Monica Schafer - Vice President, Investor Relations Andrew Lane - Chairman, President, Chief Executive Officer Jim Braun - Chief Financial Officer, Executive Vice President.

Matt Duncan - Stephens Inc. Ryan Merkel - William Blair & Company Allison Poliniak - Wells Fargo Securities, LLC Sean Meakim - Barclays Capital David Manthey - Robert W. Baird & Company, Inc Walter Liptak - Global Hunter Securities, LLC William Bremer - Maxim Group Jeff Hammond - KeyBanc Capital Markets Bank of America Merrill Lynch.

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to MRC Global First Quarter Earnings Conference Call. During today's presentation all participants will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions).

As a reminder, this conference is being recorded today, Friday, May 2, 2014. And at this time I would now like to turn the call over to Monica Schafer, Vice President, Investor Relations for MRC. Please go ahead..

Thank you, Ben, and good morning, everyone. Welcome to the MRC Global First Quarter 2014 Earnings Call and Webcast. We appreciate you joining us. On the call today, we have Andrew Lane, Chairman, President and CEO; and Jim Braun, Executive Vice President and CFO. Before I turn the call over to Andrew, I have a couple of items to cover.

There will be a replay of today's call available by webcast on our website, www.mrcglobal.com, as well as by phone, until May 16, 2014. The dial-in information is in yesterday's release. Later today, we expect to file the first quarter 2013 Form 10-Q, and it will also be available on our website.

Please note that the information reported on this call speaks only as of today, May 2, 2014. And therefore, you're advised that information may no longer be accurate as of the time of this replay.

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

However, various risks, uncertainties and contingencies could cause MRC Global's actual results to differ materially from those expressed by management. You are encouraged to read the company's annual report on Form 10-K, its quarterly reports on Form 10-Q and current reports on Form 8-K to understand those risks, uncertainties and contingencies.

And now, I'd like to turn the call over to our CEO, Mr. Andrew Lane..

Thanks, Monica. Good morning and thank you for joining us today on our first quarter 2014 earnings call and for your interest in MRC Global. I'll begin with some noteworthy events and highlights from the quarter before turning the call over to our CFO, Jim Braun, for review of the financial results.

Following Jim's comment I will finish with the discussion on the outlook for our business. First, as we discussed in the last earnings call on February, we expected that headwinds from inclement weather in the first quarter which we did.

The severe weather particularly in the Northeast and Midwest has been much publicized and had a negative impact on our business as road closures and hazardous conditions caused many of our customers to halt their activity and our branches to close at various time during the quarter.

We expect the sales in the first quarter would be down mid single digit from the fourth quarter and that's above where we landed down 3% at $1.3 billion in revenue. We saw a nice pickup in activity in March and it has continued into the second quarter. Also as we mentioned previously we close the acquisition of Stream this quarter in early January.

You will see the result reflected in our international segment where sales are up 42% this quarter from the same quarter last year. We continue to integrate this acquisition into MRC Global organization and a customer reaction to our expansion into the Norwegian continental shelf and the offshore production market has been positive.

We expect to combined result of Stream and Flangefitt in 2014, be on track with our previous guidance of $330 million in revenue and $30 million in EBITDA. As I mentioned, we saw activity pickup in March which is continued into April. Nevertheless in 2014, we have begun implementing various cost saving measures to improve profitability.

In April, we implemented a voluntary early retirement program as well as eliminated the numbers of additional management positions as part of an ongoing effort to streamline operating cost. As a result we have reduced headcount by 60 and anticipate annual savings of approximately $8 million.

However, we expect to incur a pretax charge of approximately $4 million in severance cost in the second quarter related to these initiatives. We will continue to look for opportunities to generate further efficiencies and we do so operating cost structure in 2014.

As noted sales results were in line with our expectations at $1.3 billion for the first quarter 2014 virtually flat with the first quarter of 2013. The first quarter 2014 gross profit margin percentage is lowered by 110 basis points as compared to the first quarter 2013 primarily due to deflation and line pipe prices as well as the impact of LIFO.

We expect that the gross margin percentage to improve sequentially from the fourth quarter which it did; it was up 100 basis points to 17.8%. As you may recall last quarter we had a product line mix shift to lower margin ERW line pipe and that makes we turn to more normal mix in the first quarter.

Adjusted diluted earning per share were $0.28 for the first quarter 2014 which excluded the loss on the sale of our Canadian progressive cavity pump business of $0.05 per share. There have been no changes to our acquisitions strategy and we continue to evaluate and pursue potential acquisition with the focus on international bolt on acquisitions.

In March, 2013, we entered into an exclusive alliance with North American Western Asia Holding or NAWAH in Iraq. Our initial focus in Iraq was to sell valves to our major customers who operate there.

