MRC Global Inc. is a leading global distributor of pipe, valves, fittings (PVF) and other infrastructure products and services to diversified energy, industrial and gas utility end-markets. The company has transformed itself into a more efficient and consistently profitable business with a strong balance sheet, positioning it for future success.

In the fiscal year 2023, MRC Global generated annual revenue of $3.412 billion and net income of $90 million. The company also reported annual operating cash flow of $181 million and free cash flow of $166 million, demonstrating its ability to generate substantial cash flow.

For the first quarter of 2024, MRC Global reported revenue of $806 million, a 5% sequential increase from the fourth quarter of 2023 and a 9% decline compared to the same period in the prior year. The company's net income for the quarter was $19 million, with earnings per share of $0.15.

Business Overview

MRC Global operates in three key sectors: Gas Utilities, Downstream, Industrial and Energy Transition (DIET), and Production and Transmission Infrastructure (PTI). The Gas Utilities sector, which accounts for 33% of the company's total revenue, serves gas utilities (storage and distribution of natural gas). The DIET sector, representing 34% of revenue, serves the downstream, industrial and energy transition markets, including crude oil refining, petrochemical and chemical processing, general industrials and energy transition projects. The PTI sector, making up the remaining 33% of revenue, serves the exploration, production, extraction, gathering, processing and transmission of oil and gas.

Geographic Breakdown

MRC Global's operations are primarily focused in the United States, which accounted for 83% of total revenue in the first quarter of 2024. Canada contributed 4% of revenue, while the International segment, which includes Europe, Asia, Australasia and the Middle East, generated the remaining 13% of revenue.

Quarterly Performance

In the first quarter of 2024, MRC Global's Gas Utilities sector revenue increased 5% sequentially to $266 million, as the company saw improved project work and increased customer spending due to normalizing buying patterns. The DIET sector revenue grew 7% sequentially to $276 million, driven by an increase in mining-related sales, refinery project and turnaround activity, and chemical market share growth in the U.S. The PTI sector revenue increased 3% sequentially to $264 million, primarily due to increased sales of valves and polyethylene pipe for well completions in the U.S.

From a geographic perspective, U.S. revenue increased 5% sequentially to $667 million, with improvements across all three sectors. International revenue grew 3% sequentially to $110 million, driven by the DIET sector in the Middle East and Europe. Canada revenue increased 3% sequentially to $29 million, as increases in the DIET sector offset a decline in the PTI sector.

Margins and Profitability

MRC Global's adjusted gross profit margin for the first quarter of 2024 was 21.6%, a 40-basis-point improvement over the same period in the prior year and a 30-basis-point decline sequentially. This marked the eighth consecutive quarter with adjusted gross margins exceeding 21%, reflecting the company's success in maintaining a higher-margin product mix and a greater contribution from the International segment, which is accretive to overall company gross margins.

Adjusted EBITDA for the first quarter of 2024 was $57 million, or 7.1% of sales, an 80-basis-point increase from the fourth quarter of 2023. This improvement was driven by higher sales, elevated gross margins and reduced SG&A costs.

Liquidity and Capital Structure

As of March 31, 2024, MRC Global had total liquidity of $791 million, consisting of $146 million in cash and $645 million in available borrowing capacity under its Global ABL Facility. The company's leverage ratio, based on net debt of $149 million, was 0.6x, a new record low for the company.

MRC Global intends to repay its $292 million Term Loan B in full during the second quarter of 2024, using a combination of cash and its ABL facility. This will reduce the company's ongoing interest expense burden by 150 basis points for any balance that remains on the ABL.

Outlook

For the second quarter of 2024, MRC Global expects sequential revenue to increase in the low single digits, with improvements across all three of its sectors and geographic segments. The company's outlook for the full year 2024 remains in line with the guidance provided on the previous earnings call.

MRC Global is targeting the following key metrics for 2024: - Average adjusted gross margins of 21% or better - Average adjusted EBITDA margins of 7% or better - Average adjusted SG&A costs as a percentage of revenue below 15% - Operating cash flow of $200 million or more - Capital expenditures of $40 million to $45 million, primarily related to the company's ERP implementation - Effective tax rate in the range of 26% to 28%

The company believes 2024 will be a transitional year, with total revenue expected to be similar to or slightly lower than 2023 levels. However, MRC Global is optimistic about the long-term fundamentals of its business sectors and its ability to generate consistent earnings and cash flow across the business cycle.

Risks and Challenges

While MRC Global has transformed itself into a more efficient and profitable company, it still faces several risks and challenges, including: - Volatility in oil and natural gas prices, which can impact customer spending and demand for the company's products - Supply chain disruptions and inflationary pressures, which could affect product availability and pricing - Potential shifts in customer preferences and the energy transition towards renewable sources, which could impact demand for traditional oil and gas infrastructure - Competitive pressures from other distributors and manufacturers selling directly to end-users

Despite these risks, MRC Global's diversified business model, strong market position, and focus on operational efficiency and cost control position the company well to navigate the evolving market landscape and deliver consistent profitability and cash flow generation.

Conclusion

MRC Global has made significant strides in transforming its business, becoming a more efficient and consistently profitable distributor of critical infrastructure products and services. The company's diversified end-market exposure, strong balance sheet, and focus on cost discipline have positioned it for long-term success. While 2024 may be a transitional year, MRC Global's outlook remains positive, and the company is well-positioned to capitalize on the growing demand for its products and services across the energy, industrial, and gas utility sectors.