FTS International, Inc. (NYSE: FTSI) (the “Company” or “FTSI”)
today reported its financial and operational results for the first
quarter of 2019.
Michael Doss, FTSI’s Chief Executive Officer, commented “We are
pleased with our operational performance in the first quarter
despite a challenging market environment. Stages completed per
active fleet improved 8% compared to the prior quarter, while
pricing for our services fell due to the continued over supply of
HHP in the market.
The pipeline of opportunities has steadily increased from the
start of the year, but we continued to take a measured approach and
walked away from a number of opportunities due to unsustainable
profitability. Our primary focus in the second quarter is to
rationalize underperforming fleets, converting them to more
profitable work.
Also included in our first quarter results was the effect of
restructuring and amending our largest sand supply contract. This
amendment will reduce our remaining commitments by over $160
million but resulted in a supply commitment charge of $55
million.
Despite the challenging market, we continue to be a leader in
capex, efficiencies and cash flow. Our cash flow generation and the
recently announced divestiture of our Chinese joint venture will
allow us to continue reducing our net debt.”
First Quarter 2019 Compared to the Fourth Quarter
2018
- Revenue was $222.5 million, down from
$248.1 million
- Net loss was $(55.0) million, down from
net income of $26.5 million
- Earnings per share was $(0.50), down
from $0.24
- Adjusted net income was $5.8 million
- Adjusted earnings per share was
$0.05
- Adjusted EBITDA was $39.4 million, down
from $67.1 million
- Adjusted EBITDA per average active
fleet was $7.9 million on an annualized basis, down from $13.9
million
- Generated $33.9 million in cash flow
from operations
- Repaid $27.0 million of debt to bring
principal amount of debt to $480.9 and net debt to $308.8
million
Operational Update
Average active fleets during the first quarter was 20.0,
slightly up from 19.3 in the fourth quarter. The Company exited the
first quarter with 21 active fleets, and remains at that level
today.
FTSI completed 6,740 stages during the first quarter, or 337
stages per active fleet. This compares to 6,038 stages in the
fourth quarter of last year, or 312 stages per active fleet, and
8,152 stages in the first quarter of last year, or 296 stages per
active fleet.
Liquidity and Capital Resources
Capital expenditures were $11.7 million in the first quarter
compared to $15.6 million in the fourth quarter. The Company has
also revised its full-year 2019 capital expenditure expectation to
$55 – $65 million, down $15 million from previous guidance.
During the first quarter, the Company repaid $27.0 million of
debt to bring the total principal amount of debt outstanding to
$480.9 million at March 31, 2019. FTSI intends to continue to
repay debt with free cash flow generated in 2019.
At March 31, 2019, FTSI had $172.1 million of cash, resulting in
net debt of $308.8 million. As of March 31, 2019, availability
under the Company’s revolving credit facility was $96.4 million.
During the first quarter, the Company had no borrowings outstanding
under its revolving credit facility.
Divestiture of Equity Interest in SinoFTS
In April 2019, FTSI announced that it expects to sell its 45%
ownership interest in SinoFTS Petroleum Services Ltd., FTSI’s joint
venture in China, to Sinopec Oilfield Services Corporation, FTSI’s
joint venture partner. The purchase price, excluding tax
reimbursements, to be paid by Sinopec OFS, is $26.9 million.
Sinopec OFS will also pay to FTS International a royalty fee,
excluding tax reimbursements, of $5.8 million for intellectual
property rights. The transaction is expected to close in the third
quarter of 2019, subject to customary closing conditions. FTSI
currently estimates that it will recognize a small gain on the sale
of its equity interest, and intends to use the proceeds from this
transaction to repay debt.
Supply Commitment Charge
In May 2019, FTSI restructured and amended its largest sand
supply contract to reduce the total remaining commitment through
2024 by approximately $162 million. This reduces FTSI’s annual
commitment from $47.9 million to $21.0 million from 2019 through
2024. In connection with this amendment, FTSI recorded a supply
commitment charge of $55.0 million in the first quarter of 2019 for
expected losses under this contract from 2020 through the end of
the contract in 2024.