In 2013, we stated that we expected to have $10 million in sales in the first year and activity could ramp up to $40 million to $50 million annually within a few years. In 2013, we sold $10 million of valves in Iraq.

This year in April the NAWAH MRC alliance added US Steel tubular product to our consortium with an expanded focus to include OCTG and line pipe. This consortium will allow us to serve our major customers in Iraq as they upgrade the aging infrastructure and add new production capacity.

We are optimistic about the growth opportunities in Iraq with the addition of U.S. Steel tubular product. We continue to enter into broad multi region arrangements with our top customers to expand into new geographies and expand product scope.

We talked about renewing our contract with ConocoPhillips as the primary PVF MRO supplier in the lower 48 states last quarter. This quarter we have added Canada to that agreement. With the acquisition of Stream as well as our previous acquisitions in Australia, we also support ConocoPhillips in Norway and Australia.

ConocoPhillips is expected to be our fourth largest customer in 2014 and we expect over the next five years to have sales of over $700 million from these contracts in the lower 48 and states in Canada. So with that let me now turn the call over to Jim to review our financial results. .

Thanks, Andrew, and good morning to everyone. Our total revenues for the first quarter of 2014 $1,306 million which were flat with the first quarter last year and 3% lower sequentially.

Year-over-year while it was virtually no net change there were a couple of moving parts including the impact of our acquisitions which in total added an incremental $70 million of revenue in a quarter, offset by the sales of the progressive cavity pump business of $23 million and lower organic sales of $47 million. U.S.

revenues were $948 million in the quarter, down 2% from the first quarter of last year. The decrease reflected a $46 million decline in the line pipe product line due to line pipe deflation as well as lower volumes due to inclement weather particularly in our Eastern and Midwest regions.

Average line pipe prices declined approximately 15% year-over-year. The decline U.S. line pipe sales were partially offset by increases in all of our other product lines as well $6 million from our acquisition of Flow Control. Sequentially the U.S.

segment sales were down from the fourth quarter by 6% due to weather and from the previously noted shift of line pipe sales from the first quarter of 2014 into December of 2013. Canadian revenues were $166 million in the first quarter down $38 million or 19% from the first quarter of last year.

As the majority of the decline $23 million was the result of the sale of our progressive cavity pump business early in the first quarter. The remaining decrease was due to the 8.6% decline in the Canadian dollar relative to the U.S. dollar.

Sequentially excluding the sale of the progressive cavity pump business the Canadian segment is flat from the fourth quarter of 2013 and historically the fourth and first quarter are the strongest in Canada. Internationally, first quarter revenues were $191 million, up $56 million or 42% from a year ago.

The increase was the result of the acquisitions of Stream and Flangefitt which added $64 million in incremental revenue in the first quarter of 2014. Organically sales were down 6% with growth in the UK upstream sector more than offset by decline in Australian sales.

Sequentially the international segment was up 34% from the fourth quarter due to acquisition. Now turning to our results based on end market sector. In the Upstream sector, first quarter sales increased 10% from the same quarter last year to $635 million.

This increase was driven by the acquisitions of Stream, Flangefitt and Flow Control, partially offset by the divesture of the Canadian progressive cavity pump business. The U.S. drilling rig count was up 1% in the first quarter from a year ago and the U.S. land well count was up 4% over the same period. Upstream sales in the U.S.

were up 3% organically in line with these indicators. Midstream sector sales were $307 million in the first quarter of 2014, a decrease of 11% from 2013. Compared to the first quarter of last year both the transmission and gas utility sectors were lower by 17% and 1.6% respectively.

The lower sales were in part due to the impact of weather and lower average line pipe pricing. In the downstream sector first quarter 2014 revenues decreased by 5% to $363 million as compared to the first quarter of 2013. While there was modest growth of 1.6% in the U.S. it was offset by weaker sales in our International and Canadian segments.

Turning to revenues by product class. Our energy carbon steel tubular product sales were $337 million during the first quarter of 2014 with line pipe sales of $207 million and OCTG sales of $130 million.

Overall, sales from this product class decreased 13% in the first quarter from the same quarter year ago including a $4 million or 3% increase in OCTG sales, offset by $55 million or 21% decrease of line pipe. First quarter 2014 line pipe prices were on average 15% lower than the same quarter of last year.

Tons we sold from stock were also lower due to the impact of inclement weather. As you were recall we also had several customers purchased more line pipe in the fourth quarter of 2013, approximately $60 million that we had expected to shift in the first quarter of 2014 which also contributed to the lower sales in the first quarter.

This impacted the sequential comparison as well as the first quarter of 2013 versus the first quarter of 2014. As we said on the last earnings call and of note, based on the pipe logics all item index, the deflation in line pipe spot prices has somewhat abated the last three months as prices have declined less than 1%.

