Q4 2023 MRC Global Inc Earnings Call

Operator: Greetings and welcome to MRC Global's fourth quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode.

Greetings and welcome to the MRC Global's fourth quarter 2023 earnings conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.

Operator: A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Monica Braun, VIP, Investor Relations, and Treasury. Please go ahead.

As a reminder, this conference is being recorded it is now my pleasure to introduce your host Mike abroad, VIP Investor Relations and Treasury. Please go ahead.

James E. Braun: Thank you and good morning. Welcome to the MRC Global fourth quarter and full year 2023 earnings conference call via webcast. We appreciate you joining us. On the call today, we have Rob Slotil, 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 28th, 2024. The dial-in information is in yesterday's release.

Mike: Thank you and good morning, welcome to the MRC Global fourth quarter and full year 2023 earnings conference call and webcast. We appreciate you joining us on the call today, we have Rob such Hill, President and CEO, and Kelly Youngblood Executive Vice President and CFO.

Mike: There will be a replay of today's call available by webcast on our website MRC global dot com as well as by phone until February 28 2024.

The dial in information is in yesterday's release.

James E. Braun: We expect to file our annual report on Form 10-K later this week, and it will also be available on our website. Please note that the information reported on this call speaks only as of today, February 14, 2024, and therefore, you are advised that the information may no longer be accurate as of the time of replay. In our call today, we will discuss various non-GAAP measures. 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. Unless we specifically state otherwise, references in this call to EBITDA refer to adjusted EBITDA. 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, actual results could differ materially from those expressed today.

Mike: We expect to file our annual report on Form 10-K later this week and it will also be available on our website.

Mike: Please note that the information reported on this call speaks only as of today February 14, 2024, and therefore, you're advised that the information may no longer be accurate as of the time of the replay.

Mike: In our call today, we will discuss various non-GAAP measures 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.

Mike: Unless we specifically say otherwise references in this call refer to EBIT to EBITDA refer to adjusted EBITDA. 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.

Mike: MRC global however, actual results could differ materially from those expressed today, you're 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. Rob Selfheal. Thank you Monica good morning, and welcome to everyone joining today's call.

Rob Salteel: 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. Rob Salteel.

Rob Salteel: Thank you, Monica. Good morning, and welcome to everyone joining today's call. I will begin with a discussion of notable achievements in 2023, review our fourth quarter results at a high level, and address some of the key business drivers underpinning our 2024 outlook. I will then turn the call over to Kelly to provide a detailed review of the quarter and 2024 guidance before I deliver a brief recap. For the full year 2023, we had many accomplishments that I want to highlight, including setting several new MRC Global records for profit margins, balance sheet strength, and working capital efficiency. First, we generated $181 million in operating cash for the year, well above the $110 million that we previously expected. This translates to a robust 18% levered free cash flow yield for the year. We are very bullish on the cash generation potential of the company going forward. We also set a company record for full-year adjusted gross margins at 21.5%, which is the second year in a row that we exceeded 21%.

Rob Selfheal: I will begin with a discussion of notable achievements in 'twenty twenty-three review, our fourth quarter results at a high level and address some of the key business drivers underpinning our 'twenty 'twenty four outlook I will then turn the call over to Kelly to provide a detailed review of the quarter and 'twenty 'twenty four guidance before I deliver a brief recap.

Mike: For the full year 2023, we had many accomplishments that I want to highlight including setting several new MRC Global records for profit margins balance sheet strength and working capital efficiency.

Kelly Youngblood: First we generated $181 million in operating cash for the year well above the 110 million that we previously expected.

Kelly Youngblood: This translates to a robust 18% levered free cash flow yield for the year. We are very bullish on the cash generation potential of the company going forward.

Kelly Youngblood: We also set a company record for full year adjusted gross margins at 21.5%, which is the second year in a row, where we exceeded 21% some of our investors have expressed concerns that we might not be able to maintain margins at this level, but I'm happy to report that we've now had seven quarters in a row with 21 plus person.

Rob Salteel: Some of our investors have expressed concerns that we might not be able to maintain margins at this level, but I am happy to report that we have now had seven quarters in a row with 21 plus percent margins. This is a transformational change from the high teens level of margins throughout most of our company's history. Adjusted EBITDA margins were 7.3% for 2023, the second year in a row above 7%.

Kelly Youngblood: <unk> margins. This is a transformational change from the high teens level of margins throughout most of our company's history.

Kelly Youngblood: Adjusted EBITDA margins were seven 3% for 2023, the second year in a row above 7%.

Rob Salteel: This is the result of both higher adjusted gross margins along with our discipline on cost management. We've been very focused on working capital efficiency over the last few years, as evidenced by another record set in 2023, with our net working capital as a percentage of sales coming in at 15.5%. Since 2018, we have improved this metric by 490 basis points, which is helping us to consistently generate positive cash flow irrespective of the business cycle. Our balance sheet has never been stronger, with ample liquidity and the lowest leverage ratio in our public company history at 0.7 times.

Kelly Youngblood: This is a result of both higher adjusted gross margins along with our discipline on cost management.

Kelly Youngblood: We've been very focused on working capital efficiency over the last few years as evidenced by another record set in 2023 with our net working capital as a percentage of sales coming in at 15, 5%.

Kelly Youngblood: Since 2018, we've improved this metric by 490 basis points, which is helping us to consistently generate positive cash flow irrespective of the business cycle.

Kelly Youngblood: Our balance sheet has never been stronger with ample liquidity and the lowest leverage ratio in our public company history at 0.7 times, we expect this metric to improve even further in 2024.

Rob Salteel: We expect this metric to improve even further in 2024. Revenue grew for the third straight year in 2023 to $3.4 billion, with year-over-year growth in our PTI and diet sectors partially offset by a slowdown in our gas utility sector. Our PTI sector grew by 6%, driven by increased activity and market share gains in the Permian Basin, partially offset by reduced sales in California and Canada. The dilution sector improved 5% in 2023, driven by various LNG chemicals and refining projects.

Kelly Youngblood: Revenue grew for the third straight year in 2023 to $3 4 billion with year over year growth in our P. T. I N diet sectors, partially offset by a slowdown in our gas utilities sector. Our P. T. I sector grew by 6% driven by increased activity and market share gains in the Permian basin, partially offset by reduced sale.

Kelly Youngblood: And California and Canada.

Kelly Youngblood: Diet sector improved 5% in 2023, driven by various LNG chemicals and refining projects.

Rob Salteel: Our international business grew 13% in 2023 and is poised for double-digit improvement in 2024, supported by a healthy backlog that was 55% higher at year-end compared to the beginning of 2023. I will now make a few comments about the fourth quarter results and then turn to our outline. Despite a revenue pullback in the fourth quarter, we maintained strong profit margins and cash generation that exceeded our expectations. For the quarter, adjusted gross margins were 21.9%, and adjusted EBITDA was $48 million, or 6.3% of sales.

Kelly Youngblood: Our international business grew 13% in 2023 and is poised for double digit improvement in 'twenty 'twenty four supported by a healthy backlog that was 55% higher at year end compared to the beginning of 2023.

Speaker Change: I will now make a few comments about the fourth quarter results and then turn to our outlook.

Speaker Change: Despite a revenue pull back in the fourth quarter, we maintained strong profit margins and cash generation that exceeded our expectations for the quarter. Adjusted gross margins were 21, 9% and adjusted EBITDA was $48 million or six 3% of sales. In addition, we generated cash flow from operations of 89.

Rob Salteel: In addition, we generated cash flow from operations of $89 million in the fourth quarter, aided by excellent stewardship of our working capital that allowed us to achieve $181 million for the full year. Turning to our outlook, I will now provide some early perspectives on 2024. First of all, we have seen a meaningful improvement in our backlog and our new orders over the first few weeks of 2024. This gives us optimism that our business is stabilizing, and we expect a return to growth in the coming quarters. From a sector perspective, for our gas utility sector, we expect our customers to continue their destocking efforts in the near term, which could cause capital spending for the first half of the year to lag the levels we saw in the first half of 2023. However, we expect to see an inflection point around mid-year for gas utility spending to improve once the destocking targets have been met.

Speaker Change: In the fourth quarter aided by excellent stewardship of our working capital that allowed us to achieve 181 million for the full year.

Speaker Change: Turning to our outlook I will now provide some early perspectives on 'twenty 'twenty four.

Speaker Change: First of all we have seen a meaningful improvement in our backlog and our new orders over the first few weeks of 'twenty 'twenty. Four this gives us optimism that our business is stabilizing and we expect to return to growth in the coming quarters.

Speaker Change: From a sector perspective.

Speaker Change: For our gas utility sector, we expect our customers to continue their destocking efforts in the near term, which could cause capital spending for the first half of the year to lag the levels. We saw in the first half of 'twenty twenty-three. However, we expect to see an inflection point around mid year for gas utility spending to improve once the deal.

Speaker Change: Stocking targets have been met.

Rob Salteel: In addition, we expect moderation of inflation and interest rates as we move through 2024, which should improve the overall investment climate for this sector. Nevertheless, despite the near-term headwinds, the long-term market fundamentals and growth potential of our gas utilities business remain very positive. We continue to expand our market share and wallet share with gas utilities, and we are competing for new utility contracts in 2024 that should expand our presence further. Most of the work we perform with our gas utility customers is based on multi-year programs where they evaluate and implement measures to improve their local distribution networks, and in some cases, their transmission pipelines, to ensure the safety and the integrity of these systems. Since approximately 35% of the U.S. gas distribution network today is over 40 years old or of unknown origin, this creates a steady backlog of work due to the need to upgrade and maintain these networks as they age.

