Q1 2025 MRC Global Inc Earnings Call
During the conference, please press star zero on your telephone keypad.
As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Monica Broughton. Thank you, you may begin.
Speaker Change: . . . . .
Monica Broughton: Thank you and good morning. Welcome to the MRC Global First Quarter 2025 Conference call and webcast. We appreciate you joining us.
Speaker Change: On the call today, we have Rob Saltiel, President and CEO , and Kelly Youngblood Executive Vice President and CFO
Monica Broughton: There will be a replay of today's call available by webcasts on our website MRC Global.com, as well as by phone until May 21, 2025, and the dial-in information is in yesterday's release.
Monica Broughton: Please note that the information reported on this call speaks only as of today, May 7, 2025, and therefore, you are advised that the information may no longer be accurate as of the time of replay.
Monica Broughton: In our call today, we will discuss various non-GAAP measures . You are encouraged to read our earnings release and security styling, so we are more about our use of these non-GAAP measures and to see a reconciliation of these measures to the related gap items, all of which can be found on our website.
Monica Broughton: And let's be specifically state otherwise, reference 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 four looking statements within the meaning of the United States Federal Security's laws.
Monica Broughton: These forward-looking statements reflect the current views of the management of MRC Global. However, actual results could differ materially from those expressed today. You are encouraged to read the company's SEC filings for a more in-depth review of the risk factors concerning these forward-looking statements.
Monica Broughton: And now I'd like to turn the call over to our CEO , Mr. Rob Saltiel.
Monica Broughton: Thank you, Monica. Good morning and welcome to everyone joining today's call.
Monica Broughton: I will begin with an overview of the financial highlights and strategic accomplishments from our first quarter, followed by a summary of our first quarter results and an update on our growth initiatives. I will then turn it over to Kelly to provide more detail on our results and outlook.
Monica Broughton: We are off to an excellent start in 2025 and I'm very pleased with the strong improvement in our business that we experienced in the first quarter. We exceeded our expectations on all key financial metrics and each of our three business sectors achieved sequential revenue growth of upper single-digit percentages.
Monica Broughton: In addition, we are very encouraged by our growing backlog, which increased 8% sequentially in the first quarter to 603 million, with growth across all sectors.
Monica Broughton: Our backlog has continued to increase in the second quarter, led by our U.S. segment, which has experienced backlog growth of 23% at the end of April compared to the beginning of the year.
Monica Broughton: This expanding backlog increases our confidence that we will achieve another quarter of strong sequential revenue improvement in the second quarter.
Monica Broughton: Although each of our sectors is performing well, I am especially optimistic about our gas utilities business, which is our largest and market.
Monica Broughton: After a couple of challenging years, this business is experiencing a significant resurgence, and through the end of April , we have seen a 26% increase in backlog.
Monica Broughton: The pre-release of our first quarter financial results a few weeks ago has allowed us to begin execution of our previously announced $125 million share repurchase program.
Monica Broughton: Returning cash to shareholders is an important benefit of owning our stock and the repurchase program reflects confidence in our company's financial strength and our ability to generate substantial cash across the business cycle.
Monica Broughton: The Share Repurchase Program is a key component of our three-pronged capital allocation strategy along with maintaining a healthy balance sheet with a target net debt leverage ratio of 1.5 times or lower and investing in future growth opportunities.
Monica Broughton: Turning now to our key first quarter financial highlights, revenue increased by 7% sequentially to 712 million with growth in each of our end-market sectors led by gas utilities.
Monica Broughton: We are expecting a recovery in several of our larger gas utilities customers activity levels with destocking in the rearview mirror. The diet sector also experienced solid increases driven by chemicals mining and refining activity.
Monica Broughton: Finally, the PTI sector activity also put up with solid gains in both the U.S. and international segments.
Monica Broughton: Adjusted gross profit margins continue to be strong at 21.5% in the first quarter above our 21% target. We continue to focus on products and services where we can add the most value for our customers, which is exhibited through higher gross margins.
