mrc-20200428x8k
false 0001439095 0001439095 2020-04-28 2020-04-28

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington , D.C. 20549

___________________________________

FORM 8-K

_________________________________

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

d ate of Report (Date of earliest event reported): April 28, 2020

___________________________________

MRC Global inc.

(Exact name of registrant as specified in its charter)

___________________________________


Identification Number)

Delaware

(State or other jurisdiction of incorporation)

001-35479

(Commission

File Number)

20-5956993

(I.R.S. Employer
Identification Number)

Fulbright Tower, 1301 McKinney Street, Suite 2300

Houston , Texas 77010
(Address of Principal Executive Offices)

Registrant’s telephone number, including area code: ( 877 ) 294-7574

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01

MRC

New York Stock Exchange

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.


Item 2.02 Results of Operations and Financial Condition

On April 28, 2020, MRC Global Inc. (“MRC Global” or the “Company”) issued a press release announcing its financial results for the three months ended March 31, 2020. A copy of the press release is furnished as Exhibit 99.1 to this Form 8-K and is incorporated herein by reference.

In accordance with General Instruction B.2 of Form 8-K, the information in Item 2.02 of this Current Report on Form 8-K, including Exhibit 99.1, shall not be deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

Item 7.01 Regulation FD Disclosure .

Earnings Presentation

On April 28, 2020, MRC Global Inc. announced its financial results for the three months ended March 31, 2020. In conjunction with this release, the Company issued a presentation summarizing the highlights of the financial results (the “Earnings Presentation”). A copy of the Earnings Presentation is furnished as Exhibit 99.2 to this Form 8-K and is incorporated herein by reference.

The information contained in the Earnings Presentation is summary information that should be considered in the context of MRC Global’s filings with the Securities and Exchange Commission and other public announcements that MRC Global may make by press release or otherwise from time to time. The Earnings Presentation speaks as of the date of this Current Report on Form 8-K. While MRC Global may elect to update the Earnings Presentation in the future or reflect events and circumstances occurring or existing after the date of this Current Report on Form 8-K, MRC Global specifically disclaims any obligation to do so. The Earnings Presentation will also be posted in the Investor Relations section of MRC Global’s website,   http://www.mrcglobal.com .

The information referenced under Item 7.01 (including Exhibit 99.2 referenced under Item 9.01 below) of this Current Report on Form 8-K is being “furnished” under “Item 7.01. Regulation FD Disclosure” and, as such, shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section. The information set forth in this Current Report on Form 8-K (including Exhibit 99.2 referenced under Item 9.01 below) shall not be incorporated by reference into any registration statement, report or other document filed by MRC Global pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.

Item 9.01 Financial Statements and Exhibits.

(d)

Exhibits.

99.1

Press release of MRC Global Inc. dated April 28, 2020

99.2

Earnings Presentation of MRC Global Inc. dated April 28, 2020

104

Cover Page Interactive Data File – The cover page XBRL tags from this Current Report on Form 8-K are imbedded within the Inline XBRL document


INDEX TO EXHIBITS

 

re

Exhibit No.

  

Description

99.1

Press release dated April 28, 2020

99.2

Earnings Presentation dated April 28, 2020

104

Cover Page Interactive Data File – The cover page XBRL tags from this Current Report on Form 8-K are imbedded within the Inline XBRL document



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: April 28, 2020

MRC GLOBAL Inc.

By:

/s/ Kelly Youngblood

Kelly Youngblood

Executive Vice President and Chief Financial Officer

Earnings Release Exhibit 991

Exhibit 99.1

 Exhibit 99.1

 



E

Picture 1

MRC Global Announces First Quarter 2020 Results



Sales of $794 million, a 4% sequential increase

Diluted earnings per common share of $0.04

Net income attributable to common shareholders of $3 million

Adjusted Gross Profit Percentage of 19.8%, a 70-basis point sequential improvement

Adjusted EBITDA of $34 million

Cash Flow from Operations of $37 million

Net Debt of $493 million, a sequential reduction of $26 million

Total available liquidity of $465 million, effective second quarter 2020





Houston, TX – April 28, 2020 – MRC Global Inc. (NYSE: MRC), the largest global distributor, based on sales, of pipe, valves and fittings and related products and services to the energy industry, today announced first quarter 2020 results.



The company’s sales were $794 million for the first quarter of 2020, which was 4% higher than the fourth quarter of 2019 and 18% lower than the first quarter of 2019. The sequential increase was driven primarily by the U.S. gas utilities sector, which was up $21 million. As compared to the first quarter of 2019, the decrease was across all sectors and segments as the impact of lower commodity prices led to reduced customer spending.



Net income attributable to common stockholders for the first quarter of 2020 was $3 million, or $0.04 per diluted share, as compared to the first quarter of 2019 of $12 million, or $0.14 per diluted share.



Andrew R. Lane, MRC Global’s president and chief executive officer stated, “ I am pleased with our first quarter result s, which was a solid performance given the market challenges. Revenue was up sequentially, we generated $37 million of cash from operations, and we reduced net debt by $26 million. Customer spending has slowed considerably in April in response to the unfavorable commodity price environment and a significant decline in oil and gas global demand brought about by the COVID-19 pandemic. As a result, we are taking steps to further reduce our operating costs by $80 million and reduce inventory by $140 million or more compared to 2019.”



“Our counter cyclical cash flow business model and our available liquidity will allow us to withstand the current challenging market conditions and continue to focus on our long-term strategy to enhance shareholder value. We expect to generate over $200 million in cash flow from operations in 2020. At this level, our free cash flow would be approximately $160 million after accounting for the preferred stock dividend and capital expenditures, resulting in a free cash flow yield of nearly 50%, based on today’s stock price , ” Mr. Lane added .



