FTSI - Earnings call transcript Q1 2018

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Operator

Ladies and gentlemen, thank you for standing by, welcome to the FTS International, First Quarter 2018 Earnings Call.

During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded today Tuesday, May 1st, 2018. Presenting today are Mike Doss, Chief Executive Officer; Lance Turner, Chief Financial Officer; and Buddy Petersen, Chief Operating Officer.

of would forward-looking remind of assumptions statements Securities Reform I conference that the and begin, based Litigation contains are call within Act beliefs. we like current everyone to this Private on Before management's that expectations, XXXX the meaning

Listeners intend of are factors strategy. Forward-looking release business can and discussion review the law, forward-looking of and these regarding from expenditures could company the are forward-looking filings not risks, include, not assumptions results but anticipate, call and capital are statements. statements. operations, words. filed limited identified with expressions recent in to, Except advise earnings cause includes and update other our and such statement. materially as by These statements similar words variations not future statements of the forward-looking be complete financial expect, They to measure. are forward-looking uncertainties, any for guarantees does non-GAAP obligation EBITDA those as more the and was discussion undertake often a that to expressed company's SEC This differ risks also and that any or other to subject actual negatives statements that SEC could affect conference or locally adjusted by required the to of any encouraged results

Please information includes call income release the I this earnings Mike now or EBITDA. Our sir. adjusted further and to about to will a over ahead, with also SEC of Doss. loss the measure reconciliation net filed go turn

Michael Doss

morning good everyone. and you Thank

for We the are results report pleased first quarter. to solid

$XX.X million. million, our revenue adjusted million. quarter due the the XXX rough a entirely we quarter quarter, in loss and grew disruptions, In to fleet, was net active completed for was the to Net EBITDA fourth $XXX.X adjusted of While in a the $XX.X per the was from XXX million sequentially was extinguishment, annualized on XX.X That EBITDA had we We down X% $X.X first we quarter disruptions. debt to stages first weather by weather quarter. fleets and income million. had start was our $XXX.X which to due decrease

Fortunately, impacted caused that congestion experienced. some by we much were the not rail delays our by and in problems industry

momentum and chain the Our flat the the and the This an quarter. efficiencies. outstanding summer fourth second levels. quarter supply the grew, enter efficiencies months, both and quarter year. the with average slightly has with Spot recent of pricing in supply above busiest pricing gained part of Monthly results fleets the we job an exit our quarter driven keeping Net as in to did normally quarter net expect by rate throughout third be improvement us provides Thus, in quarter quarter. in market months. pricing eroded be second increased higher our will we during first

quarter a as The from swings nearly we estimates of On for dedicated has two less year have demand is spot our market. by supply arrangements, year. this short-term to horsepower this are down first fleets all additional fourth to has the rig exposed to additions ago; and have has quarter side, The or come This situation gross the under had market we in frac supply However, affected X% work average quarter. of a this X work million of of the the not it's from the in on growth XX% pumping. half lower year, rig The just it grew that pressure count the into also slowed seen X offering last the compete prices. as average million first grew land of with the occurring bulk as was. year. count tight of the per year, In quarter shifted drilling

will Some of due to be existing replace used attrition. that to equipment

some in However, one over With because generates an horsepower rebuild number a I to we cash opposed rebuilt as of others, difficult just data concept will fleets as longer our fleets fleets In believe wells absorbed isn't operating and so reliable actually unit help asset the by and of gets as to there. is there number That's of flow. more fleet. over that massive of find with after field. get out to much equipment the additions helpful. case to that it's attrition more the ease-for-life where send horsepower our view, the back X or is where about per it existing horsepower fracking retired lateral again, be as and is possible. years require thing fleet accounting horsepower One the equipment that getting easier are of does isn't think

demand, prices account In rig increase higher lead are terms optimistic. of we and think higher for We a oil to frac fleets. will demand

market believe tighter currently While quarter, a the XXth the half there fleets In is reactivate July. of a as likelihood reactivated first supply and deployment our of we June demand becomes good and fleet even additional near-term, to additional horsepower in balanced roughly second fleet only out goes in XXth far. in is available. or expect we we so the our into Visibility the