Monica Broughton: We delivered adjusted EBITOP 36 million or 5.1% of sales a nice improvement over the fourth quarter. We expect quarterly adjusted EBITOP margin percentages to exceed 6% of sales in the second quarter as revenue improves sequentially.
Monica Broughton: We generated 21 million of operating cash flow from continuing operations for the first quarter reflecting our focus on working capital management and good cost control.
Monica Broughton: Our net working capital as a percentage of sales was a solid 11.7 percent, demonstrating our operational efficiency and discipline to inventory management.
Monica Broughton: As stated previously, our ability to generate strong operating cash flows across the business cycle has underpinned our confidence in exercising our share by back program. And we are on target to generating a hundred million or more in cash flow from operations in 2025.
Monica Broughton: Now I will provide an update on some of the growth-related topics we addressed on our March
Monica Broughton: First, our gas utility specter is finally back on a growth trajectory. We are forecasting strong demand growth from several of our larger customers in 2025, and some of these customers have recently issued bullish updates to their longer term spending plans.
Monica Broughton: Our gas utilities backlog is the highest it has been in three quarters. Our customers continue to invest in safety and modernization projects, and they are benefiting from a resurgence in natural gas as a key fuel to support electrification and LNG export opportunities.
Monica Broughton: We remain optimistic about this end-market sector regardless of the uncertain macroeconomic conditions.
Monica Broughton: The products we supply to our gas utilities customers are generally sourced from U.S. suppliers, so we are in a strong position to mitigate the impact from the evolving tariff situation.
Monica Broughton: In addition, we are making some nice inroads to new revenue sources with the pursuit of new gas utilities customers and the smart meter benefits of our new MTECH services joint venture.
Monica Broughton: On our last call, we discussed the potential impact of tariffs on our business and the general benefits of an inflationary environment on our revenues and margins.
Monica Broughton: It is clear that the current tariff situation brings significant uncertainty, not just on product costs for our customers, but also what it could mean for potential demand and destruction in the second half of the year.
Monica Broughton: Our company is extremely adept at navigating global supply chain challenges for our customers, a skill we honed during the COVID pandemic.
Monica Broughton: Our supply chain team is spending significant time advising our customers in all three market sectors about tariff impacts and the benefits of sourcing from different countries and suppliers to minimize the negative impacts on our customers' product costs and availability.
Monica Broughton: It is important to note that over 60% of MRC Global's U.S. product sales are sourced domestically. So we are generally much better positioned than our competitors to insulate our customers from negative tariff impacts.
Monica Broughton: Our China Source products represent less than 15% of our total US product mix, and this clearly represents the biggest risk of major business disruptions due to tariffs.
Monica Broughton: We are negotiating with our China-based suppliers to absorb a significant portion of this cost increase for the benefit of our customers, and we are working to migrate our China purchases to less tariffed countries where possible.
Monica Broughton: Terrace remain a fluid situation and we will continue to update our investors on future calls.
Monica Broughton: We continue to expect a growing role for natural gas and associated investment in midstream infrastructure, playing a bigger role in our USPTI sector sales.
Monica Broughton: While first-quarter PTI revenue in the U.S. was up 6% sequentially over the fourth quarter, all of this growth was concentrated in the midstream's subsector, while upstream revenues remained generally flat.
Monica Broughton: In addition, while USPTI backlog grew 28% in the first quarter, midstream outpaced upstream, and this is continued into the second quarter as well.
Monica Broughton: We have been successful in landing significant orders for projects related to the gathering and transmission of natural gas with both existing and new customers.
Monica Broughton: With WTI oil prices currently at multi-year lows while natural gas prices have rallied off of 20-24 levels, we expect that the U.S. midstream sector will outpace upstream for a while longer.
Monica Broughton: We also expect that the larger EMP players will play an increasingly significant role in US oil field activity as more price sensitive producers reduce activity levels in the second half of this year.
Monica Broughton: And finally, our targeted growth initiatives continue to make increasing contributions to our 2025 revenues and are setting the table for revenue expansion in future years.
Monica Broughton: We have spoken previously about our focus on growing our chemicals business and this continues to be a bright spot for us.
