MRC Global Inc. (MRC)

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MRC Global, Inc. (MRC)

Q1 2019 Earnings Conference Call

May 03, 2019, 10:00 ET

Company Participants

Monica Broughton - VP, IR

Andrew Lane - President, CEO & Director

James Braun - CFO & EVP

Conference Call Participants

Sean Meakim - JPMorgan Chase & Co.

Samuel Darkatsh - Raymond James & Associates

Nathan Jones - Stifel, Nicolaus & Company

Vaibhav Vaishnav - Scotia Howard Weil

Marc Bianchi - Cowen and Company

Walter Liptak - Seaport Global Securities

David Manthey - Robert W. Baird & Co.

Robert Barger - KeyBanc Capital Markets

Blake Hirschman - Stephens Inc.



Greetings, and welcome to the MRC Global First Quarter 2019 Earnings Call. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Monica Broughton, Investor Relations for MRC Global. Thank you. You may begin.

Monica Broughton

Thank you, and good morning, everyone. Welcome to the MRC Global First Quarter 2019 Earnings Conference Call and Webcast. We appreciate you joining us today. On the call, 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 May 17, 2019. The dial-in information is in yesterday's release.

We expect to file our quarterly report on Form 10-Q 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, May 3, 2019, and therefore, you are advised that the 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 margin. 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 related GAAP items, all of which can be found on our website.

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'd 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 continued interest in MRC Global. Today, I will review the company's first quarter 2019 operational highlights, and then I'll turn over the call to our CFO, Jim Braun, for a more detailed review of the financial results. As the leading distributor of PVF to the energy industry, we are well-positioned with our customers. We're typically the large players in each of our diversified end-market sectors. This diversification provides us with a certain level of stability, gives us more opportunities to grow and provide some resilience to the inherent market changes. This quarter was an example of the strength of our customer base and the diversity of our end markets as well as the geographies in which we operate. We continue to execute against our strategy to increase market share, maximize profitability and maintain working capital efficiency as well as optimize our capital structure.

Let me continue with some comments about our customers and what we are seeing from them early in 2019. Our customers started the new year very cautiously in terms of their spending base on the pullback in commodity prices at the end of 2018. However, activity levels increased throughout the first quarter. We continue to expect the second quarter to be improved over the first quarter. However, we now expect there will be less of an increase than we originally thought as customer spending levels are rising at a slower pace. We also continue to expect the second half of the year to be improved over the first half. Jim will address the details of our updated guidance, but I want to point out that excluding the nonrecurring projects, our updated guidance implied solid underlying growth in the base business of around 7% in 2019, and we continue to gain market share and expand our growth opportunities.

We continue to drive market share gains by obtaining and expanding multiyear MRO contracts with customers. This quarter, we were awarded a new Enterprise Framework Agreement with EnLink Midstream for their PVF, MRO and committed project needs. This is expected to be implemented in the coming months, and we expect additional opportunities with this leading midstream company.

In addition, we renewed contracts with Phillips 66 for an additional three years and with Peoples Gas, the largest natural gas distribution company in Pennsylvania. As we mentioned on our last call and consistent with our commitments of higher-margin product and service offerings, we continue our work on expanding our La Porte operations complex to include a 127,000 square-foot valve modification center, which should be finished in mid-2019. This will give us additional and more extensive capabilities in servicing the growing valve automation market, particularly for midstream customers, and supports our goal of reaching 40% of our sales in the valve product group. In the first quarter of 2019, valve sales were 39% of our total sales.

In the first quarter, we continue to return cash to shareholders as part of our capital allocation strategy. We repurchased $25 million of shares at an average price of $14.24 per share. This April, we repurchased an additional $25 million of shares at an average price of $18.24 per share.

Read the rest of this transcript on seekingalpha.com