FTS International, Inc. (NYSE: FTSI) (the “Company” or “FTSI”)
today reported its financial and operational results for the third
quarter of 2018.
Michael Doss, FTSI’s Chief Executive Officer, commented “The
third quarter was a challenging quarter causing us to reduce fleets
for the first time in over two years; however, profitability
remains strong and we continue to generate free cash flow and
reduce debt levels.”
Third Quarter 2018 Compared to the Second Quarter
2018
- Revenue was $334.4 million, down from
$493.3 million
- Net income was $49.6 million, down from
$103.6 million
- Reported adjusted EBITDA was $85.0
million, down from $141.3 million
- Adjusted EBITDA, excluding a supply
commitment charge of $10 million, was $95.0 million or $17.4
million per fleet on an annualized basis
- Repaid $70 million of debt in the third
quarter and an additional $20 million subsequent to the end of the
quarter
Operational Update
FTSI experienced continued operational pressure in the third
quarter 2018 due to earlier than anticipated budget exhaustions by
some of its dedicated customers. This softer demand led FTSI to
more actively compete for work in the spot market and to stack
fleets during the third quarter 2018. The Company exited the third
quarter 2018 with 19 active fleets.
Average active fleets during the third quarter 2018 were 21.8,
down from 28.0 in the second quarter 2018.
FTSI completed 6,991 stages during the third quarter 2018, or
321 stages per active fleet. This compares to 9,356 stages in the
second quarter 2018, or 334 stages per active fleet. Lower average
active fleets during the quarter, coupled with lower efficiencies
due to less exposure to the Marcellus/Utica contributed to the
decline in profitability.
“As we look ahead, activity levels are starting to stabilize.
Our plan, based on feedback from some major customers, is to
reactivate a number of fleets in the first quarter of 2019 and we
will ensure that neither the equipment, labor, nor capital will be
a limiting factor on the speed of our re-deployments. With our
in-house manufacturing and refurbishing capabilities, we are well
positioned to reactivate fleets rapidly, which we believe is a key
competitive advantage that allows us to maximize returns even in
short cycles,” commented Doss.
Liquidity and Capital Resources
Capital expenditures were $18.6 million in the third quarter
2018 and $84.9 million year to date. The Company reaffirms its
estimate that total capital expenditures in 2018 will be
approximately $110 million.
During the third quarter, the Company repaid $70 million of the
outstanding principal balance on its term loan due 2021 to bring
total long-term debt outstanding to $559.5 million as of
September 30, 2018. Subsequent to September 30, FTSI repaid an
additional $20 million. FTSI will continue to evaluate the
appropriate use of excess cash as the fourth quarter unfolds.
At September 30, 2018, FTSI had $167.2 million of cash. During
the third quarter 2018, the Company had no borrowings outstanding
under its revolving credit facility. The Company’s net debt was
$392.3 million at September 30, 2018. At November 1, 2018, the date
the Company’s borrowing base under the revolving credit facility is
to be recalculated, the availability under the Company’s revolving
credit facility will be $163.6 million.
Supply Commitment Charge
The Company recorded supply commitment charges related to supply
contracts for sand entered into in 2014 and prior. During the third
quarter and the first nine months of 2018, the Company recorded
$10.0 million and $16.0 million, respectively. These charges relate
to both actual purchase shortfalls incurred and forecasted purchase
shortfalls that are expected to be incurred and settled in future
periods. Approximately $10 million of the Company’s 2018 supply
commitment charges relate to estimated losses under these contracts
for 2019. These purchase shortfalls are due to a portion of FTSI’s
customers choosing to provide their own proppant, purchase sand
from sand mines closer to their operating areas, as well as
increased FTSI purchase commitments in 2019.
Conference Call & Webcast
FTSI will hold a conference call that will also be webcast on
its website on Tuesday, October 30, 2018 at 9:00 a.m. Central Time
(10:00 a.m. Eastern Time) to discuss the results. Presenting the
Company’s results will be Michael Doss, Chief Executive Officer,
Buddy Petersen, Chief Operating Officer and Lance Turner, Chief
Financial Officer.
Please see below for instructions on how to access the
conference call and webcast. If you intend to ask a question in the
Q&A portion of the call, please join by phone.
By Phone: Dial (212) 231-2939 at least 10 minutes before the
call. A replay will be available through November 20 by dialing
(402) 977-9140 and using the conference ID 21897107#.
By Webcast: Connect to the webcast via the Events page of FTSI’s
website at www.FTSI.com/news/events. Please join the webcast at
least 10 minutes in advance to register and download any necessary
software. A replay will be available shortly after the call.
About FTS International, Inc.
Headquartered in Fort Worth, Texas, FTS International is one of
the largest providers of hydraulic fracturing services in North
America with an operating footprint consisting of five of the most
active major unconventional basins in the United States. The
Company’s services enhance hydrocarbon flow from oil and natural
gas wells drilled by exploration and production, or E&P,
companies in shale and other unconventional resource formations. To
learn more, visit www.FTSI.com.
