Good day, everyone, and welcome to the Nuverra Environmental Solutions Third Quarter Financial Results Conference Call. Just a reminder, today's call is being recorded. At this time, I would like to turn the call over to Liz Merritt, Vice President of Investor Relations and Corporate Communications. Please go ahead.

Good afternoon, everyone, and welcome to the Nuverra Environmental Solutions third quarter 2014 financial and operating results conference call and webcast. With me today are Mark Johnsrud, Chief Executive Officer; and Chris Chisholm, interim Chief Financial Officer. Before we get started, we will 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, services, 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 for the quarter ended September 30, 2014, our current reports on Form 8-K and our third quarter press release posted on the Nuverra Web-site. These documents may be obtained from the SEC or by visiting the Investor Relations section of our Web-site at www.nuverra.com. All information provided on this call is as of today, November 6, 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, Chairman of the Board and Chief Executive Officer.

Thank you, Liz, and welcome to everyone on the call this afternoon. I'll begin by introducing Chris Chisholm, our Executive Vice President, interim Chief Financial Officer. As you know, we announced this afternoon that Jay Parkinson will leave his position as CFO to pursue other opportunities. Jay will remain with the Company through the first quarter to ensure a smooth transition. We want to recognize Jay for his contributions and leadership through the series of strategic transactions that helped shape the Company we have today. We wish him well and look forward to his continued support. Chris of course is no stranger to Nuverra. He has done a commendable job over the past three years, most recently as our Chief Accounting Officer and he brings extensive experience and knowledge of the Company to his role as interim CFO. As we announced, we have engaged an industry leading search firm to help us identify the best candidate to fill the permanent role of Chief Financial Officer. We expect to complete this process by early 2015. I'd like to take a moment to also welcome Bill Austin to our Board of Directors. Bill brings more than 30 years of experience as a financial executive in the oil and gas industry and we look forward to his contributions as we develop our strategies for continued financial performance. He is recognized and a skilled leader and truly an outstanding addition to our Board. We would like to thank outgoing Board member, Andy Seidel, for his many years of service and contributions to the Company. Let's now turn to an overview of our third quarter results and the actions we have taken to improve operating performance, labor and equipment utilization and pricing, all of which contributed to a strong quarter. Specifically, we achieved a 5.9%…

Thanks, Mark, and let me start off by saying that I'm pleased to serve in the role of interim CFO and look forward to being a resource during this important transition period. I'll discuss our results for the third quarter consistent with our new segment reporting. As Mark mentioned, we achieved a solid operational quarter with sequential growth in revenue, adjusted EBITDA and margins. We continued to drive operational efficiencies and improved pricing against the backdrop of steady operator activities. This quarter we saw the result of work we have done in past quarters to improve operating performance. Year-over-year we achieved a nearly 6% improvement in revenue on a relatively flat operating cost base. Shale Solutions revenue was $139.6 million compared with $126.9 million sequentially and $131.8 million in the third quarter of 2013. About three quarters of the revenue came from primarily oil shale areas, with the remainder from primarily gas basins. Third quarter adjusted EBITDA from continuing operations was $28 million compared with $22.9 million in the second quarter of 2014 and $22 million in the third quarter of 2013. Reported net loss per share was $5.44 in the third quarter, which compares with a net loss of $7.79 per share in the third quarter of 2013. This includes the discontinued operations of TFI as well as non-cash impairment charges and several other items that are shown as adjustments to EBITDA on the GAAP reconciliation table we issued with our press release. In our Rocky Mountain Division, revenue increased 13.1% sequentially to $87.6 million, compared to $77.5 million in the second quarter of 2014. Year-over-year revenue increased $12.7 million or 17% compared with 2013. Adjusted EBITDA and margin were also up with the increases primarily due to higher logistics activities, water disposal volumes and landfill volumes. Rental revenue…

