Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Nuverra Third Quarter 2013 Earnings Conference Call. [Operator Instructions] This conference is being recorded today, November 7, 2013. I would now like to turn the conference over to our host, Ms. Kathy Price. Please go ahead, ma'am.

Thank you, operator. Good afternoon, everyone, and thank you for joining us to discuss Nuverra Environmental Solutions third quarter financial and operating results. Some of the comments we will make today are forward-looking. Generally, the words aim, anticipate, believe, could, estimates, expects, intend, may, then, project, should, will be, will continue, will likely result, would and similar expressions identify forward-looking statements. These statements involve a number of risks and uncertainties that could cause actual results to differ materially from those anticipated by these forward-looking statements. These risks and uncertainties include a variety of factors, some of which are beyond our control. These forward-looking statements speak as of today, and you should not rely on them as representing our views in the future. We undertake no obligation to update these statements after this call. For a more detailed description of risk factors, please refer to our filings with the United States Securities and Exchange Commission, including our annual report on Form 10-K, our current reports on Form 8-K and any amendments to these filings, as well as our earnings release posted on the Nuverra website for a detailed description of the risk factors that may affect our results. Copies of these documents may be obtained from the SEC or by visiting the Investor Relations section of our website, www.nuverra.com. Also, please note that certain financial measures we may use on this call, such as adjusted EBITDA, earnings before interest, tax, depreciation and amortization, are non-GAAP measures. Please see our press release for a reconciliation of these non-GAAP measures to GAAP. Joining us on the call today from Nuverra are Mark Johnsrud, Chief Executive Officer; and Jay Parkinson, Chief Financial Officer. With that, I would now like to turn the call over to Mark Johnsrud. Go ahead, Mark.

Thanks, Kathy, and thank you, everyone, for joining us today. Nuverra is fundamentally a different company today than it was last year at this time. We have made significant operational changes to transform our company as we concentrate on our core Shale Solution business, including restructuring the organization, strengthening our management team, focusing on accountability, improving operations and driving efficiencies. We believe these actions establish a strong foundation to grow the business and build long-term shareholder value. Our national strategy is designed to establish the company as an essential partner to E&P customers seeking high-quality providers to help them meet growing demand and comply with current and future regulatory requirements associated with the industry, and we can do this nationwide. It takes time and hard work to be recognized as a valued partner. We are very encouraged by the evidence that our full-cycle environmental solutions platform is gaining traction and customers are recognizing the need for a nationwide comprehensive provider. For example, in the past 30 days, we have commenced discussions with 2 major companies about national service contract proposals, something that we haven't seen in the past. Our Bakken landfill is open and taking oilfield waste. We anticipate conducting our first H2O Forward frac with Halliburton in the first quarter of 2014. We are also pursuing growth opportunities in the solid waste treatment solutions, which Jay will discuss in detail later. We continue to rationalize our business to maximize operational efficiencies, leverage growth opportunities, enhance customer relations, improve business development to grow our business. Our Shale Solutions segment is now overseen by 3 operating divisions: The Rocky Mountain Division, which comprises the Bakken, oil-managed growth in California, Wyoming and Colorado; The Northeast Division, which is comprised by the Marcellus and Utica Shales; and The Southern Division, which is comprised…

Thank you, Mark, and thank you, everyone, for joining us on our conference call today. We have a lot going on this quarter with a lot of changes to talk about as we build this company for the future, so I'll get right to it. A quick note on our 10-Q filing. We anticipate filing it before they open on Tuesday. We have a lot of disclosure we are working through this quarter, so we're taking a few extra days there. Our revenues for the third quarter were $162.6 million, which compares to $165.5 million in the second quarter and $93.1 million in the third quarter of 2012. Adjusted EBITDA for the third quarter was $25.1 million, which compares to $33.3 million in the second quarter and $17.2 million in the third quarter of 2012. Our reported net loss per share in the third quarter was $0.78, which compares to a loss of $0.05 in the second quarter and $0.06 in the third quarter of 2012. Reported net loss was inclusive of a number of noncash and nonrecurring items, which I will discuss later. In the Shale Solutions segment, revenues were down slightly sequentially as the increase in the industry activity that we anticipated did not materialize. We did have some specific events that also impacted our Shale Solutions segment, including what we believe were some transitory events that hit us in the month of September, in particular. In the Bakken, one of our largest customers rotated some projects we were working on in September to another part of the basin we were not servicing them in, which impacted our September results in the area. We do believe this was transitory based on indications of October activity in the Bakken. This impacted revenue in both logistics, as well as rental.…

