MRC Global Inc.
Q4 2020 Earnings Call Transcript

Published: 12 Feb 2021

[Operator:]

Greetings and welcome to the MRC Global’s Fourth Quarter 2020 Earnings Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce Monica Broughton, Investor Relations. Thank you. You may begin.

[Monica Broughton:]

Thank you and good morning everyone. Welcome to the MRC Global fourth quarter 2020 earnings conference call and webcast. We appreciate you joining us on the call today. On the call, we have Andrew Lane, President and CEO and Kelly Youngblood, 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 February 26, 2021. The dial-in information is in yesterday’s release. We expect to file our annual report on Form 10-K later today and they will also be available on our website. Please note that the information reported on this call speaks only as of today, February 12, 2021 and therefore you are advised that this information may no longer be accurate as of the time of replay.

[Andrew Lane:]

Thank you, Monica. Good morning and thank you for joining us today and for your continued interest in MRC Global. I will begin with the company’s full year and fourth quarter 2020 highlights and discuss the progress of our strategic objectives. I will then turn over the call to our CFO, Kelly Youngblood, for a detailed review of the financial results and our 2021 outlook. In 2020, we encountered enormous challenges as a result of the oil and gas commodity price collapse from oversupply and energy demand destruction related to the COVID-19 pandemic. These macro oil and gas drivers caused a significant pullback in customer spending in 2020. It was a year that we are pleased to have behind us and I want to begin by acknowledging my great team for their hard work and vigilance staying safe, remaining focused on our customers and delivering value for our shareholders. Our 2020 safety results were the best recorded safety performance in our company’s history, which I am very proud of. I think it is notable to reference our 2020 results against 2016, which was the last major oil and gas downturn and resulted in our previous lowest revenue year in the last decade. I think the comparison helps to highlight the significant actions we have taken to reposition the company for the future. We ended 2020 with $2.56 billion in revenue and $97 million of adjusted EBITDA compared to the bottom of the last downturn in 2016 where we had $3 billion in revenue and $75 million of adjusted EBITDA. This represents 29% higher profit with 16% lower revenue. EBITDA margins improved 130 basis points as well. Bottom line is our strategy is working and we have improved profitability with the strategic actions we have implemented. This improvement reflects strong execution and the success of our long-term strategy. We rebalanced our product portfolio by pivoting to higher margin valve products and by reducing exposure to lower margin line pipe. We have also improved profitability by structurally reducing operating costs and increasing our investment in e-commerce, which provides cost savings and additional streamlining opportunities. We have expanded our market share with regulated gas utilities, which provides stability and future growth. Many of our strategic initiatives began 5 years ago. We have seen the benefits realized over the past year as we rose to the challenge of the pandemic by accelerating those initiatives.

[Kelly Youngblood:]

Thanks, Andrew and good morning everyone. I will start with an update on the financial targets we previously laid out and I am happy to report that across the board, we met or exceeded all commitments. And here is a brief recap of those items. Let’s start with revenue. Sequentially, we guided fourth quarter revenue to be down in line with historical seasonal trends, which is typically a 5% to 10% reduction. However, our fourth quarter revenue came in much stronger and was nearly flat with the third quarter with only a 1% decline. And as a reminder, we had several full year targets as follows. First, we expected to exit the year with a normalized SG&A run-rate of $100 million or less, which we exceeded in the third quarter and again in the fourth quarter at $96 million. Compared to 2019, we expected to end this year with at least $110 million in cost savings and we came in at $113 million, slightly exceeding our goal. Second, our adjusted gross margins for the fourth quarter and full year came in at 19.7%, exceeding our mid-19% target. Third, we met our target to decrease inventory by at least $170 million coming in slightly higher at $173 million. We also improved our working capital efficiency, beating our 19.5% to 19.9% targeted range for the net working capital to sales ratio, which actually came in at 17.5%. Fourth, we raised our guidance last quarter with the expectation that operating cash flow would be greater than $220 million, which we significantly beat coming in at $261 million for the year. And finally, we committed to pay off our ABL this year and to reduce our net debt to less than $300 million. We achieved both of those targets with net debt coming in at $264 million. We also committed to use all our excess cash this year to paying down debt, which we did and reduced our net debt balance by nearly half, resulting in a new leverage ratio of 2.7x. And our term loan does not mature until September of 2024. We are proud of these achievements and believe our results are evidence of the proactive measures we took to reposition the company, which will benefit us going forward.

