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FTS International, Inc. (NYSE:FTSI)
Q3 2019 Earnings Call
Nov 5, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings and welcome to the FTS International Third Quarter 2019 Earnings Call. During the presentation all participants will be in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded Tuesday, November 5, 2019.

I would now like to turn the conference over to Michael Messina, please go ahead.

Michael Messina -- Associate of Finance and Investor Relations

Thank you and good morning everyone. We appreciate you joining us for the FTS International conference call and webcast to review third quarter 2019 results. Presenting today's prepared remarks is Mike Doss, CEO; who will also be joined by Lance Turner, CFO; and Buddy Petersen COO for the Q&A portion of the call.

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 1995. These forward-looking statements are subject to risks and uncertainties that could cause the company's actual results to differ materially from those expressed in any forward-looking statements.

These risks and uncertainties are discussed in the company's Annual Report on Form 10-K and in other reports that 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, ftsi.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 measures.

I'll now turn the call over to Mike Doss, FTSI's CEO. Mike?

Michael J. Doss -- Chief Executive Officer

Thank you. Good morning, everyone. Overall, the third quarter was a challenging quarter. Our fleet count and stages came in as we expected earlier in the quarter, however pricing concessions to retain work were higher than we had expected. Despite that we have free cash flow positive and reduced our net debt by $58 million during the quarter.

Frac market remains oversupplied and ultra-price competitive as a result of lower activity driven by a combination of increased completion efficiencies and E&P capital discipline. Revenue was $186 million in the third quarter, down 18% sequentially, while our stage count was down only 2.5%. The decrease in revenue was due to more customers, supply under own sand and lower service pricing.

Our average active fleet count was $19.8 compared to $21 in the second quarter. We ended the quarter with 18 fleets, of those 11 were active in West Texas, three in South Texas, two in Mid-Con, one in the Northeast and one that is splitting this time in East Texas and South Texas. We continue to see a significant amount of white space on the calendar, which resulted in our active fleets, being only 83% utilized. Therefore on a fully utilized basis our fleet count would have been three fleets fewer.

Operationally, we improved our already high efficiency in terms of stages and pumping hours per fleet. Our top five fleets routinely average 17 and 18 pumping hours a day. I'm incredibly proud of our crews, who -- day in and day out are dedicated to providing our customers with outstanding service quality. Not only that, but I'm pleased to report that we had no recordable incidents that is a TR/IR [Phonetic] of 0.00 in the third quarter.

Adjusted EBITDA was $20.6 million in the third quarter, down from $41.9 million in the second quarter. On a per active fleet basis our annualized adjusted EBITDA was $4.1 million, with the decrease compared to the second quarter, primarily due to lower pricing. In addition, our third quarter results were impacted by about $5 million of cost headwinds related to a one-time transition to improved fluid-end components and excess carrying crew costs. These cost will now recur in the fourth quarter.

SG&A, which includes all stock-based compensation was $21.1 million in the third quarter approximately flat from the second quarter and in line with our guidance. Our net loss was $10.8 million in the third quarter or a negative $0.10 per share, included in these results is a $7 million gain on the sale of our entire interest in the FTS -- SinoFTS joint venture and $5.1 million of impairment and other charges.

Looking forward, we expect to average between 15 fleets and 16 fleets in the fourth quarter. It's worth noting that fleet count is less meaningful at current levels of profitability. Any incremental fleets that we could push into the market would likely come at a lower profit than our current fleet average and therefore we contribute little to the bottom line or cash generation. Given the uncertainties with the current slowdown, we do not currently have a guide for fourth quarter adjusted EBITDA per fleet, but expected to be positive. We also will be free cash flow positive.

In the third quarter, our free cash flow was $29.6 million, in addition, we received $32.7 million of proceeds from the sale of our interest in SinoFTS that allowed us to reduce our net debt by $58 million during the quarter. Capex was $13 million in the third quarter compared to $14.8 million in the second quarter, we now expect our full year capex for 2019 to be between $50 million and $55 million. We continue to be by far the most capital-efficient pressure pumper in this space. Thanks to our in-house manufacturing capabilities.

**( 0:06:19.9)** As of September 30, we had $204 million of cash, and our net debt was $256 million, a $58 million reduction during the quarter and a $74 million reduction year-to-date. It may be hard to believe, but our net debt was over $1 billion, when the current management team took over four years ago. Given the current environment, cash is king. As a result, we plan to keep approximately $200 million of cash on the balance sheet for the time being, along with having an undrawn revolver. Our outstanding debt consists of two pieces, a $90 million term loan due 2021 and $370 million of senior notes due 2022. We will handle the 2021 term loan maturity with existing liquidity and expected cash generation and we will seek to refinance our 2022 notes as the market allows.

