MRC Global Inc.

Greetings and welcome to the MRC Global's fourth quarter 2022 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 your host, Monica Broughton, Investor Relations. Thank you, Monica. You may begin.

Thank you, and good morning. Welcome to the MRC Global fourth 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 February 28, 2023. The dial-in information is in yesterday's release. We expect to file our annual report on Form 10-K later today It will also be available on our website. Please note that the information reported on this call only speaks as of today, February 14, 2023, and therefore you are advised that information may no longer be accurate as of the time of replay. In our call 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 related GAAP items, all of which can be found on our website. Unless we specifically state otherwise, references in this call to EBITDA refer to adjusted EBITDA. 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 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 Saltil.

Thank you, Monica. Good morning, and welcome to everyone joining today's call. I will begin with a discussion of notable achievements for 2022, review our fourth quarter results at a high level, and address some of the key business drivers underpinning our 2023 outlook. I will then turn over the call to Kelly and to provide a detailed review of the quarter and 2023 guidance before I deliver a brief recap. 2022 was an excellent year for MRC Global with several significant financial achievements. Our top-line performance was impressive, ending the year at $3.4 billion with 26% year-over-year revenue growth. Each of our four business sectors saw sales jump by double digits, and two of our sectors, gas utilities and diet, each exceeded $1 billion in revenue. We realized full-year EBITDA of $261 million, 79% higher than 2021 on EBITDA margins of 7.8%, a 230 basis point increase. The last time MRC Global exceeded this EBITDA margin percentage was in 2012 when revenue was over $2 billion higher. We generated $43 million of operating cash flow in the second half of the year even as second half revenue exceeded first half revenue by 11.5% and we continued to grow our inventory balance. Our upstream production business benefited greatly from improving fundamentals and our increased focus on Permian Basin opportunities. This was our highest growth business in 2022 with 30% revenue improvement over 2021. Our increased focus on the chemical space yielded impressive results with a 20% revenue increase in 2022 versus 2021, and a 65% rise in sales over the same period from our targeted customer accounts, proof that our strategy is working. Our energy transition business generated over $100 million in revenue in 2022, led by robust development of renewable fuels projects in the U.S. Energy transition opportunities are plentiful and growing, and MRC Global is well positioned to capitalize with our customer relationships technical expertise, and project experience. And finally, our focus on capital efficiency and bottom line results translated into significantly higher returns on capital in 2022. Return on invested capital, or ROIC, is a widely used measure of capital stewardship and an important driver of shareholder value. After adjusting for the impact of LIFO, our ROIC was 11% in 2022, above our cost of capital and a significant improvement over the prior year. Turning now to the fourth quarter, we finished the year strong with fourth quarter revenue of $869 million in line with our guidance. Seasonal slowdowns in our gas utilities and diet sectors contributed to the sequential decline. However, solid double-digit improvements in our upstream production and midstream pipeline sectors were a bright spot, as these sectors were up 11%, and 15 percent respectively. Profitability in the fourth quarter was also excellent as we achieved an adjusted EBITDA margin of 7.6 percent, a 70 basis point improvement over the fourth quarter of 2021. This performance was aided by increases in customer pricing to counter inflation, consistent focus on cost discipline, and excellent work by our supply chain and operations teams in meeting customer demands. Turning now to 2023, we expect this to be another successful year for MRC Global with double-digit sales growth and EBITDA margins exceeding 8%. The top-line increase should be enabled by revenue gains across all four business sectors and across all three geographic segments. From a sector perspective, we expect outsized revenue growth in our upstream production and midstream pipeline sectors in 2023 to support increasing production of oil and gas both in North America and internationally. IOCs and larger independents are expected to comprise an increased share of the capex this year in the North America oil field, and we are certainly experiencing that with our business. Recent budget surveys by industry analysts project an average of approximately 15 to 20 percent increase in U.S. upstream capital spend and a mid-teens percentage increase globally. We expect the Permian Basin to be very busy for MRC Global in 2023 due to our strong market positions with leading producers there, coupled with a well-timed opening of our Midland Service Center last fall. Internationally, investment in the North Sea is expected to fuel upstream production growth there as well. Our gas utility sector, our largest revenue contributor, should also experience healthy sales growth this year, even after this business expanded by more than 20 percent in each of the past two years. Recently published research on gas utility capital spending indicates a 17 percent increase in the 2022 through 2024 timeframe versus the previous three-year period, with the bulk of this spend being allocated to safety and integrity projects. This same research report anticipates an upper single-digit capital spending increase in 2023 over 2022, consistent with what our gas utility customers are communicating to us. As we have said on previous earnings calls, our gas utility sector should be a growth engine for years to come as we expand our market share to new utility customers and improve our share of wallet with existing customers. Finally, our diet sector is expected to experience upper single-digit revenue growth in 2023, even after a nearly 30 percent uptick in 2022. Within diet, the outlook for the chemical subsector remains positive, especially in the North America market, which benefits from low feedstock costs. We continue to gain market share with new customers, and we have grown our North American chemicals backlog by 79% at the end of 2022 as compared to year-end 2021. Also in diet, we remain involved in multiple LNG projects, both in the U.S. and internationally. We expect multiple additional LNG projects to gain approval in the U.S. this decade as the U.S. remains the world's leading LNG producer and increases its supplies to European markets. And finally, our thriving energy transition business delivered more than $100 million of revenue in 2022 and will continue to be a long-term growth driver. In 2023, we expect our energy transition activity to be weighted more heavily toward international projects after 2022's predominance of U.S.-based opportunities. In addition to robust revenue and earnings growth, we expect to generate substantial operating cash flow this year as we improve working capital efficiency and convert more EBITDA into cash. Currently, we are targeting at least $120 million in operating cash flow, an increase from our previous guidance. This will be enabled in part through accelerated progress on managing our working capital more efficiently. For example, we have initiatives underway with our supply chain and operations teams to improve the absolute levels, the locations, and the productivity of our inventory, and we are also targeting improved efficiency of our financial working capital. Achieving an attractive return on invested capital is vital to our value creation narrative, and we will continue to improve this metric in 2023. And with that, I'll now turn the call over to Kelly.