MRC Global Announces Fourth Quarter and Full Year 2017 Results
HOUSTON, Feb. 15, 2018 /PRNewswire/ -- MRC Global Inc. (NYSE: MRC), the largest global distributor, based on sales, of pipe, valves and fittings and related products and services to the energy industry, today announced fourth quarter 2017 results.
The company's sales were $903 million for the fourth quarter of 2017, which was 26% higher than the fourth quarter of 2016 and 6% lower than the third quarter of 2017 due to seasonality. As compared to 2016, all sectors increased driven primarily by midstream and upstream.
Net income attributable to common stockholders for the fourth quarter of 2017 was $29 million, or $0.30 per diluted share, which includes the impact of tax reform, as compared to a net loss attributable to common stockholders for the fourth quarter of 2016 of $(24) million, or $(0.25) per diluted share. The results for the fourth quarter of 2017 include a provisional tax benefit of $50 million, or $0.53 per diluted share, related to the accounting for United States tax reform legislation. The fourth quarter 2017 and 2016 results include after-tax charges for severance and restructuring of $14 million, or $0.15 per diluted share and $7 million or $0.07 per diluted share, respectively. The fourth quarter of 2017 also includes after-tax charges of $6 million or $0.06 per diluted share for the write off of inventory in the international segment related to reducing our local presence in Iraq.
"Fourth quarter results came in where we anticipated, sales were down 6% sequentially due to seasonality primarily in the midstream business and up 26% over the same quarter a year ago as a result of market improvements and solid execution, which resulted in Adjusted EBITDA of $43 million in the fourth quarter. In addition, during the quarter we repurchased $50 million of common stock at an average price of $15.57 under our $100 million share repurchase authorization," Andrew R. Lane, MRC Global's president and chief executive officer stated.
"Revenue grew 20% in 2017 over 2016, driven by our North American midstream and upstream sectors as the industry recovered from the downturn of 2015 and 2016. We continued to defend and gain market share including signing multi-year framework agreements with three integrated oil companies and we are well positioned for double digit revenue growth in 2018 with our customer contract positions in the improving oil and gas market. Because we are a U.S. tax payer, the U.S. tax reform legislation reducing the corporate tax rate has benefited our financial results in 2017. The lower rate is expected to provide earnings and cash flow benefits in 2018. However, our capital allocation plans have not changed. We intend to invest in the business for growth and return cash to shareholders as we continue to execute our share repurchase authorization," Mr. Lane added.
MRC Global's fourth quarter 2017 gross profit was $141 million, or 15.6% of sales, an increase from fourth quarter 2016 gross profit of $122 million, or 17.0% of sales. Gross profit for the fourth quarter of 2017 includes $6 million of non-cash inventory charges recorded in cost of sales. Gross profit for the fourth quarter of 2017 and 2016 reflects an expense of $9 million and a benefit of $7 million, respectively, in cost of sales relating to the use of the last-in, first out (LIFO) method of inventory cost accounting.
Selling, general and administrative (SG&A) expenses were $148 million, or 16.4% of sales, for the fourth quarter of 2017 compared to $128 million, or 17.8% of sales, for the same period of 2016. SG&A expenses for the fourth quarter of 2017 and 2016 include $14 million and $8 million of pre-tax severance and restructuring charges, respectively.
As a result of United States tax reform legislation signed into law in December 2017 which, among other things, lowered the federal tax rate for corporations to 21% from 35%, the company recorded a provisional income tax benefit of $50 million in the fourth quarter of 2017. This benefit reflects the re-measurement of the company's net deferred tax liabilities to the new lower tax rate which was partially offset by the one-time transition tax on certain tax deferred earnings of foreign subsidiaries.
Adjusted EBITDA was $43 million in the fourth quarter of 2017 compared to $17 million for the same period in 2016. Please refer to the reconciliation of adjusted EBITDA (a non-GAAP measure) to net income (loss) (a GAAP measure) in this release.
Sales by Segment
U.S. sales in the fourth quarter of 2017 were $715 million, up $165 million, or 30%, from the same quarter in 2016. The increase was across all sectors. Increased well completions, midstream transmission and gathering deliveries and downstream project deliveries all drove the increase.
Canadian sales in the fourth quarter of 2017 were $71 million, up $16 million, or 29%, from the same quarter in 2016 primarily due to the upstream business as a result of an increase in commodity prices which drove an increase in activity levels. Canadian sales were favorably impacted by $3 million as a result of a stronger Canadian dollar relative to the U.S. dollar.
International sales in the fourth quarter of 2017 were $117 million, up $3 million, or 3%, from the same period in 2016. The increase was primarily due to the upstream sector partially offset by a decline in the downstream sector. The strengthening of foreign currencies relative to the U.S. dollar favorably impacted sales by $6 million.