Turning now to our priorities as an organization, we are taking aggressive action to reduce costs. We have reviewed all areas, and we are targeting $10 million per quarter of cost savings to rightsize the business for current conditions. The cost reductions will occur in labor, R&M, other direct costs and operations and corporate G&A, including base salary cuts for the executive team at my discretion. We will have a partial quarter impact of the reductions in the fourth quarter and then a full quarter impact in the first quarter. Importantly, these measures will not compromise our ability to spring back quickly, when the market improves as we successfully demonstrated in 2017 and 2018.

As for labor and R&M, one of the enablers for cost savings is our use of technology, specifically our automation project, which has been three years in the making. We are now at the point, where our proprietary software not only makes real-time recommendations based on equipment health data, but takes action automatically unless overwritten to save components, reduce damage accumulation and provide greater stability, when completing the stage.

Computer-Assisted operations is the way of the future for FTS and ultimately the entire industry. We are years ahead of our competitors on this. In our release, you saw that we have decided to reduce our total capacity by six fleets, the equivalent of 300,000 hydraulic horsepower. That will take our total capacity to 28 fleets, the equivalent of 1.4 million hydraulic horsepower. As a reminder, in 2017 and 2018 we operated with an average of only 24 active fleets and generated nearly $800 million of adjusted EBITDA over those two years.

As our fleet is uniform, the fleets being retired are entirely capable of handling today's job desires. However, they have been stacked since 2015, require significant rebuilds and are unlikely to return to service. They will be stripped for parts, slightly reducing our capex spend and the frames will be cut-off. Strategically and thinking about the next few years, we expect to upgrade a number of our fleets to dual fuel capability, including potentially Tier 4 dual fuel and evaluate investing in next generation electric pump designs.

Even though we think there is a place for electric fleets in the future, the economics do not work in today's environment. However, dual fuel makes a ton of sense. By year-end, we will have five Tier 2 dual fuel fleets and expect to convert at least two more in early 2020. The conversion cost is $1.5 million per fleet, down from $2 million previously and they have an average diesel displacement rate of approximately 50%.

In addition, we recently purchased two of Cat's new Tier 4 final Dynamic Gas Blending or DGB engines. We are currently testing them in the field to measure their performance under a range of operating conditions. The diesel displacement rate of these engines is expected to average approximately 75%. We're also measuring the emissions profile of these engines, along with our other fleet configurations to help us work with our customers in achieving their ESG objectives.

We're excited about the potential of the new CAT DGB engines, because they may deliver 75% of the diesel fuel savings that customers are looking for at only one-fifth of the cost of an electric fleet.

That's all from my prepared remarks, we'll now turn it over to questions. Operator?**( 0:10:54.0)**

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question comes from the line of George O'Leary with Tudor, Pickering, Holt & Company. Please proceed with your question.

George O'Leary -- Tudor, Pickering, Holt & Company -- Analyst

Good morning, Mick. Good morning, Lance.

Michael J. Doss -- Chief Executive Officer

Good morning.

George O'Leary -- Tudor, Pickering, Holt & Company -- Analyst

The first question I have is really on the cost-cutting side is -- what is going to make sure I heard that right. Did you say the target is $10 million a quarter and then you laid out a couple of buckets to where those costs will come out of the system. I guess, which of those buckets are the most meaningful to achieve that targeted $10 million ballpark, who moves the needle the most.

Michael J. Doss -- Chief Executive Officer

So, yeah, so what moves needle the most is R&M expense and particularly fluid-ends. We did introduce a new components that are longer lasting and so we've got expectations around that. And then other expectations about how we manage total horsepower in the field. We think we can get more efficient on R&M.

George O'Leary -- Tudor, Pickering, Holt & Company -- Analyst

Okay, great. That's helpful. And then on the fluid-end side, is it more like a unique design of the fluid-end in total? Is it something about the metallurgy? What helps along if the life of that fluid-end?

Michael J. Doss -- Chief Executive Officer

It's a combination of both. Using, -- applying the sleeve technology as well as the metallurgy changes.

George O'Leary -- Tudor, Pickering, Holt & Company -- Analyst

Okay, that's helpful. And then on the upgrade side, the decision to upgrade to DGB Tier 2 makes a lot of sense that cost per fleet is -- is not a super elevated number and it does gives you a 50% displacement of the diesel, but on the DGB Tier 4 side, my understanding is the cost to do that is something like $10 million of fleet or about $0.5 million, an engine, can you [Phonetic] have to put a whole new engine on the system. Am in the right ballpark there? And how do you guys think about -- what's going to be the key driver of making the decision of whether to press forward DGB Tier 4 or not.

Michael J. Doss -- Chief Executive Officer

Yeah, so you're exactly in the right ballpark, if the cost to convert a fleet is about $10 million, and so, -- but we think that, that fleet will have a higher market value. Just given the fuel savings and the fact that their new engines, and so, yeah, we would look for situations where we can get a pay back in one year, ideally with a new customer.

George O'Leary -- Tudor, Pickering, Holt & Company -- Analyst

All right, great. I'll turn it over. Thanks guys.

