MRC Global Inc.

Greetings and welcome to the MRC Global first quarter 2021 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. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Monica Broughton with Investor Relations. Thank you, Ms. Broughton. You may now begin.

Thank you and good morning. Good morning. Welcome to the MRC Global first quarter 2021 earnings conference call and webcast. We appreciate you joining us. On the call today, we have Rob Saltil, President and CEO, and Kelly Youngblood, 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 12, 2021. The dial-in information is in yesterday's release. We expect to file our quarterly report on Form 10Q later today and and it will also be available on our website. Please note that the information reported on this call speaks only as of today, April 28, 2021, 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 various non-GAAP measures. 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, all of which can be found on our website. In addition, the comments made by the management of MRC Global during this call today 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. Rob Sotile.

Thank you, Monica. Good morning, and welcome to everyone joining today's call. This is my first earnings call as President and CEO of MRC Global, and I want to begin the call by thanking our former President and CEO, Andy Lane, who retired in March after more than 12 years of able leadership. Andy led our company through its formation, its public offering, and its establishment as the market leader in PVF distribution to the energy and industrial sectors. Andy's commitment to our core values of operational excellence and customer satisfaction helps cement our reputation as a reliable service provider and a trusted partner. All of us at MRC Global appreciate Andy's years of service and contributions to our success, and we wish him all the best in his well-deserved retirement. During my first six weeks at MRC Global, I've spent considerable time meeting with our employees, customers, and suppliers, and gaining understanding of the key drivers of our business. I have visited multiple field locations where I witnessed firsthand the value-added services we provide and observed the dedication of our employees to safety, quality, and customer service. I've spoken with customers who have longstanding relationships with MRC Global, some going back more than 20 years, and heard them speak of the outstanding support they receive from our sales representatives and branch locations. I've met with suppliers who value our global footprint and the validation that comes with being considered an approved manufacturer by MRC Global. It's clear to me that our company plays a vital role in our customers' and suppliers' businesses and that it is our employees who are the key to this success. On today's call, I will begin with first quarter highlights and provide some color on some key initiatives and outlook for our company. I'll then turn the call over to Kelly for a detailed review of the financial results before wrapping up. We achieved solid first quarter financial results that exceeded the guidance that we provided on our February earnings call. Total revenue increased 5% sequentially, beating our expectations. After getting off to a slow start in January and February, we finished with a very strong March. Three of our four business sectors experienced sequential revenue growth as market conditions improved. The fourth sector, gas utilities, had lower revenues sequentially due to an unusually strong fourth quarter, but was still higher on a year-over-year basis. In short, we are seeing positive momentum across all our business sectors that gives us confidence that we have reached an inflection point in our transition to a market recovery. To this end, we expect that each of the remaining three quarters of 2021 will likely produce higher revenues than our first quarter. First quarter adjusted EBITDA came in at $24 million, or approximately 9% better than the fourth quarter of 2020. This also reflects increased business activity and our continued emphasis on cost control throughout the company. Adjusted SG&A came in at $98 million, well within our previous guidance. Due to the primarily structural nature of the extensive cost reduction efforts that we undertook last year, we expect incremental EBITDA margins to be above historical averages as we increase revenue in future quarters. We generated $24 million in cash from operations in the first quarter above our previous guidance. We have continued to strengthen our balance sheet, which now stands at a net debt balance of $250 million. Although we believe we have ample liquidity, we will continue to prioritize paying down debt as our primary allocation of capital during the early stages of this market recovery. Although our company has well-established processes and systems, I believe we still have several opportunities to optimize our current business. We will enhance our supply chain function to manage our inventory balances more efficiently through strategic procurement, increased centralization, and improved inventory turns. We will continue to expand the functionality and usage of digital channels to improve the customer purchase experience while at the same time reducing total transaction costs. We will evaluate our pricing of products and services in order to receive proper returns for the value-added functions that we are providing. And we will continue to optimize our global footprint so that we are in the right markets with the right products and services for a changing energy and industrial landscape. Each of these initiatives are underway and we expect to