FTS International, Inc. (NYSE American: FTSI) today reported its
financial and operational results for the third quarter of 2021.
These results follow the preliminary third quarter 2021 financial
and operational results that FTSI announced on October 22,
2021.
Michael Doss, Chief Executive Officer, commented, “While we are
experiencing positive momentum in the fourth quarter in both
pricing and activity, we had lower fleet utilization and fewer
pumping hours per day than expected in the third quarter. This was
primarily caused by customer-driven issues, including several
unusually long and unplanned scheduling gaps, as well as excess
third-party non-productive time related to wellhead and wireline
complications. These disruptions resulted in an estimated $7.6
million negative impact to EBITDA.
“However, these setbacks were one-off in nature and our fourth
quarter work calendar is full. Our utilization in October was
considerably higher than the third quarter average. We were fully
utilized and pumped approximately 16 hours per pumping day in
October, versus 10.8 fully-utilized fleets with 15.2 hours per
pumping day on average in the third quarter. We also continue to
obtain higher pricing as customers acknowledge that labor
shortages, logistical challenges, and inflation in material costs
are eroding service providers’ margins. Third quarter pricing was
approximately 8% higher than it was in the second quarter, and we
expect another increase of 5% or more in the fourth quarter.
“I‘m encouraged by our current operational run-rate. We’ve also
received indications that many of our fleets will continue working
through the holidays with less scheduled downtime due to budget
exhaustion than in past years. Lastly, I’m pleased to report that
the construction of our newbuild Tier 4 DGB fleet is on track. We
plan to deploy this fleet in early 2022 on a dedicated basis to a
long-standing customer.”
Financial Results
Results for the three months and nine months ended September 30,
2020, provided for comparison purposes, are presented separately as
“Predecessor” periods because they occurred prior to our emergence
from bankruptcy on November 19, 2020. “Successor” periods refer to
those beginning on or after November 20, 2020.
Third Quarter 2021 Compared to Second Quarter 2021
- Revenue was $90.9 million, down from $99.8 million
- Net loss was $10.0 million, compared to a net loss of $2.6
million
- Adjusted EBITDA was $6.3 million, compared to $13.8
million
- Cash provided by operations was $0.2 million, compared to $20.0
million
- Capital expenditures were $13.0 million, up from $7.5
million
Third Quarter 2021 (Successor) Compared to Third Quarter 2020
(Predecessor)
- Revenue was $90.9 million, up from $32.1 million
- Net loss was $10.0 million, compared to a net loss of $68.7
million
- Adjusted EBITDA was $6.3 million, compared to $(7.6)
million
- Cash provided by (used in) operations was $0.2 million,
compared to $(37.7) million
- Capital expenditures were $13.0 million, up from $2.5
million
Operational Results
Three Months Ended Nine Months Ended Successor
Successor Predecessor Successor
Predecessor Sep. 30, Jun. 30, Sep. 30,
Sep. 30, Sep. 30,
2021
2021
2020
2021
2020
Average active fleets
13.0
13.0
7.3
13.0
9.4
Utilization %
83%
91%
77%
88%
78%
Fully-utilized fleets
10.8
11.8
5.6
11.5
7.3
Stages completed
6,459
7,569
3,243
21,095
11,599
Stages per fully-utilized fleet
598
641
579
1,834
1,589
Pumping hours
12,864
15,548
6,458
43,188
24,141
Pumping hours per fully-utilized fleet
1,191
1,318
1,153
3,756
3,307
Pumping days
846
922
433
2,689
1,706
Pumping hours per pumping day
15.2
16.9
14.9
16.1
14.2
Materials and freight costs as a percent of total revenue
11%
11%
5%
14%
23%
We exited the third quarter with 13 active fleets and remain at
that number today. We also revised our total fleet capacity in the
third quarter to 25 fleets, or 1.3 million hydraulic horsepower,
down from 28 fleets, or 1.4 million hydraulic horsepower, due to
the retiring of certain units.
