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, 2019~~March 31, 2020

☐ 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

FTS INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)


Delaware		30-0780081
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

777 Main Street, Suite 2900, Fort Worth, Texas (Address of principal executive offices)		76102 (Zip Code)

(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) 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 (§ 232.405 of this chapter) 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, a 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.


Large Accelerated Filer ☐		Accelerated Filer ☐☒
Non-accelerated Filer ☒☐		Smaller Reporting Company ☒
		Emerging Growth Company ☐

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:

Title of each class
Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $0.01 per share	FTSI	New York Stock Exchange

As of ~~July 26, 2019,~~April 24, 2020, the registrant had ~~109,032,732~~107,575,751 shares of common stock, $0.01 par value, outstanding.

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FTS INTERNATIONAL, INC.

TABLE OF CONTENTS


		Page
	Cautionary Statement Regarding Forward-Looking Statements	3

PART I -	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	4
	Consolidated Statements of Operations	4
	Consolidated Balance Sheets	5
	Consolidated Statements of Cash Flows	6
	Consolidated Statements of Stockholders’ Equity ~~(Deficit)~~	7
	Notes to Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1514
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2120
Item 4.	Controls and Procedures	2120

PART II -	OTHER INFORMATION
Item 1.	Legal Proceedings	2220
Item 1A.	Risk Factors	22
~~Item 2.~~	~~Unregistered Sales of Equity Securities and Use of Proceeds~~	22
~~Item 3.~~	~~Defaults Upon Senior Securities~~	22
~~Item 4.~~	~~Mine Safety Disclosures~~	23
~~Item 5.~~	~~Other Information~~	2321
Item 6.	Exhibits	23
	Signatures	24

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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:

a decline in domestic spending by the onshore oil and natural gas industry;

volatility in oil and natural gas prices;

the effect of a loss of, financial distress of, or decline in activity levels of, one or more significant customers;

actions of the Organization of the Petroleum Exporting Countries, or OPEC, its members and other state-controlled oil companies relating to oil price and production controls;

our inability to employ a sufficient number of key employees, technical personnel and other skilled or qualified workers;

the price and availability of alternative fuels and energy sources;

the discovery rates of new oil and natural gas reserves;

the availability of water resources, suitable proppant and chemicals in sufficient quantities and pricing for use in hydraulic fracturing fluids;

uncertainty in capital and commodities markets and the ability of oil and natural gas producers to raise equity capital and debt financing;

our ability to manage the maturities of our term loan and senior notes;

ongoing and potential securities litigation and other litigation and legal proceedings, including arbitration proceedings;

the ability to successfully manage the economic and operational challenges associated with a disease outbreak, including epidemics, pandemics, or similar widespread public health concerns, including the COVID-19 pandemic;

the ultimate duration and impact of geopolitical events that adversely affect the price of oil, including the Saudi-Russia price war; and

a deterioration in general economic conditions or a weakening of the broader energy industry.

See the “Risk Factors” included in Part II, Item 1A of this quarterly report and 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.

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PART 1 – FINANCIAL INFORMATION

Item 1.Financial Statements

FTS INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended				Six Months Ended				Three Months Ended
	June 30,				June 30,				March 31,
(In millions, except per share amounts)	2019		2018		2019		2018		2020		2019
Revenue
Revenue	$	225.8	$	454.6	$	447.4	$	877.9	$	150.8	$	221.6
Revenue from related parties		—		38.7		0.9		82.9		0.7		0.9
Total revenue		225.8		493.3		448.3		960.8		151.5		222.5

Operating expenses
Costs of revenue (excluding depreciation of $20.7, $18.5, $41.1 and $36.9 respectively, included in depreciation and amortization below)		165.9		329.4		329.0		641.6
Costs of revenue (excluding depreciation of $20.5 and $20.4 respectively, included in depreciation and amortization below)										115.2		163.1
Selling, general and administrative		21.7		20.8		45.3		46.6		17.7		23.6
Depreciation and amortization		22.8		20.7		45.2		41.3		21.4		22.4
Impairments and other charges		2.8		4.0		63.6		6.0		3.7		60.8
(Gain) loss on disposal of assets, net		(1.2)		(0.2)		(0.9)		0.3		(0.1)		0.3
Total operating expenses		212.0		374.7		482.2		735.8		157.9		270.2

Operating income (loss)		13.8		118.6		(33.9)		225.0
Operating loss										(6.4)		(47.7)

Interest expense, net		(7.7)		(12.1)		(15.9)		(29.5)		(7.3)		(8.2)
(Loss) gain on extinguishment of debt, net		(0.1)		(0.8)		0.4		(10.1)
Equity in net income (loss) of joint venture affiliate		—		(1.2)		0.6		(1.2)
Gain on extinguishment of debt, net										2.0		0.5
Equity in net income of joint venture affiliate										—		0.6

Income (loss) before income taxes		6.0		104.5		(48.8)		184.2
Loss before income taxes										(11.7)		(54.8)
Income tax expense		0.1		0.9		0.3		1.9		—		0.2

Net income (loss)	$	5.9	$	103.6	$	(49.1)	$	182.3
Net loss									$	(11.7)	$	(55.0)

Net income (loss) attributable to common stockholders	$	5.9	$	103.6	$	(49.1)	$	605.5

Basic and diluted earnings per share attributable to common stockholders	$	0.05	$	0.95	$	(0.45)	$	6.12
Shares used in computing basic and diluted earnings per share		109.7		109.3		109.7		98.9
Basic and diluted loss per share									$	(0.11)	$	(0.50)
Shares used in computing basic and diluted loss per share										107.3		109.7

The accompanying notes are an integral part of these consolidated financial statements.

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FTS INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)


	June 30,		December 31,		March 31,		December 31,
(In millions, except share amounts)	2019		2018		2020		2019
ASSETS
Current assets
Cash and cash equivalents	$	162.1	$	177.8	$	199.2	$	223.0
Accounts receivable, net		141.6		158.3		78.6		77.0
Accounts receivable from related parties, net						0.6		—
Inventories		59.5		66.6		43.6		45.5
Prepaid expenses and other current assets		14.3		7.0		15.0		7.0
Total current assets		377.5		409.7		337.0		352.5

Property, plant, and equipment, net		251.4		275.3		223.1		227.0
Operating lease right-of-use assets		34.8		—		22.5		26.3
Intangible assets, net		29.5		29.5		29.5		29.5
Investment in joint venture affiliate		24.2		23.2
Other assets		5.1		6.0		3.9		4.0
Total assets	$	722.5	$	743.7	$	616.0	$	639.3

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	73.3	$	86.8	$	53.6	$	36.4
Accrued expenses		25.8		29.3		25.2		22.9
Current portion of operating lease liabilities		16.6		—		13.8		14.3
Other current liabilities		12.1		16.3		14.6		11.6
Total current liabilities		127.8		132.4		107.2		85.2

Long-term debt		472.2		503.2		434.7		456.9
Operating lease liabilities		20.5		—		10.5		13.9
Other liabilities		44.0		1.2		34.6		45.6
Total liabilities		664.5		636.8		587.0		601.6

Commitments and contingencies (Note 10)

Stockholders’ equity
Preferred stock, $0.01 par value, 25,000,000 shares authorized		—		—		—		—
Common stock, $0.01 par value, 320,000,000 shares authorized, 109,092,732 shares issued and outstanding at June 30, 2019 and 109,434,841 shares issued and outstanding at December 31, 2018		36.4		36.4
Common stock, $0.01 par value, 320,000,000 shares authorized, 107,498,360 shares issued and outstanding at March 31, 2020 and 107,107,401 shares issued and outstanding at December 31, 2019						36.4		36.4
Additional paid-in capital		4,378.5		4,378.4		4,385.0		4,382.0
Accumulated deficit		(4,356.9)		(4,307.9)		(4,392.4)		(4,380.7)
Total stockholders’ equity		58.0		106.9		29.0		37.7
Total liabilities and stockholders’ equity	$	722.5	$	743.7	$	616.0	$	639.3

The accompanying notes are an integral part of these consolidated financial statements.

