MRC Global (MRC) Q2 2019 Earnings Call Transcript

MRC Global (MRC 1.95%)
Q2 2019 Earnings Call
Aug 02, 2019, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the MRC Global second-quarter earnings conference call. [Operator instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Monica Broughton, director of investor relations. Thank you, Ms.

Broughton. You may begin.

Monica Broughton -- Director of Investor Relations

Thank you and good morning, everyone. Welcome to the MRC Global second-quarter 2019 earnings conference call and webcast. We appreciate you joining us today. On the call, we have Andrew Lane, president and CEO; and Jim Braun, executive vice president and CFO.

There will be a replay of today's call available by webcast on our website, mrcglobal.com, as well as by phone until August 16, 2019. The dial-in information is in yesterday's release. We expect to file our quarterly report on Form 10-Q later today, and it will also be available on our website. Please note that the information reported on this call speaks only as of today, August 2, 2019, and therefore, you are advised that it may no longer be accurate as of the time of replay.

In our remarks today, we will discuss adjusted gross profit, adjusted gross profit percentage, adjusted EBITDA and adjusted EBITDA margin. You are encouraged to read our earnings release and securities filings to learn more about our use of these non-GAAP measures and to see a reconciliation of these measures to the related GAAP items, all of which can be found on our website. In addition, the comments made by the management of MRC Global during this call may contain forward-looking statements within the meaning of the United States federal securities laws. These forward-looking statements reflect the current views of the management of MRC Global.

However, MRC Global's actual results could differ materially from those expressed today. You are encouraged to read the company's SEC filings for a more in-depth review of the risk factors concerning these forward-looking statements. And now I'd like to turn the call over to our CEO, Mr. Andrew Lane.

Andrew Lane -- President and Chief Executive Officer

Thank you, Monica. Good morning and thank you for joining us today and for your continued interest in MRC Global. Today, I will review the company's second-quarter 2019 operational highlights, and then I'll turn the call over to our CFO, Jim Braun, for a more detailed review of the financial results. This quarter, we saw the results of customers changing their behavior to the broader market environment, primarily in response to pressure to be more disciplined, which, to us, means they're spending patterns that deviated somewhat from historic patterns.

We also saw some changes that were in the ordinary course, such as the timing of deliveries and nonrecurring projects. However, we adapted quickly and have adjusted so we can maximize returns in any environment. We continue to make progress against our long-term strategic objectives by gaining market share, maximizing profitability and working capital efficiency, and optimizing our capital structure. I'll address how we are progressing against our strategic objectives, but first, I'll start with the second-quarter results and some of our actions in response.

Second-quarter 2019 revenue was $984 million, a 1% improvement over the first quarter. We also achieved adjusted EBITDA of $60 million or 6.1% of total revenue, which was a 7% improvement over the first quarter. And finally, we are in $0.21 per share in the second quarter, which was a 50% improvement over the first quarter. However, revenue growth this quarter fell short of our expectations with most of the shortfall occurring in June, where we expected an increase over the April and May levels.

Instead, customer activity levels fell. Sequentially, much of this decline was in our upstream business as capital discipline, timing of deliveries and disruption at specific customers all influenced results. Also, while our base midstream business experienced substantial growth this quarter, nonrecurring projects have remained a headwind as they have in our downstream sector. We have been able to backfill some of the project revenue gap, but not as much as we had expected given the reduction in overall customer spending.

Given that as a backdrop, we've lowered guidance expectations for the year. We now expect 2019 revenue to come in slightly lower than 2018. We still expect improvement in the third quarter over the second, but less so than we did previously. Our underlying base business is still growing, albeit modestly as we continue to focus on market share despite a more challenging environment.

Given our reduced revenue outlook, we now expect to generate more cash than previously projected. Inventory levels are planned to decline from the second-quarter levels. Consistent with our working capital strategies, we expect to achieve our working capital to sales target by the end of the year, supporting our updated cash from operations guidance of $200 million for the full year, an increase of $20 million, which implies a free cash flow yield for 2019 of more than 11%. Also considering the slower market conditions, as we've done in the past, we've taken a swift action to reduce operating costs.