Operator

Thank you. Our next question comes from line of Vaibhav Vaishnav with Scotia Howard Weil. Please proceed with your question.

Vaibhav Vaishnav -- Scotia Howard Weil -- Analyst

Hey, good morning and thank you for taking my questions. I guess -- just, if you can help me to get a thought process on why take out those six fleets and still -- still keep 28 fleets. That would be helpful.

Michael J. Doss -- Chief Executive Officer

Well certainly, so we did a careful review of all of our horsepower and just evaluated the fleets that headwind stacked since 2015, they are repairable fleets, but they would require significant rebuilds. We just decided to -- it will be better for us to use the parts to reduce our current spend and then redirect our efforts. Like I said, the dual fuel and then down the road, electric pumps, which is really where we see things potentially going.

Vaibhav Vaishnav -- Scotia Howard Weil -- Analyst

Okay. If you get an opportunity to put, -- let's say, put those remaining fleets back to work, how much capex are they talking about -- let's say, we get, somehow we get to 28 fleets back. Is there a way we can think about how much capex would be required to bring them back?

Michael J. Doss -- Chief Executive Officer

Well, unfortunately, they're leaving the system entirely and so like I said, there'll be splits -- I mean the fleet...

Vaibhav Vaishnav -- Scotia Howard Weil -- Analyst

I'm sorry, I meant like -- if the fleet that are still remaining.

Michael J. Doss -- Chief Executive Officer

Oh, the 28. Oh, yes.

Vaibhav Vaishnav -- Scotia Howard Weil -- Analyst

Yeah.

Michael J. Doss -- Chief Executive Officer

Well, so it's really kind of a sliding scale and so Lance, do you may want to give some ranges for their, -- to get us back up to 28.

Lance Turner -- Chief Financial Officer

Yeah, I mean -- yeah, I think the first 20 should be pretty minimal, and so then I'd say it starts from, call it $0 million to $2 million to $3 million as you get closer to 28, rough estimate.

Vaibhav Vaishnav -- Scotia Howard Weil -- Analyst

Got it, per fleet.

Lance Turner -- Chief Financial Officer

Per fleet, yes.

Vaibhav Vaishnav -- Scotia Howard Weil -- Analyst

Okay. As we think about capex for 2020, is like --- should we think about, I don't know $2 million to $3 million fleet of maintenance capex plus some upgrades that you talked about, so somewhere around $50 million to $60 million of capex. Is that in ballpark for next year?

Michael J. Doss -- Chief Executive Officer

Yeah, I mean, we're still looking at it about $2.5 million per fleet per year in maintenance capex and then there'll be a couple of million of the conversions. So I think that's, -- I think that's right. So far this year, we have built the conversions into the maintenance capex numbers. So we've been able to actually fund those conversions with the $2.5 million. I think we're certainly going to strive to do the same thing next year as well. Just depends on how many conversions, we do, I think, right now we are only slated for two in the first quarter.

Vaibhav Vaishnav -- Scotia Howard Weil -- Analyst

Got it. And last one, if I may. So we went from $8 million of fleet to $4 million. It's clear to think it takes a step down in 1Q -- 4Q? And then any -- any help or any -- based on any conversation with customers like how would you think about what 1Q could shape like?

Michael J. Doss -- Chief Executive Officer

Yeah. So we don't have a guide on the adjusted EBITDA per fleet that we're anticipating, and there is just so much uncertainty, particularly with utilization as we go through the rest of the year. As far as first quarter, we're having conversations with customers, many of them will be going back to work. So fleets that they have idled or slowed down in the fourth quarter, will be going back as capital budgets reset, we just don't have a recurring good number on that, we're in the middle of RFP season as we speak. So we're going to try to be competitive and we anticipate our fleet count will be going up compared to fourth quarter.

Vaibhav Vaishnav -- Scotia Howard Weil -- Analyst

Makes sense. That's all from me. Thank you for taking my questions.

Michael J. Doss -- Chief Executive Officer

You're welcome.

Operator

Our next question comes from the line of Stephen Gengaro with Stifel. Please proceed with your question.

Stephen Gengaro -- Stifel -- Analyst

Thank you and good morning, gentlemen. I guess two things from me, if you don't mind. First, when you talk about the conversions, and I guess the conversion sort of dual fuel Tier 2 fleets. Can you give me a sense, are the customers willing to share the cost savings with you? Does it impact price or is it more of an impact on the utilization of those assets that gets you sort of to the payback periods.

Michael J. Doss -- Chief Executive Officer

It used to be the case, where we did a dual fuel conversion, we can have an add-on to the stage price and recover the cost, but in this today's market, I consider it really the cost of doing business. So many customers are seeking the fuel savings and they -- actually provide all the fuel to all of our jobs currently. And so, any savings would accrue to them directly, but that $1.5 million that we have to spend to convert is really just the cost of keeping the customer happy, basically.