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FTS INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six Months Ended				Three Months Ended
	June 30,				March 31,
(In millions)	2019		2018		2020		2019
Cash flows from operating activities
Net income (loss)	$	(49.1)	$	182.3
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Net loss					$	(11.7)	$	(55.0)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		45.2		41.3		21.4		22.4
Stock-based compensation		6.7		5.0		3.1		3.0
Amortization of debt discounts and issuance costs		0.9		1.5		0.4		0.5
Impairment of assets		5.5		—
(Gain) loss on disposal of assets, net		(0.9)		0.3		(0.1)		0.3
(Gain) loss on extinguishment of debt, net		(0.4)		10.1
Inventory write down		1.4		—
Gain on extinguishment of debt, net						(2.0)		(0.5)
Non-cash provision for supply commitment charges		56.7		6.0		3.2		56.6
Cash paid to settle supply commitment charges		(15.9)		(2.0)		(11.2)		—
Impairment of assets						—		2.8
Inventory write-down						—		1.4
Other non-cash items		—		1.1		1.0		(0.8)
Changes in operating assets and liabilities:
Accounts receivable		16.8		(54.8)		(2.4)		7.7
Accounts receivable from related parties		—		(19.4)		(0.7)		—
Inventories		5.6		(17.3)		1.8		(1.7)
Prepaid expenses and other assets		(8.6)		(0.8)		(8.1)		0.3
Accounts payable		(12.3)		21.0		16.2		(11.3)
Accrued expenses and other liabilities		(4.3)		(0.8)		2.3		8.2
Net cash provided by operating activities		47.3		173.5		13.2		33.9

Cash flows from investing activities
Capital expenditures		(26.5)		(66.3)		(16.4)		(11.7)
Proceeds from disposal of assets		1.3		0.6		0.1		0.1
Net cash used in investing activities		(25.2)		(65.7)		(16.3)		(11.6)

Cash flows from financing activities
Repayments of long-term debt		(31.3)		(499.3)		(20.6)		(26.3)
Repurchase of common stock		(4.6)		—
Taxes paid related to net share settlement of equity awards		(1.9)		—		(0.1)		(1.7)
Net proceeds from issuance of common stock		—		303.0
Payments of revolving credit facility issuance costs		—		(2.4)
Net cash used in financing activities		(37.8)		(198.7)		(20.7)		(28.0)

Net decrease in cash, cash equivalents, and restricted cash		(15.7)		(90.9)
Cash, cash equivalents, and restricted cash at beginning of period		177.8		217.2
Net decrease in cash and cash equivalents						(23.8)		(5.7)
Cash and cash equivalents at beginning of period						223.0		177.8
Cash and cash equivalents at end of period	$	162.1	$	126.3	$	199.2	$	172.1

Supplemental cash flow information:
Interest paid	$	16.0	$	24.3	$	1.4	$	2.3
Income tax payments	$	1.4	$	0.8	$	—	$	—
Noncash investing and financing activities:
Capital expenditures included in accounts payable	$	2.9	$	3.6	$	2.0	$	4.1
Operating lease liabilities incurred from obtaining right-of-use assets	$	10.5	$	—

The accompanying notes are an integral part of these consolidated financial statements.

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FTS INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY ~~(DEFICIT)~~

(Unaudited)



													Additional				Total
										Common Stock			Paid-in		Accumulated		Stockholders’
(Dollars in millions and shares in thousands)										Shares	Amount		Capital		Deficit		Equity

Balance at January 1, 2020										107,107	$	36.4	$	4,382.0	$	(4,380.7)	$	37.7

Net loss										—		—		—		(11.7)		(11.7)
Activity related to stock plans										391		—		3.0		—		3.0
Balance at March 31, 2020										107,498	$	36.4	$	4,385.0	$	(4,392.4)	$	29.0


				Additional				Total					Additional				Total
	Common Stock			Paid-in		Accumulated		Stockholders’		Common Stock			Paid-in		Accumulated		Stockholders’
(Dollars in millions and shares in thousands)	Shares	Amount		Capital		Deficit		Equity		Shares	Amount		Capital		Deficit		Equity

Balance at January 1, 2019	109,435	$	36.4	$	4,378.4	$	(4,307.9)	$	106.9	109,435	$	36.4	$	4,378.4	$	(4,307.9)	$	106.9

Net loss	—		—		—		(55.0)		(55.0)	—		—		—		(55.0)		(55.0)
Cumulative effect of accounting change	—		—		—		0.1		0.1	—		—		—		0.1		0.1
Activity related to stock plans	364		—		1.3		—		1.3	364		—		1.3		—		1.3
Balance at March 31, 2019	109,799	$	36.4	$	4,379.7	$	(4,362.8)	$	53.3	109,799	$	36.4	$	4,379.7	$	(4,362.8)	$	53.3

Net income	—		—		—		5.9		5.9
Repurchase of common stock	(761)		—		(4.6)		—		(4.6)
Activity related to stock plans	55		—		3.4		—		3.4
Balance at June 30, 2019	109,093	$	36.4	$	4,378.5	$	(4,356.9)	$	58.0


				Additional				Total
	Common Stock			Paid-in		Accumulated		Stockholders’
(Dollars in millions and shares in thousands)	Shares	Amount		Capital		Deficit		Equity (Deficit)

Balance at January 1, 2018	51,783	$	35.9	$	3,712.1	$	(4,566.3)	$	(818.3)

Net income	—		—		—		78.7		78.7
Activity related to stock plans	—		—		1.6		—		1.6
Recapitalization of convertible preferred stock to common stock	39,415		0.4		349.4		—		349.8
Issuance of common stock	18,077		0.1		302.9		—		303.0
Balance at March 31, 2018	109,275	$	36.4	$	4,366.0	$	(4,487.6)	$	(85.2)

Net income	—		—		—		103.6		103.6
Activity related to stock plans	—		—		3.4		—		3.4
Balance at June 30, 2018	109,275	$	36.4	$	4,369.4	$	(4,384.0)	$	21.8

The accompanying notes are an integral part of these consolidated financial statements.

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FTS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 — BASIS OF PRESENTATION

Unless the context requires otherwise, the use of the terms “FTSI,” ~~“Company”,~~“Company,” “we,” “us,” “our” or “ours” in these Notes to Consolidated Financial Statements refer to FTS International, Inc., together with its consolidated subsidiaries. The unaudited 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 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, ~~2018.~~2019. In our opinion, the 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~~

Fair Value of ~~restricted~~Financial Instruments

Money market funds, classified as cash and cash equivalents, are the only financial instruments that are measured and recorded at ~~January 1, 2018 and zero restricted cash at June 30, 2019 and 2018.~~

~~Reclassifications~~

~~Current liabilities related to accrued supply commitment charges have been reclassified from accounts payable to other current liabilities~~fair value on the Company’s balance ~~sheet as of December 31, 2018, and~~sheets. The following table presents money market funds at their level within the statement of cash flows for 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.fair value hierarchy.


(In millions)	Total		Level 1		Level 2		Level 3
March 31, 2020
Money market funds	$	144.4	$	144.4	$	—	$	—

December 31, 2019
Money market funds	$	193.6	$	193.6	$	—	$	—

New Accounting Standards Updates

In ~~February~~June 2016, the FASB issued ASU 2016-13, Financial ~~Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases. The FASB subsequently issued a number~~Instruments – Credit Losses: Measurement of ~~additional ASUs to update this guidance.~~Credit Losses on Financial Instruments. This standard ~~was issued~~requires companies to ~~increase transparency~~measure credit losses utilizing a methodology that reflects expected credit losses and ~~comparability among organizations by requiring that~~requires a ~~right-of-use asset~~consideration of a broader range of reasonable and ~~corresponding lease liability be recorded on the balance sheet for leases with terms longer than 12 months. We elected~~supportable information to use three practical expedients allowed under the guidance. According to these practical expedients we did not reassess whether existing contracts 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 initial direct costs for existing leases. Our approach to adopting thisinform credit loss estimates. The new standard ~~included a review of existing leases and other executory contracts that could contain embedded leases and we identified the key terms that were necessary for us~~also applies to ~~calculate the right-of-use asset and lease liability.~~ ~~These consolidated~~ financial ~~statements have been prepared in accordance with the new ASU utilizing the modified retrospective transition method, which resulted in the recording of operating lease liabilities of $38.7 million~~assets arising from revenue transactions such as ofaccounts receivables. We adopted this standard on January 1, ~~2019 on our consolidated balance sheet with an immaterial~~2020, and it had no material effect on our consolidated ~~statement of stockholders’ equity (deficit) and no related effect on our consolidated statement of operations.~~financial statements.

NOTE 2 — ~~JOINT VENTURE~~CURRENT ECONOMIC ENVIRONMENT

~~In April 2019, FTSI announced that it expects to sell all of its 45% equity ownership interest~~Our business activities are concentrated 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 supportwell completion services segment of the ~~joint venture’s operations. This transaction~~oilfield services industry in the United States. The market for these services is ~~subject~~cyclical, and we depend on the willingness of our customers to ~~customary closing~~make expenditures to explore for, develop, and produce oil and natural gas in the United States. The willingness of our customers to undertake these activities depends largely upon prevailing industry conditions and is predominantly influenced by current and expected future prices for oil and natural gas. Our customer base is also concentrated. Our business, financial condition and results of operations can be materially adversely affected if one or more of our significant customers ceases to ~~be completed~~engage us for our services on favorable terms, or at all, or fails to pay, or delays in paying, us significant amounts of our outstanding receivables.

Low oil prices since March 2020 because of the COVID-19 pandemic and the Saudi-Russia price war have caused our customers to substantially reduce their hydraulic fracturing activities and the prices they are willing to pay for our services. While our first quarter results reflect some reduction of this activity at the end of the quarter, we currently expect to only average three to four active fleets in the ~~third quarter of 2019. FTSI currently estimates that it will recognize a small gain on the sale of our equity interest and intends to use the proceeds from this transaction to repay debt.~~

second quarter. We have limited visibility for future work as

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many of our customers have partially or fully suspended their well completion activities. As a result, we expect a substantial decline in revenue and profitability for the remainder of 2020.

In response to this market environment, we are focused on reducing the number of active fleets we offer into the market, as well as managing our fixed costs to reduce the amount of cash needed to support our business during this time of low activity and low pricing levels. Our actions have included reducing labor costs through reductions in force, wage reductions, and furloughs. We are also negotiating with all our vendors to significantly reduce our non-labor costs. We are working to ensure the Company is well positioned to supply the industry with the hydraulic fracturing services that are an integral part of U.S. oil production.