We have reduced operating costs this quarter from the first quarter and lowered our expected operating costs for the year by $20 million, and additional cost actions being undertaken, including the hiring and pay freeze, as well as a voluntary early retirement program. Also, while we are not a capital-intensive business, we have also lowered our capital expenditure expectations for 2019 by $5 million. All these actions are in line with our continued focus on maximizing profitability and cash flow during a period of market softness. Turning to our progress on our strategic objectives, as part of our strategy to grow market share with new customers and maintain market share with existing customers, have a couple updates.

This quarter, we were awarded a new contract with Neste in Finland for five years, which will benefit our recovering international segment. We also announced a new contract with EnLink Midstream last quarter, which we continue to implement and expect to see some additional revenue from later this year, but more so in 2020 when we expect EnLink to be one of our largest midstream transmission and gathering customers. We also recently renewed our framework agreements with ConocoPhillips for three years, with Atmos for five years and with Chevron-TCO for their MRO valves for seven years. This is a core component to our strategy and it becomes even more important in an environment where there is less overall spending.

Consistent with our commitment to higher-margin product and service offerings, we have now completed the initial construction of our 127,000 square-foot valve modification center, expanding our La Porte operations complex. It will be operational in the third quarter and ramp up over the course of this year. With this new facility, we will have new capabilities to modify and test complete midstream valve assemblies in-house. This value-added activity will provide us with a competitive advantage, an ability to take market share in the midstream valve market and additional opportunities for higher margins due to the higher technical and manufacturing content.

In the first half of 2019, valve sales were 39% of our total sales, and we are on track to deliver 40% of our sales from valves in 2020. In July, we announced the comprehensive digital supply chain solution called MRCGO. This is a cloud-based portal that allows our customers to transact with us in an easy and seamless manner. From a single sign-on, customers can search and order products; they can view current inventory; check order status and history; expedite delivery, if needed; and access critical documentation; and receive online technical and order support.

The benefits of this platform to our customers are the simplification of their purchasing activities, resulting in time and cost savings for them, while at the same time, having easier access to the information they require. We believe this comprehensive solution is the first of its kind for oil and gas PVF customers. We are rolling this out to current catalog customers first and expect to continue to expand this to our largest customers over the next 12 to 18 months. This initiative fits in with our broader strategic objectives to grow market share through enhancing the customer experience.

Finally, in the second quarter, we continued to return cash to shareholders as part of our capital allocation strategy. As previously announced early in the quarter, we repurchased an additional $25 million of shares. Since 2015, when we began our share repurchase programs, we have repurchased a total 22.5 million shares, returning $350 million to shareholders. We have $25 million remaining under our current authorization to execute, and we plan to continue to buy opportunistically during 2019.

We also plan to focus on debt reduction in the near term in light of our revised cash flow expectations and expect our leverage to decline to about 2.5 times by the end of the year. We continually evaluate all capital allocation options and make a determination based on short- and long-term cash needs. We are committed to maximizing shareholder returns. Before I turn over the call to Jim, I want to take a minute to recognize his many contributions in light of his intention to retire next spring.

Jim joined the company in 2011 and contributed significantly in helping me successfully take the company public in April 2012. Among his many accomplishments and contributions, he led a successful debt refinancing, he was instrumental in strengthening our U.S. business organically, as well as in building this company with several acquisitions over the last eight years, which has all helped make us the global PVF leader. Jim has done an excellent job, and the board of directors and I are very grateful for his contributions.

As he recently turned 60, he has decided to retire next year on March 1. We have started an external search, and we expect we will have a smooth transition over the next seven months. I'll now turn the call over to Jim to cover the financial highlights for the quarter.

