MRC Global Inc.

Greetings and welcome to the MRC Global's fourth quarter 2023 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 Braun, VIP Investor Relations and Treasury. Please go ahead.

Thank you and good morning. Welcome to the MRC Global fourth quarter and full year 2023 earnings conference call and webcast. We appreciate you joining us. On the call today, we have Rob Slotil, 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, 2024. The dial-in information is in yesterday's release. We expect to file our annual report on Form 10-K later this week, and it will also be available on our website. Please note that the information reported on this call speaks only as of today, February 14, 2024, and therefore you are advised that the 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 refer 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 in 2023, review our fourth quarter results at a high level, and address some of the key business drivers underpinning our 2024 outlook. I will then turn the call over to Kelly to provide a detailed review of the quarter and 2024 guidance before I deliver a brief recap. For the full year 2023, we had many accomplishments that I want to highlight, including setting several new MRC global records for profit margins, balance sheet strength, and working capital efficiency. First, we generated $181 million in operating cash for the year, well above the $110 million that we previously expected. This translates to a robust 18% levered free cash flow yield for the year. We are very bullish on the cash generation potential of the company going forward. We also set a company record for full-year adjusted gross margins at 21.5%, which is the second year in a row where we exceeded 21%. Some of our investors have expressed concerns that we might not be able to maintain margins at this level, but I'm happy to report that we have now had seven quarters in a row with 21 plus percent margins. This is a transformational change from the high teens level of margins throughout most of our company's history. Adjusted EBITDA margins were 7.3% for 2023, the second year in a row above 7%. This is a result of both higher adjusted gross margins along with our discipline on cost management. We've been very focused on working capital efficiency over the last few years, as evidenced by another record set in 2023, with our net working capital as a percentage of sales coming in at 15.5%. Since 2018, we've improved this metric by 490 basis points, which is helping us to consistently generate positive cash flow irrespective of the business cycle. Our balance sheet has never been stronger, with ample liquidity and the lowest leverage ratio in our public company history at 0.7 times. We expect this metric to improve even further in 2024. Revenue grew for the third straight year in 2023 to $3.4 billion, with year-over-year growth in our PTI and diet sectors partially offset by a slowdown in our gas utility sector. Our PTI sector grew by 6%, driven by increased activity and market share gains in the Permian Basin, partially offset by reduced sales in California and Canada. The diet sector improved 5% in 2023, driven by various LNG, chemicals, and refining projects. Our international business grew 13% in 2023 and is poised for double-digit improvement in 2024, supported by a healthy backlog that was 55% higher at year-end compared to the beginning of 2023. I will now make a few comments about the fourth quarter results and then turn to our outlook. Despite a revenue pullback in the fourth quarter, we maintained strong profit margins and cash generation that exceeded our expectations. For the quarter, adjusted gross margins were 21.9% and adjusted EBITDA was 48 million or 6.3% of sales. In addition, we generated cash flow from operations of 89 million in the fourth quarter and aided by excellent stewardship of our working capital that allowed us to achieve 181 million for the full year. Turning to our outlook, I will now provide some early perspectives on 2024. First of all, we have seen a meaningful improvement in our backlog and our new orders over the first few weeks of 2024. This gives us optimism that our business is stabilizing and we expect to return to growth in the coming quarters. From a sector perspective, For our gas utility sector, we expect our customers to continue their destocking efforts in the near term, which could cause capital spending for the first half of the year to lag the levels we saw in the first half of 2023. However, we expect to see an inflection point around mid-year for gas utility spending to improve once the destocking targets have been met. In addition, we expect moderation of inflation and interest rates as we move through 2024 which should improve the overall investment climate for this sector. Despite the near-term headwinds, the long-term market fundamentals and growth potential of our gas utilities business remain very positive. We continue to expand our market share and wallet share with gas utilities, and we are competing for new utility contracts in 2024 that should expand our presence further. Most of the work we perform with our gas utilities customers is based on multi-year programs where they evaluate and implement measures to improve their local distribution networks, and in some cases their transmission pipelines, to ensure the safety and the integrity of these systems. Since approximately 35% of the U.S. gas distribution network today is over 40 years old or of unknown origin, this creates a steady backlog of work due to the need to upgrade and maintain these networks as they age. Additionally, as new housing starts to improve with lower interest rates, that should result in further growth opportunities for this sector. In the diet sector, we are optimistic that we will experience modest revenue growth this year from a strong level of refinery and chemical plant maintenance activities supplemented by a growing slate of projects. We remain excited about energy transition growth opportunities and expect that most of the revenue in 2024 for this subsector will occur in the renewable fuel space. We expect a lot of new project bidding activity this year, but we will likely see most of the benefits in 2025 and beyond. Turning to our PTI business, recent industry reports have signaled some potential risk of declining oil prices and customer spending levels in 2024. However, larger public E&P companies are expected to drive a higher percentage of the activity in 2024 in the US oil field, which bodes well for our company. as our revenue for this sector is driven primarily from this customer base. Recent announcements of consolidation by our PTI customers are expected to be beneficial to MRC Global once completed. We partner more extensively with the acquirers than we do the targets, and the value we bring is generally better recognized by the larger operators who procure higher quality, longer life products for their oil and gas development projects. Another positive for the PTI sector is our international oil and gas market is expected to expand and we should benefit from our strong position in growth markets such as Norway, the UK, and Middle East. For our international segment, we expect another strong year aided by favorable fundamentals in both the PTI and diet sectors and a healthy revenue backlog that has grown each of the last five quarters. Our international backlog at the end of the fourth quarter increased 14% over the third quarter. We've lined up exciting projects in both PTI and in diet, and we expect another year of double-digit growth for international in 2024. Given the slower business environment in the U.S. segment, we are laser-focused on improving the things we can control, such as our cost structure. We are working to lower our absolute SG&A costs this year after experiencing an increase in 2023. which will support our ability to maintain healthy adjusted EBITDA margins. We are implementing a number of cost optimization initiatives, including slower wage growth and reductions in professional fees over time, travel and entertainment expenses, and logistics costs. We have made significant progress elevating our adjusted gross margins and EBITDA returns over the last few years, and we are committed to not losing this momentum in 2024. In summary, we expect 2024 to be a transitional year for the company in terms of revenue, but it is clear that we have never been a stronger company than we are today. We remain optimistic about the fundamentals of all three business sectors and their long-term outlook, given our strong market position and the expectation of demand for our products and services for decades to come. With the recent improvements in our cost structure and our working capital efficiencies, we are well positioned to generate significant earnings in cash flow across the business cycle. We are targeting to generate approximately 200 million in operating cash flow in 2024, which will make us an even stronger company with minimal debt at the end of this year. This will provide us with a lot of flexibility to pursue a capital allocation strategy that is focused on the highest return opportunities for our shareholders, including investing in our growth drivers, and distributing capital to our shareholders. I will now hand it over to Kelly.