MRC - Earnings call transcript Q2 2018

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Operator

Greetings, and welcome to the MRC Global Second Quarter 2018 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.

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Monica Broughton, Investor Relations. you. Thank

begin. may You

Monica Schafer Broughton

good XXXX Welcome webcast. earnings us you and Global We the second joining quarter conference today. morning, you, to everyone. MRC appreciate Thank call and

we release. XX, and CFO. by as yesterday's will CEO, is call, On available President today's replay well XXXX. phone There information Andrew our by in Executive President Braun, as webcast be and on the The Vice dial-in and have of Jim August call a until Lane, mrcglobal.com, website,

be We our which on also information website. file remarks of X, In call margin. gross expect adjusted therefore, of XX-Q replay. be Form August we time today, profit accurate that and as today, this note XXXX, gross advised our report you percentage, to speaks XXXX quarter second no and are of profit, our the EBITDA discuss that only on later will the will adjusted information today, EBITDA, adjusted adjusted on longer Please as reported available may

are earnings found all more read related to measures items, securities the a these can of which reconciliation and our website. measures see non-GAAP to release to our use learn of about GAAP to on these filings our of be You encouraged and

securities management of management These comments the views statements federal Global. made the forward-looking MRC addition, current forward-looking In this MRC statements the the by of laws. may of during States United contain the reflect call Global within of meaning the

differ However, materially those actual MRC from Global's results expressed could today.

now, to Mr. the concerning these Lane. in-depth CEO, SEC I'd for And more factors of read Andrew review the company's the are statements. turn our risk call like to to filings encouraged You over forward-looking a

Andrew R. Lane

company XXXX. morning the CFO, for more XX% finish interest call highlights, X% the detailed across We of outlook then today our XXXX and the to review key performance up Good the up for review of and Jim with Today, last Global. had strong joining quarter Monica. our our I'll in a for Braun, your over second us quarter I second updated from performance I'll then quarter. over you was all will you, results. financial turn sequentially and the Thank Revenue in MRC and metrics. thank for

digits. XXXX. was compared We from year same double adjusted profit of year. the all to position a ago. mix to customer and revenue reported of first as $X.XX product sales the compared EPS. for increased a was our Higher contract over the of quarter the the sectors six second time for of same incremental of high-end improved outlook. last of at XXXX adjusted XXXX more to quarter adjusted was or and positioned to better improved Second in sales million Adjusted in sales efficient quarter XXXX. simply due We're up quarterly adjusted X.X% EBITDA, XX.X% above disciplined previous XX% gross was profit strong earnings LIFO year, standpoint XX.X% period expected EBITDA our share $XX months second negatively gross quarter the a the in The control, EBITDA resulting and cost the the from Due profit impacted X% year breakeven quarter ago. has a year expense gross even organization a of annual last than second EPS with XXXX, per Diluted first to XX% of up half

inventory inflationary margin purchases gross of higher environment to and our in investments has products inventory margins. aggressive an in repositioning Our higher resulted

benefited continue first months pleased the year, and for We've extensions the the we've as U.S. of I quarter, first sectors the projects our all have end by company. year half as progress the improving a well in We $XXX had customer or to the wins made have segment. our EBITDA our the increased and led contract positions six adjusted million is Contract revenue. the good experienced X.X% profitability with of as of profitability market be total of and growth very as

business have to is in macroeconomic The conditions to to and of leading contribute and our improve macroeconomic E&P continue work timing, up continued but spending growth the at conditions. U.S. completions a for ISI all a rise are uncompleted While the end that we first Comparing drilled are EIA positive be as projects favorable ahead quarter to Evercore are Midyear well expected our uncertainty the project sectors the with in at wells, price, report in first gain. continue Survey, XXXX. of over second the for inherent Recent to U.S. markets which high. very XXXX, an growth market increase as position. half share our growth in regulatory, all to XXXX well over all-time all in support XX% show XX% our According indicating quarter the as

the a recently. capacity basin been Permian Permian have Some takeaway of leveling-off estimates in completions much topic a as constraints for called discussion of

perspective, the our Permian represents We up the as total the to customers we of about our customers first of in and have have in risk upstream half aren't revenue saw XXXX. second Many firm things quarter. third yet of pullback contracts in be smaller upstream sequentially our operators. revenue see capacity similar help in activity X% quarter, to To our with our at U.S. in expect with a what and business to

