Q4 2020 FTS International Inc Earnings Call
Ladies and go please standby your conference call will begin shortly and we thank you for your patience from you on the line and conference call I'll begin on just one minute.
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Thank you and good morning, everyone. We appreciate you joining us for the Fts International Conference call and webcast to review fourth quarter and full year 2020 results. As a reminder, this conference is being recorded for replay purposes and presenting today's prepared remarks is F. T S side's chief executive.
Officer, Michael Doss before.
Before we begin I would like to remind everyone that comments made on today's call that include management's plans intentions beliefs expectations anticipations or predictions for the future are forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095 day.
These forward looking statements are subject to risks and uncertainties that could cause the company's actual results to differ materially from those expressed and any forward looking statement.
These risks and uncertainties are discussed in the company and annual report on form 10-K, and and other reports the company files with the SEC.
Except as required by law. The company does not undertake any obligation to publicly update or revise any forward looking statements. The company's SEC filings may be obtained by contacting the company and are available on the company's website Fts Si dot com and on the SEC's website SEC Gov.
This conference call also includes discussions of non-GAAP financial measures. Our earnings release includes further information about these non-GAAP financial measures as well as reconciliations of these non-GAAP measures to their most directly comparable GAAP measure.
We do not provide forward looking reconciliations for forward looking non-GAAP measures because the timing and nature of excluded items are unreasonably difficult to fully and accurately estimate estimate on.
And now I'll turn the call over to Mike Doss Fts is CEO.
Well, thank you and good morning, everyone. Let me begin by saying that I'm glad to be back to doing earnings calls I couldnt be more excited to introduce a far stronger and more nimble F. Tsi.
And we emerged from our financial restructuring on November 19th and eliminated $488 million of debt and other liabilities.
I'd like to thank everyone involved and that process for a job well done and I'm, particularly pleased that we were able to complete the process efficiently and preserve some values for our prior shareholders.
Now with zero debt and $94 million and cash we have more financial flexibility than ever and we are 100% focused on our customers and on creating long term value for our shareholders.
For today's call.
And I'll start by going over our financial results for the fourth quarter and full year 2020.
I will then cover several operational accomplishments and conclude with some comments on our outlook.
I'll be discussing our financial results on a combined basis that is by combining the predecessor and successor periods that we are required to report the.
The predecessor period runs through November 19th.
Revenue for the fourth quarter was $49 8 million up from $32 1 million and the third quarter.
Both the third both the second and third quarters of last year were low points in terms of industry activity due to weak commodity prices, resulting from the effects of COVID-19.
And the Saudi Russian on.
Oil price war earlier and the year.
The increased revenue and the fourth quarter was due to more active fleets 10, five average fleets compared to seven three and the third quarter, we completed 5243 stages and the fourth quarter, that's up 60% from the third quarter.
Our revenue continues to reflect mostly equipment charges with only minimal pass through commodities.
This is a function of our customers' preferences and we remain agnostic instead, focusing our attention on margin dollars and operational performance we.
And we provided sand and last mile freight on only 2% of stages and the fourth quarter and.
And the third quarter.
Adjusted EBITDA was negative $5 2 million and the fourth quarter compared to negative $7 6 million and the third quarter the.
The improvement was primarily due to higher volume as prices were roughly the same and both quarters.
While we incurred fleet reactivation costs, and labor and repairs and both quarters, we do not add these numbers back and our EBITDA reconciliation.
As for the successor period from November 20th through year end, we had adjusted EBITDA of negative $5 8 million.
Most of that was due to holiday impacts as well as the timing of repair expenses much of which related to fleet reactivation.
In other words debt period is not indicative of the results that we're seeing and 2021.
SG&A was nine 8 million and the fourth quarter, including $1 $9 million on stock based compensation. This compares to $11 8 million and the third quarter, including.
$2 8 million and stock based compensation net income and the fourth quarter was $93 3 million.
But that includes a net benefit of $114 9 million from reorganization related items.
And our P&L going forward will be a lot cleaner now that the restructuring process is behind us.
Capital expenditures were $1 $8 million and the fourth quarter compared to $2 5 million and the third quarter.
We ended the year with 94 million and cash and $13 2 million of availability under our revolving credit facility.
We also had $12 7 million of restricted cash at year end included and other current assets.
Now turning to full year 2020 results revenue was $262 9 million compared to $776 6.002 million 19.
We averaged nine seven active fleets last year compared to $19 three.
And in 2019.
Adjusted EBITDA was essentially breakeven last year and that compares to $129 6.002 million 19.
SG&A was $52 5 million, including $11 3 million of stock based comp compared to $89 1 million, including $15 4 million of stock based comp in 2019.
The decrease was due to cost reductions taken in response to the drop off and activity.
