Monica Schafer Broughton - Vice President-Investor Relations Andrew R. Lane - President & Chief Executive Officer James E. Braun - Chief Financial Officer & Executive Vice President.

Matt Duncan - Stephens, Inc. Kevin Richard Maczka - BB&T Capital Markets Walter Scott Liptak - Seaport Global Securities LLC David J. Manthey - Robert W. Baird & Co., Inc. (Broker).

Greetings and welcome to the MRC Global's First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Monica Broughton. Thank you. Please go ahead..

Thank you, Brenda, and good morning, everyone. Welcome to the MRC Global first quarter 2016 earnings conference call and webcast. We appreciate you joining us. On the call today, we have Andrew Lane, 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 17, 2016. The dial-in information is in yesterday's release. We expect to file the Form 10-Q later today and it will also be available on our website.

Please note that the information reported in this call speaks only as of today, May 3, 2016, and therefore you are 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 United States Federal Securities laws. These forward-looking statements reflect the current views of 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 for a more in-depth review of the risk factors concerning this forward-looking statement. And now, I'd like to turn the call over to our CEO, Mr. Andrew Lane..

Thank you, Monica. Good morning and thank you for joining us today and for your interest in MRC Global. I'll begin today with some highlights of the company's performance before turning the call over to our CFO, Jim Braun for a more detailed review of the financial results, and then I'll finish with our current outlook.

First quarter revenue was $783 million, which is 19% lower than the fourth quarter 2015 or 15% lower without the impact of OCTG revenue, which was in line with our expectations. Compared to the same quarter a year ago, excluding the impact of OCTG, revenue was down 33%, driven by reduced customer spending across all segments and sectors.

Upstream declined the most at 42%, midstream by 27%, and downstream by 25%, also as compared to the same period in 2015. The gas utility business was the only subsector with growth at 4%, but not enough to offset the decline from transmission and gathering customers within our midstream sector. The decline in downstream was across all segments.

The strength of the U.S. dollar continued to impact both International and Canadian revenues in 2016. Exchange rates against the U.S. dollar negatively impacted sales by $15 million in the first quarter versus a year ago.

Adjusted net loss attributable to common shareholders for the first quarter was $10 million, excluding severance, or $0.10 per diluted share as compared to net income attributable to common shareholders of $29 million or $0.28 per diluted share during the same period last year.

We also made significant progress on the $100 million share repurchase program that the board authorized last year. During the first quarter, the company repurchased $38 million of stock at an average price of $13.39 per share. We are now halfway through the authorization and we will continue to be opportunistic and evaluate repurchasing our shares.

At the end of the first quarter, we had just over 98.65 million shares outstanding. As you have heard us say before, our focus remains on retaining our core customer contracts and gaining market share, consistent with our strategic focus. We recently added Chevron's Gulf of Mexico operations to our framework agreement.

Adding this geography means we now have an agreement to serve all their business units in North America. Chevron is our largest customer and we have a great long-term relationship with them, demonstrating the value we bring to our customers and the trust they place in us, which we take very seriously.

We are proud to share that we are the primary PVF supplier for The Chemours Company, a leading global provider of performance chemicals. Recently, we expanded geographic scope with Chemours in the U.S. by adding their Gulf Coast assets to our framework agreement, and renewing their East Coast assets for five more years.

Finally, we also recently signed a three-year agreement with BASF in North America to supply pipe, fittings and flange. All of these are examples of continuing to expand our relationships with our current and new customers through superior customer service as customers desire to place more of their spend with us.

We have also expanded our relationships with key suppliers during this market downturn. In the first quarter, we signed an agreement with our largest supplier, Cameron, whereby we will supply more of their product lines globally through our distribution network.

This will include some lines that were previously marketed direct to customers and will now go through distribution. In fact, we have already started accepting customer orders for these product lines in the past several weeks. We continue to reduce the cost structure of our business to fit the current market.

This quarter, we closed or consolidated an additional seven branches, bringing the total branches we have closed or consolidated to 43 since the end of 2014. We will continue reviewing branch performance and make adjustments as needed. In the first quarter 2016, we reduced head count by 225 positions.