Monica Broughton: Our U.S. Chemicals backlog at the end of April 2025 is 32% higher than same time last year and we expect U.S. Chemicals revenue to be up high single digits over 2024.
Monica Broughton: Our expansion into data centers and mining applications is also gaining traction. We are negotiating master service agreements with targeted owners and subcontractors for PVF work and new data center cooling systems.
Monica Broughton: Our bookings this year already exceed $10 million and we have tens of millions of dollars of opportunities under pursuit
Monica Broughton: Our Mining Sector initiative is also showing excellent growth potential with increased bidding for MRRO and project activity as well as new customer acquisitions. We expect our Mining business to grow with a compound annual rate of approximately 10% over the next
3-5 Years
Monica Broughton: In summary, first quarter results were very strong to start 2025, and we are very optimistic about the second quarter as well.
Monica Broughton: We have seen our total US backlog continue to rise into the second quarter with a 23 percent increase through the end of April compared to your end and with all three business sectors increasing double digit percentages. [inaudible]
Monica Broughton: Along with increased intake levels and near-term project deliveries, this positive momentum underpins our confidence in our second quarter revenue growth projections.
Monica Broughton: We currently expect second quarter revenue to improve by a high single to low double digit percentage as compared to the first quarter.
Monica Broughton: We recognize that medium-term macroeconomic conditions remain uncertain, but so far we have not seen significant changes in our customer behaviors or buying patterns. We will continue to monitor the situation closely as we advise our customers on how they best navigate these market disruptions and uncertainties.
Monica Broughton: Although the second half of 2025 may represent more risk due to these uncertainties, we do not have sufficient evidence to alter our previous annual guidance.
Monica Broughton: We will update our guidance as necessary in future quarters when there is greater clarity regarding the tariff situation and its impact on MRC Global's business.
Monica Broughton: In the meantime, our strong balance sheet robust free cash flow and ample liquidity should allow us to manage headwinds and respond quickly as new opportunities or threats emerge. And with that, 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 first quarter of 2025 to the fourth quarter of 2024 and last otherwise stated.
Monica Broughton: Also, as mentioned by Monica, our candidate results are reflected in discontinued operations, so unless stated otherwise, my comments will be referring to the company's financial results from continuing operations.
Monica Broughton: Starting with revenue, we achieved sales of 712 million in the first quarter, representing a 7% sequential increase from Q4, 2024, and down 8% compared to the same quarter a year ago.
Monica Broughton: From a sector perspective, Yash Utilities were 273 million in the first quarter, a 20 million or 8% increase driven by customers returning to normalize buying patterns as they prepare for the construction season and specific customers increasing their 2025 capital budgets.
Monica Broughton: The diet sector first quarter revenue was 220 million, an increase of 12 million or 6 percent due to chemical project deliveries, mining activity, and refined return around the world.
Monica Broughton: PTI sector revenue for the first quarter was $219 million and increased the $16 million or 8% due to several U.S. midstream customer natural gas pipeline projects as well as multiple upstream projects in the North Sea.
Monica Broughton: In the US, the more favorable regulatory environment and the increase in natural gas demand is contributing to the increase in pipeline project activity.
From a Geographic Segment Perspective
Monica Broughton: and all in-market sectors improved led by the gas utility sector with a 21 million increase followed by the diet sector which increased 19 million and the PTI sector which increased 9 million.
Monica Broughton: International revenue was 121 million in the first quarter, down 1 million or 1% as the increase in PTI sector revenue was offset by reduced diet sector revenue primarily due to the timing of project deliveries.
Monica Broughton: The outlook for the international segment remains positive with expectations for solid revenue growth in 2025 which will be the fourth year in a row of increased revenues.
Now, Turning the Margins [inaudible]
Monica Broughton: Adjusted Gross Profit for the first quarter was 153 million or 21.5% compared to 146 million or 22% in the fourth quarter of 2024. The variance in margin percentage is due to geographic and product mix.
Monica Broughton: reported SGNA for the first quarter was 124 million or 17.4% of sales as compared to 123 million or 18.5% in the fourth quarter.
Monica Broughton: Adjusted S-TNA for the first quarter was $121 million, slightly higher than the fourth quarter's $119 million, reflecting the typical increase of employee related costs at the beginning of the year.