Jim Braun -- Executive Vice President and Chief Financial Officer

Well, good morning, everyone, and thanks, Andrew, for the kind words. It's been a pleasure serving as CFO of MRC Global, and I thank everyone for the support I've received over the past eight years. And now moving to the quarter, total sales for the second quarter of 2019 were $984 million, which were 9% lower than the first quarter of last year, with each of our sectors and geographic segments reporting a decline in the year-over-year comparison. Sequentially, from the first quarter, revenues increased 1%.

U.S. revenue was $806 million in the second quarter of 2019, 8% lower than the second quarter of 2018, with decreases in the midstream and downstream market sectors due to the nonrecurring projects that we previously discussed. The U.S. midstream sector sales were impacted by the completion of the large P.C.

energy project in mid-2018 that had nearly a $50 million negative impact on the quarter-over-quarter revenue comparison. U.S. downstream revenue declined in the second quarter as a result of the winding down of the Shell Pennsylvania chemical project, as well as other project-related work in the prior-year. U.S.

upstream sales were basically flat with the second quarter of 2019 over the same quarter in 2018, falling short of the growth in well completions. There are several factors contributing to this dynamic. Most all customers are fully engaged and focused on capital discipline as they pull back on spending. This focus includes greater outsourcing of decision-making to third-party fabricators.

In some cases, we've decided not to bid on work at an attractive margins. Another way operators conserve capital, which we are experiencing, is the tie in of completed wells to existing larger tank batteries and facilities. This has reduced our opportunities in the near term. And finally, the natural timing of deliveries of specific orders and customer acquisition-related activities had an impact on the quarter.

While some of these are short-term issues, it is clear that there is a focus on capital returns in our customer base that is new, perhaps unprecedented, and expected to continue at least in the near term. Canadian revenues was $58 million in the second quarter of 2019, down 28% from the second quarter of last year as the upstream sector continues to be adversely affected by weak Canadian oil prices and the government-imposed production limits. A weaker Canadian dollar also contributed to the decline, unfavorably impacting sales. Canada remains our most challenging market, and we see a little likelihood of near-term improvement.

Actions to rightsize the business to current activity levels are under way. International revenue was $120 million in the second quarter of 2019, down 3% from the same quarter a year ago due primarily to the concluding of a major project in Kazakhstan, as well as the impact of weaker foreign currencies. Excluding the project and the FX impact, sales grew $12 million, reflecting improving international market conditions, particularly in Norway and the United Kingdom. After several challenging years, we are seeing improvements in our international markets.

Now let me summarize the sales performance by end market. Upstream sector second-quarter 2019 sales decreased 7% from the same quarter last year to $284 million driven by the declines in the Canadian upstream business. International upstream was nearly flat as growth in the base business offset the reduction in TCO project billings. U.S.

upstream was basically flat, as described earlier. Specific to the Permian Basin, our revenue grew 5% in the second quarter of 2019 over the same period last year. This is a somewhat slower pace of growth than we experienced in the first quarter of 2019 over the prior year and a sequential decline; however, remains the most active area. Midstream sector sales, which are primarily U.S.-based, $421 million in the second quarter of 2019, down 11% from the same quarter in the prior year.

Our transmission and gathering subsector was down, as mentioned earlier, with a large project work in 2018. However, our gas utility business, which was 25% of our overall revenue in the second quarter, continues to show strong growth. Because of the ongoing integrity management programs across the U.S., we saw 10% sales growth in the second quarter over the same quarter a year ago. Since 2012, this part of our business, not related to commodity prices, has a compound annual growth rate of about 8%, and we expect another year of high single-digit growth in 2019.

In the downstream sector, second-quarter 2019 revenue was $279 million, down 8% from the second quarter of last year. The U.S. downstream sector drove the decline primarily related to the impact of projects, including the Shell Polymers project, as mentioned earlier. And now turning to margins, gross profit increased 130 basis points to 17.7% in the second quarter of 2019, as compared to 16.4% in the second quarter of 2018.