Since the middle of 2014, excluding the impact of acquisitions, we have reduced head count by approximately 1,300 or 25%. And we have reduced total operating cost by about 27%, excluding severance and other items. We will continue to evaluate the cost structure to keep it in line with customer spending and activity levels.

In the first quarter 2016, the business generated $58 million of cash flow from operations. We are on track to deliver more than $200 million in cash from operations in 2016. During the first quarter this year, we grew our cash balance by $52 million, ending the quarter with $121 million in cash and resulting in a net debt balance of $397 million.

In addition, the terms of our credit facilities are favorable. We have no financial maintenance covenants, no near-term maturities, and an average interest cost of 5%. Where there are opportunities to continue repurchasing our stock, we will do so.

Should there be potential acquisition opportunities that arise, we are positioned to benefit from those as well. We are in an enviable position to have financial flexibility in a market where many are struggling. Regarding M&A, we continue to monitor the market and maintain a list of potential targets.

We believe there will be opportunities in the future and we are positioning the company to have a very strong liquidity position to execute when those opportunities present themselves. However, given the current market uncertainty, we are thoughtful in our valuation assessments, and thus have no near-term acquisitions planned.

The energy market has contracted significantly since late 2014. We continue to see activity levels decline in the near term. However, we remain steadfast in executing against our strategy. We are focused on our customers and supporting them through this downturn.

Our commitment to great customer service has paid off with contract renewals and winning new customers. We haven't lost sight of the fact that the only way we will be successful if our customers are successful. So, with that, let me now turn the call over to Jim to review our financial results..

Thanks, Andrew, and good morning to everyone. Total sales for the first quarter of 2016 were $783 million, which were 39% lower than the first quarter of last year across all geographies and sectors. Sequentially, quarterly revenue declined 15%, excluding the impact of OCTG as expected. U.S.

revenue was $606 million in the quarter, down 29% from the first quarter of last year, excluding the sale of OCTG. All sectors and all product lines declined in the quarter. The upstream sector decreased the most at 39%, which also excludes the sale of OCTG.

Upstream market activity, as measured by the rig count, decreased 61% over the same time period. And while our upstream sector is even less correlated with rig count since the sale of the OCTG business, the rig count continues to be one of the most widely used in transparent indicators of general upstream activity.

So we will still refer to it for upstream context from time to time. The U.S. midstream sector declined by 26% and the downstream sector declined by 18%. Of the product line, line pipe decreased the most at 48%. Sequentially, U.S. segment revenue was down 17% organically driven by upstream.

Canadian revenue was $64 million in the first quarter, down 46% from the first quarter of last year due to the significant decline in customer spending. A decline in the Canadian dollar relative to the U.S. dollar reduced sales by $7 million. Canadian revenue was down 3% from the fourth quarter of last year.

In the International segment, first quarter revenue was $113 million, down 44% from the same period a year ago. Sales were down due to lower activity, particularly in Norway, the UK, Australia, and Singapore, as well as from an $8 million negative impact of the stronger U.S. dollar.

Sequentially, International segment revenue was down 8% from the fourth quarter. And now turning to results based on end market sector. In the upstream sector, first quarter sales decreased 58% from the same quarter last year to $231 million. Excluding OCTG, upstream sales would have been $213 million in the quarter, down 42%.

The decline in upstream sales reflects the continued weakness in the oil and gas market and continued reductions in customer spending in 2016 versus 2015. The midstream sector was our largest sector in the quarter at 36% of total sales and is over 90% U.S.-based.

Midstream sector sales were $278 million in the first quarter of 2016, a decrease of 27% from the same period in 2015. Among the subsectors, sales to our gas utilities were higher by 4% and sales to our transmission and gathering customers decreased 44% from the same period a year ago.

Gas utility sales were up due to favorable weather for utility work and the timing of customer projects. The decrease in sales in transmission and gathering customers reflect continued reductions in gathering line work, direct line pipe activity, and line pipe deflation in the quarter.