Monica Broughton: Adjusted EBITOP for the first quarter was 36 million or 5.1% of sales, and improvement over the fourth quarter results of 32 million and 4.8% as a result of operating leverage on higher revenue.
Monica Broughton: The interest expense was $9 million in the first quarter of 2025 compared to $7 million in the prior quarter
Monica Broughton: Tax Expans in the first quarter was 1 million with an effective tax rate of 11% as compared to 4 million of expanse in the fourth quarter.
Monica Broughton: For the first quarter, net income from continuing operations was 8 million or 9 cents per deluded share as compared to a net loss from continuing operations of 1 million or a negative 14 cents per deluded share in the fourth quarter of 2024.
Monica Broughton: Adjusted net income from continuing operations was $12 million and $4 million for the first quarter of 2025 and the fourth quarter of 2024 respectively.
Monica Broughton: Our capital expenditures were 9 million for the first quarter above historical averages due to our ERP implementation.
Monica Broughton: Our working capital management remains strong with networking capital this quarter at 11.7% of sales. This efficiency contributed to operating cash flows from continuing operations of 21 million in the first quarter.
Monica Broughton: Moving to liquidity and capital structure, our balance sheet remains healthy with ample liquidity of 570 million, including 507 million of availability on our ABL and 63 million of cash at the end of the first quarter.
Monica Broughton: Our leverage ratio based on net debt of 300 and 8 million was 1.7 times, and our total debt balance was 371 million.
Monica Broughton: We continue to target a leverage ratio of 1.5 times while also executing our share buyback program.
Now, I'll cover our outlook.
Monica Broughton: Customer activity levels exceeded our expectations in the first quarter and based on current backlog trends we believe we are also on track for a strong second quarter as well
Monica Broughton: As mentioned by Rob, we are not seeing signs of contraction in any part of our business at this point However, we recognize there is macroeconomic uncertainty overshadowing the second half [inaudible]
Monica Broughton: Currently, we are not inclined to make any changes to our previous full year 2025 guidance that is projecting year on year growth of low to high single digit percentages.
Monica Broughton: This outlook may be adjusted if we begin to see any significant negative effect resulting from tariffs, lower oil prices, or a potential recession, which are unknown at this time.
Monica Broughton: We will update our guidance as necessary in future quarters when there is greater clarity.
Monica Broughton: We are fortunate to have aspects of our business which are resilient in periods of turbulence and the diversification we have in our sector mix should also help reduce volatility.
Monica Broughton: For example, a gas utility sector is expected to be the most resilient business this year because of having no significant exposure related to tariffs or low commodity prices. The budgets for these customers are typically more resistant to changing macroeconomic conditions.
Monica Broughton: The year-to-date increase in backlog for this sector is up 26% as of the end of April . Therefore, we continue to expect 2025 annual revenue to be up mid-single digits or potentially higher in 2025 over 2024.
Monica Broughton: The diet sector is reasonably resilient as well but could experience some slower growth should projects be delayed. However, with a year-to-date backlog increase of 16% at the end of April , this business is off to a strong start this year.
Monica Broughton: The PTI sector results are more sensitive to lower commodity prices and could experience some restraint in the U.S. should the macroeconomic conditions result in reduced demand. We believe this sector of our business has the most risk at this point due to lower all price expectations.
Monica Broughton: However, we are fortunate with our customer mix in this sector and it is more heavily levered towards IOC and large public companies that typically maintain higher activity levels than their smaller competitors in this environment.
Monica Broughton: The year-to-date backlog for this sector is up 7% as of April 30.
Monica Broughton: Specifically to the second quarter, our guidance has unchanged from our earnings pre-release. We expect revenue to be a high single to low double digits compared sequentially to the first quarter, supported by a strong backlog position.
We are also targeting the following key metrics for 2025.
Monica Broughton: We continue to target operating cash flow of at least 100 million, maintaining our strong cash generation profile. If the market was to contract in the second half of the year, we could generate even more cash and exceed this target.
