Select Water Solutions, Inc. (WTTR) Q1 2014 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Nuverra First Quarter 2014 Earnings Conference Call. [Operator Instructions] This conference is being recorded today, Thursday, May 8, 2014. I would now like to turn the conference over to Ms. Liz Merritt, VP of Investor Relations. Please go ahead, ma'am.

Good afternoon, everyone, and welcome to the Nuverra Environmental Solutions First Quarter 2014 Financial and Operating Results Conference Call and Webcast. With me today are Mark Johnsrud, Chief Executive Officer; and Jay Parkinson, Chief Financial Officer. Before getting started, let me quickly cover the Safe Harbor. Today's presentation will contain forward-looking statements about our expected financial and operational performance, including revenue growth, the expected performance of our businesses and our strategies, products, cost controls and related matters. These statements involve a number of risks and uncertainties and could cause actual results to differ materially from our projection and include a variety of factors, some of which are beyond our control. Potential risk factors that could cause these differences are described in our SEC filings, including our Form 10-Q filed with the SEC today, our current reports on Form 8-K and our earnings release posted on the Nuverra website. Copies of these documents may be obtained from the SEC or by visiting the Investor Relations section of our website at www.nuverra.com. All information provided on this call is as of today, May 8, 2014, and Nuverra undertakes no duty to update or revise this information based on new information, subsequent events or otherwise. Today's discussion will also include certain non-GAAP financial measures, including adjusted EBITDA. Reconciliations of our non-GAAP results to the GAAP results we consider most comparable can be found in our press release. With that, I will turn the call over to Mark Johnsrud, Nuverra's Chief Executive Officer. Go ahead, Mark.