Utilization declined to 83% in the third quarter from 91% in the
second quarter due to multiple last-minute customer scheduling
changes and wellhead issues. Three of our fleets experienced
unusually large scheduling gaps of more than 30 days, which we did
not have in the second quarter. We estimate that we lost
approximately 100 pumping days as a result of these
disruptions.
Stages per fully-utilized fleet declined 7% sequentially to 598
in the third quarter from 641 in the second quarter. Our fleets
pumped an average of 15.2 hours per pumping day in the third
quarter, compared to 16.9 hours in the second quarter. Third-party
non-productive time (NPT) in the third quarter was double the
amount in the second quarter causing our pumping hours per day to
decline, primarily due to repeated wellhead and wireline
complications. These disruptions were the primary drivers of the
decline in our operational efficiencies and throughput during the
third quarter. The unusually large gaps along with higher NPT
negatively impacted third quarter adjusted EBITDA by approximately
$7.6 million.
Our customers provided approximately the same amount of
materials for their completions as in the second quarter. As a
percentage of revenue, material and freight costs remained
unchanged at 11% in the third quarter. Changes in the amount of
materials provided by us affects revenue but has no material impact
on gross profit.
Liquidity and Capital Resources
Capital expenditures for the third quarter totaled $13.0
million, of which approximately $9 million was for maintenance and
approximately $4 million was for growth related to our Tier 4 DGB
newbuild fleet. We remain on track to incur maintenance capital
expenditures of $2.5 million per fleet for 2021, or $30 to $35
million for the year, and expect to incur growth capital
expenditures of approximately $10 million for the year.
As of September 30, 2021, we had $87.9 million of cash and $32.2
million of availability under our revolving credit facility, or
total liquidity of $120.1 million. We had no borrowings under our
revolving credit facility during the third quarter, which has a
total capacity of $40 million.
Agreement to be Acquired by ProFrac
On October 22, 2021, we announced that we have entered into a
definitive agreement to be acquired by ProFrac Holdings, LLC
(“ProFrac”), a leading oilfield services company, in an all-cash
transaction that values us at approximately $407.5 million,
including payments to outstanding warrants.
Under the terms of the agreement, which have been unanimously
approved by our Board of Directors (the “Board”), FTSI stockholders
will receive $26.52 per share in cash. This represents an
approximately 14% premium over our 60-day volume-weighted average
closing share price through October 21, 2021.
The transaction will create one of the largest completions
focused service companies in the U.S. oil and gas industry. The
combination will bring together two strong and respected industry
players to deliver greater efficiencies and expanded equipment
capabilities that will enable the combined company to succeed in an
ever-changing industry. Together, the companies will have improved
through-cycle resiliency via enhanced expertise, technology and
scale.
The agreement includes a 45-day “go-shop” period expiring
December 5, 2021. This allows the Board and its advisors to solicit
alternative acquisition proposals from third parties. The Board
will have the right to terminate the merger agreement with ProFrac
to enter into a superior proposal, subject to the terms and
conditions of the merger agreement. There can be no assurance that
this “go-shop” will result in a superior proposal, and we do not
intend to disclose developments with respect to the solicitation
process unless and until it determines such disclosure is
appropriate or otherwise required.
Please see the transaction press release from October 22, 2021,
available at www.ftsi.com/news/ for additional important
information.
Conference Call & Webcast
FTSI will not hold a conference call or webcast to discuss its
third quarter results due to its previously announced agreement to
be acquired by ProFrac.
About FTS International, Inc.
Headquartered in Fort Worth, Texas, FTS International is a
pure-play hydraulic fracturing service company with operations
across multiple basins in the United States.
To learn more, visit www.FTSI.com.