[Operator Instructions] And our first question is from the line of Hamzah Mazari with Crédit Suisse. Hamzah Mazari - Crédit Suisse AG, Research Division: Mark, you're making a lot of changes in the business, clearly, getting into solid streamlining legacy assets, selling a business. Could you maybe talk about how investors should think in terms of what innings are we in, in terms of you integrating this business? And I know you mentioned it's a new company versus last year. How many more changes should we expect going forward?

I think that there's -- we've made a lot of changes so far, Hamzah, and we still have some things left to do operationally. And our goal is, is we want to continue to push the platform that we want to build on a long-term basis. We need to continue to build some more kind of services so that we really do provide that comprehensive solution for all of our customers truly on a nationwide basis. But as you can see, we thought that it's easier, right now, just to be more aggressive and get some of the changes behind us that need to be made. And I'm sure that -- any more questions, please ask. Hamzah Mazari - Crédit Suisse AG, Research Division: Yes. And you spoke about increasing the pace of hiring and incremental costs to meet demand. I know you're not sort of giving quantitative guidance on '14, but I think investors are going to need a sense of how to think about '14. So maybe you could speak qualitatively on how folks should think about the underlying EBITDA or earnings or cash flow for '14.

Hamzah, it's Jay. I think what we're seeing right now -- we obviously had a number of events that hit us particularly in September, which impacted the third quarter. As we've talked about, we also had a number of charges and accruals we took. I think as we firm up our outlook for '14, we kind of see a base industry growth rate, kind of in the mid-teens right now. I think in terms of just what customers are saying, I think that will have -- I think we also have some additions that will start to flow through, which have the potential to drive our growth rate somewhat higher. I think you obviously are going to get a full year contribution from the landfill, which is probably the $8 million to $10 million range on EBITDA. And as Mark talked about, getting some of these transitory issues behind us, I think, will be additive to that as well. But right now, what we're seeing firming up, kind of from an industry standpoint, I'd say it's kind of a mid-teens growth rate. Hamzah Mazari - Crédit Suisse AG, Research Division: Okay. And then lastly, on the TFI sale, maybe talk about what gives you confidence that, that sale is going to close in early '14. And then what is the appetite to do buybacks, given where the stock is at?

We feel we've been visiting with our investment bank adviser. We've had a lot of -- several companies have called us. Several private equity firms have called us also. And have -- we have a lot of loop. There's been a lot of interest in that business. And what we've determined is, is that in our shale business, that there's a lot of opportunities. And we just are going to focus and spend more time on that core business of what we want to build. And we feel pretty -- we feel, I'd say, as confident as we can that, that will close by the end of the third -- or first quarter, beginning of second quarter 2014.

And then, Hamzah, as it relates to buybacks, as we referenced both in the remarks, as well as, I believe, the release as well, we're going to explore various options, maybe even before we were to execute on something with TFI. We think that we could alter the secured debt structure, such that it would allow us to execute a buyback of the stock or a limited buyback of a stock. Or even going and looking at open market purchases of bonds, which would blend down our cost of debt. So we've had pretty extensive discussions with our bank group about some structural flexibility that I think would be accretive to our shareholders.

And our next question is from the line of Michael Hoffman with Wunderlich Securities.

Mark and Jay, can you help us baseline the third quarter EBITDA net of where you think the puts and takes would have been for business mix, as well as taking TFI out? I'm assuming that goes into discontinued ops going into the fourth quarter.

