Monica Schafer - VP, IR Andrew R. Lane - Chairman, President, CEO James E. Braun - CFO and EVP.

Matt Duncan - Stephens Inc. David Manthey - Robert W. Baird & Company Allison Poliniak - Wells Fargo Securities Jeff Hammond - KeyBanc Capital Markets Sam Darkatsh - Raymond James Mark Douglass - Longbow Research William Bremer - Maxim Group Brent D.

Rakers - Wunderlich Securities Nicholas Prendergast - BB&T Capital Markets Vaibhav Vaishnav - BofA/Merrill Lynch Ryan Cassil - Global Hunter Securities.

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

I would now like to turn the conference over to Ms. Monica Schafer, Vice President of Investor Relations for MRC. Please go ahead ma’am..

Thank you, Anna and good morning, everyone. Welcome to the MRC Global second 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, I have a couple of items to cover.

There will be a replay of today's call available by webcast on our website, mrcglobal.com, as well as by phone, until August 15, 2014. The dial-in information is in yesterday's release. Later today, we expect to file the second 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, August 1, 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 Global during this call may contain forward-looking statements within the meaning of the United States federal securities laws. These forward-looking statements reflect the current views of management of MRC Global.

However 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 Chairman President and CEO, Mr. Andrew Lane..

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

Following Jim's comment I will finish with a discussion on the outlook for our business. I am pleased to report that second quarter revenues were just shy of $1.5 billion, the second highest quarterly revenue in the company’s history.

Importantly we had organic sales growth across all segments and end market sectors, as compared to the second quarter last year. Total organic sales growth for the company was 13%, upstream was 17%, midstream, 11% and downstream 8%.

In total including the impact of acquisition, revenues for the quarter increased to 18% from the second quarter of last year. The pickup in activity that we saw in March and April continued throughout the second quarter; many of the upstream drivers that have been positive quarter-over-quarter including the U.S. rig and completed well counts.

In the midstream sector we saw higher levels activity in line pipe from our existing customers as-well-as with several new customers as we're beginning to see a pickup in infrastructure spending. Downstream experienced strong growth in U.S. and Europe driven by turnaround activity and project-related work.

Broadly speaking our customer spending budgets for the year have increased recently and that bodes well for MRC Global in the back half of 2014. We're pleased to have closed two international acquisitions this quarter.

Hypteck is a Norwegian business that complements our stream instrumentation business and MSD Engineering which enhances and expands our valve offering in Singapore and Southeast Asia. The combined purchase price for the two acquisitions was just over $100 million.

We continue to evaluate and pursue potential acquisitions with a focus on international bolt-on acquisitions as part of our strategy. Last quarter we talked about the implementation of cost saving measures to improve profitability.

In April we implemented a voluntary early retirement program and eliminated a number of management positions as part of an effort ongoing to streamline operating cost. We have continually expanded those programs and as a result we have reduced headcount by 180 and we now anticipate annual savings approximately of $12 million to $14 million.

Related to these initiatives we incurred a pretax charge of approximately $5 million in employee severance cost this quarter and expect an additional $2 million to $3 million in the third quarter related to facility consolidations and additional severance costs.

We will continue to look for savings opportunities even while the business grows organically. With that let me now turn the call over to Jim to review our financial results..

Well, thanks Andrew and good morning everyone. Total sales for the second quarter of 2014 were $1,497 million, which were 18% higher than the second quarter of last year and 15% higher sequentially.

As compared to the same quarter a year ago revenue increased a $160 million or 13% organically and our acquisitions added an incremental $84 million of revenue. The first quarter divestiture of our progressive cavity pump business in Canada had a negative $15 million impact on our revenues. U.S.

revenues were a $1,116 million in the quarter, up 14% from the second quarter of last year. The growth was broad-based each end-market sector of the U.S. business achieved double-digit organic growth and each product line posted organic growth as well. The line pipe product grew the most at nearly 30% in the U.S.

And sequentially U.S segment sales were up from the first quarter by 18% led by the midstream business which increased 37%. Let me take a minute to talk a little more about U.S. line pipe market in the quarter.

Higher line pipe sales benefited all three end-market sectors with the upstream being driven by higher levels of well hookup activity, the midstream by purchasing ahead of additional pipeline construction and the downstream from increasing project activity.

In addition we seem to benefit of our target account program, especially in our line pipe business. Sales in 2014 to our historically top midstream line pipe customers have not yet returned to the levels seen in 2011 and 2012, as expected. However we've aggressively sought new customers in this market.