shale also as projects service strong the end energy Permian a relocate We there takeaway across extends course sectors have has Permian that region we first grown other the the share in to customer same Because and in spending period growth and as of upstream XXXX are are transmission major shortfall XX XXXX. addressing this to have seen involved we capacity. our substantial we all market basins. in half revenue over business, of are gains our XX% throughout every are midstream we change footprint nearly in them major and basins, diversified market Should actively

been various as revenue between include million nor period. time not We tie-ins to does these XXXX laterals that EU XXXX- the part and South and steel rendered, was longer on develop to Since plants countries on business. over chain and our into on feeding last expect place XXX our no carbon produce aluminum. reported, Last tariffs quarter, certain about the Mexico these impact Section have targeting discussed line and final are and China. measures facility processing tariffs and from as Canada, on projects trends Section lead various decision exempt aluminum transmission made $XXX projects. products, impact which gathering and XXX quota as the anti-dumping we The including in its steel less some tariffs parts XXX and inflation valves, steel several are valve inevitably Korea. to the transmission of times. and of the XXX a put on adapts This supply tariffs, $XXX such nuances. impacts Recently, Also, million global these increasing clear gaskets We it pipelines, inflationary spoke cost feed, Section has related Section imports of we

a supply managing supply. tremendous by their types in help chain change assembled example, tariff, imports period to global we ball valve of have of Chinese avoid only this have customers experts volatility may the choose to in are building Chinese needed as parts For certain of are who China affected the this been in supply our valves inventory This as and and domestic tariff. manufacturer complicates complex, a but ensure during matters, to valve

through us. impact for structure, of distributor we see begun And the inflation inflation. positive working to reflect as to operating market general been to business cost plus from Regarding current in our is the quarter inflation push aggressively environment. margin generally pricing improvement contract the on increases second a under contract a higher We've have

product of carbon inflation, categories the experienced price level some have major experienced but which pipe volatility our of has we expected. most All

end tariffs as we line Some off the types products as line experiencing and seen of outlook stainless much have pricing quotas have increase sizes XX% pipe, the last valves Carbon back year expect flanges, of on and to the and all the a fittings half for and taken price increases. effect. in current market the year. pipe Based are level since

As product increases to these the we discussed given building quarter, of inventory strategically have customers. ahead price conditions, last for we been have available and these get

that shares about $XX capital past pleased this total, price created company million a spoke capital In average share. shareholders $XX.XX last of million the our over quarter, report, an $XXX our investment earnings October bears at repurchased of a completed an on use basis including prudent We has We're have last our authorizations, in repeating. repurchase several an we returned it XX.X been price for programs, value we the our with with years. our which share. authorized purchase of second of share In this per accretive at of to share million a While repurchase believe in shareholders. average we've the repurchase results program, has $XX.XX both

allocation capital the by has on working focused as strategy operating the an our to Today, capital the stage balanced return increase in support that with in ease we levels. growth are of business. cyclical of growth traditionally providing the business, capital Our of our capital evident

like market two to of for renewed the had with more I'd you. Agreement downstream operations and our share Enterprise a years. Framework we've for updates share quarter, This U.S. with wins couple BP We

States the who years Enterprise acquisition their when also an be of closes. additional our We United three renewed largest refiner Framework Petroleum, for the independent Agreement with in Marathon Andeavor will

grow We combined our expect share with as a company. to them

the a call Finally, With one upstream PVF the Permian now with to of Basin. producers Framework in a are gain, we turn This of also we largest now Agreement is and Enterprise one Jim. new the oil that, market I'll share new signed independent over two suppliers.

James E. Braun

good Andrew, morning, Thanks, everyone. and

quarter and segment, higher second sector produced States by year oil, XXXX integrity all downstream to driven $XX Sequentially, gas contribute in or need second the U.S. production experiencing growth largest the up for for second quarter, from from on The growth. with gas revenue with the sector benefited up increase. maintenance in million capacity. year XX% downstream market as and and U.S. quarter quarter the last which transmission closely U.S. from $XXX increased growth first at customers activity $XX as projects, U.S. XX%. due outages; our Beginning to increased XX% most quarter was a large utility revenue, several the increased in and were total midstream. the by billion, as $XX was activity for the revenue Shell's pipeline business increased. was outages downstream deliveries midstream or second double-digit increased Our gathering United also project growth. increase or XX% gas quarter well up sectors well primarily followed all the the midstream XX%. The and end X% In sales U.S. the sectors million as polymers the up $X.XXX last order; was repairs as upstream of utility from million and Revenue last of led the of total, than completion year gain. was driving from XX% maintenance market export Pennsylvania from project, liquids million Spending share increased more from U.S. by