Important Information For Investors And Stockholders
This communication does not constitute an offer to buy or sell
or the solicitation of an offer to buy or sell any securities or a
solicitation of any vote or approval. This communication relates to
a proposed transaction between FTSI and ProFrac Holdings, LLC
(“Acquiror”). In connection with this proposed transaction, FTSI
may file one or more proxy statements or other documents with the
Securities and Exchange Commission (the “SEC”). This communication
is not a substitute for any proxy statement or other document FTSI
may file with the SEC in connection with the proposed transaction.
INVESTORS AND SECURITY HOLDERS OF FTSI ARE URGED TO READ THE PROXY
STATEMENT AND OTHER DOCUMENTS THAT MAY BE FILED WITH THE SEC
CAREFULLY AND IN THEIR ENTIRETY IF AND WHEN THEY BECOME AVAILABLE
BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. Any definitive
proxy statement(s) (if and when available) will be mailed to
stockholders of FTSI as applicable. Investors and security holders
will be able to obtain free copies of these documents (if and when
available) and other documents filed with the SEC by FTSI through
the website maintained by the SEC at http://www.sec.gov. Copies of
the documents filed with the SEC by FTSI will be available free of
charge on FTSI’s internet website at
https://www.ftsi.com/investor-relations/sec-filings/default.aspx or
by contacting FTSI’s primary investor relation’s contact by email
at investors@ftsi.com or by phone at 817-862-2000.
Participants in Solicitation
FTSI, Acquiror, their respective directors and certain of their
respective executive officers may be considered participants in the
solicitation of proxies in connection with the proposed
transaction. Information about the directors and executive officers
of FTSI is set forth in its Annual Report on Form 10-K for the
fiscal year ended December 31, 2020, which was filed with the SEC
on March 5, 2021, its Amendment No. 1 to its Annual Report on Form
10-K for the fiscal year ended December 31, 2020, which was filed
with the SEC on April 30, 2021, certain of its Quarterly Reports on
Form 10-Q and certain of its Current Reports filed on Form 8-K.
These documents can be obtained free of charge from the sources
indicated above. Additional information regarding the participants
in the proxy solicitations and a description of their direct and
indirect interests, by security holdings or otherwise, will be
contained in the proxy statement and other relevant materials to be
filed with the SEC when they become available.
Forward-Looking Statements
This communication contains “forward-looking statements” within
the Private Securities Litigation Reform Act of 1995. Any
statements contained in this communication that are not statements
of historical fact may be deemed to be forward-looking statements.
All such forward-looking statements are intended to provide
management’s current expectations for the future of FTSI based on
current expectations and assumptions relating to FTSI’s business,
the economy and other future conditions. Forward-looking statements
generally can be identified through the use of words such as
“believes,” “anticipates,” “may,” “should,” “will,” “plans,”
“projects,” “expects,” “expectations,” “estimates,” “forecasts,”
“predicts,” “targets,” “prospects,” “strategy,” “signs,” and other
words of similar meaning in connection with the discussion of
future performance, plans, actions or events. Because
forward-looking statements relate to the future, they are subject
to inherent risks, uncertainties and changes in circumstances that
are difficult to predict. Such risks and uncertainties include,
among others: the failure to obtain the required vote of FTSI’s
stockholders, the timing to consummate the proposed transaction,
the risk that a condition of closing of the proposed transaction
may not be satisfied or that the closing of the proposed
transaction might otherwise not occur, the risk that a regulatory
approval that may be required for the proposed transaction is not
obtained or is obtained subject to conditions that are not
anticipated, the diversion of management time on
transaction-related issues, risks related to disruption of
management time from ongoing business operations due to the
proposed transaction, the risk that any announcements relating to
the proposed transaction could have adverse effects on the market
price of the common stock of FTSI, the risk that the proposed
transaction and its announcement could have an adverse effect on
the ability of FTSI to retain customers and retain and hire key
personnel and maintain relationships with its suppliers and
customers, economic or political changes that affect the markets
that FTSI’s businesses serve which could have an effect on demand
for FTSI’s products and impact FTSI’s profitability, disruptions in
the credit and financial markets, including diminished liquidity
and credit availability, disruptions in the Company's businesses
from the coronavirus pandemic (COVID-19), cyber-security
vulnerabilities, supply issues, retention of key employees, and
outcomes of legal proceedings, claims and investigations, future
changes, results of operations, domestic spending by the onshore
oil and natural gas industry, continued volatility or future
volatility in oil and natural gas prices, deterioration in general
economic conditions or a continued weakening or future weakening of
the broader energy industry, federal, state and local regulation of
hydraulic fracturing and other oilfield service activities, as well
as exploration and production activities, including public pressure
on governmental bodies and regulatory agencies to regulate our
industry, and the price and availability of alternative fuels,
equipment and energy sources. Accordingly, actual results may
differ materially from those contemplated by these forward-looking
statements. Investors, therefore, are cautioned against relying on
any of these forward-looking statements. They are neither
statements of historical fact nor guarantees or assurances of
future performance. Additional information regarding the factors
that may cause actual results to differ materially from these
forward-looking statements is available in FTSI’s filings with the
Securities and Exchange Commission, including the risks and
uncertainties identified in Part I, Item 1A - Risk Factors of
FTSI’s Annual Report on Form 10-K for the year ended December 31,
2020.