The mix between our transmission and gathering customers and gas utility customers was split nearly 50:50 for the quarter. In the downstream sector, first quarter 2016 revenue was $274 million, a decrease of 25% as compared to the first quarter of 2015. The decline in downstream is across all geographies.

The roll-off of major projects and delays of others, along with general reduction in spending, in line with upstream, have contributed to the decline in downstream. However, we do expect to see improved turnaround activity in 2016 over 2015 due to the turnarounds being deferred last year. Turning to revenue by product class.

Our energy carbon steel tubular product sales were $132 million during the first quarter of 2016 with line pipe sales of $114 million and OCTG sales of $18 million before the sale of the U.S. OCTG business in February. Overall, sales from this product class decreased 65% in the first quarter from the same quarter a year ago.

Line pipe prices have continued to decline in the quarter. And based on the latest Pipe-Logix All Items Index, average line pipe spot prices in the first quarter of 2016 were lower than the first quarter of 2015 by 21%. The large diameter pipe, which had previously been more resilient, is beginning to reflect a weaker project environment.

However, certain sizes and types of pipe could be at an inflection point based on production economics, but prices are too uncertain to predict at this time. Sales of valves, fittings, flanges and other related products were $651 million in the first quarter, a 29% decrease from the first quarter of 2015.

Sales of valves were down 27%, fittings and flanges were down 38%, and oilfield gas and related product groups were down 23%, all from the same quarter in 2015. Turning to margins, gross profit percent was 17% in both the first quarter of 2016 and 2015.

A LIFO benefit of $3 million was recorded in the first quarter 2016 as compared to a negligible benefit in the first quarter of 2015.

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 18.7% in the first quarter of 2016, up slightly from 18.6% in the first quarter of 2015.

Gross profit margins held up well in a tough market, benefiting from a lower mix of low margin project and carbon pipe sales in the current quarter. SG&A cost for the first quarter of 2016 were $137 million, a decrease of $22 million, or 14%, from $159 million a year ago, due primarily to the cost-cutting measures.

Also included in the first quarter of 2015 (sic) [2016] is severance of $5 million. Adjusting for severance, SG&A declined by nearly 30% since the peak in 2014. In the first quarter, we continued to reduce our operating expenses through our reduction in head count of 225 positions, slightly higher than we announced last quarter.

We've eliminated approximately 1,300 positions since the peak employment in 2014, excluding acquisitions. This represents a workforce reduction of approximately 25%. We continue to take cost reduction measures to size the business to current activity levels.

We ended the quarter at the high end of the range, as bad debt expense and ERP training cost ran modestly higher than our expectations. Going forward, we expect SG&A expense, excluding severance, will run approximately $128 million to $130 million per quarter in 2016, with the second quarter on the high end of the range.

We continue to evaluate the cost structure and make adjustments as needed. Interest expense totaled $8 million in the first quarter of 2016, which was lower than the $15 million in the first quarter of 2015 due to a $856 million reduction in debt since the first quarter of last year.

Effective tax rate for the first quarter was 43%, which is the rate we expect for the full year. The rate is based on our current geographic profit mix and the impact of losses in certain International operations without a corresponding tax benefit.

Our first quarter 2016 net loss attributable to common shareholders was $14 million or $0.14 per diluted share compared to net income of $29 million or $0.28 per diluted share in the first quarter of 2015.

For the first quarter of 2016, adjusted net loss attributable to common shareholders was $10 million, or $0.10 per diluted share, and excludes after-tax charges related to severance of $4 million. There were no adjustments to net income in the first quarter of 2015.

Adjusted EBITDA in the first quarter was $19 million versus $87 million a year ago, down 78%. Adjusted EBITDA margins for the quarter were 2.4%, down from 6.7% a year ago due to lower revenues and margins as described above, partially offset by the cost reduction measures.

Adjusted EBITDA margins by segment was 3.4% for the U.S., 0.8% for Canada, and a negative 1.9% for International. The business generated cash from operations of $58 million in the first quarter of 2016, and we expect to generate more than $200 million of cash from operations this year.