We believe that our cash and cash equivalents, any cash provided by operations, and the availability under our revolving credit facility will be sufficient to fund our operations, capital expenditures, contractual obligations, and debt maturities for at least the next 12 months. We continually assess alternatives to our capital structure and evaluate strategic capital initiatives which may include, but are not limited to, equity and debt financings and the modification of existing debt, including the amount of debt outstanding, the types of debt issued and the maturity dates of the debt. These alternatives, if implemented, could materially affect our capitalization, debt ratios and cash balances.

NOTE 3 — INDEBTEDNESS AND BORROWING FACILITY

The following table summarizes our long-term debt:


	June 30,		December 31,		March 31,		December 31,
(In millions)	2019		2018		2020		2019
Term loan due April 2021 ("Term Loan")	$	101.0	$	121.0	$	67.4	$	90.0
Senior notes due May 2022 ("2022 Senior Notes")		374.9		386.9		369.9		369.9
Total principal amount		475.9		507.9		437.3		459.9
Less unamortized discount and debt issuance costs		(3.7)		(4.7)		(2.6)		(3.0)
Total long-term debt	$	472.2	$	503.2	$	434.7	$	456.9
Estimated fair value of long-term debt	$	450.4	$	461.2	$	184.7	$	317.2

Estimated fair values for our Term Loan and 2022 Senior Notes were determined using recent trading activity and/or bid-ask spreads and are classified as Level 2 in the FASB’s fair value hierarchy. We believe we were in compliance with all of the covenants in our debt agreements at ~~June 30, 2019.~~March 31, 2020.

Debt Repayments

In the first ~~six months~~quarter of ~~2019,~~2020, we repaid ~~$20.0~~$22.6 million of aggregate principal amount of Term Loan using cash on hand. We recognized a ~~loss on this debt extinguishment of $0.1 million.~~

~~In the first six months of 2019, we repurchased $12.0 million of aggregate principal amount of 2022 Senior Notes in the qualified institutional buyer market using cash on hand. We recognized a~~ gain on this debt extinguishment of ~~$0.5~~$2.0 million.

Revolving Credit Facility

The maximum availability of credit under our revolving credit facility is limited at any time to the lesser of $250 million or a borrowing base. The borrowing base is based on percentages of eligible accounts receivable and eligible inventory and is subject to certain reserves. In an event of default or if the amount available under the credit facility is less than either 10% of our maximum availability or $12.5 million, we will be required to maintain a minimum fixed charge coverage ratio of 1.0 to 1.0. If at any time borrowings and letters of credit issued under the credit facility exceed the borrowing base, we will be required to repay an amount equal to such excess.

As of ~~June 30, 2019,~~March 31, 2020, the borrowing base was ~~$115.4~~$60.6 million and therefore our maximum availability under the credit facility was ~~$115.4~~$60.6 million. As of ~~June 30, 2019,~~March 31, 2020, there were no borrowings outstanding under the credit facility, and letters of credit totaling ~~$3.0~~$4.3 million were issued, resulting in ~~$112.4~~$56.3 million of availability under the credit facility.

We believe we were in compliance with all of the covenants in the credit facility at ~~June 30, 2019.~~March 31, 2020.

~~NOTE 4 — LEASES~~

We lease certain administrative offices, sales offices, and operational facilities. We also lease some service equipment and light duty vehicles. These leases have remaining lease terms of 6 years or less. Some leases contain options to extend the leases, and some include options to terminate the leases. We do not include renewal or termination options in our assessment of the lease terms unless extension or termination for certain assets is deemed to be reasonably certain. The accounting for some of our leases requires significant judgment, which includes determining whether a contract contains a lease, determining the incremental borrowing rates, if necessary, to utilize in the calculation of our lease liabilities, and assessing the likelihood of renewal or termination options. We also have some lease agreements with lease and non-lease components, which are generally accounted for as a single lease component.

We provide residual value guarantees for our leases of light-duty vehicles and certain service equipment. No amounts related to these residual value guarantees have been deemed probable and included in the lease liability; however, if the value for all of the vehicles was zero at the end of the lease term, we would be required to pay $16.3 million for leases outstanding at June 30, 2019.

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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:

Three Months Ended

Six Months Ended

June 30,

June 30,
(In millions)

2019

2019
Operating lease cost

$
5.8

$
12.0
Short-term lease cost

1.4

2.7
Total lease cost

$
7.2

$
14.7

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:

Six Months Ended

June 30,
(Dollars in millions)

2019
Cash paid for amounts included in the measurement of our lease obligations

$
12.2
Right-of-use assets obtained in exchange for lease obligations

$
10.5
Right-of-use assets recognized upon adoption of the leasing standard

$
37.8
Weighted-average remaining lease term

2.6 years
Weighted-average discount rate

4.9%

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

(In millions)

Remainder of 2019

$
9.5
2020

15.6
2021

10.9
2022

1.2
2023

1.2
2024 and thereafter

1.0
Total lease payments

39.4
Less imputed interest

(2.3)
Total lease liabilities

$
37.1

NOTE 54 — SHARE REPURCHASE

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. InFor the ~~second~~first quarter of ~~2019~~2020 we repurchased ~~approximately 761,000~~zero shares of common ~~stock at an average price of $6.11 per share for a total of $4.6 million.~~stock. At ~~June 30, 2019, $95.4~~March 31, 2020, $90.1 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, and 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 65 — 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 or the passage of 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

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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. We have no material contract assets or liabilities with our customers. We do not present disaggregated revenue because we do not believe this information is necessary to understand the nature, amount, timing and uncertainty of our revenues and cash flows.

NOTE 76 — IMPAIRMENTS AND OTHER CHARGES

The following table summarizes our impairments and other charges:


	Three Months Ended				Six Months Ended				Three Months Ended
	June 30,				June 30,				March 31,
(In millions)	2019		2018		2019		2018		2020		2019
Supply commitment charges	$	0.1	$	4.0	$	56.7	$	6.0	$	3.2	$	56.6
Employee severance costs										0.5		—
Impairment of assets		2.7		—		5.5		—		—		2.8
Inventory write-down		—		—		1.4		—		—		1.4
Total impairments and other charges	$	2.8	$	4.0	$	63.6	$	6.0	$	3.7	$	60.8

Supply Commitment Charges

We incur supply commitment charges when our purchases of sand from certain suppliers are less than the minimum purchase commitments in our supply contracts. According to the accounting guidance for firm purchase commitments, future losses that are considered likely are also required to be recorded in the current period.

During the first ~~six months~~quarter of ~~2019~~2020 and ~~2018,~~2019, we recorded aggregate charges under these supply contracts of ~~$56.7~~$3.2 million and ~~$6.0~~$56.6 million, respectively. These charges relate to actual purchase shortfalls incurred, as well as forecasted losses expected to be incurred and settled in future periods. ~~These~~Historically, these purchase shortfalls ~~are~~have been largely due to our customers choosing to procure their own sand, often from sand mines closer to their operating areas. The supply commitment charge in the first quarter of 2020 was also due to the significant reduction in customer activity expected in the second quarter of 2020 as a result of the decline in oil and gas commodity prices.

In May 2019, we restructured and amended our largest sand supply contract to reduce the total remaining commitment through 2024 by approximately $162 million. This reduced our annual commitment from $47.9 million to $21.0 million from 2019 through 2024. The reduced annual commitments of $21.0 million represent the annual payments we would make under the contract if we do not purchase any sand from this vendor. Due to the terms of the amended agreement and our estimated future purchases under this contract, we determined that we would not be able to satisfy $11.0 million of the $21.0 million annual commitment with sand purchases for the last five years of the contract. Therefore, inIn connection with this amendment, we recorded a supply commitment charge of $55.0 million in the first quarter of 2019 to ~~accelerate these~~record losses on certain expected purchase shortfalls. ~~After recording~~Please refer to Note 9, “Impairments and Other Charges” in our annual report on Form 10-K for the ~~$55.0 million supply commitment charge in the first quarter of 2019, the amount of accrued supply commitment charges for future periods that was recognized on our consolidated balance sheet at March~~year ended December 31, 2019, ~~was $66.0 million. We paid $11.0 million of~~for more information regarding this ~~amount in the second quarter of 2019~~amended and ~~we expect to pay the remaining $55.0 million in annual installments of $11.0 million from January 2020 through January 2024. These payments may be accelerated under limited circumstances.~~restated supply contract. The remaining amount of the 2019 charges represent revised estimates of our purchase shortfalls under this contract for 2019.

Table of sand per year, which we believe better matches our current and forecasted sand needs. If we purchase more than 1.0 million tons of sand in a year, then we could recover a portion of the supply commitment charge.Contents

We entered into this contract in 2013 in connection with selling our sand mines, which was at a time when our then current and expected needs for sand were significantly higher than they are today. As our sand needs have declined over the years due to industry cycles or due to our customers choosing to procure their own sand, we and our supplier have continuously worked together to accommodate changing market conditions by amending the contract.

Estimated losses related to these supply contracts contain uncertainties, such as future customer demand and sand preferences. These uncertainties require us to use judgment to quantify these estimates. Actual results could materially differ from our estimates. For example, we could see additional charges in 2020 if current activity levels extend well into the second half of 2020 and we are unable to utilize the sand under these supply contracts.

