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 SeptemberJune 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    ☒  No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 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 OctoberJuly 26, 2018,2019, 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. The FASB subsequently issued a number of additional ASUs to update this guidance. This guidance superseded substantially all existing accounting guidance related to 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 exchange for those goods or services. We adopted this standard on January 1, 2018. Our approach to adopting this standard included performing a review of key contracts 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. These condensed consolidated financial statements have been prepared in accordance with the new ASU utilizing the modified retrospective method, which did not require a cumulative effect of accounting change at January 1, 2018. The required disclosures have been reflected in Note 5 – “Revenue.”

In February 2016, the FASB issued ASU 2016-02, Leases.Leases. The FASB subsequently issued a number of additional ASUs to update this guidance. This standard 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. This standard is scheduledWe elected to be effective for our financial statements beginning on January 1, 2019. We plan to transition to the new guidance using the modified retrospective transition method on the adoption date and we will recognize a cumulative-effect adjustment to our retained earnings for this accounting change on January 1, 2019.  We plan to electuse three practical expedients allowed under the guidance. According to these practical expedients we willdid not reassess whether existing contracts are or contain a lease; we willdid not reassess whether existing leases are operating or finance leases; and we willdid not reassess the accounting for initial direct costs for existing leases. We are in the process of determining the effects that theOur approach to adopting this new standard will have on our consolidated financial statements. Our approach includesincluded a review of existing leases and other executory contracts that maycould contain embedded leases and identifyingwe identified the key terms that will bewere necessary for us to calculate the right-of-use asset and lease liability. We  currently estimate that the adoption of this standard will increase our total assets by approximately $16 million and increase our total liabilities by approximately $17 million,These consolidated financial statements have been prepared in accordance with the difference recordednew ASU utilizing the modified retrospective transition method, which resulted in the recording of operating lease liabilities of $38.7 million as of January 1, 2019 on our consolidated balance sheet with an immaterial effect on our consolidated statement of stockholders’ equity (deficit) and no related effect on our consolidated statement of operations.

NOTE 2 — JOINT VENTURE

In April 2019, FTSI announced that it expects to retained earnings. Thesesell 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 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 transaction is subject to customary closing conditions and is expected to be completed in the third quarter of 2019. FTSI currently estimates could change beforethat it will recognize a small gain on the completionsale of our adoption ofequity interest and intends to use the proceeds from this new guidance.transaction to repay debt.

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 the statement of cash flows. We adopted this standard on January 1, 2018, and it had no effect on our condensed consolidated statements of cash flows.

In November 2016, the FASB issued ASU 2016-18, Restricted Cash. This standard was issued to change the presentation of amounts generally described as restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement 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 September 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 nine months ended September 30, 2017. The following table reflects the recasted balances:

The amount of restricted cash at January 1, 2017, and September 30, 2017, was $9.1 million and $8.7 million, respectively.

NOTE 3 — INDEBTEDNESS AND BORROWING FACILITY

The following table summarizes our long-term debt:

We had no material amount of finance leases or subleases at June  30, 2019. We had no material variable lease costs for the three or six months ended June  30, 2019. The following table summarizes the components of our lease costs:

Short-term lease costs represent costs related to leases with terms of one 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:

The following table summarizes the maturity of our operating leases as of June  30, 2019:

NOTE 45 — STOCKHOLDERS’ EQUITY (DEFICIT)SHARE REPURCHASE

Initial Public OfferingIn May 2019, our board of Common Stock

We completeddirectors (our “Board”) approved an IPOauthorization for a total share repurchase of 22.4up 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 aan average price to the public of $18.00$6.11 per share for a total of which 18.1$4.6 million. At June  30, 2019,  $95.4 million shares were sold byof 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, and 4.3 million shares were sold by one of our stockholders, a subsidiary of Chesapeake Energy Corporation. The shares began trading on The New York Stock Exchange on February 2, 2018, under the ticker symbol “FTSI.” The Company received net proceeds from the offering of $303.0 million, after offering costs. We used the net proceeds from the offeringplans for general corporate purposes, primarily debt repayments. The Company did not receive any proceeds from the offering of sharesfuture share repurchases may be revised by the selling stockholder.

Reverse Stock Split

In connection with the IPO, we amendedBoard at any time. The share repurchase program could be affected by, among other things, changes in results of operations, capital expenditures, cash flows, and restated our certificate of incorporation to effect a 69.258777:1 reverse stock split of our common stock.

Recapitalization of Convertible Preferred Stock

In connection with the IPO, a number of shares of our convertible preferred stock (“Preferred Stock”) converted into common stock at the rate 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.

applicable tax laws.

NOTE 56 — REVENUE

Historically, theThe Company has contractedcontracts 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 entered into alternative pricing arrangements for our services with some customers in recent periods. 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 September 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

Discontinued Wireline Operations

In May 2019, we have successfully worked withdecided to discontinue our vendorswireline operations due to minimize charges related to these purchase commitmentsunderperformance. We are in the past, ifprocess of identifying the best options for disposing of these assets. As a result of this decision we do not meet the minimum purchase commitmentsrecorded an asset impairment of $2.8 million and an inventory write-down of $1.4 million in the future and we are unablefirst quarter of 2019 to adjust or avoid 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 nine 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 nine 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 first ninethree and six months ended SeptemberJune  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 SeptemberJune  30, 2018,2019, we had not incurred such an ownership change.