Our working capital excluding cash at the end of the first quarter was $808 million, $83 million lower than it was at the end of 2015.

We improved the number of days payable outstanding by approximately five days from the end of last year, but gave up some of the progress we made on DSOs outstanding since last year as customers started paying slower in 2016, which we expect to improve. Even so, we're still better by about five days as compared to the first quarter last year.

We are keenly focused on working capital optimization and will continue to drive efficiencies. As I mentioned earlier, we increased bad debt expense modestly this quarter, given some of the energy company bankruptcies. We continue to be diligent in moderating credit and reducing credit limits for customers we deem high-risk.

Our debt outstanding at quarter-end was $518 million compared to the balance at year-end – comparable to the balance at year-end. As we build cash, the net debt position is $397 million at the end of the first quarter as compared to $450 million at year-end.

One bookkeeping item I'd like to point out is the change in the accounting rules that alter the presentation of debt. Debt is now reported net of certain deferred financing cost as well as any debt discount. These deferred financing costs were previously reported as an asset rather than net of debt.

Our leverage ratio has increased as adjusted EBITDA has declined, and we are now at 2.4 times as compared to 1.9 times at the end of the year. However, we have favorable terms in our debt structure, including no financial maintenance covenants, and our nearest maturity is July 2019.

In addition, the availability on our ABL facility was $587 million at the end of the first quarter and we had $121 million in cash, which gives us ample flexibility. When the market returns to growth, our ABL gives us the flexibility to comfortably grow our working capital as customers increase their spending.

Our balance sheet is strong with a debt structure that is flexible and conducive to future growth. Capital expenditures were $10 million in the first quarter. This is an increase of $6 million over the first quarter of 2015, primarily due to the implementation of the new ERP system to bring the International segment on to one system.

The first phase of this implementation in Asia Pacific went live today. Next on our schedule will be Europe and the Middle East, which we expect to implement in 2017. Including regular capital spending needs and plans, the total capital budget for 2016 is still expected to be approximately $45 million.

And now, I'll turn it back to Andrew for closing comments..

Thanks, Jim. Not much has changed since we last spoke in February. Activity has continued to slow across all our end markets, and we have yet to see any meaningful signs of recovery.

While oil prices have rebounded in the last couple of months, we haven't seen a meaningful change in our customers' behavior that indicates they are comfortable enough to increase spending activity. Based on the low levels of activity so far this year and the current uncertainty, we have not changed our previous outlook.

We still see a wide range of possible outcomes in 2016. As such, we continue to estimate 2016 revenue to be down 20% to 30% from a 2015 base of approximately $4.2 billion, which excludes OCTG revenue.

We expect upstream could be lower by 30% to 40% year-over-year, primarily based on our customer mix and their decreased drilling and completion CapEx budgets. We expect the midstream business to be about 20% to 30% lower in 2016 compared to 2015. Within midstream, we expect our gas utility revenues to be flat with 2015 or up slightly.

Finally, we expect the downstream business to be lower by 10% to 20% year-over-year as some large project activity rolls off and the integrated customers cut back spending across their organization.

Our backlog was $612 million at the end of the first quarter 2016, down 26% from a year ago, excluding OCTG, but up nicely from the $500 million at the end of 2015, also excluding OCTG, due primarily to International and Canada. We have seen an increase in backlog in March in Canada and International for the first time in five quarters.

International is up primarily for our midstream project in Australia, which is expected to be delivered in late 2016 and 2017. We have also seen a small increase in our U.S. backlog for midstream and chemical projects, representing both MRO as well as project work. As mentioned earlier, we have yet to see signs of increased upstream activity.

So far, preliminary results for April reflects the same activity levels we've seen throughout the first quarter. We expect the second quarter revenue will be down about 4% to 6% from the first quarter 2016, recognizing that we had $18 million of OCTG revenues in the first quarter that will be zero in the second quarter.

The first quarter was about what we expected. This is an incredibly challenging market and may be the worst in decades. But we have seen many cycles before. Despite the challenges, MRC Global is very well positioned with both our customers and our suppliers.