were increase primarily year. quarter Canada's which to declined segment in up outperformance well U.S. to Canadian rig Sequentially, last in from U.S. a quarter drove increased up large revenue of the Canadian Our midstream the second by overall completions. upstream increased the first deliveries thermal the in from mix. from the to from related Sales in project million XX% second activity from ago. in sales growth million lower Australia completions upstream in the Canadian strength was primarily sectors, in sector quarter million, facility nonrecurring X% followed of X% pipeline In segment, the to dollar sales oil upstream due the U.S. above Kazakhstan. quarter, were by strength International growth but the the The higher work quarter. upstream a $XX the activity was by benefited in was quarter breakup due U.S. across revenue from higher dollar second for of sales same a X%. resulting decline the X%. trailed $X in XXXX also which all offset Gains the from a against Canadian quarter. a the from by Sequentially, due segment the against of was heavy were project count, quarter second our customer $XXX facility ago. currency foreign in of the offset million revenue down partially The dollar $X impact year negative segment International year midstream benefited mentioned in work

ago, year driven the market as to well end sector. results increased described downstream quarter from sectors sector all quarter same million, sector sales oil the and sales quarter States same second $XXX on million, same the last completions earlier. XX% Turning project to million. XX% Compared Midstream quarter to primarily XX% $XXX heavy based primarily sales increased same by the the to to last in in year were grew our year deliveries a upstream sector, U.S. driven Downstream double-digits. the quarter year from United Canadian $XXX last by higher from the segment. In

business to midstream subsectors X%. increased and U.S. Our the project XXXX transmission experienced utility to typically our when midstream gathering sales of is had a Sales by XX% in based exception growth. customers about customers we XX% gas with and increased Australia. significant our Both

quarter second quarter $XX second for XXXX second XXXX of LIFO Gross the quarter margins. million $X increased respectively. and to million of we XXXX XX.X% headwind and recorded a profit the LIFO to XX expense as the XXXX. the Turning basis was in of in in of from points quarter XX.X% percent

Given our LIFO XXXX. and the adjusted for product mentioned now the the inflationary XXXX, quarter we up gross increase The million in inflationary in expense second percentage profit of of profit XX.X% the impact the adjusted in environment, percentage The conditions earlier be reflects quarter XX.X% the of positive year. from was favorable expect second mix. gross to a full $XX

the pipe pipe XX% XXXX in XX% increased latest of higher in Pipe all As noted, quarter sequentially. prices, higher on second XXXX. and items average of index, which inflation we've line Based than quarter second in prices were Logix seen the have the spot XXXX, line considerably

activity We increase a due $XXX and of wage increases inflation volume-related unfavorable to SG&A were X% million and second effect. as ago, million movements. off from the from foreign of million, year expect $X tariffs level pipe and increases, to for levels quotas higher $XXX take incentive XXXX or cost currency an primarily quarter

which $XX exceeded to from million. expense the and for XXXX of than first million $X between higher Consistent million. increases $XXX as year, the expenses. we XX.X% expense million Interest last XXXX, was in a our XX.X% compared second quarter quarter growth second revenue primarily $XXX As operating expense million the to be SG&A percentage SG&A of to down $X average due totaled to XXXX, of balances. higher debt of SG&A revenue, Sequentially, fell expect with in quarter outlook, previous was

million the by This $X quarter, debt we a repriced saving and cost. XX year. one-time expense our term loan per lowering basis We recorded related million points the $X approximately interest of to write off issuance

the tax second Our was XX%, for in $X tax resulting rate of quarter expense a million.