The improvement reflects a benefit of $1 million from LIFO income in the current quarter, as compared to $15 million of LIFO expense in the prior year. This was offset by the unfavorable impact of deflationary pressures in our line pipe product group. Adjusted gross profit for the second quarter of 2019 was $190 million or 19.3% of revenue, as compared to $209 million and 19.3% for the same period in 2018. Our adjusted gross margins were not in line with our expectations this quarter primarily due to deflation in line pipe, which negatively impacted margins of about 25 basis points compared to a year ago.

And the impact on adjusted gross margins on a sequential basis was even greater at about 40 basis points. Line pipe prices were lower in the second quarter of 2019 over the same quarter in 2018 as the effects of tariffs and quotas and a softer line pipe market have been priced in. Based on the latest Pipe Logix all items index, average line pipe spot prices in the second quarter of 2019 were 11% lower than the second quarter of 2018. Line pipe pricing today is back to pre-tariff levels.

The combination of lower sales prices due to soft demand, oversupply in small diameter pipe and a higher cost of inventory on hand has put a pressure on line pipe margins. While we are shifting our sales to higher-margin products such as valves, the impact of deflation was greater. Line pipe prices are expected to continue to remain under pressure given the soft demand in oversupply situation. Given that outlook, we've reduced our adjusted gross profit margin expectation for the full-year 2019 with a midpoint of 19.5%.

This is also let us to lower our LIFO expectations for the year. We now expect our LIFO impact to be between $10 million of income and $10 million of expense for the full-year 2019. SG&A costs for the second quarter of 2019 were $133 million or 13.5% of sales, as compared to $136 million or 12.6% of sales in the same period in 2018. Second-quarter SG&A expense was lower than our implied guidance for the quarter due to lower activity levels and lower personnel costs, including the adjustment of incentive plan expense.

In light of the lower activity levels and the planned cost reduction actions described by Andrew, we have also lowered our SG&A guidance for the year. We now expect SG&A of $540 million to $550 million for 2019. And as we've mentioned before, we can experience quarterly fluctuations in SG&A expense during the year. Also, our SG&A guidance does not reflect the impact of any restructuring charges for actions currently being considered.

Our effective tax rate for the quarter was 25%, in line with our expectations for the full year. And net income attributable to common shareholders for the second quarter of 2019 was $18 million or $0.21 per diluted share and $16 million or $0.17 per diluted share for the second quarter of 2018. The improvement in net income despite lower revenue is due to lower LIFO expense and lower SG&A expense. Earnings per diluted share has also improved from a lower share count as a result of our share repurchase program.

Adjusted EBITDA in the second quarter of 2019 was $60 million versus $78 million for the same quarter a year ago but higher than the $56 million reported for the first quarter of 2019. Adjusted EBITDA margins for the quarter were 6.1%, as compared to 7.2% in the second quarter last year driven by lower sales volume this year. All three of our segments generated positive EBITDA this quarter. Our working capital at the end of the second quarter of 2019 was $924 million, $28 million higher than it was at the end of 2018.

And working capital, excluding cash as a percentage of sales, was 22% at the end of the second quarter of 2019. We expect to work inventory down the rest of the year to achieve our targeted capital level -- working capital level of 20% by the end of the year. We generated $48 million of cash from operations in the second quarter of 2019 as inventory levels have begun to fall. Given our revised outlook, we've raised our cash flow guidance.

For the full-year 2019, we expect to generate cash flow from operations of approximately $180 million to $220 million. Capital expenditures were $4 million in the second quarter of 2019 for a total of $6 million for the first half of the year, and we reduced our capital expenditure the guidance and now expect total capital expenditures of $15 million to $20 million in 2019. Our debt outstanding at the end of the second quarter was $738 million, compared to $684 million at the end of 2018. And our leverage ratio based on net debt of $703 million was 2.7 times, up from 2.3 times at the end of 2018.