Thank you, Liz, and welcome to everybody on the call this afternoon. Our results for the first quarter came in largely as we anticipated and reflect the severe winter weather conditions that affected the entire industry. This harsh weather curtailed customers' drilling and completion activities across the board. However, based on the gradual recovery we are beginning to see in the second quarter, the impact was temporary and we believe much of the deferred first quarter activity will return, particularly in the back half of this year as the industry ramps up. For example, in the Bakken, the number of drilling permits dropped from 253 in January to 180 in February. That number rebounded to 250 in March, as operators began planning for a robust summer program. This represents a good leading indicator on expected activity throughout 2014 and sets the tone for how we see the rest of the year progressing. In short, we're optimistic. Industry fundamentals look very good. There are an increasing number of active drilling sites, and high oil and gas prices are creating strong economic incentives for operators to accelerate development programs in oil, and as well, in certain gas basins. We are hearing and seeing a number of positive signals from our customers that further support our expectations that the pace of activity will improve throughout the spring, and particularly, into the summer. We're not forecasting a rapid acceleration in Q2, but rather we're thinking Q2 as a transition into a stronger second half. Monthly trends that we saw throughout the first quarter and into April are encouraging and support our forecasts for improvement throughout 2014. I'm excited about the prospects because our integrated environmental model positions us well to take advantage of industry momentum and capitalize on some key trends that we see developing. Specifically, as environmental guidelines and regulations become more restrictive, customers increasingly tell us they prefer to work with a single integrated provider with the expertise and the resources to manage all of their environmental waste streams. We have never been better positioned to expand our business and grow market share, and recently have undertaken some exciting new initiatives that further expand our market reach. Specifically, we recently signed a definitive agreement to acquire land and a treatment permit in the Eagle Ford that will allow us to open an environmental treatment center in the basin. We are in advanced discussions with multiple customers to build pipeline systems in the Bakken. We are on track to open our thermal treatment center in the Bakken late this year, and we expect to conduct our first H2O Forward frac with Halliburton in the second quarter. We believe customer decisions about environmental activities are shifting to a national level, rather than on a basin-by-basin level. This is positive for us. In response to this trend, we welcome Steve London to the Nuverra team in March as National Vice President of Business Development based in our Houston office. Steve represents an important component of our long-term growth strategy, which we believe will provide a significant competitive edge. We will be able to sell integrated solutions across several basins, with particular emphasis on cross-selling additional services to our existing customers. Steve's background and track record are perfect for this role. He spent 34 years with Halliburton in key national and regional account management roles and has long-term commercial relationships throughout the industry. Let's turn now to key operational developments. First, in the Bakken. The entire basin continues to grow as we're seeing increased customer activity across the board. Our environmental treatment center for solids, which is the site of our landfill and future thermal desorption facility, is steadily ramping up, with tonnage growing incrementally. As we had noted in the past, it typically takes 3 to 6 months' process from initiation of a treatment center such as this one to being fully operational in terms of significant customer use. As an aside on the solids business, this is one area where I believe we are taking the leadership role by recognizing there is important developing issues related to diesel and water contained in drill cuttings and limitations on how much product can be disposed of at the well site. During the quarter, we actually had one customer dig up solids that had been previously been buried at a well site and taken into our landfill. Thematically, this is one of the primary reasons we made the investment in the thermal desorption technology. Customers recognize the risk and they are increasingly looking for ways to mitigate it. We're very actively working with the Energy Environmental Research Center, or EERC, to develop the research that will potentially enable us to fully recycle or reuse the byproducts of the thermal desorption process for future beneficial applications. We are, of course, in the early innings of this process, but needless to say, we're very excited about the potential outcome. With regards to the pipeline solution in the Bakken, we have submitted multiple proposals to customers who want to add pipeline networks to transport flowback and produced water from their well sites directly to our recycling and disposal facility. As basins grow, more production results in more produced water, and there will be a growing part of our solution. We're currently in advanced technology discussions with several of these operators as we look to engineer and build high-quality pipeline networks that will provide safe, long-term solutions under all-weather conditions. We believe our extensive experience in the Haynesville, with a fixed pipeline solution, gives us a real advantage in this space. As we discussed last quarter, by mutual agreement with Halliburton, we deferred the H2O Forward saltwater recycling project to Q2 because of the extremely cold temperatures. Now that the weather is warming, we expect that the first frac to commence this quarter. We're very excited to get started and have several other customers who are looking currently at how the process fits into their program. The Bakken represents the first example of the power of our integrated environmental model. Our logistics capability, Halliburton's fluid recycling partnership, environmental treatment center, our pipeline initiatives and the thermal desorption facility, provides a range of services that we believe no other environmental company in the Bakken can match, or frankly, no other company nationally can currently provide. Our long-term goal, of course, is to replicate this model in all of our divisions. Moving on to the Marcellus/Utica. As you might expect, the Marcellus also was impacted by an unusually harsh winter. Activity also declined when a major customer curtailed business due to an accident at a single well site. However, we are encouraged by the pace of activity this quarter, as activity ramps back towards normal levels. As for the Utica, again, we are seeing a pickup after a slow first quarter affected by weather. We expect to get gradual ramp in 2014, with greater activity in 2015 as operators scale activity in the area. In anticipation for stronger growth in this basin, we have placed additional water treatment assets in the Utica. That is an existing disposal site, and operators began using it in early May. Unlike our AWS recycling facility, this facility can take water with high solid content and treat it to standards that will allow for disposal in saltwater disposal wells. This brings us a step closer to a full-cycle model for fluids management in the Utica and allows us to sell this service to customers who have had problems finding a company to manage this product in the past. Moving to the Haynesville. Our sentiment in this area has shifted to the positive. Better gas prices are driving increased activity and more efficient use of our assets in the basin. The rig count has grown to 47 from a low of 35 in 2013. We have a strong position in the basin and believe we can leverage our existing pipeline system and differentiated solution in order to achieve organic growth. Finally, I'd like to report on the significant progress that we have made in the Eagle Ford. We have a very strong team in place there now and they have been successful in stabilizing activity in the region. I believe that we have turned the corner in this basin. We very recently acquired land and a treatment permit to build an integrated environmental treatment center for solids and fluids that will contribute to future organic growth. I've also identified opportunities for pipeline assets in the area, and we are exploring our options there. Our strategy in the Eagle Ford is to replicate what we've been able to accomplish in the Bakken in terms of a total treatment capability that we are now comfortable investing capital into the basin. I would like to say that I'm very impressed with the results our new team in the Eagle Ford is producing. To conclude, I'm pleased with the progress we've made so far in each of our 3 strategic growth initiatives. We are adding services for existing customers to grow organically. We are providing new desired services that are attracting customers from less diversified competitors. And we are very selectively acquiring existing businesses when it is more efficient than developing our own assets. We are also at the forefront of the industry in developing innovative solutions to reduce the environmental impact as our country's shale resources are developed, whether through our own research or in conjunction with partners. I look forward to reporting on our success and achievements as the year progresses. With that, I'd like to turn the call over to Jay for a discussion of our financial results. Jay?

