Monica Broughton - Head of Investor Relations Andrew Lane - President and Chief Executive Officer James Braun - Executive Vice President and CFO.

Matt Duncan - Stephens Inc. Vaibhav Vaishnav - Cowen & Company Walter Liptak - Seaport Global Joe Gibney - Capital One David Manthey - Robert W. Baird.

Greetings and welcome to MRC Global's 2016 First Quarter Conference Call. At this time, all participants are in a listen-only mode. An interactive 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, Ms.

Monica Broughton, Investor Relations. Thank you. You may begin..

Thank you, and good morning, everyone. Welcome to the MRC Global first quarter 2017 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 19, 2017. The dial-in information is in yesterday's release. We expect to file our first quarter 2017 report on Form 10-Q later today, which will also be available on our website.

Please note that the information reported on this call speaks only as of today May 5, 2017, and therefore, you are advised that any information may no longer be accurate at the time of replay. In our remarks today, we will discuss adjusted gross profit percentage, adjusted EBITDA, and adjusted EBITDA margins.

You are encouraged to read our earnings release and securities filings to learn more about our use of these non-GAAP measures and to see a reconciliation of these measures to the related GAAP items.

In addition, the comments made by the management team 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, 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 these forward-looking statements.

And now, I would 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. Today, I will review Company performance, highlights, and then I’ll turn over the call to our CFO, Jim Braun for more a detailed review of the financial results. I’ll then finish with our current outlook.

We are encourage by the improve market conditions and remain focused on growing our business the first quarter of 2017 revenue of $862 million was 20% higher than the fourth quarter of last year which exceeded our expectations. All-in market sector showed sequential growth with the strongest performance in our midstream sector.

First quarter of 2017 was the highest quarterly revenue since the fourth quarter of 2015 and March 2017 was the highest monthly revenue since December of 2015. Compared to the same quarter a year ago, revenue was up 10% driven by midstream and upstream.

Midstream increased 33% and was higher in both sub sectors transmission and gathering as well as gas utilities. We have several projects ongoing with a large transmission customer driving a portion of the increase. Orders related to these projects many of which are in backlog are expected to deliver throughout the year.

We have also seen increase work in the gas utility sub sector and a pickup with several other transmission and gathering customers. This is related to an increase in market activity driven in part by the approval of pipeline infrastructure projects. Our upstream business also performed well.

our Canadian upstream business increased 30% over the first quarter of last year exceeding our expectations. Due to increase market activity, as operators have shift it's spend from heavy oil projects to more conventional oil drilling work. We also experience growth in the U.S. upstream business as drilling activity has increased since last summer.

Which is resulting in an increase in well completions. Excluding OCTG revenue earned in the first quarter of last year. Our U.S. upstream business increased 24% in the first quarter compared to the same quarter a year ago. Our downstream sector was lower quarter-over-quarter due to the rolling off of a major petro-chemical projects.

However, we saw increased refining turnaround activity at several customers which contributed to a 6% sequential increase in our downstream sector. Adjusted gross profit for the first quarter of 2017 was $157 million or 18.2% of revenue, as compared to $147 million and 18.7% for the same period in 2016.

This is in line with our guidance and is a function of the higher mix of midstream project revenue in the first quarter.

We broke even with zero net income attributable to common share holders for the first quarter of 2017, as compared to a net loss attributable to common shareholders of $14 million or $0.14 per diluted share for the same period last year, which included after tax charges of the severance and restructuring of $4 million or $0.04 per diluted share.

The renewal comparable charges this quarter. We continue to generate cash in the first quarter providing $22 million of cash from operations. We expect to generate modest operating cash in 2017, as we plan to shift our capital allocation to growth. Investing more in working capital support this growth, which we will see later in the year.

We completed our $125 million authorization under the share repurchase program this quarter. In the first quarter of 2017 we repurchased $18 million of stock at an average price of $20.54 per share. Since the program was authorized, the Company has purchased 80.5 million shares at an average price of $14.64 per share.