For example some of the top 20 line pipe customers in the first half of 2014 were not in that category in 2013. These new sales are often direct sales in which we coordinate logistics and other services and as a result the margins are lower than sales from inventory.

However these new relationships allow us to offer a broader range of products such as valves, fittings and flanges to a new customer base. Canadian revenues were a $150 million in the second quarter down $4 million or 2% from the second quarter of last year.

As mentioned earlier the sale of our progressive cavity pump business reduced sales by $15 million. A 6% decline in the Canadian dollar relative to the U.S. dollar reduced sales by another $10 million. These declines were partially offset by organic growth of $21 million.

Sequentially the Canadian segment is down about 10% from the first quarter due to spring breakup. And historically the first and fourth quarters are the strongest in Canada, Internationally second quarter revenues were $232 million, up $93 million or 67% from a year ago.

The increase was the primarily a result of four recent acquisitions; Stream and Flangefitt, MSD and Hypteck, which added $79 million in incremental revenue in the second quarter of 2014. Organically sales were up 10% primarily from growth in the UK in both the upstream and downstream sectors.

The upstream sector increase was due to a number of projects and MRO offshore platform work in Scotland and in the UK Nordea as well as a project under our global enterprise framework agreement with Shell. The downstream growth was primarily from increased turnaround activity in the UK.

Sequentially international segment was up 21% from the first quarter due to 19% organic growth and 2% from acquisitions. The recent acquisitions of MSD Engineering and Hypteck should add approximately $65 million of annual revenues going forward. Now turning to our results based on end market sector.

In the Upstream sector, second quarter sales increased 29% from the same quarter last year to $700 million. This increase was driven by organic growth of 17%. The balance coming from the net impact of acquisitions and the Canadian divesture. And the average North America drilling count was up 7% in the second quarter from a year-ago.

Midstream sector sales were $420 million in the second quarter of 2014, an increase of 12% from 2013. Compared to the second quarter of last year transmission customer sales increased 24% and sales to our gas utilities were lower by 6%.

The increase in sales to transmission customers was due to increased project activity and the decline in gas utility sales was in part due to lower sales this year from one of our larger customer who had very active project spending last year.

In the downstream sector second quarter 2014 revenues increased by 8% to $377 million as compared to the second quarter of 2013. Strong refinery and chemical turnaround activity was the main driver for the quarter this quarter. Organic growth in U.S. was 9.6% and our International segment contributed 6.5% organic growth.

Turning to revenues by product class, our energy carbon pipe steel tubular product sales were $422 million during the second quarter of 2014 with line pipe sales of $288 million and OCTG sales of $134 million.

Overall sales from this product class increased 22% in the second quarter from the same quarter year ago including a [57] or 25% increase on line pipe and a $20 million or 18% increase in OCTG sales. Second quarter 2014 average line pipe sales prices were down about 12% from the same quarter last year.

The amount of tons we sold from stock for line pipe in the U.S. was higher by approximately 29% and based on the latest Pipe Logics All Item Index line pipe spot prices have declined 4% second quarter 2014 over the second quarter of last year. Our lower average sales prices have been driven by a higher mix of direct project related work.

Sales of out fittings and flanges and other products were $1,075 million in the second quarter, a 16% increase from the second quarter of 2013. Sales of valves were up 39% during the quarter. Organic growth was 21% and the remaining 18% came from acquisition.

Sales from fittings and flanges were up 5% from the second quarter of last year as growth from acquisition offset modest organic losses. Other products were flat with a year ago as the disposition of the Canadian progressive cavity pump business offset organic growth.

Turning to margins, our gross profit percentage declined 190 basis points to 17.3% in the second quarter of 2014 from 19.2% in the second quarter of last year. The decrease was primarily due to the impact of LIFO of a 110 basis points.

A LIFO benefit of $12.5 million was reported in the second quarter of 2013 as compared to $800,000 of expense in the second quarter of 2014. Higher amortization of acquisition related intangibles also contributed to the lower gross margin profit percent.

The adjusted gross profit percentage which is the gross profit plus depreciation, amortization, the amortization of intangibles and plus or minus the impact of the LIFO inventory costing decreased to 19% in the second quarter of 2014 from 19.7% in the second quarter of 2013.

The lower margins are reflected primarily from general carbon steel pipe deflation and a higher mix of low margin pipe sales compared to a year ago. SG&A costs for the second quarter of 2014 were $185 million or 12.4% of sales, an increase of $31 million from a $154 million or 12.1% of sales in the second quarter of 2013.