Speaker Change: In addition, we expect moderation of inflation and interest rates as we move through 'twenty, 'twenty, four which should improve the overall investment climate for this sector.

Speaker Change: Despite the near term headwinds the long term market fundamentals and growth potential of our gas utilities business remain very positive.

Speaker Change: We continue to expand our market share and wallet share with the gas utilities and we are competing for new utility contracts in 'twenty 'twenty four that should expand our presence further.

Speaker Change: Most of the work we performed with our gas utilities customers is based on multi year programs, where they evaluate and implement measures to prove their local distribution networks and in some cases their transmission pipelines to ensure the safety and the integrity of these systems since.

Speaker Change: Since approximately 35% of the U S gas distribution network today is over 40 years old or of unknown origin. This creates a steady backlog of work due to the need to upgrade and maintain these networks as they age. Additionally, as new housing starts improved with lower interest rates. This should result in further growth opportunities.

Rob Salteel: Additionally, as new housing starts to improve with lower interest rates, this should result in further growth opportunities for this sector. In the Diet sector, we are optimistic that we will experience modest revenue growth this year from a strong level of refinery and chemical plant maintenance activities, supplemented by a growing slate of projects. We remain excited about energy transition growth opportunities and expect that most of the revenue in 2024 for this subsector will occur in the renewable fuel space. We expect a lot of new project bidding activity this year, but we will likely see most of the benefits in 2025 and beyond. Turning to our PTI business, recent industry reports have signaled some potential risks of declining oil prices and customer spending levels in 2024.

Speaker Change: Entities for this sector.

Speaker Change: And the diet sector, we are optimistic that we will experience modest revenue growth. This year from a strong level of refinery and chemical plant maintenance activities supplemented by a growing slate of projects. We remain excited about energy transition growth opportunities and expect that most of the revenue in 'twenty 'twenty four for this sub sector.

Speaker Change: We will occur in the renewable fuels space, we expect a lot of new project bidding activity. This year, but we will likely see most of the benefits in 2025 and beyond.

Speaker Change: Turning to our P. T I business recent industry reports have signaled some potential risk of declining oil prices and customer spending levels in 'twenty 'twenty. Four however, larger public E&P companies are expected to drive a higher percentage of the activity in 2024 in the U S oilfield, which bodes well for our.

Rob Salteel: However, larger public E&P companies are expected to drive a higher percentage of the activity in 2024 in the U.S. oil field, which bodes well for our company, as our revenue for this sector is driven primarily from this customer base. Recent announcements of consolidation by our PTI customers are expected to be beneficial to MRC Global once completed. We partner more extensively with the acquirers than we do with the targets, and the value we bring is generally better recognized by the larger operators who procure higher quality, longer-life products for their oil and gas development projects.

Speaker Change: <unk> is our revenue for this sector is driven primarily from this customer base recent announcements of consolidation by our P. T. I customers are expected to be beneficial to MRC global once completed we partner more extensively with the acquirers than we do the targets and the value. We bring is generally better recognized by the.

Speaker Change: Larger operators, who procure higher quality longer life products for the oil and gas development projects.

Rob Salteel: Another positive for the PTI sector is that the international oil and gas market is expected to expand, and we should benefit from our strong position in growth markets such as Norway, the UK, and the Middle East. For our international segment, we expect another strong year aided by favorable fundamentals in both the PTI and diet sectors and a healthy revenue backlog that has grown each of the last five quarters. Our international backlog at the end of the fourth quarter increased 14 percent over the third quarter.

Speaker Change: Another positive for the P. G. I sector is our international oil and gas market is expected to expand and we should benefit from our strong position in growth markets, such as Norway, The U K and middle East.

Speaker Change: For our international segment, we expect another strong year aided by favorable fundamentals in both the P. T. I N died sectors and a healthy revenue backlog that has grown each of the last five quarters, our international backlog at the end of the fourth quarter increased 14% over the third quarter, we've lined up exciting projects.

Rob Salteel: We have lined up exciting projects in both PTI and in diet, and we expect another year of double-digit growth for international in 2024. Given the slower business environment in the U.S. segment, we are laser-focused on improving the things we can control, such as our cost structure. We are working to lower our absolute SG&A cost this year after experiencing an increase in 2023, which will support our ability to maintain healthy adjusted EBITDA margins. We are implementing a number of cost optimization initiatives, including slower wage growth and reductions in professional fees over time, travel and entertainment expenses, and logistics costs. We have made significant progress increasing our adjusted gross margins and EBITDA returns over the last few years, and we are committed to not losing this momentum in 2024.

Speaker Change: And both Pgi and in diet, and we expect another year of double digit growth for international in 2024.

Speaker Change: Given the slower business environment in the U S segment, we are laser focused on improving the things we can control such as our cost structure. We are working to lower our absolute SG&A costs. This year after experiencing an increase in 'twenty twenty-three, which will support our ability to maintain healthy adjusted EBITDA margins.

Speaker Change: We are implementing a number of cost optimization initiatives, including slower wage growth and reductions in professional fees over time traveling and entertainment expenses and logistics costs. We have made significant progress elevating our adjusted gross margins and EBITDA returns over the last few years and.

Speaker Change: We are committed to not losing this momentum in 2024.

Rob Salteel: In summary, we expect 2024 to be a transitional year for the company in terms of revenue, but it is clear that we have never been a stronger company than we are today. We remain optimistic about the fundamentals of all three business sectors and their long-term outlook, given our strong market position and the expectation of demand for our products and services for decades to come.

Speaker Change: In summary, we expect 'twenty 'twenty four to be a transitional year for the company in terms of revenue, but it is clear that we have never been a stronger company than we are today.

Speaker Change: We remain optimistic about the fundamentals of all three business sectors and their long term outlook, given our strong market position and the expectation of demand for our products and services for decades to come with the recent improvements in our cost structure and our working capital efficiencies, we are well positioned to generate significant earnings.

Rob Salteel: With the recent improvements in our cost structure and our working capital efficiencies, we are well positioned to generate significant earnings in cash flow across the business cycle. We are targeting to generate approximately $200 million in operating cash flow in 2024, which will make us an even stronger company with minimal debt at the end of this year. This will provide us with a lot of flexibility to pursue a capital allocation strategy that is focused on the highest return opportunities for our shareholders, including investing in our growth drivers and distributing capital to our shareholders. I will now hand this over to Kelly. Thanks, Rob. And good morning, everyone.

Speaker Change: Cash flow across the business cycle, we are targeting to generate approximately 200 million in operating cash flow in 'twenty, 'twenty, four which will make us an even stronger company with minimal debt at the end of this year.

Speaker Change: This will provide us with a lot of flexibility to pursue our capital allocation strategy that is focused on the highest return opportunities for our shareholders, including investing in our growth drivers and distributing capital to our shareholders I will now hand, it over to Kelly.

Kelly Youngblood: Thanks, Rob and good morning, everyone. My comments today will primarily be focused on sequential results comparing the fourth quarter of 2023 to the third quarter of 2023, unless otherwise stated.

Kelly Youngblood: My comments today will primarily be focused on sequential results, comparing the fourth quarter of 2023 to the third quarter of 2023, unless otherwise stated. Total company sales for the fourth quarter were $768 million, a 14 percent sequential decline and 12 percent lower than the same quarter a year ago. From a sector perspective, gas utility sales were $253 million in the fourth quarter, a 61 million or 19% decline.

Kelly Youngblood: Total company sales for the fourth quarter were 768, million% to 14% sequential decline in 12% lower than the same quarter a year ago.

Speaker Change: From a sector perspective gas utility sales were 253 million in the fourth quarter, a 61 million or 19% decline.

Kelly Youngblood: As expected, we continue to see gas utility customers focused on reducing their product inventory levels due to more certainty in supply chain and associated lead time. End-of-year seasonality, along with higher interest rates and inflation in construction costs, also cause customers to delay project activities. The diet sector fourth quarter revenue was $258 million, a decrease of $21 million, or 8%, due to the conclusion of various projects in the third quarter and lower year-end turnaround activity in the U.S. As we have mentioned before, this sector has a significant amount of project activity, which can create substantial variability between quarters. The PTI sector revenue for the fourth quarter was $257 million, a decrease of $38 million or 13 percent sequentially, primarily due to seasonality and lower year-end customer activity in the U.S. From a geographic segment perspective, U.S. revenue was $633 million in the fourth quarter, a $112 million or 15% decrease from the previous quarter, driven by the gas utility sector, which was down $59 million, followed by the PTI sector, which was down $34 million, and finally the diet sector, which was down $19 million.

Speaker Change: As expected, we continued to see gas utility customers focused on reducing their product inventory levels due to more certainty in supply chain and associated lead times.

Speaker Change: And to be here seasonality, along with higher interest rates and inflation in construction costs also caused customers to delay project activity.

Speaker Change: The diet sector fourth quarter revenue was 258 million, a decrease of $21 million or 8% due to the conclusion of various projects in the third quarter and lower year in turnaround activity in the U S. As we've mentioned before this sector has a significant amount of project activity, which can create substantial.

Speaker Change: Variability between quarters.

Speaker Change: The P T I sector revenue for the fourth quarter was 257 million, a decrease of $38 million or 13% sequentially, primarily due to seasonality and lower year end customer activity in the U S.

Speaker Change: From a geographic segment perspective U S revenue was $633 million in the fourth quarter, a $112 billion or 15% decrease from the previous quarter driven by the gas utility sector, which was down $59 million followed by the P. T I sector, which was down $34 million.

