MRC Global Inc.

Greetings and welcome to MRC Global's second quarter 2024 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. Thank you. You may begin.

Thank you and good morning. Welcome to the MRC Global second quarter 2024 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 21st, 2024. 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 7, 2024, 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 the 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 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 review of our second quarter results and then discuss two notable achievements, a promising macro trend, and our sector highlights before concluding with our 2024 outlook. Kelly will provide a detailed review of the quarter and 2024 guidance before I deliver a brief recap. Starting with our second quarter highlights, we generated $63 million in operating cash flow in the second quarter and $101 million for the first half of the year. It was a solid quarter with cash generation coming in stronger than expected due in large part to efficient working capital management. We are on track to meet or exceed our guidance of generating 200 million of operating cash flow for the full year, and we remain very optimistic on the cash generation potential of our company going forward. Second quarter revenue was 832 million, growing 3% over the first quarter, with the increase driven by our gas utilities and PTI sectors. Gas utilities revenue improved 8% sequentially, driven by increased customer spending due to seasonal increases and normalizing buying patterns by most of our customers. Our PTI sector grew by 5% led by the international segment due to increased project activity in the North Sea. Our diet sector experienced a slight decline as the U.S. segment experienced lower refinery turnaround and project activity than we had expected. Adjusted gross margins were a robust 22.1%. This is a record high quarterly result for MRC Global due to product mix and a strong international contribution, both of which were accretive to overall company margins. Adjusted EBITDA margins were 7.8% for the second quarter, a 70 basis point improvement over the first quarter. This is the result of higher adjusted gross margins coupled with strong cost discipline. We remain on track to reduce absolute SG&A in 2024 versus 2023 levels. Our SG&A as a percentage of sales remains best in class compared to our energy and industrial distributor peers. Our balance sheet continues to improve and has never been stronger. During the second quarter, we repaid our term loan early as we had previously signaled using a combination of cash and our ABL facility. We ended the quarter with $103 million of net debt and with a leverage ratio of 0.4 times, a record low for our company. We expect these metrics to improve further in the coming quarters as we generate additional cash from operations. And finally, our international business continues to have an excellent year. Second quarter revenue grew 15% year over year and 11% sequentially, driven by growth in both the PTI and diet sectors. The international business is poised for double-digit revenue improvement for the full year, supported by a backlog that is 32% higher than a year ago. Our growth has been enabled by multiple North Sea projects and MRO activity in the PTI sector and by multiple energy transition projects in the diet sector. I would now like to highlight a couple of noteworthy achievements and then comment on a positive macro trend. First, we were very pleased to have been recently chosen as the primary strategic supplier of PVF products and services to ExxonMobil in North America. We were selected for our breadth of product and service offerings, our technical expertise, and our geographic footprint, all of which are industry leading. And our new agreement with ExxonMobil covers all upstream and downstream operations for both MRO and project activity. We've had a longstanding productive relationship with ExxonMobil, and this agreement allows us to grow with them as they expand their North American business. We are currently in the early stages of implementation, and we expect activity levels to increase into next year, especially as ExxonMobil's recent acquisitions are fully integrated. We are now focused on delighting this important customer with outstanding service. I am proud of our MRC Global team for the hard work they are putting into this customer relationship and appreciative of ExxonMobil for entrusting us with their extensive North America PVF business. Second, I want to highlight our excellent progress with our chemicals growth strategy. We began this initiative in 2021 by hiring subject matter experts and refocusing our sales and marketing efforts on this attractive subsector. Through the end of 2023, we had seen approximately 30% growth in our chemical subsector revenue, and we expected to increase upper single digits this year. Much of our progress is due to our target growth accounts, where we have seen more than a doubling in revenue comparing the first half of this year with the first half of 2023. We also see significant opportunity for further growth in 2025. Finally, I want to highlight a macro trend that we expect to play out over the coming years, strong demand growth for natural gas. It is well understood that the U.S. has an extensive supply of natural gas in the unconventional place. As a fuel, natural gas is clean, reliable, and affordable. We expect demand for U.S. natural gas to increase over the next decade, driven by four factors. growth in LNG export volumes, increased needs for gas-fired power stations, increasing exports to Mexico, and growing industrial demand. Demand growth for natural gas is very good for MRC Global. Higher gas production and consumption means more gathering and processing facilities, more pipelines for transportation, and more related infrastructure down the entire value chain to consumers. This megatrend will benefit all three of our sectors and create new opportunities for the growth of our business. Moving now to our sector discussions, in our gas utility sector, we believe we are seeing stabilization compared to the sharp declines in revenue we experienced in the second half of last year. In fact, this was the second quarter in a row of increased revenue. Most of our customers are returning to more normal purchasing patterns, while others continue to focus on destocking. Project related gas utilities work has slowed this year, but is expected to recover in 2025. Industry analysts and several of our largest customers have made public announcements regarding increasing their capital spending in 2025. In fact, the annual growth rates and capital expenditures for natural gas utilities that we serve are expected to range from four to 6% over the next five years. This is a healthy underlying growth rate for our gas utilities business. In the diet sector, our success with our chemical strategy has been accompanied by strong performance in our growing mining business. In fact, we are in the process of opening a new service center in Phoenix, Arizona, designed to serve mining and gas utility customers. On the flip side, several U.S. projects and refinery turnarounds that we are involved in have been delayed into 2025, and U.S. LNG-related activity has been impacted by permitting delays for new projects. Our international business continues to do extremely well in the diet space, especially with refinery work and energy transition projects. Turning to our PTI business, we continue to see sluggish rig counts in the U.S. oil field, due in part to the widespread consolidation of producers, particularly in the Permian Basin, and also due to low natural gas prices. we continue to believe that the industry consolidation efforts by the larger oil and gas producers will have a net benefit for MRC Global. Most industry surveys expect US oil field spending to be slower in the second half of this year before picking up in 2025. Our international oil and gas business continues to be strong, led by our participation in several North Sea projects and our growing presence in the Middle East. In summary, we have had a very strong first half of the year with solid revenues, profitability, and cash flow generation. That said, our outlook for revenue in the second half of this year is expected to be a little softer than the first half, primarily due to delays in diet projects and refinery turnarounds. We continue to believe that 2024 is a transitional year for MRC Global due to three issues we have discussed previously, gas utilities destocking, PTI activity inhibited by industry consolidation and low gas prices, and diet sector project and turnaround delays. Although it is too early to give guidance for next year, we do expect 2025 to see improvement in these fundamentals that will benefit our company. Importantly for our shareholders, our end market diversification, improved gross margins, lean cost structure, and working capital efficiencies have positioned us to generate consistent cash flow across the business cycle. This year, we remain on track to generate $200 million or more in operating cash flow. Going forward, this cash generation capability should allow us significant flexibility to consider various capital allocation strategies for the benefit of our shareholders. And with that, I will now hand it over to Kelly.