Yes. Michael, it's Jay. Because we made that announcement after -- the decision after the quarter, it's consolidated. But going forward, we're going to look at pulling that out, if there's a reporting period where that's still consolidated. If you think about EBITDA sequentially, you kind of -- on an all-in adjusted basis, you kind of had in the range of an $8 million sequential decline there. I would say probably about $2 million of that was sequentially weakness we saw at TFI, as well as just some seasonality at TFI, with the balance $6 million at shale. I would say of that $6 million at the shale side of the business, probably $2 million of that was related to some of the weakness we saw in the legacy Heckmann Water business. The shale's area is outside of the Bakken. I would say probably $2 million of that was related to a very weak September up in the Bakken that we talked about. I'd also say early signs in October are that, that was transitory, we're seeing activities pick back up. And then I'd say another $2 million of that was some incentive accruals we took in the Bakken during the quarter, as we want to be sure that we are actively hiring and retaining drivers to meet some of the customer discussions that have taken place about '14 activity. So I think that kind of bridges you sequentially from quarter 2 to quarter 3.

So if I think of the fourth quarter and trying to follow this, I've got about $6 million that I could add back?

That's probably right. And then the other thing that could be additive to the fourth quarter is you'll get a full quarter contribution from the landfill. I'd say probably...

It's about $2 million?

Yes. In that kind of ballpark. That's ramping up. We've got all of the -- a lot of the requisite customer approvals out of the way. This quarter, we did take volumes, but in the month of October, we saw a pretty dramatic ramp-up in volume activity from the landfill.

Okay. And then as we think going into first quarter, if we're starting in a kind of a $33 million, $35 million number, is it flatline because of seasonal issues? Or how do we play in that first quarter, second quarter as we work through the sale of TFI, get your debt paid down?

I think that if you apply the kind of mid-teen industry growth rate across the business, I think it's a little early for us to probably comment on what we think 1Q looks like. I certainly think that there probably will be an improvement throughout the year. I think that seasonality in the business probably dissipates with the disposition of TFI. There's probably more seasonality with that business. So I don't want to call it a flat number for next year, but I don't think that the incline will be as steep as maybe we originally thought this year.

Okay. And then just remind us of the most sensitive bank debt covenant that we're worrying about going into fourth quarter.

It'll probably be the EBITDA to interest coverage ratio. We amended the total debt-to-EBITDA ratio, which governs liquidity. So the one that we'll be monitoring will be the EBITDA to interest coverage ratio. A couple of things to keep in mind about that would be, we could do something to the facility altogether to support TFI. We've looked at an ABL facility, which would have no covenants at all. And also, we're permitted to do some of the things that we talked about earlier in terms of buyback. But we may look to waive that. We've had very proactive discussions with our bank group already.

Okay. And if we're at low-30s EBITDA, we're not at risk on that covenant, right?

It's probably where -- in those low-30s of EBITDA is kind of where you get to the point of getting past that risk, low- to mid-30s in EBITDA. The only other comment is, keep in mind, all acquisition EBITDA is added back for covenant purposes, and we're in the midst of some discussions, which would obviously be additive from an EBITDA basis.

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

So, Mark, this is a question for you, and then one for you, Jay. Why would we be increasing expenses in Bakken in preparation for what you say here is more robust activity in 2014? I guess with the trending of EBITDA down since the merger, I'm kind of wondering why wouldn't you maybe take a more conservative approach to that and maybe spend the money when the orders were in as opposed to in front of that?

Well, good question, Scott. The primary reason is, is that it takes time to get people in place, if you're going to start hiring, so that we always start that -- it takes about 3 months from the time we hire somebody to ramp that up, until they actually can be out, making money for us. So it takes a large fleet of people to do this. And so what we're doing is making sure, we have 1 month that was quieter, but it looks like it's getting busier as we go on through the year and into '14. So it takes us 2 to 3 months to get that prepared and get the people operationally, get them through all the training and all the safety.

Okay. And I do get that, and I don't want to keep hammering on the same question here. But if EBITDA has trended down and activity is lower, doesn't that suggest that we already have that capacity?

No.

No, Mike -- or Scott. Basically, when you have an event like we had in September, you have a very quick rotation of activity out. Then you come out of the areas you're in, which happened and impacted us. You then come to the conclusion of do you want to try to reduce costs to try to max that decline of revenue or are you of the opinion that you want to keep those people on. Because if you immediately try to make those costs variable and drop it, if you think activity picks back up pretty quickly, you can't -- there's a lag time between when those employees can start generating revenue again. Does that make sense?