Speaker Change: And finally, the diet sector, which was down $19 million.

Kelly Youngblood: International revenue was $107 million in the fourth quarter, up $2 million or 2%, driven by improvement in both the PTI and diet sectors. The PTI sector increase was driven by increased activity in Norway, the Middle East, and the UK. The diet sector increase was driven by energy transition activity as well as project activity in Europe. We remain very optimistic about the outlook for our international segment, which has experienced a 55 percent increase in backlog since the beginning of 2023, with double-digit growth in both the PTI and diaseq. Canada revenue was $28 million in the 4th quarter, down $10 million compared to the prior quarter due to year-end budget exhaustion and year-end curtailment in customer spending.

Speaker Change: International revenue was $107 million in the fourth quarter up $2 million or 2% driven by improvement in both the P. T I N diet sectors.

Speaker Change: The P. T I sector increase was driven by increased activity in Norway, the middle East and the U K.

Speaker Change: The diet sector increase was driven by energy transition activity as well as project activity in Europe.

Speaker Change: We remain very optimistic about the outlook for our international segment, which has experienced a 55% increase in backlog since the beginning of 2023 with double digit growth in both the P. T I N diet sectors.

Speaker Change: Canada revenue was $28 million in the fourth quarter down $10 million compared to the prior quarter due to year end budget exhaustion and you're in curtailment in customer spending.

Kelly Youngblood: Now turning to margins, adjusted gross profit for the fourth quarter was $168 million, or 21.9%, a 60 basis point improvement over the third quarter. Although we have experienced deflation in our line pipe business this year, along with inflation stabilization across most other product lines, we have been successful maintaining adjusted gross margins in excess of 21 percent of sales due to a higher-margin product mix and a higher contribution of revenue from our international segment, which is accretive to overall company gross margin. This marks the seventh consecutive quarter with adjusted gross margins exceeding 21 percent. Reported SG&A for the fourth quarter was $125 million, or 16.3% of sales, as compared to $126 million, or 14.2% for the third quarter. This quarter includes one million dollars of pre-tax charges related to activism, response, legal, and consulting costs.

Speaker Change: Now turning to margins adjusted gross profit for the fourth quarter was wonder $168 million or 21, 9%, a 60 basis point improvement over the third quarter.

Speaker Change: Although we have experienced deflation in our line pipe business. This year, along with inflation stabilization across most other product lines. We have been successful maintaining adjusted gross margins in excess of 21% of sales due to a higher margin product mix and a higher contribution of revenue from our international segment, which is accretive.

Speaker Change: To overall company gross margins.

Speaker Change: This marks the seventh consecutive quarter with adjusted gross margins exceeding 21%.

Speaker Change: Reported SG&A for the fourth quarter was $125 million or 16, 3% of sales as compared to $126 million or 14, 2% for the third quarter.

Speaker Change: This quarter includes 1 million of pre tax charges related to activism response legal and consulting costs.

Kelly Youngblood: Excluding these costs from our SG&A, our adjusted SG&A for the quarter of 2023, for the fourth quarter of 2023, is $124 million. Adjusted EBITDA for the fourth quarter was 48 million, or 6.3% of sales, a 160 basis point decline from the third quarter due to lower sales activity. Tax expense in the fourth quarter was $2 million with an effective tax rate of 9% as compared to $14 million of expense in the third quarter.

Speaker Change: Excluding these costs from our SG&A, our adjusted SG&A for the quarter of 2023 for the fourth quarter of 2023 is $124 million.

Speaker Change: Adjusted EBITDA for the fourth quarter was $48 million or six 3% of sales a 160 basis point decline from the third quarter due to the lower sales activity.

Speaker Change: Tax expense in the fourth quarter was $2 million with an effective tax rate of 9% as compared to $14 million of expense in the third quarter.

Kelly Youngblood: The fourth quarter was favorably impacted by a net reduction in a foreign valuation allowance provision. For the fourth quarter, we had net income attributable to common shareholders of $15 million, or $0.17 per diluted share, and our adjusted net income attributable to common stockholders on an average cost basis, normalizing for LIFO adjustments and other items, was $20 million, or $0.23 per diluted share. In the fourth quarter, we generated $89 million in cash from operations and a net $181 million for the full year. This is a 65% increase over our previous guidance due to exceeding our year-end working capital targets, resulting in an 18% levered free cash flow yield for the year. And, as Rob pointed out, we also achieved our best net working capital to sales ratio in our history at 15.5%, a significant improvement over our historical trend. Turning to liquidity and capital structure, our current availability on the ABL is $610 million, and including cash, our total liquidity is $741 million. Our leverage ratio, based on net debt of $170 million, was 0.7 times my record low for the company.

Speaker Change: The fourth quarter was favorably impacted by a net reduction in our foreign valuation allowance provision.

Speaker Change: For the fourth quarter, we had net income attributable to common shareholders of $15 million or <unk> 17 cents per diluted share and our adjusted net income attributable to common share stockholders on an average cost basis normally normalizing for LIFO adjustments and other items was $20 million or 23 cents per diluted share.

Speaker Change: Okay.

Speaker Change: In the fourth quarter, we generated 89 million in cash from operations and a net 181 million for the full year. This is a 65% increase over our previous guidance due to exceeding our year end working capital targets, resulting in an 18% levered free cash flow yield for the year.

Speaker Change: And as Rob pointed out we also achieved our best net working capital to sales ratio in our history at 15, 5% a significant improvement over our historical trend.

Speaker Change: Turning to liquidity and capital structure, our current availability on the ABL is 610 million, including cash our total liquidity of $741 million.

Speaker Change: Our leverage ratio based on net debt of $170 million was 0.7 times.

Speaker Change: A record low for the company.

Kelly Youngblood: With the cash we expect to generate in 2024, we believe our liquidity and the leverage ratio will continue to show significant improvement. Based on our current projections, we believe we can comfortably pay off our term loan fee on or before its maturity date in September of 2024 with a combination of excess cash and our ABL facility. As such, we are now classifying our term loan as current debt. Additionally, this reduces our ongoing interest expense burden by 150 basis points for any balance that remains on our ABL.

Speaker Change: With the cash we expect to generate in 2024, we believe our liquidity and the leverage ratio will continue to show significant improvement.

Speaker Change: Based on our current projections, we believe we can comfortably pay off our term loan b on or before its maturity date in September of 2024, with a combination of excess cash and our ABL facility.

Speaker Change: As such we are now classifying our term loan as current debt.

Speaker Change: Also this reduces our ongoing interest expense burden by 150 basis points for any balance that remains one of our a b L.

Kelly Youngblood: I would also like to highlight an exciting initiative we are undertaking this year. We recently launched a project to replace and modernize our North America Enterprise Resource Planning, or ERP, system. Currently, we are running on a mainframe system, which is at the end of its useful life.

Speaker Change: I would also like to highlight an exciting initiative we are undertaking this year.

Speaker Change: We recently launched a project to replace and modernize our North America Enterprise resource planning or ERP system.

Speaker Change: Currently we are running on a mainframe system, which is at the end of its useful life.

Kelly Youngblood: We will be moving to a modern cloud-based ERP system over the next two years. I am personally the executive sponsor of the project and have the utmost confidence that we will be successful in meeting our budget and timeline goals. We have spent the past year planning, evaluating software packages, and implementation partners and building a stellar blue ribbon team of some of the company's best resources to implement this ERP system. The new ERP is expected to provide leading-edge functionality, including AI capabilities, allowing us to automate and streamline our processes and systems to improve reporting, forecasting, and controls. It will also reduce IT maintenance costs by approximately $2 million a year.

Speaker Change: We will be moving to a modern cloud, but cloud based ERP system over the next two years.

Speaker Change: I am personally the executive sponsor of the project and have the utmost confidence that we will be successful in meeting our budget and timeline goes.

Speaker Change: We have spent the past year planning evaluating software packages and.

Speaker Change: And implementation partners and building a stellar blue ribbon team of simple sum of the company's best resources to implement this ERP system.

Speaker Change: The new ERP is expected to provide leading edge functionality, including AI capabilities, allowing us to automate and streamline our processes and systems to improve reporting forecasting and controls.

Speaker Change: It will also reduce I T maintenance costs by approximately $2 million a year.

Kelly Youngblood: The CapEx investment is expected to be approximately $50 million over the next two years, and we expect to be fully implemented and running on the new system in the second half of 2025. We are excited about the multitude of opportunities this new cloud-based system will provide to our organization. Now I'll cover our outlook for the first quarter and full year 2024. For the first quarter, we expect sequential revenue to be flat to modestly lower for the total company with PTI and gas utility revenue flattish with the fourth quarter and diet declining modestly due to the timing of various project deliveries.

Speaker Change: The Capex investment is expected to be approximately $50 million spent over the next two years and we expect to be fully implemented and running on the new system in the second half of 2025.

Speaker Change: We are excited about the multitude of opportunities this new cloud based system will provide to our organization.

Speaker Change: Now I'll cover our outlook for the first quarter and full year 2024.

Speaker Change: For the first quarter, we expect sequential revenue to be flat to modestly lower for the total company with P. T I and gas utility revenue flattish with the fourth quarter and diet declining modestly due to the timing of various project deliveries.

Kelly Youngblood: We expect 2024 to be a transitional year and currently believe total company revenue will come in flat to a potentially modest decline of low to mid single digits compared to 2023 levels. From a sector perspective, we expect diet to be modestly higher for the year, PTI to be modestly lower, and gas utilities to also be down for the full year, but showing recovery in the second half of 2024. It's noteworthy and encouraging that recent trends in our 2024 year-to-date sales, new order intake, and backlog are providing optimism that we are seeing stabilization in the business. For example, the backlog at the end of January is up 47 million, or 6.8 percent, since December 31st, with gains across all sectors and all segments.