Non-GAAP Financial Measures
Adjusted EBITDA is a non-GAAP financial measure that FTSI
defines as earnings before interest; income taxes; and depreciation
and amortization, as well as, the following items, if applicable:
gain or loss on disposal of assets; debt extinguishment gains or
losses; inventory write-downs, asset and goodwill impairments; gain
on insurance recoveries; acquisition earn-out adjustments;
stock-based compensation; and acquisition or disposition
transaction costs. Adjusted EBITDA, excluding a supply commitment
charge, is a non-GAAP measure that further adjusts Adjusted EBITDA
to exclude a supply commitment charge. The most comparable
financial measure to Adjusted EBITDA and Adjusted EBITDA, excluding
a supply commitment charge, under GAAP is net income or loss.
Adjusted EBITDA and Adjusted EBITDA, excluding a supply commitment
charge, are used by management to evaluate the operating
performance of the business for comparable periods and Adjusted
EBITDA is a metric used for management incentive compensation.
Adjusted EBITDA and Adjusted EBITDA, excluding a supply commitment
charge, should not be used by investors or others as the sole basis
for formulating investment decisions, as it excludes a number of
important items. The Company believes Adjusted EBITDA and Adjusted
EBITDA, excluding a supply commitment charge, are important
indicators of operating performance because they exclude the
effects of its capital structure and certain non-cash items from
its operating results. Adjusted EBITDA is also commonly used by
investors in the oilfield services industry to measure a company's
operating performance, although FTSI’s definition of Adjusted
EBITDA may differ from other industry peer companies.
Net debt is a non-GAAP financial measure that FTSI defines as
total long-term debt less cash and cash equivalents. The most
comparable financial measure to net debt under GAAP is long-term
debt. Net debt is used by management as a measure of our financial
leverage. Net debt should not be used by investors or others as the
sole basis in formulating investment decisions as it does not
represent the Company’s actual indebtedness.
Forward-Looking and Cautionary Statements
This press release contains “forward-looking statements” within
the meaning of the Private Securities Litigation Reform Act of
1995. Forward-looking statements include statements regarding
customer activity in 2018 and 2019, the re-activation of fleets in
2019 and estimated losses relating to supply purchase commitments
in 2018 and 2019 and other statements identified by words such as
“could,” “may,” “might,” “will,” “likely,” “anticipates,”
“intends,” “plans,” “seeks,” “believes,” “estimates,” “expects,”
“continues,” “projects” and similar references to future periods.
Forward-looking statements are based on FTSI’s current expectations
and assumptions regarding capital market conditions, FTSI’s
business, the economy and other future conditions. Because
forward-looking statements relate to the future, by their nature,
they are subject to inherent uncertainties, risks and changes in
circumstances that are difficult to predict. As a result, FTSI’s
actual results may differ materially from those contemplated by the
forward-looking statements. Important factors that could cause
actual results to differ materially from those in the
forward-looking statements include regional, national or global
political, economic, business, competitive, market and regulatory
conditions, FTSI’s competitive environment, future customer demand,
future customer sand preferences, the legal defenses available to
us, and the outcome of our ongoing vendor discussions. Any
forward-looking statement made in this press release speaks only as
of the date on which it is made. FTSI undertakes no obligation to
publicly update or revise any forward-looking statement, whether as
a result of new information, future developments or otherwise,
except as required by law.
When considering these forward-looking statements, you should
keep in mind the risk factors and other cautionary statements in
FTSI’s filings with the SEC. The risk factors and other factors
noted in FTSI’s filings with the SEC could cause the Company’s
actual results to differ materially from those contained in any
forward-looking statement.
