Andrew Lane – President & Chief Executive Officer Jim Braun – Executive Vice President & Chief Financial Officer Monica Shafer – Investor Relations.

David Manthey – Robert W. Baird & Co. Jeff Hammond – KeyBanc Capital Markets Matt Duncan – Stephens, Inc.

Sam Darkatsh – Raymond James Ryan Merkel – William Blair & Company Walter Liptak – Global Hunter Securities William Bremer – Maxim Group Mark Douglass – Longbow Research Vebs Vaishnav – Bank of America Merrill Lynch Nick Chen – Alembic Global Advisors Brent Rakers – Thompson Research Group Nick Prendergast – BB&T Capital Markets.

Good morning, ladies and gentlemen and thank you for standing by. Welcome to the MRC Global Q3 Earnings Conference Call. (Operator instructions.) This conference is being recorded. And I would now like to hand the conference over to Ms. Monica Shafer. Please go ahead, ma’am..

Thank you, Anna, and good morning everyone. Welcome to the MRC Global Q3 2014 Earnings Conference Call and Webcast. We appreciate your 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 www.mrcglobal.com as well as by phone until November 21, 2014. The dial-in information is in yesterday’s release. Later today we expect to file the Q3 2014 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, November 7, 2014, and therefore you are advised that this information may no longer be accurate as of the time of replay.

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 the 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 would 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 Q3 2014 Earnings Call and for your interest in MRC Global. I’ll begin with some highlights from the quarter and recent developments before turning the call over to our CFO Jim Braun for a review of the financial results.

Following Jim’s comments I will finish with a discussion on the outlook of our business. I’m proud to report that Q3 revenues set a new high for the company at $1.6 billion. This record surpasses the previous record set in 2008. Growth has been robust across all areas of our business.

Including the impact from acquisitions, revenues for the quarter increased 23% from Q3 last year with organic sales growth of 18%. At a consolidated level we had organic sales growth across all segments and end-market sectors as compared to Q3 last year.

Upstream growth was driven by increases in the US rig and completed well counts, as well as an increase in market share in the key oil shale basins in the US. In the midstream sector we saw higher levels of activity with our transmission customers.

Line pipe and related valve and fitting purchases have increased, and we are further penetrating our target growth accounts consistent with our objective to broaden our midstream customer base. This is the early result of our effort to cross sell our broad range of products to our targeted growth account customers.

In the US we achieved records for both line pipe sales and tons of line pipe sold from stock. The downstream sector also experienced growth, both internationally and in the US driven by ongoing repair and maintenance work along with project-related work.

Another major milestone as a result of our efforts to expand our higher-margin product lines was reached this quarter in valves. We have focused on expanding our valve lines, adding additional suppliers, addition additional technical sales capabilities and through targeted acquisitions.

We have also expanded our global valve automation center capabilities. We now have 35 global valve automation centers. The results of all these efforts have delivered our largest quarterly valve sales in company history of $531 million.

As you know, we support many gas utility companies across the US in their normal operations as well as their infrastructure integrity projects. We operate with many of them under long-term agreements. During Q3 we won or renewed four integrated supply agreements with gas utility customers worth over $500 million over the five-year contract terms.

These agreements demonstrate the value we bring to gas utility customers in managing and supporting an integral part of their supply chain requirements. As we discussed on the previous calls we have been working through various cost-savings measures to improve profitability.

As a result of those efforts we now expect annualized savings of more than $17 million, an increase from the estimate we provided last quarter. We began to realize the benefits of these cost-saving measures in Q3 which has helped us to achieve an 8.2% adjusted EBITDA margin percentage.

With that let me now turn the call over to Jim to review our financial results in more detail..

our energy carbon two (inaudible) product sales were $471 million during Q3 2014 with line pipe sales of $323 million and OCTG sales of $148 million. Overall sales from this product class increased 23% in Q3 from the same quarter a year ago including a $44 million or 16% increase in line pipe and a $43 million or 40% increase in OCTG sales.

Line pipe pricing wasn’t much of a factor in the quarter. Based on the latest Pipe-Logix All Items Index average line pipe spot prices in Q3 2014 were up modestly with Q3 last year, and more recently pricing continues to be flat over the last several months.

Recently an anti-dumping ERW line pipe trade case was filed against certain foreign manufacturers. If this case is successful, much like the OCTG case which settled in August, it could provide further support for ERW line pipe pricing. Sales of vales, fittings, flanges and other related products were $1.147 billion in Q3, a 23% increase from Q3 2013.

Sales of valves were up 49% during Q3. Organic growth was 31% and the remaining 18% came from acquisitions. Sales of fittings and flanges were up 15% from Q3 last year, 9% from acquisitions and the balance organic.