Speaker Change: We expect 2024 to be a transitional year and currently believe total company revenue will come in flat to a potentially modest decline of low to mid single digits compared to 2023 levels.

Speaker Change: From a sector perspective, we expect diet to be modestly higher for the year P. T ought to be modestly lower in gas utilities to also be down for the full year, but showing a recovery in the second half of 2024.

Speaker Change: It is noteworthy and encouraging that recent trends in our 2024 year to date sales new order intake and backlog are providing optimism that we are seeing stabilization in the business.

Speaker Change: For example, the backlog at the end of January is up $47 million or six 8% since December 31st with gains across all sectors and all segments.

Kelly Youngblood: Also, January sales have improved by about 1% over December. And finally, January's new order intake is up over 30% compared to December, a significant improvement. In 2024, we will also target the following key metrics: Average Adjusted Gross Margins of 21% or better. Average Adjusted EBITDA margins of 7%. Average SG&A cost is a percent of revenue below 15%.

Speaker Change: Also January sales have improved by about 1% over December.

Speaker Change: And finally january's, new order intake is up over 30% compared to December a significant improvement.

Speaker Change: And 'twenty 'twenty four we will also target the following key metrics.

Speaker Change: Average adjusted gross margins of 21% or better.

Speaker Change: Average adjusted EBITDA margins of 7% average.

Speaker Change: Average SG&A cost as a percent of revenue below 15%.

Kelly Youngblood: And for cash flow from operations, we expect to exceed the cash we generated in 2023, targeting to hit $200 million in operational cash generation. However, capital expenditures are expected to be elevated this year due to our ERP initiative. We estimate total capital expenditure in the $40 to $45 million range in 2024, higher than our normal run rate of approximately $15 million. And finally, we expect our effective tax rate in 2024 to be in the range of 26 to 28 percent. And with that, I would like to turn it back to Rob for closing comments. Thanks, Kelly.

Speaker Change: And for cash flow from operations, we expect to exceed the cash we generated in 2023 targeting to hit 200 million in operational cash generation.

Speaker Change: Capital expenditures are expected to be elevated this year due to our ERP initiative, we estimate total capital spend in the $40 million to $45 million range in 2024.

Speaker Change: Higher than our normal run rate of approximately $15 million.

Speaker Change: And finally, we expect our effective tax rate in 2024 to be in the range of 26% to 28%.

Speaker Change: And with that I would like to turn it back to Rob for closing comments. Thanks.

Rob: Thanks, Kelly it bears repeating that our company is in a very strong position and despite the pullback in activity in the second half of 2023, we achieved key milestones and profit margins working capital efficiency and balance sheet strength setting us up for future success.

Rob Salteel: It bears repeating that our company is in a very strong position, and despite the pullback in activity in the second half of 2023, we achieved key milestones in profit margins, working capital efficiency, and balance sheet strength, setting us up for future success. As we continue to execute our strategy and generate consistently strong levels of free cash flow, we will have ample financial flexibility to deliver shareholder value through an opportunistic, shareholder-returns-focused capital allocation strategy. These are the highlights I want to summarize before opening the floor to Q&A.

Rob: As we continue to execute our strategy and generate consistently strong levels of free cash flow, we will have ample financial flexibility to deliver shareholder value through an opportunistic shareholder returns focused capital allocation strategy.

Speaker Change: These are the highlights I want to summarize before opening for Q&A, we are targeting $200 million of cash from operations in 2024 with the working capital efficiencies. We've achieved we are well positioned to consistently generate cash regardless of the business cycle, which is a transformational change.

Rob Salteel: We are targeting $200 million in cash from operations in 2024. With the working capital efficiencies we've achieved, we are well positioned to consistently generate cash regardless of the business cycle, which is a transformational change. We expect average adjusted gross profit to remain in the 21% range in 2024 and are targeting average EBITDA margins of 7% for the full year. We intend to pay off our Term Loan B on or before its maturity date in September of 2024 without requiring any additional financing.

Speaker Change: We expect average adjusted gross profit to remain in the 21% range in 'twenty 'twenty four and are targeting average EBITDA margins of 7% for the full year.

Speaker Change: We intended to pay off our term loan b on or before its maturity date in September of 2024 without requiring any additional financing we expect to exit 2024, with a minimal net debt position and be in a positive net cash position in 2025 and.

Rob Salteel: We expect to exit 2024 with a minimal net debt position and be in a positive net cash position in 2025. And lastly, before we open the call for Q&A, similar to last quarter, I want to acknowledge the rumors and speculation about one of our shareholders. As I'm sure you can appreciate, we don't discuss the specifics of our interaction with any of our existing or potential shareholders, and we won't be able to comment. As such, we kindly ask that you keep your questions in the Q&A session focused on our results. And with that, we will now take your questions. Thank you. Thank you.

Speaker Change: And lastly, before we open the call for Q&A similar to last quarter I wanted to acknowledge the rumors and speculation about one of our shareholders as I'm sure. You can appreciate we don't discuss the specifics of our interaction with any of our existing.

Speaker Change: For potential shareholders, and we won't be able to comment as such we kindly ask that you keep your questions in the Q&A session focused on our results and with that we will now take your questions operator.

Operator: We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.

Speaker Change: Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.

Speaker Change: Todd will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.

Operator: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. The first question comes from Nathan Jones with CFO, please go ahead. Good morning, everyone.

Speaker Change: First question comes from Nathan Jones with Stifel. Please go ahead.

Nathan Hardie Jones: Good morning, everyone.

Nathan Hardie Jones: Yeah, good morning, Nathan. I just wanted to start off with cash flow given, you know, I'm sure you guys had trouble getting out of your offices crawling over it all. There's been a significant reduction in receivables inventories, offset a little bit by a reduction in payables. I think the cash flow guidance for 2024 would imply a pretty significant further reduction in working capital and receivables, inventories, and payables. Can you talk about, you know, kind of what you're expecting there?

Nathan Hardie Jones: Yeah. Good morning, good morning Nathan.

Nathan Hardie Jones: I just have one.

Nathan Hardie Jones: Wanted to start off with cash flow given.

Nathan Hardie Jones: So you guys had trouble getting out of your office is crawling outgrow it all this money.

Nathan Hardie Jones: [laughter].

Nathan Hardie Jones: There's been a significant reduction in receivables and inventory and offset a little bit by reduction in payables.

Speaker Change: The cash flow guidance for 2024 would imply a pretty significant further reduction.

Speaker Change: Working capital and receivables inventory payables.

Speaker Change: Can you talk about kind of what you're expecting there.

Kelly Youngblood: I would say, you know, probably you would acknowledge that 200 million CFO might not be sustainable over the long run at these levels of revenue. So any color you can give us on what you think the sustainable cash flow level would be? Yeah, Nathan, this is Kelly. I'll start off, and Rob can jump in if he likes.

Speaker Change: I would say probably you would acknowledge that 200 million a day, if I might not be sustainable over the long run at these levels of revenue.

Speaker Change: Kelly you can give us on.

Speaker Change: On what you think the sustainable cash flow level of deficiencies.

Speaker Change: Yeah. Nathan this is Kelly I'll I'll start off and Rob can jump in if he likes but now listen we've been consistent here over the last couple of years are saying.

Kelly Youngblood: But no, listen, you know, we've been consistent here over the last couple of years, you know, saying to the market that with our working capital efficiency that we've maintained, or we've improved over the last couple of years, that we think we can consistently generate cash, you know, regardless of what the market conditions are. And so I think this year is a very good example of that, you know, that up slightly, you know, not a huge improvement, but slightly up on revenue. But having 181 million in cash generation, we're very proud of that. You know, working capital efficiency, we've, I think we, you know, we put in our press release, it's a new record of 15.5%. You know, if you go back to 2018, that was around a 20% number.

Kelly Youngblood: Turning to the market that with our working capital efficiency that we've maintained or we've improved over the last couple of years that we think we can consistently generate cash.

Speaker Change: [noise] irregardless of what the market conditions are.

Speaker Change: And so I think this year is a very good example of that you know that up slightly you know not not huge improvement, but up slightly on revenue, but having 181 million of cash generation. We're very proud of that you know working capital efficiency.

Speaker Change: We put in our press release, it's a new record of 15, 5%. If you go back to 2018 that was around a 20% number so we've made drastic improvement there.

Kelly Youngblood: So we've made drastic improvements there. To answer your question, though, the sustainability, you know, we think, as we get it to 200 million in 2024, you know, we're going to have some working capital influence there, you know, we think we have room to improve our turn rates on inventory. And we've made a lot of progress on our receivables, past new receivables, and things like that. But we think we can maintain and even continue to improve that in 2024. You know, the majority of the cash flow generation, I would say, two-thirds to three-quarters of it is still going to be cash flow from operations before working capital changes. But we'll still get the benefit of working capital changes to get us up, you know, make up that other one-third to 25% to get us up to the 200 million number. And then I think in, you know, going forward, Nathan, you know, we're not guiding anything right now.

Speaker Change: To answer your question, though the sustainability, we think you know.

Speaker Change: As we've guided to $200 million in 2024, we're going to have some working capital influence. There you know we think we have room to improve our turn rates on inventory and we've made a lot of progress on our receivables past due receivables and things like that but we think we can maintain and even continue to improve that in 2020 for the majority.