[Operator:]

Thank you. Our first questions come from the line of Sean Meakim with JPMorgan. Please proceed with your questions.

[Sean Meakim:]

Thank you. Good morning, guys.

[Andrew Lane:]

Good morning, Sean.

[Sean Meakim:]

So maybe – so first, thanks for all the feedback regarding the outlook. In terms of the progression for top line in 2021, are you expecting a more – a return to a more traditional cadence in terms of second and third quarters being your best and perhaps a little bit slower, it seemed like in the first quarter and maybe a bit of a drop-off in the fourth quarter? So just thinking about the cadence through the year and maybe any additional comments within the segments would be helpful as well?

[Andrew Lane:]

Yes, Sean. Let me talk to the cadence and Kelly will address the segments. We very much think this is going to be a more typical normal year outlook for us. Sequentially, first quarter being the lowest quarter, which is normally the case as budgets get reset and you get some seasonal impact. Improvement in the second quarter to third quarter, we expect to be our best quarter and then a falloff of some seasonality in the fourth quarter, but still stronger second half than the first half is a strong feeling for us. And we believe the vaccination and the COVID impact will go away. It impacts us a lot with our customers, because we are an infrastructure company, we are a construction company as you know and so we require large crews to be working and doing improvements on whether it’s pipelines or tank batteries or refineries, we need construction to be going and we think we finally gotten to a point after last year of seeing that really impact us positively in the second half. So, I think very typical for us, which is a back – return to our normal sequence and second and third quarter being the big construction with a tilt towards the second half just because of the COVID impact.

[Kelly Youngblood:]

Yes. And Sean, maybe I add a little color on the individual sectors. If you look at upstream, one of the reasons that we are kind of guiding Q1 to be down maybe slightly here in the first quarter is Q4 was unusually strong. We guided that in the last call, we talked about that typically, there is a 5% to 10% decline – seasonal decline in the fourth quarter. We actually saw in the U.S. upstream market, it’s a 3% improvement. But then on top of that, we had, on the international side, a really big improvement on upstream, which we knew this was kind of coming all year, but that was about a 14% improvement from Q3 to Q4 on the international side that just won’t repeat in Q1, right. You are going to – so you got the budgets resetting in Q1 for upstream, but then you have got the kind of fall off on the international side as well. But as we talked about in the prepared comments, we do think on the upstream side that based on our current run-rate and I want to make sure that, that’s clear, right, there is the year-over-year change, but there is also the second half run-rate, which has been pretty consistent for us in Q3 and Q4. For upstream, it’s a double-digit, pretty strong double-digit increase that we are expecting, but on a year-on-year basis it will be a decline. And then as Andy said, on the other one, midstream is going to be the one sector for us that’s going to continue, I think to have some headwinds here in the near term. We are projecting that to be – well, based on the current run-rate, up single digits, but a pretty strong double-digit year-on-year decline. And then downstream, customers are getting back to work there. There is still some COVID impact that we are experiencing on the downstream side. All of the activities really focus more on critical maintenance, more smaller critical turnaround projects. And you would think with lower refining utilization that usually would lead to more turnaround work that we would have more turnaround activity but we are really seeing customers focus more on COVID restrictions, budget cuts. And even here in this year, I think in the first half of the year, we are not expecting a lot of big turnaround projects. We think there could be some materialized in the second half of the year, but if they are not critical, those would likely push into 2022. But time will tell on exactly how that works out.

[Sean Meakim:]

Thanks for all that feedback. I think that’s really helpful. Then if we just work down the income statement a little bit thinking about gross margins and G&A. So gross margins, it sounds like near-term, you think that you will be able to sustain recent levels, but it sounds like at least in the presentation there is longer term expectations of being able to continue to accrue to higher margins. Can you just talk about the kind of near-term versus the long-term as you see, Andy? And then on G&A also little bit of a lift here in the first quarter, but is kind of $95 million to $100 million run-rate for ‘21 on a quarterly basis, is that the right way to think about your G&A spend?