Our oilfield, gas and related product groups were generally flat with the same quarter a year ago as the disposition of the Canadian progressive cavity pump business offset organic growth. Turning to margins, gross profit decreased 90 basis points to 17.2% in Q3 2014 from 18.1% in Q3 last year.

The decrease was primarily due to the impact from LIFO of 60 basis points. A LIFO benefit of $5.7 million was recorded in Q3 2013 as compared to $3.9 million of expense in Q3 ’14. Higher amortization of acquisition-related intangibles also contributed to the lower gross-profit profit percentage.

The adjusted gross profit percentage, which is gross profit plus depreciation and amortization, the amortization of intangibles and plus or minus the impact of LIFO inventory costing was 19% in Q3 2014, comparable to Q2 2014 and down slightly from 19.1% in Q3 2013. SG& costs for Q3 2014 were $185 million, an increase of $24 million from $161 million.

SG&A increased $21 million as a result of acquisitions and included $2.6 million of severance and $5.7 million of charges related to the cancellation of certain executive employment agreements. Even so SG&A was 11.4% of sales for Q3 2014 as compared to 12.3% of sales in Q3 2013, for a 90 basis point improvement.

The quarter benefited from cost cutting measures taken this year and a reduction in operating expenses related to the divestiture of our Canadian progressive cavity pump business. As mentioned earlier we reduced our operating expense and with the actions taken to date we revised our savings estimate.

We now expect annual savings of more than $17 million per year. Year-to-date we’ve incurred pretax surcharges of approximately $7.5 million for the year. We continue to look for cost savings opportunities but do not expect any further significant charges at this point.

We expect the SG&A run rate to be approximately $176 million to $178 million per quarter everything else being equal. Interest expense totaled $14.9 million in Q3 2014 which was modestly lower than the $15.5 million in Q3 2013. This was due to lower interest rates partially offset by higher average debt balances.

Our Q3 2014 net income was $50 million or $0.49 per diluted share compared to net income of $39 million or $0.38 per diluted share in Q3 2013. For Q3 2014 adjusted net income which excludes the charges related to employees’ severance and the cancellation of executive employment agreements, was $56 million or $0.54 per diluted share.

This is compared to an adjusted net income for Q3 2013 which excludes charges related to executive separation expense and their insurance, of $41.3 million or $0.40 per diluted share. Adjusted EBITDA in Q3 was up 37% year-over-year to $132 million versus $96 million a year ago.

Adjusted EBITDA margins for the quarter were 8.2%, up from 7.3% a year ago and also up sequentially from Q2’s 7.1% due to the higher revenue levels and the benefit of our cost savings measures. Our debt outstanding at September 30 was $1.417 billion compared to $987 million at the end of 2013.

The increase was due to acquisitions and working capital growth. Our leverage ratio at September 30, 2014, was 3.25x on a pro forma basis for the four recent acquisitions.

As you may recall 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 and lower the pricing grid on US and Canadian borrowings by 25 basis points; and we extended the maturity of the facility to 2019.

Our cash use in operations was $17 million in Q3 2014 and we used cash of $69 million for the first nine months of the year. Our working capital at September 30, 2014, was $1.374 billion, $290 million higher than it was at December 31, 2013.

We’ve experienced a significant increase in accounts receivable as a result of the acquisitions, the double-digit revenue growth, and the timing of payments from various large customers, and as a result our cash from operations is forecasted to be between a cash outflow of $25 million to a cash inflow of $25 million for the year.

Capital expenditures are expected to be $15 million to $20 million for the year, lower than previously thought. And now I’ll turn it back to Andrew for his closing comments..

Thanks, Jim. For the third quarter in a row we have set a new record backlog for the company. At the end of September our backlog reached another record high coming in at $1.25 billion, an increase of 11% from the end of Q2 – which is encouraging as we move into 2015.

The backlog is broad based with $882 million in the US, $74 million in Canada, and $297 million in international. This growth in backlog is a result of our multi-year strategy to grow project work with our top customers to supplement our base MRO business with them.

The strong results this quarter along with our expectations for the remainder of the year led us to update our 2014 annual guidance. We have raised and narrowed our sales guidance range to $5.90 billion to $5.97 billion. The new midpoint is $135 million higher than it was previously.

We are also increasing the adjusted EBITDA guidance, reflecting the operating cost leverage from our cost savings measures and the additional growth in the business. Adjusted EBITDA is now expected to be between $430 million and $450 million as compared to between $400 million and $430 million previously.

Now turning to our outlook, we are currently in the budgeting and planning process for 2015 much like our customers are. We are listening to our customers and looking at the energy landscape over the next several years and we are optimistic.

Despite the recent decline in commodity prices, which could impact our customers’ capital spending plans if sustained, currently we are not seeing any significant changes as a result. Most of our customers plan for several years and consider the volatility in the underlying commodity in that planning.