Speaker Change: <unk> of the cash flow generation I would say two thirds to three quarters of it is still going to be.

Speaker Change: Cash flow from operations before working capital changes, but we will still get the benefit from working capital changes to get us up you'll make up that other one 3rd% to 25% to get us up to the 200 million number and then I think in you know going forward Nathan.

Speaker Change: Nathan you know, we're not guiding to anything right now, but we think you know easily we can have 100, plus maybe even 150 plus million of cash generation per year in a call. It a single digit type growth market. If you get into like we were in 2022, where we had a 26% revenue growth it's harder to do achieve that kind of.

Kelly Youngblood: But we think, you know, easily we can have 100 plus, maybe even 150 plus million of cash generation per year in a, you know, call it a single-digit type growth market. But, if you get into, like we were in 2022, where we had a 26% revenue growth, it's harder to achieve that kind of, you know, cash flow number. But with moderate growth, whether we're up or down, we think, you know, easily 100, 150 plus million is very achievable. Thanks.

Speaker Change: Our cash flow number, but with moderate growth, whether we're up or down we think easily hundred hundred 50 plus million is very achievable.

Speaker Change: Thanks.

Speaker Change: I'll follow up.

Rob Salteel: I'll follow up with... I understand cash priorities. You obviously have this timeline that you have to deal with in September. It seems counterproductive for your preferred shareholder to be blocking refinancing of that. Is there any update you can give us on any of the negotiations you've had there that might allow you to refinance that rather than have to use cash plus the ABL to pay it off, which would clearly give you guys some more financial flexibility to discuss at www.mrcglobal.com.au on that or how you're thinking about deploying capital once we resolve Yeah, Nathan, I'll jump in here.

Speaker Change: I guess.

Speaker Change: Cash priority.

Speaker Change: You obviously have this these.

Speaker Change: These timeline that you have to deal with in September.

Speaker Change:

Speaker Change: It seems counterproductive for your preferred shareholder TB blocking refinancing of that is there is there any update you can give us on any of the negotiations you've had that might allow you to to refinance that rather than have to use cash plus the ABL can pay it off which would clearly give you guys some more financial flexibility.

Speaker Change: <unk>.

Speaker Change: To do some M&A ought to do some share repurchase.

Speaker Change: In the nearer time, rather than have to wait a little bit longer for that if there's any commentary you can make on <unk>.

Speaker Change: Or how you're thinking about deploying capital once we resolve that issue.

Speaker Change: Yeah, Nathan I'll jump in here look we've talked about this before that that we've had the disagreement previously on the previous attempt to refinance the term loan and we continue to remain in discussions about.

Rob Salteel: Look, we've talked about this before that we had the disagreement previously on the previous attempt to refinance the term loan, and we continue to remain in discussions about the opportunities to get through that if, in fact, we decide to go to the market for a refinancing. I think one of the things that we've been pleasantly surprised with is how much cash generation we've actually been able to deliver. As Kelly said, we've talked about this for quite some time, that we need to be able to demonstrate that we can generate cash across the cycle and do so in, I would say, pretty large amounts, given the comment you made when we opened the call. And I'm really proud of the fact that our team has been able to do that.

Speaker Change: The opportunities to get through that if in fact, we decided to go to the market for a refinancing I think one of the things that we've been pleasantly surprised with is how much cash generation, we've actually been able to deliver as Kelly said, we've talked about this for quite some time that we need to be able to demonstrate we can generate cash across the cycle.

Speaker Change: And to do so and I would say pretty large amounts are given the comment you made are when we open the call and I am really proud of the fact that our teams have been able to do that.

Rob Salteel: It's obviously a combination of profitability of the business. Our team has done a great job on collections and reducing our day sales outstanding, and making sure as well that we're more efficient with our inventory, so we can generate more revenue and more profitability with less inventory, which is a key metric when you're in the distribution business. So all those things lining up have really demonstrated that we can generate a lot of cash, and in fact, we're generating so much cash that we can basically pay off the term loan with a combination of cash and pulling on the ABL without any necessity of refinancing. Now, opportunistically, to the extent that we have a resolution to the disagreement with the preferred shareholder, we could consider doing exactly what you say, which is But at this point in time, the base case is that we use a combination of the ABL and cash to retire term loan B in September. Thanks a lot for being on the EIP. Go ahead, Kurt.

Speaker Change: It's obviously a combination of profitability of the business. Our team has done a great job on collections and reducing our days sales outstanding are and making sure as well that we're more efficient with our inventory that we can generate more revenue and more profitability with less inventory, which is a key metric when you're in the distribution business.

Speaker Change: So all those things lining up have really demonstrated we can generate a lot of cash and in fact, we're generating so much cash.

Speaker Change: That.

Speaker Change: We can basically pay off the term loan a with a combination of cash and pulling on the a b L. Without any necessity of refinancing now opportunistically to the extent that we have a resolution with the disagreement with preferred shareholder we could consider doing exactly what you say, which.

Speaker Change: As you know taking out an additional financing vehicle to do some other things potentially with returning cash to shareholders, but at this point in time. The base cases, we use a combination of the ABL and cash to to retire the term loan b in September.

Speaker Change: Thanks Scott.

Speaker Change: On the ERP.

Kelly Youngblood: Hey, Nathan, I was just going to add one more thing to what Rob said. You know, when we saw how much cash we generated closing out 23 and what we're projecting for 2024, we saw pretty quickly that if we went out to the market to do a refi of the term loan, we were going to be putting a lot of cash just immediately on the balance sheet, right? I mean, literally, like a couple of hundred million in cash on the balance sheet. And we can always go back out to the market. You know, there's no, there's no, there's nothing that says we have to do it right now.

Scott: Hey, Nathan I would just going to add one more thing to what Rob said you know what when we saw how much cash we generated closing out 'twenty three and what we're projecting for 2024, we saw pretty quickly that if we went out to the market to do a refi of the term loan we were going to be putting a lot of cash just immediately on the balance sheet right I mean like literally like a <unk>.

Scott: $100 million of cash on the balance sheet and we can always go back out to the market.

Scott: There's no there's nothing that says we have to do it right now we always have that flexibility and so you know time is owner side. We've got very good projections ahead of us.

Kelly Youngblood: We always have that flexibility. And so, you know, time is on our side. We've got, you know, very good projections ahead of us. As Rob said in his prepared comments, I think I mentioned it, too.

Scott: As Rob said in his prepared comments and I think I mentioned it to we're going to have minimal net debt at the end of the year. So we think we're very well positioned.

Kelly Youngblood: We're going to have minimal net debt at the end of the year, so we think we're very well positioned. Yeah, I think you're in a good spot for that.

Speaker Change: Yes, I think you are in a good spot for that just on the ERP system. I guess, the implication is about $30 million of Capex in 'twenty fall on that can you talk about how long the title rollout is and what the total cost of the ERP system is going to be and then what you expect to be that the financial and operational benefits that you can generate from that new system.

Kelly Youngblood: Just on the ERP system, I guess the implication is about 30 million dollars in capex in 24 on that. Can you talk about how long the total rollout is and what the total cost of the ERP system is gonna be? And then what you expect to be the financial and operational benefits that you can generate from that? Yeah, absolutely, Nathan. Good question.

Speaker Change: Yeah.

Speaker Change: Yes, absolutely Nathan Good question no. We said in the prepared comments. The total project costs were estimating around 50 million.

Kelly Youngblood: Now, you know, we said in the prepared comments that the total project cost is estimated to be around $50 million. We think we'll incur $25 to $30 million of that here in 2024, with the remainder in 2025. We think we'll be, you know, fully up and running on the new system in the second half of 2025, so this doesn't, you know, go on for many years. It's really just kind of an 18-month period that we're going to be doing the implementation. And so, you know, that's on top of our normal run rate of CapEx, around $15 million, you know, to get you to the guide that we have this year of $40 to $45 million. You know, the benefits we expect to receive, you know, we're kind of really just in the early days of the design phase right now, but let me tell you, we've been working on this for over a year. We spent the first six months of last year going through software selection to make sure we were getting the best fit tool for our business.

Speaker Change: We think we will incur $25 million to $30 million of that here in 2024 with the remainder in 2025.

Speaker Change: We think we will be fully up and running on the new system in the second half of 'twenty five so this doesn't.

Speaker Change: Go on for many years, it's really just kind of an 18 month period that we're going to be doing the implementation.

Speaker Change: And so you know and that's on top of our normal run rate of Capex around $15 million to get you to the guide that we have this year of $42 million to $45 million you know the benefits. We expect to receive you know we're kind of really just in the early days of the design phase right now, but let me tell you we've been working on this for over a year.

Speaker Change: We spent the first six months of last year.

Speaker Change: Going through software selection to make sure we were getting the best fit tool for our business.

Kelly Youngblood: And then we spent, you know, really the second half of the year making sure we got a, you know, best-in-class implementation partner to take us through the whole process. And, you know, some of the benefits we think we're going to get. For example, if you look at just the maintenance costs we have on the existing system versus the new one, it's $2 million in annual savings from that alone. You know, being on a mainframe system, which is what we are right now for North America, there's just a lot of compatibility issues, integration issues with other equipment, software, industry standards. So, you know, that system has served us very well for many decades, but it just becomes more and more challenging to maintain an old system like that. And even just hiring employees and contract resources to maintain, support, and operate the system becomes very difficult.

Speaker Change: And then we spent you know really the second half of the year, making sure we got a best in class implementation partner.