These forward-looking statements speak only as of the date of
this communication, and FTSI does not assume any obligation to
update or revise any forward-looking statement made in this
communication or that may from time to time be made by or on behalf
of the Company.
Non-GAAP Financial Measures
To provide investors with additional information regarding our
financial results, we have disclosed here and elsewhere in this
earnings release adjusted EBITDA, a non-GAAP financial measure that
we calculate as earnings before net interest expense, taxes, and
depreciation and amortization further adjusted for expenses that
management believes are non-recurring, and/or non-core to business
operations and other non-cash expenses, including but not limited
to employee severance costs, stock-based compensation, balance
sheet impairments and write-downs, gains or losses on
extinguishment of debt, gains or losses on disposal of assets,
supply commitment charges, restructuring items, transaction and
strategic initiative costs.
Adjusted EBITDA is a key measure used by our management and
board of directors to evaluate our operating performance and
generate future operating plans. The exclusion of certain expenses
facilitates operating performance comparability across reporting
periods by removing the effect of non-cash expenses and certain
variable charges. Accordingly, we believe that adjusted EBITDA
provides useful information to investors and others in
understanding and evaluating our operating results in the same
manner as our management and board of directors.
Adjusted EBITDA has limitations as a financial measure and you
should not consider it in isolation or as a substitute for analysis
of our results as reported under GAAP. Some of these limitations
are:
- adjusted EBITDA does not reflect net interest expense or
changes in, or cash requirements for, working capital;
- adjusted EBITDA does not reflect tax expense or benefits;
- although depreciation and amortization are non-cash charges,
the assets being depreciated and amortized may have to be replaced
in the future and adjusted EBITDA does not reflect capital
expenditure requirements for such replacements or for new capital
expenditures;
- adjusted EBITDA does not reflect gains or losses arising from
the disposal of assets;
- adjusted EBITDA does not reflect stock-based compensation
expenses. Stock-based compensation has been, and will continue to
be for the foreseeable future, a recurring expense in our business
and an important part of our compensation strategy;
- adjusted EBITDA does not reflect restructuring items or
transaction and strategic initiative costs;
- other companies, including companies in our industry, may
calculate adjusted EBITDA differently, which reduces its usefulness
as a comparative measure.
Because of these limitations, you should consider adjusted
EBITDA alongside other financial performance measures, including
net loss and our other GAAP results.
The table included under “Reconciliation of Net (Loss) Income to
Adjusted EBITDA and Calculation of Annualized Adjusted EBITDA per
Fully-utilized Fleet” provides a reconciliation of net (loss)
income to adjusted EBITDA for each of the periods indicated.