[Andrew Lane:]

Yes, Sean. So, let me do the G&A first. Yes, you are exactly right. And as Kelly mentioned in his comments, we had a 10% furlough for everybody in the company in 2020. So we ended at the end of the year, we’re getting back to more normal business. And so that has a $3 million impact. But we also – we’ll get the full year benefit from the cost reductions we made and some of those were even in November, December. So I think that $95 million to $100 million is the right way to think about it. And on margin, yes, we’re staying mid-19s as our kind of normal run rate, continue to target, and we continue to move towards a 20% adjusted gross profit margin as we continue to make changes in the company. The valve-centric strategy, just moving from our 40% to 45% will get us a big part of that way. Stainless business comes back. And the chemical, petrochemical is very accretive on margin enhancement for us. An area of bright spot, which hasn’t been for over a year is line pipe pricing. Demand is still very weak, with new project demand being the most pessimistic outlook of any of our end markets. But HRC, hot-rolled coal, cut pricing has significantly increased in the last 2 months. And line pipe is down 15% last year. It rebounded towards the end and finished around 6%, down. But in January, it spiked, and it’s at a higher price per ton across the board than all of 2020 back to 2019 levels, which are much better for us. So we expect demand is still being weak, but costs going up, so pricing is improving. And so inflation in line pipe will help us. And then everything else will be kind of normal demands. But we’re very consistent in that area and with our decrease in weighting towards carbon pipe, we’re even more stable on our margins. But I see – and the last thing I would say on margins, I see the efficiency coming into the business on e-commerce and more transactions directly with customers through that platform is adding both margin stability but also SG&A benefit.

[Kelly Youngblood:]

Can I add to that a little bit?

[Sean Meakim:]

Got it. Very helpful.

[Kelly Youngblood:]

The only thing I would add is – Sean, real quick on that. If you kind of look at near-term drivers on margins, I think as Andy well explained, there’s the line pipe pricing that is stabilizing, which is going to be very helpful. He talked about e-commerce. I think just our valve-centric strategy and continuing to grow that part of our business, which is accretive to overall margins, is going to be helpful. And then, of course, just leveraging our buying power with suppliers globally, that’s something that we’re obviously focused on. And then I think even longer term, if you look at the international business, which is accretive, if you look by geography, we get much better margins on the international side. And so we’ll have a bit of a transition year in ‘21 for international. But as that business pops back up here in 2022 and 2023, the higher revenue and the higher margins there will help us make progress with that 20% sustainable level margins going forward. And then just our focus on the downstream and industrial side of the business, which that piece is also accretive to overall margins. We’ve really got a lot of focus internally right now on growing even outside of the refinery side, which we are very strong in, but in the chem, petrochem and other industrial sectors and that’s accretive margins as well. And then on top of all that, just a better market, I think is going to help us as well.

[Sean Meakim:]

Very good.

[Andrew Lane:]

Thank you, Sean.

[Operator:]

Thank you. Our next question comes from the line of Doug Becker with Northland Capital Markets. Please proceed with your questions.

[Doug Becker:]

Thanks. I’ll start off with a bigger picture question. But as we see some of the major oil companies talking about their more definitive plans around emissions reductions and just increasing investment in clean energy, are you getting any more clarity on what the opportunity might be for MRC in those areas going forward?

[Andrew Lane:]

Yes, good morning, Doug. Yes, we see – of course, we’re very much in touch with their changes and I see it as limited impact in the coming year, even in the coming couple of years. They are shifting portions of the budget, maybe from 5% to 10% or 15% of their total spend into renewables. And we see that as an area we’ll watch very closely. We’re largely an MRO type of business. So we’re going to be looking at those investments and what comes out of that as far as an MRO opportunity through distribution. I don’t see it playing out much as a change for us in the next couple of years. But longer term, when you go out to the 5 to 10-year window, yes, I think it’ll be a very bigger portion of our business. We’re a pure industrial distributor business model. So while, today, it may be focused more on upstream, it may, in future, be focused more on renewables, and our product mix will change, but structurally, we don’t need to change the company because it’s adaptable very much to just different product lines. And we’ll also be looking at M&A when you think out a couple of years, Doug, as if there’s other distributors in the space that’s emerging. We certainly believe we’ll be in a much better, stronger balance sheet position, especially in ‘22, ‘23 that it’s most likely that we would be acquisitive to grow into that area at a faster pace.