As I've stated before, we continue to execute against our strategy to gain market share by delivering exceptional customer service. We will also continue to control costs and optimize working capital. Our balance sheet is strong. We have a low-cost debt structure with favorable terms and no near-term maturities.

And as a result, we are positioned for maximum flexibility. We will continue to take advantage of any opportunities that arise, including repurchasing our stock, reinvesting in the business for organic growth, or holding steady, or making acquisitions, should we see an attractive opportunity.

We believe that MRC Global will continue to be the market leader and the preferred supplier for the world's PVF needs, regardless of when the cycle turns. When this cycle does end, we are positioned to emerge a stronger company, particularly in three areas that we expect to lead to improve performance.

One, a lower overall operating cost structure; two, an optimized regional distribution center and branch infrastructure; and three, a mix of product lines weighted to higher profit margins with a focus on valves, valve automation and instrumentation, making up approximately 40% of our revenue. So, with that, we will now take your questions.

Operator?.

Thank you. Our first question comes from the line of Matt Duncan with Stephens. Please go ahead with your questions..

Hey. Good morning, guys..

Good morning, Matt..

So, Andy, I appreciate all the outlook commentary. I want to drill in a little bit more there.

At what price of oil do you think you might begin to see demand start to improve a little bit sequentially from the upstream sector? And when that does happen, how do you think that's going to show up in the business? In other words, is it going to be really more sort of existing well work or is it going to be – you're going to see the DUC start to get completed and result in tank battery completion? How should we be thinking about sort of what oil price you need and how it's going to affect your business once it does?.

Yeah, Matt. It's hard to answer that one, but I will say, I mean, our view internally is in the $50, $55 a barrel WTI range, it starts giving some more confidence on the upstream side for a modest recovery picked back up with our divestiture of OCTG. We're of course not tied directly to the rig count at all anymore.

So our pickup will be seen and the DUCs being completed as a first indication for us. And that comes to us in the form of well completion hookups, which have become very slow here in the first quarter. And then our focus now is completely on production facilities.

So there's an ongoing maintenance and repair and just general operation and expense that the operators go through, so that's been our consistent base load of business. But as we bring on some additional wells, then we look at some capacity expansions in the production facility. So we'll look for that. The rig count, of course, will be an indication.

It's now U.S. land rig count 391, record lows. You have to go back 50 to 60 years to find a U.S. rig count that low. But it continues to decline at a small rate each week at this point.

So we look for – there's been some stabilization of oil pricing here in the $40 – $45 range and certainly much better than we saw in the February window, but really not enough to see a pickup in drilling activity yet for our customers..

Okay. That helps. And then my second question, Jim, just on the adjusted gross margin. My recollection is from the last call, you were thinking that'd be 18.0%, maybe a little bit better than that. It came in at 18.7%. And if we back out the OCTG business in the quarter, it was probably more like 19.0% or a little bit better than that.

How should we think about it going forward? You guys are obviously seeing a little bit better gross margin level than you thought you would here in the first quarter.

Can it hold at this level or was there something special about the first quarter that we need to not extrapolate forward?.

Matt, I think the thing you have to remember about the first quarter, we mentioned, it was a very low quarter in terms of our carbon pipe sales. We mentioned it was down 65% now and that does include OCTG. But that's typically our lowest margin product lines. We do have some activity in the back half of the year, in particular in line pipe.

It will pick up. It will put some pressure on that margins from a mix perspective. And again, it still remains very competitive. So we're certainly very pleased with the first quarter performance. It's a great start to the year, but we still have a lot of time left..

Thank you. Our next question comes from the line of Kevin Maczka with BB&T Capital. Please go ahead with your questions..

Thanks. Good morning..

Good morning, Kevin..

I just had a question around M&A and share. And it's understandable that you're not planning any deals right now.

But when you hear these reports about some of the smaller competitors really struggling, if not kind of on the verge of going away, I'm just wondering, how much share are you seeing kind of come to you naturally as a bigger, stronger player, and do you have to do deals that aren't large deals with that kind of backdrop?.