MRC Global’s first quarter 2020 gross profit was $148 million, or 18.6% of sales as compared to the first quarter of 2019 gross profit of $174 million, or 17.9% of sales. Gross profit for the first quarter of 2020 and 2019 reflects income of $3 million and $0 million, respectively, in cost of sales relating to the use of the last-in, first out (LIFO) method of inventory cost accounting.



Selling, general and administrative (SG&A) expenses were $126 million, or 15.9% of sales, for the first quarter of 2020 compared to $139 million, or 14.3% of sales, for the same period of 2019. SG&A includes bad debt expense of $6 million in the first quarter of 2020.



Please refer to the reconciliation of non-GAAP measures (adjusted gross profit and adjusted EBITDA) to GAAP measures (gross profit, net income) in this release.






 



Sales by Segment



U.S. sales in the first quarter of 2020 were $638 million, down $141 million, or 18%, from the same quarter in 2019. Upstream production sales decreased by $67 million, or 33% primarily due to increased capital discipline from our customers. Downstream and industrial sales declined $46 million, or 19% primarily due to non-recurring project work. Midstream pipeline sales declined $23 million, or 17% due to reduced customer spending and timing of customer projects.



Canadian sales in the first quarter of 2020 were $50 million, down $18 million, or 26%, from the same quarter in 2019 driven primarily by the upstream production sector, which was adversely affected by government imposed production limits as well as the gas utilities sector, which was lower due to a non-recurring pipe delivery.



International sales in the first quarter of 2020 were $106 million, down $17 million, or 14%, from the same period in 2019 driven primarily by the conclusion of an upstream production project in Kazakhstan. Weaker foreign currencies relative to the U.S. dollar unfavorably impacted sales by $6 million or 5%.



All sales were negatively impacted by decreasing demand caused by the COVID-19 pandemic in March.



Sales by Sector



Upstream production sales in the first quarter of 2020 were $222 million, or 28% of total sales, a decline of $90 million or 29% from the first quarter of 2019. The decrease in upstream production sales was across all segments led by the U.S. segment.



Midstream pipeline sales in the first quarter of 2020 were $119 million, or 15% of total sales, a reduction of $28 million or 19% from the first quarter of 2019 driven by the U.S. segment.



Gas utilities sales in the first quarter of 2020 were $202 million, or 25% of total sales, lower by 6% from the first quarter of 2019 due to lower activity levels for one customer and the timing of project deliveries.



Downstream and industrial sales in the first quarter of 2020 were $251 million, or 32% of total sales, a decrease of $46 million or 15% from the first quarter of 2019 driven by the U.S. segment.



This quarter, the company has expanded the disclosure of its end-market sector revenue to separately report the sectors midstream pipelines and gas utilities. Two years of historical revenue by quarter for these sectors is provided in this release.



Balance Sheet



Cash balances were $28 million and debt, net of cash, was $493 million at March 31, 2020. Cash provided by operations was $37 million in the first quarter of 2020. Beginning in the second quarter, excess availability under the company’s asset-based lending facility is $437 million and available liquidity is $465 million.



COVID-19 Pandemic Impact



The COVID-19 global pandemic and related mitigation measures have created significant volatility and uncertainty in the oil and gas industry. Oil demand has significantly deteriorated as a result. The unparalleled demand destruction has resulted in lower spending by customers and reduced demand for the company’s products and services. There is significant uncertainty as to the duration of this disruption.



As a critical supplier to the global energy infrastructure and an essential business, the company has remained operational with no closures to any facilities. We have had four confirmed illnesses reported, and all have recovered. MRC Global has also implemented various safety measures for employees working in the company’s facilities and implemented remote working for those whose jobs permit it. MRC Global is committed to a safe working environment for all employees.



2

 


 

From a supply chain perspective, the effects have moved around the globe as the virus has spread. Given the company’s inventory position and the reduced demand, the company has fulfilled orders with little disruption. However, the longer the shutdowns continue, the greater the order fulfillment risk exists.



Conference Call



The company will hold a conference call to discuss its first quarter 2020 results at 10:00 a.m. Eastern Time (9:00 a.m. Central Time) on April 29, 2020. To participate in the call, please dial 412 ‑902-0003 and ask for the MRC Global conference call at least 10 minutes prior to the start time. To access the conference call, live over the Internet, please log onto the web at www.mrcglobal.com   and go to the “Investor Relations” page of the company’s website at least fifteen minutes early to register, download and install any necessary audio software. For those who cannot listen to the live call, a replay will be available through May 13, 2020 and can be accessed by dialing 201-612-7415 and using pass code 13699943#. Also, an archive of the webcast will be available shortly after the call at www.mrcglobal.com for 90 days.



About MRC Global Inc.



MRC Global is the largest distributor of pipe, valves and fittings (PVF) and other infrastructure products and services to the energy industry, based on sales. Through approximately 250 service locations worldwide, approximately 3,150 employees and with nearly 100 years of history, MRC Global provides innovative supply chain solutions and technical product expertise to customers globally across diversified end-markets including the upstream production, midstream pipeline, gas utility and downstream and industrial. MRC Global manages a complex network of over 200,000 SKUs and 10,000 suppliers simplifying the supply chain for its over 13,000 customers. With a focus on technical products, value-added services, a global network of valve and engineering centers and an unmatched quality assurance program, MRC Global is the trusted PVF expert. Find out more at  www.mrcglobal.com .



