Monika Broughton - Investor Relations Andrew Lane - Chairman, President and Chief Executive Officer Jim Braun - Executive Vice President and Chief Financial Officer.

Matt Duncan - Stephens James West - Evercore David Manthey - Robert W Baird Brent Rakers - Thompson Research Jeff Hammond - KeyBanc Capital Markets William Bremer - Maxim Group Ryan Merkel - William Blair Walter Liptak - Global Hunter.

Greeting, and welcome to MRC Global’s First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host Monika Broughton, Investor Relations. Thank you, you may begin..

Thank you David and good morning everyone. Welcome to the MRC Global first quarter 2015 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.

There will be a replay of today’s call available by webcast on our website mrcglobal.com, as well as by phone until May 15, 2015. The dial-in information is in yesterday’s release. Later today, we expect to file the first quarter 2015 Form 10-Q and it will also be available on our website.

Please note that the information reported on this call speaks as of only today, May 1, 2015, and therefore you’re advised that the information may no longer be accurate as of the time of 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 U.S.

federal securities laws. These forward-looking statements reflect the current views of the management of MRC Global. However, MRC Global’s actual results could differ materially from those expressed today. You are encouraged to read the Company’s SEC Filings. And now, I would like to turn the call over to our CEO, Mr. Andrew Lane..

Thanks Monika. Good morning and thank you for joining us today on our first quarter 2015 earnings call and for your interest in MRC Global. I’ll begin with a discussion of the quarters highlights before turning it over to Jim for a detailed financial discussion and I’ll close with our current outlook.

In line with what was communicated at year end our first quarter revenue came in at $1.29 billion, down 1% from the same quarter last year, and down 15% sequentially. Net income for the quarter was $29 million or $0.28 per diluted share, compared to $0.23 per diluted share a year ago.

The business generated cash from operations of $116 million this quarter, and we now expect to generate $350 million to $450 million of cash from operations this year. This is up $100 million from our prior expectations. After capital expenditures we expect to pay down debt by $300 million to $400 million.

In the first quarter 2015, we paid down debt by $80 million and cash increased $24 million. Our current liquidity at the end of the quarter was $436 million. We will continue to focus on generating cash flow from operations and reducing debt. A major headwind in the first quarter was the strength of the U.S. dollar.

The negative impact to revenue from exchange rates was $46 million in the first quarter of 2015, as compared to last year’s first quarter. We expect the annual impact to be well over $100 million. We are seeing the benefit from the cost saving measures we have taken. Since the peak of last year, we have reduced our headcount by approximately 500.

We expect an additional reduction in headcount of 100, bringing our total reductions to 600 or 12% from peak employment in 2014. As a result, adjusted EBITDA margins were 6.7% for the first quarter 2015, compared to 6.4% in the first quarter of 2014.

We continue to engage with our customers to help them operate more cost efficiently during these challenging times. We have seen some margin pressure in certain product lines, but overall margins have held up reasonably well as evidenced by the quarter's adjusted gross profit of 18.6%.

We will continue to work with customers on implementing solutions that are mutually beneficial. Even though the oil and gas market has been challenging, we continue to gain new business. As previously announced, we signed an integrated supply agreement with California Resources Corporation, which began in April 1.

We estimate this could yield $25 million to $30 million in revenue in 2015, an increase over time to an estimated $50 million to $70 million per year. In addition, we were recently awarded the new integrated supply work with Peoples Gas in Florida and renewed our integrated supply agreement with New Mexico gas. Both are subsidiaries of TECO Energy.

We will be opening a new branch in Lakeland, Florida to service Peoples Gas and we expect combined annual revenue to be $16 million to $18 million a year. Operationally, we are continuing to evaluate the current forecast of energy markets, as we are committed to sizing the business appropriately.

We have consolidated or closed six branches in Canada and the U.S. in the first quarter and have several more branches in North America under review for consolidation in regions where the upstream business has slowed considerably.

While we continue to do thorough reviews for branch openings and closings, expansions, and consolidations in the ordinary course of business, these latest actions are in response to current weaker upstream market conditions.

Our hub and spoke replenishment model was designed to have this flexibility as it allows to us to relocate, consolidate, open or close branches in response to marketing conditions without changing the major backbone of our distribution system. Finally as you may have read, we recently had some changes to our Board of Directors.

First, Peter Boylan, who served the last several years on our board decided not to stand for election to allow additional time to focus in his new role as co-founder, Chairman President, and CEO of Cypress Energy. He has been a valued board member and we wish him well in his endeavors.