Our tax corresponding to primarily without XX%, losses than in jurisdictions rate benefit. foreign due of higher tax a statutory the rate certain U.S. is pre-tax

XX% We have of annual rate. the not tax to estimate our XX% changed for XXXX effective

as year EBITDA adjusted from as second and versus XXXX, ago, shareholders net improved XXXX XX% $X.XX quarter year. invest levels as $XX attributable positioning build ago, a continue was a of historical of inflationary effort last the to capital in benefit working quarter up ago. second second quarter as breakeven the year quarter We from and continues including positive or EBITDA and and $XX All million to common $XX cost year – end Adjusted or was margins diluted of taken margin Our operating quarter, strategic well million our of the per an international, ahead our all due share income gross million this restructuring three environment. above to controlled. million for activity XXXX. in for expenses to to $XX was to compared were used the generated actions EBITDA adjusted quarter profit of higher second as segments the a X.X% which cash same quarter Incremental XXXX EBITDA operating over three levels were well we reduction X.X%, at the aggressively of

year million working end capital than more end $XXX $XXX the the cash net XXXX. $XXX more and than the XXXX million of of of at million, was a Our at quarter of second ago,

sales As the a our second the target. above trailing XX%, as quarter was capital, XX-month percentage our of working cash, of a at result, XXXX, XX% end excluding

years. However, expect end to range the to XX% we by the of the return

Our inventory begin third decline during the to will levels quarter.

we operations. the breakeven As XXXX generate cash the in will end such, negative in back year with to we expect $XX million half cash and that of from

the end Our at quarter of compared $XXX the debt of $XXX to end second the XXXX. at outstanding was million million

and commensurate times facility Our leverage the $XX million from end times $XXX of based X.X year, $XXX to of availability cash. in at X.X million million the on last our on ratio ABL net at quarter, second debt in of increase debt. was we the The increased end with had the

were million guidance million. than year. half of lowered in to the we expenditures for $XX million somewhat anticipated, is our And for initially closing estimate capital lower given the the I'll And annual our $X capital $X comments rate back turn and it second Finally, we've Andrew quarter expenditure spend to now, first

Andrew R. Lane

end half for Based maintaining of Thanks, delivery guidance midpoint first are results, outlook our our back with revenue strong Jim. and outlook. project of current our annual the on at half billion. $X.XX XXXX, we I'll timing the

based to profit full However, the guidance year. our last for gross adjusted the we're percentage to year to-date our half the our and of increasing XXXX expectations on XX.X% XX.X% performance for

are expectations Our for largely unchanged. XXXX

year. By at at U.S. expect to sectors segment, XX% are for us. all We have based XX% unchanged X% market growth some upstream to at XX% higher. compared to still this be to to downstream our midstream to shifting expectations year the market last compared higher, XX% are and the higher, segment among specifically, as XX% on we to but geographic XX% for project positive generally, More XX% our end timing, conditions XXXX,

Canada are to also XXXX. quarter to the XX%, second is Sequentially, than from for XX% segment X% be quarter our XX% expected low to XXXX single-digit customer due lower and XXXX. expect unchanged at slightly at spending in International lower expectations we third to Our percentages up

in $XXX more quarter, backlog spending prices are seen. and inventory supportive than Our many ago, was place. flat project indicate as The have the originally million end down updates stable grow but be Spending had market uncompleted taken the Crude of or we the deliveries continue relatively we in investment. remains of high and at project second time support of to anticipated continue of year, and which with business, over to resulting gains a second downstream can the drilled our quarter, quarter-to-quarter. year worked keeping revenue. from believe upstream at the beginning wells survey lately Projects which timing share mind DUCs will in delivery future always fluctuate that

supports to As with our of infrastructure the Operator? to midstream as strong serve the lot to gathering need got additional all for These are regulatory attention which great continue U.S. as a as take constructive grows energy need systems This now positive the pricing, business. and U.S., inflation base benefit pipe line in all business customer production market in a Permian. project customers relationships. across of have environment contracts increase we in and for that, continue has more with our dynamics, questions. projects well lately we'll continues the capacity we takeaway for your A the With

Operator

you. Thank

a now be will question-and-answer conducting session. We

Our proceed question. line from with first of with question comes Meakim your JPMorgan. Sean the Please

Sean C. Meakim

morning. Thanks. good Hey,

James E. Braun

Sean. morning, Good

Andrew R. Lane

Sean. morning, Good

Sean C. Meakim

to the you've to of the could the timing? hit continued to that those the performance end flex us see unchanged, the end year of out? just Andy, nuances laid unchanged some maybe points the help of are half the flex XXXX upper range – what given project points in for the you the year, despite Maybe range, full that hit upper kind of steel mostly first with walk just range mix, us inflation, revenue solid