Employee Severance Costs

~~Table~~In the first quarter of ~~Contents~~

2020, we incurred employee severance costs of $0.5 million in connection with our cost reduction measures to mitigate losses from the decline in customer activity levels due to the low commodity price environment. At March 31, 2020, we had a remaining liability for future severance payments of $0.5 million.

Discontinued Wireline Operations

In May 2019, we ~~decided to discontinue~~discontinued our wireline operations due to ~~underperformance. We are in the process of identifying the best options for disposing of these assets.~~financial underperformance resulting from market conditions. As a result of this decision, we recorded an asset impairment of $2.8 million and an inventory write-down of $1.4 million in the first quarter of 2019 to adjust these assets to their estimated fair market values and net realizable values, respectively. We sold substantially all of these assets in 2019 and received net proceeds of approximately $3.7 million.

~~Other~~Risk of Future Impairments

InAs previously discussed, we have experienced a substantial downturn in our business due to the ~~second~~COVID-19 pandemic and Saudi-Russia price war. We concluded that this downturn was a triggering event to test our long-lived assets and indefinite-lived tradename for impairment. After testing these assets for impairment, we concluded that no impairments were required at March 31, 2020. These tests rely on two key inputs: the estimated severity and length of the current industry downturn and the magnitude of an industry recovery. If current industry conditions continue for a prolonged period or if our estimates of these key inputs are revised unfavorably in a future quarter, we will likely incur impairments of ~~2019, we recorded $2.7 million of impairments for certain land and buildings that we no longer use.~~long-lived assets or our tradename in a future period.

NOTE 87 — 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~~recorded a full valuation allowance for these net deferred tax assets for each year since 2012. As a result, we only ~~recorded~~record income tax expense ~~for the three and six months ended June 30, 2019 and 2018~~ for states that limit the deduction of net operating loss ~~carryforwards.~~carryforwards and for foreign income taxes. Deferred tax assets related to our U.S. federal and state tax net 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, 2019,~~March 31, 2020, 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 ~~that the Company generated a loss~~whether we have incurred cumulative losses (generally defined as losses before income ~~taxes for each year from 2012 to 2016.~~taxes) in recent years. Such negative evidence weighs heavily against other more subjective positive evidence such as our projections for future taxable income.

~~The Company generated~~ We noted that for the three years ended December 31, 2019, we recorded cumulative income before income taxes ~~in 2017 and 2018 and has generated~~of $391.2 million. Notwithstanding the three-year 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 annual losses generated 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 concluded that a full valuation allowance was still required at ~~June 30, 2019.~~

March 31, 2020, because of the significant fluctuations of our business in recent years, and our losses before income taxes for the year ended December 31, 2019, and the for three months ended March 31, 2020.

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NOTE 98 — EARNINGS PER SHARE

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

Three Months Ended

Six Months Ended

June 30,

June 30,
(In millions, except per share amounts)

2019

2018

2019

2018
Numerator:

Net income (loss)

$
5.9

$
103.6

$
(49.1)

$
182.3
Net reversal of convertible preferred stock
accretion due to recapitalization of convertible
preferred stock to common stock (1)

—

—

—

423.2
Net income (loss) attributable to common
stockholders used for basic and diluted EPS computation

$
5.9

$
103.6

$
(49.1)

$
605.5

Denominator:

Weighted average shares used for
basic EPS computation

109.7

109.3

109.7

98.9
Dilutive potential common shares (2)

—

—

—

—
Number of shares used for diluted EPS computation

109.7

109.3

109.7

98.9
Basic and diluted EPS

$
0.05

$
0.95

$
(0.45)

$
6.12

~~_________________________~~

~~(1)~~

The accreted value of our convertible preferred stock was $1,132.7 million at December 31, 2017. In connection with the Company’s initial public offering (“IPO”) in 2018, the convertible preferred stock was recapitalized into 39.4 million shares of common stock. These shares of common stock had a value of $709.5 million at the IPO share price of $18.00, which resulted in a net reversal of $423.2 million of convertible preferred stock accretion previously recognized.

~~(2)~~

~~The dilutive effect of employee restricted stock units was immaterial for the first quarter of 2018.~~


	Three Months Ended
	March 31,
(In millions, except per share amounts)	2020		2019
Numerator:
Net loss used for basic and diluted EPS computations	$	(11.7)	$	(55.0)

Denominator:
Weighted average shares used for basic EPS computation		107.3		109.7
Dilutive potential of employee restricted stock units		—		—
Number of shares used for diluted EPS computation		107.3		109.7
Basic and diluted EPS	$	(0.11)	$	(0.50)

The following table includes common stock equivalents that were not included in the calculation of diluted EPS for the periods presented because the effect would be antidilutive. These securities could be dilutive in future periods.


	Three Months Ended				Six Months Ended				Three Months Ended
	June 30,				June 30,				March 31,
(In millions)	2019		2018		2019		2018		2020		2019

Employee restricted stock units		2.1		—		2.1		—		3.0		1.9

NOTE 109 — COMMITMENTS AND CONTINGENCIES

Purchase Obligations

We have purchase commitments with certain vendors to supply a significant portion of the proppant used in our operations. These agreements have remaining terms ranging from one to ~~six~~five years. Some of these agreements have minimum unconditional purchase obligations. See Note 76 – “Impairments and Other Charges” for more discussion of these purchase commitments.

Litigation

In the ordinary course of business, we are subject to various legal proceedings and claims, some of which may not be covered by insurance. Many of these legal proceedings and claims are in early stages, and many of them seek an indeterminate amount of damages. We estimate and provide for potential losses that may arise out of legal proceedings and claims to the extent that such losses are probable and can be reasonably estimated. Significant judgment is required in making these estimates and our final liabilities may ultimately be materially different from these estimates. When preparing our estimates, we consider, among other factors, the progress of each legal proceeding and claim, our

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experience and the experience of others in similar legal proceedings and claims, and the opinions and views of legal counsel. Legal costs related to litigation contingencies are expensed as incurred.

With respect to the litigation matters below, if there is an adverse outcome individually or collectively, there could be a material adverse effect on the Company’s consolidated financial position or results of operations. These litigation matters are subject to inherent uncertainties and management’s view of these matters may change in the future. Therefore, there can be no assurance as to the ultimate outcome of these matters. Regardless of the outcome, any such litigation and claims can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors.

Patterson v. FTS International Manufacturing, LLC and FTS International Services, LLC: On June 24, 2015, Joshua Patterson filed a lawsuit against the Company in the 115th Judicial District Court of Upshur County, Texas, alleging,

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among other things, that the Company was negligent with respect to an automobile accident in 2013. Mr. Patterson sought monetary relief of more than $1 million. On July 19, 2018, a jury returned a verdict of approximately $100 million, including punitive damages, against the Company. The trial court reduced the judgment on November 12, 2018 to approximately $33 million. The Company’s insurance carriers have been defending the suit and are appealing the final judgment. The ~~Company’s appellate brief was filed with the Tyler~~Twelfth Court of Appeals heard oral arguments on ~~June 28, 2019.~~the Company’s appeal on February 13, 2020. While the outcome of this case is uncertain, the Company has met its insurance deductible for this matter and we do not expect the ultimate resolution of this case to have a material adverse effect on our consolidated financial statements.

Securities Act Litigation: On February 22, 2019, Carol Glock filed a purported securities class action in the 160th Civil District Court of Dallas County, Texas (Cause No. DC-19-02668) against the Company, certain of our officers, directors and stockholders, and certain of the underwriters of our ~~IPO.~~initial public offering of common stock (“IPO”). The petition is brought on behalf of an alleged class of persons or entities who purchased our common stock in or allegedly traceable to our IPO, and purports to allege claims arising under Sections 11 and 15 of the Securities Act of 1933, as amended. The petition generally alleges that the defendants violated federal securities laws relating to the disclosure in the registration statement and prospectus filed with the Securities and Exchange Commission in connection with our IPO. The petition seeks, among other relief, class certification, damages in an amount in excess of $1.0 million, and reasonable costs and expenses, including attorneys’ fees. The Company has insurance coverage on this matter and has hired counsel to vigorously defend the ~~case. Defendants~~case, but several of the Company’s co-defendants have ~~filed~~tendered requests for indemnification that are not covered by the Company’s insurance. The Company has agreed to indemnify the IPO underwriter co-defendants. The Company is otherwise analyzing these indemnification requests. Defendants’ Special Exceptions to the petition ~~and have requested~~requesting dismissal if the defects cannot be ~~cured.~~cured were overruled on November 22, 2019, but Defendants are appealing this ruling through a Petition for Writ of Mandamus which was filed on February 12, 2020. Mediation is presently scheduled to start April 29, 2020. While the outcome of this case is uncertain, we do not expect the ultimate resolution of this case to have a material adverse effect on our consolidated financial statements.

We believe that costs associated with other legal matters will not have a material adverse effect on our consolidated financial statements.

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Unless the context requires otherwise, the use of the terms “FTSI,” ~~“Company”,~~“Company,” “we,” “us,” “our” or “ours” refer to FTS International, Inc., together with its consolidated subsidiaries. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes that appear elsewhere in this quarterly report on Form 10-Q as well as information in our annual report on Form 10-K for the year ended December 31, ~~2018.~~2019. Unless otherwise specified, all comparisons made are to the corresponding period of ~~2018.~~2019.