see the benefits over the next four to six quarters. I do want to comment further on the expansion of our digital transactions and the growth of our digital marketplace, MRC Go. We continue to migrate customers to MRC Go to improve our service and reduce our cost to serve. We continue to enhance the functionality of our MRC Go e-commerce platform and have seen an increase in customer adoption of these digital tools over the past year. The share of digital revenue in the first quarter of 2021 was 41%. a 1,000 basis point increase over the same quarter a year ago. Our managed account customers are the biggest user of our digital tools, with 74% of those customers having some aspect of digital integration. We continue to see opportunity with deeper usage and by continuing to migrate transactional customers to digital. I would now like to provide some insight as to our strategic vision for MRC Global. As the leading PVF distributor to the energy and industrial sectors, we have many strengths to leverage. These strengths include our deep relationships with customers and suppliers, our extensive product technical expertise, our well-developed supply chain, our global presence that currently spans 17 countries, and our expanding digital platform. Each of these attributes is market leading for our space. We intend to find the best intersection of these strengths with value creation opportunities so that we can grow our revenues and our bottom line while achieving a healthy return on our investment. This is what our shareholders expect, and our team needs to deliver on this. We are currently pursuing several growth opportunities that I would like to discuss in more detail. The first is the recent establishment of a downstream valve center of excellence to expand MRC Global's market position in the downstream sector and in particular, the chemical and petrochemical market. We have assembled an experienced team of valve subject matter experts who possess both project and industry expertise. The Center of Excellence is headquartered at our world-class LaPorte, Texas facility and provides valve-related project management, technical sales, and technical support services for greenfield projects, plant turnarounds, and general MRO applications. This group will be complemented by our experienced technical sales teams that specialize in carbon, stainless, and metal alloys to offer our customers the best-in-class complete pipe valves, fittings, and flanges solutions. We believe that the chemical and petrochemical market is currently underserved and that MRC Global has significant room to expand our sales to customers in this space. This growth initiative leverages our successful valve-centric strategy and our intent to diversify away from commodity price dependent markets. Since our valve business continues to be among our best performing on a gross profit margin basis, we expect this growth to be accretive to our company-wide margins. Our gas utilities business continues to be a bright spot for our company and is expected to remain an engine of growth over the coming quarters. We have seen significant improvement in this sector starting in the fourth quarter of 2020 that we believe will accelerate in the coming quarters. I've already met with four of our largest gas utility customers, and each of them is anticipating growth in their business over the next two to three years. Much of this work is centered on system integrity and reliability improvements as older equipment is upgraded to meet stricter safety and environmental guidelines. housing starts in fast-growing utility areas that we serve will be sources of additional demand. We have established a goal for our gas utilities business to exceed a billion dollars in revenue by 2023, but we are working hard to achieve this target a year earlier by 2022. As part of our longer-term growth story, MRC Global intends to play a significant role in the global transition to green energy and the advancements in decarbonization. Many of our current customers, who are traditional energy providers, are leading the development of these industries, and our working relationships will be very useful as we adapt to our customers' changing business portfolios. We believe that the success factors for a value-added distributor to these new and fast-growing industries are similar to strengths that we currently possess. These include the ability to handle, store, and transport large equipment, a well-developed international supply chain, a vast domestic and international presence, and of course, technical expertise on the PVF products which are required for these industries. Interestingly, we are already involved in many of these industries today, and a few examples may be helpful. We supplied approximately $15 million in material to a biodiesel conversion project in 2019 and 2020. We recently supplied multiple valve types to a major utility that was overhauling its hydroelectric facility. We are currently a key supplier of PVF products to a global geothermal operator who has been a customer for decades. We recently provided the greenfield and MRO materials for a major hydrogen production facility. We are supplying PVF equipment for construction of an offshore wind farm in Europe with MRO work expected to follow. And we have been supplying MRO supplies to a carbon capture facility for more than a decade. Although it is early days for our green energy and decarbonization efforts to be significant to our overall financial story, we believe we are well positioned to capture a significant portion of the opportunity as these markets develop. I'll now turn the call over to Kelly to cover the financial highlights for the quarter.