third like availability good then. be could under operate will additional that and manufacturing several reactivate in that expect arrangements about with have Fleets Lean/Six we pricing fleets quarter deploy Sigma we we We companies. customers two one customers dedicated or asking that the and

conditions. previously teams fleet very out we to has in and plans. disciplined That's stretched deployment Our to our approach we're compared because been discussed adapt changing

profitability and is focus Our industry-leading returns. generating on

pricing, leading-edge We it ample price we see market. about future. good Given situation and expect push further the for not-too-distant in simply will feel into to deployments out the the more sense fleets commodity make opportunities the don't think software we

will third our to We our Worth maintenance the Fort remaining track very new-build all quarter. per million marketable of of $XX at to by in be facility two total plan fleet, fleets. on it fleet year the capacity announced end cost As our to our competitive previously to those XX previously are of Texas thanks rebuilds our Aledo, Once manufacturing our relates capabilities. complete is available, equipment, fleets in-house a end complete by still near of stacked our completed,

systems update currently all XX with the environmental logistics, an systems. This boxing are silo includes compared systems, and pleased seeing oil mostly the that customer of using these systems. we're fleets delivery tankings using on and fleets and fleets sand our as provided to benefits We're [Indiscernible]. from now second-generation very Lastly, using the as efficiencies [Indiscernible] five

With now turn to box increased optimization RFID Lance. working also are it I with per We volumes and further through that, logistical will [Indiscernible] over improve their use of systems, tags. greater including for the

Lance Turner

Thank Mike. up quarter X% first for Revenue you, the was million, $XXX.X sequentially.

active XX.X average fleet increase was Our the of X.X. quarter, an during

the amount one-time The was incentive customers rate pricing a as of EBITDA, restricted stock the this improvement and The restricted in would impact slightly as was in IPO. Most current amount was quarters. As is to the units offset effect stock roughly up view were do slightly active into work long-term pricing EBITDA. million it of Mike upon quarter the We towards charge first partially in at a future the to compensation opposed pricing in an customer an attributable to more our by the amount plan and of been the lower the of the shifted mentioned, to the quarter. adopted the increase. we profitable includes fleets mix, include invested not average higher quarter in of as more Cost but stock The costs. is revenue granted in $X.X administrative and and that this manage part compensation as We the disruptions. calculation $X.X IPO. $X.X higher the we've for include expect redemption adjusted current million Selling, of $XX.X add-back non-cash Therefore, general adjusted in the of to the in add-back efficiencies environment. weather pressures calculation in plan the count, do during from IPO. stock-based as cost the this quarter million costs totaled inflation million XXXX of of fleet increased relates in went to quarter as first active stock-based related half able slightly we due

is manage and quarter We with our line our SG&A cost expectations. continue the first to in

expect down million lower from deferred million slightly per million, quarter the prepayment to the approximately compensation. of to lower $XX rate financing due active including in costs. stock-based the or This million rate notes the efficiency. annualized than basis. write-off was $XX.X fleet first for was run related $XXX.X on million equates Adjusted debt to quarter million EBITDA recurring quarter an per we fourth quarter the related was fourth our $XX.X on continue, penalties a the footing the $XX.X loss and forward, quarter. $X.X which Net includes Looking to the income for This extinguishment

the million the and active at to in rebound maximize by ability environment, first million. stable line The $XX.X summer fleet entered with be million. is months to estimate fourth and $XXX will expenditures quarter Capital for quarter customers' of $XXX rebound first we ability the to expectations exit levels. of we the level our of unchanged determined efficiency spend to our our As quarter a totaled our our year per expect This remains fleets. magnitude and our EBITDA with full pricing

the level four proceeds. working to the approximately of Our considerable continue a will IPO net million to to generate the net period. capital This by addition In company $XXX in million, the debt quarters, allows over reduced above million approximately was by $XXX $XXX and last amount industry-leading our we that time profitability cash indebtedness. reducing beyond same building

our another to a $XXX consistent gross loan we That term $XX down cash of million as $XXX to million step balance. debt of or one of our maintaining brings less. closer yesterday, today, addition, repaid In million our while relatively target level

debt service declined have our importantly, costs even further. More

start once We're for year expense run to over to We of of our reduction the to kick-off look approximately in for this team's XXXX $X the of million interest an the quarter from on per second million forward This call. the targeted quarter we has level. figure our With call quarterly proud decline FTSI. again questions. $XX continue expected to will another further first debt achieve now profitable profitability million turn as debt Our execution reporting approximately improvement $XX XXXX. in we of quarter another quarter than I'll declined that, when and -- next less rate