SG&A increased $18 million as a result of acquisitions, higher personnel cost from increased business activity and $5 million of severance. This was partially offset by a $4 million decline from the divestiture of our Canadian progressive cavity pump business.

As Andrew mentioned earlier we've implemented certain cost savings initiatives directed at reducing our operating expenses. With the actions taken to-date we've revised our savings estimate and we now anticipate annual savings of approximately $12 million to $14 million per year.

Due to these initiatives we incurred a pretax charge of approximately $5 million this quarter and expect to occur an additional $2 million to $3 million in the third quarter.

The increase in annual savings from the $8 million that we disclosed last quarter to the $12 million to $14 million this quarter was driven by additional cost cutting measures including the closure of our [Telsey] and Sydney corporate offices.

We expect the SG&A run rate to be approximately $180 million to $182 million per quarter for the balance of 2014 taking into consideration the benefits of cost savings, recent acquisitions and growth in the business.

Interest expense totaled $15.3 million in the second quarter of 2014 which was modestly higher than the $15.2 million in the second quarter of 2013. This was due to higher average debt balances partially offset by lower interest rates.

Our second quarter 2014 net income was $39.3 million or $0.38 per diluted share compared to net income of $43.9 million or $0.43 per diluted share in the second quarter of 2013. Adjusted net income excluding the charge related to employee severance was $42.9 million or $0.42 per diluted share.

There were no adjustments to net income for the second quarter of 2013. Adjusted EBITDA in the second quarter was up 7% year-over-year to a $106 million versus $99 million a year ago. Adjusted EBITDA margins for the quarter were 7.1% down from 7.8% a year ago but up sequentially from the first quarter 6.4% on the higher revenue levels.

Our debt outstanding at June 30 was a $1,398 million compared to the $987 million at the end of 2013. The increase was due to our acquisitions and working capital growth. Our leverage ratio at June 30 of 2014 was 3.4 times on a pro forma basis for the four recent acquisitions.

We expect free cash flow to be used to pay down debt over the next 12 months. Our operations produced cash of $22 million in the second quarter and used cash of $52 million for the first half of the year.

Working capital at June 30 was $1.31 billion $56 million higher than it was at March 31, 2014 and $226 million higher than it was at December 31, 2013 reflective of the acquisitions this year and an increase in our working capital due to the higher revenue levels.

Cash used in investing activities totaled $102 million in the second quarter primarily related to the acquisitions of MSD and Hypteck. In mid-July we amended our ABL facility to lower its size by $200 million to better align with the eligible borrowing base add Norway to the facility, lower the pricing rate on the U.S.

and Canadian borrowings by 25 basis points and extent the majority of the facility to 2019. And now I will turn it back to Andrew for his closing comments..

Thanks Jim, when we began the year we anticipated that spending by our customers and the industry in general could increase in the back half of the year.

After a tough first quarter the increase in activity we saw in March and April continued throughout the second quarter and based on our preliminary results for July it is continuing into the third quarter. Higher estimates of E&P spending from recent industry surveys are also indicative of a stronger second half to 2014.

Our backlog reached another record high at the end of the June coming in at $1.125 billion, an increase of 9% from the end of the first quarter. All this has led us to update our 2014 annual guidance. We have raised and narrowed our sales guidance range to $5.7 billion to $5.9 billion. The new midpoint is 150 million higher than it was previously.

We also know the adjusted EBITDA guidance lowering the top end of the range reflecting lower gross profit margins we have experienced to-date and expect through the balance of the year. Adjusted EBITDA is now expected to be between $400 million and $430 million as compared to between $400 million and $450 million previously.

Capital expenditures are expected to be lower than previously thought; therefore we have reduced the range to $20 million to $25 million from $25 million to $30 million. Finally the range for cash flow from operations is lower as growth in the business is expected to consume more cash for working capital.

We now expect cash flow from operations for the year to be between $75 million and $100 million down from $175 million to $200 million. With that we will now take your questions, operator..

Thank you sir. We will now begin the question-and-answer session. (Operator Instructions). Our first question will come from Matt Duncan with Stephens Incorporated..

Good morning guys..

Good morning, Matt..

First question I’ve got could you go into a little bit more detail on sort of what’s going on with gross margins in line pipe.

What are the gross margins like in that product category right now and is the drop in your EBITDA forecast, is that all just tied to the sales mix and the lower gross margins of line pipe?.

No, Matt you’re right we’ve seen a big change in the mix to lower margin direct pipe orders, that’s where the market is today, that’s where you see a lot of the activity. And those margins will typically be in the mid-single type digits. Now inventory don’t have to carry in stock. We’re handling on a transactional basis for these new customers.