Overview

We are an independent hydraulic fracturing service company and one of the ~~largest~~only vertically integrated service providers of ~~hydraulic fracturing services~~its kind in North America. Our services stimulate hydrocarbon flow from oil and natural gas wells drilled by ~~exploration and production (“~~E~~&P”) companies primarily in shale resource formations.~~&P companies. We ~~have 1.7~~had 1.4 million total hydraulic horsepower across 3428 fleets, with 217 fleets active as of ~~June 30, 2019.~~March 31, 2020. We operate in five major basins in the United States: the Permian Basin, the SCOOP/STACK Formation, the Marcellus/Utica Shale, the Eagle Ford Shale and the Haynesville Shale.

Summary Financial Results

Total revenue for the ~~second~~first quarter ~~and first six months~~ of ~~2019~~2020 was ~~$225.8 million and $448.3~~$151.5 million, which represented a decrease of ~~$267.5~~$71.0 million ~~and $512.5 million, respectively,~~ from the same ~~periods~~period in ~~2018.~~2019.

Net ~~income for the second quarter was $5.9 million and net~~ loss for the first ~~six months~~quarter of ~~2019~~2020 was ~~$49.1~~$11.7 million, which represented ~~a decrease~~an improvement of ~~$97.7~~$43.3 million ~~and $231.4 million, respectively,~~ from the same ~~periods~~period in ~~2018.~~2019. The first quarter of 2019 included a supply commitment charge of $56.6 million.

Adjusted EBITDA for the ~~second~~first quarter ~~and first six months~~ of ~~2019~~2020 was ~~$41.9 million and $81.3~~$21.7 million, which represented a decrease of ~~$103.4~~$17.7 million ~~and $195.1 million, respectively,~~ from the same ~~periods~~period in ~~2018.~~2019.

Total principal amount of long-term debt was ~~$475.9~~$437.3 million at ~~June 30, 2019,~~March 31, 2020, which represented a decrease of ~~$32.0~~$22.6 million from December 31, ~~2018.~~2019.

Industry trends and business outlook

Our business depends on the willingness of E&P companies to make expenditures to explore for, develop, and produce oil and natural gas in the United States. The willingness of E&P companies to undertake these activities depends largely upon prevailing industry conditions and is predominantly influenced by current and expected future prices for oil and natural gas. A widely watched indicator of E&P companies’ aggregate activity levels is the drilling rig count, or rig count. The active horizontal rig count is a subset of the total rig count and is the most strongly correlated with the aggregate industry demand for hydraulic fracturing services.

The average horizontal rig count was approximately ~~890~~700 for the first ~~six months~~quarter of ~~2019,~~2020, compared to an average of approximately ~~870~~920 for the first ~~six months~~quarter of ~~2018,~~2019, according to a report by Baker ~~Hughes, a GE company.~~ Hughes. However, the rig count and our customer activity began decreasing significantly in March 2020 as E&P companies began reacting to the significantly lower price of oil due to the COVID-19 pandemic and Saudi-Russia price war. The rig count at the end of March 2020 was approximately 650. The rig count dropped to 426 on April 24, 2020. The decrease in rig count has substantially lowered the demand for our hydraulic fracturing equipment and we have limited visibility for future demand as many of our customers have partially or fully suspended their well completion activities. While our first quarter results reflect some reduction of customer activity at the end of the quarter, we currently expect to only average three to four active fleets in the second quarter.

The prices that we are able to charge for our services is affected by the supply of hydraulic fracturing equipment that is available in the market to meet customer demand. Since the middle of 2018, the supply of hydraulic fracturing equipment has exceeded the demand for equipment, and as a result, the pricing for our services declined induring this period. The convergence of the ~~second half of 2018~~COVID-19 pandemic and ~~declined further in~~the Saudi-Russia price war during the first ~~half of 2019. If the oversupply of equipment remains active in the market, pricing could decline further.~~

In response to this competitive market environment, we remain disciplined with respect to our number of active fleets and we remain focused on optimizing our utilization and profitability. We reduced our active fleet count from 28 fleets in the second quarter of ~~2018 to 21 fleets in~~2020 further reduced the ~~second quarter of 2019 because certain fleets did not meet our utilization~~demand and ~~profitability targets. Subsequent to June 30, 2019, we reduced our active fleet count to 20. The current average~~ pricing for ~~hydraulic fracturing~~our services, ~~remains below our profitability targets. Therefore, we remain focused~~which are approaching breakeven levels on ~~deploying additional fleets only for select opportunities in 2019.~~a cash basis across the industry.

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In ~~2019,~~response to this market environment, we ~~expect~~are focused on reducing the number of active fleets we offer into the market, as well as managing our ~~customers~~fixed costs to ~~remain disciplined~~reduce the amount of cash needed to support our business during this time of low activity and low pricing levels. Our actions have included reducing labor costs through reductions in force, wage reductions, and furloughs. We are also negotiating with ~~respect~~all our vendors to ~~their capital spending and therefore~~significantly reduce our non-labor costs.

We are working to ensure the Company is well positioned to supply the industry with the hydraulic fracturing services that are an integral part of U.S. oil production. We believe we ~~will continue~~have sufficient liquidity to manage ~~our active capacity~~through this environment for at least the next 12 months, as well as fund the investment to best match demand from our customers and maximize our profitability and cash flow. Based on conversations with our customers, we currently expect a decrease in demand for our services in the second half of 2019. With this expected decrease in demand and the continuing oversupply of equipment in the market, we currently expect to reducegrow our active fleet count ~~by two or three additional fleets in the third quarter of 2019. Despite the challenging market environment, we expect to continue to generate cash and repay debt in the second half of 2019.~~as activity levels recover.

Results of Operations

Revenue

~~Total revenue consists of revenue from hydraulic fracturing and wireline services.~~ The following table includes certain operating statistics that affect our revenue:


	Three Months Ended				Six Months Ended				Three Months Ended
	June 30,				June 30,				March 31,
(Dollars in millions)	2019		2018		2019		2018		2020		2019
Revenue	$	225.8	$	454.6	$	447.4	$	877.9	$	150.8	$	221.6
Revenue from related parties		—		38.7		0.9		82.9		0.7		0.9
Total revenue	$	225.8	$	493.3	$	448.3	$	960.8	$	151.5	$	222.5

Total fracturing stages		7,230		9,356		13,970		17,508		6,888		6,740
Active fleets (1)		21.0		28.0		20.5		27.8		16.0		20.0
Total fleets (2)		34.0		32.0		34.0		32.0		28.0		34.0

_____________________________

(1)

Active fleets is the average number of fleets operating during the period. We had 217 and 2621 active fleets at ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively.

(2)

Total fleets is the total number of fleets owned at the end of the period. In the fourth quarter of 2019, we decided to dispose of certain idle equipment that reduced our fleets owned to 28 total fleets.

Total revenue infor the ~~second~~first quarter ~~and first six months~~ of ~~2019~~2020 decreased by ~~$267.5~~$71.0 million ~~and $512.5 million, respectively,~~ from the same ~~periods~~period in ~~2018.~~2019. This decrease was due toa lower number of average active fleets, lower average pricing of our services, a ~~lower number of average active fleets,~~decrease in the prices for materials used in the fracturing process, and an increase in the portion of customers who provided their own proppant and ~~fuel, and a decrease in the prices for materials used in the fracturing process.~~fuel.

The number of fracturing stages completed per average active fleet for the ~~second~~first quarter ~~and first six months~~ of ~~2019~~2020 increased by ~~3.0% and 8.2%, respectively,~~27.7% from the same ~~periods~~period in ~~2018.~~2019.

Costs of revenue

The following table summarizes our costs of revenue:


	Three Months Ended June 30,
	2019				2018
			As a Percent				As a Percent
(Dollars in millions)	Dollars		of Revenue		Dollars		of Revenue
Costs of revenue, excluding depreciation and amortization	$	165.9	73.4	%	$	329.4	66.7	%
Depreciation — costs of revenue		20.7	9.2	%		18.5	3.8	%
Total costs of revenue	$	186.6	82.6	%	$	347.9	70.5	%

	Six Months Ended June 30,								Three Months Ended March 31,
	2019				2018				2020				2019
			As a Percent				As a Percent				As a Percent				As a Percent
(Dollars in millions)	Dollars		of Revenue		Dollars		of Revenue		Dollars		of Revenue		Dollars		of Revenue
Costs of revenue, excluding depreciation	$	329.0	73.4	%	$	641.6	66.8	%	$	115.2	76.1	%	$	163.1	73.3	%
Depreciation — costs of revenue		41.1	9.2	%		36.9	3.8	%		20.5	13.5	%		20.4	9.2	%
Total costs of revenue	$	370.1	82.6	%	$	678.5	70.6	%	$	135.7	89.6	%	$	183.5	82.5	%

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Total costs of revenue for the ~~second~~first quarter ~~and first six months~~ of ~~2019~~2020 decreased by ~~$161.3~~$47.8 million ~~and $308.4 million, respectively,~~ from the same ~~periods~~period in ~~2018.~~2019. This decrease was primarily due to the decrease in our costs of revenue, excluding depreciation.