This news release contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Words such as “will,” “expect,” “expected,” “intend,” “believes,” “well positioned,” “strong position,” “looking forward,” “guidance,” “plans” and similar expressions are intended to identify forward-looking statements.

Statements about the company’s business, including its strategy, its industry, the company’s future profitability, the company’s guidance on its sales, adjusted EBITDA, tax rate, capital expenditures and cash flow, liquidity, growth in the company’s various markets and the company’s expectations, beliefs, plans, strategies, objectives, prospects and assumptions are not guarantees of future performance. These statements are based on management’s expectations that involve a number of business risks and uncertainties, any of which could cause actual results to differ materially from those expressed in or implied by the forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors, most of which are difficult to predict and many of which are beyond MRC Global’s control, including the factors described in the company’s SEC filings that may cause the company’s actual results and performance to be materially different from any future results or performance expressed or implied by these forward-looking statements.

These risks and uncertainties include (among others) decreases in oil and natural gas prices; decreases in oil and natural gas industry expenditure levels, which may result from decreased oil and natural gas prices or other factors; U.S. and international general economic conditions; the company's ability to compete successfully with other companies in MRC Global's industry; the risk that manufacturers of the products the company distributes will sell a substantial amount of goods directly to end users in the industry sectors the company serves;  unexpected supply shortages;  cost increases by the company's suppliers; the company's lack of long-term contracts with most of its suppliers; suppliers' price reductions of products that the company sells, which could cause the value of the company's inventory to decline;  decreases in steel prices, which could significantly lower MRC Global's profit;  increases in steel prices, which the company may be unable to pass along to its customers which could significantly lower its profit; the company's lack of long-term contracts with many of its customers and the company's lack of contracts with customers that require minimum purchase volumes;  changes in the company's customer and product mix;  risks related to the company's customers' creditworthiness; the success of the company's acquisition strategies;  the potential adverse effects associated with integrating acquisitions into the company's business and whether these acquisitions will yield their intended benefits; the company's significant indebtedness;  the dependence on the company's subsidiaries for cash to meet its obligations;  changes in the company's credit profile;  a decline in demand for certain of the products the company distributes if import restrictions on these products are lifted or imposed; significant substitution of alternative fuels for oil and gas; environmental, health and safety laws and regulations and the interpretation or implementation thereof; the sufficiency of the company's insurance policies to cover losses, including liabilities arising from litigation;  product liability claims against the company;  pending or future asbestos-related claims against the company; the potential loss of key personnel; adverse health events such as a pandemic; interruption in the proper functioning of the company's information systems and the occurrence of cyber security incidents; loss of third-party transportation providers;  potential inability to obtain necessary capital;  risks related to adverse weather events or natural disasters;  impairment of the company’s goodwill or other intangible assets;  adverse changes in political or economic conditions in the countries in which the company operates; exposure to U.S. and international laws and regulations, including the U.S.

3

 


 

Foreign Corrupt Practices Act and the U.K. Bribery Act and other economic sanction programs; risks associated with international stability and geopolitical developments; risks relating to ongoing evaluations of internal controls required by Section 404 of the Sarbanes-Oxley Act; risks related to the company's intention not to pay dividends; and risks arising from compliance with and changes in law in the countries in which we operate, including (among others) changes in tax law, tax rates and interpretation in tax laws.

For a discussion of key risk factors, please see the risk factors disclosed in the company’s SEC filings, which are available on the SEC’s website at www.sec.gov and on the company’s website, www.mrcglobal.com . MRC Global’s filings and other important information are also available on the Investor Relations page of the company’s website at www.mrcglobal.com.

Undue reliance should not be placed on the company’s forward-looking statements. Although forward-looking statements reflect the company’s good faith beliefs, reliance should not be placed on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which may cause the company’s actual results, performance or achievements or future events to differ materially from anticipated future results, performance or achievements or future events expressed or implied by such forward-looking statements. The company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise, except to the extent required by law.



Contact:



Monica Broughton

Investor Relations

MRC Global Inc.

Monica.Broughton@mrcglobal.com

832-308-2847



4

 


 

MRC Global Inc.

Condensed Consolidated Balance Sheets (Unaudited)

(in millions , except shares )













 

 

 

 

 



March 31,

 

December 31,



2020

 

2019



 

 

 

 

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash

$

28 

 

$

32 

Accounts receivable, net

 

476 

 

 

459 

Inventories, net

 

691 

 

 

701 

Other current assets

 

24 

 

 

26 

Total current assets

 

1,219 

 

 

1,218 



 

 

 

 

 

Long-term assets:

 

 

 

 

 

Operating lease assets

 

179 

 

 

186 

Property, plant and equipment, net

 

131 

 

 

138 

Other assets

 

19 

 

 

19 



 

 

 

 

 

Intangible assets:

 

 

 

 

 

Goodwill, net

 

480 

 

 

483 

Other intangible assets, net

 

273 

 

 

281 



$

2,301 

 

$

2,325 



 

 

 

 

 

Liabilities and stockholders' equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Trade accounts payable

$

399 

 

$

357 

Accrued expenses and other current liabilities

 

82 

 

 

91 

Operating lease liabilities

 

33 

 

 

34 

Current portion of long-term debt

 

 

 

Total current liabilities

 

518 

 

 

486 



 

 

 

 

 

Long-term liabilities:

 

 

 

 

 

Long-term debt, net

 

517 

 

 

547 

Operating lease liabilities

 

161 

 

 

167 

Deferred income taxes

 