So we don’t have the investment that we typically have with our stock pipe. But it does provide us an opening and an entrée in to these customers for additional work down the road..

And Jim how confident are you guys that you’ll be able to pick up additional revenues from those customers and those higher gross margin categories, have you seen that some of the new customers that you’ve already added, or is that still yet to come and when it does should we expect to see gross margins go back up?.

No certainly we expect that to happen, we have confidence in that as we talk to the customers when we put together programs for them. So we will start to see that perhaps some later this year more and maybe in the first quarter next year..

Okay thanks and then last thing and I’ll hop back in the queue on the outlook for each of the three energy sectors.

Could you give us an update on what your growth expectations are for upstream, midstream and downstream sales this year?.

Sure if you remember when we started the year we thought that the upstream would be in a kind of the mid-single-digits we now revised that to the high single-digits, perhaps even touching on, hitting at something that starts with a 10. The midstream we’ve moved up as well. We said it was low single-digits it’s now approaching mid-single digits.

And then the downstream we’ve moved up modestly from kind of mid-single-digit. But the biggest growth or the biggest change in our outlook has been in the upstream business..

Okay, thanks I’ll hop back in queue..

We’ll now take our next question from Mr. David Manthey with Robert W. Baird..

Hi guys, good morning..

Good morning Dave..

Just similar on the gross margin I am just wondering first of all your mid-single digit gross margin, is that EBITDA profitable because you don’t have to handle it and your cost obviously is lower. I am just wondering if you can talk to us approximately about what the magnitude of revenues you think that was this quarter..

Yeah, you are right David I mean it is work that has margin that drops pretty much straight through the bottom-line. We don’t have handling associated with it. We don’t have to bring in, move it around. So it does fall through towards that bottom-line.

In terms of kind of a range I would say it’s in the $50 million range this quarter and to demonstrate the impact of that and on adjusted gross profit if you back that out adjust for at those mid-single-digit gross profit margins, the overall growth profit of the company moves up 30 basis points to 40 basis points.

So it does some sensitivity on that when you bring in a large volume of that mid-single digit margin business. But as we said it’s a good business to have, it’s the market is out there today and it provides us the opportunity to establish these new relationships that are important..

And then second in terms of the timing on that given the fact that you are reducing the high end of the EBITDA range. It doesn’t sound like you expect to translate in the back half of this year.

I suppose these are long-term relationships but from your historical performance can you talk about sort of how long that could take to turn into a valve customer or is that another type of customer?.

No, it can certainly happen within a three to six month time period. That’s I why mentioned we would expect to see some of that in the fourth quarter. But this is this is new business with people we haven’t done a lot of work within the past..

Okay. Just if I can get one more in here quickly the fact that $50 million doesn’t seem like a very big number and even if you adjust it seems like adding that low margin business wouldn’t impact the overall as much and allow you to reduce the EBITDA number overall.

It seems like it was there a mix shift excluding this sort new drops is there a mix shift with margin lower than you expected outside of that activity?.

No we continue to see some of that also with existing customers as well so. There is a certainly a portion of it that goes with the existing base business as well..

I see, okay. All right, thanks very much..

We will now move to Ms. Allison Poliniak with Wells Fargo..

Hi, good morning guys.

Sorry if I missed this but backlog jumped nicely in the quarter, I think it is 9% could you break that down between core and acquisition for us?.

Yeah Allison if you go back and look at it we have 9% from sequentially from the first quarter. That’s all going to be organic because this is very little acquisition in there and the two small ones. So that’s primarily all organic growth in the backlog. And it’s primarily in U.S. although we did see it in the other streams as well..

That’s great.

And then internationally can you just give us sort of your thoughts on maybe a regional perspective as we look out into 2014 and into ’15 if you could?.

Sure. Allison let me take that one Europe is coming back nicely for us the brightest spot we have, internationally is in the UK and from an organic standpoint, from an acquisition standpoint of course Norway is going to very strong for us the rest of this year and into next year. Southeast Asia is doing well for us.

We consolidated the number and number two valve distributors in that market place during the quarter. So we are pleased there and then Australia remains our problem area with both mining and refining being slow. So that’s really the only spot that we are really working on more of a cost basis then the growth.

The other areas we are all working on profitable growth and in Australia we are still unfortunately in a mode of right sizing the operation for the current demand..

Great, thanks so much..

We will now move to Mr. Jeff Hammond with KeyBanc Capital Markets..