Andrew R. Lane

I way best think in by – half. be through geography, the is rather me second Sean, to go than sector, the because is Yeah, it going let maybe the U.S. strong

we're as was wells. more the look operators to were year-to-date, at tracking you XX% up acceleration and call, is previous in some When our stated think XX% drilled uncompleted of earlier. some completions our upstream I upstream slower year-to-date. So are smaller the base pick U.S. And up an revenues budgets of the the on as customer first we quarter on new of

we're XX% the our see really remarks, we mentioned I hit customers the some revenues mean on But forecast. prepared at Basin X% more end I fastest our back while think our active of maybe revenues, upstream. we'll of completion So we are total stay the the than range, I to XX%, in close activity half, year-to-date. pace our in upper major only solid growing Permian think to

a bright it's spot. So

customers there. very busy are Our

to are spent our about not that. Midstream operators running into and feel the in timing. of tariffs Some capacity cost with first quarter about customer infrastructure TransCanada and second our of in projects, the smaller limitations lot core the had really takeaway quoting and related of business We've is East. the we group. that projects a We what large the are of good time projects half carryover the the is new a gas in

continue those about ramping new about midyear. It's $XX million number year-on-year. ought so increasing understanding being not we to at into our percentage pipe so was get then have contracts, our the that's just to We XXXX, feel that that So just tails and much season good real once smaller up the pricing projects and growth positive of year, year-on-year. new past has lower ramp busy downstream come. very we're half We Lots our positive half hit in sanctioned. good spending to But roughly ExxonMobil end of XXXX it's And a is. revenue carbon but the midstream. Back high creates projects and last third a is there, everyone than It's That first contract, turnaround a LyondellBassell. what XXXX. and the the timing back still But quarter. real one up half new projects less in customer to growth very the (XX:XX). really on in there off

upside three would the all our guidance. together hit those So towards of think I

Sean C. Meakim

lost is give tailwind in it fair into follow-up that that a the you say opportunities eventually? a – of year confidence that the there just perhaps to of can more like this bit on and what some look is midstream XXXX that, And little

Andrew R. Lane

Sean, year-on-year Williams the (XX:XX) times. over many the I'm We business. midstream that was we've $XXX did our through big one XXXX. One TransCanada (XX:XX) Last revenue. year, change was (XX:XX) Access very million. I'm optimistic have with and Midstream was about We times, year gap very about with XXXX been talking did million several busy. year through DCP over (XX:XX).

So we (XX:XX) go going through these in investments one major then cycles of have – more those infrastructure tail off, big with we in buildouts tail but customer, projects and midstream.

As smaller in long but I a we've time. margin said, higher going than projects had

into people I'm investments of as about good understood full impact still new just quarter, would more, XXXX. the being say, the the very of stalling So second In the I tariffs. optimistic midstream impact of –

Sean C. Meakim

the some you turn and of inflationary margin, inventory a you And us its just pipe see that. little Thank making the income a prices for of way on could impact slower. faster, the bit a like bit bit longer. Line Inventory little seems ultimately maybe are the steel maybe gross products how onto take through statement? give you

of the year? through Just see how flowing income through the that statement you kind

James E. Braun

Sean, this is Jim.

of from We we in flanges due on similarly and place, the investments the pipe put see second some inflation, right. of some the that see where piece another of we've to have put and fittings in the products. third realize the you're some exactly business say, sales that line that carbon continue see into Behind high business. of pipe, place that made. rates either quarter. impact or duties in been quotes those saw biggest fourth We I'd to quarter, been in as our the So is We have the we should carbon our of line

through continue So the back those of to should year. half the flow

Sean C. Meakim

for Okay. the Thanks detail. Fair enough.

Andrew R. Lane

Thanks, Sean.