We are also proud to have recently announced Barbara Duganier joining our Board of Directors. She has many years of experience in the energy industry, as well as strategic functions. Barbara also serves as a director on Buckeye Partners, L.P a midstream company and has held management positions at Accenture and Author Andersen.

She is a welcome addition to our board. So with that let me turn the call over to Jim to review our financial results..

Thanks Andrew and good morning everyone. Total revenues for the first quarter of 2015 were $1.292 billion which were down 1% from the first quarter of last year, and 15% lower was sequentially. U.S. revenues were $972 million in the quarter, up 2.5% from the first quarter of last year.

The improvement over the prior year reflected a $63 million increase in our midstream sector, partially offset by a $41 million decline in the upstream sector. If you recall, the midstream business experienced a weak first quarter last year, due to adverse weather conditions and the timing of orders. The 10% decline in the U.S.

upstream business was due to lower oil and gas activity, however this was favorable relative to the market as the average rig count was down 21% over the same period. Sequentially the U.S. segment sales were down from the fourth quarter by $186 million or 16% while U.S.

segment upstream sales were down $126 million or 26% in line with the 27% decline in the average U.S. rig count. Canadian revenues were $119 million in the first quarter, down $47 million or 28% from the first quarter of last year due primarily to reduced customer spending in the upstream sector.

$15 million of the decline was the result of the 11% decline in the Canadian dollar relative to the U.S. dollar. And sequentially, the Canadian segment sales were down $36 million or 23% from the fourth quarter of 2014, in line with the Canadian rig count which was down 23% over the same period.

Internationally, first quarter revenues were $201 million, up almost $10 million or 5% from a year ago. The increase was the result of the acquisitions of MSD and Hypteck which added $16 million in incremental revenue in the first quarter of 2015. This was offset by the impact of the decline in the foreign currencies in the areas where we operate.

Excluding the foreign currency impact, the international segment reflected organic growth of 13% due to project work in Europe and midstream pipe sales in Australia. Sequentially, the international segment was up 1% from the fourth quarter. And now turning to our results based on end market sectors.

In the upstream sector, first quarter sales decreased 14% from the same quarter last year to $547 million. This decrease was driven by lower oil and gas drilling activity, the biggest impact was in Canada where our upstream business declined $53 million or 37% including the impact of foreign currency.

Excluding the impact of foreign currency, the Canadian decline was $41 million or 29%. Midstream sector sales were $380 million in the first quarter of 2015, an increase of 24% from 2014. Compared to the first quarter last year both the transmission and the gas utility sectors were higher by 36% and 7% respectively.

The higher sales were due to the impact of weaker sales in the first quarter of last year from inclement weather, better project backlog going into 2015 in the previous year and increased gas utility and transmission customer spending.

In the downstream sector, first quarter 2015 revenues increased by 1% to $366 million as compared to the first quarter of 2014. The U.S. downstream experienced modest growth as the results were relatively impact by the strike of 13 U.S. refineries.

Canada experienced growth and there was also some benefit from the acquisitions, however, was largely offset by a weaker foreign currency and lower sales in our international segment.

Turning to revenue by product class, our energy carbon steel tubular product sales were $372 million during the first quarter of 2015 with line pipe sales of $266 million and OCTG sales of $106 million.

Overall sales from this product class increased 10% in the first quarter from the same quarter a year ago including a $59 million or 28% increase in line pipe sales, offset by a $25 million or 19% decrease in OCTG.

For the first quarter of 2015, 49% of our line pipe sales were within our midstream sector while upstream and downstream made up 27% and 24% respectively. Sales of valves, fittings, flanges and other products were $921 million in the first quarter, a 5% decrease from the first quarter of 2014. Sales of valves were down 4% during the quarter.

The organic decline was 8% offset by growth of 4% from acquisitions. Sales from fittings and flanges were down 7% from the first quarter last year, and other products were down 4% from the quarter a year ago.

Turning to margins, the gross profit percentage declined 80 basis points to 17% in the first quarter of 2015 from 17.8% in the first quarter of last year. The decrease was due to product mix changes and margin pressure in certain product categories. In the quarter, we experienced a higher mix of lower margin line pipe sales.

Line pipe sales made up 21% of sales in 2015 as compared to 16% in the first quarter of last year. Pricing pressure was a result of the market slowdown, and the increase in project related work and lower relative stock sales also contributed to lower margins.

A LIFO benefit of $200,000 was recorded in the first quarter of 2015 as compared to $1.3 million of expense in the first quarter of 2014. Sequentially, gross profit percentage improved 60 basis points from the fourth quarter of last year.