Jeff Hammond - KeyBanc Capital Markets:.

Hey, good morning guys..

Good morning Jeff..

So, I know this has kind of have been addressed before and I understand kind of lower margin mix but what I struggling with is how you are taking the revenue guidance up a $150 million and lowering the EBITDA. I mean are we're seeing some other cost headwinds or are we taking some money losing business.

I just want to understand, or is it just more pricing pressure? Just help me understand those two dynamics..

Yeah, Jeff. When we look back, we started it in the December with the outlook for the year and at that time we saw $5.65 billion and $425 million as both our plan internally and the most likely outcome from external guidance standpoint. We had a tough first two months, we knew pricing would improve both OCTG and line pipe pricing bottomed in February.

We’ve seen a ramp-up as we expected but a slow ramp up. We saw a nice spike after the ruling on the trade case and OCTG improvement in July of 3%. And but it's a gradual improvement in line pipe. So you're really seeing, it's happening, it’s playing as we thought but improvement in carbon pipe pricing is lower than expected.

And so we look here seven months later we're seeing more volume in buying pipe that we anticipated at the start of the year but at a lower price and as Jim said it's still as below the price we had this time in 2013 and well below the price we had in 2012 still. So I would say that's still the big swing factor when you look at our $10 million.

So we've raised revenues by $150 million but now we see the earnings with [4.15] being the most likely. And the way I look at it Jeff we did $2.8 billion and $190 million EBITDA in the first half. Most likely outcome in the second half is $3 billion with $225 million EBIDTA in the back half.

So across the board it is improving but not to the level we thought initially but we're very pleased with the growth. We're very pleased with the ramp up in the activity. It's continuing on into July, and then as we said in the last call I think this will be a more historical year for us.

In 2013, our largest --highest quarter revenue was the last quarter. But normally the second and the third quarter are the best quarters and I could expect that the third quarter will be the best quarter and exceeding the second quarter results. So we feel good about the turn in business.

A lot of our customers have increased their budgets as shown in several surveys both for the second half but it is also really the second half run rate is what we see going into 2015 and we're pleased about that. And carbon pipe pricing it’s just improving slowly.

So we certainly will start adding an improved position in carbon pipe pricing going into the end of this year and into 2015 than we started in 2014..

Okay. Then the couple of quick one on acquisition, how would you say your acquisitions are tracking relative your expectations.

I know there’s been chatter about Statoil and NCS, kind of seeing a lower level of activity level of activity and then just on these most recent acquired businesses they look pricey and priced to sales, maybe you could just talk about the EBITDA multiples you would have paid for those?.

Sure. Let me talk on the Norway or the Statoil so the Stream acquisition we continue to be very pleased with it as we look at here at the midpoint. Their revenues for the year versus what we were expecting are within 5%. So we don’t really see a big fall off or big impact from the Statoil situation that you described.

Certainly on longer term they are going to be continue to be a large spender. The two smaller acquisitions were, as we said, relatively small but had a little bit higher margin and again those are multiple were in -- within the range we've talked about, the 6% to 7% or six to seven times on an international deal..

Thanks guys..

We'll now take a question from Mr. Sam Darkatsh with Raymond James.

Good morning Andy, Jim, how are you?.

Great, Sam. Good morning..

Two quick questions and they are frankly follow-ups to prior questions. So you are saying I think that line pipe pricing in the quarter was down 12% versus the industry down 4% and I think you mentioned that was because of your higher project mix.

I think than industry wide, back half of the year specifically or at least directionally what are you pegging for line pipe pricing to go into your EBITDA margin expectations?.

Yeah we’ve got -- Sam it’s going to be modestly improved but not a lot. We provide a little bit of caution in there as we look towards the back half of the year. We look at our backlog we still see a lot of this project-related work in there.

So we’re going to continue to benefit from those additional revenues but they will come at those lower margins..

Sam I’ll just add a comment to that, one of the things we talked about on previously calls is our major midstream customers and one of them was Williams, Access Midstream, two of our largest midstream customers.

We’re pleased during the quarter that Williams announced the acquiring Access bringing those two together which as a combined company will be the largest midstream customer for us and it takes away that uncertainty between two of our major midstream customers.

So we see some positive impact on additional spending from that in 2014 but a lot more in 2015 and ’16 going forward as that becomes a major midstream and that’s what one that you just not seen in our mix this year. Also the DCP and PG&E on the West Coast major spenders in midstream in previous cycle for us.