90 

 

 

91 

Other liabilities

 

43 

 

 

37 



 

 

 

 

 

Commitments and contingencies

 

 

 

 

 



 

 

 

 

 

6.5% Series A Convertible Perpetual Preferred Stock, $0.01 par value; authorized

 

 

 

 

 

363,000 shares; 363,000 shares issued and outstanding

 

355 

 

 

355 



 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

Common stock, $0.01 par value per share: 500 million shares authorized,

 

 

 

 

 

106,209,943 and 105,624,750 issued, respectively

 

 

 

Additional paid-in capital

 

1,730 

 

 

1,731 

Retained deficit

 

(480)

 

 

(483)

Less: Treasury stock at cost: 24,216,330 shares

 

(375)

 

 

(375)

Accumulated other comprehensive loss

 

(259)

 

 

(232)



 

617 

 

 

642 



$

2,301 

 

$

2,325 



5

 


 

MRC Global Inc.

Condensed Consolidated Statements of Operations   (Unaudited)

(in millions, except per share amounts)











0







 

 

 

 

 



Three Months Ended



March 31,

 

March 31,



2020

 

2019



 

 

 

 

 

Sales

$

794 

 

$

970 

Cost of sales

 

646 

 

 

796 

Gross profit

 

148 

 

 

174 

Selling, general and administrative expenses

 

126 

 

 

139 

Operating income

 

22 

 

 

35 

Other (expense) income:

 

 

 

 

 

Interest expense

 

(8)

 

 

(11)

Other, net

 

 -

 

 

 -



 

 

 

 

 

Income before income taxes

 

14 

 

 

24 

Income tax expense

 

 

 

Net income

 

 

 

18 

Series A preferred stock dividends

 

 

 

Net income attributable to common stockholders

$

 

$

12 



 

 

 

 

 



 

 

 

 

 

Basic income per common share

$

0.04 

 

$

0.14 

Diluted income per common share

$

0.04 

 

$

0.14 

Weighted-average common shares, basic

 

81.7 

 

 

84.3 

Weighted-average common shares, diluted

 

82.4 

 

 

85.3 















6

 


 

MRC Global Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in millions)

















 

 

 

 

 



Three Months Ended



March 31,

 

March 31,



2020

 

2019



 

 

 

 

 

Operating activities

 

 

Net income

$

 

$

18 

Adjustments to reconcile net income to net cash provided by (used in) operations:

 

 

 

 

 

Depreciation and amortization

 

 

 

Amortization of intangibles

 

 

 

11 

Equity-based compensation expense

 

 

 

Deferred income tax benefit

 

 

 

(Decrease) increase in LIFO reserve

 

(3)

 

 

 -

Provision for uncollectible accounts

 

 

 

Other

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

(33)

 

 

(47)

Inventories

 

(4)

 

 

(42)

Other current assets

 

 

 

Accounts payable

 

49 

 

 

27 

Accrued expenses and other current liabilities

 

(5)

 

 

(29)

Net cash provided by (used in) operations

 

37 

 

 

(40)



 

 

 

 

 

Investing activities

 

 

 

 

 

Purchases of property, plant and equipment

 

(2)

 

 

(2)

Net cash used in investing activities

 

(2)

 

 

(2)



 

 

 

 

 

Financing activities

 

 

 

 

 

Payments on revolving credit facilities

 

(228)

 

 

(256)

Proceeds from revolving credit facilities

 

205 

 

 

319 

Payments on long-term obligations

 

(4)

 

 

(1)

Purchase of common stock

 

 -

 

 

(25)

Dividends paid on preferred stock

 

(6)

 

 

(6)

Repurchases of shares to satisfy tax withholdings

 

(3)

 

 

(6)

Other

 

 -

 

 

Net cash (used in) provided by financing activities

 

(36)

 

 

26 



 

 

 

 

 

Decrease in cash

 

(1)

 

 

(16)

Effect of foreign exchange rate on cash

 

(3)

 

 

 -

Cash -- beginning of period

 

32 

 

 

43 

Cash -- end of period

$

28 

 

$

27 





7

 


 

MRC Global Inc.

Supplemental Information (Unaudited)

Reconciliation of Net Income to Adjusted EBITDA (a non-GAAP measure)

  (in millions)

















 

 

 

 

 

 



 

 

 

 

 

 



Three Months Ended

 



March 31,

 

March 31,

 



2020

 

2019

 



 

 

 

 

 

 

Net income

$

 

$

18 

 

Income tax expense

 

 

 

 

Interest expense

 

 

 

11 

 

Depreciation and amortization

 

 

 

 

Amortization of intangibles

 

 

 

11 

 

(Decrease) increase in LIFO reserve

 

(3)

 

 

 -

 

Equity-based compensation expense (1)

 

 

 

 

Gain on early extinguishment of debt (2)

 

(1)

 

 

 -

 

Foreign currency losses

 

 

 

 

Adjusted EBITDA

$

34 

 

$

56 

 



 

 

 

 

 

 





Notes to above:

(1)

Recorded in SG&A

(2)

Charge (pre-tax) related the purchase of the Term Loan recorded in Other, net.