Consolidated Statements of Operations
(unaudited)
Three Months Ended Nine Months Ended
Successor Successor Predecessor
Successor Predecessor Sep. 30, Jun. 30,
Sep. 30, Sep. 30, Sep. 30, (Dollars in
millions, except per share amounts; shares in thousands)
2021
2021
2020
2021
2020
Revenue Revenue $
90.9
$
99.8
$
32.1
$
286.6
$
212.4
Revenue from related parties
-
-
-
-
0.7
Total revenue
90.9
99.8
32.1
286.6
213.1
Operating expenses Costs of revenue, excluding
depreciation and amortization
73.6
75.2
30.7
227.3
174.2
Selling, general and administrative
11.7
12.5
11.8
34.7
42.7
Depreciation and amortization
13.1
14.3
17.8
41.3
59.4
Impairments and other charges
0.5
0.2
19.4
1.0
34.0
Loss on disposal of assets, net
1.6
-
-
1.6
0.1
Total operating expenses
100.5
102.2
79.7
305.9
310.4
Operating loss
(9.6)
(2.4)
(47.6)
(19.3)
(97.3)
Interest expense, net
-
(0.1)
(7.4)
(0.2)
(22.1)
Gain on extinguishment of debt, net
-
-
-
-
2.0
Reorganization items
(0.3)
-
(13.7)
(0.8)
(13.7)
Loss before income taxes
(9.9)
(2.5)
(68.7)
(20.3)
(131.1)
Income tax expense
0.1
0.1
-
0.2
-
Net loss $
(10.0)
$
(2.6)
$
(68.7)
$
(20.5)
$
(131.1)
Basic and diluted loss per share $
(0.71)
$
(0.19)
$
(12.77)
$
(1.46)
$
(24.39)
Shares used in computing basic and diluted earnings loss per
share
14,062
13,995
5,381
14,016
5,376
Consolidated Balance Sheets
(unaudited)
Sep. 3 Dec. 3 (Dollars in millions)
2021
2020
ASSETS Current assets Cash and cash
equivalents
$
87.9
$
94.0
Accounts receivable, net
55.0
26.9
Inventories
36.4
29.0
Prepaid expenses and other current assets
4.9
19.5
Total current assets
184.2
169.4
Property, plant, and equipment, net
129.2
132.3
Operating lease right-of-use assets
3.0
4.5
Intangible assets, net
7.0
7.4
Other assets
1.5
1.4
Total assets
$
324.9
$
315.0
LIABILITIES AND STOCKHOLDERS' EQUITY Current
liabilities Accounts payable
$
57.0
$
26.9
Accrued expenses
13.8
12.5
Current portion of operating lease liabilities
1.8
3.0
Other current liabilities
0.3
0.3
Total current liabilities
72.9
42.7
Operating lease liabilities
1.9
3.3
Other liabilities
2.0
2.4
Total liabilities
76.8
48.4
Stockholders' equity
248.1
266.6
Total liabilities and stockholders' equity
$
324.9
$
315.0
Consolidated Statement of Cash Flows
(unaudited)
Three Months Ended Nine Months Ended Successor
Successor Predecessor Successor
Predecessor Sep. 30, Jun. 30, Sep. 30,
Sep. 30 Sep. 30, (Dollars in millions)
2021
2021
2020
2021
2020
Cash flows from operating activities Net loss
$
(10.0)
$
(2.6)
$
(68.7)
$
(20.5)
$
(131.1)
Adjustments to reconcile net loss to net cash provided by operating
activities: Depreciation and amortization
13.1
14.3
17.8
41.3
59.4
Stock-based compensation
0.7
1.7
2.8
3.3
9.4
Amortization of debt discounts and issuance costs
-
-
1.1
-
2.0
Loss on disposal of assets, net
1.6
-
-
1.6
0.1
Gain on extinguishment of debt, net
-
-
-
-
(2.0)
Inventory write-down
-
-
0.6
-
5.1
Non-cash reorganization items
-
-
12.3
-
12.3
Non-cash provision for supply commitment charges