Our 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 decreased to 18.6% in the first quarter of 2015 from 19.5% in the first quarter of 2014.

On a sequential basis, the first quarter of 2015 adjusted gross profit margin percentage is 50 basis points higher than the fourth quarter of 2014. SG&A cost for the first quarter 2015 were $159 million or 12.3% of sales, a decrease of $12 million from $171 million or 13.1% of sales in the first quarter 2014.

We incurred a pre-tax severance charge of $1.8 million in the first quarter this year related to cost saving initiatives but no such charges were incurred in the same quarter last year.

SG&A in 2015 also includes $2.9 million related to our MSD and Hypteck acquisitions, taking both the severance charge and acquisitions into account, SG&A decreased approximately $17 million of which $9 million was due to weaker foreign currencies and the remaining decrease was a result of the cost reduction initiatives we’ve executed.

Operating income for the first quarter 2015 was $60 million, flat with first quarter of last year. The operating margin was 4.7% for the first quarter of 2015, which was also flat with last year. This is a function of lower gross profit dollars offset by lower SG&A expenses, as described earlier.

Our interest expense totaled $14.6 million in the first quarter of 2015, which was modestly lower than the $15.1 million in the first quarter of 2014. This was due to lower average debt balances. Adjusted EBITDA was up 3% to $87 million in the first quarter of 2015 versus $84 million a year ago.

Adjusted EBITDA margins increased to 6.7% from 6.4% a year ago. Our operations generated cash of $160 million in the first quarter of 2015. Our working capital at March 31, 2015, was $1,376 million, 62 million less than it was at December 31, 2014, reflective primarily of lower receivables levels.

Our debt outstanding at March 31, 2015 was $1,373 million compared to $1,454 million at the end of 2014, a decrease of $80 million. Our net debt declined to $105 million as our cash balances increased over last quarter due to the timing of customer payments.

Our leverage ratio at March 31, 2015 was 3.1 times and excess availability as defined in our global ABL agreement was $386 million at the end of the first quarter 2015. As we mentioned in our last call, we have a low-cost covenant-light debt structure with favorable terms that should serve us well in this challenging market.

Cash used in investing activities totaled $7 million in the first quarter primarily from capital expenditures. There has been no change to our expectations around capital expenditures since last quarter. We expect to spend $43 million this year.

The increase over historic levels relates to the implementation of a new ERP system in certain of our regions of the international segment and we expect to see capitalization of project cost beginning in the second quarter. And now, I’ll turn it back to Andrew for his closing comments..

Thanks, Jim. We have updated our views on commodities for the remainder of the year, but it isn’t substantially different from where we were a couple of months ago when we reported. We now expect that West Texas Intermediate oil will trade around $50 to $60 per barrel, Brent at $55 to $65, and U.S. natural gas around $225 to $325 per mcf.

We also believe 2015 capital spending in North America should be down 35% with Canada impacted the most due to higher production and transportation cost. International spending is expected to be 10% to 20% lower for 2015 compared to 2014.

We also expect a decline in rig count of about 1,000 rigs from the peak in 2014, which is 100 to 200 more than we thought just a couple of months ago when we reported. Our upstream business will be impacted the most and will track our customers’ lower capital budgets.

While the upstream business has some challenges ahead and that is where most of the discussion tends to gravitate, it is important to recognize the other half of our business, which is relatively stable and less impacted by oil prices.

There are several midstream projects still going forward and our gas utility business continues to grow as we gain new customers. So, while the lower upstream spending trends are expected to affect a portion of our midstream business, the overall impact to bit midstream is expected to be much less than what we expect in the upstream.

Finally, we expect the downstream business to be impacted more modestly since it is operating expense driven and the capital projects are longer term in nature. Our backlog was $918 million at the end of the first quarter this year, which is 16% less than it was at year-end and 27% less than the record high level in September 2014.

It is 11% less than what it was for the same quarter a year ago. The first quarter is expected to be the best quarter of the year as the upstream activity levels continue to decline. We have not yet seen stabilization in the rig count or reduced oil production. Until that time, we don’t expect a marked improvement in the upstream market.

Therefore, we continue to expect the first half of 2015 to be stronger than the back of the year. Despite this uncertain market outlook, we will remain focused on what we can control, executing our long-term strategy, defending and taking market share, generating cash from operations, and deleveraging the balance sheet.

So with that, we will now take your questions.

Operator?.

Thank you. [Operator Instructions] Our first question is from Matt Duncan from Stephens. Please proceed with your question..

Good morning, guys, and good job on a tough environment this quarter..

Good morning, Matt. Thank you..