Stephen Gengaro -- Stifel -- Analyst

Okay, that's helpful. Thank you. And then as a follow-up to Vaibhav's question. If you were to -- have to make an estimate, and I don't know if you're willing to or not, but if you were to look at the first quarter and if you assume that your efficiency was similar to 3Q, would that lead to type of step down EBITDA per fleet based on current inflation [Phonetic].

Michael J. Doss -- Chief Executive Officer

I'd say it's still be in the range, may be a $1 million lower, if efficiency were equal. If I were to guess, make it educated, kind of calculated guess.

Stephen Gengaro -- Stifel -- Analyst

Okay, thank you. I just want...

Michael J. Doss -- Chief Executive Officer

There hadn't been a lot of pricing movement -- there hadn't been a lot of pricing movement in the last call it -- 30 days to 60 days. I think the expectation is that -- this RFP season will kind of dictate the pricing for Q1 and that's where the murkiness, is at right now.

Stephen Gengaro -- Stifel -- Analyst

I appreciate that color. Thank you. And then just one final one, when you talked about free cash flow positive in 4Q. Is that -- is there a big working capital benefit to that? Or is it or is it more sort of stagnant working capital and just based on operations.

Michael J. Doss -- Chief Executive Officer

No, there is going to be continued working capital, heading into the year-end there usually is just lower efficiencies in November and December due to the holidays, you'll get those -- the October amounts collected. So I would expect somewhere in the range of $20 million of working capital, high level.

Stephen Gengaro -- Stifel -- Analyst

Great. All right, I appreciate the answers. Thank you.

Operator

Thank you. Our next question comes from the line of Andrew Ginsburg with R.W. Pressprich. Please proceed with your question.

Andrew Ginsburg -- R.W. Pressprich -- Analyst

Good morning, guys. Thanks for taking my call. So I kind of want to just touch on that last question. So it looks like, for the quarter it would be $16 million to $17 million EBIT [Phonetic] number to, it's kind of breakeven on a cash flow basis rate. So we have that $20 million of working capital and then we said -- we expect additional cost saves of $30 million for the quarter from kind of the cost review.

Michael J. Doss -- Chief Executive Officer

Well, the cost savings would be closer to an annual number. I think the target was $10 million per quarter with only a partial realization in the fourth quarter of this year.

Andrew Ginsburg -- R.W. Pressprich -- Analyst

Okay.

Michael J. Doss -- Chief Executive Officer

And so there won't be an opportunity to take out $30 million in Q4.

Andrew Ginsburg -- R.W. Pressprich -- Analyst

Okay. And then you said there really hasn't been too many pricing concessions. So you would kind of expect to EBITDA to stay relatively flat, I guess may be a little bit up if anything for the fourth quarter due to the costs [Phonetic]?

Michael J. Doss -- Chief Executive Officer

Yeah, I think a lot of it depends on efficiency. I'd say that there is -- I think the question earlier was if efficiency stayed the same as Q3, what would profitability, look like. It would look a little lower, but not significant price action in the last call, 30 days to 60 days. And so I think a lot of it will depend on efficiency, heading into November and December, are typically always lower efficiency, because of holidays and some customers work through and shut down for eight hours for Christmas and some customers will shut down the whole week for Christmas and Thanksgiving. And it just depends on where their plans are and what their outlook is for the rest of the year.

Andrew Ginsburg -- R.W. Pressprich -- Analyst

All right, that makes sense. And then last question, in terms of where we're having the fleets located. So, it looked like during the third quarter, you were able to take some fleets out of the Permian and bring them into the SCOOP/STACK basin. As you kind of see activity picking up for their first quarter, do you kind of see that trend still happening? Or do you see maybe more -- a little bit more activity picking back up in the Permian. Just some thoughts on that.

Michael J. Doss -- Chief Executive Officer

I think the question surrounding whether Permian activity will increase in Q1 versus how activity will increase Q1 in SCOOP/STACK. I think both of those are a little bit subject to, -- we don't have a lot of clarity there. My expectation would be both will reset, there'll be customers that reset their budget in both basins. So I don't see any big changes.

Andrew Ginsburg -- R.W. Pressprich -- Analyst

Okay, all right, thank you.

Operator

[Operator Instructions] Our next question comes from the line of Stan Manoukian with Independent Credit Research. Please proceed with your question.

Stan Manoukian -- Independent Credit Research -- Analyst

Good morning, thanks for taking my question. I have a couple of them. First, I was wondering if you can elaborate on the incremental cost of keeping this retired fleet? What is exactly that you're saving by retiring it in terms of cash. I was wondering if you can comment on this?

Michael J. Doss -- Chief Executive Officer

Yeah, so as far as the fleet retirement, there are some usable components on those fleets that have been stacked for some time now, and so we will use those fleets in the parts of those fleets, I should say, to just offset our expenditures that we would otherwise incur, and the -- the net impact is or what you say Lance, a few million, $305 million, probably something in that area.