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Costs of revenue, excluding depreciation, for the ~~second~~first quarter ~~and first six months~~ of ~~2019~~2020 decreased by ~~$163.5~~$47.9 million ~~and $312.6 million, respectively,~~ from the same ~~periods~~period in ~~2018. This~~2019. The decrease for the first quarter of 2020 was ~~primarily~~ due to ~~changes in our activity levels as illustrated by our fracturing stages completed and our~~a lower number of average active fleets ~~during these periods. Additionally,~~in the first quarter of 2020 compared to the same period in 2019, a decrease in the ~~second quarter~~prices for materials used in the fracturing process, and ~~first six months was partly due to~~ an increase in the portion of customers who provided their own proppant and ~~fuel, and a decrease in the costs for materials used in the fracturing process.~~fuel.

Depreciation for our service equipment infor the ~~second~~first quarter ~~and first six months~~ of ~~2019 increased by $2.2 million and $4.2 million, respectively, from~~2020 was essentially flat with the same ~~periods~~period in ~~2018. This increase was primarily due to increased maintenance capital expenditures in recent periods.~~2019.

Total costs of revenue as a percentage of total revenue for the ~~second~~first quarter increased by ~~12.1~~7.1 percentage points from ~~70.5%~~82.5% in ~~2018~~2019 to ~~82.6%~~89.6% in ~~2019. Total costs of revenue as a percentage of total revenue for the first six months of 2019 increased by 12.0 percentage points from 70.6% in 2018 to 82.6% in 2019.~~2020. This increase was primarily due to a decrease in pricing for our services in ~~2019.~~2020.

Selling, general and administrative expense

Selling, general and administrative ~~(“SG&A”)~~ expense for the ~~second~~first quarter ~~and the first six months~~ of ~~2019 was $21.7~~2020 decreased by $5.9 million ~~and $45.3 million, respectively, which were relatively flat with~~from the same ~~periods~~period in ~~2018.~~ 2019. This decrease was primarily due to a decrease in compensation expense and certain facilities costs.

Depreciation and amortization

The following table summarizes our depreciation and amortization:


	Three Months Ended				Six Months Ended				Three Months Ended
	June 30,				June 30,				March 31,
(In millions)	2019		2018		2019		2018		2020		2019
Costs of revenue (1)	$	20.7	$	18.5	$	41.1	$	36.9	$	20.5	$	20.4
Other (2)		2.1		2.2		4.1		4.4		0.9		2.0
Total depreciation and amortization	$	22.8	$	20.7	$	45.2	$	41.3	$	21.4	$	22.4

_________________________

(1)

Related to service equipment ~~included in “Property, plant, and equipment, net” on our consolidated balance sheets~~ discussed under the “Costs of revenue” heading of this discussion and analysis.

(2)

Related to all long-lived assets other than service ~~equipment included in “Property, plant, and equipment, net” on our consolidated balance sheets.~~equipment.

Depreciation and amortization infor the ~~second~~first quarter ~~and first six months~~ of ~~2019 increased~~2020 decreased by ~~$2.1~~$1.0 million ~~and $3.9 million, respectively,~~ from the same ~~periods~~period in ~~2018. This increase~~2019, which was due to ~~an increase in depreciation for our~~certain assets, other than service equipment, ~~which has been previously discussed under “Costs of revenue.”~~being disposed or becoming fully depreciated.

Impairments and other charges

The following table summarizes our impairments and other charges:


	Three Months Ended				Six Months Ended				Three Months Ended
	June 30,				June 30,				March 31,
(In millions)	2019		2018		2019		2018		2020		2019
Supply commitment charges	$	0.1	$	4.0	$	56.7	$	6.0	$	3.2	$	56.6
Employee severance costs										0.5		—
Impairment of assets		2.7		—		5.5		—		—		2.8
Inventory write-down		—		—		1.4		—		—		1.4
Total impairments and other charges	$	2.8	$	4.0	$	63.6	$	6.0	$	3.7	$	60.8

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Supply Commitment Charges: We incur supply commitment charges when our purchases of sand from certain suppliers are less than the minimum purchase commitments in our supply contracts. According to the accounting guidance for firm purchase commitments, future losses that are considered likely are also required to be recorded in the current period.

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commitment charge in the first quarter of 2020 was also due to the significant reduction in customer activity expected in the second quarter of 2020 as a result of the decline in oil and gas commodity prices.

In May 2019, we restructured and amended our largest sand supply contract to reduce the total remaining commitment through 2024 by approximately $162 million. This reduced our annual commitment from $47.9 million to $21.0 million from 2019 through 2024. The reduced annual commitments of $21.0 million represent the annual payments we would make under the contract if we do not purchase any sand from this vendor. Due to the terms of the amended agreement and our estimated future purchases under this contract, we determined that we would not be able to satisfy $11.0 million of the $21.0 million annual commitment with sand purchases for the last five years of the contract. Therefore. inIn connection with this amendment, we recorded a supply commitment charge of $55.0 million in the first quarter of 2019 to ~~accelerate these~~record losses on certain expected purchase shortfalls. ~~After recording~~Please refer to Note 9, “Impairments and Other Charges” in our annual report on Form 10-K for the ~~$55.0 million supply commitment charge in the first quarter of 2019, the amount of accrued supply commitment charges for future periods that was recognized on our consolidated balance sheet at March~~year ended December 31, 2019, ~~was $66.0 million. We paid $11.0 million of~~for more information regarding this ~~amount in the second quarter of 2019~~amended and ~~we expect to pay the remaining $55.0 million in annual installments of $11.0 million from January 2020 through January 2024. These payments may be accelerated under limited circumstances.~~restated supply contract. The remaining amount of the 2019 charges represent revised estimates of our purchase shortfalls under this contract for 2019.

After recording the $55.0 million supply commitment charge, the remaining annual purchase commitment that we must satisfy to avoid additional charges is $10.0 million. We will satisfy this annual purchase commitment if we purchase at least 1.0 million tons of sand per year, which we believe better matches our current and forecasted sand needs. If we purchase more than 1.0 million tons of sand in a year, then we could recover a portion of the supply commitment charge.

Employee Severance Costs: In the first quarter of 2020, we incurred employee severance costs of $0.5 million in connection with our cost reduction measures to mitigate losses from the decline in customer activity levels due to the low commodity price environment.

Discontinued Wireline Operations: In May 2019, we ~~decided to discontinue~~discontinued our wireline operations due to ~~underperformance. We are in the process of identifying the best options for disposing of these assets.~~financial underperformance resulting from market conditions. As a result of this decision, we recorded an asset impairment of $2.8 million and an inventory write-down of $1.4 million in the first quarter of 2019 to adjust these assets to their estimated fair market values and net realizable values, respectively.

~~Other~~Risk of Future Impairments: InAs previously discussed, we have experienced a substantial downturn in our business due to the ~~second~~COVID-19 pandemic and Saudi-Russia price war. We concluded that this downturn was a triggering event to test our long-lived assets and indefinite-lived tradename for impairment. After testing these assets for impairment, we concluded that no impairments were required at March 31, 2020. These tests rely on two key inputs: the estimated severity and length of the current industry downturn and the magnitude of an industry recovery. If current industry conditions continue for a prolonged period or if our estimates of these key inputs are revised unfavorably in a future quarter, we will likely incur impairments of ~~2019, we recorded $2.7 million of impairments for certain land and buildings that we no longer use.~~long-lived assets or our tradename in a future period.

Interest expense, net

Interest expense, net of interest income, for the ~~second~~first quarter ~~and first six months~~ of ~~2019~~2020 decreased by ~~$4.4~~$0.9 million ~~and $13.6 million, respectively,~~ from the same ~~periods~~period in ~~2018. These decreases were~~2019. This decrease was due to lower average long-term debt balances and ~~higher interest income in 2019, which were partially offset by higher~~lower average interest rates for our Term Loan in ~~2019.~~

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2020.

Extinguishment of debt

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~~record income tax expense ~~for the three and six months ended June 30, 2019 and 2018,~~ for states that limit the deduction of net operating loss ~~carryforwards.~~carryforwards and for foreign income taxes. See Note 87 — “Income Taxes” in the notes to our consolidated financial statements included elsewhere in this quarterly report on Form 10-Q for more discussion of our valuation allowance.