So, Andy, I want to start by talking about some of the market share shifts that we’ve seen. You talked about a couple of smaller agreements, but I think you had a couple of larger wins recently too.

I believe one was MarkWest and the other one was an upstream win in California that I know you guys haven’t said, but it looks like it’s probably accidental.

Can you talk about the annual impact on revenues of those wins both in the current environment and in a more normalized environment?.

Yes, Matt, for sure. Okay, so the recent wins since December of 2014, we had a nice win with MarkWest in – that’s a midstream eastern United States operator. I would say that one tend to be around $30 million this year in 2015. On a normal year spending, at the levels of the last three years, it’s a $50 million to $70 million contract.

We’ve also – the win in California was California Resources Corporation, which is, as you said, a lot of people still refer to [indiscernible]. That was a nice MRO win also for us. And the MarkWest was five years. The California Resources Corporation is three years.

That’s an integrated supply agreement, which adds to our significant footprint we have in California. And then we renewed the Marathon contract for five more years, picked up a smaller Statoil [indiscernible] contract and then we’ve mentioned the TECO Energy, two smaller contracts that we picked up in Florida and New Mexico.

So I’m very pleased with our competitiveness in this down market. We continue to do very well and some of those contract opportunities are coming to us because we have a lot of positive momentum in the market and a high level of customer service and I think a lot of customers are recognizing that.

And then, we see several other opportunities ahead of us in the coming quarters..

Okay. And so, net-net, it sounds like those are adding, call it, $100-ish million to this year and maybe closer to $200 million in a more normal environment.

Is that a fair characterization if you add them all up?.

Yes it is..

Okay.

Next how should we think about the 2Q relative to the first quarter, I know it’s tough to really look into that crystal ball, but obviously rig count fell pretty sharply through the 1Q, so any help you can give us on kind of dialing in roughly what the sequential decline ought to be 2Q versus 1Q would be helpful?.

Your Matt it’s going to be down and largely because of the upstream activity you mentioned, the rig count drop, we are an infrastructure company not a direct rig equipment company. So, as we've mentioned on previous calls our infrastructure spend usually lags at rig count changes by a quarter.

So, I would just characterize it in general terms you know in April was another strong we just close the month preliminary, April was another strong month for us comparable to the first quarter run rate so that's always good to start the quarter, but we will see some impact later in the quarter, primarily from the U.S.

upstream market and you will see the seasonal impact in the second quarter from Canadian breakup that all companies get impacted. So Canada will be down sequentially from a level that was already significantly down from a five-year average. So, you would see that impact and I would characterize it in kind of the 5% to 10% sequential range..

Okay, so the total impact is down 5% to 10%, all right that's helpful.

And then lastly if I may just on cash flow you know last quarter you guys [indiscernible] $200 million to $300 million of free cash flow, now it is $300 million to $400 million, Jim is that really a function of the pretty strong collections you have guys had this quarter with the big drop in accounts receivable or is it something else may be above and beyond, which you had already expected and can you walk us through that $300 million to $400 million of free cash flow.

How much of that is an inventory drawdown versus other things?.

No, you are right Matt. We had a big draw, big pull down in receivables, which helped give us some confidence, but as we also looked at the business and we looked at our inventory levels we’re looking to pull those down even more significantly.

So between now and the end of the year the big change which you will see, or the big generation of cash will be from aggressive pull down of inventory..

Okay so looks like it's got to be $200 million plus to get into that range?.

Yes it is $200 million to $250 million plus to get there..

Thanks guys..

Matt it is $350 million to $450 million on cash flow from ops and $300 million to $400 million debt pay down..

Right. Okay, great. Good job guys, thanks..

Our next question is from James West of Evercore..

Good morning Andy, good morning Jim..

Good morning James..

Just a follow-up on that inventory question how should we think about that pull down of inventory as we go through the year, is there going to be back half loaded or do you think you can flush this out in the second quarter?.

Well you won't see a big drop, but you will see a drop in the second quarter and you know essentially just a very small drop in the, flat to small drop in the first quarter, that reflects the strong last half of 2014 we had and a decent first quarter.

So you will see a drop in inventory second quarter, more significant in third and through the fourth, but we are confident in that. We moved what's really different this cycle, we have a fully global centralized procurement function and we’ve responded really quickly from the supply chain side.

So, I like where we are, I like the plans we got detailed, inventory reduction plans with a decrease in activity, and so as Jim said $200 million to $250 million out of that inventory you should start seeing a good chunk of that in the second quarter..

Okay, great.