The reduced annual commitments of $21.0 million represent the
annual payments FTSI would make under the contract if the Company
does not purchase any sand from this vendor. As a result of the
supply commitment charges incurred to date, FTSI has accrued for
$11.0 million of each annual commitment, or $66.0 million, at March
31, 2019. FTSI expects to pay this amount in equal annual
installments from 2019 through 2024. The remaining annual
commitments of $10.0 million represent partial prepayments for the
sand FTSI intends to purchase during each successive year of the
contract. FTSI will not incur additional charges under this
contract if it continues to purchase at least 1.0 million tons of
sand per year, which the Company believes better matches the
Company’s current and forecasted sand needs. A portion of this
charge could be reversed if FTSI purchases more than 1.0 million
tons of sand in a year.
The Company incurs supply commitment charges when its purchases
of sand from certain suppliers are less than the minimum purchase
commitments in its supply contracts. The Company entered into this
contract in 2013 in connection with selling its sand mines, which
was at a time when the Company’s then current and expected needs
for sand were significantly higher than they are today. As the
Company’s sand needs have declined over the years due to industry
cycles or due to its customers choosing to procure their own sand,
the Company and its supplier have continuously worked together to
accommodate changing market conditions by amending the
contract.
Conference Call & Webcast
FTSI will hold a conference call that will also be webcast on
its website on Wednesday, May 8, 2019 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) 231-2921 at least 10 minutes before the
call. A replay will be available through May 29th by dialing (402)
977-9140 and using the conference ID 21922693#.
By Webcast: Connect to the webcast via the Events page of FTSI’s
website at www.FTSI.com/investor-relations/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; acquisition or disposition transaction
costs; and supply commitment charges. The most comparable financial
measure to Adjusted EBITDA under GAAP is net income or loss. The
Company also uses Adjusted EBITDA per average active fleet on an
annualized basis, which is a non-GAAP measure and is defined as
Adjusted EBITDA divided by the average active fleets per quarter
then multiplying the result by four. Adjusted EBITDA and Adjusted
EBITDA per average active fleet on an annualized basis 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 per average active fleet on an annualized basis should not
be used by investors or others as the sole basis for formulating
investment decisions, as they exclude a number of important items.
The Company believes Adjusted EBITDA and Adjusted EBITDA per
average active fleet on an annualized basis are important
indicators of operating performance because they exclude the
effects of the Company’s capital structure and certain non-cash
items from the Company’s 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.
Adjusted net income and adjusted earnings per share are non-GAAP
financial measures that FTSI defines as net income (loss) plus a
supply commitment charge, an impairment of assets charge, and an
inventory write-down charge, and in the case of adjusted earnings
per share, divided by the weighted average number of shares
outstanding during the period. The Company believes the use of
adjusted net income and adjusted earnings per share provide
additional information to enable management and FTSI’s investors to
facilitate year-over-year performance comparisons and a comparison
to the performance of the Company’s peers.