Operator

question your line with Our question. of Vaishnav Vebs proceed Cowen. the next from with comes Please

Vaibhav Vaishnav

people a to for Hey. what my I referring just you driving taking what's Sean this, growth Thank that are guess pause on lowered, and we you to there need is just or touched is the is taking questions. anything consider? that

Andrew R. Lane

and playing we would it's I say, focus as the expected years is at I and Upstream then stronger, a in the would on not over midstream, year-to-date exactly multiyear too we say a would pause the contracts. heavy our lowered revenues, Yeah. have little XX% And guidance. little of stronger, much. downstream major as I know, you come second our the just through really there XX% a weighting, Vebs, the almost say it quarter. our also, was out midpoint as

slower respond So it or in as we and it push those through price get inflationary increases. price quicker quarter us prices to the a so a much through environment, businesses takes respond to changes little to than transactional they

no, a growth. the feel good little there's very but overall So bit of about that, still we

Vaibhav Vaishnav

you can Help them. do Okay. grow would the you if or trying rank? have any I'm you not us rank to guidance just what end markets fastest like if think about think XXXX,

Andrew R. Lane

Yeah.

second strong If for midpoint our Downstream guidance third. you're think our you will I think still very going XXXX terms it see midstream upstream. be point, to be of then and in as just of starting about the would

Vaibhav Vaishnav

downstream petrochemical Just and speaking, when time that are which what XXXX? helpful. talk out larger the the seeing projects? That's can you could beyond be customers there Yeah. you are what's about those Okay. typical actually And those start and

Andrew R. Lane

in Yeah. actively Ship or were Christi There involved is Louisiana discussed in. area several or Houston projects either being Corpus that Channel

lot of a pre-feed quoting, upfront. do pricing we feed and So of a lot

to XXXX U.S. Coast chemical specifically. outlook refining late involved XXXX think and are downstream the sanctioning. us And said, good Coast Gulf about as for I Gulf projects But really bigger then be already you very lot a both tends and the feel the it's chemical get So the in of for a as that then sanction. we we XXXX, But those. the in

Vaibhav Vaishnav

Got in. last I question if it. could And squeeze one

and XQ margins? quarter? when thinking, Just quarter in year, do understanding fourth gross improve then you margins the my you my for you versus it normally quarter consider gross third fourth is budget should margins do is or How consider

James E. Braun

large up see sequentially the quarter Yeah, see They actually line typically tend we hold third. the typically to mix of you the as based sometimes margin down products. Vebs, degradation well and fourth off don't increase on very with that. X% know, We

Vaibhav Vaishnav

extremely That's helpful. Thank questions. taking for my you

Andrew R. Lane

Thanks, Vebs.

Operator

with comes Jones with Please line proceed Stifel. question from question. next your of Our the Nathan

Nathan Hardie Jones

everyone. morning, Good

James E. Braun

Nathan.

Andrew R. Lane

Good morning, Nathan.

Nathan Hardie Jones

I'd like to talk line a little expense bit about SG&A line, the here. the

range. already we've You done looks years over about look the kind you you you back If start year. seen that costs low this digits, get couple good meaningful the have XX% in adding of job How to bottomed of very on run I line can It just historically, further do as probably double of you're (XX:XX) going think guys XX% to sales that volumes out growth? like support XX% coming back. a back controlling SG&A in much costs to leverage before last

James E. Braun

done support need. tried we what said. (XX:XX) head watch Nathan, really a exactly to Yeah. the It (XX:XX) market. been done in Canada. line soft that nice we've and on spending the count. discretionary been to of We've a Internationally, but not we've the to only U.S. don't is cost We've job we've cost, some remove you market

XXXX. to or factor we when cost can certainly our of certainly think In we nine for we and get think start say together is budgets another that to, would before we'd plans (XX:XX). We'll I achievable. so that we some in have where range put adding months terms XX% (XX:XX)

Nathan Hardie Jones

little half the you're Can And more terms Okay. in about thinking you then pretty market color a guys that a us to what revenue you're of that planning give strong turnaround season talked on second XXXX. expecting growth? or from you have downstream of on in going

Andrew R. Lane

is a little very similar bit turnaround base the actually always the I is they first and a say the spend but deal would be quarter say that's there for us. XXXX of third we of just lot of the you announced (XX:XX) if just Yeah, of as at quarter season announced pure then variable look always what with, on magnitude. will a Nathan, I plans, XXXX a revenue to would a plans as first quarter far and because

Nathan Hardie Jones

have these that guys contracts. XX% you revenues multiyear just through you Then come major of mentioned that

Specifically, demand. XX% the there, got on other high business, the transactional you've

chains. supply stressed got You've

real push you margins of price probably to the cost business guys increase of increases balance there You competitors inventory. the demand that actually given opportunity at than to moment? see the rather part some on supply got just plus out to the of smaller Do the the run starting