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Reconciliation of Adjusted EBITDA

The following table reconciles our net income or loss to Adjusted EBITDA:


	Three Months Ended				Six Months Ended				Three Months Ended
	June 30,				June 30,				March 31,
(In millions)	2019		2018		2019		2018		2020		2019
Net income (loss)	$	5.9	$	103.6	$	(49.1)	$	182.3
Net loss									$	(11.7)	$	(55.0)
Interest expense, net		7.7		12.1		15.9		29.5		7.3		8.2
Income tax expense		0.1		0.9		0.3		1.9		—		0.2
Depreciation and amortization		22.8		20.7		45.2		41.3		21.4		22.4
(Gain) loss on disposal of assets, net		(1.2)		(0.2)		(0.9)		0.3		(0.1)		0.3
Loss (gain) on extinguishment of debt, net		0.1		0.8		(0.4)		10.1
Gain on extinguishment of debt, net										(2.0)		(0.5)
Stock-based compensation		3.7		3.4		6.7		5.0		3.1		3.0
Supply commitment charges		0.1		4.0		56.7		6.0		3.2		56.6
Inventory write-down		—		—		1.4		—		—		1.4
Impairment of assets		2.7		—		5.5		—		—		2.8
Employee severance cost										0.5		—
Adjusted EBITDA (1)	$	41.9	$	145.3	$	81.3	$	276.4	$	21.7	$	39.4

_____________________________

(1)

Adjusted EBITDA is a non-GAAP financial measure that we define 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; supply commitment charges; ~~and~~ acquisition or disposition transaction ~~costs.~~costs; gain on sale of equity interest in joint venture affiliate; and employee severance cost related to corporate-wide cost reduction initiatives. The most comparable financial measure to Adjusted EBITDA under GAAP is net income or loss. Adjusted EBITDA is used by management to evaluate the operating performance of our business for comparable periods and it is a metric used for management incentive compensation. Adjusted EBITDA should not be used by investors or others as the sole basis for formulating investment decisions, as it excludes a number of important items. We believe Adjusted EBITDA is an important indicator of operating performance because it excludes the effects of our capital structure and certain non-cash items from our operating results. Adjusted EBITDA is also commonly used by investors in the oilfield services industry to measure a company’s operating performance, although our definition of Adjusted EBITDA may differ from other industry peer companies.

Liquidity and Capital Resources

Sources of Liquidity

At ~~June 30, 2019,~~March 31, 2020, we had ~~$162.1~~$199.2 million of cash and cash equivalents and ~~$112.4~~$56.3 million of availability under our revolving credit facility, which resulted in a total liquidity position of ~~$274.5~~$255.5 million. WeWe believe that our cash and cash

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equivalents, any cash provided by operations, and the availability under our revolving credit facility will be sufficient to fund our operations, ~~and~~ capital expenditures, contractual obligations, and debt maturities for at least the next 12 months.

The maximum availability of credit under the credit facility is limited at any time to the lesser of $250 million or the borrowing base. The borrowing base is based on percentages of eligible accounts receivable and eligible inventory and is subject to certain reserves. As of ~~June 30, 2019,~~March 31, 2020, our borrowing base was ~~$115.4~~$60.6 million and therefore our maximum availability under the credit facility was ~~$115.4~~$60.6 million. As of ~~June 30, 2019,~~March 31, 2020, there were no borrowings outstanding under the credit facility, and letters of credit totaling ~~$3.0~~$4.3 million were issued, resulting in ~~$112.4~~$56.3 million of availability under the credit facility.

~~See Note 3 — “Indebtedness and Borrowing Facility” in notes~~We continually assess alternatives to our ~~consolidated financial statements included elsewhere in this quarterly report on Form 10-Q for more information on~~capital structure and evaluate strategic capital initiatives which may include, but are not limited to, equity and debt financings and the modification of existing debt, including the amount of debt outstanding, the types of debt issued and the maturity dates of the debt. These alternatives, if implemented, could materially affect our ~~credit facility.~~capitalization, debt ratios and cash balances.

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Cash Flows

The following table summarizes our cash flows:


	Six Months Ended				Three Months Ended
	June 30,				March 31,
(In millions)	2019		2018		2020		2019
Net income or loss adjusted for non-cash items	$	66.0	$	247.6	$	15.3	$	30.7
Changes in operating assets and liabilities		(2.8)		(72.1)		9.1		3.2
Cash paid to settle supply commitment charges		(15.9)		(2.0)		(11.2)		—
Net cash provided by operating activities		47.3		173.5		13.2		33.9
Net cash used in investing activities		(25.2)		(65.7)		(16.3)		(11.6)
Net cash used in financing activities		(37.8)		(198.7)		(20.7)		(28.0)
Net decrease in cash, cash equivalents, and restricted cash		(15.7)		(90.9)
Cash, cash equivalents, and restricted cash at beginning of period		177.8		217.2
Net decrease in cash and cash equivalents						(23.8)		(5.7)
Cash and cash equivalents at beginning of period						223.0		177.8
Cash and cash equivalents at end of period	$	162.1	$	126.3	$	199.2	$	172.1

Cash flows from operating activities have historically been a significant source of liquidity we use to fund capital expenditures and repay our debt. Changes in cash flows from operating activities are primarily affected by the same factors that affect our net income, excluding non-cash items such as depreciation and amortization, stock-based compensation, ~~and~~ impairments of ~~assets.~~assets, and estimated supply commitment charges.

Cash flows from operating activities: Net cash provided by operating activities was ~~$47.3~~$13.2 million and ~~$173.5~~$33.9 million in the first ~~six months~~quarter of ~~2019~~2020 and ~~2018,~~2019, respectively. Cash flows from operating activities consists of net income or loss adjusted for non-cash items, changes in operating assets and liabilities and cash paid to settle supply commitment charges. Net income or loss adjusted for non-cash items resulted in a cash increase of ~~$66.0~~$15.3 million and ~~$247.6~~$30.7 million in the first ~~six months~~quarter of ~~2019~~2020 and ~~2018,~~2019, respectively. This change was primarily due to lower earnings in ~~2019.~~2020 after excluding supply commitment charges. The net change in operating assets and liabilities resulted in a cash ~~decrease~~increase of ~~$2.8~~$9.1 million and ~~$72.1~~$3.2 million in the first ~~six months~~quarter of ~~2019~~2020 and ~~2018,~~2019, respectively. The cash ~~decrease~~increase in ~~2018~~2020 was ~~primarily~~ due to ~~increased~~a release of working capital ~~to fund increased~~as our activity ~~levels.~~levels decreased.

Cash flows from investing activities: Net cash used in investing activities was ~~$25.2~~$16.3 million and ~~$65.7~~$11.6 million in the first ~~six months~~quarter of ~~2019~~2020 and ~~2018,~~2019, respectively. This change was primarily due to ~~decreased~~increased capital expenditures in ~~2019~~2020 compared to ~~2018.~~2019.

Cash flows from financing activities: Net cash used in financing activities was ~~$37.8~~$20.7 million and ~~$198.7~~$28.0 million in the first ~~six months~~quarter of 2020 and 2019, respectively. We used $20.6 million and ~~2018, respectively. In the first six months of 2019 we used $31.3~~$26.3 million ~~of cash~~ to repay long-term debt ~~and $4.6 million to repurchase stock. In~~in the first ~~six months~~quarter of ~~2018 we used $499.3 million of cash to repay long-term debt which we partially funded with $303.0 million of net proceeds received from our IPO.~~2020 and 2019, respectively.

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Cash Requirements

Contractual Commitments and Obligations

In ~~May 2019,~~the first quarter of 2020, we ~~restructured and amended our largest sand supply contract to reduce our~~repaid $22.6 million of aggregate principal amount of Term Loan using cash ~~commitments from $47.9 million per year to $21.0 million per year from 2019 through 2024. As~~on hand. We recognized a ~~result~~gain on this debt extinguishment of this amendment and the supply commitment charges incurred to date for this contract, we have recognized approximately 52% of the restructured future commitments in our consolidated financial statements as of June 30, 2019.$2.0 million.

Other than ~~the amended commitments of our supply agreement and the~~ long-term debt repayments, ~~discussed above,~~ there have been no significant changes to our contractual obligations outside the ordinary course of business since December 31, ~~2018.~~2019. Please refer to our annual report on Form 10-K for the year ended December 31, ~~2018,~~2019, for additional information regarding our contractual obligations.

Capital expenditures

The nature of our capital expenditures consists of a base level of investment required to support our current operations and amounts related to growth and company initiatives. Our capital expenditures for 2020 represented the amount necessary to support our current operations. We estimate capital expenditures in ~~2019~~2020 will range from ~~$55~~$30 million to ~~$60 million. Our capital expenditures in 2019~~$35 million, which will ~~be used to~~ support our ~~current~~ operations ~~and any fleet reactivations.~~.

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Our cash, cash equivalents, and any cash provided by operations will be used to fund our capital expenditure ~~needs, which we believe will be sufficient to support our operations.~~needs. We continuously evaluate our capital expenditures and the amount we ultimately spend will primarily depend on industry conditions.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet financing arrangements, transactions, or special purpose entities.

Recently Issued Accounting Pronouncements

See Note 1 — “Basis of Presentation” in the notes to our consolidated financial statements included elsewhere in this quarterly report on Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

At ~~June 30, 2019,~~March 31, 2020, we held no derivative instruments that materially increased our exposure to market risks for interest rates, foreign currency rates, commodity prices or other market price risks.

We are subject to interest rate risk on a portion of our long-term debt. Our Term Loan bears interest at a variable rate based on LIBOR plus a margin of 4.75% per annum, with a 1.00% LIBOR floor. As of ~~June 30, 2019,~~March 31, 2020, LIBOR was ~~above~~below the 1.00% floor. Therefore a 1.00% ~~change~~increase in LIBOR would ~~change~~increase the annual interest payments for this debt by ~~approximately $1.0~~less than $0.7 million.

We are subject to commodity price risk related to our diesel fuel usage. A $0.25 per gallon change in the price of diesel fuel would have changed our costs of revenue, excluding depreciation, by approximately $0.6 million for the six months ended June 30, 2019.