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 new
opportunities for work, FTSI’s strategy for the second quarter,
full-year 2019 capital expenditures, the repayment of debt with
free cash flow generated in 2019, the sale of the Company’s Chinese
joint venture, the amounts the Company could owe and the reduction
of its commitments under its supply contract, the expected timing
of the Company’s payments relating to the supply contract, expected
sand needs, the Company’s estimated loss or gain relating to the
supply contract, the expected sale of the Company’s interest in the
Chinese joint venture, the expected purchase price and royalty fee,
the expected closing of the transaction, FTSI’s expected gain on
the sale and intended use of proceeds from the buyout transaction,
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, but are not limited to, the
operations of FTSI; results of litigation, arbitration, settlements
and investigations; the final terms of new and renegotiated supply
and customer contracts; actions by third parties, including
governmental agencies; volatility in customer spending and in oil
and natural gas prices, which could adversely affect demand for
FTSI's services and their associated effect on rates, utilization,
margins and planned capital expenditures; global economic
conditions; excess availability of pressure pumping equipment,
including as a result of low commodity prices, reactivation or
construction; liabilities from operations; weather; decline in, and
ability to realize, backlog; equipment specialization and new
technologies; shortages, delays in delivery and interruptions of
supply of equipment and materials; ability to hire and retain
personnel; loss of, or reduction in business with, key customers;
difficulty with growth and in integrating acquisitions; product
liability; political, economic and social instability risk; ability
to effectively identify and enter new markets; cybersecurity risk;
dependence on our subsidiaries to meet our long-term debt
obligations; variable rate indebtedness risk; and anti-takeover
measures in our charter documents and other risks and
uncertainties. 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 (In millions, except per share
amounts)
Mar. 31,
2019
Dec. 31,2018
Mar. 31,
2018
Revenue Revenue $ 221.6 $
248.1 $ 423.3 Revenue from related parties 0.9
– 44.2
Total revenue 222.5
248.1 467.5
Operating
expenses Costs of revenue 163.1 169.4 312.2 Selling, general
and administrative 23.6 21.6 25.8 Depreciation and amortization
22.4 22.3 20.6 Impairments and other charges 60.8 3.2 2.0 Loss
(gain) on disposal of assets, net 0.3 (0.3 )
0.5
Total operating expenses 270.2
216.2 361.1
Operating
(loss) income (47.7 ) 31.9 106.4 Interest expense, net
(8.2 ) (9.4 ) (17.4 ) Gain (loss) on extinguishment of debt, net
0.5 0.9 (9.3 ) Equity in net income of joint venture affiliate
0.6 3.0 –
(Loss) income before income taxes (54.8 ) 26.4 79.7 Income
tax expense (benefit) 0.2 (0.1 ) 1.0
Net (loss) income $ (55.0 ) $ 26.5 $
78.7 Net (loss) income attributable to common
stockholders $ (55.0 ) $ 26.5 $ 501.9 Basic
and diluted earnings per share attributable to common stockholders
$ (0.50 ) $ 0.24 $ 5.68 Shares used in
computing basic and diluted earnings per share 109.7
109.4 88.4
Consolidated Balance Sheets
(unaudited)
Mar. 31, Dec. 31, (In millions)
2019 2018
ASSETS Current assets Cash and cash equivalents $
172.1 $ 177.8 Accounts receivable, net 150.6 158.3 Accounts
receivable from related parties – – Inventories 67.6 66.6 Prepaid
expenses and other current assets 5.9 7.0
Total current assets 396.2 409.7 Property,
plant, and equipment, net 261.2 275.3 Operating lease right-of-use
asset 32.7 – Intangible assets, net 29.5 29.5 Investment in joint
venture affiliate 24.2 23.2 Other assets 6.2
6.0
Total assets $ 750.0 $ 743.7
LIABILITIES AND STOCKHOLDERS’ EQUITY Current
liabilities Accounts payable $ 75.5 $ 86.8 Accrued expenses
38.2 29.3 Current portion of operating lease liabilities 22.4 –
Other current liabilities 28.0 16.3