Yeah, Kevin. That's a very good point. We are seeing some revenue definitely shift, especially in the U.S. market, to the larger players, as the larger players pick up market share. Small players are struggling. We had a mid-tier, kind of medium-sized distributor go through bankruptcy recently, Kansas City-based company that we picked up share there.

So we will pick up share because of our stability, because of our balance sheet and strength through this cycle. So that's the positive. We're also picking up share in the framework agreement that we discussed. What's apparent there, you don't see those successes until the spending increases.

So all of these extensions of MRO contracts and additional scope, while spending is down, it's not that apparent in our results. But when the market turns, their spending increases, you'll see a significant pickup of market share based on these contracts we've put in place, and that's been our strategy.

So, yes, there's not – with that backdrop, we're picking up share, we're performing very well. There's not a burning desire to be aggressive on acquisitions where the outcome of their results are very unpredictable. We're very happy with our model. We're happy with our branch footprint. We're optimizing that.

We're happy with our product mix and the divestiture of OCTG was a big step for us. You'll see, as we said in our comments, the shifting of our mix towards more valves and valve automation being – our goal would be 40% of our revenues coming out of this cycle. So, all those factors, and we have access to the product lines we want in valves.

We have our investment in valve automation centers and facilities. So we're very (34:48) well positioned, and there's no burning need to do bolt-ons. We will look at any distressed assets that may come on the market as far as inventory going through bankruptcy, that might be attractive to us, but not outright purchases in the next quarter or two..

Okay. Makes sense. Thank you..

Thanks, Kevin..

Thank you. Our next question is coming from the line of Walter Liptak with Seaport Global. Please go ahead with your question..

Hi. Thanks. Good morning, guys..

Good morning, Walt..

Good morning, Walt..

Wanted to ask about the Cameron agreement and how much of an opportunity there is to gain market share? Was this a situation where there was a reduction in direct selling and then an opportunity for them to go through your channel? And how much more of that do you think is out there as your suppliers go through their own cost reductions, too?.

Yeah, Walt. It's a couple of things that occurred and we've been working on this one for about a year. So, it aligns well with the strategy of putting more of our spend with our major suppliers, just like we're working on our customers through our account management to consolidate more of their spend with us.

And as we are successful in doing that on the customer side, we certainly become an even valuable go-to-market strategy for some of our major suppliers.

So I think with the Cameron deal, which we're very pleased with, it aligns with their strategy, really defining what they go direct and there still is many high engineered specialized products that they'll go direct through their sales force with.

But a lot of the broader-use products and especially as we pivoted from a pipe-heavy company to a valve-heavy company, valve lines and access to valve lines is much more important to us now. And so, we've spent a lot of time with Cameron.

We like the agreement, it's global, gives us access to lines we haven't traditionally sold and they've gone direct with. And so, we're very pleased with that. We've seen in addition to $10 million in additional valve sales early on in this agreement in the first month or two. And, of course, we're rolling it out globally, so we see more access.

It's good for us, it's good for Cameron. We're able to consolidate a lot of our orders from our major customers into efficient large quantity job orders from the manufacturing environment. It's very favorable from an expense standpoint for them from that standpoint.

And they can also look at optimizing their sales force as they leverage our sales force investment. So I think it's a win-win for both companies. Of course, we're focused on that one right now. We also will be expanding our relationships with our other core valve suppliers and looking for similar arrangements for their alliance..

Okay. Great.

And just kind of along those lines, how are you seeing pricing on valves?.

Yeah. As Jim mentioned, pricing is competitive across the spectrum, from the worst being carbon pipe with the most pressure on it due to the steel mill situation. And the least pressure on the valve end on the other end of the spectrum, still pricing pressure.

Customers still looking for alternatives – lower cost alternatives, and we do a lot of that sourcing for them, switching to different suppliers at different quality and price points. So there still is pressure there. But, of course, it's a more engineered, longer lead-time item and more specialized request for those, along brand loyalty.

