MRC Global Inc.

Greetings and welcome to MRC Global's second quarter 2022 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.

Please go ahead. Thank you and good morning. Welcome to the MRC Global second quarter 2022 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 August 23, 2022. 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, August 9th, 2022, and therefore you are advised that information may no longer be accurate at the time of replay. In our call 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, actual results could differ materially from those expressed today. You are encouraged to read the company's SEC filings for 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 CEO, Mr. Rob Saltil.

Thank you, Monica. Good morning, and welcome to everyone joining today's call. I will begin with a high-level review of our second quarter results, then discuss growth opportunities and our positive outlook for our business. I will then turn over the call to Kelly for a detailed review of the quarter and our 2022 guidance before providing a brief recap. In a nutshell, our second quarter results were outstanding as we increased revenue significantly over the prior quarter while driving more of that revenue to the bottom line. And we did all this while increasing our backlog by double digits. Our strong second quarter was punctuated by a 14% sequential revenue increase, exceeding our previous expectations. All four business sectors experienced double-digit sequential growth led by our gas utilities and downstream industrial and energy transition, or diet businesses, followed by our upstream production and midstream pipeline sectors. Gas utilities drove more than 40% of this quarter's sequential growth and hit a new milestone with $314 million of revenue in the second quarter, its highest quarterly revenue to date. Our gas utilities business continues to benefit from an increasing number of integrity management and meter upgrade projects, and to a much lesser extent, housing starts. Our diet sector generated nearly a third of the second quarter's sequential improvement and is on track to approach a billion dollars in revenue this year. This business has benefited from increased maintenance and turnaround activity, and is rapidly returning to pre-pandemic revenue levels. Our two traditional energy sectors, upstream production and midstream pipeline, also experienced strong revenue improvements in the quarter. In particular, our U.S. upstream business grew 16 percent sequentially as our traditional customers ramped up investment in response to persistently strong oil and gas prices, and we expanded our share with new customers. New oil and gas production and geographic expansion of the US oil field both require new gathering and processing assets, which in turn has benefited our midstream business in the quarter. Our international business grew sequentially by 12%, despite the unfavorable impact of weaker foreign currencies that shaved 500 basis points off this increase for the quarter. Historically, our international business has lagged the US business recovery due to a higher concentration of longer lead time projects. The good news is that our underlying international business is strengthening as we've increased our international backlog by 31 million since year end, implying stronger international revenues in 2023 and beyond. Our Canada revenue was down 7% due to the spring break up there. However, the backlog has grown significantly and is up 54% since year end, supporting our expectations of strong growth in the back half of this year. We continue to emphasize profitability and efficiency at MRC Global, and I'm very proud of our team for delivering adjusted EBITDA margins of 7.7% in the second quarter. This is the highest margin achieved by the company since 2014, when our quarterly revenue was nearly double what it is today. We are a much leaner and more focused organization than we've ever been, and this has greatly aided our improved results. In addition to the strong revenue and EBITDA performance in the first half of 2022, our backlog has continued to increase as well, supporting our positive outlook and the growing momentum in our businesses. In the second quarter, our backlog grew across all four business sectors and all three geographic segments and ended at $746 million, a 12% increase over the first quarter. As of July 31, Our backlog is a further 7% higher than our June 30 figure, adding to our confidence for the second half of 2022. Our full year guidance remains at $3.3 billion of revenue and $230 million in EBITDA. This represents about $30 million more EBITDA than we generated in 2019, but on approximately $360 million of lower revenue. Our 2022 guidance also yields a 7% EBITDA margin which is 150 basis point improvement over 2021. Although we are not changing our guidance, we believe there is bias to the upside for our full year performance. As we look to the future, each of our end market sectors has a strong growth story, both in the near term and longer term. I want to highlight four specific growth areas for us. First, the energy transition. This is a subsector where we have seen tremendous growth this year, especially with the reconfiguration of petroleum refineries to process organic and waste feedstocks to produce renewable fuels. Our energy transition backlog includes a wide variety of projects, including the previously announced offshore wind farm in New York. Multiple carbon capture and hydrogen projects in both the U.S. and Europe are visible within the three-year horizon. Most importantly, we are developing relationships, project experience, and technology expertise that provides us a first mover advantage in PVF supplies for the energy transition space. This year, we expect to generate approximately $100 million of energy transition revenue, and we expect this figure to be exceeded significantly in 2023. MRC Global is playing a major role in the energy transition, and we expect this to be a growth driver for many years. The second area I'd like to highlight is our chemical strategy, which is gaining meaningful traction. About a year ago, we assembled a team with unrivaled chemicals expertise, tasked with identifying opportunities and growing our market share. We have won recent contract awards with major customers, and we are expanding our product mix to serve new U.S. and international markets. Our chemical subsector grew 10 percent sequentially in the second quarter and is up 28 percent versus the second quarter of 2021. The outlook is very positive. as North American chemical industry capital spending is expected to grow 18 percent through 2024. There is significant opportunity for MRC Global to deliver strong growth in the chemical space as this market expands and as we gain market share. The third growth area I would like to highlight is the upstream production sector. We are the largest PVF distributor to the energy sector, and we are committed to retaining our leadership position. We have enhanced our product offerings to serve private and smaller public operators, and we are expanding our footprint in the critical Permian Basin by opening a new facility in Midland, Texas, to better serve our customers there. Our international upstream business has picked up as well, in part due to the increased focus on energy security in Europe. Among our four business sectors, Upstream production is expected to achieve the highest percentage growth this year at approximately 30%. We believe that we are in a multi-year growth cycle for the traditional oil field after years of underinvestment, driven by increases in worldwide energy demand and an expanded role for U.S. energy production. And finally, I'd like to highlight the global LNG market as an area of growth for MRC Global. Natural gas is a logical transition fuel to a lower carbon future, and the U.S. in particular is blessed with abundant supplies that can be exported economically and safely to world markets as LNG. We expect that the increased focus of energy security will help facilitate growth of LNG production infrastructure in the U.S. and parallel regasification and transmission facilities in consuming markets. Here in the U.S., we are already active in supplying large quantities of PBF to approved LNG projects, and we expect a good number of additional LNG projects to gain approval in the next three to five years. Lastly, I want to commend our operations, supply chain, and sales and marketing teams who continue to deliver essential PBF products to our customers safely and timely, while providing superior service in addressing our customers' evolving needs. Our support functions continue to provide capable systems and personnel for our business to thrive and grow amid challenging market conditions. It has been a total team effort at MRC Global, and I'm very proud of our people for stepping up. With that, I'll now turn the call over to Kelly.