And we expected SG&A, excluding stock based comp to be between 40% and 45.002 million 21.
Stock based comp also will decrease and 2021 as our new equity awards have a lower value than the old awards that were being amortized and the predecessor periods.
Yes.
Capital expenditures were $21 1.002 million 20.
With $16 4 million of that spend and the first quarter pre COVID-19.
Included in this amount is about $3 million for dual fuel upgrade kits.
Cash flow used and operations was $43 6.002 million 20, However that includes $54 4 million of cash payments associated with the restructuring process as well as San shortfall payments of $18 8 million and cash interest paid a $14 6 million and the predecessor period they will not.
Be continuing.
Total sand shortfall payments for the year were $31 3 million.
At $12 $5 million of that was associated with the restructuring.
Excluding all these items operating cash flow was positive for the year driven by a release of working capital.
As mentioned and our earnings release, we terminated all sand supply contracts.
In connection with our restructuring the carry on those contracts plus interest payments on the debt. We had totaled nearly $50 million per year cash. They will now have to invest and the business or returned to shareholders.
Moving on to operational updates, we set a company record of 632 stages per fully utilized fleet and the fourth quarter.
That's up from 579 stages per fully utilized fleet and the third quarter and way up from earlier periods.
Pumping hours per day per fleet continues to increase hit and a new high and the fourth quarter with fleets working for our most efficient customers routinely averaging 17 to 19 hours per day.
Frequently have days with fleets pumping over 20 hours.
Much progress has been made and achieving ever higher efficiency and recent years utilizing innovations and techniques to reduce time between stages and time between pads and that.
Are we pumping more hours per day and more days per month, but our equipment is also pumping some of the most demanding job designs out there in terms of rate and pressure.
All of our equipment has 15 K R.
And we're currently working closely with customers who are utilizing the <unk> technique that stimulates two wells simultaneously. We currently have two fleets performing simulcast.
These jobs from car more equipment and labor, but result, and outstanding productivity.
As customers continue to find ways to reduce completion costs. We expect this technique could gain traction.
Another area, where we have seen success and partnering with our customers relates to dual fuel and we currently have seven dual fuel fleets out in the field.
<unk> allows our customers to reduce fuel costs.
And depending on the relative price of diesel versus natural gas as well as reduce cotwo.
It costs us about $2 million to install a kit to upgrade a tier two fleet to dual fuel, which has a diesel displacement rate of approximately 50% depending on operating conditions.
We are working on software updates to optimize the utilization of our dual fuel pumps, which could further improve these diesel displacement rates. We're also evaluating the efficacy of fuel additives.
Next you may have seen in our press release yesterday I am pleased to announce that we have successfully field tested machine Iq or <unk> and.
And partnership with ACF technologies, <unk> is integrated into our Frac software and pump control and mimics the accuracy of our highly skilled operator.
And does so automatically and the fraction of a second <unk>.
<unk> constantly monitors equipment health and if it detects a problem with a pump that automatically shuts that pumped down and rebalance as the system to healthy pumps. This prevents more costly failures and does so with no downtime or the loss of rates that might otherwise affect performance relative to job design.
This is a major accomplishment and one that has been more than five years and theyre, making.
<unk> was much more than just equipment health monitoring and that has become commonplace and our industry. It has the artificial intelligence to take corrective to take corrective action without human intervention save a critical time.
This capability will improve our reliability reduce downtime increase efficiencies and improve safety.
Speaking of safety and I'm pleased to report that our total recordable incident rate or T. Our IR was 0.20 last year, a company record and far below the industry average of <unk> eight.
We also had no lost time incidents last year.
And can be more proud of our operations and HSE teams for doing an outstanding job of making safety of making the safety of our employees at priority each and every day.
Finally, let me provide some guidance on how we are performing so far and 2021 and as mentioned in our release, we are off to a strong start we currently have 13 fleets active.
And our efficiency numbers are strong of the 13 fleets six are in west, Texas for our and South, Texas and we have one each in Oklahoma, the northeast and Utah.
One of the South Texas fleets will soon go into West Texas.
Last month, all Frac companies were negatively affected by the severe winter storm that came through we estimate that we lost about 760 stages. Most locations shutdown for the weather itself, but then experienced lingering delays related to fuel and sand deliveries. Despite this.
We have seen pricing improvement that we expect will put us in.
EBITDA positive territory for the first quarter likely a single mid digit figure.
As for the second quarter. We are currently working with customers on additional price increases that will improve our results further we believe the market and our performance supports higher pricing.
And we are optimistic about the remainder of the year.
Capex for the first quarter will be relatively life and for the full year 2021, we currently expect to spend roughly $2 5 million per average active fleet for maintenance.
Separately, we are actively considering investments and lower emissions equipment to assist our customers and achieving their ESG objectives. We liked the performance of the new cat tier four DGB engines, but have not yet made any decisions.