Thank you, Mark, and thanks everyone for joining us today. As Mark mentioned, results for the first quarter were impacted by severe winter weather, particularly in January and February, which delayed many of our customers' drilling and completion activities. This trend was more pronounced in our Bakken and Marcellus/Utica Shale operations, but the good news is that we are now seeing a gradual uptick in activities as the second quarter progresses. Also during the first quarter, a major customer in the Marcellus Shale significantly slowed activity following an accident at one of their well sites. These factors were partly offset, however, by the continuing success of our landfill business and environmental treatment center in the Bakken, which has seen significant growth in intake volume. I want to mention that for comparative purposes, I'll discuss financial results inclusive of TFI in order to give you a better comparative view to prior year results. As you may recall, we moved TFI to discontinued operations in the fourth quarter, following our decision to divest the business as we advanced our Shale Solutions strategy. I'll update you on the TFI sale process in just a moment. Moving to first quarter results. Revenues were $155.7 million, compared with $154.5 million in the fourth quarter and $159.5 million in the first quarter of fiscal 2013. Our reported net loss per diluted share in the first quarter was $0.46, which compares to a loss of $0.53 in the fourth quarter and a loss per diluted share of $0.53 in the first quarter of fiscal 2013. Adjusted EBITDA for the first quarter was $22 million, or a decrease of 14.5% when compared with adjusted EBITDA of $25.7 million in the fourth quarter, which is in line with the range we discussed on our fourth quarter call. Turning to Shale Solutions. Total revenue was $128 million, essentially flat sequentially from $128.4 million in the fourth quarter of fiscal 2013. Looking more granularly at basin level performance, in the Bakken Shale region, revenues increased sequentially. We believe, we would have seen more pronounced increases in the basin were it not for the severe weather. Activity levels in the basin dropped off in January and February and picked back up nicely in March as the weather moderated. We exited March very close to where we were in October of 2013 before the holiday slowdown, which somewhat continued into the first quarter due to the weather. We saw some challenges in rentals, where oversupply impacted us. However, we continue to bundle our services, which helped offset this. Pricing in the basin is steady, and activity levels are picking up. In the first quarter, solids intake increased by nearly 140% over the previous quarter. As we said previously, we believe industry trends and increasing regulatory restrictions around the disposal of solids at well sites will fuel additional demand. In the Marcellus and Utica Shale regions, winter weather also slowed operations in the first quarter. More importantly, as Mark described, a major customer in the region experienced a serious well accident that impacted our operations beyond the weather. This incident affected our fluids disposal and AWS recycling business, resulting in sequentially lower revenue and EBITDA. Activities have begun to pick up in the second quarter, with steady progress expected through the second, and particularly the third quarter, as one of our major customers in the area is bringing on additional frac crews. As we mentioned earlier, we recently deployed new capital in the Utica with the addition of a new treatment system that treats heavy solids water that we have previously been unable to accommodate for our customers. Pricing in the basin is steady. In the Eagle Ford, our turnaround plan gained traction in the first quarter. We exited the quarter with positive monthly EBITDA, which is earlier than we had previously forecasted, and we see this basin as contributing positive EBITDA for the year. The new management team there is doing a great job implementing new programs that are driving lower costs, higher efficiencies and improving margins. As Mark mentioned, we are at the point where we believe adding capital now makes sense and we are planning on building out the environmental treatment center in the basin. The Haynesville Shale is becoming an interesting play for us, with our existing pipeline system and saltwater disposal capacity providing opportunities for organic growth. Revenue and margins in the basin increased sequentially, as progress on pricing strategy, cost control and business development generated improvements. We see opportunities to increase pricing in the basin, which coupled with increasing natural gas drilling activity, is a very positive development for us. Looking at margin performance in the business, we recorded an adjusted EBITDA margin of 19.4% on the Shale Solutions side, which is down sequentially from the 21.6% in the fourth quarter. This was due in part to revenue mix, but also the weather, which resulted in us paying drivers for lost weather days, as well as lower revenue productivity on personnel expense, both of which impact margin. TFI generated an adjusted EBITDA margin of 11.2%, up approximately 190 basis points from 9.3% in the fourth quarter. Turning briefly to the balance sheet and statement of cash flows. On a total company basis, including TFI, we ended the first quarter with approximately $13 million of cash and operating working capital of $63.4 million. Working capital was negatively impacted by an increase in DSOs of around 8 days, largely in the Bakken, as a major customer reworked its ERP system, which slowed billing. We believe we will work through this issue and see some improvement and that we can get our DSOs back to the low-60s. As of March 31, 2014, total debt was approximately $567.3 million, which included $400 million of senior unsecured notes, approximately $148.8 million drawn on our credit facility and $18.5 million in capital leases. First quarter net cash CapEx, including TFI, was $7.2 million, primarily related to the thermal desorption asset in the Bakken. We continue to explore some very appealing opportunities that will enhance the buildout of our full-cycle strategy, specifically around treatment, recycling and disposal assets, for both fluids and solids, in our Northeast and Southern divisions, as well as pipeline systems in the Bakken. Before we discuss the outlook for 2014, I want to provide a brief update on 2 important open items. First, with regard to the TFI transaction. We have been advised by Canaccord and the VeroLube management team that their capital raising process is going very well. They are currently wrapping up their marketing process. We are finalizing the delivery to VeroLube of historical TFI standalone audited financial statements converted to IFRS standards, which is a requirement to finalize their capital raise in Canada. We believe that we are on track to close the transaction along our original contemplated timeline of late June. We plan to use net cash proceeds from the transaction to pay down debt. And secondly, as it relates to the Texas lawsuit, as we said last quarter, we've been advised not to comment on this matter beyond what's in our filing, given that it is an ongoing litigation matter. Investors will note in our 10-Q that preliminary judgment has been reduced twice at the Dimmit County Court level. The original amount of $281.6 million was reduced to $163.8 million by the Dimmit County Court in January, and subsequently, further reduced to $105.2 million by the County Court in response to post-trial motions. We intend to vigorously defend this case as we now begin the Texas appellate process. Please see our 10-Q for a more detailed discussion on this matter. Turning to our business outlook for the balance of 2014. We are encouraged by increasing activities in the second quarter and expect an increase in drilling and completion intensities throughout the fiscal year. As Mark mentioned, increasing activities around horizontal drilling, multi-well pads and longer lateral stages will continue to drive business growth. Additionally, developing trends around the regulatory and environmental aspects of the industry support a strong case for companies like Nuverra that can bring highly compliant and responsible recycle, reuse and disposable solutions to the table. With that, I'll provide an update on our more granular modeling points, with a reminder that these projected ranges are pro forma for the sale of TFI. Our direction with respect to SG&A per quarter is in a range of $15 million to $17 million. Amortization and depreciation are in the range of $3 million to $5 million, and $15 million to $20 million per quarter, respectively. Our estimate for GAAP tax rate is unchanged at 40%. Finally, we estimate second quarter CapEx to come at -- to come in around $10 million to $20 million, based on our consistent interest in identifying organic growth opportunities to build and support our total environmental solutions model. We recently signed a definitive agreement to acquire permitted land in the Eagle Ford Shale region, where we plan to build a new environmental treatment center in the second half of this year. In addition, we continue to plan -- deploy capital on thermal desorption technology and pipeline initiatives. That concludes our prepared remarks. I would like to thank everyone again for joining our call and ask that the operator please open the line for questions.