During ~~2019,~~2020, substantially all of our operations were conducted within the United States; therefore we had no significant exposure to foreign currency exchange rate risk.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) and Rule 15d-15(b) under the Securities Exchange Act of 1934 (the “Exchange Act”), our management, including our Chief Executive Officer and Chief Financial Officer, evaluated, as of ~~June 30, 2019,~~March 31, 2020, the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e) and Rule 15d-15(e). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our

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disclosure controls and procedures were effective as of ~~June 30, 2019,~~March 31, 2020, to provide reasonable assurance that information required to be disclosed by us in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the Exchange Act and is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

We believe, however, that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls systems are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, within a company have been detected.

~~Effective January 1, 2019, we adopted the new lease accounting guidance under Accounting Standards Codification (“ASC”) Topic 842, Leases, using the~~ ~~modified retrospective transition method~~. The adoption of this guidance required the implementation of new accounting policies and processes, including changes to our information systems, which changed the Company’s internal control over financial reporting for leases and related disclosures for our current period reporting. Other than the changes relating to ASC Topic 842, thereChanges in Internal Controls

There has been no change in internal control over financial reporting that occurred during ~~the~~our last fiscal quarter ~~ended June 30, 2019,~~ that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

For a description of our legal proceedings, see Note 109 — “Commitments and Contingencies” in the notes to our consolidated financial statements included elsewhere in this quarterly report on Form 10-Q, which is incorporated by reference herein.

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Item 1A. Risk Factors

~~Our investors should carefully consider~~The following risk factors are provided to update and supplement the ~~risks and other information discussed~~corresponding risk factors previously disclosed under the heading “Risk Factors” in the Company’s annual report on Form 10-K for the year ended December 31, 2019.

Our stock price has been and may continue to be volatile.

As previously disclosed, we face risks related to a delisting and/or trading suspension of our common stock on the New York Stock Exchange (the “NYSE”). On April 10, 2020, we received written notice from the NYSE that the Company is not in compliance with the continued listing standards set forth in Item 802.01B of the NYSE Listed Company Manual because its average global market capitalization over a consecutive 30 trading-day period and last reported stockholders’ equity were both below $50 million. In accordance with applicable NYSE procedures, we timely notified the NYSE that we intend to submit a plan within 45 days that demonstrates our ability to bring the Company into compliance with the NYSE continued listing standards within 18 months of receipt of notice of non-compliance. There can be no assurance that any of our plans will be successful and that we will regain compliance with the continued listing requirements of the NYSE.

A terrorist attack, armed conflict or health threat could harm our business.

As previously disclosed, we face risks related to global or national health concerns, including the outbreak of pandemic or contagious disease, such as the ongoing COVID-19 pandemic. The global spread of COVID-19 and the ongoing efforts to contain it have created significant volatility, uncertainty and economic disruption. In an effort to contain or slow the spread of COVID-19, national and local governments around the world have instituted certain measures, including travel bans, prohibitions on group events and gatherings, shutdowns of certain businesses, curfews, shelter-in-place orders and recommendations to practice social distancing. These measures have shuttered business and consumer activity worldwide, attenuating demand and prices across all segments of the oil and gas industry. As a result, we have temporarily suspended and altered certain aspects of our business and operations, which adversely affected our operations in the first quarter of 2020. The duration of these measures is unknown, may be extended and additional measures may be imposed.

The potential impacts of the COVID-19 pandemic, or other similar outbreaks or pandemics, on our financial condition, results of operations and cash flows include, but are not limited to, the following:

Reduced consumer and investor confidence, instability in the credit and financial markets, volatile corporate profits, and reduced business and consumer spending, which may adversely affect our financial condition, results of operations and cash flows by reducing our revenues, margins or net income due to a decline in the demand and price for our services. In addition, volatility in the financial markets could increase the cost of capital or limit its availability.

Economic uncertainty and disruption, which could make it difficult for us, our customers and suppliers to accurately forecast and plan future business activities.

Deterioration in the financial position of our customers, which could impact their ability or willingness to pay for our services and, as a result, could negatively affect our operating results and, if significant, could have a material adverse effect on our financial condition, results of operations and cash flows.

Disruptions to our supply chain in connection with the sourcing of materials from geographic areas that may be impacted by COVID-19 and by efforts to contain its spread.

The full extent to which the COVID-19 pandemic and the various responses to it impacts our financial condition, results of operations and cash flows will depend on numerous evolving factors that we may not be able to accurately predict, including: the duration and scope of the pandemic; the effectiveness of governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic; the availability and cost to access the capital markets; the effect on our customers and customer demand for and ability to pay for our services; and disruptions or restrictions on our employees’ ability to work and travel.

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We will continue to actively monitor the issues raised by the COVID-19 pandemic and may take further actions that alter our business operations as may be required by federal, state, or local authorities, or that we determine are in the best interests of our employees, customers and stockholders. It is not clear what the potential effects any such actions may have on our business, including the effects on our customers or suppliers, or on our financial condition, results of operations and cash flows.

To the extent the COVID-19 pandemic adversely affects our financial condition, results of operations and cash flows, it may also heighten many of the other risks described in the “Risk Factors” section of our annual report on Form 10-K for the year ended December 31, ~~2018, when evaluating us~~2019.

Oil and natural gas prices are volatile and have declined significantly in past periods, which has adversely affected, and may again adversely affect, our ~~common stock. There~~financial condition, results of operations and cash flows.

In March 2020, the Organization of Petroleum Exporting Countries and other oil producing nations (“OPEC+”) were unable to reach an agreement on production levels for crude oil, at which point Saudi Arabia and Russia initiated efforts to aggressively increase production. As a result, the supply of low-priced oil to the global market increased substantially. The oversupply of low-priced oil, together with weakened demand due to the ongoing COVID-19 pandemic, lead to a collapse in oil prices during March 2020. While OPEC+ agreed in April to cut production, downward pressure on commodity prices has remained and could continue for the foreseeable future. These events have ~~been no material changes~~adversely affected and are expected to continue to adversely affect our ~~risk factors from those disclosed~~financial condition, results of operations and cash flows. Demand for our services is declining as our customers adjust their capital budgets and operations in response to lower oil prices. Given the dynamic nature of these events, we cannot reasonably estimate the period of time that such market conditions will persist, the extent of the impact they will have on the Company’s financial condition, results of operations and cash flows, or the pace of any subsequent recovery.

To the extent that these events and conditions adversely affect our financial condition, results of operations and cash flows, they may also heighten many of the other risks described in the “Risk Factors” section of our annual report on Form ~~10-K.~~

~~Item 2. Unregistered Sales of Equity Securities and Use of Proceeds~~

~~(c) Stock Repurchases.~~

~~The following table presents information regarding our repurchases of common stock during~~10-K for the ~~second quarter of~~year ended December 31, 2019.

Total Number of

Approximate Dollar

Total Number

Average Price

Shares Purchased

Value of Shares that

of Shares

Paid

as Part of Publicly

May Yet be Purchased

Purchased

per Share

Announced Program (1)

Under the Program (1)
April 1, 2019 through April 30, 2019

—

$
—

—

$
—
May 1, 2019 through May 31, 2019

166,078

$
6.98

166,078

$
98,841,000
June 1, 2019 through June 30, 2019

594,936

$
5.86

594,936

$
95,355,000
Total

761,014

$
6.11

761,014

$
95,355,000

~~(1)~~

~~On May 15, 2019, we announced that our Board authorized us to repurchase up to $100 million shares of our common stock. The authorization expires on May 14, 2020.~~

~~Item 3. Defaults Upon Senior Securities~~

~~None.~~

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~~Item 4. Mine Safety Disclosures~~

~~None.~~

~~Item 5. Other Information~~

~~None.~~

Item 6. Exhibits


Exhibit Number		Description
~~10.1*†~~		~~FTS International, Inc. Amended and Restated 2018 Equity and Incentive Compensation Plan~~
31.1**		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2**		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1***		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS**		XBRL Instance Document
101.SCH**		XBRL Schema Document
101.CAL**		XBRL Calculation Linkbase Document
101.DEF**		XBRL Definition Linkbase Document
101.LAB**		XBRL Label Linkbase Document
101.PRE**		XBRL Presentation Linkbase Document

_____________________________

*Previously filed

**Filed herewith

***Furnished herewith

†Management contract, compensatory plan or arrangement

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	FTS INTERNATIONAL, INC.

Dated: ~~July 31, 2019~~April 30, 2020	By:	/s/ Michael J. Doss
		Michael J. Doss
		Chief Executive Officer and Director (Principal Executive Officer)

Dated: ~~July 31, 2019~~April 30, 2020	By:	/s/ Lance D. Turner
		Lance D. Turner
		Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer)



(In millions)
Remainder of 2019	$	9.5
2020		15.6
2021		10.9
2022		1.2
2023		1.2
2024 and thereafter		1.0
Total lease payments		39.4
Less imputed interest		(2.3)
Total lease liabilities	$	37.1


				Total Number of		Approximate Dollar
	Total Number		Average Price	Shares Purchased		Value of Shares that
	of Shares		Paid	as Part of Publicly		May Yet be Purchased
	Purchased		per Share	Announced Program (1)		Under the Program (1)
April 1, 2019 through April 30, 2019	—	$	—	—	$	—
May 1, 2019 through May 31, 2019	166,078	$	6.98	166,078	$	98,841,000
June 1, 2019 through June 30, 2019	594,936	$	5.86	594,936	$	95,355,000
Total	761,014	$	6.11	761,014	$	95,355,000