MRC Global Announces Full Year and Fourth Quarter 2020 Results

HOUSTON, Feb. 11, 2021 /PRNewswire/ --

MRC Global Inc. (NYSE: MRC), the largest global distributor, based on sales, of pipe, valves and fittings and other infrastructure products and services to the energy industry, today announced full year and fourth quarter 2020 results.

The company's sales were $579 million for the fourth quarter of 2020, which was 1% lower than the third quarter of 2020 and 24% lower than the fourth quarter of 2019. Sequential sales were essentially flat as both the gas utilities and upstream production sectors experienced growth, offset by declines in the midstream pipeline and downstream and industrial sectors. The international segment also experienced growth on a sequential basis. As compared to the fourth quarter of 2019, the decline in sales was across all sectors and segments, with the exception of the gas utilities segment, which experienced significant growth.

Net loss attributable to common stockholders for the fourth quarter of 2020 was ($11) million, or ($0.13) per diluted share, as compared to a net loss of ($30) million, or ($0.37) per diluted share in the fourth quarter of 2019. Please refer to the reconciliation of adjusted net income (loss) (a non-GAAP measure) to net income (loss) (a GAAP measure) included in this release.

Andrew R. Lane, MRC Global's president and chief executive officer stated, "Overcoming enormous challenges in 2020, I am proud of our MRC Global team for staying focused and executing our strategy for long-term shareholder value. We exceeded all the targets we set for 2020 including generating $261 million of cash from operations and reducing our net debt by almost half to $264 million, with a leverage ratio of 2.7 times. We ended the year with $119 million in cash and our term loan does not mature until 2024. We set a new record for adjusted gross margins in 2020 achieving 19.7% for the year. We also reduced our normalized operating costs by $113 million in 2020, with a majority of these structural, positioning the company well for higher incremental margins going forward. I am also very happy that despite the challenges of the pandemic, we stayed focused on our employee safety and finished the year with the best recorded safety performance in our history. As the oil and gas market recovers, we are well-positioned with a great team, $551 million in liquidity and a lean cost structure that will allow us to take full advantage of the opportunities ahead.

"Next week, MRC Global celebrates a significant milestone, our 100-year anniversary, an achievement few can claim. It is just the beginning however, and we look forward to remaining the leading global PVF distributor to the oil and gas industry providing world-class supply chain solutions for our customers, creating new opportunities for our employees and generating superior returns for our shareholders." Mr. Lane added.

MRC Global's fourth quarter 2020 gross profit was $90 million, or 15.5% of sales, as compared to gross profit of $131 million, or 17.1% of sales, in the fourth quarter of 2019. Gross profit for the fourth quarter of 2020 and 2019 each reflect expense of $1 million in cost of sales relating to the use of the last-in, first out (LIFO) method of inventory cost accounting. Gross profit for the fourth quarter of 2020 and 2019 was also negatively impacted by $12 million and $5 million of pre-tax charges related to the non-cash write-off of excess and obsolete inventory, respectively. Adjusted gross profit, which excludes these items as well as others, was 19.7% in both the fourth quarter of 2020 and 2019. Please refer to the reconciliation of adjusted gross profit (a non-GAAP measure) to gross profit (a GAAP measure) included in this release.

Selling, general and administrative (SG&A) expenses were $97 million, or 16.8% of sales, for the fourth quarter of 2020 compared to $141 million, or 18.4% of sales, for the same period of 2019. SG&A expenses for the fourth quarter of 2020 and 2019 include $2 million and $4 million of pre-tax severance and restructuring charges. SG&A expenses for the fourth quarter of 2020 also include $1 million of pre-tax sub-lease income.

For the three months ended December 31, 2020, the income tax benefit was ($2) million on a ($7) million pre-tax loss resulting in an effective tax rate of 29%. The company's rates generally differ from the U.S. federal statutory rate of 21% as a result of state income taxes and differing foreign income tax rates. For the three months ended December 31, 2019, the income tax expense was $5 million on a ($19) million pre-tax loss. This was due primarily to losses incurred in foreign jurisdictions with no corresponding tax benefit and additional taxes related to changes in tax regulations. 

Adjusted EBITDA was $22 million in the fourth quarter of 2020 compared to $23 million for the same period in 2019. Please refer to the reconciliation of non-GAAP measures (adjusted EBITDA) to GAAP measures (net income) in this release.

