UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 20182019

OR

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from           to        

Commission file number 001-38382

(Exact name of registrant as specified in its charter)

(817) 862-2000

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d)15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes    Yes  ☒  No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes    ☒  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ☐  No  ☒.☒

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

As of July 27, 2018,26, 2019, the registrant had 109,274,564109,032,732 shares of common stock, $0.01 par value, outstanding.

FTS INTERNATIONAL, INC.

TABLE OF CONTENTS

Cautionary Statement Regarding Forward-Looking Statements

This quarterly report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements refer to our current expectations and projections relating to our financial condition, results of operations, plans, objectives, strategies, future performance and business. Forward-looking statements may be identified by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “likely,” “may,” “project,” “potential,” “seek,” “should,” “will,” “would” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operational performance or other events. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expect and, therefore, investors should not unduly rely on such statements. The risks that could cause these forward-looking statements to be inaccurate include but are not limited to:

See the “Risk Factors” included in Item 1A of our annual report on Form 10-K for a more complete discussion of the risks and uncertainties mentioned above and for  a discussion of other risks and uncertainties we face that could cause our forward-looking statements to be inaccurate. All forward-looking statements attributable to us are expressly qualified in their entirety by these cautionary statements as well as others made in this quarterly report and hereafter in our other filings with the Securities and Exchange Commission and other public communications.

We caution that the risks and uncertainties identified by us may not be all of the factors that are important to investors. Furthermore, the forward-looking statements included in this quarterly report are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as required by law.

PART 1 – FINANCIAL INFORMATION

Item 1.Condensed Consolidated Financial1.Financial Statements

FTS INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

FTS INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

FTS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

FTS INTERNATIONAL, INC.

CONSOLIDATED STATEMENTSTATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(Unaudited)

FTS INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 — BASIS OF PRESENTATION

Unless the context requires otherwise, the use of the terms “FTSI,” “Company”, “we,” “us,” “our” or “ours” in these Notes to Condensed Consolidated Financial Statements refer to FTS International, Inc., together with its consolidated subsidiaries. The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting. Accordingly, certain information and disclosures normally included in our annual consolidated financial statements have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2017.2018. In our opinion, the condensed consolidated financial statements included herein contain all adjustments of a normal, recurring nature considered necessary for a fair presentation of the interim periods. The results of operations of the interim periods are not necessarily indicative of the results of operations to be expected for the full year. There were no items of other comprehensive income in the periods presented. The Company had $9.1 million of restricted cash at January 1, 2018 and zero restricted cash at June 30, 2019 and 2018.

Initial Public OfferingReclassifications

Current liabilities related to accrued supply commitment charges have been reclassified from accounts payable to other current liabilities on the balance sheet as of December 31, 2018, and Related Events

In February 2018, the Company completed an initial public offering (“IPO”)statement of its common stock, recapitalized its convertible preferred stock into shares of common stock, and effected a reverse stock split of its common stock. See Note 4 – “Stockholders’ Equity (Deficit)”cash flows for information about our IPO and these related events.the six months ended June 30, 2018. These reclassifications had no effect on total assets, total liabilities, total equity, or net cash provided by operating activities as previously reported.