If this trend continues this will be a positive for line pipe sales in the second half of 2014. For the first quarter of 2014, 42% of our line pipe sales were within our midstream sector while upstream and downstream made up 37% and 21% respectively.

Sales of valves, fittings, flanges and other products were $968 million in the first quarter, 6% increase from the first quarter of 2013. Sales of valves were up 18% during the quarter. This increase consisted of 14% from acquisitions and the remaining 4% was from organic growth.

Sales from fittings and flanges were flat from the first quarter of last year as organic losses offset the growth from acquisitions. Other products were down 6% from the quarter a year ago primarily from the disposition of the Canadian progressive cavity pump business. Turning to margins.

The gross profit percentage declined to 110 basis points to 17.8% in the first quarter of 2014, from 18.9% in the first quarter of last year. The decrease was due to lower average line pipe prices which contributed approximately half of the decline as well as the impact of LIFO.

And LIFO benefit of $3 million was recorded in the first quarter of 2013 as compared to a $1 million of expense in the first quarter of 2014.

Our adjusted gross profit percentage which is gross profit plus depreciation and amortization and the amortization of intangibles and plus and minus the impact of LIFO inventory costing decrease to 19.5% in the first quarter of 2014 from 20.1% in the first quarter of 2013.

Lower margins in line pipe sales were offset somewhat by an increase mix of higher margin valves and other product sales. On a sequential basis adjusted gross profit was 120 basis points higher than the fourth quarter as expected.

SG&A cost for the first quarter of 2014 were $171 million or 13.1% of sales and the increase of $10 million from $161 million or 12.3% of sales in the first quarter of 2013.

SG&A increased $18 million as result of the acquisitions of Stream, Flangefitt and Flow Control and was partially offset by $7 million decline primarily from the divesture of our progressive cavity pump business. As Andrew mentioned earlier in April we took certain cost savings initiatives directed at reducing SG&A.

With the actions taken to date we anticipate annual savings of approximately $8 million per year to incur a pretax charge of approximately $4 million in the second quarter related to severance. We will continue to look for opportunities to generate efficiencies and reduce our operating cost structure.

We expect the SG&A run rate to be approximately $176 million to $178 million per quarter for the balance of 2014. Operating income for the first quarter of 2014 was $61 million versus $86 million in last year's first quarter. The operating margin also declined compared to last year to 4.7% from 6.6%.

This is due to the lower gross profit and higher SG&A as discussed early. Also during the quarter we recognized the loss on derivative instruments from the foreign currency, forward transaction contract. As you may recall, there was a $3.7 million gain recognized in December of 2013 related to the Stream acquisition.

This quarter we recognized an offsetting $2.1 million loss recorded in January 2014. Our interest expense totaled $15.1 in the first quarter of 2014 which was modestly lower than the $15.3 million in the first quarter of 2013. This was due to lower interest rate offset by higher average debt balances.

Our Q1, 2014 adjusted net income excluding the after tax charge related to the sales of our Canadian progressive cavity pump business was $29 million for the first quarter or $0.28 per diluted share compared to net income of $46 million or $0.45 per share in the first quarter of 2013.

There were no adjustments to net income for the first quarter of 2013. Adjusted EBITDA was down 19% year-over-year to $84 million in the first quarter versus the $104 million a year ago. Adjusted EBITDA margin fell to 6.4% from 8% a year ago. Our debt outstanding at March 31 was $1,340 million compared to $987 million at the end of 2013.

Our leverage ratio at March 31, 2014 was 3.3 times on a pro forma basis for the Stream and Flangefitt acquisition. We expect free cash flow to be used to pay down debt over the next 12 months.

Our operations used of cash of $74 million in the first quarter of 2014, and our working capital at March 31, 2014, was a $1,254 million, $170 million higher than it was at December 31 reflective of the acquisition of Stream and an increase in our U.S. inventories anticipation of greater sales as well as the timing of receivables collections.

Cash used in investing activities totaled $249 million in the first quarter primarily related to the acquisition of Stream. And with that I'll turn the call back to Andrew for his closing comments. .

Thanks, Jim. We are encouraged by our customers spending activity in March which is continued into April as well as our backlog. We now have the largest backlog in our company's history. Our backlog was $1.03 billion at the end of March this year.

Excluding the $96 million of backlog associated with acquisition, our backlog is $935 million, a 23% increase over the December 2013 balance of $758 million. Year-over-year backlog is up 36% excluding the backlog from acquisition and up in all three geographic segment. The U.S.

backlog continuous to improve, it is grown from $470 million in December to $625 million through the end of March. We have also seen a shift in the make up of our U.S. backlog that reflects longer lead time associated with an increased amount of project work. Finally, we are reconfirming our 2014 annual guidance.

