MRC Global Inc.

Greetings, and welcome to MRC Global's third quarter 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 turn the conference over to your host, Monica Broughton of Investor Relations.

Thank you and good morning. Welcome to the MRC Global Third 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 November 23, 2021. 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, November 9th, 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, including net debt, adjusted gross profit, adjusted gross profit percentage, adjusted SG&A, adjusted EBITDA, adjusted EBITDA margin, and adjusted net income. Unless we specifically state otherwise, references in this call to EBITDA refer to adjusted EBITDA. 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 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 President and CEO, Mr. Rob Saltil.

Thank you, Monica. Good morning and welcome to everyone joining today's call. I will begin with third quarter highlights and cover some of the key drivers influencing our business as well as our outlook. I will then turn over the call to Kelly for a detailed review of the financial results before providing a brief recap. The key highlight for the quarter is that we achieved our highest EBITDA profitability in the last two years, both from an absolute dollar perspective at $39 million, and as a percentage of revenue at 5.7%. Focus on bottom line performance remains a key priority for this management team. Compared to last year on a year-to-date basis, we have seen our EBITDA margins improve 120 basis points from 3.8% to 5%. On an absolute basis, EBITDA has improved $24 million compared to last year on a year-to-date basis from $75 million to $99 million. Although we did experience strong adjusted gross margins for the quarter, our profit levels would not have been achieved without our relentless focus on cost control and keeping our SG&A cost structure relatively flat. Furthermore, we achieved our record margins despite revenues being at similar levels to the previous quarter. In the month of September, we experienced delays in activity that shifted some of our revenue into the fourth quarter. A portion of this was related to activity delays in our Canada and international businesses, while the remainder was associated with Hurricane Ida's impact on our U.S. Gulf Coast business, coupled with supply chain related delays that impacted our U.S. growth. We expect these issues to be net neutral for the full year, as we've already seen our October revenue come in higher than September, and November is off to a good start as well. This is not the case, as we usually experience a seasonal decline as we move into the fourth quarter. As a result, we now expect our fourth quarter revenue will be similar to our third quarter, despite the reduced working and billing days due to the holidays. Profitability optimization is vital to maximizing value for our shareholders, and we continue to target higher EBITDA margins for our company. We anticipate double-digit revenue increases in 2022 versus 2021, and this should permit us to increase our margins further from current levels. We plan to provide guidance on our plan for 2022, including our anticipated full year SG&A costs on our February earnings call. As we stated before, balance sheet strength and financial flexibility are also key areas of focus. Our long-term debt at the end of the third quarter was $325 million, while net debt was $278 million. Our leverage ratio was 2.3 times, and while slightly higher than the second quarter, it is well within our preferred operating range. We expect this ratio to approach two times by the end of this year. Consistent with our guidance from last quarter, we used $31 million of cash in the third quarter, but year-to-date, we are still cash positive by approximately $16 million. As mentioned last quarter, we are increasing our inventory position to support our growing business. Looking forward, our growing backlog, expected increases in customer spending, and improving macroeconomic conditions drive our optimism for growth in the business. Our backlog at the end of October was up 20% from the end of the second quarter, led by the upstream production sector, which was up 33%, and the gas utility sector, which was up 25%. The U.S. backlog is the highest it has been in two years. Our largest sector, gas utilities, continues to perform very well. Our gas utilities customers have increased their activity levels this year through their operations integrity and modernization programs, meter replacement programs, and new line hookups from the robust housing market. This sector is expected to finish the year at approximately $1 billion in revenue, which is two years earlier than we thought coming into this year. Increased oil and gas prices typically translate into higher activity in the U.S. and international oil fields, which has a positive impact on our upstream production business. The IOCs and larger independents, who comprise the largest share of our upstream customers, have generally exercised capital restraint this year. This is why we have not seen as significant an uplift in our U.S. upstream business this year as the rise in crude prices and oil field activity might suggest. However, with both U.S. and international benchmark crude prices above $80 a barrel, we expect to see budgets for E&P capital spending to be up by double digits next year with significant completions activity that is aligned with our customer set and our product mix. Our midstream pipeline business, which includes gathering systems around new production as well as transmission, also benefits as completion activity increases, generally lagging upstream by a quarter or two. These positive data points give us more confidence in the near-term outlook for these two sectors. As I noted on our last earnings call, to better reflect the growing importance of the energy transition to our business, we renamed our downstream and industrial sector to the downstream industrial and energy transition sector, or DIET for short. Our downstream and industrial portion of this business is benefiting from increased turnaround and MRO activity that had been delayed due to pandemic-related restrictions. We expect this activity to increase next year, both for our U.S. and international markets. Although the energy transition portion of our revenue is starting from a small base, it is growing rapidly. and we expect this trend to continue as our customers execute their green energy and decarbonization plans and investment dollars are allocated to this space. We have added dedicated sales resources to aggressively pursue new opportunities and new customers as this market evolves. We have proven product expertise, supply chain management skills, and strong existing customer relationships, which give us a clear advantage and which we intend to use for growth. One of the larger fields where we see the most immediate growth and where we are actively participating is with biofuels projects being undertaken by traditional petroleum refiners. There are several of these projects underway and more expected in the near term. Energy transition is a key strategic growth area for MRC Global, and we continue to be focused on capturing more opportunities. I will now discuss a few of the key drivers that impact our business. Similar to last quarter, we are still experiencing inflation across all product groups to varying degrees. We see the most inflation impact in our carbon steel products, particularly line pipe, as those prices have more than doubled since October of 2020. As we've discussed before, inflation is generally good for our business, especially when we have cost plus arrangements. Our sales team is working diligently with our customers to update our product pricing to reflect our higher costs. We expect inflationary pressures to continue for the near term, supporting our current levels of adjusted gross margins. Now let me address supply chain, which is currently getting a lot of airtime. I will start by saying that we are supply chain experts, and we are navigating these challenges with minimal disruptions. The root cause is the pandemic, which has significantly affected the lead times of certain products, especially those that are manufactured or assembled overseas, or those products that require overseas components for assembly or manufacture here in the U.S. Despite the increases in freight costs and associated delays, the impact on MRC Global's financial results has been minimal thus far. To help mitigate these issues, over the last six months we have focused on building our inventory position in key product categories, along with increasing the amount of forward purchase orders to help provide product availability in the coming quarters. This is one of the key services we provide our customers, having the right inventory in stock. We've also worked with our customers to expand the list of eligible suppliers to increase our flexibility and reduce dependency on a narrow supplier base. With our key suppliers, due to our leadership position in the market, we receive preferential access to products, putting us in a much better position than the majority of our competitors. Supply chain issues are expected to continue for the foreseeable future, but we believe we are well positioned to continue to manage them effectively. Switching gears, we continue to invest in our e-commerce platform, MRC Go, and encourage digital integration with our customers. We made recent enhancements to the platform and we continue to see an increase in usage. Digital revenue as a percentage of total revenue continues to grow and was up more than 400 basis points over the previous year. Digital integration creates efficiencies for both our customers and for us, and it strengthens our customer relationships while providing another value-added offering. I invite you to check out our upgraded website at mrcgo.com. And with that, I'll now turn the call over to Kelly to cover the financial highlights for the quarter.