MRC Global Inc.

Greetings and welcome to MRC Global's third quarter 2023 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. It is now my pleasure to introduce Monica Brund, Vice President, Investor Relations, and Treasury. Thank you. You may begin.

Thank you, and good morning. Welcome to the MRC Global third quarter 2023 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 22, 2023. 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 8, 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 the 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 high-level overview of our third quarter results and sector performance, and then provide some preliminary thoughts about 2024. Kelly will provide a detailed review of the third quarter financial results before I end our prepared remarks with a brief recap. We continued to execute well for our customers in the third quarter, despite the fact that our rate of top-line growth slowed a bit. Revenue for the third quarter was $888 million, up 2% sequentially over the second quarter. we generated 70 million of adjusted EBITDA up 11% sequentially, resulting in an EBITDA margin of 7.9%. This marked the sixth consecutive quarter for our EBITDA margin to exceed 7%, as well as our sixth consecutive quarter for adjusted gross profit margin to exceed 21%. We also realized 102 million of cash flow from operations in the quarter, bringing our year-to-date cash flow to 92 million, exceeding our guidance for the full year. The strong cash flow result was achieved through excellent work by our supply chain and operations teams in managing our inventory levels and our finance team in managing our working capital components effectively. Cash flow generation across the business cycle, even in growth periods when more working capital is required, is imperative for our company and our shareholders, and we are pleased with this result. Turning now to our sectors, our diet sector experienced a strong growth 14% sequential growth in the third quarter that would have been even higher had not some of our larger orders for chemical and refining customers slipped into the fourth quarter due to project delays. We also made two significant announcements involving our diet sector since our last earnings call. The first was the five-year extension of our enterprise frame agreement with our longtime customer Shell. Much of our future activity with Shell is expected to involve energy transition and chemical projects with a large international component. We also announced our role as a major supplier of valves to Preem's biofuel project in Sweden, further demonstrating the opportunities that our energy transition business brings, as well as the benefits of our global footprint. PTI revenue declined by 3% in the third quarter sequentially, as we experienced a general drop in North American oil field activity. We continue to perform well in our biggest PTI region, the Permian Basin, as the large publicly traded customers there continue to provide us steady work. We believe that recent announcements of acquisitions of major producers in the Permian Basin and Rockies have the potential to be beneficial to MRC Global once completed. We work more extensively with the acquirers today than we do the targets. and we are built for customers who value high-quality, longer-life products and who purchase consistently through their enterprise agreements. In contrast to the exciting growth in the Permian Basin, our customers operating in the California oil field have faced a difficult regulatory environment that has inhibited investment in production growth. Decreased activity in California contributed to our lower PTI revenue in the third quarter. In our gas utility sector, we also experienced a slight sequential revenue decline. As we discussed on our last call, the normalization of product supply chains has led our customers to focus on destocking their own inventories as a near-term priority. We expect this destocking to continue for one or two quarters longer. In addition, higher interest rates have raised the bar for new projects, while higher labor and construction costs have reduced the share of CapEx that is available for product purchases. It is noteworthy that most of our various product line sales this year within the gas utility sector are in line or higher than last year, with the exception of line pipe. In this product group, we have experienced significant deflation over the past year and increasing competition, leading to approximately 20% lower line pipe revenue this year in our gas utility sector. In particular, some of our major customers have significantly reduced spending in the line pipe product group but we expect these customers to return to previous spending levels as we move through next year. Additionally, we have avoided chasing low-margin sales with our line pipe inventory, which has allowed us to preserve an adjusted gross profit percentage in excess of 21%, but at the cost of a lower top line. The good news is we expect that line pipe prices have likely bottomed, so this headwind should diminish over the next year. Despite the temporary pause in the growth of our gas utility sector, the fundamentals of this business remain very strong. We maintain a leading market position, and we have served many of our customers for more than a decade. We are integral supply chain partners for these utilities, and we have been entrusted with responsibilities previously under the purview of the utility that would, in many cases, require significant cost and effort to migrate back in-house. These utilities have recognized that MRC Global's ability to purchase at scale and to provide value-added services provides significant cost savings and a better quality supply chain result. Additionally, this sector has historically been less susceptible to a major slowdown due to its reduced dependency on energy demand and commodity prices. Kelly will provide more detail in his section about our outlook for the fourth quarter, but a big positive that I want to mention is that we now expect to generate approximately $110 million in cash from operations this year, exceeding our previous guidance of $90 million. Looking ahead to 2024, we are not quite ready to provide specific revenue guidance, as many of our customers are still determining their capital budgets for next year. However, I will offer some perspectives on the key drivers. We expect that the PTI sector will benefit from generally high oil prices supported by OPEC+, and increased capital spending by producers in North America and international markets. We expect our gas utilities customers to grow capital spending at a more muted pace with the majority of their activity concentrated in the second half of the year when the bulk of the destocking is concluded. We expect the diet sector to benefit from robust refinery and chemical plant maintenance activities supplemented by a strong and growing slate of projects. In summary, we remain optimistic about the underlying fundamentals of all three sectors and their longer-term outlook. I will now hand it over to Kelly.