MRC Global Inc.

Greetings and welcome to MRC's global fourth quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. A 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. I would now like to turn the conference over to your host, Monica Broughton, Investor Relations for MRC Global, also Saltil.

Please go ahead. Thank you and good morning. Welcome to the MRC Global fourth 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 March 2, 2022. The dial-in information is in yesterday's release. We expect to file our 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 16, 2022. 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 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 these 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 by discussing some of our notable achievements for 2021, review our fourth quarter results at a high level, and discuss some of the key business drivers underpinning our optimistic outlook. I will then turn over the call to Kelly for a detailed review of the quarter and our 2022 business plan before providing a brief recap. Our key financial achievement in 2021 was the significant improvement in our bottom line. We realized full-year EBITDA of $146 million, 51% higher than 2020, and an EBITDA margin of 5.5%, a 170 basis point increase. Our revenue grew approximately 4% in 2021 So our bottom line performance clearly benefited from improved gross margins and a more streamlined cost structure that we implemented in 2020. We will continue to maintain control on our costs even as our markets recover in order to drive more of our incremental revenue to our profit line. I also want to highlight the continued growth and success of our gas utilities business. We exceeded our $1 billion revenue target for this sector two years earlier than predicted, as revenue grew 21% in 2021. Gas utilities accounted for 38% of our company-wide revenue last year, and it remains the largest of our four business lines. We continue to be very optimistic that this sector has many years of strong profitable growth ahead. Our cash management and balance sheet efforts in 2021 have positioned us extremely well for the future. We generated $56 million of cash from operations in 2021 despite having increased our gross inventory levels to capitalize on the market recovery. We continued to streamline our inventory to favor higher turning products and improve our overall working capital efficiency. We achieved a 15.6% net working capital to sales ratio significantly better than our historic rates and our 18% target. And we reduced our debt by $86 million in 2021 to end the year at a net debt to EBITDA leverage ratio of 1.7 times, a record low for our company since going public. Turning now to the fourth quarter, our fourth quarter 2021 EBITDA came in at $47 million, up 21% over the third quarter and more than double the amount reported in the fourth quarter of 2020. In fact, during the past three quarters where revenue has been fairly constant, we have seen a sequential rise in EBITDA margin percentage from 5.2% to 5.7% to 6.9%. Our fourth quarter EBITDA margin percentage was the highest for our company since 2018. This exceptional figure was aided by increases in customer pricing to counter inflation, excellent work by our supply chain team in meeting customer demands, and some larger product orders at attractive margins. On our last call, we guided that fourth quarter revenue would buck our seasonal trend of being sequentially lower than the third quarter, and our team achieved this with a nearly identical $686 million revenue result. This was driven by 33% growth in our Canadian revenue as upstream activity picked up nicely. Our U.S. business experienced only a modest 1% decline, where it typically is down seasonably by 5% to 10%. International revenue was off 6%, but we experienced a strong increase in backlog that sets the stage for a stronger 2022 and 2023. Our upstream production business was up 6%, while our midstream pipeline sector and our downstream industrial and energy transition, or diet sector, were each up 2%. Gas utilities took a breather in the fourth quarter, down 5%, after outsized revenue increases in previous quarters of 2021. Adjusted gross margins across all four business lines were higher in the fourth quarter due to improved pricing in our customer agreements that helped counteract inflationary effects. Looking forward to 2022 and beyond, I want to discuss some of the key drivers for each of our four business lines. As I mentioned earlier, our gas utilities business is our largest sector by revenue, having achieved a compound annual growth rate over the last 10 years of 10%. The future of this business is very bright, and underpinned by longer-term drivers such as gas distribution system integrity management and utility hookups and infrastructure build-outs for new home construction. Aging pipeline infrastructure and tighter safety regulations drive our customers' integrity management programs. As an example, we are servicing many conversions of older steel or cast iron lines to polyethylene pipe. In fact, the Pipeline and Hazardous Materials Safety Administration indicates that approximately 38% of U.S. gas distribution mains and service lines are over 40 years old. Housing starts that drive gas infrastructure build-out are expected to remain strong, especially in the U.S. southern and western states where many of our customers operate. In addition, our customers are continuously improving the functionality of their systems with, for example, the installation of smart meters to replace manual ones. Recent analyst projections and company earnings indicate a double-digit increase in capital expenditures for our largest gas utility customers in 2022 over 2021, supporting our expectations. Our gas utilities business is less volatile than our traditional oil field-dependent businesses as activity is largely independent of commodity prices. Our next largest sector, the downstream industrial and energy transition sector, or DIET, now comprises 29% of our total revenue. With the recent development of our downstream center of excellence, our focus on energy transition opportunities, and the general increase we are seeing in our customers' budgets, we are expecting strong growth in this sector in 2022 and beyond. We began to see an increase in maintenance and turnaround spending for the petroleum, refining, and chemical industries in the fourth quarter of 2021, much of it previously delayed due to the pandemic. In 2022, we expect more significant improvement with our U.S. diet sector up double digits. In fact, Industrial Information Resources, or IIR, projects a double-digit increase in U.S. downstream turnaround maintenance and capital spending in 2022. We also expect that our international downstream business will see a similar pickup in activity, but on a lagged basis relative to the U.S. market. The rapidly growing energy transition space remains a key area of focus for MRC Global. In 2021, we supplied various green and decarbonization projects, including biofuel refinery conversions, hydrogen production, offshore wind, and a hydroelectric facility. Because energy transition work is longer dated due to its project nature, we currently have more energy transition backlog than the total revenue that we generated in 2021. Although it is still early days for this subsector, we expect that energy transition revenue will grow from the tens of millions to the hundreds of millions over the next few years. MRC Global's traditional energy-focused sectors, upstream production and midstream pipeline, collectively comprise 33% of our revenue in 2021. Both sectors are poised for major growth with the anticipated multi-year upcycle that has only recently begun. Higher oil and natural gas prices are supportive of significant growth in the U.S., Canada, and many of the international markets where we operate. North American capital spending by energy producers is expected to increase on average in the mid-20 percent range this year, according to industry analysts and company reports. And some analysts are even calling for 30-plus percent spending rises in the Permian Basin. Expected production increases should drive our upstream revenue, to increase by a strong double-digit percentage in 2022. Our midstream business is expected to benefit primarily from spending on gathering and processing systems and rise by low double digits this year. As a company, we are targeting a minimum of $3 billion in revenue and a minimum of $190 million in EBITDA this year. These numbers reflect a 12.5% improvement in revenue and a 30% improvement in EBITDA over 2021 levels. We are hopeful that we can exceed these figures if our customer spending levels top our expectations. I'll now turn the call over to Kelly to cover the financial highlights for the quarter and more details about our 2022 outlook.