Their projects are based on long-term view and many have already hedged their production for 2015. We believe the recent decline in oil prices is a short-term phenomenon. However, should this be sustained we would expect there to be some changes to capital budgets which could impact us.

Therefore we will continue to talk to our customers, look for their 2015 capital spending budgets, and then we will plan accordingly and announce our annual guidance on our next earnings call.

The global PDF market is very large and fragmented and we continue to have many, many opportunities for growth through market share gains and leveraging our industry-leading global PDF sourcing and delivery platform. So with that we’ll now take your questions.

Operator?.

Yes, thank you, sir. We will now begin the question-and-answer session. (Operator instructions.) We will now take our first question from David Manthey with Robert W. Baird..

Hi, good morning, guys..

Good morning, Dave..

First off, thanks for your comments on the broader outlook here.

But if $80 oil does persist and it impacts the energy CAPEX as we move forward, as we think about the implications of that is it safe to assume that based on energy exposure in each of your streams that it would hit upstream most, then midstream and downstream the least? And then also if you can talk about geographically based on marginal cost of production and so forth, is it right to assume that the US might actually get hurt less than Canada or international or is that not right?.

Yeah, Dave, a couple good questions there. So let me take on first the overall impact of a sustained lower oil price level. Let me just take a minute to talk about how it changed the company over the last couple years, and having lived through the big drop in 2009 and 2010 of course we see this adjustment in ’15 being nothing like that.

But we did a lot of things following that to de-risk the company and really put more balance and diversity in the company. So as you think back to the last cycle, we didn’t have a $900 million international business, and that will provide a good basis for us through 2015.

The other big thing we did, the most volatile area of the business is both line pipe in the midstream sector and OCTG directly attributable to rig count fluctuations in the upstream sector. So we made steps over the last couple years to de-risk that. If you look back at 2008 roughly 50% of our revenues came from carbon energy piping.

Today it’s 19% in line pipe and 9% in OCTG. So we’ve done an awful lot to minimize any fluctuations to our business in volatility in the rig count. We’re not a rig count equipment supplier so we don’t get impacted by drilling contractors’ activity directly.

So we’ve done a lot of things to position the company to minimize any risk to the company in a slowdown. To your other question, you’re exactly right – a bigger impact in upstream than in midstream, and then downstream a bigger impact in Canada than the US.

What we see for 2015 without getting into too much guidance, chemicals and refining is going to be a very strong year for us. Of course refining projects and chemical projects are ongoing. They’re a big part of our backlog. So we see that still as a real positive and of course chemical influenced more by the gas price than the oil fluctuations.

We also see a good gas utility activity level for us. We also see, while there could be some pressure in MLPs and transmission, we actually see some very good major projects in midstream transmission already in our sights for 2015. And so the biggest impact would be of course upstream drilling – we’ve minimized that with a lower OCTG base.

But I think you’re exactly right. It would impact Canada upstream more relevantly because of the higher costs and the US shale less. We don’t see a major impact to our international business because it’s largely focused on production infrastructure and then refining and chemicals with our valve business there..

That’s a great explanation. Thanks a lot, Andy..

Thanks, Dave..

We’ll now take a question from Mr. Jeff Hammond with KeyBanc Capital Markets..

Hey, good morning guys..

Good morning, Jeff..

Last quarter you talked about kind of taking a more proactive stance and getting customers from this kind of targeted line pipe strategy.

Can you just talk about how that’s progressing and have you started to get some of that other business as that moves forward?.

you see the overall price continues, although Jim mentioned in his comments flattening the last couple of weeks, we see it’s up 3% from the low in February. So from a macro level on line pipe a slight inflation environment, which is good – we felt the back half of ’14 would be stronger from a pricing standpoint.

We’ve made nice progress with broadening the base in midstream. We feel very good about that. We feel extremely good about our competitive position and some of the changes that are happening in some of our competitors. They’re positioning us even stronger to be the leader in midstream, so we like that dynamic going on.

And also the trade case that Jim mentioned – there’s roughly a $350 a ton to $400 a ton difference in ERW line pipe from domestic pricing and from foreign pricing. So when you make a parallel to the OCTG, following that case OCTG prices from the low in February are up 10% on the spot market.

So we’d see a favorable impact if that filing is successful and putting a new floor on ERW line piping would of course, if it’s successful, increase the foreign pricing that’s undercutting the domestic pricing today. And we see that as another macro positive for ERW line pipe.

We see strong demand for DSAW, the large-diameter X grade pipe that we’re the leader in providing. Big pipelines are going for it in 2015, large-diameter pipelines. We see the lead times at some of those DSAW mills extending already into mid- to late-2015.