We also are monitoring developments and electric Frac equipment.
We continue to believe that there is room for more innovation in this area and that the economics are not currently justified, but we're starting to see some interesting ideas that could soon change the equation.
That's all I have for prepared remarks, operator, let's now open the lines for questions.
Thank you very much and if you'd like to register a question.
Please press the one provides a four on your telephone.
History total prompt took nausea requests.
And if your question has been answered and I'd like to draw your registration and it's the one followed by day three.
And once again on the funds from any questions or comments you may have for today and if the one four on your telephone keypad.
One moment please for our first question.
And we'll get to our first question on the line from Ian Macpherson with Simmons and go right ahead with your question.
Hi, Thanks, Good morning, Michael appreciate all of the.
The color there on the operations it sounds like things are going very well.
And I'd love to hear a little more on Simon <unk>.
How much how much of a step up and horsepower per fleet is.
As normal for conducting a simultaneous <unk> and then have you.
And what type of <unk>.
Maintenance savings do you think Oh.
And so you see you derive from that from from pooling.
Last one the horsepower.
And that configuration.
Yes, it's not a not a significant difference and maintenance costs, but in terms of equipment, it's roughly one five fleets worth of equipment and.
It will vary based on the rate and pressure requirements, but.
The two locations that we currently have about a fleet and a half where day of equivalent.
Okay. Good thanks.
And then.
This.
Reflecting on your.
You knew balance sheet after you've come through congratulations on that.
And clearly your your new valuation.
This is a significant.
Discount to the public peers based on your new balance sheet.
And I'm sure that's something that you are looking at and thinking about strategically do you think that the.
Landscape is ripe for continued consolidation and how do you see.
You all participating in that regard itself.
Well as you mentioned with our with our clean balance sheet and liquidity.
And now and are positioned to be able to productively participated consolidation, whereas previously I think there was always a question about the debt maturities and and what was going to happen with the company. So I think we're in great and a great shape to consider opportunities where.
And we're interested.
And so.
We think theres a couple of potential combinations that could occur out there I can't really speculate on that but other than just to say that we are interested in and we think that.
Consolidation will either with us or other players and the market and will continue to happen over the next year or two.
Do you think that the pricing power and the business right now, which is improving but it's obviously improving off of a low valley and <unk>.
Far from where you would like for it to be do you think debt consolidation is.
And needle mover for getting a better competitive structure and.
More price and power that's needed for your business.
Potentially it would depend on what type of commercial synergies are involved for example, if it's if it helps improve geographic diversification and access to different types of customers. There could be some benefit on that I don't think consolidation itself will do a whole lot for pricing unless it was at the industry wide level.
And I think if the industry itself became a lot more consolidated with fewer players I think you'd see more pricing discipline.
But just for any particular company I think the real benefits would come from the cost savings involved elimination of duplicate expenses and and.
And just having more purchasing power and so forth.
Certainly.
Hey, Michael Thanks for taking my questions I appreciate it.
Thank you.
Thank you very much and once again and as a reminder to register any questions or comments you may have on today's speakers you may do so by pressing one four on your telephone keypad.
We'll get to our next question on the line from Steven can Garo and Stifel go right ahead.
Thank you good morning, gentlemen.
I guess two things one.
When you talk about that.
DGB.
Tier four assets and.
Looking into them a bit when you think about it.
And investment decision like debt.
What are your key parameters as far as sort of visibility on demand and returns et cetera.
Well I think for us.
One of the benefits is gaining access to a new customer and so a customer that is and it has high utilization.
And which is critical to profitability.
Profitability.
And certainly if we were to build a fleet for a customer would want to have that fully utilized we would want to have a contract with some term associated with it and also good Ts and CS and so it's just it's an opportunity for us to build a bit of a high grade if you will.
And so I think in terms of return.
I think Kevin it's two to three year payback is a reasonable starting point.
And then we would just consider the other benefits that would that would come along with that particularly in terms of customer mix.
Thank you and then when you.
Just sort of from your from your perspective on that so when you look at these dual fuel fleets are the fleets and.
And maybe this even ties in a little bit to my other question, which was sort of about about pricing around simulcast <unk> and how you get compensated for that.
Do you do you believe that Youll start to see this bifurcation and the market where these these higher quality assets will command.
On a more material premium.
Well, that's a good question and certainly on the minds of a lot of analysts and investors and the space.
And.
Just my personal opinion I'm not totally convinced that there's a significant bifurcation.
And I do view electric fleets as as I mentioned and my comments I think theres a lot of innovation on the come and Thats in that space and so there are some interesting ideas.
Relatively early innings and.
Sure.
So I think the fleets that are out there still are a bit of a niche and.
I think as far as tier four.