Well, I guess. I guess, I also look at a company on -- half of the business is in the Bakken area, and it would just seem that with the slowdown in activity, that there would be people kind of standing around a little bit. And those would be people that I would have thought would have been instantly leveraged when things got better, and instead, we're adding people for when things get better, I guess.

Well, we're already seeing that as we go into October and -- through October and into November. We're already seeing the increased demand for services. And so, what, we saw 1 month that was down. But now we're starting to see the increase, what we actually would have thought we would have seen 2 or 3 months ago. So we are utilizing the people that we hired. We think that we've done the right thing. And by the amount of work that we're seeing in front of us, we know we've done the right thing, Scott.

Okay. Next question is, Jay, you indicated that your expectations for industry growth for next year are mid-teens. What are you basing that on? Is that your customers' indications of their CapEx, their business with you, outside party? What is that based on?

Yes, we kind of keep an internal tab here in terms of what the capital plans are for our major customers, and we triangulate around that. I think it's fairly consistent also with some of the third-party stuff we use to channel-check our assumptions that relates to wells drilled or just total CapEx plan. So if you look at some of our big customers out there, folks are talking to kind of a high teen to as much as 20%, 30% CapEx budget increase. So I think that's how we come up with that number.

And how do you know that, that will be the same number on the services side?

Well, that's their, like their drill-and-complete CapEx, essentially. So that will be services that we would be exposed to in terms of the revenue opportunity.

Right. But they're getting more efficient. So they require less, what I would call, almost aftermarket, the services that you provide. So wouldn't it be a lower number?

Actually, Scott, we provide services that are -- happen at each well, even though that there is -- there's more efficiency in the system with pad drilling. But primarily, what we're doing is we provide the services for each individual well. So as we become more efficient, we'd see that we're probably going to end up with more activity. And the area that it has impacted us somewhat on is on our rental business. But as far as kind of the frac-ing and transportation, the solids business -- and that's why we've been pushing on their solids so hard, is as they become more and more efficient and drill more wells in a shorter period of time, now our solids business gets that much busier. And so that's the part that we're trying to push on, is how do we end up with not on a per day-type rental activity, but things where there's more of a flow-through. That we are going to be busier because there's more volume that we have to manage in a shorter period of time, as there's more efficiency in the system.

Understood. With respect to TFI and your indications of interest that it will sell and all of that, as you look around, Mark, as you've now had a full year to assess things. Are there any other operations that you think maybe just need to be jettisoned?

No, not at all. What we actually see is that we're going to continue to try to add more of our services that we're providing in the Bakken that we're -- and actually, our guys in the Marcellus/Utica are also providing a number of services also. And we really see that trying to move that platform into some of our other basins is really what our target and what our goal is.

And our next question is from the line of Eric Stine with Craig-Hallum.

It's Aaron Spychalla on for Eric Stine. So the first question, and I think you guys just might have touched on it a little bit, but looking at some of your customers and other E&Ps, there's talks during the quarter about a lot of those guys having to use quite a bit more water in their operations, and I don’t know if that has to do with some of the pad drilling. But can you just kind of touch on whether you're seeing that and kind of what might be causing that and if you expect that going forward as well?

I think basin by basin, we're seeing different types of completion activities and different processes. I'll talk about the Bakken a little bit. Historically, the cross-linked gels were used, and now we're starting to see some other processes that are used that take quite a bit more water. I think that there's also some new completion techniques that we've seen, that Whiting is using, that is actually increasing, up to doubling, the amount of production they're receiving at their IP rate. The whole industry, while we're probably 6 years into it type rate [ph], we're still just seeing how new technologies are really changing and revolutionizing what's going on with regards to efficiencies and overall production. We anticipate that how we're building our business is we also see the anticipation of recycling, especially with water becoming more and more of an issue. And we are really excited that we were able to get our Halliburton project started. And now with the permits, we'll anticipate doing our first salt water frac in 2014.

Okay. Good. And then a lot of the questions have been answered, and you guys gave a lot of good detail. But maybe -- now that we're a year into Power Fuels, or around there, can you just talk about some of the synergies and give us an update on what you've seen from that, whether it's expanding into other basins or legacy customers expanding into the Bakken?