They haven’t ramped up either one of them to the level we had. So you’re really seeing our four top midstream customers that are mostly handled out of stock sale active but not to the levels that we had in ‘12 or even the first part of ’13 and so you’re seeing our blend being smaller MLP operators and as Jim said some more project were to mix in.

But I think when our largest -- come back to spending either later this year into next year that will be on top of the ability where we’ve expanded our customer base in midstream during their slowdown in spending..

That’s very good color. So the line pipe assumption from a pricing standpoint in the back half if I could rephrase or at least understand you’re assuming it’s going to be sequentially better than the first half but not up on a year-on-year basis.

Is that how, in the second half is that how to read that?.

Yeah and the way I look at it, it’s been up -- if you look at line pipe it’s up 3% from the trough in February.

I wouldn’t be surprised to see another 3% in the next five months and so I think it will finish slightly higher than we started the year but definitely on a trajectory that would be improving in 2015 and I see OCTG depending on the final determination and the impact on the imports certainly it’s a positive.

It raises the floor on the low cost price OCTG. So I think it will finish up the year higher than we started..

Okay and then my final question taking the sales expectations higher by $100 million, $200 million which is obviously very encouraging, taking the cash flow expectations down by a similar amount and I am thinking the inventory requirements of the incremental sales probably is not that dramatic because a lot of it’s going direct, which I think suggest that your DSOs are taking the cash.

First off that a right way to look at it, that it’s a DSO issue not an inventory commitment issue and secondly if that’s the case why would that be, are the DSO’s naturally in that mix higher or are your customers -- is there, any issue not collections necessarily but length of period time to collect, how do we look at that?.

No Sam you summarized it nicely. It’s not an inventory issue. We got additional working capital just in the normal course of revenue being up but also in our expectations which we’ve changed from last time, we’ve added a couple or actually three days to the DSO’s.

We’ve seen a spike up here at mid-year at June, no particular problems, but just more across the board, trend a little slower paying from our customers. Some of them have specific reasons and just to be a little cautious we’ve added a little bit of couple of those days there at the end..

So Sam will add in the second quarter our inventory average cost is up $142 million from end of December because we do see a build and we have been buying in advance of the building activity and so that -- it’s part of it and Jim addressed the rest..

Does your DSO overtime continued to rise based on the mix that you foresee over the next couple of years?.

I don't think it continues to rise it will ebb and flow depending on a number of situations. It just happens to be at a high point right now..

Got you. Thank you very much, very helpful..

We will now take a question from Mark Douglass with Longbow Research..

Hi, good morning gentlemen..

Good morning, Mark..

Good morning, Mark..

Can you discuss -- you mentioned that your top four midstream customers just not spending at the same pace they have the last couple of years but you expect it to improve, is that just your assumption given the lack of spending or are they giving you a lot of strong signs, indications that they will be spending more later in 2015, that's '14 and '15 particularly with I assume with the acquisition or merger of Williams and Access probably disrupts their capital spending to some degree?.

Yeah I mean we're very close to all four of these customers. And yeah I mean of course it's a distraction with the Williams-Access combination. In 2013 we entered into a new five year agreement with Williams. So that positions us very well for the combined company.

Of course they’ve spent money on the acquisition this year, as we talked about on the previous call, the Bluegrass project which was a big one for us got pushed into 2015 from this year. So we certainly see the Williams, the combined Williams access being very active in '15 and '16 from what we discussed with them.

So I think in that case it's a very much a positive for us as the certainly of having the two, as a JV versus now one company. DCP is active but not to the level that we saw in either '12 or '13 but still a good customer. I think they will ramp up more slowly than the others.

And then PG&E we're in the middle of a very large bid with them as they look at their spending going forward. They have been very active in '13 and much slower in '14. We have a very strong position with them. But we think once the tender and all that's worked out this year that they will be back to spending next year.

So I think there is positives in that group for sure. The good thing is that we've broadened our customer base in midstream while we've -- as part of our strategy that we talked about the last two quarters and while that comes at some lower margin it also grows the broader midstream customer base for us going forward..

Okay. Thank you. And then there are encouraging trends in Canada. How is the spending in oil sands, is it mostly replacement because we've heard other talking about project push outs and delays in capital spend at least in the oil sands but with your organic growth there it seems like you are doing pretty well.

Can you talk about some of the dynamics there in Canada?.

Yeah. I mean the oil sand big projects have pushed to the right some, where we're very busy as in the Sag D the in situ production of the heavy oil part and also our general oil field business up there is doing very well. On a year-on-year basis when you correct for our exiting the Euro pump distribution part of that business.