We had mentioned in our last earnings call that we would see lower sales in the first quarter which we did. And we still expect to remain in three quarters of the year to see an increase that puts us within our annual guidance range.

As we discussed in our press release yesterday, we still expect sales to be in the range of $5.5 billion to $5.8 billion and adjusted EBITDA to be in the range of $400 million to $450 million. So with that we will now take your questions. Operator? Question-and-Answer Session.

(Operator Instructions) Our first question comes from the line of Matt Duncan with Stephens Inc. Please go ahead. .

Good morning, guys.

Hey, Andy, the first question that I've got just as you look at organic sales trends on a month-to-month basis, can you sort of break out for us what you saw in March once the weather got out of the way and what you're seeing into April?.

Yes, let me just talk from a top level all in, Matt, January and February were two very difficult months and you know impact in mostly in our East and Midwest region geographically, impacted most in an end market from both our transmission and our gas utility business. And then from a product line standpoint almost entirely in the line pipe impact.

So we saw that -- the way the year starting out impacted everyone in the industry.

But March was a real strong month for us so let me a couple of data points we couldn't do much about the weather in the first two months but a lot of things started to happen in March, there is a lot of positive macro events going so as Jim mentioned the rate counts up 1% if you look at annual increase is up over 100 rigs in North America, so a real positive there for us.

Food prices up 5% and gas prices are up 49%, so well counts are up 4% on a year-on-year basis and well permit are up 7%. So a lot of positive macro trends that we are seeing in our activity and we are seeing in the customers spending especially in our upstream business.

So when you look at March was a really strong month, part of it was shifting of activity from the weather impacted month and we made up some ground in March. So when I look at March in total all in including the acquisition, it was the strongest month that we have on a revenue basis since August of 2012. So very positive for us.

When I look at April which we disclose the preliminary continued good activity, really way I look at it when you look at April compared to the way we started the first quarter in January, the month is up $60 million in revenue.

So very positive, very strong start to the first -- to the second quarter over the way we started the first quarter, so we feel very good about our position in the market and there a lot of things that we did in 2013 positioned the company and now it is going to show after we got through January and February..

Okay. So, Andy, if I translate all of that to what the sequential improvement ought to look like then it sounds like you're already tracking $60 million above first month of the quarter versus the first month of last quarter.

Is it reasonable to assume that we ought to see sales up at least $100 million sequentially just given that you obviously had the shift in business out of the 1Q into the 4Q and obviously the quarter started well? So is that a reasonable assumption?.

Well, Matt, we trying to not give very specific guidance on a sequential basis but certainly we have a much -- a very strong April compared to January as I just mentioned and as you refer to, certainly the outlook for May is much stronger than we had in February. And then we expect to have good June compared to March but March was very strong.

So it is rather than just give a specific number it is definitely in the direction you are talking about. .

Okay last thing then I will hop back in the queue, on the ConocoPhillips agreement, can you refresh our -- [Technical Difficulty].

Our next question comes from the line of Ryan Merkel with William Blair & Company. Please go ahead.

Hey, guys, how are you? Good. So I thought the backlog jump was one of the bigger takeaways here. And you mentioned it was broad based across geographies. You mentioned some project work. I'm wondering if you can comment more on the streams.

And are you starting to see some signs that midstream could possibly be starting to stabilize?.

Ryan, I mean the backlog is a very big positive for us.

When I look on the historical terms it is our largest backlog we've ever had coming at the end of quarter to go back to the previous high you have to go to the third quarter 2008 and you remember what our business was doing very well back then, there was a lot of carbon pipe but the backlog at that time was heavily weighted to OCTG and line pipe.

This backlog is much different, it is much more broad based, much more weighted to valves, also with the international strength through the acquisitions we've had. And the other thing you are starting to see just now and I will say the backlog continuous to grow into April so another positive indicator for us from the end of the first quarter.

But what you are starting to see is the result of our efforts to expand our project business with both Shell and Chevron.

And as Jim mentioned in the comments part of this increase is more work through the EPCs, through the major projects which has been out of our strategy for couple of years and they are now, yes it takes a while to get into that feed mix and into the front end of the work.

We are not starting to see those bookings; we are also starting to see the downstream chemical bookings coming so CP Chem project we have talked about previously in the Gulf Coast, with Shell is the Carmon Creek project in Canada, heavy oil. So a lot of good signs there but not so much in midstream.

Very positive on upstream, very positive on downstream, but midstream is still a stop, now part of it is really tough two bonds from the midstream customers based, there wasn't a large transmission or gas utility is pending in the first two months of this year, so it is a little bit difficult to indicate but if you look at through April we are still slow with the access midstream, Williams, DCP Midstream and PG&E compared to our historical averages.

