient you might be going forward once that move is completed?

It certainly was disruptive. And quite frankly, integrating the O-Tex folks together with our activity in West Texas has been a challenge for us.

We had three facilities out there we've -- since really moved to 2. Getting the folks that we required to actually cover the work that we had has been a challenge.

That's one of the areas that we did see some -- I guess a lack of better word, some poaching by some other competitors out there of our folks early in the year. And so we've been working hard to get people hired and trained and put back in place.

Our expectation really is to continue to see that overall level of activity continue to improved. Quite frankly, we're servicing all the rigs that we can.

We're -- so it's not an issue of having any shortage of equipment, it's having the shortage of people. And with a focus that the management team has got on getting people hired and trained and expanding our overall capacity, I think you'll see us grow that business just as quickly as we can add additional properly trained personnel to the business.

And I will say it's a lot tougher in the cementing business to actually get a fully capable cementer. It does take some time, and it's something that we're well equipped to do internally, but we're certainly seeing opportunities with respect to other folks being interested in coming to work for C&J, and we're going to continue to grow the overall size of our workforce out there.

And I expect to outperform the market with respect to what we're doing on a top line bases and then continue to see improvement on the bottom line as well. So we feel pretty good about our cementing business.

And then, maybe just the last question then. On the well support side, I recognize California will be up in Q4 as you ramp into contract wins.

If you strip out California though, would well support services top line be up overall, Q3 to Q4, give a sense of that?

It's really going to be a function of what quarter seasonality -- it does tend to be a product line that can be hit fairly hard if you've got weather issues or issues just around customers shutting down over the holiday periods, et cetera. So I'd say if you say we have, sort of, normal seasonality where we don't see anything unusual happen, we expect to continue to see that product line strengthen.

Great. Thank you, Operator.

Just want to thank everyone for dialing in this morning, and for your continued interest in C&J. I really do want to emphasize that although the industry is going through a little bit of a rough patch with respect to the fourth quarter activity and the typical seasonality that we see in the fourth quarter, the outlook for '19 is very strong, especially as we move into the second half of the year.

And our expectations and really our outlook is very positive at this point for continued growth, some great profitability, continued growth on the side of free cash flow, and some opportunities out in the marketplace with respect to M&A. So feeling really good about where we are currently, even though this quarter is a little bit tough.

It's a very temporary situation and looking forward to 2019 getting started and some much improved overall results and activity. Thank you all for dialing in this morning, and we'll talk to you next quarter.