[Operator Instructions] Our first question comes from the line of Hamzah Mazari with Crédit Suisse. Hamzah Mazari - Crédit Suisse AG, Research Division: The first question is just on restructuring and integration. Mark and Jay, maybe give us a flavor of where are we in terms of restructuring the legacy Heckmann assets? Is this process in the rearview mirror? Are we in the fifth inning? How close are you to talking about the business as Nuverra -- I realize the name is Nuverra, but how should we think about what's going on behind the scenes?

Great. First of all, Hamzah, good afternoon. I think it's a great question. We believe that from a legacy standpoint, most of that is behind us. We have the team in place, and I'm kind of going to use what we've done in the Eagle Ford as the example, we've gone from a business that was not producing positive cash flow at all, we've put a really good team in place, and now we're going to end up generating positive cash flow for the year. Now the one piece that we are going to continue to add is how do we add incremental services that we can provide to our customers, and so that's why we've bought land and a permit, because we have the right team in place where we can expand our suite of services that we're providing. And we really like that part of the business, that we believe is very complementary and also adds margin. I think kind of in each area we're at different phases, or in each basin, we're in different phases of that. But with regards to kind of the restructuring in the team, I think that's all behind us.

Yes, Hamzah, this is Jay. Just to give you a little more color as it relates to some of the back-office functionality. One of the things we did this quarter is we now centralized all of the accounting in Scottsdale, with a service center in Minot, and then effective second half of this year, we're going to be on a common accounting software platform. And so we're going to continue to work through that, but we feel we've made a lot of strides on that as well. Hamzah Mazari - Crédit Suisse AG, Research Division: Great. And just a follow-up question, I'll turn it over. You spoke about your confidence level in the TFI business being sold and the financing for VeroLube. Maybe give us a sense of, aside from financing, what is the risk that the deal does not go through? Is there a technology issue? Is there -- does VeroLube need to do anything on the other side that you're not in control of besides financing? How should investors think about this deal actually getting done?

Yes, I think, Hamzah, at this point, it's predominantly almost entirely a financing point for them. We've agreed to refrain from detailed commentary on the specifics of that, given they're in the midst of it and nearly complete with it. I guess the commentary we can make very conclusively today as it relates to that is we've been advised by both Canaccord and the VeroLube team that their financing process is going very well. And again, we believe we're on track for our original timeline, which is a late June close.

Our next question comes from the line of Michael Hoffman with Wunderlich Securities.

So Mark, Jay, if I could hitchhike on Hamzah's question just in that it's somewhat significant that they would come back to you and say, okay, we're far enough along in our process that, yes, go ahead and do the audit on an IFRS manner. Yes, I need the trailing numbers. You wouldn't be asked to do that unless they were at that point of confidence and they're ready to show those kind of -- that kind of data and term sheets to prospective investors. That's...

I think, Michael, that's a -- yes, that's a fair comment. Obviously, that's something that they need. It's kind of a check-the-box process for the very end before the financing is completed. So we've been advised, like I said, that they feel very good about where they stand now. And now that's kind of one of the final pieces of the puzzle that we need to add to the mix.

Okay. And then one last item. I've heard through several sources who've seen this monstrous document they're going around with, it's like 40 pages long, that it's really about what's the future of re-refining look like in North America and has very little to do with TFI specifically. That's what they're really selling. Is that an accurate observation?

We probably won't comment, like I said, much on their process. I think, obviously, part of the value proposition they've put forth publicly is their intent to continue to consolidate and vertically integrate the used motor oil and re-refining industry, and that's something that we think makes a lot of sense. And I would guess that they're probably pretty actively explaining to potential investors their investment thesis around that.