[Doug Becker:]

That all makes sense. And then maybe just a little more color on how you expect the relationship between your revenue and the rig count plays out, and fully appreciate that you’re more levered to the majors and large E&Ps. And so much of the gain that we saw in the fourth quarter and probably in the first quarter is being driven by privates. But just maybe some broad strokes about how you expect that relationship to be? And is there an opportunity to capture more of the activity from the privates given the digital platform rollout?

[Andrew Lane:]

Yes, Doug, that’s a good point. And while our – you think about our business, as you just described very well, 56% of our revenue comes from the majors. And so we are very much weighted to them on multiyear contracts. And as they pickup activity, we do very well and our target has not been on the kind of small private money, private equity back one and two rig operators. I do think the change in e-commerce platform opens up opportunity for us to kind of tap into that even more. That’s largely driven by the regional distributors, more so than the two major ones. And so we’re going in that direction. And we have an active program to look at the 3,000 smallest customers in our mix from a transactional base and making the change from them, not showing up in the branch to start an order, but order completely online through our platform and just have it delivered or picked up, completed and that brings – that opens up a lot of opportunity for us to tap into customers we haven’t targeted in the past and also brings us some good efficiency on that. And then rig count, we really don’t track rig count very closely. We don’t have anything down the hole. We only start our work, as you know, from the wellhead. And but we do track well completions very closely. There is given quarters like this last quarter, we had a big pickup in completion activity in the U.S., but it’s mostly benefit, the rig companies benefits, the frac companies, and it was small players and we had a 3% pickup in that. But when I look at the year, it tracks very much the rig count – I mean the completion count was down 57% U.S. well completions for the year. And our revenue – our U.S. upstream was down 54%. And over many years, we track very closely that. Any given quarter, it can be variable. But at the end of the day, over a year period, we’ll track our upstream revenues, which are tie-ins and tank battery facility related very closely to the U.S. completion count.

[Doug Becker:]

Okay. And then just one housekeeping item. Do you expect to have to pay any portion of the term loan, just given where the secured leverage ratio played out through the year?

[Kelly Youngblood:]

Yes, Doug, good – very good question. At the end of the year, I mean, you see our reported number on the leverage ratio of 2.7. And so that certainly implies that when we get above the 2.5 hurdle on our leverage ratio, there’s an excess cash flow provision there. And so we’re – technically, that is something right now that we would expect to pay if you just look contractually at our credit agreement. But we’re having some discussions right now with the creditors. We’ll know more here in a couple of weeks about a possible amendment and not that we need to do that necessarily. I think it’s just a kind of nice to have to hold on to some additional liquidity there. It doesn’t change your net debt position at all. It doesn’t change our leverage ratio. But if you pay down the term loan, it eats into your available liquidity somewhat. And if we – just in the environment we’re in, although it’s a much better situation now than it was a few quarters ago, it’s always better as a finance person, I think you would agree, it’s always better to have more available liquidity than less. And so just stay tuned on that one, and we’ll have more information coming out soon.

[Doug Becker:]

Fair enough. Thank you.

[Andrew Lane:]

Thank you, Doug.

[Operator:]

Thank you. Our next questions come from the line of Jon Hunter with Cowen & Company. Please proceed with your questions.

[Jon Hunter:]

Hey, good morning. So just had a question on the margin outlook in 2021, you guided to the mid-19s. You did 19.7% in 3Q and 4Q and it seems like you’ve got a good number of tailwinds in the way of pricing and mix. So is that guidance just a dose of conservatism? Or is there any reason we would think that margins could dip a little bit from where we were in the fourth quarter?