James E. Braun

just we got we've about XX% contracts that. positions. would I – revenue. XX% goes just beyond talk Nathan, our been business. to of in doing It XX and top our fact Yeah, our XX% of We've And contract probably and we'll do clarify under

up opportunity inflationary that this So remaining. to you're using But the have been the this making that's right leverage and price environment. piece where transactional the we've in we exactly

Nathan Hardie Jones

in channel that push price opportunities particular? think through that you Do there to is more

James E. Braun

there, to mean that. Well, we got you bidding do on I well. competitive, work other people it's they're still out as and continue this

So that objective. the be continues to

Nathan Hardie Jones

Thanks much. Okay. very

Operator

with Cieslak from Research. with line Our next Northcoast of question Ryan proceed Please question. comes the your

Ryan Cieslak

Hey. Good morning, guys.

Andrew R. Lane

Good morning, Ryan.

Ryan Cieslak

what go for margins. the the your first wanted to incremental to half outlook back relates the back as I that My year question, for and implies to it

was year? some I back in a offsets would sure the like to type second get really I the maybe the the there. of midstream some implies of be deceleration of half put seems of just to side type just XX% path some quarter of that understand some takes it. opportunity, to low be margin would the mix and be to good there that up able you which the here would in sort What of some you incremental a additional are want I think incremental what – maybe sustain puts maybe better to make that the guys see. pricing with What in versus there? on Is path there

James E. Braun

XXXX. mean is and really just gross this adjusted comparison, margin the by foremost back has way line. of the gross half you're of by year on some versus driven can incremental exactly is comps and in tougher quarters I the first third what we Ryan, XX%-plus that the XX% And Where were we path already around right. the the do No, profit. fourth

tougher. So it gets little a

which we As is you get what had thought. XX.X% the year incrementals work know, guidance, of you if through you for our about

can towards guidance. our ability that can we our Difficulty] adjusted (XX:XX) of price, Difficulty] even up to [Technical [Technical XX% Difficulty] [Technical range drive be our going the gross in So higher end of are high we incremental a (XX:XX) our margins function margin (XX:XX) get

Ryan Cieslak

going you pull this it on stalling you from saying this through my on. quoting to a back the away and Is walking on the with then tariffs of that some sort little to lack just wanted because expectations cycle what market And of the going they issue or more guys to maybe Great. going bit threat way for more ultimately for midstream to outlook, a a of a Okay. were updated Thanks. just function is it of follow-up, of tariffs business what's as earlier relates an customers' of a strategic internal are? for be of the more better decision as what's

Andrew R. Lane

sanctioning I is those projects active the understand Yeah, we're very the projects in then and Ryan, and that at of the over Part of inflation But midstream impact to both would aspects. trying project And overall active. it's we it looking XX have XX the Permian. are of new the tariffs. really say, in

So a there still activity. of is lot

other very part In more point it's definitely your to of Korea. especially getting it are are other suppliers which environment where South – more get from limited limited, is The imports is this difficult true.

low buying commitment our that certainly more going market we we've with to the where we're in were picking early did projects made inventory to in going volumes in an margin of and midstream. the made But have we with we've recover margin being position ahead XXXX inventory in higher inflation, made XXXX the not the some inventory We we're cycle. commitment, sit selective midstream We of after and up. in point at because as take this work to starting the was place

have ought of once on go is it but So to both overall that forward. a aspects, margins impact good those those

Ryan Cieslak

of That's good guys, luck. to Thanks hear. best

Andrew R. Lane

you. Thank

Operator

of Our comes Paul Ryan line Please the next from James. question. question with your with proceed Raymond

Paul Ryan

Hi, guys. my Thanks for taking question.

is XXXX a XX. such customers I are the back multipart Energy the of Circling midstream as to expected have midstream those from are suppose. projects your Permian I and Phillips XXXX, question few in in a that First Transfer Partners and

the Just get of us speaking, in dilutive to it projects? get would accretive direct? those for midstream how case, ultimately then company-wide Secondly, that you or determined understand is margins? business distribution volume goes your generally help much through MRC can when And versus typically those

Andrew R. Lane

about the timing margins. Well, Kinder, mentioned. It about you let and [Technical (XX:XX) talk me base core DCP and difficulty] is first, our and can Jim talk Enterprise.