And then on the midstream or the downstream businesses have you adjusted your outlook at all for the declines that we're going to see there or are you still thinking obviously this is going to be more moderate than the rig count decline or you still thinking the same numbers you forecast last quarter?.

Yes, I mean I would say our thinking on midstream, let's start there, is the same maybe a little bit more positive, I think we are still feel the lime pipe deflation would be around 10% in that sector which is a headwind, but volume is good and so we're seeing as you would expect a decrease in the smaller diameter gathering infrastructure as it is related to the less oil will completion, but where we mentioned at the last call and we still feel confident that there is a number of projects on the gas side and also on the NGL side that are going forward and so it is infrastructure spend in the transmission side for us is a really positive on the natural gas, a little bit less, but still positive on the NGL and then down in the oil.

So, overall I would say [indiscernible] are going to be a little bit stronger than what we thought and the 10% deflation we feel pretty confident on that. On the gas utility side, I would say we are more bullish on that. That's held up nicely and with the new contract wins, I think that's more of a bright spot for us because it's gas driven.

On downstream, we were up 1% globally year-on-year that's kind of in-line with what we said, except we would have been up a couple percent more, except for the US strikes allowed the Spring turnarounds that we normally would have seen, some activity in March, didn't happen this year because of the strike environment, and so those turnarounds got pushed to the fall and we will see what happens to be, will either have a big fall turnaround season combined with the delays from the Spring or some of that might get pushed into 2016, but sequentially we were up 7%.

So we feel as we said on previous, we feel good about downstream even in this environment, and I think as you've seen a lot of our major customers their downstream results have been very good compared to the upstream reductions. So we feel good about refining even better about chemicals. So those are the bright spots even in this tough end market..

Got you. Just one last one from me.

On the midstream side, can you remind us how much of that business is line pipe?.

Within the midstream section, yeah about half..

Right..

I think 47% to 50% right in there..

Right. Okay, perfect. Great, thanks guys..

Our next question is from David Manthey from Robert W Baird..

Hi, good morning guys..

Good morning Dave..

First of on S&A as you continue to cut headcount, I would imagine we will continue to see your operating expenses decline through the year, but I’m trying to gauge it in terms of the diminishing returns on that. It sounds like if you’ve already cut 500, you have another 100 to go, you’ve already closed six locations, some more coming.

I guess the FX is probably the impact lessening going forward and you mentioned the ERP cost starting up.

So as we look forward, should we expect SG&A absolute dollar to continue to decline at a moderating pace than, is that the way to think about it?.

Yes we will see a little bit more benefit from the headcount reductions. That will be offset to some degree by some of the ERP cost that we’re going to be including, but as we think about this we think something in the 160 range is relatively good for planning purposes..

Okay.

And then from the sound of what you talked about Andrew earlier of the first of being better than the second half, it sounds like you are thinking that things would bottom probably in the second half or in 2016 and just correct me if I’m wrong on that and second if you can just give us an idea of what you are thinking about in terms of the second half versus the first half in terms of price and volume, I mean anything granular now?.

Okay Dave. Yes, I do think the rig count, primarily the U.S. rig count will drop early in the third quarter. I think that's where we see the bottom, and I think many others are predicting late second quarter early third quarter. So, I think that it stabilizes some on the upstream side of the event.

I don't expect a dramatic change from the first half to the second half. So, if anyone is predicting that that's not how we see it, but we do see it lower than the first half, just from the, primarily from the U.S. upstream business only. No huge change across the year in our international business.

We’d see the downstream and midstream being pretty stable through the year. So, yes the biggest change would be just in the upstream decline in the second half due to the lower rig count level that we think bombs in third quarter and maybe stays flat there through the fourth quarter..

Great, thank you very much..

Our next question is from Jeff Hammond with KeyBanc Capital Markets. My apologies, it’s Brent Rakers from Thompson Research. Please go ahead sir..

Yes. Good morning. I was hoping you could maybe provide a little bit more color on U.S. upstream in the quarter. Obviously as you said, you fairly significantly outperformed the rig count in the first quarter.

Maybe talk about that, that the share gain difference with possibly where your products are consumed, maybe a lag time affect there and what the disconnect might be?.

Yeah, Brent. I don’t think it’s too disconnected. I mean our products are primarily production facility infrastructure, not direct rig equipment. And so what is most important to us is the number of well completions that are done and so you see a much closer tie with our upstream revenues in the U.S. to the well completion.

So I think even though the rig count was more significant, I think you can look at the number of well completions that were done in the first quarter down 16% and that ties more closely to the decline in our U.S. revenues. So that’s a more important metric for us Brent..