Okay. Then moving to the business. What county is the permit or the land that you acquired in the Eagle Ford?

It's in, yes, Dimmit County.

Dimmit County.

It's in Dimmit. Okay. And then -- and that -- and the permit would allow you to expand -- add solids the way -- like the site we visited in North Dakota, something similar to that being thermal desorption, if you chose to, and then you could put saltwater disposal and other water treatment on that location?

What the permit that we currently have allows us to do treatment out there, so we would be able to put a desorption unit if we elect. The other piece is that it's going to be an area that we'll build out, with a shop, and so we can have resources there. We'll also take a look at disposal wells in that area. But I think that when we kind of take a look at the whole basin, it really puts us in a nice area where we believe we can have a lot of expansion in.

Okay. And then as I look at the progression through the remainder of the year and if I understand the proportioning of the 128 correctly, if I think about sort of what's happening in the Haynesville, Eagle Ford, I mean, a year ago you did about $48 million -- $43 million in the second quarter and that's what you'd call the gas plays. It's how you used to disaggregate the data. Are we looking at a flat or a down given the restructuring and working through that? How do I think about that piece of the puzzle?

In the gas plays, specifically?

Yes, in the -- yes, and in the second, going into the second quarter, just so I understand the sort of progression.

I think you'll see -- I'll maybe just comment quickly financially and then Mark can comment. I think you'll see a pretty nice progression up in the Marcellus/Utica, even absent kind of any exogenous impact from nat gas prices. And I think we're starting to see some pretty encouraging activity in the Haynesville, as companies seem to be getting more comfortable with kind of a $4.50-plus gas paradigm. A lot of that core Haynesville, where we have a lot of leverage to, I think we're seeing a lot more activity there. I don't know, Mark, if...

Yes, I would agree. The increased drilling activity, but I also think that kind of our increased suite of services that we're providing allows us to go after the drilling, the completion and the production phase.

And Michael, I just -- I've been corrected here. I misspoke. It's actually the Eagle Ford facility is in La Salle, which I think is the next county over. So I apologize, I misspoke on that.

Okay. And just so I make sure I understand this. So the gas-rich plays, as you break up your revenues, were down versus 1Q and 4Q. And you clearly expect them to be up. But would you expect gas to be flat or up year-over-year?

I think it's probably a little early for us to comment on that. I think you'll see it ramp up through this quarter, and it's probably a little premature to say what kind of exit rate it looks like this quarter. But I think the industry dynamics that we're seeing right now in those plays, I'd say we're much more bullish on than we were, say, at this time last year.

Okay. And then can you talk about the -- if the Haynesville is showing some life, have you seen some improvement in the capacity utilization of the pipeline?

We are just starting to see, as the drilling is starting to ramp up, we're starting to see some increases there. I know we're visiting with customers about taking on more total volume that would go into the pipeline. So overall, we're very encouraged by what we're seeing.

Keep in mind, too, Michael, you're going to see a little bit of a lag, too, before all those wells get on production. So if you've seen the -- I think the rig count is up about 30% so far this year. As those wells get online and get completed, you'll start to probably feel the effect of that. There will be a little bit of a lag there.

And I think what will even show more of a lag is that a lot of those are coming off of multi-well pads. So they're going to drill all the wells and then they're going to come and complete them all at one time. So if it's a 4- or a 6-well pad, you're not going to see that activity from the completion phase for 4 to 6 months.

Got it. Okay. Fair enough. One of the objectives you had there was to seek to reprice the existing work going through there, some of it was under contract, some of it was spot. How is that progressing?

Well, I would say that it's progressing very well. We're -- we have -- with contracts that we have, we're visiting with customers about kind of a blend and expand. We're talking about how do we get more of their production out that was not included in the pipeline. And then we're also visiting with customers where the contracts are ending, about where do we ultimately take the pricing to. So I'd say overall, I'm very pleased with our progress.

Our next question comes from the line of Scott Graham with Jefferies.

I just wanted to ask you questions about incremental revenues going forward. What are you expecting out of the Halliburton deal in 2014? I'm sure you can't give anything specific there, but maybe just build that out for us a little bit on how that could progress and ultimately monetize into revenues? And then secondly, there's a lot of this press release, in your commentary, about matching the services that you provide with the basins, specifically. But then also, because everyone's kind of going, making decisions or increasingly nationally to cross-sell, how do you affect that? That's a -- cross-selling is a difficult thing, obviously because someone's already doing that, right? So how do you sell Nuverra, how do you cross-sell their products by selling the Nuverra brand? And your levels of service, I'm sure are part of that. But how is that a sell if we're sort of around a table making -- helping -- trying to get a purchasing manager or a service manager to make a decision to choose you and displace someone else? How is that working at the basin level for you?