that There So a million, lot will us of We [Technical on the prepared is say on $XXX clear of gathering our those difficulty] we [Technical that contributions to on the go that's you But we through million always so in us. projects, then goes those difficulty] direct large amount lot to (XX:XX) lead have And the steel tie-ins in installations shorter a $XXX comes in (XX:XX) did later to do time. trunk through remarks $XXX that all those projects distribution new visibility distribution case. a of mills. still more estimate our projects. and on those line big see the for

really the as dynamics So margin? on lines, far the the same trunk as big Jim,

James E. Braun

we're the orders. which pipe a question really up be and to have as overall keep a those or something company out the even stock it's positive to in source basis, little from buyout the that If function to [on to this the low pushing mentioned buyout a earlier, to bit on go of Andy and a delivery can stuff sell some again and the margins. try it'll really it's order margins margin tighten below. Yeah, have is we whether direct direct And of we certainly environment trying on we is up

Paul Ryan

I question, opposed the more in correctly previously turning Got from but investment second you inventory second current your thought? prepared then it. sales as was guidance cash from inventory understand If same. not remarks, you essentially quickly to lowered is this for my as operations your the you And as year the to due half

Andrew R. Lane

No, to inventory strategic able we inflation go that going a preparing were (XX:XX). difficulty] some the comments we just [Technical expect are [Technical lowering [Technical being mentioned where levels. turn points to function overall or I that (XX:XX) (XX:XX) be difficulty] depending we inventory [indiscernible] we've got. certainly really in to (XX:XX) It's difficulty]

from went million. $XX a $XX So to million negative mentioned, you as breakeven we or

it's to our overall guidance. So a cash tweak flow

Paul Ryan

Okay. Thanks.

Operator

you. Thank

Liptak proceed line with comes of the with question Walter Seaport your Please Global. final from question. Our

Walter Scott Liptak

Hi. Thanks. Good morning, guys.

asked I'll as it So clear customers diversifying kind thought. And about but start of because my spreading are there of pretty ask people most the quick to that basins questions wonder I not the or other of capacity Permian. constraints have been new the with you've and if their guess continue seems that on comes you're that customers, can more online. this I and increase larger a the customers they provide amount color had midstream especially could you your little bit any about conversations to the capacity if production, when serving timing as

James E. Braun

little and really impact the as because customers more there with takeaway. ability Yeah, most and being their specifically to in very we It's you see impacted that's the on said, Walt. to of access pipeline. taken the the I small of major operators lot the the a are care capacity activity they have us issues Permian general

is business in even they second stay we through our area. first – up earlier, see half we will year-on-year. fastest Permian busy our major were the And more So said quarter. as so the see customers very growing than we actually XX% our It's

overall the So although be the will we core base of projects us Permian. don't smaller on group. customer involvement our our in sales not midstream see that's there see an that because out then [Technical impact we that goes to the the as difficulty] And for picking but impact of up (XX:XX)

our expect area half, So in still U.S. be upstream our will net-net, we business. in second the fastest Permian growing

Walter Scott Liptak

I pick if Are you you're adding And I the the on comment you Okay. in of other expecting positioned if you second other you basins, up a made can to for basins to as other the think half. up. inventory, some think wonder pick people? you're basins building that about comment

Andrew R. Lane

the we've that Well, where we Coast say change across the I I very busy and a And it's half you But steel difficulty] we will And the and the board second Gulf Eagle position. the Permian related our and ramp-up difficulty] busy spending the biggest for would were Coast. for was in Marcellus. our see saw year. and then up, to both businesses. other in very West stayed the regional stayed sure. the of distribution all for [Technical mean We the inventory fittings those see in Ford in pipe, basins inventory that's (XX:XX) outlook bigger of centers also line carbon (XX:XX) the look difficulty] (XX:XX) [Technical the [Technical pick carbon

Walter Scott Liptak

Thank you. Got Okay. it.

Operator

you. Thank

the end I floor to closing the session. turn back management to We have of the reached comments. for like would now question-and-answer over

Monica Schafer Broughton

for joining for today and in Global. MRC interest call you our Thank your

Operator

This participation. your for you today's thank does gentlemen, teleconference. and conclude Ladies

day. disconnect this have time. your a you, wonderful and Thank may You lines at

MRC Global (MRC) 2 Aug 182018 Q2 Earnings call transcript