New Accounting Standards Updates

In May 2014,February 2016, the Financial Accounting Standards Board (“FASB”), issued Accounting Standards Update (“ASU”), 2014-09, Revenue from Contracts with Customers. 2016-02, Leases. The FASB has subsequently issued a number of additional ASUs to update this guidance. This guidance supersedes substantially allstandard was issued to increase transparency and comparability among organizations by requiring that a right-of-use asset and corresponding lease liability be recorded on the balance sheet for leases with terms longer than 12 months. We elected to use three practical expedients allowed under the guidance. According to these practical expedients we did not reassess whether existing accounting guidance related tocontracts are or contain a lease; we did not reassess whether existing leases are operating or finance leases; and we did not reassess the accounting for revenue transactions. This guidance establishes a core principle that an entity should record revenue when it transfers control of goods or services to customers at an amount that reflects the consideration to which it expects to be entitled in exchangeinitial direct costs for those goods or services. We adopted this standard on January 1, 2018.existing leases. Our approach to adopting this new standard included performing a review of existing leases and other executory contracts that could contain embedded leases and we identified the key contractsterms that were necessary for us to calculate the right-of-use asset and comparing historical accounting policies and practices to the new accounting guidance. The accounting for revenue under the new ASU is materially consistent with our previous revenue recognition process. lease liability. These condensed consolidated financial statements have been prepared in accordance with the new ASU utilizing the modified retrospective transition method, which did not require a cumulative effectresulted in the recording of accounting change atoperating lease liabilities of $38.7 million as of January 1, 2018. The required disclosures have been reflected in Note 5 – “Revenue.”

In February 2016, the FASB issued ASU 2016-02, Leases. This standard was issued to increase transparency and comparability among organizations by requiring that most leases be included on the balance sheet and by expanding disclosure requirements. This standard is scheduled to be effective for our financial statements beginning on January 1, 2019. We are in the process of determining the effects that the new standard will have2019 on our consolidated financial statements. Our approach includes a review of existing leases and other executory contracts that may contain embedded leases and identifying the key terms that will be necessary for us to calculate the right-of-use asset and corresponding lease liability. Based upon our expected future lease payments on existing leases that are longer than twelve months, we expect that the adoption of this standard will have a materialbalance sheet with an immaterial effect on our total assets and total liabilities; however, we have not yet completed the quantification of the amount of the change.

In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments. This standard was issued to reduce the diversity in practice in how certain cash receipts and cash payments are presented and classified in theconsolidated statement of cash flows. We adopted this standard on January 1, 2018,stockholders’ equity (deficit) and it had no related effect on our condensed consolidated statementsstatement of cash flows.operations.

NOTE 2 — JOINT VENTURE

In November 2016,April 2019, FTSI announced that it expects to sell all of its 45% equity ownership interest in SinoFTS Petroleum Services Ltd., FTSI’s joint venture in China, to Sinopec Oilfield Services Corporation, FTSI’s joint venture partner. In exchange, FTSI, via its affiliate FTS International Netherlands B.V., will receive consideration of approximately $26.9 million for the FASB issued ASU 2016-18, Restricted Cash.sale of its equity interest, and via FTS International Services, LLC, will receive a royalty fee of approximately $5.8 million for a license for its intellectual property use and for future limited support of the joint venture’s operations. This standard was issuedtransaction is subject to change the presentation of amounts generally described as restricted cashcustomary closing conditions and restricted cash equivalentsis expected to be included with cash and cash equivalents when reconcilingcompleted in the beginning-of-period and end-of-period total amounts shownthird quarter of 2019. FTSI currently estimates that it will recognize a small gain on the statementsale of our equity interest and intends to use the proceeds from this transaction to repay debt.

of cash flows. We adopted this standard on January 1, 2018, and the effects of this standard and related required disclosures have been reflected in our condensed consolidated statements of cash flows and Note 2 – “Restricted Cash.”

NOTE 2 — RESTRICTED CASH

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated statements of cash flows:

As of December 31, 2017, we had amounts included in restricted cash that represented amounts required to be set aside by contractual agreement with our casualty and general liability insurance provider and corporate credit card provider. In February 2018, these contractual agreements to set aside cash were terminated. Therefore, as of June 30, 2018, we had no restricted cash balance.

As a result of our adoption of ASU 2016-18, we recasted certain balances in our condensed consolidated statement of cash flows for the six months ended June 30, 2017. The following table reflects the recasted balances:

The amount of restricted cash at January 1, 2017, and June 30, 2017, was $9.1 million and $8.6 million, respectively.