While still within our stated target range, we expect to bring this ratio down to about 2.5 times by the end of the year. And the availability on our asset-based lending facility was $385 million, and we have $35 million in cash at the end of the second quarter. Regarding our updated 2019 guidance, as Andrew mentioned and from my previous comments, we are making some changes since we last reported. We have seen a change in customer behavior and spending levels this quarter particularly in June, where we saw a decline, challenging historic seasonal patterns.

This resulted in a second quarter lower than we anticipated, leading us to lower annual revenue guidance and increased cash flow guidance. The midpoint of our revenue range is now $3.95 billion as we've lowered the range to be between $3.85 billion and $4.05 billion. At the midpoint, this implies 2019 will be lower than 2018. However, we continue to expect growth in our base business, albeit at a more modest level.

We expect that the third quarter of 2019 will be up about 2% to 4% from the second quarter of 2019. And from a sector point of view, we now expect each of the sectors will be down mid-single digits. And by geography, we expect all three of the geographic segments to decline, with Canada being the largest. While the U.S.

upstream business is still expecting to grow, it is a more tempered rate and being offset by declines in midstream and downstream due to nonrecurring projects. Our backlog at the end of the second quarter of 2019 was $578 million, $60 million lower than the end of 2018, reflecting the slowdown in customer spending plans and the wrapping up of large projects. Our adjusted EBITDA guidance has also changed, and we now expect it to be between $230 million and $250 million. Given the lower EBITDA and the lower LIFO expense, we now expect diluted earnings per share to be between $0.75 and $0.95 in 2019, which at the midpoint has not changed.

In summary, our second-quarter 2019 came in lower than we had expected. And given our revised outlook on the year, we've changed our full-year expectations to reflect lower customer spending and more tempered expectations for the remainder of the year while still reflecting modest growth in our underlying business. We're acting swiftly to this change in market outlook and customer behavior by reducing operating costs and capital expenditures while continuing to pursue our strategic objectives and long-term shareholder value. And with that, we'll now take your questions.

Operator?

Questions & Answers:

Operator

[Operator instructions] Our first question comes from the line of Sean Meakim with JP Morgan. Please proceed with your question.

Sean Meakim -- J.P. Morgan -- Analyst

Thanks. Hey, good morning.

Jim Braun -- Executive Vice President and Chief Financial Officer

Good morning, Seean.

Sean Meakim -- J.P. Morgan -- Analyst

Jim, congratulations on the retirement. But I'm glad we have still a few more quarters to give you a hard time here.

Jim Braun -- Executive Vice President and Chief Financial Officer

Thank you, Sean.

Sean Meakim -- J.P. Morgan -- Analyst

So obviously a difficult quarter. Shortfall seems to manifest itself pretty late in the quarter, as Jim mentioned. And typically, you're seeing a seasonal ramp into the summer months. But by many accounts, E&Ps are managing their spending on a quarterly and maybe even monthly basis to stay within those budgets.

We've been hearing from service companies that collections in the quarter end have been difficult and then cash comes in the door right after. So E&Ps are window-dressing their balance sheets to some degree. Can you talk about these shifts in customer behavior and how the works in that really driving some of the shortfall in the quarter? And then what underpins your confidence in the updated guidance as we think about the back half of the year?

Andrew Lane -- President and Chief Executive Officer

Yes. Sean, let me address that, and Jim can add some comments. But it finished -- the quarter finished very disappointing. Let me step back a second, just talk about how the years played out because this is our second revision to the outlook.

We had, as we spoke about on the last quarter, slow December and January as spending curtails at the end of last year, picked up nicely in February and a strong March for us. So we had what was a slow start to the year but a good finish to the first quarter. And then that caused us to revise the upper end of our guidance given that outlook for the business after the first quarter. Second quarter, when we -- April, May, and even when we were at your conference, we were up 9% sequentially over the first quarter.