Sales by Segment

U.S. sales in the fourth quarter of 2020 were $448 million, down $160 million, or 26%, from the same quarter in 2019. Gas utilities' sector sales were up $38 million or 21% as many customers increased spending in the fourth quarter, which is uncommon compared to historical trends, due to a budget catch-up from lower spending earlier in the year related to pandemic restrictions. Downstream and industrial sector sales declined by $68 million, or 36%, as critical turnarounds were completed but overall spending was reduced in response to lower demand created by the pandemic. Upstream production sector sales declined $77 million, or 55%, as a result of reduced spending from the pandemic and a 57% reduction in well completions. Midstream pipeline sector sales declined $53 million, or 51%, primarily due to less customer spending as projects were canceled or delayed associated with reduced demand for infrastructure as production declined.

Canadian sales in the fourth quarter of 2020 were $23 million, down $20 million, or 47%, from the same quarter in 2019 driven by the upstream sector, which was adversely affected by the pandemic and associated reduced demand.

International sales in the fourth quarter of 2020 were $108 million, down $7 million, or 6%, from the same period in 2019 driven primarily by weaker demand in the upstream sector from the impact of the pandemic particularly in the Middle East and Norway. Stronger foreign currencies relative to the U.S. dollar favorably impacted sales by $5 million. 

Sales by Sector

Gas utilities sales in the fourth quarter of 2020 were $217 million, or 37% of total sales, up $37 million, or 21%, from the fourth quarter of 2019 due primarily to the U.S. segment, as described above.

Downstream and industrial sales in the fourth quarter of 2020 were $174 million, or 30% of total sales, down $70 million, or 29%, from the fourth quarter of 2019 due primarily to the U.S. segment, as described above.

Upstream production sales in the fourth quarter of 2020 were $126 million, or 22% of total sales, down $98 million, or 44%, from the fourth quarter of 2019. The decrease in upstream sales was across all geographic segments, as described above.

Midstream pipeline sales in the fourth quarter of 2020 were $62 million, or 11% of total sales, down $56 million, or 47%, from the fourth quarter of 2019 due primarily to the U.S. segment, as described above.

Balance Sheet and Cash Flow

Cash balances were $119 million at December 31, 2020. Debt, net of cash, was $264 million and excess availability under the company's asset-based lending facility was $432 million as of December 31, 2020. Cash provided by operations was $83 million in the fourth quarter of 2020 resulting in $261 million of cash provided by operations in 2020. Free cash flow (cash provided by operations less capital expenditures less preferred stock dividends) was $226 million in 2020. The company believes MRC Global's liquidity position of $551 million is sufficient to support the business and capital needs of the company.

COVID-19 Pandemic Impact

The COVID-19 pandemic and related mitigation measures have created significant volatility and uncertainty in the oil and gas industry. Oil demand has significantly deteriorated as a result. The unparalleled demand destruction has resulted in lower spending by our customers and reduced demand for the company's products and services. Although we have seen a modest improvement in oil demand, uncertainty exists as to when a more significant recovery will occur. 

As a critical supplier to the global energy infrastructure and an essential business, the company has remained operational with no closures to any facilities. Our office staff initially worked from home as the pandemic began but has returned to the office in varying degrees depending on the stage of the pandemic at each locality. As of February 2, 2021, the company had 10 active COVID-19 illnesses reported, which is 0.4% of our global workforce. MRC Global has implemented various safety measures for employees working in the company's facilities and implemented remote working for those whose jobs permit it. MRC Global is committed to a safe working environment for all employees and is constantly monitoring its response in the locations where the company operates.

From a supply chain perspective, given the company's inventory position and the reduced demand, the company has fulfilled orders with little disruption.

Conference Call

The company will hold a conference call to discuss its fourth quarter and full year 2020 results at 10:00 a.m. Eastern Time (9:00 a.m. Central Time) on February 12, 2021. To participate in the call, please dial 412-902-0003 and ask for the MRC Global conference call at least 10 minutes prior to the start time. To access the conference call, live over the Internet, please log onto the web at www.mrcglobal.com and go to the "Investor Relations" page of the company's website at least fifteen minutes early to register, download and install any necessary audio software. For those who cannot listen to the live call, a replay will be available through February 26, 2021 and can be accessed by dialing 201-612-7415 and using pass code 13714607#. Also, an archive of the webcast will be available shortly after the call at www.mrcglobal.com for 90 days.