So strong DSAW, strong seamless pricing, and then with the case coming some improvement in ERW pricing. So there’s a lot of positives both competitively and from a macro level on pricing that we feel good about midstream.

We also went through a period of two years with a lot of changes in our top three customers in midstream and we see the new Williams/Access Midstream, if that merger gets concluded being a real positive for us in ’15 along with increased spending from DCP and PG&E, and also the new Columbia Gas MLPs being formed.

We’re the leader and we own the contract there, and also the new Shell Midstream MLP – all big customers for us that we see as positives..

Okay, great. And then just over the deals, you talked about the four-deal, Stream being the biggest.

Can you talk about how those deals are progressing relative to your plans?.

Yeah. We’re very pleased with the last four acquisitions. Flangefitt added a nice alloy and stainless project capability that we’re really leveraging for the whole international business. Stream and Hyptek in Norway gave us that complete offering in upstream production facilities.

And then MSD combining with our Transmark Singapore – we’re now clearly the larges and leading player in valves in Southeast Asia. So that one’s a homerun for us. We have some short-term headwinds with Stream related to Statoil pulling back on some spending that we’ve seen post acquiring them in January.

The big headlines are on exploration rigs and exploration projects that are being either pushed to the right or shelved. Those have no impact on us because we’re the production MRO business, but we have seen some slowdown in MRO.

And customers like Statoil will make those decisions on a short-term basis but they don’t defer maintenance on offshore production platforms for long so we see that just sliding some to the right. We initially said around $300 million revenue from the Stream acquisition. We see it being around $270 million this year.

So we still feel extremely good about those four acquisitions. .

Okay, thanks guys..

We’ll now take a question from Mr. Matt Duncan with Stephens, Inc. .

Good morning, guys..

Good morning, Matt..

Congrats on a very, very good quarter..

Thank you..

So Andy, I want to look a little bit more at the midstream business and maybe dig in some more on what your market share gains may have been there recently.

Can you maybe parse out how much of the very strong growth you saw there was from new customers that you guys have picked up through this initiative?.

Yeah, Matt. I mean I don’t want to get too granular because we have a lot of business development activities in that area, but clearly we’re broadening our midstream base. Clearly when we added SG&A in line pipe sales in 2012 and 2013 that’s starting to pay dividends. We’re being helped by a little bit higher pricing in line pipe, too.

And we’ve done that and for a good reason. While some of our major MLP midstream customers were slower than we liked in the early half of this year they are now picking up their spending. So it’s a combination of both our major customers getting back to work in the second half of ’14 as we thought they would but also we’re making good penetration.

You’ve got a couple competitive dynamics where other players have both been purchased, major midstream competitors have been purchased over the last couple of years trying to improve on margins. And of course when you try to improve margins on the low-cost provider in this segment it certainly helps us as leader in the segment.

So a lot of dynamics going on in midstream and line pipe sales. We feel very good about our position and I think that’ll continue to, we’ll continue to do very well there..

Okay. And then the second thing from me, and I appreciate that it may be a little bit early to know at this point what customer spending plans are going to look like next year but I’m sure you guys are talking to them.

Is there an oil price at which you think there is a tipping point? Is that even a good way to look at it? And just you’ve been in this business a long time, Andy – as you look at where oil is today, listening to what your customers are telling you today, how should we think about a rig count number and upstream CAPEX plans for next year as your customers are going through this budgeting process?.

Yeah, Matt. First when you look at the gas side, $4.40, kind of maybe $3.50 to $4.00 projections for next year, I think things don’t change much in the mix when you think about oil and gas kind of mix. It’s still going to probably stay on the drill and rig count 80%, 85% oil and 15%, 17% in gas drilling.

So I think that dynamic will stay pretty consistent for next year. So the big swing is on the oil side. Of course $70, $75, in this range I think would definitely result in lower upstream spending, but a lot of our customers are looking at it as a one- or two-quarter, at least what we’re hearing today is a one- or two-quarter impact.

They may slow budgets in the early quarters too and this may be a year again where they increase budgets in the second half of ’15 just like they did here in ’14. But I don’t see dramatic changes in upstream drilling activity unless it goes below $70.

Of course, back in $88, $85 is I think comfortably above the shale cost to produce level so I think that actually is a couple percent positive area. And of course if OPEC acts sometime in the next couple quarters and we get to a higher level I think 2015 has the capability to be even better in the second half.

So we don’t have a keen insight better than anyone else but we certainly have a lot of our customers that have hedged production, I don’t think they’re going to come out with big changes in their CAPEX next year.

And remember, now our top 25 which are all the majors that have the longest view of this space that make up half our revenues, they tend to respond the least to the short-term fluctuations. The real strong one- and two-rig operators are not really our customer base so we tend to be heavily weighted to the majors for that reason..