So less on that end. I'd say line pipe will be the most pressure, followed by fittings and general products in all upstream environment and then stainless and valves being on the lower end..

Thank you. And our next questions are follow-ups from the line of Matt Duncan with Stephens. Please proceed with your questions..

Yeah. Hey, guys.

So just quickly, Andy, on the 4% to 6% sequential sales decline, is that going to come mostly from upstream? Are you expecting declines in mid and/or downstream as well?.

Yeah, Matt. Mostly upstream. And two factors. One, of course, the $18 million that won't repeat. So you take that's roughly 2% of that guidance we gave. And so then we're looking at 2% to 4% sequential decline without the divested business.

And it's just really reflective of the activity in upstream and the drilling activity we're coming out of the first quarter and we've seen in April versus where we started in January. So, no, I still see steady in midstream and steady in downstream. So, low single-digit decline in the second quarter.

We have a little bit of impact in spring break-up that we always have seasonally in Canada and then I would say upstream weakness in the U.S. But otherwise, I think everything is pretty solid..

Okay. And then looking at the full-year guide, and I think what you've said is excluding OCTG, that upstream was going to be down 30% to 40%. It's going to have to be up in the back half of the year from the first half to be in that range.

What's going to drive that increase as we move into the back half of the year? And I think really total sales are probably going to have to be up a little bit in the 3Q and 4Q versus that 2Q level to get to the down 20% to 30% for the total company as well.

So, talk a little bit about what you see that's going to cause the upstream business to go up a little bit in the back half?.

Yeah, Matt. It's Jim. You're right. We do expect to see some growth in the back half of the year. It won't necessarily be all upstream. We think there'll be some midstream and downstream. But I think equally important is, as you look at the back half of the year, comps get much easier.

If you look back at 2015, we did about $2.5 billion in the first half of the year and $2 billion in the second half. So we'll start to benefit from some of that favorable comp comparison, in addition to some modest pickup in the back half this year..

And, Matt. I'd just add to Jim's comments that – so he's exactly right. And then I would just – one thing we haven't really discussed is the turnaround season. We see a nice turnaround in the U.S. especially in the third quarter of this year. So, that will be a positive. Chemicals will stay steady for us on downstream.

The gas utilities will be flat to up a few percent. And then as Jim said, a little bit of pickup in – but we're not forecasting a lot in upstream for the back half. But we're very confident of being in that range..

Thank you. Our next question comes from the line of David Manthey with Robert W. Baird. Please proceed with your questions..

Thank you. Good morning.

Jim, what were the OCTG sales officially in 2015? And asked another way, you mentioned the 2015 revenue base that you're using as a starting point, could you give me that again?.

Yeah. For starting point, we're using $4.2 billion for last year, which is the $4.5 billion less roughly $300 million of OCTG revenue..

Yeah, Dave. I think $311 million was the exact number, and then $18 million in the first quarter..

Got it, okay. And second, thinking about the cost structure today at current branch and personnel levels, I know you're chasing the revenues down here.

But if you started to see more normal quarter-to-quarter revenue trend sequentially, where could you take adjusted EBITDA with your current cost structure if things just started to, again, stabilize and look more normal in terms of revenues on a sequential basis?.

Yeah, Dave. I think that's the key. In the short term, we've fundamentally changed the cost structure of the company. We've taken a significant amount of management cost out, with still some to go in the second quarter, primarily International. As Jim mentioned in his prepared remarks, we've a run rate of $128 million to $130 million overall SG&A.

So we've reached a very efficient point. So, a little bit of volume pickup in spending. We'll see a nice pickup in the EBITDA percentage. We're working on International. As Jim mentioned, that turned negative on an EBITDA percentage for us in the quarter. So we're working on streamlining that business.

But I feel very good about both the branch changes and the consolidation and the overall cost reductions. So when this activity does turn and spending increases under the contracts that we've already won, we're going to be in very good position to ramp back up to our improved EBITDA percent performance that we've had..

Thank you. This concludes today's question-and-answer session. I would like to turn the floor back over to Monica Broughton..

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

Thank you. Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day..