When we Frac company wants to have large independent E&P companies as customers.
They are going to have ESG mandates and so theyre going to be looking for every opportunity to reduce emissions and so tier four definitely fits into that electric fits into that.
And.
So I think there will be some bifurcation, but I still think that the larger market is well served with with existing equipment.
Okay, great and if I could slip and Walmart.
You mentioned your maintenance Capex per fleet numbers.
You said, you basically had 13 active fleets today and the press release.
As you look forward and adding fleets.
Im sure Theres, a tier to this but how do we think about reactivation and if you went from 13 to 15 or 16, and then <unk> how do we think about.
Is there a material reactivation costs and the near term or is it just get more significant as you kind of get deeper into your asset base.
Yes, it's the it's the latter and so as we get deeper and if we were to go back up to $25 26, plus fleets. Those last few fleets would probably cost $6 seven and $8 million.
In terms of rebuild cost and refurbishment expenses that need.
Need to incur on the front and going from 13 to 14 to 15 16.
Maybe $1 million or two per fleet.
And a lot of that would be expense fluid ends for example.
So not a lot on the front end of that and I will say that.
And then if we did get into a market.
Fts is running $25 26, plus fleets.
That's got to be a strong market and the economics would provide a very quick payback on those reactivation expenses.
Great very good thank you for the color.
Sure.
And we'll proceed to our next question on the line from the line of Shao Mitchell with Daniel and Energy Partners go right ahead.
Thanks, guys for taking my my question I wanted to go back to what Ian was talking about on the simulcast <unk> I think you mentioned, one and a half additional fleets. So in terms of horsepower.
What about people.
On the job in terms of how many per.
Is there is a reduction in personnel available for efficiency gains and then the second question would just be around the labor market. In general you guys. Obviously are going grow and the fleet count which is great to see and I think some others are seeing some of the.
A similar activity pick up what's the labor market looks like and can you give us any color on that front.
Yes sure.
On to the final Frac in terms of resources required on location.
And so.
And it's $1 five fleets worth of equipment.
Repair cost per hour or slightly less.
And then I think if you look at labor, it's roughly about the same number of <unk>.
Crew members on on location, maybe one or two more just given the additional pumps, but not dramatically more so youre getting a lot more volume spread over.
<unk> cost and so.
Lot of those economics flow through to the customer.
But we are but we do think theres pricing and improvement potential on the sample for acts as a result of that the performance is good it's not widely practiced.
But we think it could gain some traction.
And it helps the customer and it and it helps us as well and so.
In terms of labor haven't had any difficulties with with Crewing up our recent fleet reactivation.
There is still ample workforce available I think if we were to see another significant leg up.
I think everyone is a little surprised that we've got as many fleets working.
At the industry level now as compared to what we may have thought three or four months ago. So that was a big leg up if we were to see another leg up which we're not anticipating then I think we see some some greater attention in terms of.
Wages and.
Ability to hire.
Hey, Thanks, guys. Thanks for that.
Yes.
But is there any further comment on that I think the one variable component on the labor piece is because theres additional assets required to get the location it.
It takes a little bit more labor, that's a little more labor intensive rigging up and rigging down but during the normal course of operations is the same so we managed to kind of flex around with some of our other fleets that may or may not be and a move situation and offset it that way.
Alright, that's great. Thanks, guys.
And.
Thank you very much and.
And I should also be I have no further questions on the line I'll turn it back to you.
Okay, well. Thank you everyone for your interest.
Yes, I apologize go ahead before concluding and if that's okay. I have one question that just queued up.
Oh sure.
Very good. Thank you and we'll proceed with a question on the line of Andrew Clash with FGF go right ahead.
Hey, guys. Thanks for taking my question I was wondering if you could discuss the profitability outlook into Q2. It sounds like Q4 was burdened with startup costs and.
And four months ago pricing and of course, Q1, and I was the weather impact so any color on go forward profitability would be helpful. Thank you.
Yeah, you know, it's hard to give a lot of crystal guidance on that because were currently negotiating across a number of customers right now for pricing for second quarter.
So.
But it's definitely headed up into the right.
And in terms of we've already achieved some pricing improvements already agreed on and so and I mentioned this the single mid digit EBITDA number four for the first quarter results still kind of a transitional period and first quarter I think second quarter and I think we will.
Yes.
Quite a bit higher double digit number for EBITDA.
That's my appreciate that thank you guys again try and guess yep.
Thank you very much and.
You should ask we have no questions on the line and I'll turn it back to you once again for any closing remarks.
Okay, we'll get deal well. Thank you everyone for your interest and Fts Si.
We look forward to speaking with you again next time.
Thank you very much and thank you everyone that does conclude the conference call for today. We thank you for your participation and ask to disconnect. Your lines have a good day everyone.
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