Thanks, Chris. We'll conclude today's call with a review of our outlook for the fourth quarter as well as some early thoughts on 2015. As we've discussed, third quarter performance reflected a gradual increase in activity levels that we expected and discussed last quarter. As we head into the fourth quarter, we saw steady levels of activity continuing through October. Our customers are signaling that with crude prices at current levels, their capital spending programs will remain as planned for 2015. For example, one major operator reported last week they had plans to continue to invest growing in the Eagle Ford and Bakken Shale areas in 2015 while retaining the flexibility to reduce its overall capital spend in less-developed basins. During 2015, we expect our growth investments in advanced solids management in the Bakken to begin contributing incremental revenue that will ramp up gradually throughout the year. Additionally, we believe opportunities will develop in 2015 for differentiated growth provided by our solids management and pipeline initiatives. Therefore, we expect increased activity in 2015. Our basin leaders are doing an exceptional job identifying and prioritizing the strategies we are implementing to drive operational improvements. Our team is highly focused on further strengthening the core business and I want to thank them for their contributions to the Company's overall success. We believe the impact of these initiatives will continue to contribute to improvements in 2015. This concludes our prepared remarks and I would like to thank you for joining us this afternoon, and ask the operator to open the line for your questions.

(Operator Instructions) We'll go first to Michael Hoffman at Stifel.

Congratulations on making really meaningful operating progress, Mark. I know it's been a challenging couple of years, but nice to see it moving in the right direction.

First of all, good afternoon, and thank you for the compliment, Michael. I think that we have made a lot of changes just being able to provide more clarity and more information back to the business units, and now I believe the guys in the field are doing a good job of taking where we want to go, seeing the vision and we're kind of in the first phase of where we ultimately want to go.

Got it. So on that vein, when you think about your commentary around your customers and steady as we go, no change in plans, having said that, their behavior historically when things get tight is they come right back to providers of services and squeeze the daylights out of them. So can you talk about the pricing of the services in the marketplace and why you have comfort, if pricing is holding up why it will continue to hold up, and we start with that a little bit?

We've had a lot of discussion in the last week or two around some of what we're seeing out there, and at this point anyway we really see the services that we are providing are becoming less monetized and more where you're providing real value. I'm not saying that there isn't going to be some pressure on us to try to take a look at pricing, but today we feel of what we are doing in each basin has some differentiated pieces and we think that there is – we're not really, at this point we're not forecasting a change in our pricing.

Okay. And then this is very basin specific, but take North Dakota for instance, there's been sort of a tide of thought around changing regulation on lots of things, everything from storage of dirty brine, comingling of brine and decoupling, sort of the titling of it, to really enforcing the oil-based mud ban on reserve pits, on permanent disposal, where are we in all of that when you think about the various basins?

We had talked about our H2O Forward program roughly a year ago, and one of the issues that really came up is the comingling of flowback in produced water for multiple operators. As we start going from kind of the traditional frac today, that was roughly 40,000 barrels, to a hybrid frac between 200,000 to 250,000 barrels per well it's used, it just becomes very challenging to manage all that water if it doesn't come from multiple operators. We've been working very closely in North Dakota with the regulatory agencies talking about what are the rules that need to be changed. In the state of Texas, they have taken very decisive action on this issue and we anticipate other states are going to follow, and we believe there is a very clear path on where more operators are going to consider reuse and recycling as these regulations get changed. With regards to the solids side, we just see there's more of a – especially with the multi-well pads, there is becoming more and more of a concern about what happens with the solids, where do they get placed, is there any long-term liability, and what we're looking at is our program is a way of transforming and changing that liability profile.

And to that end, one of the significant aspects of the thermal process is you would actually return the final solid to a beneficial use. Have you been able to gain support from the customer about that and why that's going to be a material difference for them?

We are working with the health department in North Dakota on that issue and we feel very positive about what the outcome will be, and at the same time we're going through and testing all of the byproducts to make sure from a scientific standpoint that there are no issues with any type of substance or a material that could be potentially hazardous. So we're a long ways down the road and we're very positive on that.

Okay. And then with regards to bringing solids to other basins, so you've successfully started something in the Eagle Ford. Is there actually an opportunity to do something in the Northeast, or because of all the municipal solid-based landfills maybe that's less of an option?

No, I actually think that Ohio and Pennsylvania are really very prone for this type of technology. If you just take a look at the density, the number of people per square mile in Ohio versus North Dakota, managing the long-term solids and any type of flowback or produced water is going to really be different and we really believe this solids program that we're designing and developing is going to fit very well in those two basins.