Sure, very helpful. Thank you, Andy..

Thanks, Matt..

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

Good morning, Andy and Jim, how are you?.

Good, Sam, good morning..

first off, OCTG being up 40%, I think the industry was up somewhere in the 10% to 15% range. Now you’ve been deemphasizing OCTG and you also noted that might be where you might want to continue to deemphasize based on its sensitivity around the rig count and uncertainty about next year.

What’s happening with OCTG and why did that spike so dramatically this quarter?.

Yeah, Sam, as you remember what we’ve done in the OCTG business is focus on our key or some really core customers, and those particular customers have been extremely active. We haven’t seen that strategy change dramatically. So we’ve participated with those large customers as their drilling programs have really picked up over last year..

Yeah, Sam, that’s challenged. You know, Chevron and Marathon, Conoco-Phillips. And the other thing, to just add to Jim’s comment, OCTG pricing moving up 10% after the case was settled is also a positive for us. So better pricing and our major OCTG customers being more active is what drove that. .

around the midstream project pricing, around line pipe and transmission, clearly you’re being considerably more aggressive than your peers – and I’m guessing it might be a result of you thinking that there might be a bundled opportunity around valves and fittings and the such.

Why do you feel that you’re advantaged vis-à-vis your peers in the bundling opportunity? Because at least your number one competitor is deciding against it, it seems..

Yeah, I mean I don’t want to talk too much directly but since you asked the question, a couple things going on. You look at the top three players in this space – it’s us and then I’ll refer to it as the [Old Wilson] midstream business and also Edgen Murray. Now Edgen Murray was bought by Sumitomo.

I would say they’re less aggressive than historically they were as a separate company. I’d say Wilson was always the low-cost supplier in line pipe and midstream, so if they’re going to make their 8% EBITDA targets in 2015 they have to move pricing up in line pipe or deemphasize line pipe – that’s their own internal issue.

And with us, we’ve been the leader in this sector. We’re better at bundling midstream valves and we’re much stronger in midstream valves than either of the two companies I just mentioned. So and we’re also very strong in fittings and flange and the associated projects in midstream. So it is an area of strength for us.

We’ve had some slowdown over the last two years with some of our major customers. We see them picking up in ’15. So it’s not an area by any means we’re deemphasizing – it’s an area that we’re very strong in and we see our ability to bundle better than the two competitors I mentioned clearly..

Very helpful, Andy, thank you. Have a good weekend..

You too..

We’ll now move to Mr. Ryan Merkel with William Blair..

Thanks. I want to ask first about EBITDA leverage which was very strong in the quarter – about 1.6x. You’re sort of guiding to something around 2.0x for Q4.

I’m just wondering is this level of EBITDA leverage, is it sustainable at this kind of 1.5x to 2.0x level? And of course I appreciate sales need to be probably in the mid-single digits or better but just help us think through that..

Yeah, Ryan, they are, and the quarter benefited greatly from the cost-cutting measures that we talked about earlier. You know, in the quarter we got close to a full $4 million worth of savings and when you combine that with the strong revenue growth on our infrastructure you get some very nice incrementals.

We also saw some improvements in our international business during the quarter. It had its highest profit margin levels for the year and probably in some time.

And again, that was a function of some of the actions we’ve taken in Australia specifically, some in Europe but it also had strong revenue growth this quarter at $252 million for our international business..

Okay, great. And then my second question is on gross margins which was a bit of a concern coming out of the last quarter. And it seems at least on an adjusted basis it’s kind of flattened out a bit.

Is that a fair way to think about it? You think that this 19% adjusted is achievable going forward or might there be mor pressure because of the big projects?.

Well, you exactly pointed out kind of one of the headwinds. Now, our margins are influenced by a lot of different things; a lot of products have different margin levels. There’s a lot of mix issues; there’s some geographical issues. But on balance we think 19% plus or minus is a good rate for margins going forward..

Yeah, Ryan, I’ll just add a comment to Jim’s, that we have a lot of focus on that level. And as Jim said we feel very good that that’s a sustainable level..

Great, thanks..

We’ll now move to Mr. Walter Liptak with Global Hunter..

Hi, thanks and congratulations on the quarter. I wanted to ask about just some of the trends. I don’t know if you can give us some monthly data points on the trends in upstream.

Did you see deceleration and how things are going in November? And the downstream looked pretty good – I wonder if you can talk just kind of sequentially and monthly how downstream trended during the quarter? Because it looks like it’s finally starting to see some pickup..

Yeah, let me start from a high level and then Jim will give you the stream information. When I look at this year, of course we had a real slow start in January and February. The market turned for us in March and April, much better.