The company defines Adjusted EBITDA as net income plus interest, income taxes, depreciation and amortization, amortization of intangibles, and certain other expenses, including non-cash expenses, (such as equity-based compensation, severance and restructuring, changes in the fair value of derivative instruments and asset impairments, including inventory) and plus or minus the impact of its LIFO inventory costing methodology.  The company presents Adjusted EBITDA because the company believes Adjusted EBITDA is a useful indicator of the company’s operating performance. Among other things, Adjusted EBITDA measures the company’s operating performance without regard to certain non-recurring, non-cash or transaction-related expenses.  Adjusted EBITDA, however, does not represent and should not be considered as an alternative to net income, cash flow from operations or any other measure of financial performance calculated and presented in accordance with GAAP. Because Adjusted EBITDA does not account for certain expenses, its utility as a measure of the company’s operating performance has material limitations. Because of these limitations, the company does not view Adjusted EBITDA in isolation or as a primary performance measure and also uses other measures, such as net income and sales, to measure operating performance.  See the Company's Annual Report filed on Form 10-K for a more thorough discussion of the use of Adjusted EBITDA.

8

 


 

MRC Global Inc.

Supplemental Information (Unaudited)

Reconciliation of Gross Profit to Adjusted Gross Profit (a non-GAAP measure)

  (in millions)



















 

 

 

 

 

 

 

 

 



Three Months Ended



March 31,

 

Percentage

 

March 31,

 

Percentage



2020

 

of Revenue*

 

2019

 

of Revenue*



 

 

 

 

 

 

 

 

 



 

 

Gross profit, as reported

$

148 

 

18.6% 

 

$

174 

 

17.9% 

Depreciation and amortization

 

 

0.6% 

 

 

 

0.5% 

Amortization of intangibles

 

 

0.9% 

 

 

11 

 

1.1% 

(Decrease) increase in LIFO reserve

 

(3)

 

(0.4%)

 

 

 -

 

0.0% 

Adjusted Gross Profit

$

157 

 

19.8% 

 

$

190 

 

19.6% 



Notes to above:

*Does not foot due to rounding



The company defines Adjusted Gross Profit as sales, less cost of sales, plus depreciation and amortization, plus amortization of intangibles, and plus or minus the impact of its LIFO inventory costing methodology. The company presents Adjusted Gross Profit because the company believes it is a useful indicator of the company’s operating performance without regard to items, such as amortization of intangibles, that can vary substantially from company to company depending upon the nature and extent of acquisitions of which they have been involved. Similarly, the impact of the LIFO inventory costing method can cause results to vary substantially from company to company depending upon whether they elect to utilize LIFO and depending upon which method they may elect. The company uses Adjusted Gross Profit as a key performance indicator in managing its business. The company believes that gross profit is the financial measure calculated and presented in accordance with U.S. generally accepted accounting principles that is most directly comparable to Adjusted Gross Profit.

9

 


 

MRC Global Inc.

Supplemental Sales Information   (Unaudited)

(in millions)



Disaggregated S ales by Segment



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 







 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

March 31,



 

 

 

 

 

 

 

 

 

 

 



U.S.

 

Canada

 

International

 

Total

2020:

 

 

 

 

 

 

 

 

 

 

 

Upstream production

$

139 

 

$

37 

 

$

46 

 

$

222 

Midstream pipeline

 

110 

 

 

 

 

 

 

119 

Gas utilities

 

199 

 

 

 

 

 -

 

 

202 

Downstream & industrial

 

190 

 

 

 

 

55 

 

 

251 



$

638 

 

$

50 

 

$

106 

 

$

794 

2019:

 

 

 

 

 

 

 

 

 

 

 

Upstream production

$

206 

 

$

46 

 

$

60 

 

$

312 

Midstream pipeline

 

133 

 

 

 

 

 

 

147 

Gas utilities

 

204 

 

 

10 

 

 

 -

 

 

214 

Downstream & industrial

 

236 

 

 

 

 

55 

 

 

297 



$

779 

 

$

68 

 

$

123 

 

$

970 





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue by Sector



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



2019

 

2018



 

Q1

 

Q2

 

Q3

 

Q4

 

YTD

 

 

Q1

 

Q2

 

Q3

 

Q4

 

YTD

U.S.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Upstream production

$

206 

$

188 

$

189 

$

140 

$

723 

 

$

178 

$

189 

$

213 

$

197 

$

777 

Midstream pipeline

 

133 

 

161 

 

141 

 

103 

 

538 

 

 

205 

 

231 

 

190 

 

152 

 

778 

Gas utilities

 

204 

 

244 

 

215 

 

178 

 

841 

 

 

188 

 

223 

 

216 

 

203 

 

830 

Downstream & industrial

 

236 

 

213 

 

218 

 

187 

 

854 

 

 

235 

 

235 

 

240 

 

226 

 

936 

Total

$

779 

$

806 

$

763 

$

608 

$

2,956 

 

$

806 

$

878 

$

859 

$

778 

$

3,321 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Canada

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Upstream production

$

46 

$

41 

$

43 

$

32 

$

162 

 

$

57 

$

64 

$

59 

$

59 

$

239 

Midstream pipeline

 

 

 

 

 

26 

 

 

 

 

 

14 

 

34 

Gas utilities

 

10 

 

 

 

 

16 

 

 

 

 

 

 

14 

Downstream & industrial

 

 

 

 

 

22 

 

 

 

 

 

 

28 

Total

$

68 

$

58 

$

57 

$

43 

$

226 

 

$

78 

$

80 

$

78 

$

79 

$

315 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

International

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Upstream production

$

60 

$

55 

$

55 

$

52 

$

222 

 

$

67 

$

54 

$

66 

$

83 

$

270 

Midstream pipeline (1)

 

 

 

 

10 

 

29 

 

 

 

10 

 

 

 

21 

Gas utilities (1)

 

 -

 

 -

 

 -

 

 -

 

 -

 

 

 -

 

 -

 

 -

 

 -

 