NOTE 3 — INDEBTEDNESS AND BORROWING FACILITY

The following table summarizes our long-term debt:

Reverse Stock Split

In connection withWe had no material amount of finance leases or subleases at June  30, 2019. We had no material variable lease costs for the IPO, we amended and restated our certificate of incorporation to effect a 69.258777:1 reverse stock splitthree or six months ended June  30, 2019. The following table summarizes the components of our common stock.lease costs:

Recapitalization

Short-term lease costs represent costs related to leases with terms of Convertible Preferred Stockone year or less. We elected the practical expedient to not recognize lease assets and liabilities for these leases. The following table includes other supplemental information for our operating leases:

In connection withThe following table summarizes the IPO, a number of sharesmaturity of our convertible preferred stock (“Preferred Stock”) converted into common stock at the rateoperating leases as of 155.944841 shares of common stock per each share of Preferred Stock. All remaining shares of Preferred Stock were canceled. We refer to this conversion and the cancelation together as the recapitalization of the Preferred Stock. The conversion rate of the Preferred Stock and shares canceled were calculated so that following the recapitalization, stockholders that did not own Preferred Stock would own 7% of our common stock prior to the IPO. The recapitalization of all outstanding shares of our Preferred Stock resulted in 39.4 million shares of common stock.June  30, 2019:

NOTE 5 — REVENUESHARE REPURCHASE

Historically,In May 2019, our board of directors (our “Board”) approved an authorization for a total share repurchase of up to $100 million of the Company’s common stock to be executed through open market or private transactions. The authorization expires on May 14, 2020 and may be discontinued at any time. In the second quarter of 2019 we repurchased approximately 761,000 shares of common stock at an average price of $6.11 per share for a total of $4.6 million. At June  30, 2019,  $95.4 million of the authorized amount was available for share repurchases under this program.

The amount and timing of share repurchases are at the sole discretion of the Company, has contractedand plans for future share repurchases may be revised by the Board at any time. The share repurchase program could be affected by, among other things, changes in results of operations, capital expenditures, cash flows, and applicable tax laws.

NOTE 6 — REVENUE

The Company contracts with its customers to perform hydraulic fracturing services on one or more oil or natural gas wells. Under these arrangements, we satisfy our performance obligations as services are rendered, which is generally upon the completion of a fracturing stage. We typically complete onestage or more stages per day. A stage is considered complete when we have met the specifications set forth by the customer, at which time we have the right to invoice the customer and the customer is obligated to pay us for the services rendered. The price for our services typically includes an equipment charge and product charges for proppant, chemicals and other products actually consumed during the course of providing our services. The price for each stage of a particular well does not vary significantly. Payment terms average approximately two months from the date a stage is completed. All consideration owed to us for services performed during a period is fixed and our right to receive it is unconditional.

We have recently entered into new pricing arrangements for our services with some customers. Under these arrangements, we provide our customer with exclusive use of a fracturing fleet for a period of time and satisfy our performance obligation as services are rendered, which is based on the passage of time rather than the completion of a stage. Under these arrangements, we have the right to receive consideration from a customer even if circumstances outside of our control prevent us from performing our work. All consideration owed to us for services performed during a period is fixed and our right to receive it is unconditional.

time. Pricing for our services is frequently negotiated with our customers and is based on prevailing market rates during each reporting period. The amounts we invoice our customers for services performed during a period are directly related to the value received by the customers for the period. There is no inherent uncertainty to the amount of consideration we will receive for services performed during a

period and no judgment is required to allocate a portion of the transaction price to a future period. Accordingly, we are not required to identify any unsatisfied performance obligations nor attribute any revenue to them.

During the period ended June 30, 2018, we acted as a principal, rather than as an agent, for all of the goods and services that we provided to our customers; our customer arrangements did not include obligations for refundsWe have no material contract assets or warranties of our work; and we did not incur incremental costs to obtain or fulfill contractsliabilities with our customers.