[Andrew Lane:]

Yes, Jon, I just think it’s a good reasonable guidance to the start the year. We do have some volume impacts from COVID that will impact us in the first half of the year. But the big one would be where we get pressure on margins is deflation in line pipe. We don’t have that. Large projects where the lower margins, we don’t have that. And so the – I don’t see a lot of risk to the downside. We’re just not ready to forecast a big upside at this point. But it’s, in my view, it’s a very stable platform from a perspective on margin right now. We are bringing in gas products, stainless and valves, like we normally do at the beginning of the year. So from a working capital perspective, as Kelly mentioned in his comments, we’ll have a build in those inventory, but those tend to be our high-margin activities going forward. So we’re building up the inventory in anticipation that there’ll be some inflationary impact later in the year. We already know there’s significant in line pipe. We’re just waiting for the demand to pick up a little bit there. So I think there’s – definitely, as you mentioned, there’s more chances of a positive outlook there. But I think that’s a good place to start, mid-19s.

[Jon Hunter:]

Thanks, thanks, Andy. And then just taking a step further, I guess, to look at the goal to get 20% plus margins. Is that something you’re thinking could be achievable kind of towards the end of this year or early next year? And then a similar question on the goal to get to kind of high single-digit EBITDA margins, what’s the timeframe of getting there. Is that something you think is achievable in 2022?

[Andrew Lane:]

Yes, Jon, it really depends on the pickup of the recovery. I feel much more confident if we talk about ‘22, ‘23. I think we can get there in those 2 years. Everything’s going as strategically in that direction. Just if you look at the margins and the – 45% of our revenue coming from valves, and I didn’t talk about it yet today, but $100 million will come from our new valve complete assembly modification center. That is a lot of market share gains on the midstream valve assemblies, that we built that facility. Got it running in ‘18, ‘19 and did $50 million in ‘20, and we’ll ramp up to $100 million. That’s a very high-margin activity for us because we’re doing – it’s more like manufacturing margins because we’re doing a lot of manufacturing, welding and the assembly and testing. So you add that as a mix, you add our core valve business, you add that 50% will come through e-commerce, and we’ll continue to make structural changes on lowering SG&A in ‘22, ‘23. So I see us getting back to that 7% to 8% EBITDA margins that we’ve had before, but this time it will be on much lower revenues than it took the last time to get to those levels. But it’s fundamentally a very sound platform. We’ve guided before for incremental EBITDA to be in the 10% to 15% range as the business picks up and volume picks up for us. With all the changes structurally we’ve made that Kelly talked about, I feel confident we’ll be in the 15% to 20% incremental EBITDA margins in those years as the business volume picks back up. So I think those factors all together get us to the 20% margins and you get to the 12%, 13% SG&A and 7% to 8% EBITDA. That’s been our goals and targets. That’s been mine for a while, and I think we’re tracking towards that.

[Jon Hunter:]

Thank you. That’s helpful color. And then one more maybe for Kelly, just on the cash flow target for the year. I know you talked about working cap being a consumption in 1Q, but how are you thinking of the working capital impact to your cash flow in 2021?

[Kelly Youngblood:]

Yes. Jon, it’s a really good question. And I kind of alluded to it slightly in the prepared comments that when you look at the cash flow generation we had in 2020, it was very rough percentages, kind of 80% driven by working capital releases and 20% by operational results, if you will. This year, it’s going to flip just the opposite of that. We’ll be about 80% driven by operations and 20% from the working capital side. And we guided – we said it in the guidance commentary a $75 million to $100 million range. And so – and the working capital component of that, that 20% level, is largely going to be driven by further inventory reduction.

[Andrew Lane:]

Yes, Jon, let me – I’ll just add a comment. Kelly covered it well. But if you as you realized, we were 7 – thinking about it, net working capital as a percent of sales, 17.5% in 2020, which was a record for us. We see it – we would guide, it wasn’t in our formal guidance. But I think a good way to think about it is, for 2021, 18% or less. So we’ll maintain a very high level of efficiency in that net working capital as a percent of sales with some additional inventory reductions as we optimize the platform given the view of the business today. So I think it’s – and then Kelly mentioned $75 million to $100 million cash flow from ops is a good point for us to start with.