 -

Downstream & industrial

 

55 

 

61 

 

60 

 

53 

 

229 

 

 

56 

 

60 

 

63 

 

66 

 

245 

Total

$

123 

$

120 

$

122 

$

115 

$

480 

 

$

126 

$

124 

$

134 

$

152 

$

536 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Upstream production

$

312 

$

284 

$

287 

$

224 

$

1,107 

 

$

302 

$

307 

$

338 

$

339 

$

1,286 

Midstream pipeline (1)

 

147 

 

174 

 

154 

 

118 

 

593 

 

 

214 

 

247 

 

203 

 

169 

 

833 

Gas utilities (1)

 

214 

 

247 

 

216 

 

180 

 

857 

 

 

196 

 

225 

 

219 

 

204 

 

844 

Downstream & industrial

 

297 

 

279 

 

285 

 

244 

 

1,105 

 

 

298 

 

303 

 

311 

 

297 

 

1,209 

Total

$

970 

$

984 

$

942 

$

766 

$

3,662 

 

$

1,010 

$

1,082 

$

1,071 

$

1,009 

$

4,172 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 





Notes to above:

(1 ) $17 million and $5 million of sales for the twelve months ended December 31, 2019 and December 31, 2018, respectively, have been reclassified from Gas Utilities to Midstream Pipeline to conform with the current year presentation.

10

 


 

MRC Global Inc.

Supplemental Sales Information (Unaudited)

(in millions)





S ales by Product Line









 

 

 

 

 

 



 

Three Months Ended



 

March 31,

 

March 31,

Type

 

2020

 

2019

Line pipe

 

$

100 

 

$

154 

Carbon fittings and flanges

 

 

115 

 

 

153 

Total carbon pipe, fittings and flanges

 

 

215 

 

 

307 

Valves, automation, measurement and instrumentation

 

 

323 

 

 

383 

Gas products

 

 

134 

 

 

133 

Stainless steel and alloy pipe and fittings

 

 

37 

 

 

50 

General products

 

 

85 

 

 

97 



 

$

794 

 

$

970 



 

 

 

 

 

 



11

 


 

MRC Global Inc.

Supplemental Information (Unaudited)

Reconciliation of Net Income Attributable to Common Stockholders to

Adjusted Net Income Attributable to Common Stockholders (a non-GAAP measure)

  (in millions , except per share amounts )



















 

 

 

 

 



 

 

 

 

 



Three Months Ended



March 31, 2020



Amount

 

Per Share



 

 

 

 

 

Net income attributable to common stockholders

$

 

$

0.04 

Decrease in LIFO reserve, net of tax

 

(2)

 

 

(0.03)

Adjusted net income attributable to common stockholders

$

 

$

0.01 



 

 

 

 

 



 

 

 

 

 



Three Months Ended



March 31, 2019



Amount

 

Per Share



 

 

 

 

 

Net income attributable to common stockholders

$

12 

 

$

0.14 

Increase in LIFO reserve, net of tax

 

 -

 

 

 -

Adjusted net income attributable to common stockholders

$

12 

 

$

0.14 









Notes to above:



The Company defines Adjusted Net Income Attributable to Common Stockholders (a non-GAAP measure) as Net Income Attributable to Common Stockholders plus or minus the after-tax impact of its LIFO inventory costing methodology. The Company presents Adjusted Net Income Attributable to Common Stockholders and related per share amounts because the Company believes it provides useful comparisons of the Company’s operating results to other companies, including those companies with whom we compete in the distribution of pipe, valves and fittings to the energy industry, without regard to the LIFO inventory costing methodology. The impact of the LIFO inventory costing methodology can cause results to vary substantially from company to company depending upon whether they elect to utilize LIFO and depending upon which method they may elect.  The Company believes that Net Income Attributable to Common Stockholders is the financial measure calculated and presented in accordance with U.S. generally accepted accounting principles that is most directly compared to Adjusted Net Income Attributable to Common Stockholders.    







# # #

12

 


Earnings Presentation Exhibit 992

Exhibit 99.2

 



Picture 5

MRC Global 1Q 2020 Earnings Presentation   April 28, 2020 Andrew Lane   President & CEO   Kelly Youngblood   Executive Vice President & CFO We Make Energy Flow 1


 



Picture 6

Forward Looking Statements and Non-GAAP Disclaimer This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Words such as “will,” “expect,” “looking forward,” “guidance,” “targeting”, and similar expressions are intended to identify forward-looking statements. Statements about the company’s business, including its strategy, its industry, the company’s future profitability, the company’s guidance on its sales, Adjusted EBITDA, gross profit, gross profit percentage, Adjusted Gross Profit, Adjusted Gross Profit percentage, tax rate, capital expenditures and cash from operations, growth in the company’s various markets and the company’s expectations, beliefs, plans, strategies, objectives, prospects and assumptions are not guarantees of future performance. These statements are based on management’s expectations that involve a number of business risks and uncertainties, any of which could cause actual results to differ materially from those expressed in or implied by the forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors, most of which are difficult to predict and many of which are beyond our control, including the factors described in the company’s SEC filings that may cause our actual results and performance to be materially different from any future results or performance expressed or implied by these forward-looking statements, including the company’s Current Report on Form 8-K dated April 28, 2020. For a discussion of key risk factors, please see the risk factors disclosed in the company’s SEC filings, which are available on the SEC’s website at www.sec.gov and on the company’s website, www.mrcglobal.com. Our filings and other important information are also available on the Investor Relations page of our website at www.mrcglobal.com. Undue reliance should not be placed on the company’s forward-looking statements. Although forward-looking statements reflect the company’s good faith beliefs, reliance should not be placed on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which may cause the company’s actual results, performance or achievements or future events to differ materially from anticipated future results, performance or achievements or future events expressed or implied by such forward-looking statements. The company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise, except to the extent required by law. Statement Regarding Use of Non-GAAP Measures:   The Non-GAAP financial measures contained in this presentation (Adjusted EBITDA and Adjusted Gross Profit) are not measures of financial performance calculated in accordance with U.S. Generally Accepted Accounting Principles (GAAP) and should not be considered as alternatives to net income or gross profit.   They should be viewed in addition to, and not as a substitute for, analysis of our results reported in accordance with GAAP.   Management believes that these non-GAAP financial measures provide investors a view to measures similar to those used in evaluating our compliance with certain financial covenants under our credit facilities and provide meaningful comparisons between current and prior year period results.   They are also used as a metric to determine certain components of performance-based compensation. They are not necessarily indicative of future results of operations that may be obtained by the company . 1Q 2020 Earnings Presentation MRC Global 2