-
-
-
-
9.1
Cash paid to settle supply commitment charges
-
-
-
-
(18.8)
Other non-cash items
0.1
(0.1)
0.1
0.1
0.9
Changes in operating assets and liabilities: Accounts receivable
(8.3)
9.8
(7.9)
(28.2)
47.5
Inventories
(1.9)
(2.8)
3.8
(7.4)
4.8
Prepaid expenses and other assets
(0.6)
(0.3)
(5.2)
0.6
(4.3)
Accounts payable
5.6
(2.9)
0.4
13.4
(20.9)
Accrued expenses and other liabilities
(0.1)
2.9
5.2
1.0
(4.3)
Net cash provided by (used in) operating activities
0.2
20.0
(37.7)
5.2
(30.8)
Cash flows from investing activities Capital
expenditures
(13.0)
(7.5)
(2.5)
(25.8)
(19.3)
Proceeds from disposal of assets
3.1
-
-
3.1
0.1
Net cash used in investing activities
(9.9)
(7.5)
(2.5)
(22.7)
(19.2)
Cash flows from financing activities Repayments of
long-term debt
-
-
-
-
(20.6)
Taxes paid related to net share settlement of equity awards
(1.3)
-
-
(1.3)
(0.1)
Net cash used in financing activities
(1.3)
-
-
(1.3)
(20.7)
Net (decrease) increase in cash, cash equivalents, and
restricted cash
(11.0)
12.5
(40.2)
(18.8)
(70.7)
Cash, cash equivalents, and restricted cash at beginning of period
98.9
86.4
192.5
106.7
223.0
Cash and cash equivalents at end of period
$
87.9
$
98.9
$
152.3
$
87.9
$
152.3
Reconciliation of Net Loss to Adjusted
EBITDA and Calculation of Annualized Adjusted EBITDA per
Fully-utilized Fleet
Three Months Ended Nine Months Ended
Successor Successor Predecessor
Sucessor Predecessor Sep. 30, Jun. 30,
Sep. 30, Sep. 30, Sep. 30, (Dollars in
millions, except fleets)
2021
2021
2020
2021
2020
Net loss
$
(10.0)
$
(2.6)
$
(68.7)
$
(20.5)
$
(131.1)
Interest expense, net
-
0.1
7.4
0.2
22.1
Income tax expense
0.1
0.1
-
0.2
-
Depreciation and amortization
13.1
14.3
17.8
41.3
59.4
Loss on disposal of assets, net
1.6
-
-
1.6
0.1
Gain on extinguishment of debt, net
-
-
-
-
(2.0)
Stock-based compensation
0.7
1.7
2.8
3.3
9.4
Supply commitment charges
-
-
-
-
9.1
Inventory write-down
-
-
0.6
-
5.1
Employee severance costs
-
-
-
-
1.0
Transaction and strategic initiative costs
0.5
0.2
18.5
1.3
18.5
Reorganization items
0.3
-
13.7
0.8
13.7
Loss (gain) on contract termination
-
-
0.3
(0.3)
0.3
Adjusted EBITDA
$
6.3
$
13.8
$
(7.6)
$
27.9
$
5.6
Average active fleets
13.0
13.0
7.3
13.0
9.4
Utilization %
83%
91%
77%
88%
78%
Fully-utilized fleets
10.8
11.8
5.6
11.5
7.3
Annualized Adjusted EBITDA
$
25.2
$
55.2
$
(30.4)
$
37.2
$
7.5
Fully-utilized fleets
10.8
11.8
5.6
11.5
7.3
Annualized adjusted EBITDA per fully-utilized fleet
$
2.3
$
4.7
$
(5.4)
$
3.2
$
1.0
Note: Fully-utilized fleets are calculated by multiplying
average active fleets by the utilization percent. Utilization
percent is calculated by dividing total pumping days for the
quarter by the product of 78 (which is equivalent to 26 pumping
days per month) and average active fleets.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20211104006200/en/
Lance Turner Chief Financial Officer 817-862-2000
Investors@FTSI.com
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