So that's a soft area for us, so with our four of top midstream customers but it is significantly offset with the positives in the upstream and downstream and with our major customers Chevron and Shell. .

Got it, great. And then the second question I had was could you just update us on what you're expecting from acquisitions this year in terms of accretion? And if you want to throw the divestiture in there, too, just as an offset. Because before, I think you'd said $0.01 to $0.02. It feels like it might be higher than that..

Yes, Ryan.

I think what we have said when we addressed the divestiture, the disposition, first so we said there is that the sale of the PCP business in Canada would be slightly positive from an EBITDA perspective and is relates to the acquisitions we have seen a little bit of improvement or favorability our original thoughts about what the slight accretion we thought may be a penny or so, we might get another couple of pennies out of that in 2014..

Thank you. And your next question is from Matt Duncan with Stephens Inc. Please go ahead. .

Hey guys.

Hey, Matt, you started on kind go through last year. .

Yes, sorry about that. So I was curious I think Andy that has been an exclusive arrangement that you have guys had with ConocoPhillips. Is that exclusive everywhere? You mentioned the lower 48, Alaska, and North Sea.

Is that an exclusive deal for you guys?.

Well, it has been mostly a primary deal, now a lot of the primary position deals we end up almost exclusive position at the end of the day but it is not specific and it hasn't been for the last 10 years, it has been a primary position which we retain in both lower 48 and in Canada and so that's a top customer for us.

And the other big indicator as we've said we don't loose our core contract, everybody in the industry including our second largest competitor, they all try to win that contract and we retained it, so we still have an excellent track record of retaining these multi-year MRO agreement which is core to us..

Okay, great. And then on Jim, on SG&A costs -- on the last conference call I think you had guided us to about $180 million a quarter there. And it came in almost $9 million below that. It sounds like you obviously have put in some expense cutting measures. But the bulk of that may not kick in until April.

So I'm curious what specifically, was it that you guys did in the first quarter to bring those costs down? I know you had divested the Canadian business. But I think you had done that by the time that you guided us to $180 million.

So what is it that you were doing there?.

Yes, some of that was the impact of wage increases, typically go into effect at the end March so you see the impact of that, another significant piece was a delay or deferral of some spending from the first quarter even into later quarter or it may just not get spent at all.

And that even within that original projection, the $180 million was an average throughout the year, it had a little bit of ramp in it. And I think finally I had commented that it was certainly a little bit of at least volume related to year ago. .

Thank you. Your next question comes from the line of Allison Poliniak with Wells Fargo. Please go ahead. .

Hi, guys, good morning. On the revenue outlook, I think you had talked about the upstream being up mid-single digit, core midstream down or up low single digits and downstream up mid-single digits.

Are we still in the context of what you're looking at in terms of revenue, are we still looking at that? Or has something changed based on Q1 results?.

No, Allison, that outlook remains the same and the percentages the organic or core growth that you described was accurate. .

Allison, I would just add, I am probably a little more optimistic to the way is 2014 shaping up may be even little better growth in the upstream side. .

Okay, so I think last quarter may be Andy you had talked about a potential reset in capital budgets on the midstream.

Are you still thinking that could happen, and you're just a little cautious given the Q1 weather issue?.

Yes, we are just cautious on midstream and couple of our major customers haven't checked in their spending programs yet, they are way off from -- but a lot of that is weather, I am positive but they just haven't checked in but they are certainly going to be a lot more active in the last three quarter than they were in the first quarter.

So but that is the area that we probably are in a most conservative one, more bullish on upstream and downstream especially U.S downstream will be strong this year. .

Okay. And then on the regional perspective, can you give us your thoughts on international as we move through the year? It's obviously been challenged obviously..

Yes, I mean it was still building the platform and at one point I feel fantastic about the acquisition upstream both from the business standpoint or the results they will add but also the management capabilities that we've added to the company.

We are now in the process of combining that all into one management structure for both, the UK, Norway and our Western Europe business. And something with that would be a streamlining of cost associated with it.

We also now have for the first time in Western Europe and both sides of the North sea a full PVF capability both from a customer standpoint and delivery standpoint so that's a huge step forward for us, I feel very good about, that's still an area where we are looking at from an acquisition standpoint.

If you go to the Middle East, we feel very good about our position there; we are going to grow in the Middle East organically.

We looked at some acquisition but we think organic growth is the best way there, so we will be set up in Dubai, Jebel Ali Free Zone, we are supporting Shell in Qatar, Shell in Oman and also just most of our major customers in Iraq. So I am very optimistic about Iraq especially as we mentioned with the U.S.

Steel, broadening both our valves and cities and plans focus initially, now with line pipe and OCTG for our customer base which is Chevron and Shell and ExxonMobil and BP.