Since May we’ve done over $500 million in revenue per month for five months in a row through the end of Q3 and just for a recent trend, when you look at the October preliminary revenue it should be the best month we’ve had of all 2014. So certainly there’s a lot of momentum behind our results that’s carrying into Q4.

The rig count actually picked up in October on a recent basis. So a lot of good activity going on still in the current year and a lot of people are still spending the 2014 budget. So from a high level I still feel very good, and of course the great Q3 has carried into Q4 in October. So I’ll let Jim talk more granular on the streams..

Well, for a year-to-date basis we’re up 14%, and 9% of that is organic. And when you look at it in our streams it’s running about low-double digits in the up- and the midstream and the downstream’s around mid-single digits. And that momentum has picked up fairly evenly through those three streams you know, here in Q3.

October appears to be a very good month for us as well. End of the year you typically have some fall-off; you see that in our guidance. Part of that is the fewer number of billing days as well as the holidays, but the momentum and the strength that we’ve seen has been across all three streams including the downstream..

Okay. Is the downstream accelerating you think? I know you said it was even throughout but just a little bit more color on the number that you put up this quarter..

Yeah, the downstream, Q3 is usually a very good quarter for us. There’s a lot of maintenance activity that goes on especially in the US refinery sector, kind of the fall maintenance season. So that will be a little lower in the US refinery in Q4 but US chemical will be higher in Q4 for us so it offsets that..

The other thing I would highlight is the fact, you know, we talked about the backlog and a lot of growth in the backlog is in the downstream – as Andy mentioned, the chemical business.

It’s always difficult to say whether that’ll be in this quarter or the next quarter, but the fact that those projects have been booked and those projects are moving forward we think is very positive for our downstream business..

You know, Walt, to Jim’s point we’re very active with Shell and Chevron, CP Chem and Phillips 66, those are our four major projects that Jim’s referencing in our customer base. They’re all downstream projects and really aren’t tied to any short-term oil price change..

Okay great, sounds good.

And then just a question on acquisitions with the lower energy prices – does that have any impact on closing deals or valuations?.

Yeah, as we talked about earlier we’re very pleased with the four deals we got done in the first half of 2014. We’ve been integrating those businesses and our focus now is to get higher earnings out of our international business from the platform we’ve built over the last three years. So I wouldn’t expect any acquisitions for the rest of 2014.

And the valuations are very high right now given the expectations because activity’s been really good in ’14, so we’re not going to stretch on multiples out of our historic range. So I don’t see us being very active in acquisitions in the next couple quarters and going into early 2015.

Certainly if there’s a sustained oil price levels that is positive as far as lowering people’s valuation expectations. I would see us more active in the second half of ’15 based on that..

Okay, sounds good. Thank you..

Thank you..

We’ll now take a question from William Bremer with Maxim Group..

Good morning, gentlemen..

Good morning, Bill..

Many of my questions have been answered already.

Can you go a little more granular in terms of your dialog of the three, four, whether it’s a renewal or new customers – I’m assuming that’s more in terms of the global procurement discussions – and how that is ongoing?.

Yeah, Bill. Things on that front, that’s our strength – our MRO contract renewals, adding scope; and then adding scope to recent wins that we’ve had on a global basis – adding the projects through the MRO contract. One of the metrics I follow the closest is on our MRO renewals.

And we haven’t talked about this yet on this call, so when I look at our MRO contracts that came up for renewal in 2014 through Q3, we’ve renewed $760 million in revenues. So that’s one I follow very closely. The other aspect I follow very closely is the incremental MRO revenues on top of the renewals of the base business.

So this is where we’re adding scope, geographically or product lines; and it’s market share gains because we’re adding scope without bidding to our current contracts.

We’ve added $173 million in new MRO capacity in our contracts with the renewals we’ve already won, and in addition to that we’ve added over $700 million in new project wins – and a big part of that is reflected in our backlog that Jim’s been talking about. So those are what are key to me, is are we holding onto our MRO contracts? Definitely.

Are we adding more scope into the contracts? Yes. And are we winning in our goals of projects, targeted projects for those major customers? And yes, we’re being successful there, too..

Nicely done, nicely done. And then can we get a little more granular on the downstream here? You voiced chemical sort of offsetting a little bit of refinery.

As you’re looking through now how much of this is new build versus say MRO? I mean there’s so many slated projects in that Gulf coming, just give us a little more sense on what you’re seeing there..

Yeah, the growth will mostly be in the new builds for us. We have a nice, steady business. Of course we’re the clear leader in downstream MRO and refining in the US. So we have a nice basis there. I wouldn’t say it’s going to be booming – more like this year, a low-single digits area. But I still think it’ll be okay for us in 2015.

The refinery expansions to handle more of this light crude production from the US, that and light build will be very good for us. And the chemicals, we have several good years of chemical expansion and facility work in both Louisiana and Texas for us. So that’s really the bright spot for us in downstream.