 



Picture 7

Key Points – First Quarter 2020 Results Generated $37 million of cash from operations in 1Q20   Available Liquidity   $465 million, effective 2Q20 1Q20 Adjusted EBITDA of $34 million or 4.3% of revenue Adjusted gross profit of 19.8% in 1Q20 – a 70 basis point improvement from   4Q19   Net debt of $493 million down $26 million from 4Q19 Net working capital to sales ratio 19.3% as of 1Q20 Repurchased $3 million of Term Loan B debt at a 23% discount to par value 1Q20 revenue increased 4% from 4Q19 but declined in April due to reduced customer budgets resulting from demand destruction and oversupply Lowered operating costs   Reduced 1Q20 SG&A by $17 million from 1Q19 and $21 million from 4Q19, excluding bad debt expense   Closed 2 facilities in 1Q20. Additional 14 facilities targeted for closure in 2Q & 3Q   Reduced headcount by 73 sequentially. Additional 200 expected Note: Adjusted Gross Profit and Adjusted EBITDA are non-GAAP measures. For a reconciliation to their closest GAAP measures, see our Current Report on Form 8-K dated April 28, 2020. 1Q 2020 Earnings Presentation MRC Global 3


 



Picture 8

Summary Highlights from First Quarter 2020 Results $794M in revenue – 4% sequential increase SG&A $126M – down $13M from 1Q19 Segment revenue highlights 1Q20 v 1Q19 U.S. – declined 18% on lower upstream production revenue, less downstream project revenue and lower midstream pipeline revenue Canada – declined 26% due to uneconomic oil prices due to a lack of takeaway capacity and government imposed production limits International – declined 14%   on the conclusion of a project and weak foreign currency. Market sector revenue highlights 1Q20 v 1Q19 Upstream Production decreased 29% driven by all segments Midstream Pipeline declined 19% on reduced customer spending and timing of projects Gas Utilities   declined 6% due to less activity from one customer and timing Downstream & Industrial   decreased 15% on non-recurring project revenue 1Q 2020 Earnings Presentation MRC Global 4


 



Picture 9

Quarterly & YTD Financial Performance ($ millions, except per share data) Sales 1Q 19 $970 4Q 19 $766 1Q 20 $794 Adjusted Gross Profit and % Margin 1 1Q 19 19.6% $190 4Q 19 2 19.1% $146 1Q 19 19.8% $157 Adjusted EBITDA and % Margin 1 1Q 19 5.8% $56 4Q 19 3.0% $23 1Q 20 4.3% $34 Diluted EPS 1Q 19 $0.14 4Q 19 $(0.37) 1Q 20 $0.04 1. See reconciliation of non-GAAP measures to GAAP measures in the appendix   2. Includes $5 million of non-cash charges (pre-tax) recorded in cost of goods sold in our international segment for excess and obsolete inventory, and $3 million of charges (pre-tax) recorded in sales for the final settlement of a multi-year customer project for the three months ended December 31, 2019. Excluding these charges for the three months ended December 31, 2019 gross profit, as reported would be $139 million (18.1%) and adjusted gross profit would be $154 million (20.0%). 1Q 2020 Earnings Presentation MRC Global 5


 



Picture 10

Strong Balance Sheet Provides Financial Flexibility ($ millions) Total Debt 1Q 19 $746 4Q 19 $551 1Q 20 $521 Net Leverage 1 : 2.6x 2.6x 2.75x Capital Structure March 31,2020   Cash and Cash Equivalents   $ 28   Total Debt (including current portion):   Term Loan B due 2024   $386   (net of discount & deferred financing costs)   Global ABL Facility due 2022   135   Total Debt   $521   Preferred stock   355   Common stockholders’ equity   617   Total Capitalization   $1,493   Liquidity (effective 2Q20)   $465 Cash Flow from Operations 1Q 19 $(40) 4Q 19 $108 1Q 20 $37 Return on Average Net Capital Employed 2 2012 8.2% 2013 8.1% 2014 7.2% 2015 -12.8% 2016 -3.6% 2017 4.4% 2018 6.2% 2019 4.3% 1. Multiples represent Net Debt / trailing twelve months Adjusted EBITDA. Net Debt is Total Debt less Cash.   2. Return on Average Net Capital Employed is defined as net income plus interest expense after-tax, divided by average net capital employed (debt plus equity). 1Q 2020 Earnings Presentation MRC Global 6


 