Speaker Change: Take us through the whole process and you know some of the benefits. We think we're going to get you know if you look at just the maintenance costs, we have on the existing system versus the new it's a $2 million annual savings from that alone.

Speaker Change: You know that being on a mainframe system, which is what we are right now on the north field for North America are.

Speaker Change: Theres just a lot of compatibility issues integration issues with other equipment software industry standards. So that system has been served us very very well for many decades, but it just becomes more and more challenging to maintain an old system like that and even just hiring employees and contract resources to maintain.

Speaker Change: <unk> support and operate the system becomes very difficult and so it really is time for us to move on to you know to something new.

Kelly Youngblood: And so, you know, it really is time for us to move on to, you know, something new. I know there's always concern about the level of risk of a new system like this, but let me tell you, as I mentioned, we spent the last year doing our homework. We've selected a first-class team of MRC employees to work on this, and many of them, this is not their first ERP project.

Speaker Change: And you know as far as I know Theres always concerned about the level of risk of a new system like this but let me tell you.

Speaker Change: As I mentioned, we spent the last year doing our homework.

Speaker Change: <unk> selected a first class team.

Speaker Change: Team of MRC employees to work on this many of them. This is not their first ERP project they've worked on other ERP implementations and so theyre not new to this.

Kelly Youngblood: They've worked on other ERP implementations, and so they're not new to this. This is a North America-only implementation, which I think is very important. We're not dealing with a lot of countries around the globe, which can introduce different risks. If you look at our footprint here in North America between our service centers and our RDCs, we have a very standardized approach and processes in the way we run the business, and then we really intend to have very little to no customization. That introduces risk when you do that, and with the cloud-based systems you have today, off-the-shelf, they give you virtually all the functionality that you need. With off-the-shelf functionality, there are hundreds or even thousands of companies that are using the software package already, and so it's not like you're having to program things from the ground up.

Speaker Change: This is a north America, only implementation, which I think is very important we're not dealing with a lot of countries around the globe, which can introduce different risk you know if you look at our footprint here in North America between our service centers and are already sees we have a very standardized.

Speaker Change: <unk> approach and processes and the way we run the business.

Speaker Change: And then we really intend to have very little to no customization that that introduces risk when you do that and with the cloud based systems you have today off the shelf. They give you virtually all of the functionality that you need I mean, the off off the shelf functionality and theres hundreds or even thousands of companies that are using the software package.

Speaker Change: <unk> already and so it's not like you're having to you know program things from the ground up.

Kelly Youngblood: It's already been proven and in use for many years now, and so we feel pretty comfortable. Then, on top of that, we're going to have multiple, what we call conference room pilot testing before we go live with the system to make sure that everything's working correctly. We're very excited about it. I think this is going to be a game-changer for the company. It's going to help us with our reporting and our forecasting. We've made a lot of improvements in working capital efficiencies, but I think this new system is going to take us even to the next level in demand forecasting and better inventory management and things like that. Great, that's awesome. Thank you. The next question comes from Ken Newman with KeyBank Capital Markets. Please go ahead. Thank you, Moriarty. Good morning, Ken.

Speaker Change: It's already been proven and in use for many years now and so we feel pretty comfortable and then on top of that we're going to have multiple what we call conference room pilot testing before we go live with the system to make sure that you know everything's working correctly. So we're very excited about it I think this is going to be a game changer for the company.

Speaker Change: That's going to help us with our reporting our forecasting we've made a lot of improvement in working capital efficiencies, but I think this new system is going to take us even to the next level in demand forecasting and better inventory management and things like that.

Speaker Change: Great that's awesome. Thank you.

Speaker Change: Yeah.

Speaker Change: Next question comes from Ken Newman with Keybanc capital markets. Please go ahead.

Ken Newman: Hey, good morning, guys.

Ken Newman: Good morning, Ken Good morning.

Ken Newman: Morning. Uh, the cash flow comments earlier were very helpful. Thought I'd ask a little different Capital Question. You know, obviously, working capital is going to benefit from the lower revenue in the next few quarters. Is there a way maybe to quantify what working capital and revenue get to longer term? Is there a target that you'd be willing to quantify?

Ken Newman: The cash flow comments earlier were very helpful.

Ken Newman: Maybe at the working capital question a little differently.

Ken Newman: Obviously working cap is going to benefit from the lower revenue in the next few quarters, but.

Ken Newman: Is there a way to maybe to quantify about working cap as a percentage of revenue.

Ken Newman: Longer term is there a target that you'd be willing to quantify.

Kelly Youngblood: Yeah, so, you know, we finished last year at 15.5 percent, you know, net working capital as a percent of revenue. As we mentioned, that's a record, and it's been trending lower for the last several years. We think we can, you know, continue to do even better on that metric. I'm hoping that we can get a 14 handle on that percent versus a 15.

Speaker Change: Yeah. So you know we finished last year at 15.5% networking capital as a percent of revenue.

Ken Newman: As we mentioned Thats a record you know its been trending lower for the last several years. We think we can continue to do even better on that metric.

Ken Newman: I'm, hoping that we can get a 14 handle on that percent versus 15.

Kelly Youngblood: You know, and it's always a function, you know, inventory, we can, you know, it's a lot easier for us to control. We'll be reducing inventory in 2024. You know, the receivable side of it, getting the collections from customers can vary, you know, quarter by quarter. You know, I'll say the fourth quarter of 23, we had really strong collections coming in.

Ken Newman: You know and it's always a function you know inventory we can you know it's.

Ken Newman: A lot easier for us to control will be reducing inventory in 2024.

Ken Newman: <unk> side of it you know getting the collection from customers can vary quarter by quarter, you know I'll say the fourth quarter of 'twenty. Three we had really strong collections coming in that we were able to do a lot of improvement on past due receivables and we just got to stay on top of that keep working it but but again I think we'll be in that 40.

Kelly Youngblood: We were able to do a lot of improvement on past due receivables, and we just got to, you know, stay on top of that, keep working it. But again, I think we'll be in that 14 to 15 percent, you know, percentage range when you look at the net working capital as a percent of revenue.

Ken Newman: To 15% percentage range.

Ken Newman: When you look at the net working capital as a percent of revenue.

Kelly Youngblood: That's very helpful. And then maybe go a little bit more in depth on your initiative that you're working on this year, but what else can you talk to that's structurally giving you a better line of sight on that working capital? Yeah, I mean, you know, I think, as I mentioned, inventory management is something that we're really extremely focused on, centralizing inventory where we can, and reducing turn rates where we can. As I mentioned, I think the ERP we made a ton of progress in that area. But I think the ERP system is going to take us even to the next level. With improving analytics, we're going to have some AI functionality that's going to be embedded, you know, machine learning type functionality.

Speaker Change: Got it.

Speaker Change: Helpful and then maybe just.

Speaker Change: Go a little bit more in depth on you know you've got the.

Speaker Change: The ERP system that your initiative that you're working on this year, but what else can you talk to that structurally giving you better line of sight on that working capital outlook.

Speaker Change: Yeah, I mean, you know I think as I mentioned the inventory management is something that we're really extremely focused on.

Speaker Change: Centralizing inventory, where we can reducing turn rates, where we can.

Speaker Change: As I mentioned I think the ERP, we made a ton of progress in that area, but I think the ERP system is going to take us even to the next level with improving analytics, we're going to have some AI functionality, that's going to be embedded.

Speaker Change: <unk> learning type functionality.

Kelly Youngblood: But just the forecasting capability, better reporting, and things like that. We think we can continue to improve, you know, like, on top of what we've done today. And that working capital metric as a percent of sales will just continue to improve. Yeah, and if I could jump in, we really spent a lot of time focusing on inventory efficiency. I mean, inventory is where the distributor puts his or her capital dollars.

Speaker Change: But just the forecasting capability better reporting and things like that we think we can continue to improve.

Speaker Change: On top of what we've done today and that working capital metric as a percent of sales will just continue to improve and if I could jump in that we've really spent a lot of time focusing on inventory efficiency I mean inventory is where the distributor puts his or her capital dollars and that has to be in <unk>.

Rob Salteel: And that has to be an efficient metric for us. In fairness, I don't think we focused on that as much as we could have or should have in previous years. And we've done a lot of centralization of decision making around inventory purchases. And we're making sure that any inventory that we add to our system will absolutely pay for itself and then some. And so I think going forward, you're just going to see the manifestation of that change in outlook and focus on inventory management to increase our turn rates and just make sure we have more productive, more profitable inventory, which again is a key, key driver of the working capital efficiency measure.

Speaker Change: Isn't metric for us in.

Speaker Change: In fairness I don't think we focused on that as much as maybe we could have or should have in previous years and we've done a lot of centralization of the decision, making around inventory purchases and we're making sure that that any inventory that we add to our system will absolutely pay for itself and then some and so I think going forward, you're just going to see the manner.

Speaker Change: This station of that change in outlook and focus on inventory management to increase our turn rates and just make sure we have more productive more profitable inventory, which again is a key key driver of the working capital efficiency measure.

Speaker Change: Yes.

Rob Salteel: Uh, maybe another follow-on question to one that Nathan asked earlier, but in terms of, you know, you're going to be close to zero net debt by the end of the year. I would argue that maybe that's too low of a net leverage, structurally, longer term. So I guess, how do you think about the capital structure? pay that off.

Speaker Change: Maybe another follow on question Nathan asked earlier, but.

Speaker Change: In terms of.

Speaker Change: Are you going to be close to that.

Speaker Change: Zero net debt by the end of the year.

Speaker Change: You could argue that maybe that's too low of a net leverage structurally longer term so I guess.