So really, everything was on target. And as you mentioned in your question and as has been the case for us from my old 11 years here, June ramps, July is a good month. Our summer construction months are really good. What really surprised us and was not expected was a falloff in spending and falloff in revenues in June.

If you told me in the first quarter that June was going to be lower than April and May, I would not have thought that at all was going to be -- it's never been that way with our customer base. So as Jim mentioned in his comments, a very unique -- a very unusual spending patterns of June that even carries a little bit into July of decrease in spending instead of our historical ramp-up. So the overall spending environment turned out negative on us late in the quarter, so that caused us to end up slower in the second quarter and then would, given the first of results, have to reset the expectations for the full year. The other big thing impacting us, so overall spending and customer discipline has definitely impacted us so far as it has the whole industry, I think.

And then unique to us that we've talked about, we had $260 million of nonrecurring project revenue in 2018. And when we started this year, we expected U.S. capex spending to be up 10%. After the first quarter, we expected it to be down 3%.

And then now latest estimates is U.S. capex E&P spending will be down 5% to 10%. So our ability to replace those large projects has really been hampered given the overall spending decline. And just to give you a little color on that.

In the second quarter of '19 compared to second quarter of '18, we're down $99 million in revenue. $75 million of that decline is from those three projects we've talked about nonrecurring. So that's more unique to us when you look at our results compared to last year than others. When you look at the first half of '19 compared to the first half of '18, our revenues are down $138 million, but $147 million was a decline year on year from those three projects.

And our base business actually grew $9 million. So I think there's two things, when you look at us, you have to really think about the overall spending by our major customers. And even we expected a ramp-up in our large IOC customer contracts, and things were -- and to answer the second part of your question, that will include going in the second half. We have now modest growth in the second half mainly from the contracts, either new contract wins or existing contract increases in spending.

But for the year, we're going to have the offset of the nonrecurring projects that impact us the most compared to others.

Sean Meakim -- J.P. Morgan -- Analyst

That's really helpful. On margins, you've been tied on managing G&A, so the update there makes sense. But could we talk about the trajectory of gross margins going forward? So you got pricing pressure in the current environment, particularly on line pipe. It sounds like you're attributing most or all of the quarter-to-quarter decline to line pipe.

So can you just maybe talk about how you're going to manage these moving pieces? You have took the guidance down. Just -- maybe let us understand the moving pieces on line pipe -- or sorry, on the gross margin in the back half of the year.

Andrew Lane -- President and Chief Executive Officer

Yes. Let me address line pipe, and Jim can talk about them overall. But line pipe has been a similar situation. We've had steady declines in the spot market from a price standpoint.

But also, from this point on, on an overall demand standpoint. So when you look at -- and line pipe is a 16% of our total revenue. So when it moves, it has an impact on our overall margins. When you look at demand on a tons basis from the end of last year, the demand is down 14%.

And when you look at it from a price standpoint, the price is down 10%. So it's a volume and a price -- both factors detrimental to our earnings and profitability in line pipe. So that's been the biggest swing factor. You -- Jim mentioned in his comments, prepared remarks that really, line pipe, the run-up in 2018 of domestic steel mills to match the import tariffs has really been backed out.

And as demand has softened, that higher price did not stick from a year ago. So we've seen that, the whole industry has seen that, and that's the biggest swing factor, which has been disappointing. I would say our other product lines, especially valves and stainless, have performed very well and were up to our expectations. But we're really impacted here in the short term on the line pipe.

Jim?

Jim Braun -- Executive Vice President and Chief Financial Officer

Yes. Sean, I'd add, as we go through the back half of the year and we execute on some of the contract awards, we'll see some benefit from product mix as we move to some of those higher-margin products that Andy mentioned.

Sean Meakim -- J.P. Morgan -- Analyst

Great. Thank you for that feedback.

Operator

Our next question comes from the line of Marc Bianchi with Cowen. Please proceed with your question.