Alright. Then last question for Chris on the balance sheet. Given where the leverage is and the cash coming down as much as it is, where are we relative to any – I mean you don't actually have any real specific covenants, but where are we with regards to balance sheet flexibility?

Michael, this is Chris. We've been managing our cash flow and our balance sheet. As you know, it's kind of part of our overall cash management system through the revolver. So the revolver, the ABL revolver goes up and down based on our working capital requirements. At this point, we have a borrowing base that exceeds the maximum facility size on our revolver. The balance today is roughly the same as it was when we filed our second quarter 10-Q in terms of revolver balance. And we believe we have sufficient operating liquidity under the facility at this point.

Okay. And will we see a working capital swing, a favorable working capital swing in fourth quarter which helps take some pressure off?

Michael, that's certainly our target. As you guys have heard us talk about on previous calls, we are constantly working on the order to cash cycle in the business and our goal is to try to get some meaningful DSO improvement over the course of the rest of this quarter and that should help us a bit on the working capital side.

Okay, great. Thank you very much.

We'll go next to Scott Graham at Jefferies.

Nice job there, Chris. I wanted to ask first a question on the $100 million charge. I guess maybe it would be helpful to understand how a segment realignment would create a charge of that size.

As we've disclosed in some of our previous quarterly filings, I think even all the way back to sort of late last year, we've been looking at this organizational realignment of the business into three operating segments for quite some time, and once you go through that kind of organization change, the accounting rules essentially have you reallocate the goodwill that's on the balance sheet to the three segments based on their relative fair value. And so that sort of relocation of the goodwill on our balance sheet was certainly one of the factors that caused us to do the interim impairment testing. So that's kind of how that worked, and then of course the charge relates really to – about two thirds of that $100 million charge relates to our business in the South and about a third to the business in the Northeast.

Okay. I think I understand the by segment math, I guess if you will, but what I don't understand is that the Company hasn't changed, so is this something that maybe should have been recorded earlier?

No. Again, goodwill impairment testing is something that is done at least annually and more often if there are events that occur. And as we've stated in our second-quarter 10-Q, because of some of those events, including this realignment of our organization, and we also described I think in some detail the relationship between the market value of the stock and its book value, and those items are really the key elements that drove the impairment and ultimately resulted in the impairment charge.

Okay. So part of this is due in fact to the recent decline in the valuation of the stock?

That's correct.

Okay. That makes more sense. Could you discuss a little bit on your comment here, Mark, about customers staying sort of status quo here at current prices, but maybe frame this a little bit for us if you could, the percentage of your sales that this is representing, and B, status quo is that flat, is that up, down 10, unchanged, what is their thinking, more activity and more spending next year with status quo on that, is that what…?

Maybe I didn't explain that very well. What we're seeing is, the customers that we've talked to and when we've seen the ones that have come out with releases is that they are anticipating their spending I don't believe has changed through their thought process and changed as prices have declined. And I think that what we've also seen is three or four of the operators have come out very recently that are large in the Bakken and saying that they are going to keep their drilling rigs basically the same, but most of them are saying they're going to increase their production in 2015 anywhere from 10% to 30%. So as there gets to be more production, there is going to be more work for us because of the declining curve you have to have continued drilling in order to just keep your production at the same level. On top of that they're telling us that they are forecasting an increase. So that's where we're saying is we're anticipating overall volume of work we're going to do next year will increase.

And you're saying that on a country-wide shale basis or are you referring more specifically to the Bakken?

I would say right now we're looking at the Bakken. We know that Eagle Ford has kind of the same characteristics right now with natural gas over $4. The Haynesville, the activity there remains relatively flat or has over the last year. And when we look into the Northeast, the Marcellus, the activity hasn't really changed, it's relatively flat and has remained flat over the year. In the Utica, we see that starting to grow in 2015. It just took a lot longer to get all the pipes in the ground and get the operating facilities and the processing plants in place, and so still there is roughly only half the wells in the Utica that are producing in relationship to the number that are drilled. So, there's still a lot more infrastructure buildout that is ongoing, that is just getting turned on. So we are anticipating an increase in overall volume and revenue in 2015 in the Utica.

That was a really helpful rundown, Mark. And if I just may scope back to revisit my opening question on that was, the large customers, is this the preponderance of your sales in the Bakken or is this just a sample?