Operator

[Operator of Instructions] Thank comes from Please Fargo. question Jud Our you. Wells line Bailey the with proceed. first

Judson Bailey

moving Question for the understand wanted on XXXX second East fleet and the levels just is on I you If that it we fleet think commentary your EBITDA tracking, pieces per on line with morning. think Or quarter, in at only fleet was XQ it we shouldn't in Good per missing Why Lance, pricing above than the stages higher to are sure terms time. pieces. something fleet XQ, in XQ? per be make Thanks. on, higher? EBITDA to per said Middle moving EBITDA how is of about would be

Lance Turner

about I right. thinking think you're

I the will And a maximize -- for just obviously exit quarter, looking and to the April, efficiency to we're May, function that is profitability but we the of unknown QX. what had keep trying for achieve whole to to we're we're a and rate going think be good really able June.

efficiency we're can we we I And and profitability and on not fall levels to rebound of where that's think unknown really exceed I think guidance will expect think kind significantly, fall out a so in and profitability out. where QX position past to will really if the would efficiencies we

Judson Bailey

Okay.

expect first the something efficiency that if exited So, you quarter, above would the is then fair? fourth where we quarter, is

Lance Turner

Slightly.

Judson Bailey

Slightly.

maybe the the just into fleet you're then that about then couple XXth I quarter. third want And having the about It customers conversations little are up more the you the eminent detail guess? in of conversations from start the sounds for pricing? -- how and conversations quarter, on nothing kind to the go much in fleets for progressing of you're how having And can like Okay. is thinking those with E&Ps third

Michael Doss

as Yes, indications in XX, XX. September. work that Mike. ongoing and some XX, as starting the as far is some this far got as August fleet We've Jud, conversations, they're

on is fleets discussions to schedule. take that month additional in with for more it get Just we're of more active that them so plans, above that. on will our customer's something definitive and imagine asking get terms trying we're so before that. being I in XX and they're Fleet deployed the we'll or another

Judson Bailey

Okay. All Thanks. I'll back. right. it turn

Operator

you. Thank

from question with Tudor, Holt. Pope the of Our proceed. comes Byron & next Pickering, Please line

Byron Pope

Good morning guys.

that key you've basin given the Just wanted place. to your get perspective a breadth good got all in

in leading more You others? to acute commentary across spot market with some fairly on the pressure regard broadly it the basins, pricing is edge, versus the areas distributed is

Michael Doss

pretty it's couple spot But market. pretty take seeing we're regions a months applicable between can what of say market would I in across Yes, It Horsepower different Byron, I consistent really would say lag. the regions. to entire does maybe move is easily. the the

Byron Pope

impacted sure customers I'm getting the you might then right delays issues sand realized are And instances tail there that in Okay. site. assumption so that I logistics the just guys can make providing but and sand QX, by weren’t and the well thinking My terribly the way. be own about where issues this is their to I the that in

fair You receiving it? protected to guys of think some standby that are rate, about way in a terms of sort is

Michael Doss

Yes. accurate. That's absolutely

Byron Pope

Okay. Thanks guys.

Operator

Thank you.

Guggenheim. question LaMotte next Michael from comes the Please proceed. with Our line of

Michael LaMotte

Really guys. morning Good Thanks. solid quarter.

say, are related there of gains, curious and are, as that efficiencies. the March to to labor point March your I versus If what learning question things comment is was Are that it second efficiency than key I'm last fourth the to boxes half Is better the performance the over you silos, on to curve? first just months? key using? is last drivers can quarter, to it year, six exited XX say, The have, as the Mike, which drivers

Michael Doss

to down really are much that not in we we and anything It how in say because not drivers would that or efficiency, big more as operate. a material operational doing hard manage and particular. efficient a a always uptime has we helping lot there's how improve key equipment, just a It's so describe efficiencies. new between they got a particular. factor zip say cruise, Customer learning an two fluctuations underway nail I'd the We've impact. more labor I of there. and of are are small just that see or always say equipment is March There's to to that's on but initiatives one second lot build mix the -- We impact moved I [Indiscernible] that half can't customers things. of curve

us Just a higher in our to crank bunch favor of move small allows that that things that out overtime efficiencies.