Speaker Change: How do you think about the capital structure once you pay that off and I guess, we are in the priority list would I take out the preferred land for capital deployment.

Rob Salteel: We're on the priority list. Take out of the preferred land for capital. Well, we think it's a little premature on this call to talk about all the things that we're going to be doing four quarters from now, but we did want to give you, as investors, some insight into how we're thinking about the capital structure and the flexibility that we're going to have that, frankly, we've never had as a public company to really consider these things and not over-lever ourselves. But we're going to You asked the question about where's the preferred one.

Speaker Change: Well, we think it's a little premature on this call to talk about all the things that we're gonna be doing four quarters from now, but we did want to give you as.

Speaker Change: As investors some insight to how we're thinking about.

Speaker Change: The capital structure and the flexibility that we're going to have that frankly, we've ever had as a public company to really consider these things and.

Speaker Change: And not over lever ourselves.

Speaker Change: But we.

Speaker Change: You know, where we're going to keep a really open mind about how how that does that bounce that balance sheet is managed in and what is the right level of leverage for US you know you asked the question about Where's the preferred.

Rob Salteel: Currently, the interest or the dividend that we pay and the interest, the 6.5% coupon that's on that preferred, that's pretty attractive financing right now in today's market, at least with where interest rates are today and even accounting for the lack of a tax shield. Going forward, if interest rates get reduced, then maybe the dividend looks a little more expensive than it does today. But right now, we really haven't made any decisions about how and whether the preferred needs to be taken out.

Speaker Change: Currently the interest or the dividend that we pay and the interest are the six 5% coupon that's on that preferred that's a pretty attractive financing right now in today's market at least with where interest rates are today and and even accounting for the lack of a tax shield going forward if interest rates get reduced then.

Speaker Change: Maybe the the dividend.

Speaker Change: It looks a little more expensive than it does today, but right now we really haven't made any decisions about how and whether the preferred needs to be taken out again, we've got a lot more flexibility.

Rob Salteel: Again, we've got a lot more flexibility than we've ever had before, and we'll consider that as we go forward. Certainly, one thing that we do want to give some shareholders some reassurance on is that we certainly would try to avoid any kind of dilution event by conversion of the preferred into common stock. Obviously, the stock price has got to move a bit more from where it is today, so that's something that shareholders should have in their minds. But look, if we find ourselves in a position where we've got enough cash to fund growth, enough cash potentially to return to common, and, additionally, we see an attractive opportunity to take out the preferred, we'll certainly look to do that. That's helpful.

Speaker Change: Flexibility than than we've ever had before and we will consider that as we go forward. Certainly you know one thing that we do want to give some shareholders. Some reassurance on is that that we certainly would would try to avoid any kind of a dilution event of conversion of the preferred into common stock obviously the the.

Speaker Change: The stock price has got to move a bit more from where it is today. So that's something that shareholders should have in their mind, but look if we are if we find ourselves in a position where we've got enough cash to fund growth.

Speaker Change: <unk> cash potentially to return to common and additionally, we see an attractive opportunity to take out the preferred we will certainly look to do that.

Speaker Change: Okay. That's helpful. If I could just squeeze one more in.

Ken Newman: If I could just squeeze one... You know, I know that there's a lot here just on the macro outlook, but I'm curious if you've seen any impacts from the administration calls on LNG permitting and just where does that fit into your diet and PCI guidance? Yeah, I would say it's early days to really assess what's happened on that yet. Clearly, it feels a little bit like an election year action, given the importance of LNG exports to many of our allies around the world and the fact that the US still has, you know, abundant supplies of natural gas that is cheap and can be transported safely and reliably around the world.

Speaker Change: I know that there's a lot of moving pieces and parts here just on the macro outlook, but I'm curious if you've seen any impact from the administration call Dawn LNG permitting and just where does that fit into your.

Speaker Change: Your diet and PCI guidance for the year.

Speaker Change: Yeah, I would say, it's early days to really assess what's happened on that yet clearly it feels a little bit like an election year.

Speaker Change: Action given the importance of LNG exports to to many of our allies around the world and in the fact that the U S are still has.

Speaker Change: Abundant supplies of natural gas that is cheap and can be and can be transported safely and reliably around the world. So we think LNG is going to continue to be a strong growth vehicle for the country and then frankly for our diet sector are the projects that were already involved.

Rob Salteel: So we think LNG is going to continue to be a strong growth vehicle for the country and, then frankly, for our domestic sector. The projects that we're already involved in that don't involve, you know, shipping LNG to non-FTA members, those are obviously going forward. And then going on the projects that are under consideration, at this point, we really haven't seen any direct effects of that on our business, but obviously, we'll watch the space as we go forward. We hope this is a temporary issue that works itself out because, again, we're bullish on LNG and this is a great growth opportunity for MRC Global. Very helpful, guys. You're welcome. Next question, Chris Denker with Loop Capital, please go ahead. Hey, morning, guys.

Speaker Change: In that don't involve a shipping LNG to non FTA members those are obviously going forward.

Speaker Change: And then going on the projects that are under consideration.

Speaker Change: At this point, we really haven't seen any direct effects of that on our business, but obviously, we'll watch this space as we go forward. We hope this is a temporal issue that works itself out because again, we're we're bullish on LNG and this is a great growth opportunity for for MRC Global.

Speaker Change: Very helpful guys. Thank you.

Speaker Change: Youre welcome.

Speaker Change: Next question, Chris Dankert with loop capital. Please go ahead.

Chris Dankert: Hey, good morning, guys.

Chris Denker: Glad to hear about the, you know, kind of proactive efforts around SG&A. And thank you for kind of getting into the moving parts there. But maybe, can you try and size what some of these proactive actions are for 24?

Chris Dankert: I'm glad to hear about the the you know kind of proactive efforts around SG&A and then thank you for kind of getting into the moving parts there, but maybe can you try and size with some of these proactive actions are for 'twenty, four and maybe just even kind of level set us on what to expect going into the first quarter on SG&A.

Rob Salteel: And maybe even kind of set us for what to expect going into the first quarter on SG&A? Yeah, I mean, look, we recognize that as revenues stagnate or potentially even fall a little bit from 23 to 24, we really need to make sure that our cost structure reflects that. And we've identified a number of initiatives, some of which I talked about generally in the prepared comments, for how we can reduce our SP&A this year. We're really looking at a kind of single-digit reduction.

Speaker Change: Yeah, I mean look where are we recognize that as revenues stagnate or potentially even fall a little bit from 24% from 23 to 24 that that we really need to make sure that our cost structure reflects that and we've identified a number of initiatives some of which I talked about generally in the prepare.

Speaker Change: Comments for how we can reduce our SG&A this year, where we're really looking at kind of single digit reductions. So this is not a massive reduction because we're looking at 'twenty 'twenty four is the transition year, we fully expect that we're going to get back on a growth trajectory. So we're not looking to to take a you know really of a.

Rob Salteel: So this is not a massive reduction because we're looking at 2024 as a transition year; we fully expect that we're going to get back on a growth trajectory. So we're not looking to take a, you know, really significant reduction in SP&A, which then would cause us to not be in position to capitalize on the growth we expect in 2025. But as a practical matter, you know, we are obviously expecting slower wage growth this year.

Speaker Change: Significant reduction in SG&A, which then would causes to to not being positioned to capitalize on the growth. We expect in 2025, but as a practical matter. You know, we obviously are expecting slower wage growth. This year I think everybody is seeing that across our industry and certainly here in the U S.

Rob Salteel: I think everybody is seeing that across industry and certainly here in the US. We've mentioned that professional fees, some of our travel and entertainment expenses, overtime, all those things potentially can come down with lower activity or flat activity relative to what we'd expected previously. Logistics costs, we think we can reduce as well through some additional efficiencies in our regional distribution center network. So we're going to be looking at a new RDC in the Atlanta area that's going to give us some savings on freight costs. So we got a number of things identified, which will take that number down.

Speaker Change: We've mentioned that professional fees some of our travel and entertainment expenses over time all of those things.

Speaker Change: He can come down with with lower activity or flat activity relative to what we'd expected previously logistics costs. We think we can reduce as well through some additional efficiencies in our AR and our.

Speaker Change: Regional distribution Center network. So we're gonna be looking at a new already see in the Atlanta area, that's going to give us some savings on on freight costs. So we've got a number of things identify which will take that number down again I think you should really focus on kind of low single digit reduction in the SG&A in aggregate, but that's the kind of reduction.

Kelly Youngblood: Again, I think you should really focus on kind of a low single-digit reduction in SG&A in aggregate. But that's the kind of reduction that, given we're going to be flat to slightly down on revenue, at least we anticipate that, that'll allow us to maintain that 7% EBITDA margin. And we think that's really important for shareholders and something that we want to make sure that we preserve as we move through this transition year. And Chris, I would just add: you asked about Q1.

Speaker Change: Given we're gonna be flat to slightly down on revenue at least we anticipate that that will allow us to maintain that 7% EBITDA margin and and we think that's that's really important for shareholders and something that we want to make sure that we are we preserve as we move through this transition year.

Speaker Change: Chris I would just add you asked about Q1, I would I would keep Q1 SG&A pretty consistent to where we were in Q4, but then it'll be stepping down each quarter through the year as we progress.

Chris Denker: I would keep Q1 SG&A pretty consistent with where we were in Q4, but then it'll be stepping down each quarter, you know, through the year as we progress. And then, as we said in our guidance, we think we can keep that as a percent of revenue below 15%. In 2023, we were 14.7%. So still trying to get, you know, that percentage in that same range. Got it.