Consolidated Statements of Operations
(unaudited)
Three Months Ended Nine Months Ended (In
millions, except per share amounts)
Sep. 30,2018
Jun. 30,2018
Sep. 30,2017
Sep. 30, Sep. 30,
2018 2017
Revenue Revenue $ 324.7 $ 456.7 $ 409.8 $ 1,206.5 $ 906.1
Revenue from related parties
9.7
36.6 39.2 88.7
101.3
Total revenue 334.4
493.3 449.0 1,295.2
1,007.4
Operating expenses Costs of revenue
222.2 329.4 298.8 863.8 709.9 Selling, general and administrative
19.7 20.8 21.7 66.3 62.0 Depreciation and amortization 21.1 20.7
22.1 62.4 65.2 Impairments and other charges 10.0 4.0 0.1 16.0 1.4
(Gain) loss on disposal of assets, net (0.1 ) (0.2 ) (0.8 ) 0.2
(1.6 ) Gain on insurance recoveries – –
– – (2.9 )
Total operating
expenses 272.9 374.7 341.9
1,008.7 834.0
Operating income 61.5 118.6 107.1 286.5 173.4
Interest expense, net (10.4 ) (12.1 ) (22.1 ) (39.9 ) (64.8 ) Loss
on extinguishment of debt, net (0.6 ) (0.8 ) – (10.7 ) – Equity in
net (loss) income of joint venture affiliate (0.7 )
(1.2 ) (1.0 ) (1.9 ) 0.1
Income before income taxes 49.8 104.5 84.0 234.0 108.7
Income tax expense 0.2 0.9 0.4
2.1 0.9
Net income
$ 49.6 $ 103.6 $ 83.6 $ 231.9 $ 107.8
Net income (loss) attributable to common stockholders
(a) $ 49.6 $ 103.6 $ 25.1 $ 655.1 $
(56.8 ) Basic and diluted earnings (loss) per share
attributable to common stockholders $ 0.45 $ 0.95 $
0.48 $ 6.40 $ (1.10 ) Shares used in computing
basic and diluted earnings (loss) per share 109.3
109.3 51.8 102.4
51.8 (a) Net loss attributable
to common stockholders for 2017, was calculated by subtracting an
accreted value attributable to FTSI’s convertible preferred stock
from net income or loss. The accretion amount was $58.5 million and
$164.6 million for the three and nine month periods ended September
30, 2017, respectively. Net income attributable to common
stockholders for the first nine months of 2018 included a $423.2
million reversal of accretion expense previously recognized upon
the conversion of FTSI’s convertible preferred stock into shares of
common stock in February 2018.
Consolidated Balance Sheets
(unaudited)
Sep. 30, Dec. 31, (In millions)
2018 2017
ASSETS Current assets Cash and cash equivalents $
167.2 $ 208.1 Accounts receivable, net 215.0 231.1 Accounts
receivable from related parties 7.4 3.0 Inventories 67.5 44.5
Prepaid expenses and other current assets 7.7
19.9
Total current assets 464.8 506.6
Property, plant, and equipment, net 284.8 270.9 Intangible assets,
net 29.5 29.5 Investment in joint venture affiliate 19.7 21.0 Other
assets 7.2 3.0
Total assets $
806.0 $ 831.0
LIABILITIES AND STOCKHOLDERS’
EQUITY (DEFICIT) Current liabilities Accounts payable $
119.7 $ 138.3 Accrued expenses and other current liabilities
50.9 44.4
Total current liabilities
170.6 182.7 Long-term debt 559.5 1,116.4 Other liabilities
1.3 0.4
Total liabilities
731.4 1,299.5 Series A convertible
preferred stock (a) – 349.8
Stockholders’ equity (deficit) Common stock 36.4 35.9
Additional paid-in capital 4,372.6 3,712.1 Accumulated deficit
(4,334.4 ) (4,566.3 )
Total stockholders’ equity
(deficit) 74.6 (818.3 )
Total
liabilities and stockholders’ equity (deficit) $ 806.0 $
831.0 (a)
Recapitalized to common stock directly
prior to FTSI’s initial public offering. See FTSI’s SEC filings
located on the Company’s website (www.FTSI.com) or the SEC’s
website (www.SEC.gov) for details on this recapitalization.
Reconciliation of Net Income to Adjusted
EBITDA
Three Months Ended Nine Months Ended (In
millions except average active fleets)
Sep. 30,2018
Jun. 30,2018 Sep. 30,2017
Sep. 30, Sep. 30,
2018 2017 Net income $
49.6 $ 103.6 $ 83.6 $ 231.9 $ 107.8 Interest expense, net 10.4 12.1
22.1 39.9 64.8 Income tax expense 0.2 0.9 0.4 2.1 0.9 Depreciation
and amortization 21.1 20.7 22.1 62.4 65.2 (Gain) loss on disposal
of assets, net (0.1 ) (0.2 ) (0.8 ) 0.2 (1.6 ) Loss on
extinguishment of debt, net 0.6 0.8 – 10.7 – Stock-based
compensation 3.2 3.4 – 8.2 – Gain on insurance recoveries –
– – – (2.9 )
Adjusted EBITDA 85.0 141.3 127.4 355.4 234.2 Add: Supply
Commitment Charge 10.0 4.0 –
16.0 1.0
Adjusted EBITDA, Excluding
Supply Commitment Charge 95.0 145.3 127.4 371.4 235.2 Average
Active Fleets 21.8 28.0 24.8
25.8 22.4
Annualized Adjusted
EBITDA, Excluding Supply Commitment Charge, Per Fleet $ 17.4
$ 20.8 $ 20.5 $ 19.2 $ 14.0
Reconciliation of Long-term Debt to Net
Debt
Sep. 30, Jun. 30, Dec.
31, (In millions)
2018
2018 2017 Long-term debt
$ 559.5 $ 628.5 $ 1,116.4 Less: Cash and cash equivalents
167.2 126.3 208.1
Net debt $ 392.3 $ 502.2 $
908.3
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version on businesswire.com: https://www.businesswire.com/news/home/20181029005810/en/
FTS International, Inc.Lance Turner, 817-862-2000Chief Financial
OfficerInvestors@FTSI.com
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