Michael LaMotte

the work that now And waters, level sand of you to availability, how really the if trucking overall slow you think do managing and things think is down? right that about you access could this system or key

Michael Doss

it's good year in are strain, on But the delays can faced I half drilling stand today. bit experiencing up locations, in think that's you're the industry mentioned particular, in in on delays the Northeast, a areas. experience terms my of say seen transitional And -- completion. up We comments and water we're the pretty what if just that but I we've you a catch of still prepared in and bit some stronger phase, the some deliveries. of to that a in little to logistics. than of with of system locations I a think or slowdown the of one some those a allowed strain It's the jam doing with second in last would work in terms is

Michael LaMotte

Thanks. great. Okay,

Operator

you. Thank

line comes with of Our proceed. the Scott Please Gruber from Citigroup. next question

Scott Gruber

Yes, morning good here. in reiterate performance of I first challenges good quarter number and facing

Michael Doss

Good Thanks. morning.

Scott Gruber

frustrated industry I is ordering and wanted capacity which the that's on basis. practice, one to a investors stuck the through touch at on greatly cycles

of make fleet much are of for You of spreads, required What the like capital own an thinking of knew nine when capital making level you to components capabilities. of with you to expand two internal ahead When expand kind decision for are required commitment guys to months six components? you're the how to delivery? you because out commitment set fleet is you your your additional manufacturing out upfront have

Michael Doss

that case of a flexibility gives of Well, us as do it and commitment. mentioned, we in-house, terms lot in in so you our

down fleet, we add So, say, new six to nine to decided a months road. the

just sometimes and will And those We schedule generally, along committed way. order depending and we the those the delivery make can on fleet. are chassis. finish essentially the are engines order. transmissions inventory adjustments then the will it the be the we And But to main partially have as in decide relates everything complete else to components we would we until that sit to

is-- capital upfront initial that So,

Lance Turner

in indicator. We a good the fleets. spent $XX is related pretty to QX two million QX

of So, a times total that's fleets XX. two XX,

QX. QX. the components. So, was pretty in was of spent of indication that a Probably, major in XX% spent And XX% another good that's about

Scott Gruber

investing the the pumpers investible of But industry color. from again. I've really trend this to good from more to about cycle away about CapEx standpoint, you're growth for do That's de-risk think going generally think CapEx How ordering shifting been quickly? purposes? a other deploying guys the just growth cycle you asking their make speculative basis an frankly, capabilities, somewhat through to it you the effort given investing do start that and more on you does in afford respond your just through flexibility how that more internal

Michael Doss

tremendous cycle as Sure. about I does it give overtime, amount us flexibility. Well, the think of a

a need to months FTSI about can XX can so that We assemble we lot downturn, the well. over think we we and have for you while. the saw levered really a for quickly we we that in we've been its of regard a historic severity. which components story, during also led flexibility have So, And just stacked which our been sit And in last was them have doing the things if really as rebuilds relatively in inventory. to over and as equipment

to as added capacity start we so year. may more And If is little advantage to taking the didn't of debt. to bit last it we mission generate have our main have this into flow debt, coming cash repay upturn that a upturn

amount the in terms we see as I just overtime. capacity of to deliberate we not additions. be of rather big pretty next of we'll terms think measured I'd I cycle, think so add in spikes the And and go that

moderate cycle. the growth throughout serve having will us well I can pretty some just So, that see us

Scott Gruber

-- There for you about time for right initial say, to to think make the were capacity not to, that hey; commitment as But and make Or conditions what you are it's commitment, XXXX to the right for initial you conditions not that would looking making it's time the start look that large. commitment? components? it's

Michael Doss

I the time. the Well, at right not would say moment, it's

to and -- or the become demand the And that good always And of we market we and think and so impact. -- we become is a a if an industrially overall. that the try what is if market is for sense see going supply tighter I has yes, strengthening overtime loser think get

data a pieces that As and you are hard know combine of to those they change lot.