And then just I guess as a follow-up with that, do you think that disconnect reflects new customer wins or that disconnect may be as your customer mix being more of the majors, more of the integrators, maybe reducing their drilling less than some of the smaller players..

Yeah, Brent. You are right, it’s the latter. Our customer bases make the IOCs while they are reducing their upstream spending CapEx, it’s a lot more moderate than some of the smaller operators. So the big players in upstream for us are the large independent in the IOCs and that group has come down at a much more moderate level.

So you are right on that point, it’s really the customer mix that we have that makes up our upstream business, it’s down but that’s what more moderate than the overall market..

Great. And then just final question, within midstream if you could maybe update us on your progress with some of the share gain initiative surrounding line pipe and maybe some of those 26 to 100 size customers out there..

Yeah, Brent. And that’s a big part of our improved outlook on the midstream. The gas and NGL are stronger than we saw at the beginning of the year. We will be in weaker, but when you look at the mix, we started the second quarter of 2014 to broaden our customer base in midstream. We had good progress on that.

We are very pleased now in the down overall spending market to have a much broader customer base this year than we had at this same time last year in midstream. And so that is part of why we had such a good quarter in the first quarter, it’s why our outlook in midstream has improved some.

We have a much broader base and also the Access Midstream and Williams combination was completed last year. And so the one Williams going forward now also brings solidifies our midstream business. Columbia gas spinning off from [indiscernible] (37:35) is a major midstream customer for us.

That actually has an improved CapEx spending as a separate company. PG&E and DCP Midstream, all with good programs that we can see for 2015 and 2016 a little bit more visibility than we had at the first quarter of 2014. So all those factors, our main customer base have solidified and we have broadened the customer group are positives for us..

Great. Thank you..

Our next question is from Jeff Hammond with KeyBanc Capital Markets. Please go ahead sir..

Hi, good morning guys..

Hi, Jeff..

Maybe just, you talked about some areas of deflation.

Can you just talk about how deflation in some of the product categories are coming in relative to how you [indiscernible]?.

Yeah, Jeff. I was - it hasn’t changed much from a couple of months ago when we talked about it. Our view today is the largest impact is in carbon pipe. We see line pipe deflation around 10% this year and we see OCTG around 15% and much smaller deflationary impact of low single digits on the remaining products that we provide.

So in this environment where you are going to have pressure on carbon pipe especially in OCTG with a lower demand, with a lower rate count, but our view on the remaining segments of the business still is where we were.

As we get into these pricing discussions with customers, we look first to add product lines, add scope to the contracts or add terms to the contract in longer-term so that we come out of this cycle with a broader product contract position or longer terms on our framework agreement.

So those are the things we talk to them about as we talk about pricing in this environment. It’s all about building a better base when the cycle turns for us..

Okay, great. And then just coming back to the upstream decline rate, you talked about a number of terms kind of where rig count falls out. What you think that the CapEx spend is going to be 35% and then kind of a correlation of the well completion.

But if you tie all that together, I am just trying to get a better sense of how much do you think your business is down relative to the down 35% CapEx or do you have an expectation for how much well completions ultimately are down for the year to kind of better frame your upstream growth rate..

By far it’s the hardest thing to predict at this point. I mean we feel like the rate count is going to bottom here, late in the second quarter, early third quarter but there is a lot of views around that. So it is a difficult projection, we feel much more confident projecting the midstream and downstream outcomes for the year at this point.

But we will be less than the impact on our upstream overall revenues will be less than the overall CapEx decrease, that’s I think we’ve consistently proven that.

It will be more closely tied to a number of completions and the problem we are projecting there at this point is, there are lot of wells being drilled and uncompleted and that’s building a backlog over these types of wells, and we won’t see the revenues on that until they do the actual well soak ups is where we come into that picture.

And so it is very difficult to really predict at what price in the commodity side generate some of that backlog of drilled uncompleted wells to be brought back on. So we just have to stay general in our guidance on upstream..

Okay helpful. Thanks, Andy..

Thank you..

Our next question is from William Bremer from Maxim Group..

Good morning, Andy, Jim, Monika..

Good morning, Bill..

Hi, Jim, this is one for you.

Fuel prices, can you give us a sense of how they are helping in terms of your distribution, your truly operating capacity?.

Yeah, we benefited couple of ways. One is we certainly utilized our own fleet of light duty trucks and vehicles to deliver goods. We get benefited of that is gasoline and diesel prices have come in.

Likewise for third-party transportation which we also utilize, the decreases, it reduce the fuel surcharges that we saw in high times and it helps keep a lid on overall cost increases are transportation. But that’s where we see it most significant..