They’re challenged in Europe downstream and they’ve been challenged in Australia downstream, but positives in the US..

Great, gentlemen, thank you..

We’ll now move to Mr. Mark Douglass with Longbow Research..

Hi, good morning gentlemen..

Good morning..

Following up on the MRO conversation, what is your relative exposure of MRO versus your projects, new installs, capacity expansion by market and geography?.

Yeah, Mark, at a high level the split between what we’d call capital-expenditure driven spending – our projects as you describe it versus operating expenses – will typically be about 60% capital/40% operating expense.

And by stream it varies, and if you started with downstream we’ll typically be 80% operating expense as the traditional MRO business that we have; the other 20% the projects. Midstream is reverse. In the midstream sector the work we’re seeing today is primarily project-driven. It’s 75%, 80%. And then in upstream you have a combination.

So you’ll probably have at least in today’s market as you’re still building out a lot of infrastructure, connecting wells on this new drilling, you’re going to have a slight preference towards the capital side of the equation. Geographically it varies widely just depending on the project or the area, but it generally will follow those same mixes..

Okay, that’s very helpful. And Jim, on the adjusted gross margin, you think it’s going to be pretty level going forward and sustainable. What needs to happen in your view in order to inch higher into the mid-19s or even approach 20, which I think you’ve seen in the past at times..

Yeah, we have. One of the things when we’ve experienced those types of margins, we had a much higher pricing inflation component, particularly on our carbon pipe products. That is one of the things that we would have to see.

As we grow our international business and the mix, that’s higher-margin business so that would tend to bring up the overall company average. But then finally the thing we do every day and we continue to do to improve margins is work with supplier base, work on the cost side, work with our customers to try to add more value and get paid for it.

So it’s a lot of those little things..

Is pricing the biggest mover or is a lot of it what you can do to really be aggressive?.

You’re not going to see just huge price increases in the products that we have subject to some big inflation in carbon because of the nature of the products and the services we do. So it’s winning at the everyday level on a transaction-by-transaction, customer-by-customer basis..

Mark, the biggest impact is mix changes – so more valves, more stainless, more fittings for us is a positive; and as Jim said more international. Those have the biggest impact from a positive mix standpoint on pricing. That’s just a follow-up..

Okay, thank you..

We’ll now take a question from Vebs Vaishnav with Bank of America..

Hey, good morning and congratulations on a good quarter..

Thank you, Vebs..

Hey Andy. So as I think about the gross margins which are around 19% today and then think about the highs that we got in 2012 on EBIT margins – so gross margins were very similar back in 2012.

Now we are focused on SG&A reduction, so my question is can we get back to those 7.0%, 7.5% kind of operating margin levels in 2015 assuming activity holds up? Or do we need something else?.

Yeah Vebs, if you’re talking about our operating margin, the 7.0%, 7.5% we’ll still need some more revenue but we’ll continue to get the benefits of the cost savings, work on the margins. But to get to those levels and to get a little bit more leverage on the fixed costs we’ll need some more revenue..

Okay. And Andy, you mentioned international revenues will be more resilient. Typically at least I was thinking about international revenue growth sequential on an organic basis somewhere around double digits.

Does Norway present a risk to that double-digit assumption for 2015 for international revenues?.

No Vebs, I think we’re going to be fine in Norway for ’15. They actually pushed we think roughly $20 million to $30 million of revenue we would have seen this year and maintenance projects into next year.

So you know, we’re not an exploration company, we’re not a rig equipment company exposure, so it is really MRO-based – both production facilities from now Norway and the UK. And the Norway business is really helping us in our UK sector where we weren’t a strong offshore, upstream company prior to that acquisition.

So the little bit of softness we saw this year in Statoil spending on maintenance we had more than pickup in the UK sector and we see that continuing into next year. Now we’re doing well and just to that point, we’ve done a lot in this last year and a half. We have now both the Bradford and the Stavanger regional centers supporting the UK and Norway.

We just opened up a new Rotterdam regional center in Western Europe, so that will help growth in pipe, flange and fitting for our Netherlands, our Germany, our Italy and our France and Belgium businesses. So we’re actually adding capacity and capability there that we didn’t have this year, so that’ll offset any short-term declines in offshore.

And then we’ve opened up recently a new center in South Korea. We’ve opened up a new Jebel Ali RDC and our Iraq business is growing; we feel very good about that. Our Kazakhstan business is growing. And then Singapore and Southeast Asia along with the new South Korea center and new Thailand contracts we have there, we feel very good about that.

So Australia is stabilized. We expect it to be an improved earnings year for Australia next year. A little headwind in Norway from offshore but offset by a lot of other actions we’ve taken to expand internationally..

