MRC Global Inc. (MRC)

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MRC Global, Inc. (MRC)

Q3 2017 Earnings Call

November 03, 2017 10:00 am ET


Monica Schafer Broughton - MRC Global, Inc.

Andrew R. Lane - MRC Global, Inc.

James E. Braun - MRC Global, Inc.


Sean C. Meakim - JPMorgan Securities LLC

Matt Duncan - Stephens, Inc.

Vaibhav Vaishnav - Cowen & Co. LLC

Nathan Hardie Jones - Stifel, Nicolaus & Co., Inc.

Luke L. Junk - Robert W. Baird & Co., Inc.

Walter Scott Liptak - Seaport Global Securities LLC

Ryan Mills - KeyBanc Capital Markets, Inc.



Greetings and welcome to the MRC Global Third Quarter 2017 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. 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 Schafer Broughton - MRC Global, Inc.

Thank you and good morning, everyone. Welcome to the MRC Global third quarter 2017 earnings conference call 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 via webcast on our website, mrcglobal.com, as well as by phone until November 17, 2017. The dial-in information is in yesterday's release. We expect to file our third quarter Quarterly Reports on Form 10-Q later today, which will also be available on our website.

Please note that information reported on this call speaks only as of today, November 3, 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, 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 related to the GAAP item.

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 their risk factors concerning these forward-looking statement.

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

Andrew R. Lane - MRC Global, Inc.

Thank you, Monica. Good morning and thank you for joining us today and for your interest in MRC Global. I will begin with a review of the company's performance highlights and then I'll turn over the call to our CFO, Jim Braun, for a more detailed review of the financial results. I'll finish with some directional commentary on our outlook.

Third quarter revenue was in line with our expectations as the business generated $959 million in sales, up 4% over the second quarter of 2017 and up 21% over the third quarter a year-ago. This puts the first nine months of the year up 18% over the prior year period. We outperformed expectations this quarter for both adjusted gross profit percentage at 19% and SG&A at $130 million, resulting in adjusted EBITDA of $56 million or 5.8% of revenue.

We have controlled costs this year as revenue increased, resulting in incremental adjusted EBITDA of 19.3% for the quarter and 18.5% for the year. As for the impact from the hurricane this quarter, the revenue from billing days lost as a result of the hurricanes, while customers were shut down was somewhat offset by sales from the additional delivery of mission-critical products, particularly in downstream, needed to repair, replace or refurbish our customers' facilities after the storms.

Based on recent EIA data, refinery runs increased following Hurricane Harvey in late September and early October with a brief interruption for Hurricane Nate before normalizing later in October. We participated in restoring this capacity as well as turnarounds that many customers brought forward while they were offline. We estimate that the result was a net negative impact of only about $8 million in lost revenue from the two storms Harvey and Irma.

This outcome highlights the strength of our diversified end-markets, the use of regional distribution centers, and most importantly, our dedicated workforce. I'm very proud of our employees who worked tirelessly before, during and after the storms to help get our customers running again; oftentimes, while they face daunting personal challenges, as 50 of our employees' homes were flooded. MRC Global has a great reputation for customer service and nowhere was this more evident than during these two hurricanes.

I can also report that we had no significant property or inventory damage from either storm. All our end-market sectors experienced growth in the third quarter over the same quarter a year-ago as well as sequentially. The midstream sector has had the strongest growth compared to the same quarter a year-ago. Midstream increased 34% third quarter over the prior year same quarter and was higher in both subsectors. The transmission and gathering subsector was benefited from the increase in upstream production and some longer-haul projects due to the approval of pipeline infrastructure projects.

Our gas utility subsector has benefited from new installations and integrity projects. Our upstream business increased 20% for the third quarter of 2017 over the same quarter in 2016. North America drove the increase with our U.S. and Canadian upstream businesses benefiting from increased customer spending due to higher oil prices versus a year-ago. Our downstream sector was up 5% this quarter as compared to the same quarter a year-ago, primarily due to the U.S. and recent market share gains such as ExxonMobil.

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