So we have a very large amount over a $100 million in Iraq so with our job now is to covert those into orders, but longer term it is later in 2014 and in the 2015, I think that's going to be a nice bright spot for us. Southeast Asia continuous to be strong.

It is the other area where we continue to look at from an acquisition standpoint and so that part of the international business is good.

The weakness if for us internationally is in Australia, both the mining and the LNG size has impacted our business so we are -- that is an area with a lot of focus on cost reduction until the end markets come back for us.

We have a really good position there but the end market hasn't cooperated so that's the strength is in the North sea, Middle East and Southeast Asia, we will have high growth for us and Australia we are going to manage cost until the growth come. .

Thank you. Our next question comes from the line of Sean Meakim with Barclays Capital. Please go ahead. .

Hey, good morning, guys. I wanted to talk a little bit about the margin progression throughout the year. So looking at where you guys ended up for 1Q, and then comparing that to where the guidance the range looks, it seems to me that we're setting up for a quarterly run rate at some point this year getting approaching kind of the peak of 2012 level.

We had the Stream acquisition which should help; the cost cutting initiatives that we have talked about.

Can you give us a little bit more color on what gives you the confidence that we're going to see a kind of this nice progression in margin progression throughout the year? And then kind of what that implies going forward?.

Sean, I'll start with a couple of comments and then Jim will add more. But one thing is we had seen stabilized pricing in both line pipe and OCTG.

We have seen a slight pick up in OCTG, so our view is stayed that same that we are near bottom on carbon piping price in the first quarter we expect to be flat to slightly up in the second quarter and we expect to see improved pricing in the back half of the year. So that we will help in the carbon pipe area both line pipe and OCTG.

Not large increases but small increases but still positive move for us. So other profitability is the waiting much more heavily towards valves. As Jim mentioned we built up the inventory ahead of the growth that we see coming for the rest of the year. A strong weighting in valves and stainless and flange and fitting.

So the mix will be positive for us going into the back half, and also small improvement on carbon pipe will help. .

Yes, Sean, I have to add we continue our targeted growth account programs, those customers and 75 to 100 they typical carry a little bit higher margin.

And then finally it is an on going process for us to look to ways to improve the margin profile of the business working through with our suppliers, targeting specific pricing opportunities with various customers. .

Yes. And I think that makes a lot of sense. Switching over to uses of cash, it sounds like debt reduction is the primary focus for this year.

Does that mean that M&A is effectively on hold for the time being? And can you give us a sense of what working capital needs could be for the use of cash this year as well?.

Yes, Sean, let me do M&A first and then Jim will do the working capital. Now our M&A efforts have definitely not on hold. We always have about two, three primary acquisition that we are looking at.

And as we said in the note we continue to look at international bolt-on of a smaller scale, Stream was the large acquisition for us that brought a lot to the company but I would expect a couple two to three over the course of the next 12 months in the smaller bolt-on state focused on North sea and Southeast Asia. .

And Sean we don't see what we've got in the pipeline being challenged by the balance sheet. The leverage is 33; it will come down within our range of two to three by the end of the year as we generate some cash. And that includes whatever working capital that we need to build to support the higher revenue level so we don't see that is an obstacle. .

Thank you. Our next question comes from the line of David Manthey with Robert W. Baird. Please go ahead..

Hi, guys, good morning. First of all, your inventories are up quite a bit. And I guess some of that would be the -- and turns are down. I guess that would be related to the volume levels in the quarter.

But could you talk also about any strategic purchases or anything else that impacted that number as you're thinking about inventory going into this year?.

Yes, David, I think about it, part of it, the inventory growth is the -- the Stream -- our inventory came in the first quarter but we certainly have been building inventory because of the ramp up in activity for the back half of 2014. We built up both valves and stainless inventories.

We also started in the first quarter building in slight increase in OCTG because the price cost was low but a bigger bet in line pipe inventories because of price to cost was low. So it was the right time, it was also right time with low nickel pricing to put some stainless inventory in place.

So part of that is the near-term growth received, part of it is -- it was the right time to buy from the cost stand point. So that along with the Stream was really built. .

Okay, thank you. That's encouraging.

On the line pipe pricing in 2013, could you tell us just what was the revenue and EBITDA impact from lower line pipe prices in 2013? And I guess you're assuming that's going to either going to go to zero or be slightly positive this year?.

Yes, so in overall our average sales prices that was in the -- on average 2013 was probably in the 15% to 12% range in terms of sales prices. Now the margin impact was probably 75 to 100 basis point on the overall company average. .

Thank you. Our next question comes from the line of Walter Liptak with Global Hunter. Please go ahead..