Lance Turner -- Chief Financial Officer

Approximate.

Stan Manoukian -- Independent Credit Research -- Analyst

But otherwise, basically it doesn't close much to keep this fleet, right, because you were saying that this fleet was in decent condition and it was totally sort of arguable [Phonetic]. So if you got to anticipate some recovery in the industry, you will have been able to use this fleet, right, but instead...

Michael J. Doss -- Chief Executive Officer

That's what I meant earlier, yeah, in my comment, it was really that they are repairable. It's just we're directing our resources, once we get it to a level I would say 28 fleets, which is where we were basically middle of last year, that's a good market condition. Is what -- how we view it. And at that point we will be making investments in other types of pump designs we anticipate in the future. Just redirection of -- kind of the strategy in that type of market environment.

Stan Manoukian -- Independent Credit Research -- Analyst

Understood. And then is your sort of revenue base -- broken sort of at the same kind of way. It was couple of quarters ago, I mean, as far as I remember you, we were generated about 30% or 40% of your sales from the spot contracts, right, from the spot market. Is it accurate or?

Michael J. Doss -- Chief Executive Officer

Yeah, I will let Lance on that.

Lance Turner -- Chief Financial Officer

Yeah, that we're still in that range. Certainly, in this environment as customers have reduced their completions, we've not only reduced our capacity, -- our active capacity, but also went into the spot market to filling the gaps and so we've still maintained a fairly sizable spot market presence.

Stan Manoukian -- Independent Credit Research -- Analyst

And what's the average duration of your spot contract?

Michael J. Doss -- Chief Executive Officer

Well, I think by virtue the way we kind of think about spot would be mostly on a well to well basis, and so it may be chunked into four week agreements or you may have a commitment for that from one particular well for that particular customer. So it's pretty short-term.

Stan Manoukian -- Independent Credit Research -- Analyst

And in light of everything that is going on with the industry, do you have any view of whether your marketing strategy is going to change over time? Maybe in 2020, the reason why I'm asking all this is that we have heard quite contradictory statements about the market condition, about the contract market condition for the first and second quarter of the next year and because people do have some visibility, when they talk to their customers. A lot of your revenues are coming from the spot market, where you don't actually have this visibility. And so I was wondering how do you sort of make projections of your budget and on the future sort of utilization of your assets without having this visibility?

Michael J. Doss -- Chief Executive Officer

Well, it certainly could be a challenge, a lot of our contracts that we have that are dedicated typically are on an annual basis. Not all of them, but many of them are, and so we're in the RFP season for that and we anticipate winning some of those with customers that we've been working with for -- some time. Very competitive in terms of the pricing that's -- it's out of the market and there are a lot of fleets that are chasing work. Currently, even though, I think the industry is overall being a bit more disciplined. Lance any other additions to the question.

Lance Turner -- Chief Financial Officer

Yeah, I mean I think it's important to note, we strive for a higher dedicated mix, but as our customers have pulled back, we've seen that drop -- really in the kind of the back half of last year 2018. And with the expectation of increasing that mix over time, but in a declining market that we've seen throughout 2019, it's been very difficult to increase that dedicated mix over that time period in those market conditions. So I think when the market stabilizes, our expectation would be to increase that mix like you suggest, but historically, I don't know that we've had as much stability from our dedicated customers in a declining market, either.

Michael J. Doss -- Chief Executive Officer

Yeah, and I just wanted to clarify one point. As far as the spot versus dedicated distinction, it's not terribly meaningful. We certainly prefer dedicated work, because it's more predictable and it's just more ongoing work, it's easier to plan and you get into a groove with the customer and get the efficiencies unlike spot work which is much more choppy. It may just be a two-well pad here and it's four well pad there and single well, and so it's -- we certainly prefer dedicated.

But from a pricing standpoint, when the market is way oversupplied, spot pricing certainly scrapes the bottom of the barrel, but in our dedicated agreements, we often have termination provisions that -- so if the customer is aware that the market is soft they can come to us and request a pricing concession, we can negotiate that back and forth. And as opposed to push comes to shove, they could always terminate the contract with a 30 day or 60 day out, and so that gives them quite a bit of leverage even in a dedicated arrangements.

And so it's -- also have to manage all that and plan around that, but we have a lot of ongoing conversations with customers that we've been working for -- for years and that gives us some, albeit not perfect visibility.

Stan Manoukian -- Independent Credit Research -- Analyst

And then this choppy market, when you're talking about your increased interest. The dedicated contracts as opposed to spot market obviously, related to the pricing of the spot market. I mean is it, -- do you think that the changes that you're making at your equipment. Do you think that it will make your, sort of your position more competitive in terms of winning new dedicated contracts?

Michael Messina -- Associate of Finance and Investor Relations

No, not necessarily. I think we'll still have the same bidding behavior in terms of how we respond to RFPs. We are just trying to knock out some costs to improve our cash flow.