Speaker Change: And as we said in our guidance.

Speaker Change: We think we can keep that as a percent of revenue below 15% in 2023 were 14, 7% so still keep them to get that percentage in that same range.

Rob Salteel: That's all extremely helpful. Thank you for the call there, guys. And then I guess just with the Trans Mountain Pipeline nearing completion, how do we think about opportunities in Canada perhaps more broadly? I mean, do we see more refining opportunities? Are things, you know, tapering off now that it's done? How do we think about Canada overall?

Chris Dankert: Got it that's all extremely helpful. Thank you for the color there guys.

Speaker Change: And then I guess, just with the Trans Mountain pipeline nearing completion, how do we think about opportunities in Canada, perhaps more broadly I mean, do we see more refining opportunity or things taper.

Speaker Change: Tapering off now that's done just about how do we think about Canada overall.

Chris Denker: Well, Canada, to be fair, has been a bit of a challenge for us in terms of revenue, and for a couple of reasons. I think you see that a lot of the larger players in Canada that we typically serve are not as active in that market as they are in, let's say, some other upstream markets like the Permian Basin. So that's been the challenge for us.

Chris Dankert: Well, Canada to be fair has been a bit of a challenge for us in terms of the revenue profile and Oh for a couple of reasons I think you said that a lot of the larger players in Canada.

Chris Dankert: We typically serve are not as active in that market as they are in and let's say some other upstream markets like the Permian basin. So that's been the challenge for US and you know, it's a very competitive market as well and so we.

Rob Salteel: And, you know, it's a very competitive market as well. And so, you know, we are seeing, you know, the start of the year, as Kelly mentioned, an increase in backlog, and we say across all segments, so that includes Canada. So we are seeing some really nice stuff up there to start the year. We're also seeing some attractive projects, some of which fall in the energy transition space, up there as well. So, there are some good things happening in Canada. But, you know, before we get too excited about the Canadian market, we just need to make sure that we can consistently generate revenue and profitable revenue up there. And what has been, you know, historically or recently historically for us, been a pretty tough market. Yeah, makes sense. It makes sense.

Chris Dankert: We are seeing you know to start to the year as Kelly mentioned, you know increasing in backlog and we say across all segments. So that includes Canada. So we are seeing some really nice stuff up there too.

Chris Dankert: To start the year, we're also seeing some attractive projects some of which fall in the energy transition space up there as well. So there are some good things happening in Canada, but.

Speaker Change: Before we get too excited about the Canadian market, we just need to to make sure that we can consistently generate revenue and profitable revenue up there and what what has been.

Chris Dankert: Historically or recently historically for us has been a pretty tough market.

Speaker Change: Yes. It makes sense makes sense, if I can sneak just one last one and again like I say net cash position of 25 more optionality than recent years here.

Chris Denker: If I could speak just one last one in. Again, like I say, net cash position at 25, more optionality than than, you know, recent years here. Where would you see, you know, any potential M&A opportunities? Obviously, you know, excluding the destocking, gas utility has been a great kind of organic story.

Speaker Change: Where would you see kind of any potential M&A opportunities obviously.

Speaker Change: The Destocking gas utility has been a great kind of organic story, but where maybe are some of the gap that M&A could kind of help help bolster growth here if any.

Rob Salteel: But where maybe are some of the gaps that M&A could kind of help bolster growth here, if any? Yeah, look, we're going to look at various capital allocation strategies, and we're big believers that growing our business is important to shareholders as well. Obviously, any M&A that we would consider or undertake has to be really thoughtful and absolutely accretive to the story and to the financials of the company. We're big believers that if you can get scale economies in a business, that is certainly a really good way to gain market share and also to have some synergies right out of the gate in terms of cost reduction. And then opportunities potentially to expand the scope of services that we provide. Those kinds of things are fair game as well.

Speaker Change: Yeah look we.

Speaker Change: We're going to look at various capital allocation strategies, and we're a big belief that are big believers that you know growing our business is important to shareholders as well, obviously any M&A that we would consider undertake has to be really thoughtful and it absolutely.

Speaker Change: Absolutely accretive to the story into the financials of the company.

Speaker Change: We're big believers that if you can get scale economies are in a business that that is certainly a really a good way to gain did to gain market share and also to have some synergies right out of the gate in terms of cost reduction, but and then opportunities potentially at.

Speaker Change: To expand the scope of services that we provide those kinds of things are fair game as well, but I don't want to get too far ahead of ourselves in terms of saying that we've got a a very let's say well developed M&A plan around particular acquisitions, we continue to look at the market in <unk>.

Rob Salteel: But I don't want to get too far ahead of ourselves in terms of saying that we've got a very, a very, let's say, well-developed M&A plan around particular acquisitions. We continue to look at the market and see what makes sense. Again, it's going to have to be a high hurdle for any significant M&A to really make our cut because we're really conscious of the fact that we've got to do right by our shareholders in terms of making sure that they share in the bounty that we're now developing through all this cash generation.

Speaker Change: See what makes sense again, we it's gonna have to be a high hurdle for any significant M&A to really.

Speaker Change: Make our cut because we're really conscious of the fact that.

Speaker Change: We've got to do right by our shareholders in terms of making sure that they share in the bounty that we're now developing through all of this cash generation. So I would just say stay tuned on that end and as and when we see deals that makes sense for this company will we will certainly be happy to share those thoughts.

Rob Salteel: So I would just say stay tuned on that, and as and when we see deals that make sense for this company, we'll certainly be happy to share those thoughts when they're developed. Understandable. Best of luck on 24, guys.

Speaker Change: They are developed.

Speaker Change: Understood Best of luck on 24, guys.

Chris Denker: Great, thank you. Next question, Tami Maher with Stevens Inc. Please go ahead. Good morning, this is Max Kanon on behalf of Tommy.

Speaker Change: Great. Thank you.

Speaker Change: Next I suppose coffee bar with Stephens, Inc. Please go ahead Sir.

Speaker Change: Good morning. This is Max came on for Tommy I was wondering if you could provide us with any additional color on gross margins seasonality for 'twenty, four and whether or not you're expecting margins to be sequentially higher in <unk>.

Max Kanon: I was wondering if you could provide us with any additional color on growth margin seasonality for 24 and whether or not you're expecting margins to be sequentially higher in 1Q. Yeah, well, Max, we guided you that we thought, you know, for the full year average, we'll, you know, we feel comfortable that we can maintain the 21 plus percent margins that we've, you know, been enjoying for seven quarters in a row now. So we're pretty proud of that fact.

Max: Yeah, well, we guided that we thought for the full year average.

Max: We feel comfortable that we can maintain the 21 plus percent margins that we have.

Speaker Change: <unk> been enjoying for seven quarters in a row now.

Speaker Change: So we're pretty proud of.

Kelly Youngblood: You know, I think, you know, in Q4, we were, we had elevated margins of 21.9. That was really strong. We had some good sales, some bulky, you know, line pipe sales that came in at high margins that helped, you know, prop that up higher than, you know, just the normal kind of low 21 percent range. You know, I think in Q1, you will see a 21.9. It is going to moderate from that level, but still be above the 21 percent, you know, 21, you know, call it a low 21 percent type range is probably what we're thinking. But again, for the full year, you know, we're proud of seven consecutive quarters in a row, we're going to keep that trend going, you know, and the, you know You know, there has been deflation over the last year or so that we have to deal with, but we've been focusing on product mix and the higher-margin product categories to offset or help offset the impact that we see in line pipe.

Speaker Change: I think in Q4, we were we had elevated margins of 21 nine that was really strong we had some good sales.

Speaker Change: Bulky line pipe sales of cadence on margins that helped.

Speaker Change: That up higher than just the normal kind of low 21% range. You know I think in Q1, you will see you will see a 21 nine it is going to moderate from that level, but still be above the 21%.

Speaker Change: 21, you know call it low 21% type range is probably what we're thinking.

Speaker Change: But again for the full year, we're proud seven quarters in a row, we're going to keep that trend going.

Speaker Change: You know in the you know the one that really works against US there is a line pipe margins.

Rob Salteel: There has been a deflation over the last year or so that we have to deal with but we've been focusing on product mix and the higher margin product categories.

Speaker Change: Offset or help offset you know the impact that we see in line pipe also with the double digit growth that we've had in the international business that is a nice tailwind for us because of the international business has accretive gross margins compared to the company average and so we feel like everything is pointing in the right direction to keep that trend going at 20.

Max Kanon: Also, with the double-digit growth that we've had in the international business, that is a nice tailwind for us because the international business has a higher rate of gross margins compared to the company average. And so, you know, we feel like everything's pointing in the right direction to keep that trend going at 21 plus. Okay, great. Yeah, thanks for the color.

Speaker Change: One plus.

Speaker Change: Okay, great yeah. Thanks for the color and yet you have already covered the rest of my question. So I'll go ahead and turn it back now when I say.

Max Kanon: And yeah, you've already covered the rest of my questions, so I'll go ahead and turn it back on. Have a nice day. Thank you. Thank you. I will now turn the call over to Monica Broad for closing remarks. Thank you all for joining our call today and for your interest in MRC Global. We look forward to having you join us for our first quarter conference call in May. Have a great day. This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation. www.mrcglobal.com

Speaker Change: Thank you. Thank you.

Chris Denker: Thank you I will now turn the call over to Martin <unk> for closing remarks.

Martin: Thank you all for joining our call today and for your interest in MRC Global They look forward to having you join us for our first quarter conference call in May have a great day.

Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.

Speaker Change: Okay.

Speaker Change: Yeah.