Hi, thanks, good morning, guys. I wanted to ask about -- just a follow on to the last question about the inventories. In line pipe, again you took advantage of some of the lower prices.

Is the inventory starting to turn a little bit faster? Or do we have to wait until the back half of the year for that to happen?.

Yes, Walter, I think the inventory especially in line pipe will turn just fine back to normal levels in the second quarter. That really was the stalled line pipe and midstream project.

And also some gas products for our gas utilities where two third of the first quarter was very slow in that area so returns would be up as you would expect along with the lower shipments.

So that I see nothing happening our turns out of the ordinary and I do see them improving and that what you are seeing it was just a weather impact in January and February especially in line pipe and gas products. .

Okay, good, that sounds great. And then just on the LIFO charges.

What does the comp look like for the second quarter?.

Yes, we are looking at an overall LIFO charge of about $5 million for the year so we do expect to see about another $2 million or $3 million in the second quarter..

Thank you. Our next question comes from the line of William Bremer with Maxim Group. Please go ahead. .

Good morning, Andy. Good morning, Jim. Can you give us a sense -- you spoke a little bit about pricing.

Can you go more specifically into the valves, flanges, and stainless, what you're seeing there?.

Yes, Bill, and I would say that when you look at our company, most of the time we spend is to describing the volatility around OCTG and line pipe carbon piping and that does provide the most volatility, from valves, stainless, fitting and flanges standpoint, very little volatility in that.

We are seeing flat to slightly up pricing and I would point that see now everyone to-- one thing we do said is leading position in the industry as we publish byproduct line, byproduct type all those ongoing view of leap of lead time and pricing outlook.

And so it is called insight, we posted on our website and most of our customers that I think use it as a main input to their thinking. And so we give very detailed outlook both in lead time and pricing there.

So you can see a lot more detailed information than my general comments but generally positive pricing both in stainless and in valves and fitting and flange..

And my second question -- I'm glad you alluded to and voiced a little bit on downstream, what we're seeing in the Gulf market and the projects come in the back half of this year and more importantly onward.

Can you give us some color what you're seeing specifically downstream in the Gulf area over the next couple of years?.

Yes. That is one of the areas we are optimistic. Lots of spend is coming, it is in early stages of some projects and long lead time so our out of stock PVF tends to be late in the process sale because it is coming out of stock. We only get really into long lead time on valves for some of those projects if they have specialized valves.

So our revenue stream tends to be later in the project a lot, so people look at the headlines early on but a lot of engineering and lot of front end work is done. So we already are seeing some nice orders both from the Texas and Louisiana, Gulf Coast operations.

So chemical and refining, both Texas and Louisiana is going to be very strong second half even better for us in 2015 and 2016..

Is that sort of a good run rate to use to route, that $15.2 million level that we just saw in the first quarter?.

Yes, Bill, I think that's a good number to use going forward for the balance of the year..

Thank you. Our next is from the line of Jeff Hammond with KeyBanc Capital Markets. Please go ahead. .

Hey, good morning, guys. Hey, just back to the growth rate which I think you said you feel better about upstream. But I wanted to come back to midstream and down. It sounds like you're still seeing weakness in midstream. I think you had your down 11% in 1Q and you're saying kind of up low single digits.

And then same with downstream, you're starting 5% in the whole. I think you're still saying mid-single digits.

So just give me a sense of the confidence levels that you see the growth rate you signed up for maybe earlier in the year?.

Yes and high degree of confidence that will meet or beat the upstream growth number. Midstream is the toughest one for us. We really like to see the second quarter as we get into our which is historically our best midstream month as second and third quarter. And that's where a lot of project work gets completed.

So we would like to see the second quarter ramp up to feel more confident in midstream, but right now we -- I would say we are cautious in that area.

And downstream we feel very good about refining outlook especially in the U.S., the really the downside ahead come from some project, their ability in heavy oil and mining in Canada and also mining in Australia. So those weigh down the results that we will up into our total downstream but as far as refining and chemical we still feel good.

We still feel good about the mix overall getting to our annual guidance. .

And what's the visibility on the midstream side of filling these kinds of three big customer headwind holes?.

Yes, I mean visibility is relatively to short term and a matter of couple of months, we start to see the ramp up in products, some of them were customers that pre bought pipe in December.

So they are working after that and but now is the time I mean in the couple of months we should see a nice ramp up of line pipe orders that they are going to taking spending. One disappointment that we did have, was the Williams delay of the Bluegrass project, we are going to be a major supplier on that project. And now that pushed into 2015.

But those projects swing sometime that way, so we should see -- by the end of second quarter we will know how this summer season now been installed for midstream is going to look like for us.

We have a very little reservation about the gas utility side picking back up once the weather -- so our gas product and our gas utility business will be strong through second and third quarter. It is really the pipe line transmission side that we don't have a great view on yet..