Stan Manoukian -- Independent Credit Research -- Analyst

Understood. Okay, thank you very much. Good luck.

Sure. Thank you.

Operator

Our next question comes from the line of Sohail Yousuf with Q Investments. Please proceed with your question.

Sohail Yousuf -- Q Investments -- Analyst

Yeah, hi. I wanted to follow up on a few items that you touched on earlier. So in -- on the last call in July, you guys have talked about $7 million to $8 million of EBITDA per fleet in terms of the guidance. It seems like there was a fairly precipitous decline in the back half of the quarter. I just want to understand kind of what happened, and in the same call you alluded to, sort of a $5 million sort of cut-off for adjusted EBITDA per fleet. Clearly, obviously you came in lower than that. So what is the right way to think about the cut-off. Is it EBITDA minus capex breakeven or when -- what's the level where you would just stack fleet and it's not worthwhile to work anymore.

Michael J. Doss -- Chief Executive Officer

Sure, I'll provide a few comments on that. So like I said third-quarter was pretty challenging in terms of what happened over the course of the quarter. It's certainly got increasingly competitive as we moved through more than we anticipated. And so, I talked about a $5 million cut-off as far as EBITDA, but unfortunately market forces caused us to go below that for the quarter. And I would say $2.5 million which is maintenance capital really isn't the cut-off. I mean, at that point it's why bother doing the work.

If we're burning cash, I think one thing that some frac companies do is they hold on to work like that with the anticipation of rebounds. And I can understand that strategy, but I think we've -- with our manufacturing and how we operate, we have quite a bit of flexibility. So we can spring back quickly, if we end up losing a fleet just due to economics and so I'm not too worried about carrying a fleet at slightly breakeven cash flow or certainly below breakeven cash flow, we should just let it go in that case.

Sohail Yousuf -- Q Investments -- Analyst

Got it. And second question on the existing fleet, I understand you're doing some upgrades and whatnot, but just in general what is sort of the useful life left on the existing fleet? I mean that 10 years of age, your fleet is probably already exceeded sort of original expectations. So I just wanted to kind of get a sense for, and I know you sort of alluded to future -- spending in future years on some new types of fleets, but wanted to understand kind of the existing fleet. What is the useful life left?

Michael J. Doss -- Chief Executive Officer

Sure. Well, it has substantial useful life, left, and that's really because it's been rebuilt many times over the year, there is a rebuild cycle for each components. If you're not familiar our fleets are modular by design, which means it's kind of like a giant lego set, you can just swap out an engine, if it needs to be rebuilt or replaced the same with the transmission and the Radiator, the pump has a shorter useful life can be repaired. In some cases, if not just replace till we manufacture those ourselves, the fluid-end has a useful life of between 1,500 [Phonetic] hours depending on operating conditions. And so the pieces are just interchangeable. And so I would say all of the fleets that we have active today are somewhere in the rebuild cycle, and have been rebuilt multiple times in most cases. We do have some newer pumps in the overall mix, but -- a rebuilt fleet is not that dissimilar from a new fleet.

Lance Turner -- Chief Financial Officer

And that's the primary use of the $2.5 million maintenance capex per year is to -- execute those rebuild activities.

Sohail Yousuf -- Q Investments -- Analyst

Got it. Thank you very much.

Operator

[Operator Instructions] Thank you. Our next question comes from the line of Chris Voie with Wells Fargo. Please proceed with your question.

Chris Voie -- Wells Fargo -- Analyst

Good morning, guys.

Michael J. Doss -- Chief Executive Officer

Good morning.

Chris Voie -- Wells Fargo -- Analyst

Just curious, so revenue per stages was down about 16% quarter-over-quarter in 3Q. Can you comment on how much of that was direct pricing action versus a change in pass-through or any other factors?

Michael J. Doss -- Chief Executive Officer

Yeah, I'd say probably 30% to 50% was due to customer provided sand and I'd say probably 30% to 50% was due to pricing, and then there are some other items in there in terms of just sand pricing and how much sand is used for the number of stages that we are providing that -- that made up the balance, rough figures.

Chris Voie -- Wells Fargo -- Analyst

**( 0:36:46.3)** Okay, that's helpful. And then in terms of the earlier comment that EBITDA per fleet, at similar utilization levels would be about $1 million lower in 1Q. I assume that includes the cost savings that you've outlined so far on the call.

Michael J. Doss -- Chief Executive Officer

Correct. A portion off.

Chris Voie -- Wells Fargo -- Analyst

Okay. And then just squeeze in one more. Your stages per fleet was actually very strong this quarter. I think it's the strongest I see on record in our model. Despite a challenging environment, obviously, you mentioned 17 hours to 18 hours pumping for some of your fleets which is very high. Again -- and then you also mentioned about 83% effective utilization in terms of the calendar. So imagine there is a very wide range of profit per fleet in your portfolio right now.