But without that $85 million annual revenue we're doing very well in Canada. But it's more of a general oil and gas and also the Sag D completions. We do have some project work in the oil sands themselves but that's pretty much steady from last year to this year. So it's the other areas that are ramping up for us..

Okay, thank you..

We will now move to William Bremer with Maxim Group..

Good morning Andy, good morning Jim..

Good morning, Bill. Good morning, Bill..

Could you give us any -- an employee count as of the end of June?.

Yes, just under 5,000 I think it's about 4,980..

Okay.

And the restructuring initiatives et cetera that you have voiced, is this the first step or will this be a continuing ongoing process throughout say the end of the year?.

Yeah, Bill I mean the largest part of it was done during the second quarter. It's a continuing process. We've been very active in acquisitions. So in international we're looking at streamlining the structure now that we have some more critical mass of business. We're looking to consolidate in two region structure internationally.

So we're removing some of the cost at a country level basis and synergizing it at region level. So there is some more streamlining that will occur in the third quarter.

There we had a Sydney corporate office from an acquisition that we closed and Jim mentioned domestically it has been more of streamlining of the management structure and also we closed the corporate office in Tulsa and moved their functioning to an existing office in Charleston.

So I would say it’s much more along the lines of streamlining but certainly we want improve the profitability. That’s a heavy focus for us in the second half of ’14 going into ’15 is to get our profitability up and a part of that is managing SG&A cost to a lower level. So there will be a continuing effort on that through the end of the year..

Okay, great. My second is question on you know on the U.S.

Canada International can you provide the operating margin as a percentage of year-over-year please?.

You know Bill I know we’ve got those in the Q I don’t I have them handy right now, but we’ll certainly that offline I know there are we had improvement in both Canada and in International on a sequential basis..

Okay, great. Thank you..

We will now move to Mr. Brent Rakers with Wunderlich Securities..

Yes, good morning I think you talked a bit about -- obviously your satisfaction with Streams since it was acquired in terms of revenue contribution.

You gave some initial -- when you made deals some additional EBITDA target and some accretion targets can you maybe give us an update there?.

Yeah, we as I mentioned we think the revenues are going to be within around 5%. So we are know -- our EBITDA and our accretion numbers are going to be a little bit less than that based on that revenue fall off but still should do very well by the end of the year..

Okay. And I guess my follow-up question just kind of trying to walk through that numbers just trying to strip out the acquisitions and focus on the core.

It looks like possibly the core SG&A on a dollar basis may have out grown the core gross profit dollars, I guess first any comment on that and I guess my follow-up would be on the SG&A could you talk about some the some of the more key growth spending initiative whether it’s headcount or branch openings or rather?.

Yeah the SG&A was impacted by the acquisitions. Of course it also had a $5 million severance that we are pulling out in the second quarter. You know we are going to start to see some of the sayings from the actions in the third and more fully in the fourth quarter.

In terms of initiatives the focus on the saving has really been around the head count with the actions that we took. In terms of branch locations and cost there are on the G&A line really no big impact.

We do have plans from a capital perspective to open up expand the RDC in Midland Odessa, open up one in Rotterdam but other than that nothing significant..

Thanks..

We will now move to Nick Prendergast with BB&T Capital Markets..

Hi, good morning.

If I can just do a follow-up question on your cost saving plans here it looks like you have upsized them to the $12 million to $14 million annualized sayings at what point do you expect to reach that on an annual run rate basis?.

Yeah we have that fully implemented in the fourth quarter we still have a little bit of transition here in the third but on a run rate it would be in the fourth quarter..

So, it will hit 12 to 14, 2014 exiting the year?.

Correct..

Got it, thank you..

We will now move to Mr. Ryan Cassil with Global Hunter Securities. Mr. Cassil your line is open. Please go ahead. If you are on a speaker phone please pick-up your handset and depress your mute function. Due to no response we will move on to our next question from Vaibhav Vaishnav with Bank of America..

Good morning gentlemen. Just wanted to see what the exit rate margins if we can talk about exit rate EBITDA margins in June or July Our first quarter EBITDA margins were 6.4% second quarter it rose to 7.1% probably they are still increasing. Just wanted to get an exit rate, if you could please..

Sure no, the exit rate we talked about in the month of June we’ll just speak in terms of quarters in terms of the levels of revenue around a $1.5 billion, we ought to be at 7.1, 7.2 and increasing is the revenues go up there. So certainly that’s an exit rate I would use -- look at on a quarterly basis..