Okay. And then just final question. It looked like the acquisition revenue was light in the first quarter relative at least to my expectations. What do you see in there? There's been a lot of talk about slowing in offshore.

How did that come in versus your expectations? And what is the risk that, that $330 million is not the right number?.

Yes, the revenue coming out of the two acquisitions came in a little bit below our expectations. And that we expected in that wasn't going to be spread equally through the year just based on the timing and the nature of some of the projects out of Norway for example.

But looking at their backlog and looking at what those projects are and where they are in a Q, we still feel comfortable that the $325 million of revenues for both of those deals. .

Thank you. And our next question comes from the line of Vaid Vaishnav [ph] with Bank of America Merrill Lynch. Please go ahead. .

Hey, gentlemen, how are you doing? Just I wanted to hone in on the weather impact in the U.S. revenues that we saw.

Anything that you can provide in terms of either revenue lost or in terms of number of days lost in the U.S.?.

Yes, we have looked at that, Vaid, and estimate that the revenue impact is about $25 million plus or minus in the U.S. as a result of the weather.

We know how many days we have branches closed which was noticeable but even there even when things were open we certainly saw slower activity, less people in, less delivery is being made in and around those closed days just because of the weather. .

Okay, thank you. Switching to Canada, what is the outlook on Canadian activity? Because it seems that there are two camps. One camp says thinking about flat to modestly down activity. And the other camp thinking it's going to be pretty good. I just wanted to get your thoughts around what you expect out of Canada this year..

Yes, Vaid, we are in the camp of flat to slightly up, 1% to 2% may be growth there. But it is going to be fueled by the heavy oil and the oil activity and but we are certainly -- it is not a high growth area for us but we don't think it is going to be down.

The only thing down for us there is this year-on-year difference because of the progressive cavity pump divesture. .

Thank you. Our next question is follow up from the line of Matt Duncan with Stephens Inc. Please go ahead. .

Matt Duncan - Stephens Inc.:.

Hey, guys.

Andy, may be if you could give us an update on where you guys are in the process towards getting more global supply arrangement and then also update us on how that Shell agreement is going at this point?.

Yes, let me start with the Shell agreement. Shell as over the last three years and since we signed the agreement has gone to a lot of changes themselves, they've really done a lot of work on their capital spending and their strategy and deemphasize in some areas and emphasizing others.

But we feel very good as we said we missed into 2013 the ramp up activity, it was basically flat. We said we thought we see $40 million to $50 million ramp up this year, at going towards the multi-year ramp up that we predict from that account. We are seeing some excellent growth in the projects that we have got in front also.

Part of that backlog and our number is I would say approximately $75 million in backlog. Some of that won't shift this year, but some will shift next year, is just some Shell project. So that's doing very good.

I will also say part of that backlog from Chevron to talk about another one we've been focusing on, roughly $75 million of project backlog, and so $150 million from those two alone is based on us getting into more project work and more of the funding bigger project with them. So that's working very well.

I mean the ConocoPhillips award was the last major customer we had up for renewal so if you look back over the last two years we've renewed and have expanded Shell, Chevron, BP and now ConocoPhillips. So we feel very good.

It is just going to be an ongoing effort, Matt, to add more scope to those contracts, so certainly there is a lot of room for others areas to still add. ConocoPhillips is the prime one where we just become the primary again for the next five years for U.S. and for Canada.

We certainly like to formalize, adding to Norway, Australia and other areas of the world with -- so those are just ongoing efforts that we are going to continue to do. But the one I would say that the four that we had really targeted from day one are been successful for us and continue to ramp up. So that's with us, still key part of our strategy. .

And our next question is a follow up from the line of Walter Liptak with Global Hunter. Please go ahead..

Thanks, yes, I wanted to ask about adjusted gross margin and gross margin for the second quarter. And the adjusted gross margin looked pretty good at 19.5%.

What are you thinking about for -- for just the short-term gross margin?.

Yes, Walter, as you think about gross margins as we see in midstream and line pipe start to pick up again that creates downward pressure on the margins from a mix perspective. The counter to that are the valves and the stainless, the fitting and flanges and pickup in our international business.

So those --that will be the trade off between the two and we expect the margin to still be strong in the second quarter. .

At this time, there are no additional questions in the queue. I would like to turn the conference back over to management for closing remarks. Monica Schafer Thanks, everyone. This concludes our call today. And thank you for joining us and for your interest in the MRC Globe. Have a good day. .

Thank you, ma'am. Ladies and gentlemen, if you would like to listen to replay of today's conference please dial 303-590-3030, using the access code of 467-3664 followed by the pound key. This does conclude the MRC Global first quarter earnings conference call. Thank you very much for your participation. You may now disconnect..