[Jon Hunter:]

Great. Thanks, Andy and Kelly, I will turn it back.

[Andrew Lane:]

Thanks, Jon.

[Operator:]

Thank you. Our next questions come from the line of Nathan Jones with Stifel. Please proceed with your questions.

[Adam Farley:]

Yes, good morning. This is Adam Farley on for Nathan.

[Andrew Lane:]

Good morning, Adam.

[Adam Farley:]

Hey, good morning. In terms of the gas utility revenue, really strong 4Q year-over-year, you mentioned customers catching up on spending and some market share gains. So I guess the question is how sustainable are our current spending levels? Do you think there is going to be further catch up in 2021?

[Kelly Youngblood:]

Yes, Adam. And let me take that one. We feel very positive on gas utilities. And we talked in the guidance of the increase over the second half. And just a year-on-year outlook, it’s going to be up high single digits, and two factors. A CenterPoint contract, which was a very large one for us, continues to ramp up, we’ll get a full year run rate on that. We had other contracts, Duke, as a contract, picking up activity and PG&E, fully out of the bankruptcy now, major utility force on the West Coast, picking up in activity, so three big accounts. The other big impact is we’re coming off a year of a full year of COVID impact, and this impacts the gas utility business as you can’t get the service personnel into people’s homes, and a lot of that got shut down during 2020 peak of the COVID. People are figuring out how to tolerate that and get some more work done. The customers are figuring it out. We certainly believe we’ll have minimum impact from that kind of shutdown in the second half. And so if you look at our customer contracts that are already in hand, and we still have others we’re targeting for growth that we hope to talk about during 2021, and then just the return to the spend and the catch-up from the spend that was – because these are – where utilities are regulated. They have budgets, and they normally spend the budgets, except for the COVID impact. And so we see it back to growth for sure in 2021. And that’s a really solid part of our business.

[Adam Farley:]

Okay. That’s good to hear. And then shifting over to the supply chain, are you guys seeing any constraints on your supply chain? Any extended lead times or maybe higher transportation costs?

[Kelly Youngblood:]

Well, higher transportation costs, yes, for sure, especially in the U.S. and trucking with all the e-commerce. As you know very well, the e-commerce volume across every industry has really driven up the trucking. So we’re seeing trucking costs in the U.S., especially increase, and we’re managing through that with our carriers. From a supply chain standpoint, we manage with a very long window. So a lot of the long lead time valves that we would even use in ‘22, we’re planning for to make sure we have those deliveries in 2021. And so we take a very long window there. What we haven’t seen, a lot of shuttered mills in – especially in the U.S. with a huge downturn in pipeline demand. Probably the most pessimistic outlook is in new construction of midstream pipelines. If you go back to kind of ‘17, ‘18, ‘19, we would normally track 40, 50 projects in the midstream area of new construction, and we’re tracking less than 10 today. So the pricing is coming up on the – on line pipe, but the demand is still very weak. So and a lot of mills are still shut down. So we will – if demand picks back up, we will see some of our core mills pick back – go back to activity. And I think it’ll have a bigger impact more in ‘22, ‘23 but it will mostly be a pricing impact instead of a ton – increased tons this year.

[Adam Farley:]

Okay. Thanks for taking my questions.

[Andrew Lane:]

Thank you, Adam.

[Operator:]

Thank you. Our next question is come from the line of Ken Newman with KeyBanc Capital Markets. Please proceed with your questions.

[Ken Newman:]

Hey, good morning guys. Nice quarter.

[Andrew Lane:]

Thank you. Good morning.

[Kelly Youngblood:]

Thank you. Good morning.

[Ken Newman:]

I just wanted to circle back – good morning. I just wanted to circle back to the higher line pipe price you just mentioned. Just trying to think about the relationship between higher prices and maybe some of the volume expectations that are embedded into the full year revenue outlook, can you just help us quantify what’s embedded from higher material costs into the revenue? And then just how do we think about the lag from higher price inventory until it gets delivered and flows through on the margins?