As we’ve discussed previously, we are focused on capturing market shares through customer MRO agreements. In 2012, MRC Global executed the first Global contract with Shell. And since then we have been meeting substantially all of their valve requirements.

We believe the trend toward standardization will continue and more customers want stable, dependable suppliers who can operate with consistent, excellent service around the globe. This is where MRC Global excels. In our last earnings call, we mentioned that we were expecting to announce additional market share win.

And earlier this quarter, we announce the global agreement with Exxon mobile to supply than their downstream valves. This is a tremendous opportunity for us. We expected it to take several months to fully implement the agreement across their facilities.

But when fully implemented in 2018, we expect this agreement to generate around $50 million of revenue per year over the next five years. There are only three global pipe valve fitting contracts with IOCs in the oil and gas. And we have all three with Shell, Chevron and now Exxon mobile. This has been our strategic objective for many years.

We were also awarded a geographic expansion and a couple of projects with Statoil, including the instrumentation ad valves for the Johan [indiscernible] project. We expect that some of these agreements to generally sales of about $7 million a year over the next four years.

The recent pipeline approvals and announcement this quarter are positive for our business. With some of the larger intrastate pipeline will typically go direct to manufacturers. We do participate in the laterals, the tie-ins, the short materials and line pipe services. As the largest North American pipe valves and fitting midstream distributor.

We are well positioned to benefit from the more favorable regulatory environment. In addition, there had been a number of recent announcements regarding Canadian asset changing hands. Specifically U.S. based IOCs reducing their investment in Canada.

We expect the net of all the Canadian asset sales to be neutral to slightly positive due to our contract position with the Canadian companies acquire these assets, as well as benefiting from the IOCs redirecting their budgets to the Permian Basin. We are active and pursuing small bolt-on acquisitions with a list of potential targets.

We expect opportunities in the future and we are positioned with very strong liquidity to execute when those opportunities present themselves. In summary, the first quarter was a great start of the year. After two years of reduced industry spending, it appears our customers have returned to our growth mode.

We remain well positioned through our actions over the past few years to continue to benefit from that return to growth. I’ll now turn the call over to Jim..

Thanks, Andrew and good morning everyone. Total sales for the first quarter of 2017 were 862 million, which were 10% higher than the first quarter of last year, primarily due to increases are in midstream and upstream sales. Excluding OCTG sales from the first quarter of last year. Revenue was up 13% year-over-year.

Sequentially, revenue increased 20% due to a increase in activity across all sectors and segments. U.S. revenue was $666 million in the quarter, up 10% from the first quarter of last year. As midstream and upstream activity picked up and was partially offset by a decline in downstream. The U.S.

midstream sector increased $83 million or 32% from the first quarter of last year due primarily to ongoing projects with transmission and gas utility customers, which will continue to deliver over this year. Revenue from gathering customers has also contributed to the increase in the U.S. midstream as drilling and production has increased. The U.S.

upstream sector increased $27 million or 24% from the first quarter of last year, excluding $18 million of OCTG revenue from the prior year. The U.S. downstream sector decreased by 15% from the first quarter of last year, due to the completion of large petrochemical project last year.

Of the product lines, gas products increased the most at 34% followed by valves, automation, measurement and instrumentation at 12%. Sequentially U.S.

segment sales were up from the fourth quarter by 21%, gains were across all sectors, but primarily due to an increase in midstream sales due to large projects deliveries followed by upstream related to increased well completion activity and downstream due to increased turnaround activity.

Canadian revenue was $77 million in the first quarter, up 20% from the first quarter of last year, driven primarily by upstream, as the rig count increased significantly with customers shifting more spend towards conventional oil drilling from the heavy oil.

Sequentially, the Canadian segment was up 41% from the fourth quarter also due to an increase in upstream drilling activity. In the international segment, first quarter revenues were $119 million up 5% from a year ago.

Sales were up due to higher midstream activity, from the major pipeline project in Australia and increased sales in downstream partially offset by decline in the upstream sector due to lower activity levels including projects.

Sequentially the international segment was up 4% from the fourth quarter primarily from increases in midstream partially offset by declines in upstream. Now turning to our results based on end-market sector.