I think a good example of how we're seeing the synergies -- and it's one of our largest customers in the Bakken, that has moved to the Utica, and they're just getting their drilling program built. But we know the people, we know all of the management, we know how they bill, we know how they're -- what they're looking for. And so we're able to take our good relationship we have in the Bakken and move that to the same relationship that we'll have in the Utica.

And our next question is from the line of Philip Shen with Roth Capital Partners.

So I'm hopping between calls, so I apologize if this has been asked. I wanted to see if you could talk about pricing, what you see ahead. Perhaps you can give us some color on supply and demand dynamics in your different basins?

Yes. Sure. I think we're seeing, by and large, pricing has stabilized, maybe with the possible exception of pockets of weakness, particularly in the Eagle Ford. I think one thing is a lot of the capacity from the dry gas basins has gone down there. One thing that we are, I would say, cautiously optimistic about is we are working on our turnaround in the Eagle Ford. There's very robust projections for growth in the Permian next year, and that might take some of that capacity out of the Eagle Ford, particularly the southern Eagle Ford. And so we think that will help that basin. I'd say the Bakken, we're seeing very stable pricing; Utica, very stable pricing; Marcellus, very stable; the Haynesville, obviously, pricing's lower than where we'd like it to be. But I would say that we're seeing stability, by and large, down there as well.

And our next question is from the line of Gerry Sweeney with Boenning.

Quick question on acquisitions. Obviously, you said there looks like a lot of opportunities are starting to percolate, I guess, some of the values or projected values that owners would like are coming in. But I'm interested to see where you are most interested in putting some money to work, either by region or by specific service.

I think the area that we're very interested in is in solids area. That's -- from a regulation and a regulatory perspective, that's becoming increasingly -- it's an area that's becoming more and more challenging as we see it. We think we have some very interesting solutions that we're going to work with. Part of that is, is the project we're working on with EERC, that we're trying to take a look at some of the alternative uses, some beneficial uses for the cuttings after we've had them -- after we've processed them. And we really see that probably in the Bakken, the Utica, Marcellus and Haynesville areas. And then I would say that's probably the first one that we're looking at. The other one that we're obviously looking at is how do we take our Halliburton relationship and use that in other regions too. Probably the first one that we'll be looking at will be in the Utica.

Okay, great. And then you've spoken about, obviously, CapEx. It's come down substantially. And I know there's a lot of what is called legacy Heckmann assets still probably running around out there. Can you give us any idea of what type of utilization rates you have on your assets right now?

It really varies a lot by basin and even by district. I would say in some of the legacy Heckmann basins, you're never going to get to 100% utilization, but you see some of those dry gas basins kind of in the 50% utilization. So I think as we've spoken about before and I think you and I have talked about, I think there's continued opportunities even at a lower CapEx level to drive growth purely through utilization, as well as move some of those assets, which is the strategy we've employed in the Utica. If you think about the CapEx, and I talked a little bit about CapEx in 4Q ticking up a little bit, that will actually be almost -- the majority of that will be around treatment assets that Mark talked about, so kind of a different type of asset. It'll be -- we're going to talk a lot more about this probably next quarter. But we see some interesting opportunities to put some capital to work, probably over the next 4 quarters in total, around collocating some treatment assets at our landfill in the Bakken and potentially looking at other basins of that as well. So it's really a different type of profile of asset.

Okay, perfect. That's what I was getting at. So you have plenty of runway, we'll say, on some of those legacy, like trucking assets, and most of your CapEx is looking at for higher value-added services, I'll call it.

Yes. I'd say the marginal CapEx, given where the industry is right now, we think, certainly, we're fairly bullish as we stand right now in terms of our outlook for the industry next year. I'd say probably Mark and I collectively -- probably collectively feel good about it, as we've seen, since we've been here. But I think we can soak up some of that demand by increased utilization. I think as you think about the marginal CapEx and the return profile and some of the treatment, there's some pretty interesting opportunities to put capital to work. We think it's kind of 2 to 4x EBITDA profile in terms of marginal CapEx return, and I think the unlevered returns on capital are pretty compelling on that as well. So it's something, I think, we'll talk a lot more about. I think the capital over the next 4 quarters will be the majority directed to that, absent M&A activity.