[Andrew Lane:]

Yes, Ken. So we’re – although activity is going to pick up from the low point of the third and fourth quarter as we guided but year-on-year, it’s down double digits. And so I think it’s – pricing will impact the first half of the year, but there won’t be a lot of volume driving that. Pricing will still be good in the second half and we will see some volume pick back up. But on a yearly basis, we see this as, out of all our end markets, the most pessimistic. We just don’t see with production coming down, a lot of activity in new build and that normally drives most of the volume from a tons basis. We are going to see the integrity work getting done, especially in the second half, mid to summer months and the second half. Valve replacements in the integrity projects will be done, which we have a good visibility on that will exceed the $50 million we did last year. And so it will be replacement line pipe and new valve automated valves and shutdown valves for midstream will be the driver, but – and so we’ll – I don’t think you’re going to have a lot of increase in that outlook. Kelly, you have anything to add to that?

[Kelly Youngblood:]

The only other thing I would add, Ken, is when you look at line pipe as a percent of our total revenue it’s only about 11%, 12%. So it’s a – it’s not one of the biggest drivers out there, just wanted to point that out.

[Ken Newman:]

Right. No, that makes sense. Okay. And then as a follow-up, I think last quarter, we talked a little bit about some potential share gain opportunities given some of the customer consolidations that we saw. Just curious, any update to share gains in the quarter or the opportunity to gain share as the year progresses, with some of the – some of these other companies getting acquired by your larger customers?

[Andrew Lane:]

Yes, Ken. As we said last quarter and you referred to, it’s a big positive for us. We do very well with the larger customers. So consolidation on the midsized customers or acquisition by large customers of a smaller player has always turned out to be a positive for us. Many of those are going through the early stages still, the ones that’s been announced. And, of course, they’re more focused right now on the synergy savings and the combination and the consolidation between companies that occurs. So I see it as a much bigger impact in the summer months and the second half of the year because they’ll go through that first. There’ll be some contract rationalization as there always is between – in the procurement groups, the contracting philosophy, they had different companies. So we’ll work through that and have new contracts put in place. But definitely, we see it as a positive for us, second half of this year and into next year. And a lot of those that have been announced run managed competitions and we do very well in that managed competition environment. So I think there’s more upside than any downside to what’s been announced so far. And probably, we’re not done with the consolidation from that customer group.

[Ken Newman:]

Right. Just one more, if I could just squeeze it in, you obviously did a lot of work to take out some structural costs last year. I think you’re going to get a lot of those benefits expected in ‘21. Do you feel like the footprint is at a reasonable level given some of your improving optimism or are there still more roofs to take out? Is there still more structural work that you think you can do in ‘21?

[Andrew Lane:]

Yes, Ken. I – we are really at a very stable platform now. We’re going to focus more on positioning the company, further improve market coming. We’re going to watch it. If there’s any area, it’d be a little bit in – if the upstream, I don’t think the upstream will disappoint us. I think it’ll improve some in the overall market, especially by the second half of the year. Midstream will walk – look at our dedicated personnel in midstream. Canada would be the only one. If Canada disappoints from what our current outlook is, it’s structurally challenged, as you know, with the pipeline not going forward, the heavy oil coming in by rail, no pipelines to either coast up there, no need for the gas in the U.S. So we – it’s an area where we continue to monitor and may have some – we made a major structural footprint from a branch footprint change in 2020. So we don’t see that. We’re just looking at the personnel needed up there. But that’s a relatively small $130 million business for us, roughly. So I think we don’t have an active program. We don’t have an active retirement program or an active significant personnel reduction program at all, starting out in 2021. We think we’ve got the cost and the platform in a good place, and we want to be building momentum in the second half as we go into what we think is 2 better years coming.

[Ken Newman:]

Very good color. Thanks.

[Andrew Lane:]

Thank you, Ken.

[Operator:]

Thank you. I would now like to turn the floor back over to management for any closing comments.

[Monica Broughton:]

Thank you for joining us today and for your interest in MRC Global. We look forward to having you on our next first quarter conference call in April. So have a great day and goodbye.

[Operator:]

Ladies and gentlemen, thank you for your participation. This does conclude today’s teleconference. You may disconnect your lines at this time. Have a wonderful day.