Thank you. So if I just think about the second half of ’14 and think about the midpoint of the guidance, we are assuming 7.5% EBITDA margins for the second half versus 6.8% in the first half.

Just given the fourth quarter seasonality just wanted to -- if you can walk through the assumptions that you have either in terms of seasonality or obviously we have more cost earnings in the second half but just some broader thoughts around the assumptions? Thank you..

Yes, no as you look at the back half of the year and whereas we mentioned the third quarter is typically the strongest. So we think it will be particularly strong and we mentioned that it would be up. The fourth quarter as always a bit of an uncertainty as we get to the end of the year.

We’re certainly thinking it’s most likely to be down on a sequential basis but still very strong. We mentioned the margin situation. We think that will continue to exhibit these low margins direct line pipe orders. There’s some built-in increases in general line pipe pricing but that’s relatively modest.

And then finally we’ll start to see the benefits of the cost savings. So we got some in Q3 but full run rate in the fourth quarter..

That’s very helpful that’s all from me, thank you..

We’ll now take a follow up from Mr. Matt Duncan with Stephens Incorporated..

Hey guys just going back to gross margins to make sure we know how to look at this in our models.

It was 19% on adjusted gross margin basis this quarter, should we expect it to move up a little bit in the back half on higher sales or is the mix going to be enough of a headwind still but it’s going to just kind of stick around that 19% level?.

Matt I think it’s going to be around that 19% level plus or minus again depending primarily on just the volume of the mix of these orders that we’ve talked about..

And then Jim, helping us as we look out to next year, obviously I think by then you would expect to see the cross-sell would some of these new customers start to kick in and that should give you some tailwinds in gross margins but also can you talk about the makeup of the backlog, is the growth in backlog -- is that being driven more by picking up these line pipe orders or is it more or maybe kind of equal parts of that and do you expect to build out on the downstream side where I know you’ve been adding stuff to backlog and that tends to be higher gross margin kind of business on that side of the business if I remember correctly?.

You’re right on a number of points there Matt. The only thing I’d caution you is in that backlog some of the project work in the downstream sector, that does tend to be a little bit lower margin business because of its project nature. It’s not standard MRO replacement.

It’s better than mid-single-digit line pipe but it’s certainly not a higher margin MRO business but that correction you’ve hit it on the head..

And I would just add one of the things we haven’t really talked about this call but I still watch closely is the additional MRO scope on renewal contracts, either new MRO contracts or additional scope on existing renewals and we’re doing very well in the first half of this year, significantly higher yield than last year which was a good run rate for us.

So I see that as a part of the growth in the projects as Jim mentioned a little bit lower margins, some growth in smaller midstream MLP customer lower margin but offsetting that would be higher growth in expanded MRO contracts that we’ve already realized in the first half of ’14, sets us well for growth in ’15 for us..

Okay so to be clear when this all sorts itself out assuming the cross-sell to the new customers does happen we should expect to see the gross margin expandable the next year on higher volume?.

Yes..

Okay thanks. Just want to make sure, appreciate it guys..

We’ll now move now to Mr. Ryan Cassil with Global Hunter Securities..

Hey guys thanks for taking my question..

Good morning Ryan..

Yeah just wanted to touch on the customer mix. You talked about some of those larger existing customers not showing up as much this year.

Are you assuming much of a pickup at this point in your guidance with those guys or would that be incremental to the margin mix and the overall guidance?.

Ryan we’ve been conservative on our thinking on ramp up for those in ’14. We certainly are very bullish on their increase in spending for ’15. But I would say that if they pick up faster that would get you more to the high end of our range that the 5-9 level..

Okay and someone just addressed this but what the new customers you guys are ramping, if we look back kind of historically on when you can take new customers and start cross selling new products and growing that account how long does that take on average and do you expect any real difference here?.

Well you start to see as I mentioned earlier six months sometime shorter timeframe but the real value of these is overtime those accounts continue to grow and grow and expand. So it’s a nice long-term investment we’re making but you’ll generally start to see increased revenues within that six month period..

Okay great, sounds like you guys are making the right long-term moves, appreciate it, thanks for the time..

Thank you..

And Ms. Schafer there are no further questions at this time. Please continue..

Thank you. This concludes our call today. Thank you for joining and for your interest in MRC Global. Have a great day..

Ladies and gentlemen, this concludes the MRC Global second quarter earnings call. If you like to listen to a replay for today’s conference please dial 1-719-457-0820 and enter passcode 1808539. Again the dial-in number is 1-719-457-0820 and enter passcode 1808539. The conference center finally would like to thank you for your participation.

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