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MRC Global Announces Third Quarter 2020 Results

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   |    Wednesday,October 28,2020

MRC Global announced third quarter 2020 results.

The company's sales were $585 million for the third quarter of 2020, which was 3% lower than the second quarter of 2020 and 38% lower than the third quarter of 2019. Sequentially, the downstream and industrial and the gas utilities sectors each experienced an increase in sales while the upstream production and the midstream pipeline sectors each experienced a decline. As compared to the third quarter of 2019, the decrease was across all sectors and segments as the impact of the COVID-19 pandemic and lower commodity prices significantly reduced customer spending.

Net loss attributable to common stockholders for the third quarter of 2020 was $(3) million, or $(0.04) per diluted share, as compared to the third quarter of 2019 net income of $15 million, or $0.18 per diluted share. Adjusted net loss attributable to common stockholders for the third quarter of 2020 was $(8) million, or $(0.10) per diluted share, compared to adjusted net income of $17 million, or $0.21 per diluted share for the third 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, "The resiliency of our business model, which focuses on diversified sectors, was evident this quarter. Two of our sectors, gas utilities and downstream and industrial, which make-up 68% of our third quarter revenue, were both up sequentially. As a result, total revenue was down only 3% sequentially this quarter, better than expectations. In September, e-commerce revenue as a percentage of North America revenue reached 48%, an all-time high for our company as we continue to invest in this technology platform. We continue to focus on managing the business through these difficult market conditions by aggressively reducing costs, generating cash and reducing debt.

"We are on-track to exceed all the goals we initially laid out earlier in the year. In the first nine months, we generated $178 million of cash from operations and reduced net debt by $150 million to a current balance of $369 million. For the full year, we expect to generate cash flow from operations greater than $220 million and end the year with a net debt balance less than $300 million, as a result of the additional cash generated in the fourth quarter and sales proceeds related to recent real estate transactions. This quarter we closed or consolidated 9 more facilities for a total of 22 this year with plans to close 6 more in the fourth quarter for a total of 28 in 2020. We also expect to achieve over $110 million of normalized cost savings in 2020 as compared to 2019, with approximately two-thirds of these cost savings being structural in nature, positioning the company to take advantage of the eventual market recovery," Mr. Lane added.

MRC Global's third quarter 2020 gross profit was $114 million, or 19.5% of sales as compared to the third quarter of 2019 gross profit of $174 million, or 18.5% of sales. Gross profit for the third quarter of 2020 and 2019 reflects income of $11 million and $2 million, respectively, in cost of sales relating to the use of the last-in, first out (LIFO) method of inventory cost accounting. Adjusted gross profit, which excludes the impact of LIFO, for the third quarter of 2020 was $115 million or 19.7% of revenue.

Selling, general and administrative (SG&A) expenses were $100 million, or 17.1% of sales, for the third quarter of 2020 compared to $137 million, or 14.5% of sales, for the same period of 2019. Adjusted SG&A of $97 million for the third quarter of 2020 excludes the net impact of severance and restructuring charges of $5 million and the recovery of a $2 million supplier bad debt previously written off.

Income tax expense was $5 million for the three months ended September 30, 2020 as compared to $8 million for the three months ended September 30, 2019. The effective tax rates were 63% and 28% for the three months ended September 30, 2020 and 2019, respectively. 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. The effective tax rate for three months ended September 30, 2020 was higher primarily due to losses in foreign jurisdictions with no corresponding tax benefit and the reversal of a current year net operating loss benefit recognized in a prior quarter but no longer expected to be realized.

Please refer to the reconciliation of non-GAAP measures (adjusted gross profit, adjusted SGA, adjusted EBITDA) to GAAP measures (gross profit, SG&A, net income) in this release.

Sales by Segment

U.S. sales in the third quarter of 2020 were $463 million, down $300 million, or 39%, from the same quarter in 2019. Gas utilities' sector sales were down $9 million, or 4%, primarily due to non-recurring work, partially offset by recent market share gains and certain customers increasing activity levels as they recover from pandemic restrictions. Downstream and industrial sector sales declined $87 million, or 40%, due to delayed or reduced maintenance spending from lower demand as well as non-recurring turnarounds. Upstream production sector sales decreased by $128 million, or 68% primarily due to reduced spending by customers and a 74% reduction in well completions. Midstream pipeline sector sales declined $76 million, or 54% due to lower production levels and reduced demand for infrastructure.

Canadian sales in the third quarter of 2020 were $27 million, down $30 million, or 53%, from the same quarter in 2019 driven primarily by the upstream production sector, which was adversely affected by the pandemic and associated reduced demand.

International sales in the third quarter of 2020 were $95 million, down $27 million, or 22%, from the same period in 2019 driven primarily by reduced spending in the upstream sector followed by the downstream and industrials sector due to the lower activity levels associated with reduced demand. Stronger foreign currencies relative to the U.S. dollar favorably impacted sales by $2 million or 2%.

All sales were adversely impacted by the COVID-19 pandemic and the related mitigation measures, which negatively affected demand for energy products.

Sales by Sector

Gas utilities sector sales in the third quarter of 2020 were $208 million, or 36% of total sales, a decline of $8 million, or 4%, from the third quarter of 2019. Sequentially, the gas utilities sector sales were 1% higher due to market share gains and some customers increasing spending post pandemic restrictions.

Downstream and industrial sector sales in the third quarter of 2020 were $185 million, or 32% of total sales, a decrease of $100 million, or 35%, from the third quarter of 2019. Sequentially, downstream sector sales were up 5% as customers completed repair, maintenance and turnaround work post pandemic restrictions.

Upstream production sector sales in the third quarter of 2020 were $118 million, or 20% of total sales, a decline of $169 million, or 59%, from the third quarter of 2019. The decrease in upstream production sales was across all segments led by the U.S. segment.

Midstream pipeline sector sales in the third quarter of 2020 were $74 million, or 12% of total sales, a reduction of $80 million, or 52%, from the third quarter of 2019 driven by the U.S. segment.

Balance Sheet

The cash balance was $40 million and debt, net of cash, was $369 million at September 30, 2020. Cash provided by operations was $94 million in the third quarter of 2020 and $178 million for the nine months ended September 30, 2020. Excess availability under the company's asset-based lending facility was $437 million and available liquidity was $477 million.

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 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. The company currently has 11 COVID-19 illnesses reported, down from 27 in the second quarter of 2020 and only 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, the effects have moved around the globe as the virus has spread. Given the company's inventory position and the reduced demand, the company has fulfilled orders with little disruption. However, if shutdowns are re-established, order fulfillment risk could increase.


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