Okay. And I guess taking it from another way, if we do see $70, $75 barrels WTI world, what kind of decrementals should we think about in that scenario? I’m guessing at $70, $75 at WTI there could be 4% to 5% rig count reduction.

Obviously we are not talking about 2008, 2009, but any help with thinking about how we should think about incrementals or decrementals in such a scenario would be helpful..

Yeah Vebs, it’s hard because our view is it’s not going to be sustained – that pricing level, at that level for a long period of time. But I think your projection on impact to primarily the US and Canada upstream only, I would think you’re pretty spot on in that estimate..

Okay. That’s all from me and again, congratulations on a good quarter, thank you..

Thank you, Vebs..

We’ll now move to Mr. Robert Norfleet with Alembic Global. .

Hi guys, this is actually Nick Chen for Rob this morning. Thanks for taking our question and congratulations on a good quarter..

Thanks, Nick..

Great.

I was hoping, you touched on it a little bit earlier but can you just give us a little more detail and an update on backlog mix as it relates to valves versus line pipe?.

Yeah, the increase that we’ve seen in the backlog has been predominantly in the US, and those two product categories that you mentioned – line pipe or valves – have two of the biggest increases. So those are exactly the product lines where we’re seeing the higher demand..

Great.

And can you also just give us a quick update on any frame agreement efforts and just flow through of prior ones?.

Yeah, I mean Nick, the numbers I gave on the MRO renewals, those are all our frame agreements. So strong renewal, right at $760 million and incremental of $173 million. So from a framework agreement we feel very good, and some of that incremental and some of those renewals are the gas utility customers we’ve made reference to in our opening comments.

We continue to grow with the Shell global contract. We continue to add and ramp up on the Chevron contract. We’re very busy now in Kazakhstan and Thailand and Australia for Chevron – that didn’t exist a year ago. So that’s all been positive and continues to be a strength for us..

Thanks guys. That’s really helpful, have a great day..

Thank you..

We’ll now move to Mr. Brent Rakers with Thompson Research Group..

Yes, good morning. I wanted to follow up on some of the gross margin questions from earlier. It seems like within the tubular category, whether it be competitive pressures, pricing, or mix there’s been a lot of unevenness in the gross margin in that category.

Can you maybe comment on how that showed up in Q3?.

Yeah, the margins in our carbon pipe, whether it’s OCTG or line pipe, held up very well compared to where we were in Q2. So not a whole lot of change there. I would say that we’ve seen some slight uptick in the OCTG just from the pricing firmness that’s out there, so that’s been helpful.

But in both of those product categories the margins have held up very well..

you talked earlier about how the top 25 customers are roughly half of revenues and I assume that’s across all streams. But I wondered if you had that kind of color specific to the top 25 just within the upstream portion of your business..

I don’t know that we have that in front of us but you’re still going to see those top 25 customers still make up 45%, 50% of that revenue in the upstream business because that’s where so many of them are operating. So I think that’s still a pretty good number for the upstream business..

Okay, thanks a lot..

We’ll now move to Mr. Nick Prendergast with BB&T Capital Markets..

Hi, good morning. I just had a quick question on the line pipe anti-dumping complaint. Obviously that was filed just a few weeks ago.

Do you have any idea when you would expect at least a preliminary decision on that?.

Yeah, these usually take around six to eight months for the preliminary decision which should be Q1, Q2 – late Q1, maybe Q2.

The final decision usually is a year or more out but it changes behavior after the initial decision, because once the initial decision is out there if anybody keeps importing at the low rates it goes back – they have to pay the higher rate proactively back.

So the initial ruling is the most important date and then of course the final ruling sometimes even increases. So it could impact our business for sure on a positive note if successful in the second half of ’15, but for all of ’16. assuming it would go through it would have a positive base for us in the full year of ’16..

Right. So you just answered my second question which is when they actually change their behavior, and that’s on the preliminary decision. So I guess you had mentioned that the pricing differential on the line pipe, I think you had said the importers are about $350 a ton to $400 a ton cheaper.

What is kind of the average domestic ton price? What’s the percentage delta on that if they’re to kind of move up to the domestic producers?.

Yeah, on just ERW I’m talking about now current pricing in the spot market is around $1350 a ton for domestic and $950 for import, foreign..

Got it. Okay, well that’s about it. I appreciate that..

Thank you..

And this concludes our call. I would like to hand it back to Monica Shafer for final comments..

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

And ladies and gentlemen, this concludes the MRC Global Q3 Earnings Conference Call. If you’d like to listen to a replay of today’s conference please dial 1-719-457-0820 and enter passcode 5872996. Again that number is 719-457-0820 and the passcode is 5872996. We would like to thank you for your participation. You may now disconnect..