Sales by Sector
Upstream sales in the fourth quarter of 2017 increased 27% over the fourth quarter of 2016 to $277 million, or 31% of total sales. The increase in upstream sales was across all segments, led by our U.S. segment, which was up $35 million followed by our Canadian and International segments, which were each up $12 million as a result of increased customer activity.
Midstream sales in the fourth quarter of 2017 increased 40% from the fourth quarter of 2016 to $375 million, or 41% of total sales. Sales to transmission and gathering customers were up 73% while sales to gas utility customers were up by 12% over the same quarter in 2016.
Downstream sales in the fourth quarter of 2017 increased 8% from the fourth quarter of 2016 to $251 million, or 28% of total sales. The U.S. downstream sector was the primary driver of the increase growing $26 million, or 16%, over the fourth quarter of last year.
Balance Sheet
Cash balances were $48 million at December 31, 2017. Debt, net of cash, was $478 million as of December 31, 2017 and availability under our asset based lending facility was $437 million. Cash used in operations was $11 million in the fourth quarter of 2017, commensurate with expected growth of the business in 2018.
Share Repurchase Program Update
In October 2017, the board of directors authorized a share repurchase program for common stock of up to $100 million. During the fourth quarter, the company purchased $50 million of its common stock at an average price of $15.57 per share. The outstanding share count as of December 31, 2017 is 91.3 million shares.
The shares may be repurchased at management's discretion in the open market. Depending on market conditions and other factors, these repurchases may be commenced or suspended from time to time without prior notice. The program is scheduled to expire on December 31, 2018.
Conference Call
The Company will hold a conference call to discuss its fourth quarter 2017 results at 10:00 a.m. Eastern Time (9:00 a.m. Central Time) on February 16, 2018. 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 March 2, 2018 and can be accessed by dialing 201-612-7415 and using pass code 13674987#. Also, an archive of the webcast will be available shortly after the call at www.mrcglobal.com for 90 days.
About MRC Global Inc.
Headquartered in Houston, Texas, MRC Global, is the largest global distributor, based on sales, of pipe, valves and fittings (PVF) and related products and services to the energy industry and supplies these products and services across each of the upstream, midstream and downstream sectors. More information about MRC Global can be found on our website 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 "expect," "expected," "intend," "believes," "well positioned," "looking forward," "guidance," "plans" 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 and cash flow, 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 our control, including the factors described in the company's SEC filings that may cause our 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; increased usage of alternative fuels, which may negatively affect oil and natural gas industry expenditure levels; 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; 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; 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 our 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. In addition, the Company's intention to continue to repurchase shares of common stock is also subject to the trading price of the stock being at prices that the Company believes are favorable to stockholders and to the Company's debt and liquidity levels being at levels the Company deems sufficient to repurchase shares.
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. Our filings and other important information are also available on the Investor Relations page of our 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
MRC Global Inc.
Condensed Consolidated Balance Sheets (Unaudited)
(in millions)
December 31,
------------
2017 2016
---- ----
Assets
Current assets:
Cash $48 $109
Accounts receivable, net 522 399
Inventories, net 701 561
Other current assets 47 48
--- ---
Total current assets 1,318 1,117
Other assets 21 19
Property, plant and equipment, net 147 135
Intangible assets:
Goodwill, net 486 482
Other intangible assets, net 368 411
$2,340 $2,164
====== ======
Liabilities and stockholders'
equity
Current liabilities:
Trade accounts payable $415 $314
Accrued expenses and other current
liabilities 143 111
Current portion of long-term debt 4 8
--- ---
Total current liabilities 562 433
Long-term obligations:
Long-term debt, net 522 406
Deferred income taxes 106 184
Other liabilities 36 23
Commitments and contingencies
6.5% Series A Convertible Perpetual
Preferred Stock, $0.01 par value;
authorized
363,000 shares; 363,000 shares
issued and outstanding 355 355
Stockholders' equity:
Common stock, $0.01 par value per
share: 500 million shares
authorized,
103,099,692 and 102,529,637 issued,
respectively 1 1
Additional paid-in capital 1,691 1,677
Retained deficit (548) (574)
Treasury stock at cost: 11,751,726
and 7,677,580 shares, respectively (175) (107)
Accumulated other comprehensive
loss (210) (234)
---- ----
759 763
--- ---
$2,340 $2,164
====== ======
MRC Global Inc.