In the upstream sector, first quarter sales increased 6% from the same quarter last year to $245 million from strong performance in Canada followed by the U.S. both driven by increased drilling and related well completions. Excluding OCTG from the 2016 sales, U.S. upstream sales were up 24% from a year ago. The rig count in U.S.

was up 35% in the first quarter of 2017 versus the same period in 2016. There are couple of reasons for the difference including the natural delay in well completions from the rig utilization, the increase in drilled but uncompleted inventory over the quarter and our customer mix.

Midstream sectors sales were 371 million in the first quarter of 2017 an increase of 33% from the same quarter in 2016. Among the sub-sectors sales to our gas utilities increased by 20% and sales to our transmission and gathering customers increased 48%.

Gas utility sales increased primarily due to the pipeline construction and increased trending on integrity projects. The increase in sales to transmission and gathering customers was due to transmission projects, as well as gathering line work.

The mix between our transmission and gathering customers and gas utility customers was weighed at 54% for transmission and gathering and 46% for gas utilities in the first quarter, which is opposite of where it was at the end of the prior year.

In the downstream sector first quarter of 2017 revenue was 246 million, a decrease of 10% as compared to the first quarter of 2016. The decline in downstream relates to major petrochemical project on the Gulf Coast that concluded in 2016. The spring turnaround season was as expected contributing to an incremental 13 million in revenue sequentially.

And turning to margins. Gross profit percentage decreased 80 basis points to 16.2% in the first quarter of 2017 from 17% in the first quarter of 2016. The decrease was due in part to the impact from LIFO. A LIFO expense of $1 million was recorded in the first quarter of 2017 as compared to a benefit of 3 million in the first quarter of 2016.

Adjusted gross profit percentage was 18.2% in the first quarter of 2017, down from 18.7% in the first quarter of 2016. The decrease in adjusted gross profit percentage reflects an increase in the mix of project work for midstream projects in the U.S. and Australia. Regarding product inflation, line pipe prices has steadily increased since last October.

Based on the latest pipe logics, all items index, average line pipe spot prices in the first quarter of 2017 were 13% higher than the first quarter of 2016 and 19% higher sequentially. We expect to continue experience pipe inflation as demand continues to increase and mill capacity in some types and sizes has been reduced.

We have begun to see an impact from higher prices with an increase in our gross margin percentage for stock sales. As open purchase orders for pipe deliver, we will begin to sell the higher costs pipe increasing sales dollars under our costs plus contracts.

SG&A cost for the first quarter of 2017 were $126 million a decrease of $11 million or 8% from $137 million a year ago, due primarily to the cost-cutting measures taken in 2016. Also included in the first quarter of 2016 is severance and restructuring of $5 million, there were no severance and restructuring charges in the first quarter of 2017.

Related to our previous outlook, first quarter SG&A ran higher than expected due to more volume related costs, due to the stronger than expected revenue and as low reap bad debt expense.

Based on revise outlook for higher revenue in 2017, we now estimate our 2017 SG&A run rate will be between $129 million to $131 million per quarter for the remaining three quarter of the year. Recognizing that the second and third quarter expenses we will have ERP implementation cost as we turn over to the new system.

The increased outlook for SG&A as a function of higher expected revenue levels and spending on our e-commerce initiative. Regarding the ERP implementation.

This week we began operating our new system in Europe and the Middle-East leading only more way to implement before year-end and which time we will have all of our international business on a single system.

Interest expense totaled $7 million in the first quarter of 2017, which was the $1 million lower than the first quarter of last year due to lower average debt balances. We recorded a small tax expense of $1 million in the first quarter of 2017.

This reflects to the impact of the discreet tax benefit related to a new accounting pronouncement adopted in to quarter which produce to tax related 14%. We expect the effective tax rate to be about 38% for all of 2017, based on our budgeted geographic profit mix.

However, at relatively low pretax operating levels which we expect in 2017 the tax rate is subject to being volatile on a quarter-to-quarter basis and for the full-year. Our first quarter of 2017 net income attributable to common stockholders was a breakeven compared to a loss of $14 million or $0.14 per diluted share, in the first quarter of 2016.