And our next question is from the line of Scott Levine with Imperial Capital.

You indicated you saw a big ramp in volumes at your North Dakota landfill in the month of October, but I was wondering if you could elaborate a bit further with regard to how that is reconciled or compared to your expectation levels. And it sounds like you're optimistic that you can develop other sites or you're focused on solids from an acquisition standpoint. Maybe a little bit more color regarding your plans. Are we're talking new landfill development or other areas of that business you're looking to get into.

What we anticipate doing is there's some basins that we will end up developing or purchasing landfills. And then there's other basins, what we'll end up doing, is we will end up partnering with somebody. Just because from a regulatory standpoint, you're not going to be able to go in and permit and get anything operational for a few years. So I think in each basin, we'll end up with a different alternative. At the same time, some of the things we're looking up are really the front-end treatment that goes through the cuttings, and ultimately, part of that will reside in the landfill, part of it we're hoping is going to be used for beneficial use or other beneficial uses.

Understood. And then turning to the Halliburton relationship, I think you said first frac in the first quarter of next year. Could you provide maybe a little bit more color regarding your thoughts on the economics of that arrangement and maybe some specifics, to the extent you can offer them, in your thoughts on how that will financially impact your business going forward. Or how we should think about, not necessarily modeling it but in terms of the economic impact as you look to extend that, perhaps, into other regions?

We're probably just a little bit early to talk about what the complete economic package looks like. The thing, I guess, we can say though is that, when we see that our kind of piece of the market or market share with regards to what we're going to do with the collection, the treatment, the storage, all of those are relatively -- as we look at what the state is going to be requiring. And also, our partner is the only one that's currently doing this. So we think that we're in a really good position to take -- to have that first-mover advantage. Part of why it's taken us longer than we anticipated was the state had to go back and review some of their regulations with regards to the reuse, recycling and treatment and storage of saltwater. Because in the past, it was just -- everybody anticipated saltwater was just going to be disposed of in saltwater disposal wells. It's a really fundamental change in how the industry will operate.

And is that regulatory -- that's a state reg, these are state regs that will differ market-by-market?

That is correct.

Got it. One last one, if I could sneak it in. Jay, I think you had indicated that acquisition multiples were coming down a bit in the marketplace, so I was hoping for maybe some numbers there if you could offer them or maybe some additional comments on multiples for various types of deals that you're looking at or pursuing?

I think we'll probably hold off on that until we hopefully get some of them done here. I guess what I would say, by and large, is expectations are tempering somewhat from a seller standpoint. As we flow through, I think many people in the industry thought that we'd see -- including us, thought that we'd see growth throughout '13 that, frankly, just didn't occur. So I think from that standpoint, to some extent, that may be flowing through P&L expectations. And we're at the point where we feel a lot better about getting some of this stuff closed. We certainly think that it will be, from both return on capital, which is the primary metric that we look at, not multiples, value-added from a return standpoint, but I think that the multiples are going to be accretive as well.

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

Just in context of things are changing in the Bakken, what's happening with regards to the flaring and all of the -- just sort of fugitive gas. Is that having an impact on sort of pace of activity?

Michael, at this point, we're not sure. We know that flaring is now at the forefront of the issues. There's companies that are actually changing some of their programs to make sure that they can collect the gas where there's already existing collection lines in place because it is becoming an issue. It's -- without question, it is the primary regulatory issue in North Dakota today.

Okay. And then lastly, with regards to the whole employment issue. I mean, my understanding is that efficiency actually is dictating a need to have people in place because of speed at which activity is happening. If you can't respond, they go somewhere else.

That's right. We can't -- if we have a little bit of a downtime. By the time it takes 2 to 3 months to get them trained, and so sometimes -- it hasn't happened very often in 8 years that we have ever had any issues where we've got quiet time, but this September, we did. And -- but we've already seen that rebound as we've looked through and gone through October. So I think we're through that phenomenon.

And I am showing no further questions. I will turn the call back over to management for any closing remarks.

I want to thank everybody for joining us on our call today, and we look forward to talking to you on our fourth quarter call.