Against this backdrop, with 4Q being so weak and 1Q being uncertain. How are you thinking about the weaker fleets and why keep those active going into the rest of the year and even 1Q, which might not rebound too strongly depending on how budget shake out?

Michael J. Doss -- Chief Executive Officer

Sure. Well Chris, any time it goes below maintenance capital, it's a question of when do we want to drop the fleet if we can drop it. Part of it is the state of the customer relationship, who we’re working for, what are their future plans? What is the outlook for that fleets? Once it gets below $2.5 million to $3 million, which we have several fleets that are in that range, it really becomes a question of us just -- does it make sense to continue to do the work. And if it falls below that the answer is -- in most cases drop the fleet and just preserve the equipment and not burn cash.

Chris Voie -- Wells Fargo -- Analyst

Okay, thank you.

Operator

Our next question comes from the line of John Daniel with Simmons Energy. Please proceed with your question.

John Daniel -- Simmons Energy -- Analyst

Hi, good morning, guys. Two topics I want to touch on. One on the Tier 4 DGB, you mentioned you're going to buy a couple of those and test some. How long do you think you need to test it before you make the decision? Do you feel comfortable making the decision to proceed with buying more?

Michael J. Doss -- Chief Executive Officer

Sure. Yeah, so we've already purchased them and they're actually already out in the field currently undergoing testing. Yeah, I would say we've already gotten some good initial indications from the testing, but I think between 30 and 60 days we have a much better feel for how they perform. And then from that point, any investment decision will depend on the arrangements that we can come to with customers that does justify the investment.

John Daniel -- Simmons Energy -- Analyst

And as you look at the RFPs that are -- that you're bidding on right now. How many of them are specifying, the fleets have to be outfitted with other dual fuel capability and or electric?

Michael J. Doss -- Chief Executive Officer

Well -- it really varies quite a bit and so I would say we're meeting all of our customers’ needs that have been requested to date on dual fuel Tier 2, dual fuel. So we're meeting all of those current needs, we've got a couple of more that we'll be adding. It wouldn't surprise me, if we have even more additions next year for the Tier 2 conversion. We'll see if we can sell a couple of the Tier 4 dual fuels. And then as far as the electric, obviously we don't have an offering there. So...

John Daniel -- Simmons Energy -- Analyst

Sure.

Michael J. Doss -- Chief Executive Officer

So no response, but -- to the extent electric fleet is out there and available, large cap companies are interested in those to capture the fuel savings and other reasons.

John Daniel -- Simmons Energy -- Analyst

Okay. I'm just curious if there's been any type of real change in terms of customer demands, if you will, on the dual fuel capabilities, if you think back to RFP season last year versus where we are today.

Michael J. Doss -- Chief Executive Officer

Sure, there is more -- not a flood, but there is definitely more customers that are wanting to capture those fuel savings. And so that's why we're ramping that up just to meet their need. And it's a cost of doing it, but...

John Daniel -- Simmons Energy -- Analyst

No, that's fair. And then last one from me is, just with the RFP season, the stuff that you're bidding on now, Mike, is it all for -- is it all for dedicated work for all of 2020? Or is it just you're bidding on stuff for Q1, Q2? How would you break that out for us?

Michael J. Doss -- Chief Executive Officer

By and large, it's for our calendar year, but there are other packages, where the operator just simply doesn't have their schedule built out. And so they want something for six months. And so we’ll obviously bid on that and see if we can get it, but by and large it’s, 12 month is a typical contract.

John Daniel -- Simmons Energy -- Analyst

Okay. And are you seeing any leadership from your larger peers who might be bidding higher for that dedicated work for 2020 versus where we are in the spot market or are they -- I'm just trying to get a sense for where the trend is on the bidding for dedicated work for 2020 versus spot market today.

Michael J. Doss -- Chief Executive Officer

It's hard to generalize -- I can't generalize frankly every situation as you need. I would say there is not some huge discipline that appears obvious to us, but it doesn't feel as loosey-goosey as it did in, say 2016.

John Daniel -- Simmons Energy -- Analyst

Okay, fair enough. Good luck, guys. Thank you for your time.

Michael J. Doss -- Chief Executive Officer

Sure. You're welcome.

Operator

Our next question comes from the line of Chase Mulvehill with Bank of America. Please proceed with your question. Chase Mulvehill, your line is open, please verify with your mute function on your phone or pickup your handset.

[Operator Instructions] Our next question comes from the line of Stephen Gengaro with Stifel. Please proceed with your question.

Stephen Gengaro -- Stifel -- Analyst

Thank you. Just as a follow-up. And I understand sort of your goals right now is, one of the goals I think is to generate cash and delevering. You've done a good job with that year-to-date. Would you consider anything, I mean given the announcements and some of the things that Chesapeake has said today. Would you consider spending $30 million or $40 million bucks in buying our -- their shares and retiring them or not at this point?