The first quarter of 2016 net loss attributable to common shareholders including after-tax charges of $4 million related to severance and restructuring. Adjusted EBITDA in the first quarter was $36 million versus $19 million a year ago, an increase of 89%.

Adjusted EBITDA margins for the quarter were 4.2% up from 2.4% a year ago, due to higher revenue and the benefit of cost reduction measures taken throughout 2016. All three of our segments generated positive EBITDA this quarter including international which benefited from the cost reduction and restructuring actions taken in 2016.

Our operations generated cash at $22 million in the first quarter of 2017. Our working capital at the end of the first quarter of 2017 was $674 million, 1% lower than it was at the end of 2016. At the end of the first quarter of 2017, our working capital excluding cash as a percentage of our trailing 12-months sales was 18.6%.

We have not experienced an increase in the working capital, but we do expect working capital to rise beginning in the second quarter, as open purchase orders for inventory are delivered.

As inventory build, it could be lumpy depending on the timing of deliveries in sales, however we expect our working capital as a percentage of revenue to remain best-in-class at around 20% on average. Our debt outstanding at the end of the first quarter was $412 million, compared to $414 million at the end of 2016.

Our leverage ratio based on net debt of $319 million decreased to 3.4 times, as EBITDA grew in the first quarter. We have no financial maintenance covenants on our debt structure and our nearest maturity is July 2019.

The availability on our ABL facility was 466 million at the end of the first quarter, which gives us ample financial flexibility and it too will grow as working capital grows. At the end of the quarter, we had nothing drawn on the ABL and had $93 million in cash. Capital expenditures were 11 million in the first quarter in line with our expectations.

However, we expect increased capital spending this year to 35 million, up a little from 32 million. Due to accelerated investment in the ERP system and the increased investments in e-commerce solutions. And now, I’ll turn it back to Andrew for closing comments..

Thanks Jim. Now let me wrap up with our current outlook. Our first quarter results were strong on midstream project deliveries, upstream growth and refining turnaround. The outlook is also generally more positive than previous result. And as a result, we are raising our overall revenue guidance for 2017.

We do want to be mindful that there remains a fair amount of uncertainty in our end markets with all fluctuating between $47 and $53 per barrel, ahead of the upcoming May OPEC Meeting. The market seems cautiously optimistic that OPEC will extend production cuts, but there is some uncertainty around when this will balance the market.

EIA however, predict market balancing this year. Some updated spending analysis show even more spending than when we reported in February, which is a positive. The regulatory environment is more favorable to energy infrastructure projects and inflation in [indiscernible] pricing has begun, which are all positive for our business.

We have recently seen an uptake in drills but uncompleted wells or ducs. This is a tailwind as we expect to see a drawdown of this duc inventory as the year progresses. As current completion bottlenecks are addressed by the oilfield service industry.

We are also focused on market share through existing MRO contract renewals and expansion, as well as new multi-year MRO contracts. We announced the major strategic contract with Exxon Mobil this quarter and we expect to have additional contract announcements in the second quarter.

Our backlog was $833 million at the end of the first quarter of 2017, up $221 million or 36% from a year ago. Primarily due to increase in project spend in the U.S. Of that increase 62% is from one midstream customer. Excluding that customer backlog is up 15%.

The backlog had continued to increase in April indicative of growing activity levels going into the summer construction cycle, which is typically the busiest time of the year for us. We raised overall revenue guidance with some changes to the sector guidance. As compared to 2016, we expect total revenues to be 13% to 23% higher in 2017.

By sector, we now expect upstream and midstream each to be up 20% to 30% higher and downstream to be unchanged at 5% to 15% higher. For comparison, we previously expected upstream to increased 15% to 25% and midstream by 10% to 20%.

Upstream is higher as we expect some our larger customers to be more active in drilling and completing well later in the year. We raised our midstream expectations on a strong first quarter and a continued strong midstream backlog.

By segment, we now expect all of our segment to grow double-digit percentages with Canada higher due to stronger performance in the first quarter. Sequentially, we expect second quarter of 2017 to be up mid-to-high-single-digits from the first quarter of 2017.

We maintain our expectation of adjusted gross margins into 2017 to average 18.5% in 2017 with the first two quarters coming in below average. Margin tailwinds will include the continuing move to higher margin valves and instrumentation and general inflation, and higher contract prices in the second half of 2017.

We were encouraged that the year has started off strong, we are glad to be growing again and we are looking forward to a successful recovery year in 2017. So with that, we will now take your questions. Operator..

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Matt Duncan from Stephens. Please go ahead..

Hey good morning guys, great quarter. So Andy I want to talk a little bit more about midstream because it sounds like that’s where things that are outperforming prior expectations the most.

Other than the one customer where you see backlog up a lot, can you talk about what else is driving that? Is this large pipeline construction and you guys are giving those sort of ancillary stuff or is it smaller pipelines where you are getting kind of all of those all of the PV up instead of just the fittings plan dos and sort of odd life sizes?.

Yes Matt. It's a combination of both and certainly if you look at the regulatory environments over the last three, four months it's definitely in terms of the positive. So as we mentioned on the last call, we were seeing equal activity with both gas infrastructure pipelines and the east and also oil pipelines in the Permian in South Texas.

So it's a combination very active as TransCanada acquired Colombia Pipeline Group last year, so there are plans for the U.S. with oil pipelines already added that gas infrastructure, so we are very active with them, very active with the Phillips66 and Williams and Enterprise and Demonian.

So it's broad based, it's not just the TransCanada, so we feel very good about that and just from the overall activity levels. And the first quarter is historically not our first quarter in midstream due to weather impacts, so we have some good quarters ahead because normally second quarter and third quarter are best midstream construction cycles.

And the other big things happened in midstream is line pipe pricing is definitely inflated. So we have gone through the two years of deflation, the market has definitely turned, it bottomed in pricing in September and October.

So some of the margin impacts that we talked about and Jim talked about in prepared remarks and margin impact in the first quarter for the related line pipe that was bid in the fourth quarter at a relatively lower pricing.

We have definitely seen the market move the demand for - the mills had cut way back demand for OCTG picks up it pushed out some line pipe deliveries. So pricing has definitely moved in line pipe.

We see, we will be able to get the benefit from that as you go into the second quarter, but even more in the second half of the year, we will be at a much different higher price in line pipe, which will also drive some positive results from midstream..

Great very helpful and second question just on the guidance. Your revenue guidance is up by essentially the size of the line pipe [indiscernible] I think from the first quarter. But your profit guidance if work through line item by line item, it doesn’t seem to quite be up as much.

One, am I right about that? And two, if so, are you just layering in a little bit of conservatism there it looks like maybe the SG&A guide is why the profit guide is not up as much, you took that up a decent amount on a quarterly run rate basis and is that sort of investing in the muscle the fixed cost muscle that you need to grow or is that more variable costs going up with revenue?.

Now, let me start with that and Jim can add more details. Two things, first activity up 20% sequentially with some additional incremental SG&A, which is a great platforms for us, we would be ramping up a little bit faster in the year than we thought, so that’s part of it. We have also as Jim mentioned in his comments investing in our ERP platform.

So except for converting Norway in a couple of months, we have all our international platform on one ERP system, which we know when we did that in North America, we got tremendous benefit from the visibility or being on one system. So where accelerating some investment there to get that done earlier.

We have also seen our large expansion or e-commerce business, we talked about it last year as we were in the downturn. We invested in both ERP system, but also on our e-commerce capability, we rolled out a new online catalog for our core customers. Since then we have had mobile capability.

So we now have our customers that can contact with us at the branch level or online from laptop or on a mobile device. So we have taken some big steps to invest and that’s some incremental spend, it’s also reflected in the Jim’s comments. But we feel very good about that.

If you look at 2016 in the e-commerce area 25% of our revenue came through some form of e-commerce the catalog or EDI and 35% of our major customers are transacting with us in that manner.

So we certainly see, as you have seen in many other industry that dynamic picking up and we are making investments in that to take advantage of that and make it easy for our customers to do business with us if they want to transact with online. So we feel good about our investments, I think they are very much in line with the growth we are seeing.

We held headcount down, we only increased headcount 18 in the first quarter. But then it will ramp up in the second and third quarter..

Yes and Matt I would just add to that, And Andy covered those points is, just general costs inflation that we really haven’t seen in the industry for the last couple of years. As the market continues to improve and get hard, I think we will start to see that general costs inflation.

So clearly there are some expectation that that will start to pickup as well..

Okay. Thanks for all the details guys..

Our next question comes from Vaibhav Vaishnav from Cowen. Please go ahead..

Hey guys. Good morning and thank you for taking questions. Just wanted to speak about the second quarter guidance. If I think about three different geographies Canada typically down 20%, 25% international modestly up.

Is that fair way to think about Canada an international at least?.

That’s certainly the case with Canada, because of the seasonal breakup. We have typically seen at anywhere 15 to 20 and they are really strong, it could be a little bit higher as a percent. The international I think you are right there and then I think when you look the U.S.

one of the big drivers there Vebs is we talked about the very strong quarter with our large midstream customer. We are actually thinking some other deliveries will be down sequentially but offset by continued growth in the upstream..

Got it, okay. That's helpful. And if you think about SG&A if you guys mentioned about moving higher in second quarter and third quarter because of ERP implementation.

If I go back to last year, I think it was like $8 million to $9 million higher in that quarter is that fair?.

Yes and it will be $7 mil to $8 million, incrementally it's about a four or five from first quarter to second quarter..

Okay. And last questions for me, just thinking about the guidance for the year, it sounds like first half versus second half is flat.

Just want to make sure I’m reading that correctly and if so why would that be the case?.

Yes Vebs. Let me take and Jim might have some comment to add. I would say it's still relatively early in the year. We have a good first quarter, the third quarter historically has always been our best quarter, which we expect it to be again this year, but there is a lot of volatility in the market as you know well with oil prices fluctuating a lot.

But we feel very solid about the year, we feel even better about the gas infrastructure activity levels. But we will update the guidance after the second quarter and we got a better view of the third quarter, but I wouldn’t read into that any that we are not as optimistic as we were about the second half of the year..

Yes Vebs, I would also add that as you know, you look back historically whether it's a strong market or not so strong market, we typically see a fall off in the fourth quarter from the third quarter. So depending on where we are in the spending cycle, as we get to the end of the year that could be more pronounced than usual..

Okay, sorry go ahead..

Yes, I would just one more comment. We will be ramping up Exxon Mobil, PBF, lined up for sale all of the contract wins we have talked about and also the Statoil one. So we have got some nice contracts that are ramping up that you will see in the second half too. So we like to see those happen before we bake too much of that into our guidance..

Okay.

Would it be at least fair to think that gross profit margin as you crossed in for first quarter?.

That's right. So yes based on the margins guidance that we gave..

Yes, so we guided to 8.5 for the year, we know we have some line pipe and some integrated supply type lower margin mix, heavier mix of that in the first quarter a little bit in the second quarter, but certainly that implies that the back half as we move both, especially as we move line pipe pricing up with our customers and overall general pricing will be higher in the second half and you can see that we will have much higher margins back in the back half..

Alright. That’s all for me. Thank you..

[Operator Instructions] And our next question comes from Walter Liptak from Seaport Global. Please go ahead..

Hi thank you, great quarter guys. I wanted to ask about, here you mentioned price volatility on oil and certainly today has been volatile. I wonder if you could talk to us about just a sensitivity of revenue, are you seeing anything changing in the upstream and then just thinking about the different streams.

What has to happen to oil for your outlook to that come through to fruition for this year. I mean, we went back down to 40 or 35. At what point should we be concerned? Thanks..