Let's kind of talk first about it at the basin level. What we see are -- at the field level and then at a regional level, that a lot of the information and that they're provided with and decision-making is -- part of it is in the production phase and some of it will go into the completion. But a lot of decisions now are starting to be made at the national level and -- or at their corporate level. And what we really see there is that more strategic decisions around the environmental side of what they want to do with their product, directionally, how they're going to operate in multiple basins at one time. So where do they set the bar? And so having somebody in making sure that we're establishing where the bar gets set to, and then as we're starting to take our thermal process and our pipeline solution in, that's something that's new. And so you -- when you go in at the national level, we'll be talking to people in their environmental department, their drilling department, their completion department and their production department, and then we will take a look at an engineering group that ultimately comes in and reviews all of these larger projects that we're taking a look at. Because as they're starting to make decisions about where they want to put their environmental products, those are very long-term decisions these companies need to make. And a few years ago, most of those decisions were made at the local level. And today, because of the magnitude, we believe that most have been made at a corporate level.

Interesting. Okay. And on the Halliburton?

From a Halliburton side, we remain very, very encouraged about this. We -- as we said, we elected with Halliburton, during the cold phase, when it was very cold in North Dakota, to wait. And what we're going to do is we have several customers right now that are taking a look at this. And some of them are trying to determine when do they want to fit it into their schedule? Do they want to do it with a single well? Do they want to do it with a multi-well pad? And so each of them are taking a look at how does this fit into their system because a couple of our customers were going to do it in the first quarter. And because of the weather, we elected to defer it into the second quarter. From an economic standpoint, we think that it's a little bit early to talk about all the specifics of it, but it really fits into us very well, because it just further integrates in our process that we work at with our customers.

Are you kind of talking this up at the same meetings that you were referring to with the first question?

Exactly. Exactly. This is not a decision that, in most cases, will be made at the regional or the local level. This is a decision that's made from a corporate standpoint.

We have a question from the line of Joe Giordano with Cowen.

I just want to talk quickly about the Eagle Ford. You've mentioned that you exited March, positive EBITDA. Maybe can you frame that a little bit, like where were you on a monthly basis, maybe last quarter, and where were you like at the worst of times in that basin?

We don't get into that granularity at a basin level. But I'd say we were at the point where it was somewhat below, and now it's slightly above. So I think probably from a reporting magnitude, it's probably more of a trend there than the absolute number. But I think we feel very good about the progress we've made there and the position we have.

I think one more thing is, we'd like to say is that the team that's in place has been making very good business decisions. And ultimately, we have a lot more confidence in them. The financial numbers are starting to prove that out. But as they look forward, we feel very comfortable about putting more capital into that basin because we have the right management team there that can take and lead us. And they know the customers, they know the operations, and we can start expanding our service offering, which is extremely important, as the way that we want to make sure the basin gets managed as we go forward.

Okay. That's fair. And in the Bakken, you said -- you mentioned revenues up sequentially despite the weather and despite volumes being down. Was that primarily -- and you mentioned pricing flat, I believe, too. So was that primarily made up -- the decline associated with that -- the revenue decline associated with those volumes, was that totally made up by the landfill? And if so, is that like a -- does that lever up the mix a little bit on the margin side? And was the increment with the margins in the Bakken higher quarter-on-quarter, as well?

I think you do see -- a lot of it was made up by the landfill. I do think that, that had some opportunity for, as that mix grows, for some margin improvement there. But I think at the same time, even absent the landfill, we're pretty optimistic about through the kind of the rest of the year, about what we're going to see up there, just on a top line basis, as well.

From an expense standpoint, any time you come into the winter, and we had that many days below 0, your expenses always rise. And then to further that is you have a number of days that there was no work, and you still end up paying people even though that there's not a lot of work out there. I think that we saw across the northern half or -- a big chunk of the U.S., we saw very cold, challenging conditions. But in North Dakota, it was abnormally tough. And we just have to compliment everybody who stayed with us and worked hard all winter, because it was a very, very long tough winter.

Yes, definitely. And I think that was probably -- on a revenue sequentially up is probably better than most people were factoring. So that's really good.

Our next question is from the line of Phil Shen with Roth Capital Partners.

It's Joe Reagor filling in for Phil. We've been bouncing before -- between a few calls, so forgive me if anybody has asked this stuff already. But did you guys give a specific number on the impact from weather, what it represented on a percentage basis quarter-over-quarter? I know during the last call, you said it could be 10% to 20%. Do you know what it actually worked out to, everything else held constant?

We didn't give anything that we attributed specifically to the weather, but shale-specific EBITDA was down, I think, right about 15% on an EBITDA basis. And we said down 10% to 20% is kind of what we thought on the last call. I think a very good chunk of that is attributable to the weather, and then also, we talked about an accident at one of our customers' wells in the Marcellus/Utica, which further impacted results.

And then, I mean, looking forward now, we've had 2 quarters in a row where weather has been kind of a concern across the country. What should -- could we expect as perhaps a rebound percentage at the EBITDA level from weather-related issues? And is there any, I guess, built-up work that needs to be done, that's like kind of catch-up work that can even make that better than a normalized quarter?