Condensed Consolidated Statements of Operations (Unaudited)
(in millions, except per share amounts)
Three Months Ended Year Ended
------------------ ----------
December 31, December 31, December 31, December 31,
2017 2016 2017 2016
---- ---- ---- ----
Sales $903 $719 $3,646 $3,041
Cost of sales 762 597 3,064 2,573
--- --- ----- -----
Gross profit 141 122 582 468
Selling, general and
administrative expenses 148 128 536 524
--- --- --- ---
Operating (loss) income (7) (6) 46 (56)
Other (expense) income:
Interest expense (7) (9) (31) (35)
Write off of debt issuance costs - (1) (8) (1)
Other, net - (1) - 1
--- --- --- ---
(Loss) income before income taxes (14) (17) 7 (91)
Income tax (benefit) expense (49) 1 (43) (8)
--- --- --- ---
Net income (loss) 35 (18) 50 (83)
Series A preferred stock
dividends 6 6 24 24
--- --- --- ---
Net income (loss)
attributable to
common
stockholders $29 $(24) $26 $(107)
=== ==== === =====
Basic earnings
(loss) per common
share $0.31 $(0.25) $0.28 $(1.10)
Diluted earnings
(loss) per common
share $0.30 (1) $(0.25) $0.27 $(1.10)
Weighted-average common shares,
basic 93.4 95.1 94.3 97.3
Weighted-average common shares,
diluted 94.8 (1) 95.1 95.6 97.3
Notes to above:
---------------
(1) The preferred stock shares
(20.3 million shares) were
dilutive in the fourth
quarter of 2017 only. The
diluted earnings per common
share calculation is
calculated as net income of
$35 million divided by
115.1 million shares.
MRC Global Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in millions)
Year Ended December 31,
-----------------------
2017 2016
---- ----
Operating activities
Net income (loss) $50 $(83)
Adjustments to reconcile
net income (loss) to net
cash (used in) provided by
operations:
Depreciation and
amortization 22 22
Amortization of intangibles 45 47
Equity-based compensation
expense 16 12
Deferred income tax benefit (78) (23)
Amortization of debt
issuance costs 3 4
Inventory-related charges 6 45
Write off of debt issuance
costs 8 1
Increase (decrease) in LIFO
reserve 28 (14)
Change in fair value of
derivative instruments 1 (1)
Provision for uncollectible
accounts 1 4
Foreign currency (gains)
losses (2) 4
Other non-cash items 4 4
Changes in operating assets
and liabilities:
Accounts receivable (118) 128
Inventories (168) 141
Other current assets 10 (23)
Income taxes payable - 6
Accounts payable 93 (13)
Accrued expenses and other
current liabilities 31 (8)
--- ---
Net cash (used in) provided
by operations (48) 253
--- ---
Investing activities
Purchases of property,
plant and equipment (30) (33)
Proceeds from the
disposition of property,
plant and equipment 3 1
Proceeds from the
disposition of non-core
product lines - 48
--- ---
Net cash (used in) provided
by investing activities (27) 16
--- ---
Financing activities
Payments on revolving
credit facilities (696) (41)
Proceeds from revolving
credit facilities 825 41
Payments on long-term
obligations (18) (108)
Debt issuance costs paid (8) -
Purchases of common stock (68) (95)
Dividends paid on preferred
stock (24) (24)
Proceeds from exercise of
stock options 1 1
Repurchase of shares to
satisfy tax withholdings (3) -
--- ---
Net cash provided by (used
in) financing activities 9 (226)
--- ----
(Decrease) increase in cash (66) 43
Effect of foreign exchange
rate on cash 5 (3)
Cash beginning of year 109 69
--- ---
Cash end of year $48 $109
=== ====
MRC Global Inc.
Supplemental Information (Unaudited)
Reconciliation of Adjusted EBITDA (a non-GAAP measure) to Net Income (Loss)
(in millions)
Three Months Ended Year Ended
------------------ ----------
December 31, December 31, December 31, December 31,
2017 2016 2017 2016
---- ---- ---- ----
Net income (loss) $35 $(18) $50 $(83)
Income tax (benefit) expense (49) 1 (43) (8)
Interest expense 7 9 31 35
Depreciation and amortization 6 6 22 22
Amortization of intangibles 11 12 45 47
Increase (decrease) in LIFO reserve 9 (7) 28 (14)
Inventory-related charges (1) 6 - 6 40
Equity-based compensation expense
(2) 4 3 16 12
Severance and restructuring charges
(3) 14 8 14 20
Foreign currency losses (gains) - 3 (2) 4
Write off of debt issuance costs
(4) - 1 8 1
Litigation matter (5) - - 3 -
Change in fair value of derivative
instruments - (1) 1 (1)
--- --- --- ---
Adjusted EBITDA $43 $17 $179 $75
=== === ==== ===
Notes to above:
---------------
(1) Non-cash charges (pre-tax)
recorded in cost of goods sold.