Yes Walter, well thanks, it was a good quarter. I would tell you we have a lot of visibility for us on the second quarter and what’s in our backlog and equipment already on order. So we feel good about that, we still feel very good about the third quarter as our best quarter for the year. We haven’t seen any change and also with increase in U.S.

rig count primarily an increase in the drilled uncompleted wells in the first quarter. We see a nice backlog there and as we have talk about our completion revenues in the tank production facilities lag by our quarter or two.

So we see some nice increases in completions both bringing drilled uncompleted on production plus the level of the rig count, as we sit out here in May feel good about the completion of our U.S. upstream revenues for second and third quarter. So as we see very little impact with what is transpired in the last week or so of flocculation in oil price.

Now if it stays at this, level longer term it probably will impact us in the fourth quarter. But it’s kind of too early to speculate on that. But I think very little if any impact on us in the coming up two quarters..

Okay.

Is there any impact on pricing, I mean setting aside the contracts for product that maybe more flexibility with price? Are you able to pass along manufactured or supply costs increases and is there some sensitivity with the price of oil?.

Yes. Well longer term definitely, customer work up their cash flow from price of oil and it certainly is more favorable as their cash flow is improving with higher pricing. But certain fundamentals are still going to be in play, there is a shortage of line pipe, especially small diameter seamless line pipe.

And lead times on balance has extended, there is a lot of activity in midstream valves for example. So those are fundamental, there is limitations in the manufacturing supply, lead times pushing out. So pricing will move up, I feel confident line pipe and valves and other pricing will move up regardless of the price.

But if it persists longer term, yes it would slowdown increased pricing..

Okay.

So the oil prices have not started coming up yet and other value-add products pumps things like that?.

Well, we don’t do pumps, but in valve some have in specific sizes and shortages of valves, because all valve manufactures also ramped down their capacity and their plant capabilities during the last two years. So they are ramping backup, which pushes lead times up.

How farther and so that we definitely seen and will see in the next couple of quarters valve pricing and others move up. But line pipe will have the biggest impact in a positive manner for us..

Okay, great. Thank you..

Our next question is from Joe Gibney from Capital One. Please go ahead..

Thanks. Good morning. Just a quick one on downstream for me. Jim, I think you referenced 13 million revs quarter-over-quarter pertaining to the turnaround. Just curious what the expectation is into Q2, should we only expects sort of nominal stuff there.

I think you talked about 10 million or 15 million in revenue previously an incremental growth from a turnaround side.

What are the expectations in the Q2 and then normally you got a little bit of spill over in the initial part of this quarter?.

Right, I think we will see a little bit more, but the big part it came in the first quarter, so you will see something smaller in the 13 or so incremental that we had in the first quarter. But there is bit more to come..

Okay. Thanks..

Our next question is from David Manthey from Robert W. Baird. Please go ahead..

Hi good morning guys. First off on the convertible perpetual preferred stock.

Could you do remind me is there any kind of a put right there or is that convert decision up to the investor only?.

Yes, the investor of course can convert it at anytime. We have the opportunity after 4.5 years to force conversion if the share prices is 150% above historic price which is $17.88..

Okay, that wouldn’t be until 2020..

Correct..

Okay, and then I'm trying to understand the foot note here where you talk about OCTG in the line pipe product line. You say that pre-disposition OCTGs sales of 18 million are included in those sales from the margins of 2016. Jim can you help me understand that? I think the actual sales are much higher than that.

So I'm trying to understand what the 18 million is?.

So we sold the OCTG product line in February of 2016, so we had about a month a half of revenue of OCTG which was 18 million. And for presentation purposes and for convenience rather than have an OCTG line with 18 that lived for multiple quarters and multiple years, I should say. We just included in the line pipe and foot noted it.

So but there were a $18 million of OCTG sales in the January and February timeframe of 2016..

Alright, so of course that means when you get to the second quarter of 2016 its zero..

That's correct..

Yes, got it. Alright. Thank you..

Thanks Dave..

Thank you. This does conclude the question-and-answer session. I would like to turn the floor back over to management for any closing comments..

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

Thank you. This does conclude today’s teleconference. Thank you for your participation. You may disconnect your lines at this time..