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MRC Global. (MRC)

Q4 2016 Earnings Conference Call

February 17, 2017, 10:00 AM ET

Executives

Monica Broughton - Head, IR

Andrew Lane - President, CEO

James Braun - CEO and EVP

Analysts

Sean Meakim - JP Morgan

David Manthey - Baird

Will Steinwart - Stephens

Walter Liptak - Seaport Global

Presentation

Operator

Greetings and welcome to MRC Global's Fourth Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Monica Broughton, Investor Relations. Thank you. You may begin.

Monica Broughton

Thank you, and good morning, everyone. Welcome to the MRC Global fourth quarter and year-end 2016 earnings conference call and webcast. We appreciate you joining us.

On the call today, we have Andrew Lane, President and CEO; and Jim Braun, Executive Vice President and CFO. There will be a replay of today's call available by webcast on our website, mrcglobal.com, as well as by phone until March 03, 2017. The dial-in information is in yesterday's release. We expect to file our 2016 annual report on Form 10-K later today and it will also be available on our website.

Please note that the information reported on this call speaks only as of today, February 17 2017, and therefore, you are advised that information may no longer be accurate as of the time of replay. In our remarks today, we will discuss adjusted gross profit percentage, adjusted EBITDA, and adjusted EBITDA margins. You are encouraged to read our earnings release and securities filings to learn more about our use of these non-GAAP measures and to see a reconciliation of these measures to the related GAAP items.

In addition, the comments made by the management of MRC Global during this call may contain forward-looking statements within the meaning of the United States Federal Securities Laws. These forward-looking statements reflect the current views of the management of MRC Global; however, MRC Global's actual results could differ materially from those expressed today. You are encouraged to read the Company's SEC filings for a more in-depth review of the risk factors concerning these forward-looking statements.

And now, I would like to turn the call over to our CEO, Mr. Andrew Lane.

Andrew Lane

Thank you, Monica. Good morning and thank you for joining us today and for your interest in MRC Global. This past Wednesday February 15, marked MRC Global’s 96th anniversary. While we’ve been a public company for almost five years, we have been continuously operating and serving our customers with innovative solutions for nearly a century. This is a testament to the dedication and hard work of our current and former employees over the years.

Today, I will review company performance, highlights, and then I’ll turn the call over to our CFO, Jim Braun for more a detailed review of the financial results. I’ll then finish with our current outlook.

In February of last year, we thought 2016 revenue would be down 25% to 30% from 2015. Excluding those CTG revenue and we landed at about the midpoint ending 2016 with $3.04 billion in annual revenue. We believe this marks the end of one of the worst downturns in oil and gas history.

For the four quarter we reported revenue of $719 million, down 9% sequentially in line with historical end of the year performance with November and December seeing both traditional seasonal activity declines and spending curtailments.

Compared to the same quarter a year ago, revenue was down 26%, driven by reduced customer spending across all segments and sectors, upstream declined the most at 41%, downstream by 17% and midstream by 15%.

The decline in upstream includes the impact of selling those CTG which otherwise would have been a 29% decline. Adjusted gross profit for the fourth quarter 2016 was $133 million or 18.5% of revenue, as compared to $172 million and 17.7% for the same period in 2015.

Some of this increase can be attributed to product mix as we sold the OCTG line in early 2016 and focused on higher margin products, Net loss attributable to common shareholders for the fourth quarter of 2016 was $24 million or $0.25 per diluted share.

Including after tax severance and restructuring charges of $7 million or $0.07 per diluted share as compared to net loss attributable to common shareholders of $399 million or $3.92 per diluted share for the same period last year, which included an after-tax charge for impairment of goodwill and intangible assets, and other items of $411 million or $4.04 per diluted share.

We continue to generate cash in the fourth quarter providing additional $23 million of cash from operations for a total of $253 million for the year. While we plan to generate modest operating cash in 2017, we expect to shift our resources to growth, investing more in working capital to support this growth.

Last quarter, the board authorized and increased the share repurchase program to $125 million and we continue to buy under that program. In the fourth quarter, we repurchased $7 million of stock at an average price of $15.94 per share. Since the program was authorized, the company has purchased $107 million under the plan at an average price of $13.98 per share. The current authorization is scheduled to expire at the end of 2017.

Even though the market conditions have been weak, we believe there are opportunities to position for maximum growth by capturing market share. This has been a major focus of our strategy. Chevron awarded us their MRO on project work in Thailand, which is another scope addition from one of our major customers.

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