Michael J. Doss -- Chief Executive Officer

Steve, I would consider that pretty unlikely, and the reason being is that we are focused on delevering. And so we have the stock repurchase program. It's really just for open market and we've nibbled at it, but we -- we're slowing down on that and -- it won't have any -- any material purchases in the fourth quarter or probably the first quarter. I mentioned cash is king on my prepared remarks, and so we really want to keep the liquidity in order and then attack the term loan, just given that it's our closest maturity.

Stephen Gengaro -- Stifel -- Analyst

Okay, I tend to agree, I just figured I'd ask given what they had sort of said in their release today. So I appreciate the comments. Thank you.

Michael J. Doss -- Chief Executive Officer

Sure.

Operator

Our next question comes from the line of Dan Kutz with Morgan Stanley. Please proceed with your question.

Dan Kutz -- Morgan Stanley -- Analyst

Hey, thanks, good morning.

Michael J. Doss -- Chief Executive Officer

Good morning.

Dan Kutz -- Morgan Stanley -- Analyst

So just one question from me -- one kind of high level one. Given that it's kind of shaping up that, with the second year in a row we've seen pretty substantial year-end headwinds budget exhaustion that kind of stuff. I guess in conversations with customers and just your own personal views. Do you think that there is a desire to smooth spending on an activity throughout the year a little bit more going forward or just kind of how do you think that that will -- will evolve over time.

Michael J. Doss -- Chief Executive Officer

Sure, Dan. Well a little difficult to predict, and I certainly would prefer a smoother calendar, makes it much easier to execute and plan around. I think the last couple of years in particular, both OFS and E&P have been under substantial pressure from the capital markets. And so I think this year has probably led to a little bit more not dysfunction, but a little bit more inefficiency in terms of the pattern of activity throughout the year is just simply because E&P's are trying to respond to that capital market pressures.

So I think the industry is transitioning to become more free cash flow positive, to be more investable. And so I think that -- so I think about the future years, it probably will be more level loaded, and I'd like to talk with operators about making that happen. And just because of all the benefits to be had from an efficiency standpoint. So my prediction for next year is we're not going to see as big of a drop off as we saw this year, just given kind of the state of the markets, if you will.

Dan Kutz -- Morgan Stanley -- Analyst

Sure, that makes a lot of sense. And so last year, obviously crude prices were a major headwind in the fourth quarter. This year, what you would characterize more is just capital markets headwinds for operators and that's kind of the difference, if you had to characterize. I guess end-of-year spending and activity trends for [Speech Overlap].

Michael J. Doss -- Chief Executive Officer

Right. That's the dominant thing that's here, it's really just -- living within cash flow, living within budgets and that just means less for the back-end of the year.**( 0:46:56.9)**

Dan Kutz -- Morgan Stanley -- Analyst

Sure, makes sense. Thanks a lot guys. I'll turn it back.

Operator

Our next question comes from the line of Sohail Yousuf with Q investments. Please proceed with your questions.

Adam Szalecki -- Q Investments -- Analyst

Hello. This is Adam for Sohail. Just a question on the debt buybacks. I heard the point on that, -- kind of focusing on the 2021 term loan, it's a bit of an earlier maturity, but given that they are fairly similar maturities and the bonds are now 30 points below the term loan. At what point would you start targeting the bond instead to try to capture that discount.

Michael J. Doss -- Chief Executive Officer

Yeah, I think certainly the trading price of the bonds are more attractive than they have been in the past. I think when -- when I think about it, if I think the term loan is at a manageable level, then I think that opens up the possibility of targeting the bonds. I don't have a level to share today, but, that's kind of how I think about it. And a lot of that depends on liquidity, outlook, a number of different factors that change monthly, if not weekly.

Adam Szalecki -- Q Investments -- Analyst

Got it. Thank you.

Operator

Mr. Doss, there are no further questions at this time. I will turn the call back to you.

Michael J. Doss -- Chief Executive Officer

All right. Well, thank you and thank you everyone for your interest in FTSI, and we will look forward to speaking to you again next quarter.

Operator

[Operator Closing Remarks]

Duration: 49 minutes

Call participants:

Michael Messina -- Associate of Finance and Investor Relations

Michael J. Doss -- Chief Executive Officer

Lance Turner -- Chief Financial Officer

George O'Leary -- Tudor, Pickering, Holt & Company -- Analyst

Vaibhav Vaishnav -- Scotia Howard Weil -- Analyst

Stephen Gengaro -- Stifel -- Analyst

Andrew Ginsburg -- R.W. Pressprich -- Analyst

Stan Manoukian -- Independent Credit Research -- Analyst

Sohail Yousuf -- Q Investments -- Analyst

Chris Voie -- Wells Fargo -- Analyst

John Daniel -- Simmons Energy -- Analyst

Dan Kutz -- Morgan Stanley -- Analyst

Adam Szalecki -- Q Investments -- Analyst

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