Charges in 2017, recorded in
the international segment, are
related to reducing our local
presence in Iraq. Charges in
2016, recorded in the
international segment, are
related to a restructuring of
our Australian business and
market conditions in Iraq as
well as an increase in reserves
for excess and obsolete
inventory in the U.S. and
Canada as a result of the
market outlook for certain
products.
(2) Recorded in SG&A
(3) Charge (pre-tax) related to
employee severance and
restructuring charges
associated with actions taken
in 2017 to improve
profitability in our
international segment and cost
reduction initiatives related
to the weak market conditions
in 2016, recorded in SG&A
(4) Charge (pre-tax) related to
refinancing of our senior
secured term loan and our asset
based lending facility in 2017.
(5) Charge (pre-tax) related to the
settlement of litigation with
Weatherford Canada Partnership
in the second quarter 2017
recorded in Other, net. The
company previously recognized a
charge of $3 million associated
with this matter in the fourth
quarter of 2015.
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
MRC Global Inc.
Supplemental Information (Unaudited)
Reconciliation of Adjusted Gross Profit (a non-GAAP measure) to Gross Profit
(in millions)
Three Months Ended
------------------
December 31, Percentage December 31, Percentage
2017 of Revenue 2016 of Revenue
---- ---------- ---- ----------
Gross profit, as
reported $141 (1) 15.6% $122 17.0%
Depreciation and amortization 6 0.7% 6 0.8%
Amortization of intangibles 11 1.2% 12 1.7%
Increase (decrease) in LIFO
reserve 9 1.0% (7) (1.0%)
--- --- --- -----
Adjusted Gross
Profit $167 (1) 18.5% $133 18.5%
==== ==== ==== ====
Year Ended
----------
December 31, Percentage December 31, Percentage
2017 of Revenue 2016 of Revenue
---- ---------- ---- ----------
Gross profit, as
reported $582 (1) 16.0% $468 (1) 15.4%
Depreciation and amortization 22 0.6% 22 0.7%
Amortization of intangibles 45 1.2% 47 1.6%
Increase (decrease) in LIFO
reserve 28 0.8% (14) (0.5%)
--- --- --- -----
Adjusted Gross
Profit $677 (1) 18.6% $523 (1) 17.2%
==== ==== ==== ====
Notes to above:
---------------
(1) Includes $6 million of non-cash
charges (pre-tax) recorded in
cost of goods sold for each of
the three months and year ended
December 31, 2017 as well as
$45 million of non-cash
charges (pre-tax) recorded in
cost of goods sold for the year
ended December 31, 2016.
Charges in 2017, recorded in
the international segment, are
related to reducing our local
presence in Iraq. Charges in
2016, recorded in the
international segment, are
related to a restructuring of
our Australian business and
market conditions in Iraq as
well as an increase in reserves
for excess and obsolete
inventory in the U.S. and
Canada as a result of the
market outlook for certain
products.
Excluding these charges for the
three months ended December 31,
2017 gross profit, as reported
would be $147 million (16.3%)
and adjusted gross profit would
be $173 million (19.2%).
Excluding these charges for the
year ended December 31, 2017
gross profit, as reported would
be $588 million (16.1%) and
adjusted gross profit would be
$683 million (18.7%). Excluding
these charges for the year
ended December 31, 2016 gross
profit, as reported would be
$513 million (16.9%) and
adjusted gross profit would be
$568 million (18.7%).
The company defines Adjusted Gross Profit as
sales, less cost of sales, plus
depreciation and amortization, plus
amortization of intangibles, 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
MRC Global Inc.
Supplemental Sales Information (Unaudited)
(in millions)
Sales by Segment
Three Months Ended Year Ended
------------------ ----------
December December December December
31, 31, 31, 31,
2017 2016 2017 2016
---- ---- ---- ----
U.S. $715 $550 $2,860 $2,297
Canada 71 55 294 243
International 117 114 492 501
--- --- --- ---
$903 $719 $3,646 $3,041
==== ==== ====== ======
Sales by Product Line
Three Months Ended Year Ended
------------------ ----------
December December December December
31, 31, 31, 31,
Type 2017 2016 2017 2016
---- ---- ---- ---- ----
Line pipe $168 $99 $685 $444
Carbon steel fittings and
flanges 143 107 548 460
--- --- --- ---
Total carbon steel pipe,
fittings and flanges 311 206 1,233 904
Valves, automation,
measurement and
instrumentation 332 267 1,319 1,161
Gas products 127 111 554 443
Stainless steel alloy pipe
and fittings 47 51 183 206
Other 86 84 357 327
--- --- --- ---
$903 $719 $3,646 $3,041
==== ==== ====== ======
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SOURCE MRC Global Inc.