hard on definite based and so it's be to And in information to make is supply demand you where think XXXX. going

We also XXXX, and of consider to source making. the decision potential think commodity going all strong that's if we demand we would it's XXXX into outlook. and go know price in a be our that And of that

Scott Gruber

color. Appreciate it. the Got all

Operator

Thank you.

question from next Thompson Our the Please line comes proceed. Barclays. William of with

William Thompson

morning. good Hey,

consumables monitoring fleet. per You reduce there opportunity quote or with vertically sensor backup need is and adopter your redundancy of horsepower the improve -- that? and our fleet opportunities fleet about improve utilization? asset fleet early Do there an in an on size are Is putting your equipment. integrated size You pumps you much that to kind XX,XXX you're the and to of manufacturing obviously

Michael Doss

per of The varying amounts horsepower having got for fleet you district, I multiple way of short really to at with there. we is is, is look multiple think an easy. when really locations answer individual truth is The XX,XXX conversation different math ease customers, we've mostly the the make yes. categorize

rotate the we way of other assets our the have in certain business number through. that of to our think we ways One can a have about we bullpen is

of horsepower or focus of wear that on is, location our against long-term equipment. is one key maximizing minimizing So, on

William Thompson

structural the to being the once good you then generate million you that. believe integrated? think savings to was $XX being deployed. annual a And quoted integrated? from Okay. you previously follow-up vertically a you on OpEx cost about vertically advantage believe update Can in of about I fully of expected maybe terms fleet That's of still number savings

Lance Turner

Yes.

think I a number. that's good still

higher this horsepower But it the a market I think year. market. a We pricing a the year haven't been it of and But with than earlier since refurbs still anything, nothing ago. there's it's grew If good updated bit little number. in

William Thompson

Okay. Thank you.

Operator

Thank you.

question from Cowen. Please comes proceed. of next Our Hunter the with line Jon

Jon Hunter

Hey guys.

second deployment release, the XX versus in out prior you early for So, June, laid per fleet timeframe in quarter. expectations July the

So, components in a is small finding up, driving redeployment I'm that? getting right that as interested kind right fleet customer causing of of what's delay kind or for it what's the

Michael Doss

base. that. is dedicated It right and pushed under just delay arrangement. that Sure. churn just Nothing mostly customer We right to do elected customer. decision it have to not the the want could We market a but the had We the unusual, little probably I deployment. also to impacted customer finding the in really spot into out our

it's market another didn't under just that, In relates or but it pricing, have terms mostly of just strong the nothing And dedicated right if it done the the equipment, we the customer problems, no and super delays customer. have could was good to that opportunity. would've deployed finding as to with we crewing, arrangement

Jon Hunter

it. Got

fleet And of And how second two the kind fleet XQ to during work EBITDA quarter, me later so the to per planning deployments are of XXth our average that other in those the the on on fleet? you level? for put then XXth for or the you're for Okay. similar discussions $XX is, year then does one million compared that a

Lance Turner

fleets specifically them closely a in I of month-to-month fleet with that get pretty narrow we our on band. are our work pretty ensure XX, all customers to to say in band. And monitor can't narrow but we that

So, each to fleets as be quarter. XXth around I as average new would expect well fleet that

Jon Hunter

Got it.

then last a one me. follow-up And kind Okay. from of

price reducing new pricing weaker establish much price remarks. the in to the market? the lowering How weakness versus is noted of in themselves of their larger -- existing prepared kind spot that from of entrants You competitors

Lance Turner

I of other. different of set really It's one hard It's ascribe think, the it. players, all than to

on have seen market. to come more horsepower the We

relative puzzling little so had this we've at And in least while in to drilling commodity delay drilling or slowdown prices.

are more come led competition that. really the players to and that on our in it's seen quite doing a horsepower bit market have that's and just We of

Jon Hunter

it. Got

Okay, taking questions. my you great. Thank for

Operator

Thank you.

of proceed. from comes the Fox Stone with Our question Harbor. next line Teresa Please

Teresa Fox

Hi. Thank you.

long-term had Did mentioned something $XXX you to about was CapEx you your this And flat. of want is year? do million. guide You that kept I expansion reduction your be debt by you wondering almost would Thank change utilization to to third just from the you're because reduction looks fulcrum the full it what debt like you. -- quarter. to be going CapEx