About MRC Global Inc.

MRC Global is the largest distributor of pipe, valves and fittings (PVF) and other infrastructure products and services to the energy industry, based on sales. Through approximately 230 service locations worldwide, approximately 2,600 employees and with 100 years of history, MRC Global provides innovative supply chain solutions and technical product expertise to customers globally across diversified end-markets including the upstream production, midstream pipeline, gas utility and downstream and industrial. MRC Global manages a complex network of over 200,000 SKUs and over 10,000 suppliers simplifying the supply chain for approximately 12,000 customers. With a focus on technical products, value-added services, a global network of valve and engineering centers and an unmatched quality assurance program, MRC Global is the trusted PVF expert. Find out more at www.mrcglobal.com.

This news release contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Words such as "will," "expect," "expected," "intend," "believes," "on-track," "well positioned," "look forward," "guidance," "plans," "can," "target," "targeted" and similar expressions are intended to identify forward-looking statements.

Statements about the company's business, including its strategy, its industry, the company's future profitability, the company's guidance on its sales, adjusted EBITDA, tax rate, capital expenditures, achieving cost savings and cash flow, debt reduction, liquidity, growth in the company's various markets and the company's expectations, beliefs, plans, strategies, objectives, prospects and assumptions are not guarantees of future performance. These statements are based on management's expectations that involve a number of business risks and uncertainties, any of which could cause actual results to differ materially from those expressed in or implied by the forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors, most of which are difficult to predict and many of which are beyond MRC Global's control, including the factors described in the company's SEC filings that may cause the company's actual results and performance to be materially different from any future results or performance expressed or implied by these forward-looking statements.

These risks and uncertainties include (among others) decreases in oil and natural gas prices; decreases in oil and natural gas industry expenditure levels, which may result from decreased oil and natural gas prices or other factors; U.S. and international general economic conditions; the company's ability to compete successfully with other companies in MRC Global's industry; the risk that manufacturers of the products the company distributes will sell a substantial amount of goods directly to end users in the industry sectors the company serves; unexpected supply shortages; cost increases by the company's suppliers; the company's lack of long-term contracts with most of its suppliers; suppliers' price reductions of products that the company sells, which could cause the value of the company's inventory to decline; decreases in steel prices, which could significantly lower MRC Global's profit; increases in steel prices, which the company may be unable to pass along to its customers which could significantly lower its profit; the company's lack of long-term contracts with many of its customers and the company's lack of contracts with customers that require minimum purchase volumes; changes in the company's customer and product mix; risks related to the company's customers' creditworthiness; the success of the company's acquisition strategies; the potential adverse effects associated with integrating acquisitions into the company's business and whether these acquisitions will yield their intended benefits; the company's significant indebtedness; the dependence on the company's subsidiaries for cash to meet its obligations; changes in the company's credit profile; a decline in demand for certain of the products the company distributes if import restrictions on these products are lifted or imposed; significant substitution of alternative fuels for oil and gas; environmental, health and safety laws and regulations and the interpretation or implementation thereof; the sufficiency of the company's insurance policies to cover losses, including liabilities arising from litigation; product liability claims against the company; pending or future asbestos-related claims against the company; the potential loss of key personnel; adverse health events such as a pandemic; interruption in the proper functioning of the company's information systems and the occurrence of cyber security incidents; loss of third-party transportation providers; potential inability to obtain necessary capital; risks related to adverse weather events or natural disasters; impairment of the company's goodwill or other intangible assets; adverse changes in political or economic conditions in the countries in which the company operates; exposure to U.S. and international laws and regulations, including the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act and other economic sanction programs; risks associated with international stability and geopolitical developments; risks relating to ongoing evaluations of internal controls required by Section 404 of the Sarbanes-Oxley Act; risks related to the company's intention not to pay dividends; and risks arising from compliance with and changes in law in the countries in which we operate, including (among others) changes in tax law, tax rates and interpretation in tax laws.