To comply with the FASB disclosure objective, We do not present disaggregated revenue because we are requireddo not believe this information is necessary to disaggregate our revenue into categories if it will provide an enhanced understanding of how the nature, amount, timing, and uncertainty of our revenue and cash flows are affected by economic factors. To evaluate an appropriate level of disaggregation of revenue, we considered the following aspects of our business:

arrangements of $4.0 million and $6.0 million, respectively. These charges were attributable

Discontinued Wireline Operations

In May 2019, we decided to incurred and forecasted shortfalls of purchases from these suppliers. These shortfalls arediscontinue our wireline operations due to customer requirements for proppant that are different from our contracted supply.

We continuously work with our vendors to adjust our contracted amounts to match anticipated demand. In 2019, our purchase commitments are scheduled to increase to a level that is higher than our forecasted demand.underperformance. We are in discussions with certain vendors to modify our supply agreements. Whilethe process of identifying the best options for disposing of these assets. As a result of this decision we have successfully worked with our vendors to minimize charges related to these purchase commitmentsrecorded an asset impairment of $2.8 million and an inventory write-down of $1.4 million in the past, if we do not meet the minimum purchase commitments in the future and we are unable to work with our vendorsfirst quarter of 2019 to adjust our contracted amounts,these assets to their estimated fair market values and net realizable values, respectively.

Other Impairments

In the second quarter of 2019, we may incur additional supply commitment charges in future periods.

During 2015recorded $2.7 million of impairments for certain land and 2016,buildings that we vacated certain leased facilities to consolidate our operations. During the first six months of 2017, we recognized additional expense in connection with these actions.no longer use.

NOTE 8 — GAIN ON INSURANCE RECOVERIES

In January 2017, a fire destroyed certain equipment in one of our fleets. These assets were insured at values greater than their carrying values. In the first six months of 2017, we received $4.2 million of insurance recovery proceeds for these assets, which exceeded their carrying values by $2.9 million.

NOTE 9 — INCOME TAXES

In 2012, we established a full valuation allowance with respect to our U.S. federal deferred tax assets and state deferred tax assets in excess of our deferred tax liabilities. We have continued to record a valuation allowance for these net deferred tax assets since 2012. As a result, we only recorded income tax expense for the firstthree and six months ended June  30, 20182019 and 2017,2018 for states that limit or disallow the deduction of net operating loss carryforwards. Please see Note 13 – “Income Taxes” in notes to consolidated financial statements included in our consolidated financial statements for the year ended December 31, 2017, for more information regarding our income taxes and valuation allowance. Deferred tax assets related to our U.S. federal and state operating losses are still available to us to offset future taxable income, subject to limitations in the event of a change of control under Section 382 of the Internal Revenue Code. At June  30, 2018,2019, we had not incurred such an ownership change.

At each reporting date, we consider all available positive and negative evidence to evaluate whether our deferred tax assets are more likely than not to be realized. A significant piece of negative evidence that we consider is our cumulative losses (generally defined as lossesthat the Company generated a loss before income taxes) incurred in recent fiscal years.taxes for each year from 2012 to 2016. Such negative evidence limits our ability to considerweighs heavily against other more subjective positive evidence such as our projections offor future taxable income.

The Company generated income before income taxes in 2017 and in the first six months of 2018.2018 and has generated cumulative income for its most recent three year period. This represents positive evidence that we may be able to realize some or all of our deferred tax assets; however, due to the negative evidence of our cumulativeannual losses in recent years andgenerated from 2012 through 2016, the significant cyclicality of our business in recent years,  and our loss before income taxes for the first six months of 2019, we believeconcluded that the earliest period when we may adjust thea full valuation allowance is the fourth quarter of 2018.was still required at June  30, 2019.

In December 2017, the President of the United States signed into law the Tax Cuts and Jobs Act of 2017 that, among other things, changed the taxation of certain foreign earnings beginning January 2018.  We are still in the process of evaluating these new foreign tax law provisions, although we believe any effect of these provisions will be immaterial to our financial statements. 

NOTE 10—9  — EARNINGS (LOSS) PER SHARE

The numerators and denominators of the basic and diluted earnings (loss) per share (“EPS”) computations for our common stock are calculated as follows: