INVESTOR PRESENTATION FEBRUARY 2019

Transcription

1 INVESTOR PRESENTATION FEBRUARY 2019

2 FORWARD-LOOKING STATEMENTS Cautionary Statement Regarding Forward-Looking Statements The statements contained in this presentation and any oral statements made in connection with this presentation that are not historical facts are forward-looking statements as defined in the Private Securities Litigation Reform Act of Words such as may, will, could, should, expect, plan, project, intend, anticipate, believe, estimate, predict, potential, pursuant, target, continue, and similar expressions are intended to identify such forward-looking statements. The statements in this presentation that are not historical statements, including statements regarding the Company s plans, objectives, future opportunities for the Company s services, future financial performance and operating results, the preliminary fourth quarter financial and operational results, the reactivation of fleets, the number of average active fleets in the first quarter 2019, the annualized adjusted EBITDA per fleet, pricing pressure in the first quarter 2019, targeted debt and free cash flow levels, further deleveraging, returns to stockholders, the estimates relating to our value proposition and any other statements regarding FTSI s future expectations, beliefs, plans, objectives, financial conditions, assumptions or future events or performance that are not historical facts, are forward-looking statements within the meaning of the federal securities laws. These statements are subject to numerous risks and uncertainties, many of which are beyond FTSI s control, which could cause actual results to differ materially from the results expressed or implied by the statements. These risks and uncertainties include, but are not limited to the operations of FTSI; results of litigation, settlements and investigations; the final terms of new and renegotiated supply and customer contracts; actions by third parties, including governmental agencies; volatility in customer spending and in oil and natural gas prices, which could adversely affect demand for FTSI's services and their associated effect on rates, utilization, margins and planned capital expenditures; global economic conditions; excess availability of pressure pumping equipment, including as a result of low commodity prices, reactivation or construction; liabilities from operations; weather; decline in, and ability to realize, backlog; equipment specialization and new technologies; shortages, delays in delivery and interruptions of supply of equipment and materials; ability to hire and retain personnel; loss of, or reduction in business with, key customers; difficulty with growth and in integrating acquisitions; product liability; political, economic and social instability risk; ability to effectively identify and enter new markets; cybersecurity risk; dependence on our subsidiaries to meet our long-term debt obligations; variable rate indebtedness risk; FTSI s financial closing procedures, final adjustments and other developments that may arise between the date of this presentation and when results for the fourth quarter 2018 are finalized; and anti-takeover measures in our charter documents. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained from time to time in FTSI's Securities and Exchange Commission ( SEC ) filings, including the most recently filed Forms 10-Q and 10-K. FTSI's filings may be obtained by contacting FTSI or through FTSI's website at or through the SEC's Electronic Data Gathering and Analysis Retrieval System (EDGAR) at FTSI undertakes no obligation to publicly update or revise any forward-looking statement except as required by law. Statements made in this presentation include non-gaap financial measures. The required reconciliation to GAAP financial measures are included at the end of this presentation. The financial and operational results for the fourth quarter 2018 included in this presentation are preliminary and unaudited and represent the most current information available to management and are based on calculations or figures that have been prepared internally by management and have not been reviewed or audited by FTSI s independent registered public accounting firm. FTSI s actual results may differ materially from these preliminary financial and operational results due to the completion of FTSI s financial closing procedures, final adjustments and other developments that may arise between the date of this presentation and when results for the fourth quarter 2018 are finalized. The preliminary financial and operational results included in this presentation are subject to risks and uncertainties and should not be viewed as a substitute for full financial statements prepared in accordance with GAAP. FTSI expects to release fourth quarter 2018 and full year 2018 results on February 28, Nothing in this presentation shall constitute a solicitation to buy or an offer to sell shares of FTSI's common stock. 2

3 IMAGINE MORE Too often, we settle. We settle for the average. The ordinary. The run of the mill. We tell ourselvesthisisjustthewayit is.thisisasgoodasitgets.and that we should simply accept what is presented, and make do. But, wouldn t it be nice to give ourselves permission to imagine more? FTSI is a company where imagining more isn t just encouraged, it s expected. It s a place where limits simply don t exist. And the opportunity to succeed is within everyone s grasp, every single day.

4 COMPELLING INVESTMENT THESIS Large, pure play provider of hydraulic fracturing services Market leading positions in the most active basins 1.7 million total HHP across 34 total fleets (1) with idle fleets ready to be reactivated quickly and cost effectively Vertically integrated with in house manufacturing that drives what we believe are the lowest opex and capex requirements in the industry Culture built on safety and innovation Low cost structure allows us to maximize returns in any market Highest free cash flow yield in the industry 3Q annualized yield was 18% (2) (1) Including one newbuild fleet (50,000 HHP) under construction. (2) Annualized yield calculated by taking third quarter 2018 free cash flow, excluding changes in operating assets and liabilities and multiplying it by four; then dividing by common shares outstanding; then dividing the result by the third quarter 2018 VWAP. Please see page 22 for reconciliation of free cash flow and free cash flow, excluding changes in operating assets and liabilities, to net income. 4

5 OPERATIONAL FOOTPRINT IN ACTIVE BASINS Currently have 20 fleets active and expect to deploy one or two additional fleets in 1Q 19 Midcontinent Active Fleets 1 District Location Elk City, OK Marcellus/Utica Shale Active Fleets 3 District Location Washington, PA Permian Basin Active Fleets 12 District Location Odessa, TX Eagle Ford Shale Haynesville Shale Active Fleets 1 District Location (1) Longview, TX Active Fleets 3 District Location Pleasanton, TX (1) Overhead functions are consolidated with other locations Legend Corporate Headquarters (Fort Worth, TX) Manufacturing Facility (Fort Worth, TX) Maintenance & Refurb Facility (Aledo, TX) District Locations 5

6 LEADER IN PROFITABILITY & EFFICIENCY Consistently among industry leaders in margins, annualized EBITDA per fleet and capex per fleet Significant economies of scale, yet nimble Strong operational performance combined with flexible commercial strategy $ in millions $200 $150 $100 $50 $ Adjusted EBITDA Performance (1) $21 $21 $20 $19 $17 $16 $13 $139 $141 $127 $129 $95 $4 $87 $63 $20 (2) (3) 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 Adjusted EBITDA Annualized Adj. EBITDA per Fleet $25 $20 $15 $10 $5 $ (1) See page 18 for a reconciliation of Adjusted EBITDA and Adjusted EBITDA, excluding supply commitment charge, to net income. (2) 3Q18 Adjusted EBITDA and Annualized Adjusted EBITDA per fleet exclude a $10 million supply commitment charge. Please see FTSI s 10Q filed with the SEC on October 30, 2018 for more information on this charge. (3) 4Q18 Adjusted EBITDA represents the midpoint of the range provided in the preliminary fourth quarter 2018 financial and operational results filed with the SEC on February 11,

7 VERTICAL INTEGRATION DELIVERS SIGNIFICANT COST ADVANTAGES Operating Expenses Maintenance Capex Growth Capex We manufacture our own fluid ends and perform substantially all recurring maintenance in house We perform all engine, transmission and blender refurbs in house We manufacture and rebuild all of our own power ends We build all of our new fleets and implement design enhancements Ancillary equipment like blenders also built in house ~50% cost advantage versus buying fluid ends from third parties ~$2.5 million per fleet per year; one of the lowest maintenance capex requirements in the industry Newbuild cost of ~$25 million per 50k HHP fleet including all ancillary equipment Outstanding Returns on Investment 7

8 CENTRALIZED FLEET MONITORING ENABLES CONSISTENT, RELIABLE OPERATIONS National Operations Center operates 24/7, monitoring real time job and equipment data Centralized location of engineering functions enables sharing of knowledge and best practices across organization Dedicated workstation for each fleet Assists in development of equipment automation algorithms Enhances customers data analytics capabilities 8

9 OTHERS WAIT WHILE WE CREATE Only top 1% of the market fully leverages 21 st century technology to optimize equipment performance and design 2016 Stage 1 Catch Failures 2017 Stage 2 Reduce Damage Stage 3 Change Behavior Smoke detector model Immediate identification of anomalies We began monitoring vibrations on all of our fleets allowing us to create a baseline of normal operating conditions Cloud based machine health monitoring Early warnings based on predicative models that leverage historical data Utilized vibration signatures to augment operations and reduce damage accumulation Identify and mitigate root causes of failure Led to re designs of our fluid ends to allow for longer life and materials cost optimization Supported re design of other components to reduce wear and tear upstream from our pumps 9

10 CULTURE OF INNOVATION PAYS DIVIDENDS......AND WE THINK IT IS ONLY THE BEGINNING We Increased Fluid End Life Over 45% in Which Helped Bring Non Productive Time (NPT) Down by >25% Minimizing NPT time is a major focus at FTSI and has helped improve customer satisfaction Pumping Hours per Fluid End Q '18 Fluid End Spend per Pumping Hour Non Pumping Time per Pumping Day 1H18 Pump Time per Pumping Day 2H18 Ongoing Initiatives National Operations Center (NOC) NOC has helped reduced engineering costs by >40% since the opening of the NOC while also enabling sharing of best practices Faster recognition of equipment issues on site enables costsaving preventative maintenance Ability to identify and differentiate human error from normal equipment wear in real time Data Analytics Data analytics and additional equipment sensors have enabled: Major repairs in 2018 accounted for 4% of work orders compared to 7% in 2017 Average cost of repairs in 2018 was down 18% compared to 2017 Continued design enhancements of fluid ends Initial steps toward equipment automation 10

11 RETURNS-FOCUSED APPROACH ~$18mm EBITDA per fleet (1) ~$2.5mm Maintenance capex per fleet Zero Effective federal tax rate (2) Best in class free cash flow Solid operational execution with a focus on efficiency Low operating expenses, low SG&A, and low maintenance capex Tax amortization of goodwill and NOLs eliminate cash taxes (1) Represents preliminary estimate of 2018 Adjusted EBITDA per fleet. Utilizes Adjusted EBITDA, excluding a supply commitment charge, for 3Q Utilizes the midpoint of the range provided in the preliminary fourth quarter 2018 financial and operational results filed with the SEC on February 11, 2019 for Q Adjusted EBITDA. (2) Due to tax amortization of intangible assets and utilization of net operating loss carryforwards. 11

12 CASH GENERATION FTSI IS BEST IN THE BUSINESS Free Cash Flow Comparison (1) Adjusted EBITDA Less Capex Comparison (2) $307M $388M $309M $116M FTSI Peer 1 Peer 2 Peer 3 Peer 4 Peer 5 Peer 6 Peer 7 FTSI Peer 1 Peer 2 Peer 3 Peer 4 Peer 5 Peer 6 Peer 7 / 2017 / LTM 3Q18 / 2017 / LTM 3Q18 FTSI generated over $300 million of FCF over the LTM (3), $225 million more than closest peer Vertical integration and focus on efficiency enabled FTSI to generate nearly $400 million in EBITDA less Capex over the LTM (3), $135 million more than closest peer (1) Free cash flow is defined as Cash Flows from Operating Activities less Capital Expenditures. See page 21 for a calculation of FTSI s free cash flow. Peer set includes: CJ, FRAC, LBRT, PTEN, PUMP, RES, SPN. (2) Peer set includes: CJ, FRAC, LBRT, PTEN Pressure Pumping Segment, PUMP, RES, SPN. FTSI Adjusted EBITDA excludes a $10 million non cash supply commitment charge recorded in 3Q PUMP Adjusted EBITDA includes loss on disposal of assets, which represents the fluid ends that the company capitalizes (all other peers expense fluid ends costs). See page 19 for a reconciliation of FTSI s Adjusted EBITDA less Capital Expenditures to Net Income (Loss). (3) Last twelve months ended September 30,

13 CONSISTENT DELEVERAGING $ in millions $1,400 $1,200 $1,000 $1,081 $1,069 $1,014 $922 ~$750M reduction in net debt $800 $600 $400 $580 $509 $398 $508 $330 $447M more than IPO proceeds $200 $ 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 Net Debt (1) (2) Gross Debt Since the beginning of 2017 we have significantly reduced our debt to a very manageable level and will continue to delever in 2019 (1) Excludes unamortized discount and debt issuance cost. Calculated as total principal amount of debt less cash and cash equivalents. See page 20 for a reconciliation of net debt, excluding unamortized discount and debt issuance costs, to long term debt debt. (2) Represents principal amount of debt commonly referred to as gross debt. 13

14 FTSI S VALUE PROPOSITION Given the illustration below, we believe FTSI receives little credit for its in house manufacturing and tax saving attributes, which provide us with a substantial cash flow advantage over our peers Illustrative Sum of the Parts Starting Point: Public Valuation of FTSI $1.2B Market cap as of Feb. 8, 2019 plus long term debt, less cash and cash equivalents as of Dec. 31, 2018 Less: Est. Value of In house Manufacturing Savings $630M Estimated annual operating expense of ~$70M (on 20 fleets) times median equipment manufacturer EBITDA multiple of 9x (1) Less: Est. Value of Tax Saving Attributes (2) $320M Approximately $3B of tax saving attributes times 21% assumed tax rate discounted for 15 years at 10% Implies: Est. Value of FTSI Operations $250M ~$150 per HHP (3) ~$2.50 per Share (4) ~1.3x 19 Consensus EBITDA (5) Once you back out the estimated value of our in house manufacturing and tax attributes you are left with a low valuation on the core of our business (1) Per FactSet as of February 8, Equipment Manufacturer peer set includes: CFX, DOV, GDI, OIS, WEIR. Estimates are based on calculations of figures that have been prepared internally by management and we cannot provide any assurances that others would attribute the same value to our in house manufacturing capabilities. See Cautionary Statement Regarding Forward Looking Statements. (2) A Section 382 change of control event could defer or limit the tax benefits depending on the value of the company at the time of a change in control event. We cannot provide any assurances that we will be able to utilize all or any of the tax attributes described above, See Cautionary Statement Regarding Forward Looking Statements. (3) Based on 1.7M total HHP (including one newbuild fleet). (4) Based on common shares outstanding at September 30, (5) Consensus EBITDA adjusted to exclude $70M of in house operating expense savings to eliminate double counting of savings in illustrative sum of the parts. Consensus EBITDA per FactSet as of February 8,

15 OPERATIONAL UPDATE Adapting Quickly to Changing Environment... Based on discussions with our customers, we currently expect to deploy one or two additional fleets in the first quarter 2019 Ample idle capacity and ability to reactivate quicker than competition should facilitate market share gains upon a market recovery Average Active Fleets Efforts focused on deployments under dedicated agreements 18 4Q '18 Actual 1Q '19 Estimate...However Pricing Still Challenging... Pricing was slightly lower than expected in 4Q 18 due to further market compression and commodity price uncertainty Pricing pressure has continued in the first quarter 2019, which will lower our annualized adjusted EBITDA per fleet further...but Expect Consistent Cash Flow That Supports Continued Deleveraging Continue to generate positive cash flow further deleveraging our balance sheet Repaid $57M of debt since September 30, 2018 and over $620M in 2018 Net Debt ($M) $450 $400 $350 $300 $398 $330 3Q '18 4Q '18 15

16 APPENDIX

17 ADJUSTED EBITDA RECONCILIATION ($ in millions except average active fleets) Preliminary Results Preliminary Results Three Months Ended Year Ended Three Months Ended Three Months Ended Dec 31, 2018 Year Ended Dec 31, 2018 Mar 31, 2017 Jun 30, 2017 Sep 30, 2017 Dec 31, 2017 Dec 31, 2017 Mar 31, 2018 Jun 30, 2018 Sep 30, 2018 Low High Low High Net income (loss) $ (20.1) $ 44.3 $ 83.6 $ 92.9 $ $ 78.7 $ $ 49.6 $ 24.6 $ 26.6 $ $ Interest expense, net Income tax (benefit) expense (0.1) (0.1) Depreciation and amortization (Gain) loss on disposal of assets, net (0.4) (0.4) (0.8) 0.2 (1.4) 0.5 (0.2) (0.1) (0.3) (0.3) (0.1) (0.1) Gain on insurance recovery (2.6) (0.3) (2.9) (Gain) loss on extinguishment of debt, net (0.9) (0.9) Stock based compensation Adjusted EBITDA Average active fleets Annualized Adjusted EBITDA per fleet $ 4.0 $ 15.6 $ 20.5 $ 21.1 $ 16.0 $ 18.8 $ 20.2 $ 12.8 $ 13.3 $ 17.2 $ 17.3 Add: supply commitment charge Adjusted EBITDA, excluding supply commitment charge Average active fleets Annualized Adjusted EBITDA, excluding supply commitment charge, per fleet $ 17.4 $ 17.7 $ 17.7 Adjusted EBITDA is a non GAAP financial measure that FTSI defines 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; and acquisition or disposition transaction costs. 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 the business for comparable periods and Adjusted EBITDA 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. The Company believes Adjusted EBITDA is an important indicator of operating performance because it excludes the effects of its capital structure and certain non cash items from its operating results. Adjusted EBITDA is also commonly used by investors in the oilfield services industry to measure a company's operating performance, although FTSI s definition of Adjusted EBITDA may differ from other industry peer companies. Please see FTSI s 10Q filed with the SEC on October 30, 2018 for more information about the supply commitment charges, and why management believes this charge should be excluded from 3Q18 results for comparability purposes with prior periods. 17

18 ADJUSTED EBITDA LESS CAPITAL EXPENDITURES RECONCILIATION ($ in millions) Three Months Ended Year Ended Three Months Ended Last Twelve Months Ended Mar 31, 2017 Jun 30, 2017 Sep 30, 2017 Dec 31, 2017 Dec 31, 2017 Mar 31, 2018 Jun 30, 2018 Sep 30, 2018 Sep 30, 2018 Net income (loss) $ (20.1) $ 44.3 $ 83.6 $ 92.9 $ $ 78.7 $ $ 49.6 $ Interest expense, net Income tax expense Depreciation and amortization (Gain) loss on disposal of assets, net (0.4) (0.4) (0.8) 0.2 (1.4) 0.5 (0.2) (0.1) 0.4 Gain on insurance recovery (2.6) (0.3) (2.9) Loss on extinguishment of debt, net Stock based compensation Adjusted EBITDA $ 20.0 $ 86.8 $ $ $ $ $ Add: supply commitment charge Adjusted EBITDA, excluding supply commitment charge $ 95.0 $ Less: capital expenditures $ (6.7) $ (13.1) $ (13.6) $ (30.6) $ (64.0) $ (37.8) $ (28.5) $ (18.6) $ (115.5) Adjusted EBITDA less capital expenditures $ 13.3 $ 73.7 $ $ $ $ 91.3 $ $ 76.4 $ Adjusted EBITDA is a non GAAP financial measure that FTSI defines 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; and acquisition or disposition transaction costs. Adjusted EBITDA, excluding a supply commitment charge, is a non GAAP measure that further adjusts Adjusted EBITDA to exclude a supply commitment charge. The most comparable financial measure to Adjusted EBITDA, excluding a supply commitment charge, under GAAP is net income or loss. Adjusted EBITDA, excluding a supply commitment charge, is used by management to evaluate the operating performance of the business for comparable periods and Adjusted EBITDA is a metric used for management incentive compensation. Adjusted EBITDA, excluding a supply commitment charge, should not be used by investors or others as the sole basis for formulating investment decisions, as it excludes a number of important items. The Company believes Adjusted EBITDA, excluding a supply commitment charge, is an important indicator of operating performance because it excludes the effects of its capital structure and certain non cash items from its operating results. Adjusted EBITDA is also commonly used by investors in the oilfield services industry to measure a company's operating performance, although FTSI s definition of Adjusted EBITDA may differ from other industry peer companies. Please see FTSI s 10Q filed with the SEC on October 30, 2018 for more information about the supply commitment charges, and why management believes this charge should be excluded from 3Q18 results for comparability purposes with prior periods. 18

19 NET DEBT RECONCILIATION ($ in millions) Mar 31, 2017 Jun 30, 2017 Sep 30, 2017 Dec 31, 2017 Mar 31, 2018 Jun 30, 2018 Sep 30, 2018 Dec 31, 2018 Senior floating rate notes due June 2020 $ $ $ $ $ $ $ $ Term loan due April Senior notes due May Total principal amount of debt 1, , , , Less: unamortized discount and debt issuance costs (17.7) (16.7) (15.7) (13.6) (7.8) (6.5) (5.5) (4.7) Long term debt 1, , , , Add: unamortized discount and debt issuance costs Total principal amount of debt 1, , , , Less: cash and cash equivalents (126.7) (138.5) (193.8) (208.1) (155.5) (126.3) (167.2) (177.8) Net debt, excluding unamortized discount and debt issuance costs $ 1,080.6 $ 1,068.8 $ 1,013.5 $ $ $ $ $ Net debt, excluding unamortized discount and debt issuance costs, is a non GAAP financial measure that FTSI defines as total principal amount of debt (also referred to as gross debt) less cash and cash equivalents. The most comparable financial measure to net debt, excluding unamortized discount and issuance costs, under GAAP is principal long term debt. Net debt, excluding unamortized discount and issuance costs, is used by management as a measure of our financial leverage. Net debt, excluding unamortized discount and issuance costs, should not be used by investors or others as the sole basis in formulating investment decisions as it does not represent the Company s actual indebtedness. 19

20 FREE CASH FLOW RECONCILIATION ($ in millions) Three Months Ended Year Ended Three Months Ended Last Twelve Months Ended Mar 31, 2017 Jun 30, 2017 Sep 30, 2017 Dec 31, 2017 Dec 31, 2017 Mar 31, 2018 Jun 30, 2018 Sep 30, 2018 Sep 30, 2018 Net income (loss) $ (20.1) $ 44.3 $ 83.6 $ 92.9 $ $ 78.7 $ $ 49.6 $ Add: non cash items Depreciation, depletion and amortization $ 20.7 $ 21.1 $ 83.8 Stock based compensation Amortization of debt discounts and issuance costs Impairment of assets and goodwill Loss on disposal of assets (0.4) (0.4) (0.8) 0.2 (1.4) 0.5 (0.2) (0.1) 0.4 Gain on insurance recovery (2.6) (0.3) (2.9) Loss on extinguishment of debt Inventory write down Acquisition earn out adjustment Other non cash items (0.7) (0.3) Net income adjusted for non cash items (1.1) Changes in operating assets and liabilities (30.2) (42.8) (38.5) 2.7 (108.8) (37.4) (30.7) 53.5 (11.9) Net cash provided by (used in) operating activities (31.3) Less: capital expenditures (6.7) (13.1) (13.6) (30.6) (64.0) (37.8) (28.5) (18.6) (115.5) Free cash flow $ (38.0) $ 9.7 $ 55.2 $ 89.1 $ $ 36.5 $ 70.7 $ $ Free cash flow is a non GAAP financial measure that FTSI defines as net cash provided by (used in) operating activities less capital expenditures. The most comparable financial measure to free cash flow under GAAP is net cash provided by (used in) operating activities. Free cash flow is used by management to evaluate our ongoing business operations. Free cash flow should not be used by investors or others as the sole basis for formulating investment decisions, as it excludes important items. This calculation is commonly used as a basis for investors to evaluate and compare the operating performance and value of companies within our industry, although FTSI s definition of free cash flow may differ from other industry peer companies. 20

21 FREE CASH FLOW, EXCLUDING CHANGES IN OPERATING ASSETS AND LIABILITIES, RECONCILIATION ($ in millions except VWAP and Common S/O) Three Months Ended Sep 30, 2018 Net income (loss) $ 49.6 Add: non cash items Depreciation, depletion and amortization 21.1 Stock based compensation 3.2 Amortization of debt discounts and issuance costs 0.5 Impairment of assets and goodwill Loss on disposal of assets (0.1) Gain on insurance recovery Loss on extinguishment of debt 0.6 Inventory write down Acquisition earn out adjustment Other non cash items 0.7 Net income adjusted for non cash items 75.6 Changes in operating assets and liabilities 53.5 Net cash provided by (used in) operating activities Less: capital expenditures (18.6) Free cash flow $ Less: Changes in operating assets and liabilities (53.5) Free cash flow, excluding changes in operating assets and liabilities 57.0 Annualized free cash flow, excluding changes in operating assets and liabilities Volume weighted average price for FTSI common stock in 3Q18 (1) 11.8 Common shares outstanding Free cash flow yield, excluding changes in operating assets and liabilities 17.7% Free cash flow is a non GAAP financial measure that FTSI defines as net cash provided by (used in) operating activities less capital expenditures. Free cash flow, excluding changes in operating assets and liabilities, is a non GAAP financial measure that further adjusts free cash flow to exclude changes in operating assets and liabilities. The most comparable financial measure to free cash flow, excluding changes in operating assets and liabilities, under GAAP is net cash provided by (used in) operating activities. Free cash flow, excluding changes in operating assets and liabilities, is used by management to evaluate our ongoing business operations. Free cash flow, excluding changes in operating assets and liabilities, should not be used by investors or others as the sole basis for formulating investment decisions, as it excludes important items. This calculation is commonly used as a basis for investors to evaluate and compare the operating performance and value of companies within our industry, although FTSI s definition of free cash flow, excluding changes in operating assets and liabilities, may differ from other industry peer companies. (1) Per FactSet. 21