For a discussion of key risk factors, please see the risk factors disclosed in the company's SEC filings, which are available on the SEC's website at www.sec.gov and on the company's website, www.mrcglobal.com. MRC Global's filings and other important information are also available on the Investor Relations page of the company's website at www.mrcglobal.com. 

Undue reliance should not be placed on the company's forward-looking statements. Although forward-looking statements reflect the company's good faith beliefs, reliance should not be placed on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which may cause the company's actual results, performance or achievements or future events to differ materially from anticipated future results, performance or achievements or future events expressed or implied by such forward-looking statements. The company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise, except to the extent required by law.

Contact:

Monica Broughton
Investor Relations
MRC Global Inc.
Monica.Broughton@mrcglobal.com
832-308-2847

The company defines adjusted gross profit as sales, less cost of sales, plus depreciation and amortization, plus amortization of intangibles, plus inventory-related charges and plus or minus the impact of its LIFO inventory costing methodology. The company presents adjusted gross profit because the company believes it is a useful indicator of the company's operating performance without regard to items, such as amortization of intangibles, that can vary substantially from company to company depending upon the nature and extent of acquisitions of which they have been involved. Similarly, the impact of the LIFO inventory costing method can cause results to vary substantially from company to company depending upon whether they elect to utilize LIFO and depending upon which method they may elect. The company uses adjusted gross profit as a key performance indicator in managing its business. The company believes that gross profit is the financial measure calculated and presented in accordance with U.S. generally accepted accounting principles that is most directly comparable to adjusted gross profit.

The company defines adjusted selling, general and administrative (SG&A) expenses as SG&A, less severance and restructuring expenses, facility closures plus the recovery of supplier bad debt. The company presents adjusted SG&A because the company believes it is a useful indicator of the company's operating performance without regard to items that can vary substantially from company to company. The company presents adjusted SG&A because the company believes Adjusted SG&A is a useful indicator of the company's operating performance. Among other things, adjusted SG&A measures the company's operating performance without regard to certain non-recurring, non-cash or transaction-related expenses. The company uses adjusted SG&A as a key performance indicator in managing its business. The company believes that SG&A is the financial measure calculated and presented in accordance with U.S. generally accepted accounting principles that is most directly comparable to adjusted SG&A.

The company defines adjusted EBITDA as net income plus interest, income taxes, depreciation and amortization, amortization of intangibles, and certain other expenses, including non-cash expenses, (such as equity-based compensation, severance and restructuring, changes in the fair value of derivative instruments and asset impairments, including inventory) and plus or minus the impact of its LIFO inventory costing methodology. The company presents adjusted EBITDA because the company believes adjusted EBITDA is a useful indicator of the company's operating performance. Among other things, adjusted EBITDA measures the company's operating performance without regard to certain non-recurring, non-cash or transaction-related expenses. adjusted EBITDA, however, does not represent and should not be considered as an alternative to net income, cash flow from operations or any other measure of financial performance calculated and presented in accordance with GAAP. Because adjusted EBITDA does not account for certain expenses, its utility as a measure of the company's operating performance has material limitations. Because of these limitations, the company does not view adjusted EBITDA in isolation or as a primary performance measure and also uses other measures, such as net income and sales, to measure operating performance. See the company's Annual Report filed on Form 10-K for a more thorough discussion of the use of adjusted EBITDA.

The company defines adjusted net income attributable to common stockholders (a non-GAAP measure) as net income attributable to common stockholders less after-tax goodwill and intangible impairment, inventory-related charges, facility closures, severance and restructuring, plus or minus the after-tax impact of its LIFO inventory costing methodology. The company presents adjusted net income attributable to common stockholders and related per share amounts because the company believes it provides useful comparisons of the company's operating results to other companies, including those companies with whom we compete in the distribution of pipe, valves and fittings to the energy industry, without regard to the irregular variations from certain restructuring events not indicative of the on-going business. Those items include goodwill and intangible asset impairments, inventory-related charges, facility closures, severance and restructuring as well as the LIFO inventory costing methodology. The impact of the LIFO inventory costing methodology can cause results to vary substantially from company to company depending upon whether they elect to utilize LIFO and depending upon which method they may elect. The company believes that net income attributable to common stockholders is the financial measure calculated and presented in accordance with U.S. generally accepted accounting principles that is most directly compared to adjusted net income attributable to common stockholders.

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SOURCE MRC Global Inc.