Lance Turner

So, majority on the deleveraging, is from to business utilize flow I towards to the expectation to think of that million. cash our $XXX delevering the get

everything because if we year, shift be that CapEx can of And kind target. Mike decision have likely discussed to will ago what certainly do first we the that CapEx, needs a this We optimized. of don't would so lot us to our would will. -- to and think and kind I on it maintenance to on growth. like. just And what fleet debt CapEx a deferred any to couple just a larger outlook But priority in of running in to going it I growth terms the be We're is minutes capacity hit keep we on expect market always be capacity of is our what depend

Teresa Fox

Okay. Thank you.

Lance Turner

little And we want debt we'll that to just flow. evaluate do cash we with hit free to a once what target, that add bit,

a debt half. that then either is so shareholders liquidity, down returns us further second become in could build-up the even paying for And something continuing to priority and

Teresa Fox

Okay.

Operator

& Simmons Instructions] you. Daniel line next [Operator John Co. Our proceed. from question Please Thank comes with the of

John Daniel

Mike for reactivate still or commentary dig how continuing further market balance does pricing be your if impact you being Are quarter wanted a commentary Hey capacity? and pricing we're spot to as and the to into good too. to Thanks moving think realist desires you it's just bit signs the that And seeing stabilized? lower, do lower is guys. more.

Michael Doss

Well, today, John, in question. recent I continuing great weeks, I to would erode. say that's think it's a this month

about our so see a ebb very If feel we I look it were a very environment, at we to as and it's net where deteriorate, gains an this overall at anticipate, holding instance but to in quarterly. line ebb. currently. that good which temporary these business. before, of issue. If have get every pricing we push ups commented dedicated on pricing transitional We're we continue and but flow on And not we're I most think would the it, And can. we don't reset them downs. arrangements, cost through, inflation we're There's achieving And in able to impact

on those additional, were is if holding we'd to of under revisit our two to today. from quarter priority continue our or But this to price. a for And customers be pressure so all

John Daniel

-- And would I it. further Got pause some probably would assume reactivations? lead that you on put

Michael Doss

It would.

John Daniel

Okay. curious, I just [Indiscernible] on months, any but have the on pause temporary which I'm make line? product the -- do -- to take might see XX not now, might you anything strategic have know call a you a on six debt next horizon, it, you reduction efforts the new

Michael Doss

have did would an really I if manufacturing keep story We that be those we in-house the to so. acquisition. benefits clean. think really don't I like Yes, deluded

that. balance we focused really see And repair. all so opportunity, get consider a will of wonderful just sheet that we we that completed on and If certainly

John Daniel

Okay. I appreciate time. your Thanks guys.

Michael Doss

you. Thank

Operator

you. Thank

comes Wells Please James proceed. the next question line Our of Fargo. Spicer with from

James Spicer

morning. good Hi,

continuing about talked to guys debt. You repay

that? kind do second-lien what notes? versus from facility wondering establishing you base to then loan is for your standard the continue see term perspective, And accomplish of for the term you'd longer target the example, credit if revolving to business, Just capital the a right structure

Lance Turner

Yes.

as tranche as we million will in far yesterday, $XX which off So, the loan. term paid target,

expensive in than more repay, slightly XXXX. soonest to currently, maturity, and it's the So the the -- easiest

is. amount target we the what think say we're on near-term, the far would outlook I as the depend long-term, will year, deleveraging as able of then And I to a in loan. term accomplish So, that probably the lot this of

got QX best the QX, we'll in but of that capital ultimately, what the we'll so how time. what we'll our And mid-year structure constantly in our look revolver and at look looking at are, results now, at maturities what at We've cash the place and look that. kind are much convert like

James Spicer

Okay. Thank you.

Operator

I'm call you. I Doss, to at time. you any this back will turn showing no questions for Thank remarks. further the Mr. closing

Michael Doss

participating for you We everyone speaking look you Well, today. Great. forward soon. thank with again to

Operator

gentlemen. and does and We call. you participation ladies conference your your please you, for you you conclude ask the Thank lines. that thank That disconnect

FTS International (FTSI) 1 May 182018 Q1 Earnings call transcript