Picture 11

Strategy for Creating Shareholder Value Grow Market Share Provide superior customer service & cost-saving supply chain solutions   Focus on blue chip customers who demand value-added service and technical expertise   Leverage market leadership position and global footprint Provide multi-channel engagement to capture buying Maximize Profitability Focus on higher margin products, end-markets & sales strategies   Leverage scale & global supply chain   Expand offering of value-added services to capture enhanced margin   Focus on controlling costs & operating leverage   Maximize Working Capital Efficiency Reduce cash conversion cycle   Optimize inventory to maximize turnover and margin   Continual operational efficiency improvements Optimize Capital Structure Optimize capital structure with financial flexibility throughout the cycle   1Q 2020 Earnings Presentation MRC Global 7


 

Picture 1

Strategy -   1Q20 Accomplishments Grow Market Share Added new customer contracts and awards (e.g. Eversource, Noble Midstream, Ameren, Total) Maximize Profitability Achieved 19.8% adjusted gross margins   41% of revenue from valves in 1Q 2020 – Highest in company history   On-track to increase valves to 40-42% of total revenue in 2020 and 45% in 2023 Maximize Working Capital Efficiency Achieved 19.3% of working capital, net of cash, to sales – surpassed 20% target   Targeting 19. 5 %   to 19.9% for 2020 Optimize Capital Structure Repurchased $3 million of Term Loan B at a 23% discount. Reduced net debt by $26 million in 1Q20 from 4Q19   Generated $37 million cash from operations in 1Q20   1Q 2020 Earnings Presentation MRC Global 8


 



Picture 13

Concluding Key Points Focused on operating cost reductions, cash flow, balance sheet management   Liquidity $465 million, effective 2Q20 Lowered SG&A by $13 million in 1Q20 v. 1Q19 Generated $37 million in cash from operations Gross profit and Adjusted gross profit 18.6% and 19.8% for 1Q20 Reduced net debt by $26 million in 1Q20 from 4Q19 Delivering on strategic objectives Optimal balance sheet usage – reducing debt & continued working capital efficiency Growing market share – added and renewed customer contracts 1Q 2020 Earnings Presentation MRC Global 9


 



Picture 14

Appendix 1Q 2020 Earnings Presentation MRC Global 10


 



Picture 15

Adjusted Gross Profit Reconciliation Three months ended Year ended December 31 ($ millions) March 31, 2020 Dec 31, 2019 March 31, 2019 2019 2018 2017 2016 2015 2014 2013 2012 Gross profit $ 148 $ 131 $ 174 $ 653 $ 689 $ 582 $ 468 $ 786 $ 1,018 $ 955 $ 1,014 Depreciation and amortization 5 5 5 21 23 22 22 21 22 22 19 Amortization of intangibles 7 9 11 42 45 45 47 60 68 52 49 (Decrease) increase in LIFO reserve (3) 1 - (2) 62 28 (14) (53) 12 (20) (24) Adjusted Gross Profit $ 157 $ 146 $ 190 $ 714 $ 819 $ 677 $ 523 $ 814 $ 1,120 $ 1,009 $ 1,058 Note: Adjusted Gross Profit is a non-GAAP measure. For a discussion of the use of Adjusted Gross Profit, see our Current Report on Form 8-K dated April 28, 2020. 1Q 2020 Earnings Presentation MRC Global 11


 



Picture 16

Adjusted EBITDA Reconciliation Three months ended Year ended December 31 ($ millions) March 31, 2020 Dec 31, 2019 March 31, 2019 2019 2018 2017 2016 2015 2014 2013 2012 Net income (loss) $ 9 $ (24) $ 18 $ 39 $ 74 $ 50 $ (83) $ (331) $ 144 $ 152 $ 118 Income tax expense (benefit) 5 5 6 27 21 (43) (8) (11) 82 85 64 Interest expense 8 9 11 40 38 31 35 48 62 61 113 Depreciation and amortization 5 5 5 21 23 22 22 21 22 22 19 Amortization of intangibles 7 9 11 42 45 45 47 60 68 52 49 (Decrease) increase in LIFO reserve (3) 1 - (2) 62 28 (14) (53) 12 (20) (24) Inventory-related charges - 5 - 5 - 6 40 - - - - Supplier bad debt - 5 - 5 - - - - - - - Goodwill & intangible asset impairment - - - - - - - 462 - - - Change in fair value of derivative instruments - - - - (1) 1 (1) 1 1 (5) (2) Equity-based compensation expense 2 4 4 16 14 16 12 10 9 15 8 Severance & restructuring charges - 4 - 9 4 14 20 14 8 1 - Write off of debt issuance costs - - - - 1 8 1 3 - - - Litigation matter - - - - - 3 - 3 - - - Foreign currency losses (gains) 2 - 1 (1) (1) (2) 4 3 3 13 (1) Loss on disposition of non-core product line - - - - - - - 5 10 - - Insurance charge - - - - - - - - - 2 - Cancellation of executive employment agreement (cash portion) - - - - - - - - 3 - - Expenses associated with refinancing - - - - - - - - - 5 2 (Gain) loss on early extinguishment of debt (1) - - - - - - - - - 114 Pension settlement - - - - - - - - - - 4 Other expense (income) - - - - - - - - - 3 (1) Adjusted EBITDA $ 34 $ 23 $ 56 $ 201 $ 280 $ 179 $ 75 $ 235 $ 424 $ 386 $ 463 Note: Adjusted EBITDA is a non-GAAP measure. For a discussion of the use of Adjusted EBITDA, see our Current Report on Form 8-K dated April 28, 2020. 1Q 2020 Earnings Presentation MRC Global 12