Anyway to quantify that, Jim?.

That’s a challenge, it is spread over a lot of branches lot of districts, but I wouldn’t say that it is a huge number but it is certainly something that is important..

Okay.

And then Andy, can you give us an update on the international front with a stream in Flangefitt, and how they are progressing during all the volatility and offshore activity?.

Yeah. A couple of things there. I would say Bill that if you look at Europe, it certainly has solidified in Western Europe. And I think a couple of things going on there. In late 2014, we completed our Rotterdam regional distribution centre which serves as the hubbing [indiscernible] for the Europe region.

Late in the year, we completed our Jebel Ali to Dubai regional distribution centre which serves our business in Iraq and Qatar and Oman and Saudi. And then we’ve just completing a warehouse operation in Korea, get closer to the fabrication and work that’s being done there.

So a lot of our investment in 2014 has been in the infrastructure following the acquisitions we did. So we are very pleased with that. Except for the FX headwind, we would have had a really nice improvement in international growth that we would expect.

A lot of what we are working on in 2015 is to optimize the cost structure based on the investments we’ve made in facilities and acquisitions to get a higher return from our investment internationally. You should see that in 2015 and even much improved in 2016. We feel good about the offshore.

Now that – from our perspective, our offshore business that came with the Stream acquisition is the MRO existing platforms. So where you see some of the headline decreases in offshore it’s in new subsea, it’s in offshore exploration, and those cutbacks have no impact on us as our customer base is on existing production platforms.

So we still feel good about that. Flangefitt is a project focused business, a lot of emphasis on projects in the Middle East. We mentioned on the last call that we had some major projects that slit out of 2014, yet to recognize those in our results in the first quarter.

So you still have that as an upside coming later in the year in the second and third quarter. So we feel really good. International as a whole segment is down, but to a much lesser extent than North America.

Because we are relatively new in that market, over the last couple of years, we still see the best prospects in the company for growth are still international for us..

Okay, great. Thanks for the color..

Thank you..

Our next question is from Ryan Merkel from William Blair..

Thanks. Good morning. Again, nice quarter..

Thanks, Ryan. Good morning..

Thank you, Ryan. Good morning..

So, why don’t you start with gross margins because they came in a lot better than at least I was thinking and certainly a lot of people on the call as well.

So, going forward, should we think about that being a stable margin or should we be sort of having that tick down a bit because mix and potentially revenue declining could put a little bit more pressure there..

Yeah. I think the revenue mix is going to be the biggest driver of the margins as we move forward. As we continue to do more pipe and we see strength in the midstream, we see strength in our project business. Those will be things that will tend to push margins down some.

But I think we are in a pretty good range right now and we’ve done a nice job holding on the price side. So, as we go forward, we are looking to be somewhere in this 18% range, maybe 18.2% to 18.8% something like that..

Brian, I would just add to Jim’s comments. One of the things that we are going to do to the cycle is continue what we’ve started over the last couple of years of rebalancing the company.

So you will see us even more heavily weighted towards our valves, our automation, we are getting into expanded control valves and instrumentation business and also a focus on fittings, carbon fittings, flanges, and also stainless and nickel products.

So we will come out of 2015 with a more – higher weighting to those higher margin products and a less waiting to the carbon pipe. So what we have is a deflationary impact in 2015 that Jim has mentioned on line pipe in OCTG is going to be continuing the trend we’ve had for a couple of years, smaller percentage of our overall mix..

Okay, good. That’s pretty encouraging. Okay, and then the next question, I know you didn’t change your CapEx outlook on the upstream, but any change in customer tone with oil prices stabilizing a bit here.

I know it’s early, but any change in thinking that maybe this year isn’t as bad as we all thought, February?.

Well, I think the tone has moderated. It still is – we integrated, our major customers that are integrated of course have the benefit from the downstream business and that’s helped them and you’ve seen that in their results. I still think what’s happened since January, February thinking the disciple – a couple of things have happened.

The discipline on the rate count drop has been significant. The decline in U.S. drilling rates is the fastest and steepest decline of any cycle in the last 20 years. So, certainly, we are getting to the bottom quicker, which is positive. And you’ve seen the commodity price, I mean we’ve gone from a $42 West Texas Intermediate to $59 today.

That certainly is a positive in general. But I would say our customers are still taking a very conservative look for this year.

But that – the very quickly reaction and decrease in drilling count, I think, will have a more positive impact late in 2015 where a lot of people that may think where in January, February probably thought it was going to be more impact in 2016.