Total current liabilities 164.1 132.4 Long-term debt
476.8 503.2 Operating lease liabilities 11.8 – Other liabilities
44.0 1.2
Total liabilities
696.7 636.8
Stockholders’
equity Common stock 36.4 36.4 Additional paid-in capital
4,379.7 4,378.4 Accumulated deficit (4,362.8 )
(4,307.9 )
Total stockholders’ equity 53.3
106.9
Total liabilities and stockholders’
equity $ 750.0 $ 743.7
Consolidated Statements of Cash Flows
(unaudited)
Three Months Ended (In millions)
Mar. 31,
2019
Dec. 31,
2018
Mar. 31,
2018
Cash flows from operating activities Net (loss)
income $ (55.0 ) $ 26.5 $ 78.7 Adjustments to reconcile net (loss)
income to net cash provided by operating activities: Depreciation
and amortization 22.4 22.3 20.6 Stock-based compensation 3.0 7.0
1.6 Amortization of debt discounts and issuance costs 0.5 0.5 0.9
Loss on disposal of assets, net 0.3 (0.3 ) 0.5 (Gain) loss on
extinguishment of debt, net (0.5 ) (0.9 ) 9.3 Non-cash provision
for supply commitment charges 56.6 3.2 2.0 Cash paid to settle
supply commitment charges — (3.2 ) — Impairment of assets 2.8 — —
Inventory write-down 1.4 — — Other non-cash items (0.8 ) (3.4 ) 0.1
Changes in operating assets and liabilities: Accounts receivable
7.7 56.7 (32.1 ) Accounts receivable from related parties — 7.4
(34.2 ) Inventories (1.7 ) 0.7 (9.1 ) Prepaid expenses and other
assets 0.3 1.7 (0.3 ) Accounts payable (11.3 ) (16.4 ) 26.7 Accrued
expenses and other liabilities 8.2 (19.6 )
9.6 Net cash provided by operating activities
33.9 82.2 74.3
Cash
flows from investing activities Capital expenditures (11.7 )
(15.6 ) (37.8 ) Proceeds from disposal of assets 0.1
0.9 0.3 Net cash used in investing
activities (11.6 ) (14.7 ) (37.5 )
Cash flows from financing activities Repayments of long-term
debt (26.3 ) (55.8 ) (399.3 ) Taxes paid related to net share
settlement of equity awards (1.7 ) (1.1 ) — Net proceeds from
issuance of common stock — — 303.0 Payments of revolving credit
facility issuance costs — — (2.2
) Net cash used in financing activities (28.0 ) (56.9
) (98.5 ) Net (decrease) increase in cash, cash
equivalents, and restricted cash (5.7 ) 10.6 (61.7 ) Cash, cash
equivalents, and restricted cash at beginning of period
177.8 167.2 217.2 Cash, cash
equivalents, and restricted cash at end of period $ 172.1 $
177.8 $ 155.5
Reconciliation of Net Income (Loss) to
Adjusted EBITDA
Three Months Ended (In millions except average active
fleets)
Mar. 31,2019
Dec. 31,2018
Mar. 31,2018
Net (loss) income $ (55.0 ) $
26.5 $ 78.7 Interest expense, net 8.2 9.4 17.4 Income tax expense
(benefit) 0.2 (0.1 ) 1.0 Depreciation and amortization 22.4 22.3
20.6 Loss (gain) on disposal of assets, net 0.3 (0.3 ) 0.5 (Gain)
loss on extinguishment of debt, net (0.5 ) (0.9 ) 9.3 Stock-based
compensation 3.0 7.0 1.6 Supply commitment charges 56.6 3.2 2.0
Impairment of assets 2.8 — — Inventory write-down 1.4
— —
Adjusted EBITDA 39.4 67.1 131.1
Average Active Fleets 20.0 19.3
27.5
Annualized Adjusted EBITDA Per Average Active Fleet $
7.9 $ 13.9 $ 19.1
Reconciliation of Long-term Debt to Net
Debt
Mar. 31, Dec. 31, Mar.
31, (In millions)
2019
2018 2018 Long-term debt $ 476.8
$ 503.2 $ 727.2 Add: unamortized discount and debt issuance costs
4.1 4.7 7.8 Total principal amount of debt
480.9 507.9 735.0 Less: cash and cash equivalents
172.1 177.8 155.5
Net debt $ 308.8 $ 330.1 $
579.5
Calculation of Adjusted Net Income and
Adjusted Earnings Per Share
Three Months Ended (In millions, except per share amounts)
Mar. 31, 2019 Net loss $
(55.0 ) Plus: supply commitment charge 56.6 Plus: impairment of
assets 2.8 Plus: inventory write-down 1.4 Adjusted
net income 5.8 Adjusted basic and diluted earnings per share
$ 0.05 Shares used in computing basic and diluted
earnings per share 109.7
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version on businesswire.com: https://www.businesswire.com/news/home/20190507006186/en/
Lance TurnerChief Financial OfficerFTS International,
Inc.817-862-2000
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