I would say that it would be the – from a percentage standpoint, it would be well over half that I'm representing.

That's great. Last question of course is, maybe the elephant in the room, what was the cause of Jay's departure? Was it something internal, not that you would tell us that, but I mean is this a situation where he has been speaking with you about this for a while, was it sudden, could you give us a little bit of framework? As the No. 2 man in the Company departures, it's going to raise some questions tomorrow of course.

First, I'd like to say Jay has done a great job for us. Very respected, very good guy. He decided that he wanted to go do something else and he's going to remain with us through year-end into March, and on a go forward basis we are engaged with an industry-specific search firm so that we can – and our goal would be is we want to have somebody that has the industry expertise, has the financial background, but very importantly, as we're finding the whole industry is focused today on operations and how do we operate more efficiently.

That's fine. Thanks a lot.

We'll go next to Joe Giordano at Cowen.

I guess first, it's very helpful the way you broke out the new segments, I think that gives a lot of visibility, but I was wondering if you guys were giving [indiscernible] discussing how you're going to give guidance, if it's going to be maybe perhaps a little bit more quantitative or maybe a little bit more kind of quarter by quarter? I think that's obviously been one of the major miscommunications I guess between with the street at [indiscernible] the cadence of the earnings.

I think, Joe, we'll probably at least for now stay fairly qualitative about it. We've been, if you look back in some of the scripts of our previous calls, we've been talking about the basins and this is really just – this realignment just sort of makes the way we present the financial information [consistent] (ph) quite frankly with the way we run the business. So we'll continue to provide some qualitative help, but at this point I don't think we're in a position to talk very quantitatively about it.

Okay. And a question on the Bakken, the growth you saw there, was some of that – and I know last quarter you talked about making a conscious decision to walk away from some lower margin revenue, did you see any of that return and perhaps at better economics this quarter?

In the Bakken, we really had our guys focus on kind of efficiency and it really kind of comes down into three key areas. Our asset utilization is something that we really pushed on and that's going to be our fleet pipeline, our solids facility, and getting our sales guys to really spend kind of more time, get back out, push very hard on trying to make sure that we're not just talking to guys but we're also closing business. The other part is just overall labor utilization just to make sure that we're operating as efficiently as we can, and the guys in the fields are doing a very good job of managing that day to day. And it wasn't that we weren't doing a good job before, I'm just saying we're doing a better job now. And then I think another part is that when we look at kind of our disciplined pricing strategies, is something that we are really trying to make sure that we're getting maximum revenue with each one of our customers and spending a lot more time focusing on that. We've added to our sales team, brought in some good guys to expand and to complement our existing team. And after a while, I think it just helps in that whole sales and business development that you go in and you just continue to add to it over time. So I'm going to say that it was kind of an array of items that we have really focused on that is all starting to come together.

Okay, that's helpful. And how do you guys gauge the upcoming kind of seasonal slowdown into 4Q? The backlog of drilled but not completed wells is pretty high still. You think it will be – like how would you gauge it versus like the historical trend, you think it could be less of a slowdown in 4Q than what we've seen last couple of years?

That's a little hard to forecast. A little bit of it has to do with weather. And then I think the other part that we do not have full visibility into is the number of customers that have hedges, and we see and read where percentages can go from very little to very high in forward contracts. So there's some areas that we just do not have enough visibility into. But looking at the schedules that we provided by our customers, we are very busy and the reality is we can be busier, we're going to get busier the way it looks.

That's great. And then just two quick ones. What's your [indiscernible] EBITDA on the potential pipeline? And then TFI, after this write-down, it's on the books for $100 million, is that right, just want to confirm that?

Joe, on the pipeline, as we've said before, we believe the investment in the pipeline is something on the order of 3x or 4x the EBITDA on an annual basis. So we're kind of sticking with that general framework for now.

Okay. And then TFI is on the books for $100 million now, just wanted to confirm that number?

Just a little bit north of that, yes.

With no more further questions at this time, I'd like to turn the call back over to the management team for any additional or concluding remarks.

We would like to thank everybody for joining us on the call today, and we look forward to joining us on the next call so we can go over our year-end results. Thank you.

Ladies and gentlemen, once again that does conclude today's conference. I would like to thank everyone for joining us today.