So, it certainly is not a huge positive, but I think the real negative views are not becoming – playing out that way. And the other big thing for our business, I think you’ve seen a much quicker reaction than any previous cycle from the steel mills. You’ve seen significant changes in capacity with our major partners, Tenaris, the U.S.

Steel, TMK IPSCO, a lot of them cutting cost and cutting capacity early in the cycle, which didn’t happen in the last cycle is a real positive for when things do get better. And if demand stays strong in midstream, you are going to not see the real negative view that some people held on, on carbon pipe.

And then that’s a lot because of the mills taking really quick actions. So those – the steep record decline in rates and the actions on the steel mill, from our point of view, while it’s not a hugely positive environment as you would expect, I think it takes away the real negative low side thinking..

Thanks, Andy. That’s really helpful. And I will leave the flow to others, thanks..

Thank you..

Our next question is from Walter Liptak from Global Hunter..

Hi. Thanks, everyone. Andy, I just got a follow-up on pricing.

And just – you kind of going into that a little bit already, but in the midstream and downstream, are you getting the same magnitude of the pricing pressure? And I guess, specifically, for downstream, are you getting pricing pressure there?.

Yeah, I would say in downstream – well, across the industry as a general comment, yes, there is pressure. Everyone is – with lower commodity pricing, everyone is focused on cost reduction and pricing. But I would say, on refining, we went through a strike there, downward in the heavy driving season, so they are going to be at high utilization.

There is a lot less focus on that in the downstream. Chemicals with the low natural gas prices is a growth end market for us. So you don’t see it in that area as much. Mostly, it’s in midstream. And there – but it hasn’t changed dramatically from our thinking of the 10% would.

The positive side of midstream, of course, you don’t have that huge focus on cost in gas utility side. But in the transmission side, with the reductions in the steel mill capacity that goes a long way to help out the supply/demand side there.

What we’ve seen on the larger diameter pipe, I talked a little bit about at the beginning, the natural gas and NGL, we see that as a positive for 2015 and 2016, and we’ve talked about a couple of years of good gas and large diameter infrastructure spend.

If you think about the – there is only two big mills in United States that produces the straight and welded design. You have some of those sizes booked out into 2016 already. So I think the positive in that sector, of course, with those kind of lead times, there is not as much pressure on pricing than those large diameter pipeline.

There is a lot of pressure on the small-diameter 2 inch, 4 inch, 6 inch, small size old gathering system infrastructure..

Okay, great. Thanks for that color.

And kind of along those lines, the conversation about the bottoming in the third quarter for the rigs, with this cycle you are benefiting from midstream and downstream stability, but do we follow like in 2016 down like if upstream is down big in the back half, you then go down in 2016 in mid or down just because the projects get – which real projects that come into fruition this year, for next year?.

No, I might be – today is not like that. I would say it flattens for upstream, so we might start 2016 at the level you had in third and fourth quarter. Improvement in pricing on the commodity side, of course, change that to be – it could potentially be more positive. I think the midstream infrastructure in larger spend is decoupled from that.

If these number of wells drilled and the backlog of drilled, uncompleted wells starts coming on protection because of improvement in commodity pricing. You are going to see a nice catalyst for us in a backlog of well hook-ups, which is where we participate.

So I think that could have a positive, but I don’t see another leg down on midstream and downstream. We just don’t see that view. And the bigger thing is, we do see growth in 2016 in our international business because in the last cycle we essentially had no business internationally in 2008, very small part in 2009.

So our business international still brings us a lot of growth primarily in the Middle East and Southeast Asia..

Okay, okay, it sounds good. And maybe just last one quick with sort of that outlook in the cash flow looking a little bit better.

Where do you stand now with acquisitions, is it unchanged?.

Well, I would say, in the short-term, it’s not a focus in the next two quarters, I would say, two to three quarter. We are definitely on a strategy and a plan to delever and then the $350 million to $450 million in cash flow from ops this year.

But certainly we are positioning the company should the outlook and commodity pricing improve a little bit earlier in 2016 than maybe we originally thought. We certainly want to put ourselves in a position as we have done over many years to be consolidated. And so, that’s not the focus in the near-term.

You shouldn’t expect to see any acquisitions from us in the near-term. But we certainly are going to get ourselves into position if prime acquisition at low valuations are there in the first half of 2016. We certainly would want to be in a position to look at those..

Okay, sounds great. Thank you..

Thank you..

Ladies and gentlemen, we have reached the end of the question-and-answer session. I would like to turn the call back to Monika Broughton for closing remarks..

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

This concludes today’s conference. Thank you for your participation. You may disconnect your lines at this time..