We'll probably see a little bit that will get pushed to try to catch up. But overall, what I'd say is that in the Bakken, for example, we have a bigger backlog of unfrac-ed wells. And with only so many frac crews, they can only frac them at a certain pace. So part of this is really hard to catch up. But what we'll see though is that companies will continue to push aggressively as they can, but some of this is really hard to do or make up or catch up. But the work is not gone, it just deferred until a later time.

I think it's hard to quantify, just given, as Mark said, just the overall logistics in the industry. I do think customers are going to look to go as fast as they can and try to achieve their full year budget targets. And I think, clearly, in the first quarter, you did see customers spend behind what their budgets would have called for in normal weather, so I think there's some opportunity there. It won't be an immediate snapback, just because it's a very asset-intensive, logistics-intensive industry, but I do think that, that demand will come back to us.

Our next question comes from the line of Scott Levine with Imperial Capital.

So I think I saw on your Q here that you're still contemplating this new regional reporting format. I was hoping for maybe a little bit more color. It sounds like you're pretty optimistic across your entire footprint, that things are getting better. But maybe a little bit more qualitative color ranking ordering of which regions or basins you're seeing come back the quickest or which ones you're seeing the fastest cadence of increase in activity, so I can get a better sense of which of your markets are stronger or weaker on a relative basis.

I think on a -- just numerically on a percentage basis, you'll probably see the best growth up in the Marcellus/Utica, just because there was such a suppression on demand up there, because of the weather and because of that accident we referred to. I'd say, from just more of a qualitative standpoint, I think we'll probably see it pretty much across the spectrum. I think the Bakken, you're obviously starting off a much bigger base, but we're very encouraged about what activity looks like up there through the summer season. And then I think down South, it's a smaller base. But if we continue to see what we're seeing, in terms of some early signs with nat gas, I think, particularly, in the second half of the year, you're setting yourself up for a pretty nice recovery in the gas-levered names down South. And then the Eagle Ford, again, it's still early, and we're not prepared to declare victory down there yet. But we've made a lot of progress. We've got an excellent team down there. And I think that's an area where we see some pretty compelling opportunities to deploy some capital, which will really fuel growth as well.

Got it, and would you be willing to share, by any chance, I don't know how definitive your plans are in terms of investment in the Eagle Ford, but what kinds of -- did you mention the dollar value? Or could you comment with regard to the magnitude of the investment?

Probably not yet. We just very recently worked on that deal down there. So probably give us maybe a quarter and we can give you some more specifics like we did last quarter, on kind of what we see is the capital hurdle and what kind of cash flow it could generate.

Got it. Maybe one last one. It sounds like you guys are getting more active in investing in thermal desorption and treatment. Maybe help me understand a little bit better what the profit and return or margin characteristics, however you look at it, what those look like and maybe how they compare to other areas of the business that you're in?

We kind of think about our investment decisions more on an ROIC basis. I'd say, we think that this investment, and again, it's -- this is our first one. But we think that the return profile on it is pretty compelling relative to some of the other areas we're seeing. And so I think it definitely hits our cost of capital target. But probably until we get more specific on that, we'd want to get a little operating history behind us.

One more thing I'd like to add, too, that's important is that one of the reasons that we look at the thermal units is that it already bolts onto our existing network. And then if you were going to go out and put a unit up and it was all a standalone, it doesn't fit nearly as well as it does to -- into our vertically integrated process, that we're already out there dealing with the customers, we're already handling all of their products. And now what we're going to do is find beneficial use for their product. And so that's where it kind of really fits in so well for what we're doing, and that's why we'll be taking a look at this, in addition to the Bakken, in some other basins.

We have a question from the line of Spencer Joyce with Hilliard Lyons.

I want to talk about CapEx for just a second. Jay, I had in my model that we expected somewhere between $15 million and $20 million this quarter, and it came in about half that. I was just wondering if you could talk about a couple of the factors that weighed on that. And then for the full year, are we still looking for potentially $20 million to $30 million on the pipeline side?

Yes, I think the pipeline's a little harder to predict. I think that's a good placeholder, how much of that comes in the back half of this year versus early next year. But that's probably a good number. As it relates to the CapEx in the first quarter, part of that was a function, it will probably slip into the second quarter. But probably as much as anything, we're probably finding some efficiencies on the capital deployment there, and so the numbers came in a little lower than we might have thought, which is additive to what we think our return profile could be.

Okay. And then kind of sticking with the pipeline idea. How soon is the time between a customer saying, okay, let's go ahead and do this, and you all beginning construction and then finally seeing some revenue for it? Is that a 2 to 3 quarter-type lead time, or could things potentially unfold, maybe within a quarter?

I think it would be more kind of a -- from signature to where we actually start to see cash flow, 6 months, 9 months-type timeframe. It'd really depend a lot on the system and what the complexity and...

And time of the year.

And time of the year it is. You're not going to -- if it's in the Bakken, and it falls in the middle of winter, that could impact. But probably in a perfect condition, it would be kind of 6 to 9 months from signature to cash flow.