Marc Bianchi -- Cowen and Company -- Analyst

Hey. Thanks a lot. And Jim, congratulations on the retirement as well. I -- just on the gross margin commentary you just gave for the back half.

Would you anticipate some of that benefit to be realized in the third quarter? Or is it more of a fourth-quarter benefit from the mix in the new contracts?

Jim Braun -- Executive Vice President and Chief Financial Officer

No. I think you'll see that in both the quarters. It's certainly not back end loaded into the fourth quarter. So there should be benefit in both.

Andrew Lane -- President and Chief Executive Officer

And Marc, one area that I didn't mentioned in my comments is the valve modification shop. So valves are already been one of our higher technical content, higher-margin type businesses where that facility, we had no impact -- positive impact in the first half of the year. We'll see that ramp in the second half and that will contain both higher technical and higher manufacturing content. So we'll see higher margins than even our base valve business in the midstream valves as a strategic growth opportunity for us.

So that will ramp -- that will ramp up into the third and more in the fourth quarter and will really impact us more significantly in '20. We've invested in that facility and expanding our midstream valves. We expect as you look at '20 and '21 incremental growth of $100 million in midstream valves revenue from that investment.

Marc Bianchi -- Cowen and Company -- Analyst

OK. And you guys have mentioned the additional actions being considered that could result in some restructuring. Could you provide some more commentary on what specifically you're considering and maybe how much of a cost reduction we could be looking at or maybe put some -- put a range out there, if you could?

Andrew Lane -- President and Chief Executive Officer

Yes, Marc. I'll start. I'll address what we're doing, and Jim can give you the guidance on the cost as much visibility as he has at this point. But we've done a couple of things.

We've -- just because of the slowdown in customer spending in June that carried into July, so we will have hiring freeze for three months. Attrition will positively impact that and then also salary freeze for the rest of the year. We also have done, as we've done several times before, and a retirement package program. So we have around 3,540 employees.

I expect that our reductions will be 125 to 150 employees by the end of the year from those programs. Jim?

Jim Braun -- Executive Vice President and Chief Financial Officer

Yes. Marc, I'll just add, I mean, we mentioned in the prepared remarks too that we're looking at taking some further actions in Canada downsides that business. That is a challenging market today. We don't see it coming back anytime soon.

And for us, we need to take another look at how we serve the market there, where we serve it from, and quite frankly, the number of people serving that market. So that's another we're going to look -- be looking at. It's probably a little premature to give some specific numbers. We have to see what the acceptance rate is in the voluntary retirement program.

But certainly, within the guidance on the operating expenses we've given, we should be within that range.

Marc Bianchi -- Cowen and Company -- Analyst

Right. Right. OK. Well, thanks so much for taking my questions.

Jim Braun -- Executive Vice President and Chief Financial Officer

Thanks, Marc.

Operator

Our next question comes from the line of Vaibhav Vaishnav with Howard Weil. Please proceed with your question.

Vaibhav Vaishnav -- Scotia Howard Weil -- Analyst

Hey, good morning, guys.

Jim Braun -- Executive Vice President and Chief Financial Officer

Good morning.

Vaibhav Vaishnav -- Scotia Howard Weil -- Analyst

Congratulations, Jim, on the retirement. Get away from sell side as far as you can. I guess just following up on Marc's question that given all is said and done, is like $130 million per quarter corporate expense number unreasonable to think about?

Jim Braun -- Executive Vice President and Chief Financial Officer

Vebs, it runs about $137 million -- $136 million, $137 million a quarter on average for the last two quarters. It may fluctuate a little from that on a quarter-to-quarter basis, but certainly, be within that range.

Vaibhav Vaishnav -- Scotia Howard Weil -- Analyst

Sorry. I was trying to think about like once all these cost actions have taken, how we should be thinking about 2020? And that's where I was going with that.

