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

Sean Meakim - JPMorgan Nathan Jones - Stifel Steve Barger - KeyBanc Capital Markets.

Ladies and gentlemen, greetings and welcome to MRC Global’s Third 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. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Monica Broughton. Thank you. You may begin..

Thank you, and good morning, everyone. Welcome to the MRC Global third quarter 2018 earnings conference call and webcast. We appreciate you joining us today. On the call 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 November 15, 2018. The dial-in information is in yesterday's release. We expect to file our third quarter 2018 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, November 1, 2018, and therefore, you are advised that information may no longer be accurate as of the time of replay. In our remarks today, we will discuss adjusted gross profit, adjusted gross profit percentage, adjusted EBITDA and adjusted EBITDA margin.

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 related GAAP items, all of which can be found on our website.

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 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.

Finally, please note that references in our prepared remarks to year-to-date mean the first nine months of the year that we are referencing. 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. I am going to start with a discussion of the state of our company and the current dynamics in our three end sectors. Then I am going to cover our outlook and Jim will then cover the third quarter financial results in detail.

I am very pleased with our $1.07 billion sales for the quarter, which represents 12% growth from the third quarter of last year. It also marks the third quarter in a row where we have achieved more than $1 billion in revenue.

In the quarter, we had been expecting an additional $21 million in project-related sales, which has now moved to the fourth quarter. Nevertheless, it was a very strong third quarter sales performance.

Following our 20% top-line growth in 2017, compared to 2016, this second year of the oil and gas recovery is evolving exactly as we expected it would as we are on pace for an additional 15% growth in 2018, compared to last year.

Total E&P capital spending declined 50% in 2015 and 2016 and after 2018, we will have recovered 38% in top-line growth from the oil and gas cycle bottom in 2016. Now looking at our three sectors; first, upstream continues to be a bright spot for us, with higher oil prices driving increased customer spending, particularly in the U.S.

The primary driver of our U.S. upstream business is well completions. U.S. well completions were up 26% in the first nine months of 2018, as compared to the same period last year. Our U.S. upstream sales matched this increase, as they were up 25% over the same time period. Globally, our upstream business grew 23% over these same time periods.

From a geographic standpoint, the Permian Basin remains our highest growth area with combined upstream and midstream revenue up 62% year-to-date 2018, compared to the same period in 2017. It's up 52% for the third quarter of this year, compared to the third quarter last year and up 20% sequentially from the second quarter of 2018.

Overall, due to our diversified business model, the Permian represents 8% of our total year-to-date revenue. In the third quarter, we continued to add new scope to our customer contract in the Permian with a large independent operator and renewed our MRO contract with our second largest upstream customer in Canada.

Second, our midstream year-to-date 2018 revenue is up 6%, compared to the same period in 2017. We had a $50 million pipeline project in Australia in 2017 that didn't repeat. The U.S.

midstream business is up 10% year-to-date, compared to the same period in 2017 with gas pipeline work in the Northeast being strong early in 2018, but slowing in the second half of the year, while oil and gas pipeline work in the Permian will be active through mid-2019.

In line pipe, the Section 232 steel tariffs have had a big impact, as market prices started 2018 at an average price of $1,500 a ton and we leveled off at a price of $2,000 a ton in the third quarter. We remain in a strong position in line pipe with our strategic pre-tariff inventory buys in early 2018.

In the third quarter, we added four new midstream MRO contracts. Finally, in downstream, our 2018 sales are up 23% year-to-date, compared to 2017.

The growth in our downstream business is led by the U.S., which grew 30% year-to-date with increasing revenue from MRO contracts won in 2017, ramping up activity throughout 2018 and a major petrochemical project in Pennsylvania. In the third quarter, we had an active turnaround season in the U.S.

with some project revenue moving into the fourth quarter. We increased activity this quarter with some of our large refining customers under recently renewed agreements, including with the largest independent refiner in the U.S. and a major integrated customer. We also added a new refinery contract in the Western U.S.

Now moving to profitability, I am very pleased with our adjusted gross profit margin of 20.1% in the third quarter and our year-to-date improvement to 19.5%. Adjusted gross profit margin of 20.1% is the best quarterly result since the first quarter of 2013.

This improvement is the result of our multi-year strategy to change the product mix to a valve-centric business model. The positive impact of the current inflationary environment and our pre-tariff repurchases of carbon pipe, fittings and flanges, valves and stainless products. Now on costs.

Our 2018 SG&A was 13.1% of sales in both the third quarter and year-to-date periods, a decrease from 13.6% and 14.1% in the comparable year ago periods. 2018 revenue is up 15% year-to-date, compared to 2017, while our global headcount is currently at 3,568, up 128 or 4% since the end of 2017.

SG&A as a percentage of sales around 13% should be a sustainable level for us. Higher gross profit margins and a disciplined SG&A cost strategy has led to a 60% improvement in 2018 year-to-date adjusted EBITDA over 2017 to $217 million. Our year-to-date incremental adjusted EBITDA percentage is 19.3% and for the third quarter, it is 21.4%. The U.S.

segment achieved adjusted EBITDA margin of 8.5% in the third quarter, the highest since the third quarter of 2013. Our net income available to common stockholders has improved from a loss of $3 million for the first nine months of 2017 to net income of $46 million and $0.50 per diluted share for the first nine months of this year.

The improved profitability and the lower U.S. corporate tax rate are driving this improved bottom-line result. I am also pleased to share that our Board of Directors authorized a $150 share repurchase program last week. This is the third share repurchase program we have implemented since 2015 having previously repurchased $225 million of shares.

The latest authorization allows the customer to opportunistically buy shares in the open market and is set to expire on December 31 2019. The company is in a strong position to be able to repurchase shares, as well as continue to grow. As is customary, we will report quarterly on any share repurchase activity.

Now some final comments on the outlook for the fourth quarter. Normally, our business experiences seasonal declines in the fourth quarter from the third quarter of mid to high-single-digits. This year, with some budgets being spent more aggressively in the first three quarters of the year in the U.S., we would be at the high end of that range.

However, the delayed project revenue from the third quarter will somewhat this impact. The net impact is an expected sequential decline from the third quarter of 2018 to the fourth quarter between 4% and 7% resulting in fourth quarter revenues in excess of $1 billion.

Our September 2018 backlog is $730 million, down from a year ago and from the second quarter. This is primarily reflective of the winding up of some of the major customer projects we have been delivering on over the past two years.

In addition, we have continued to shift our focus to higher margin line pipe business, often sacrificing top-line growth for improved gross profit margins. This now leads me to our outlook for next year.

Based on our preliminary analysis of early estimates and customer spending surveys and considering about a $300 million reduction in expected project revenue in 2019 versus 2018, as major projects in each of our sectors wind down this year, we are currently expecting low to mid-single-digit revenue growth next year with a slower start to the year and higher spending in the back half of the year.

However, we expect the reduction in project and low-margin revenue to have a positive impact on our gross profit percentage. Keep in mind that we have yet to see final customer capital budgets for 2019, which is always a key input for our budgeting and forecasting process.

I want to give you some additional color around how I think the next year could develop. As is our customary practice, we will provide complete 2019 guidance on our February 2019 earnings call when it is clearer what our customer spending plans are for the next year.

With everything I just discussed, I feel we are performing very well in the second year of the recovery. I look forward to finishing 2018 on a strong note and then look to 2019, which I expect to be a third year of growth for the industry and for MRC Global.

No one has the broad, diversified MRO customer contract position or the experienced management team and employee base that MRC Global possesses. We remain uniquely positioned in the PBF distribution space across all three energy end-markets to continue to take advantage of the favorable long-term trends in energy infrastructure investments.

So with that, I'll now turn the call over to Jim to cover the third quarter results in more detail..

Thanks, Andrew and good morning, everyone. Total sales for the third quarter of 2018 were $1.71 billion, 12% higher than the third quarter of last year, driven by our upstream and downstream sectors. Sequentially, revenue decreased 1% from the second quarter, as project deliveries were delayed and pushed out of the third quarter.

Beginning with our largest segment, U.S. revenues was $859 in the quarter, up 13% from the third quarter of last year, led by downstream sector and closely followed by upstream. U.S.

downstream sector benefited from $14 million more in project deliveries for Shell's Pennsylvania polymers project, increased maintenance and repairs from turnarounds and outages, as well as market share gains from new and expanded contract customers. In total, the U.S. downstream was up 29%. The U.S.

upstream business increased $49 million or 30% from the third quarter last year, as well completion activity increased, driven primarily by increased activity in the Permian where revenue was up 63% from the third quarter of last year. Our U.S.

upstream growth outpaced the overall increase in EI well completions in the third quarter due to our customer and geography mix. Our midstream activity decreased slightly at $3 million or 1%, primarily due to a decline in non-recurring project work for TransCanada.

Excluding this project, which is classified in our transmission and gathering sub-sector, our U.S. midstream business grew 6%. Revenues from gas utilities declined 3%, primarily due to large line pipe deliveries in the third quarter of 2017. Sequentially, U.S.

segment sales were down from the second quarter by 2%, primarily due to midstream TransCanada project work, partially offset by increases in the upstream sector from increased completion activity and downstream from turnarounds in market share gains. Canadian revenue was $78 million in the third quarter, up 1% from the third quarter of last year.

Canadian activity continues to be somewhat muted, as spending lags due to oil price differential and capacity constraints. The Canadian segment was also negatively impacted by $3 million from weakness in the Canadian dollar against the U.S. dollar in the quarter. Sequentially, Canadian revenue declined 3% due to lower upstream activity.

In the international segment, third quarter 2018 revenue was $134 million, up 9% from a year ago. Sales were higher due to upstream project deliveries in Kazakhstan, partially offset by a decline in the midstream sector from a non-recurring pipeline project in Australia.

The international segment was also negatively impacted by $3 million from foreign currency weakness against the U.S. dollar in the quarter. International revenue was also up 8% sequentially from the second quarter of 2018. Now turning to our results based on the end-sectors.

Compared to the same quarter a year ago, upstream and downstream sales grew double-digits, while midstream was lower by 3%.

Starting with the upstream sector, third quarter 2018 sales increased 26% from the same quarter last year to $338 million, driven primarily by higher well completions in the United States, particularly in the Permian, as well as increased project deliveries to Kazakhstan in our international segment.

Downstream sector third quarter 2018 sales grew 23% from the same quarter last year to $311 million, driven primarily by the U.S. downstream as described earlier. Midstream sector third quarter 2018 sales declined by $15 million or 3% from the same quarter last year to $422 million.

The decline was primarily related to a 2017 line pipe order for a major pipeline project in Australia and to a lesser degree, lower sales in the U.S. Both U.S. midstream sub-sectors were down due to non-recurring project works as discussed earlier.

Excluding these two major items in our transmission and gathering sub-sector from both comparable periods, our midstream business increased by 6% in the third quarter of 2018. Now turning to margins, gross profit percent increased 30 basis points to 16.1% in the third quarter of 2018 from 15.8% in the third quarter of 2017.

LIFO was a headwind for the quarter, as we recorded LIFO expense of $26 million and $13 million in the third quarter of 2018 and 2017 respectively. Despite the larger LIFO expense, we were able to grow gross profit percentage due to our favorable inventory cost position.

Given the inflationary environment, we now expect our LIFO to expense to be approximately $64 million for the full year. The adjusted gross profit percentage was 20.1% in the third quarter of 2018, up from 19% in the third quarter of 2017.

The increase in adjusted gross profit percentage reflects the positive impact of the inflationary conditions mentioned earlier and a favorable product mix including less low-margin project work. We expect our favorable inventory costing position to continue into the first half of 2019.

As noted, we've seen inflation in line pipe prices, which have increased considerably in 2018. Based on the latest Pipe Logix All Items Index, average line pipe spot prices in the third quarter of 2018 were 29% higher than the third quarter of 2017 and only 1% higher sequentially.

Pipe inflation has leveled off as the market has adjusted to the tariffs and quotas. SG&A cost for the third quarter of 2018 were $140 million, an increase of $10 million or 8% from $130 million a year ago, due primarily to wage and incentive increases and volume-related increases from higher activity levels.

As a percentage of sales, SG&A fell to 13.1% from 13.6%, as revenue growth exceeded increase in operating expenses. Sequentially compared to the second quarter of 2018, SG&A expense was up $4 million, due to higher personnel and operating costs.

Interest expense totaled $10 million in the third quarter of 2018, which was $1 million higher than the third quarter of last year, primarily due to higher average debt balances.

Our tax rate for the third quarter was 0%, resulting in no tax expense, as we recorded a $6 million benefit related primarily to a favorable adjustment to the 2017 provisional tax amounts related to the new tax law passed last December.

Consequently, we now expect the full year 2018 annual effective tax rates to be closer to the statutory rate of 21%. Our third quarter 2018 net income attributable to common shareholders was $18 million or $0.20 per diluted share, as compared to a loss of $3 million or $0.03 last year.

Adjusted EBITDA in the third quarter was up 43% to $80 million, versus $56 million in the same period a year ago. Adjusted EBITDA margins for the quarter were 7.5%, up from 5.8% a year ago for a 170 basis point improvement.

Incremental adjusted EBITDA was 21.4% for the third quarter of 2018, over the same quarter a year ago, well above historical levels, as adjusted gross profit margin improved and operating expenses were aggressively controlled.

All three of our segments generated positive adjusted EBITDA this quarter including international, which continues to benefit from the cost reduction and restructuring actions taken at the end of 2017.

Our working capital net of cash at the end of the third quarter of 2018 was $962 million, $262 million more than a year ago and $254 million more than at the end of 2017. As a result, at the end of the third quarter 2018, our working capital excluding cash, as a percentage of trailing twelve month sales was 23.7%, above our 20% target.

However, we expect to get closer to the 20% range by the end of the year as our inventory levels begin to decline in the third quarter. We used $7 million of cash from operations in the third quarter of 2018, which was down from the second quarter of 2018, where we used $65 million.

This indicates a slower pace of building working capital in the third quarter. An expected seasonal slowdown in the fourth quarter should result in operating cash inflows. As such, as expect that we will generate cash from operations in the fourth quarter of 2018, but we will end up in a use of cash position for the full year of 2018.

Our debt outstanding at the end of the third quarter was $719 million, compared to $526 million at the end of 2017. Our leverage ratio based on net debt of $690 million remained at 2.7 times, the same as it was at the end of last year. The availability on our ABL facility was $418 million at the end of the third quarter and we had $29 million in cash.

Capital expenditures were $6 million in the third quarter and $15 million for the first nine months of the year. We also received $6 million in proceeds from the sale of our Darien property, which was vacated when we moved into our new facility in La Porte, Texas. And with that, we will now take your questions.

Operator?.

Thank you. Ladies and gentlemen, we will now be conducting our Q&A session. [Operator Instructions] Our first question comes from the line of Sean Meakim from JPMorgan. You are now live..

Thank you. Hey, good morning..

Good morning, Sean..

So, Andy, you got line of sight now to that 8% margin we've been talking about the last few years. Things look right on schedule. 25% low revenue than prior cycle peak, just as you said it would. We've also talked about shifting 8% from being viewed as peak of the cycle to maybe mid-cycle.

And so, I am thinking – I am wondering if you have a framework on what it takes to get to 10% margins? I am not trying to get ahead of ourselves. I know it's not necessarily a 2019 story.

But is 2014 peak revenue of $6 billion a good bogey for that type of profitability or could it be somewhere in between the two? So how do you think about that?.

Yeah, Sean, I have been really focused on that over the last couple years. And I am pleased with where we are, because, as you know, we peaked in on the old business model at 8.3% in 2012 and we are on a very good pace for 6.8%, 6.9% this year.

And I felt with the changes in the model and the focus on higher margins that as you said, we can reach peak EBITDA margins at $1 billion less revenue than the last cycle and I still feel that way. When you look at the performance in the U.S. very strong at 8.5%.

Peak back at 2012 was 9.7%, and our product profitability mix is much better in this cycle, as you've already seen. So, I think we can get back. We still have good runway to increased EBITDA percentage in the U.S. as the market continues to increase in spending and we leverage our business model that's valve-centric now.

So, I am really focused on getting us back to mid-cycle EBITDA performance in 2019. It's been Jim and my goal for a couple years now and we've really been targeting 2019 for that accomplishment.

And I still think we're on track for that even with maybe a slow start in the first quarter with our shift to more MRO next year and all of our strategies on inventory purchases and product line sales.

I think we're going to get in at least the bottom of that range and maybe better dependent on how much spending comes in, but that's been the target for multiple years I've talked about. And we're still on track for that for next year..

Thank you for that. Yeah, I think that makes sense. And so just, maybe just to follow-on, you mentioned the shift towards more MRO and I think in the prepared comments, mid and downstream, you highlighted the big slug of projects that's winding down here.

I think that a project cliff is probably the number one pushback I hear from investors, especially in midstream, this CapEx cliff. It seems like it's been on the horizon for a decade now. But it never really materializes.

Maybe you can help us just peel back the onion a bit and I think investors would like to understand better how you are able to backfill some of those projects in terms of the revenue you expected to generate in 2019. Just how do we get from Point A to B? I think people would like to learn a little more about that..

Okay, Sean. Good. Let me address that. It’s a – there is three major projects we've been talking about for over a year now. One is, midstream and that was really an accelerated build-out and project spend on gas pipelines for TransCanada in the Northeast of the U.S, so that's a $100 million drop that we go from 2018 to 2019.

The other $100 million drop is downstream, same Northeast U.S. for Shell polymer on the petrochemical plant. These are big projects that we played a big role in. Done very well with them, but that one also is winding down in 2018. So that's the second $100 million.

And then the third $100 million is an upstream project, a future growth project with Chevron TCO in Kazakhstan, also a very good project for us. But those three, all very different projects. All where we played big roles. Winding down in 2018. So that's the whole for 2019 from a project basis.

But in parallel to that, we've really been focused on MRO and expanding contract scope, renewing contracts, and we are doing very well on that. So projects tend to be larger around the top-line growth for us, but less on the bottom-line contribution. And so, we are pivoting more towards smaller projects, projects with fabricators.

If you look at our U.S. fabricator base, which is small cap projects, we don't talk a lot about that, but we serve 200 fabricators in the U.S., and our revenue there this year is forecasted to be $375 million, growing by 20%.

So part of replacing the large-cap projects is more growth in the small cap projects and fabricators, which our margins are much better than the megaprojects that we referred to. And also, you are going to really see the strength of our profitability in our MRO model next year, because we are going to be primarily an MRO-focused business next year.

So, growth in projects, the market is going to grow. We see 12 to - if you do the math from where we think we'll end up this year, less the $300 million in projects, double-digit growth in spending next year and we exceed that with our contract position. So you get to the overall guide we gave, at least preliminary guide for next year..

That's very helpful. Thanks for walking through that..

Thank you, Sean..

Thank you. Our next comes from the line of Nathan Jones from Stifel. You are now live..

Good morning, everyone..

Good morning, Nathan..

Just following-up on a few other things there. You talked about getting to 8% EBITDA margins, maybe on $5 billion of revenue rather than $6 billion of revenue.

I was – just taking a look at the SG&A line here, I think in your prepared comments, you talked about 13% being a sustainable level, but if we go back a few years to where your previous peak EBITDA margins were, those were down at 11 - slightly under 11%.

Is there a reason why we couldn't see that SG&A number get back down toward that 11%? Is there some of these structural changes that you've made in the business model that requires some higher SG&A to support?.

Yeah, Nathan. Let me start and Jim can add some comments too. But I would say a couple of things. I think, my comment about 13% sustainable is really a 2019 comment. I think as we continue to leverage spending increases that we expect in 2020, I think, we could get down to 12%. I think there is a slight difference to that you are referring to.

When we had a real carbon-heavy OCTG was a low-margin business that had low SG&A to support it. Lots of top-line growth back in that previous cycle. So, we don't have that model, higher-margin business. We have more technical content and personnel.

Plus we've had inflation in personnel costs, especially in the Permian and other areas in the Gulf Coast, where as the business picks back up. So, some of this is a little bit of inflation impact on cost.

Some of it's a little bit in the change of our model to high-end value-added technical services instead of a low value-added commodity sales in OCTG. And then - but I certainly think we have some more leverage. I wouldn't say it sticks at 13%. I think we have some room in 2020 to do even better..

Gotcha. So some of this a little bit of the puts and takes that has to do with a little bit of a somewhat of a lower growth rate on revenue in 2019.

So less revenue to leverage those costs across or less growth in revenue?.

Exactly, Nathan. And if spending turns up more positive in the U.S. especially in 2019, especially in the last three quarters, we'd be able to leverage that to a little better result too..

Got it. That makes sense. I wonder if I could get a little bit more color on some of the margin impacts from the absence of some of these large projects. You said you're going to be more focused on MRO, larger projects have low margins.

Is there any color you can give us around what the margin differentials are? Or what kind of tailwind that might be to gross margins in 2019? I've got to figure that's primarily where it's going to hit for you.

But any kind of color you can give us around that?.

Yeah, Nathan. Let me give you some general comments. And we'll get more specific in February. But the way I look at the business, it's been a couple year transition. We were - adjusted gross profit percentage is what I am going to talk to. A 17% in 2016 and 18.6% in 2017, and some of this is transitioning to the new model.

And then this year, we've had steady improvement, 19.1% in the first quarter, 19.3% in the second quarter, 20.1% in the third quarter. I would say the fourth quarter with some of that project billing that slid from the third quarter into the fourth, we will be - we're 19.5% to 19.75%. We'll be above that in the fourth quarter.

And Jim and I certainly expect with a shift to less projects and more MRO focus, as we finish this year, adjusted gross profit margin will be higher than that in 2019 and we'll be more specific on the February call, when it's clearer..

Nathan, just to give you a little color, but again, relative to the overall company average, which as you know the quarter was 20%. These $300 million of projects, these are margins that are down closer to the 10%, 12% range. So, certainly has an impact as you look at the mix of revenue going forward..

That's helpful. Thanks very much. I'll pass it on..

Thank you. Ladies and gentlemen, [Operator Instructions] Our following question comes from the line of Steve Barger from KeyBanc Capital Markets. You are now live..

Good morning, guys. This is Ryan Mills on for Steve..

Good morning, Ryan..

Yes, it sounds like free cash flow is going to start to be positive here.

So, I was just curious if you could rank your capital allocation priorities, whether it be debt reduction or focusing on share repurchases or potentially M&A?.

Yes, Ryan, let me first address the free cash flow. We are very positive. We've built up an inventory position in the first half of the year, because of the tariff impacts and our ability to carry more inventory at a lower cost. So I am very pleased with where we are in inventory.

But as some of these major projects that shift in the third and fourth quarter, we see that leveling off. So, we – at the second quarter was the peak for us at $872 million and we finished down slightly in the third quarter at $849 million. I expect us to be around closer to $800 million by the end of the year.

So from a free cash flow perspective, $50 million in the fourth quarter from inventory reduction and $25 million from receivables. So we see that as a positive $75 million in the fourth quarter. And that carries into next year and the broader question, on capital allocation, we'll always prioritize growth in the business first, organic growth.

That's the priority right now. We still believe, even with these projects rolling off, we have a really good MRO and a good customer spending increase next year coming. So, we'll position for that. And of course, some of these tariffs ramp up in January.

So we'll certainly be placing orders ahead of that to position us for the best cost position for inventory in the first half of 2019. And so that would be the top priority.

The share repurchase with the pullback in the whole sector and the pull back in our share specifically, certainly a priority for us and the Board - management and the Board, as the new $150 million authorization. So we'll be very active. We'll be in the market next week.

And so that's a priority besides growth of business and then, any excess cash flow, we will be paying down debt and M&A would be the last priority. We are not active in anything major in that area right now..

Okay. And then, I wanted to talk a little bit more about capacity constraints in the Permian. The general thought is, those constraints will go away in mid-2019. And it kind of sounds like that's what's baked into your guide.

Is there any concern that those constraints persist out further than the mid-year of 2019, maybe throughout all of 2019?.

No, we don't see that and as we highlighted in our opening comments, we've had tremendous growth in the Permian. It's a big market. It's still a very important market. The slowdown that you read plenty about is in the smaller operators, the one and two rig operators. That's not our customer base.

And of course, we are equally balanced between up and midstream and downstream. So, we'll participate a lot in both line pipe and midstream valves, automated valves in 2019 as the pipelines get built out. So, any little slowdown you might see us, but we don't anticipate it with our customer mix.

We are really focused with our contract position on the major customers and they will proceed through because they have pipeline capacity. So, our customer mix will be favorable, even if there is a little slowdown in the upstream, we will offset that with the midstream activity we have going on. So, we don't see it. It's going to be muted for us.

We are not like the big, fat companies or the slowdown that you are seeing in fracs, in completions. We're much more weighted to the tank batteries and the pipeline side of things and as we said, we track very well with the number of well completions. Our U.S. upstream is up 25%, with the completions up 26%.

So that's the best metric is, if well completions fall off in the early part of the year, the pipeline work will offset it. So we see still Permian will be a bright spot for us and we certainly don't see an extending past the first couple quarters..

Thank you..

Thank you. Ladies and gentlemen, we have no further questions in queue at this time. I'd like to turn the floor back over to Monica Broughton for closing comments..

Thank you for joining us today and for your interest in MRC Global. We look forward to having you join us on our February 2019 conference call, where we will discuss our fourth quarter and full year 2018 results, as well as our complete 2019 outlook. Have a good day. Good bye..

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