Okay. Yes, that seems pretty reasonable. I wanted to talk a little bit, jumping up to the income statement. It looks like, and just talking here, the continuing ops Nuverra piece, roughly flat revenue year-over-year, but if we look at, I guess, a gross profit number, just a revenue net of the direct operating expenses, now that margin compressed a few hundred basis points. And just with how many steps you all have taken to focus a little bit more on the specialized treatments, the solids, the AWS venture, with that presumably replacing some of, strictly, the trucking revenue, I'm wondering if you can help me reconcile a little bit why we would have seen some of that margin compression?

A fair bit of that is kind of, relative to this quarter prior year, was some weakness in the rental segment, which has obviously a pretty high margin. That's probably what accounts for most of that.

And our AWS volume was down.

The AWS volume was down as well.

So some of our high-calorie business was down in kind of across the board.

Okay. So AWS year-over-year here in the quarter would have been down a little bit, too?

Yes, there just wasn't a lot of activity there in the first quarter, for the reasons we've talked about in the Northeast. So I think that there's a lot of reasons to be pretty optimistic about some margin improvement there.

Our next question comes from the line of David Rose with Wedbush Securities.

And I had a couple of follow-up questions from some of the earlier questions on the initiatives to restructure the legacy business. I think this is the third quarter where we're still calling out severance and rebranding costs -- integration, severance and rebranding costs. How many more quarters of that do we see? And maybe help us better understand what is in that, that you're now excluding or counting as adjusted?

I think you'll see that, David, really wind down here over the next couple of quarters. A lot of what it was this quarter was the total centralization of the accounting that I talked about, but I think you'll see that number start to moderate.

Okay. So it's primarily accounting, no more rebranding, all that's been complete?

That's -- yes, we're working through that pretty aggressively. I don't think you'll see a lot from rebranding.

Okay. And then if you would, can you walk us through maybe a little bit more in terms of a granularity on the Eagle Ford, specific actions that were taken to improve performance in the Eagle Ford, other than the people?

The number one piece was people. Number two is that we've got our repair and maintenance under control. We brought in some proven people from within our team to go in and make sure that we were doing very prudent work on our equipment. And that made a big difference. At the same time, we've promoted one gentleman that went out from a business development side, and we started really rationalizing and taking a look at what we were doing with our customers in the pricing of each service that we are providing, and went through and did a lot of changing in that piece. So I think, overall, there was a complete remix and rechange of what we were doing with our customers and then our internal cost side.

Okay, and then if I may, just 2 quick follow-ups on the -- I think I kind of get the reduction in margins. I mean, it looks like a continuation of the G&A buildup. How much more of that should we expect to build up? How many more people or how much more do you need to spend to get to the G&A level that you think is adequate for the company?

I think we're pretty close to there, David. I think anything else will be...

Substitution.

Yes, substitution. I don't think you'll see a lot of additional growth there.

We have a follow-up question from the line of Michael Hoffman with Wunderlich Securities.

So there were 2. As we think about this ramp through the year, can you correlate this to sort of what the customer has to go through in demobilization, mobilization in order for you then to participate? And maybe that's a way for us to track it, is watching their capital spending. It kind of helps drive sort of how your activity goes.

A lot of what we'll do, Michael, is they -- is customers, especially where, in the Bakken, anyway, when it's in the winter, they -- kind of just part of December, January, February and March, they just reduce the number of completion or frac units they're running. And then as the weather warms up, they start ramping up because it's a lot more daylight, it's easier to do the work, it's safer, the daylight makes just a huge difference as far as your efficiency with your people out there, and then also the safety. So a lot of our customers increased during kind of March, April, through November. And then through the coldest part of the winter, they'll end up just reducing their activity. And so we'll try to correspond and run our people kind of at the same. As we ramp up in the summer, we get a lot more people involved than we do probably in the coldest part of the winter, and we're definitely a lot more efficient.

Okay. And then with regards to -- just so I make sure I got some of the data Jay gave. You have a heavy SG&A quarter in 1Q, but you've given us this $15 million to $17 million, so we pick the midpoint and call it $16 million. I mean, however we want to choose to ramp our revenues, we really are looking at a kind of a $16 million to -- $16 million, $16.5 million in G&A, 2Q, 3Q, 4Q. That's the midpoint.

Yes, just keep in mind a lot of those onetime items are in that G&A line, right on the income statement, so...

Probably $18.5 million.

Yes, the adjusted number is probably lower than that kind of $20 million-plus number. So I don't think that the $15 million to $17 million, you're not that far off from that, probably on a go-forward basis right now.

And now, I'd like to turn the conference back to management for closing remarks. Please go ahead.

We would like to thank everybody today for joining our conference. And we look forward to bringing you an update next quarter. Thank you.

Ladies and gentlemen, this concludes the Nuverra First Quarter 2014 Earnings Conference Call. This conference will be available for replay after 6:30 p.m. today through May 22 at midnight. You may access the replay system by dialing (303) 590-3030 and entering the access code of 4679609. Thank you for your participation. You may now disconnect.