Jim Braun -- Executive Vice President and Chief Financial Officer

I apologize. I misunderstood you. So I think with the cost actions we've taken, we certainly should see those costs come down on a year-over-year basis, so at least from a second half of the year run rate. But as I mentioned early, it's probably a little mature to put a number on that just yet given the fact that we've -- were in the middle of that process.

Vaibhav Vaishnav -- Scotia Howard Weil -- Analyst

Got it. OK. And that makes sense. U.S.

revenues for the upstream were down about 5%, 10%. Despite completions activity, if I think about it, it was about, call it, up 5%. Can you just help me think about what drove that? Any market shares dynamics, any customer-specific issues?

Andrew Lane -- President and Chief Executive Officer

Yes, Vebs. It's -- as you know, we track and we have our -- five, seven years, we track very tightly our U.S. upstream revenues with the U.S. completion count as from a percentage basis.

And so it was very unusual, the second quarter, where we had a 5% or 6% increase in overall completions. Our U.S. upstream revenue was down 9%. We don't think it was market share differences.

We had a lot of customers complete wells, but they had -- we had already realized the revenue from the tank battery expansions in previous quarters. So I don't think it's an overall change. I think it's a single quarter where the revenues just didn't line up. Of course, we do more revenues in tank battery expansions than we do in just flow lines, connecting wells.

So I think that was a very unique time for the second quarter. And it really was specific to our customers and activities in the quarter. And in -- so that was from overall. But when you look at year to date, the first-half '19 comparative first-half '18, completions are up 13%.

And our U.S. upstream is up 7%. So I think we're tracking closer. The big swing was in the Permian.

Now we have two big customers in the Permian going through an acquisition. I think that would slow spending as we've seen every time company's getting to acquisitions. But sequentially, we were down 12% in the upstream and Permian, which is very unusual for us because year to date, we're up 10% there in upstream. So I think it's unique, some circumstances with the customer mix and well was completing during the quarter.

But we certainly feel like the second half will return to tracking pretty close to the overall completion percentage in the U.S.

Vaibhav Vaishnav -- Scotia Howard Weil -- Analyst

OK. OK. So it's was more of a normalization. Got it.

That's helpful. And if I may ask -- squeeze in one more question. Just thinking about longer term and thinking about all the U.S. Gulf Coast infrastructure, have there been any progress made? What -- how are the conversations going on with that?

Andrew Lane -- President and Chief Executive Officer

Yes, Vebs. I mean, we still -- we'll benefit largely from that lot of activity. You have the Motiva refining expansion. You have the CP Chem chemical -- petrochemical project.

You have the Exxon, SABIC, Corpus chemical project. All -- and we -- last quarter of last year, we did a large expansion on Baton Rouge to expand our capabilities to serve customers in South Louisiana refining and chemical. So -- and then, of course, you know about our big La Porte expansion. So from a facility and personnel and a contract position, we're in a very good position.

We -- just the timing issue. All those projects are under way now, which is good for us, but we'll see really revenues second half of '20. And in '21, '22, we'll be where we really benefit from those big projects. That's toward the end of them when they hit our purchase out of stock.

So I -- it's good news from a longer-term perspective. It doesn't have a big short-term impact on us.

Vaibhav Vaishnav -- Scotia Howard Weil -- Analyst

That's very helpful. Thank you for taking my questions.

Operator

There are no further questions in the queue. I'd like to hand the call back to management for closing comments.

Monica Broughton -- Director of Investor Relations

Thank you for joining us today and for your interest in MRC Global. We look forward to having you join us for our third-quarter conference call in November. Have a good day, and goodbye.

Operator

[Operator signoff]

Duration: 45 minutes

Call participants:

Monica Broughton -- Director of Investor Relations

Andrew Lane -- President and Chief Executive Officer

Jim Braun -- Executive Vice President and Chief Financial Officer

Sean Meakim -- J.P. Morgan -- Analyst

Marc Bianchi -- Cowen and Company -- Analyst

Vaibhav Vaishnav -- Scotia Howard Weil -- Analyst

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