Monica Broughton: Regarding cadence of cash flow for the upcoming quarters, this year may look a little different.
Monica Broughton: In the first quarter, we generated solid cash flow, which is not always the case
Monica Broughton: And in the second quarter, we expect to use cash as we plan to pull forward payments to our suppliers from the third quarter into the second to assist with our ERP go live transition that is expected to occur in the third quarter.
Monica Broughton: The 3rd and 4th quarters are expected to return to positive cash generation
Monica Broughton: Capital expenditures are expected to be approximately 45 million for the year elevated from our normal levels due to our ERP implementation.
Monica Broughton: and moving into 2026, we expect our annual CAPEX to return to a more historical run rate of approximately 15 million.
Monica Broughton: We are on budget in one schedule with the ERP project and are very excited about the benefits it is expected to yield.
Monica Broughton: Finally, we remain committed to achieving our target net debt leverage ratio of 1.5 times.
Monica Broughton: Our disciplined approach to balance sheet management, combined with our strong cash flow generation, have enabled us to begin executing on our 125 million share repurchase program while also maintaining ample financial flexibility for future growth opportunities.
Monica Broughton: And with that, I'll turn it back over to Rob. Thanks, Kelly. As we conclude today's call, I want to emphasize our strong start to 2025 and our confidence in the future.
Speaker Change: Looking ahead, we expect growth opportunities across all sectors driven by improving fundamentals for gas utilities.
Speaker Change: Several promising growth initiatives in our diet sector and a strong U.S. natural gas mid-stream outlook and our advantage positioning with large customers in the PTI space.
Speaker Change: Our capital allocation strategy remains balanced and disciplined. We are committed to our target leverage ratio of 1.5 times while returning cash to shareholders and investing in growing our business.
And with that, we will now take your questions. Operator?
Speaker Change: Thank you. At this time we'll be conducting a question and answer session. If you'd like to ask a question, please press store one on your telephone keypad. A confirmation tell, indicate your line is in the question queue.
Speaker Change: You may press start two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your hands at before pressing the start keys.
One moment please, while we pull for questions.
Speaker Change: Our first question comes from Nathan Jones with Steeple. Please proceed with your question.
[inaudible]
Hey, good morning. This is Adam Farley on for Nathan.
Good morning, Adam.
Hey, good morning.
Speaker Change: I wanted to start on the terror discussion, maybe just at a higher level, how is inflation cracking in the business today? What product areas are seeing the most terrifying price increases from suppliers, and then maybe any expectation on how gross margins will read through this year?
Speaker Change: I think most people are aware that there are tariffs right now on steel and aluminum products.
coming from anywhere outside the U.S.
Speaker Change: from other nations, other than China, where we have over 100% tariff today.
So, the biggest impacts we're seeing...
Speaker Change: currently are importing steel products typically pipes fitting in flanges and then anything that comes from China.
Speaker Change: and one of the things that we need to do as a responsible supplier to our customers is work with them to try to navigate through issues related to cost and availability. And as I mentioned in the prepared comments
Speaker Change: You know, this is something that our supply chain team is really expert at. We had to do a lot of supply chain management during the COVID pandemic. And here what we're doing is really a couple of different things. One is
Speaker Change: First of all, we are pushing back where we can on any increases related to the tariffs.
obviously with
Speaker Change: with our business basically returning EBITDA margins or five or six cents on every dollar.
Speaker Change: We can't assume the cost of these tariffs. We've got to work with our suppliers and our customers.
to mitigate the impact on our business.
Speaker Change: But clearly, we want to do everything we can to help our customers get through.
Speaker Change: This period of difficulty and because of our buying power, because of our ability to source from different suppliers and different nations in some cases where we have an opportunity to do that, we're doing everything we can to mitigate that impact. And so that's been a big focus of our team and we'll continue to be a focus of our team as this situation evolves.
Speaker Change: In terms of what it's actually doing, in terms of our pricing right now, I would tell you that...
Speaker Change: Clearly, the tariff is a price increase, it's a cost of the product.
Speaker Change: that's paid for by the importer of record and then, you know, passed through to us, did some degree.
Speaker Change: So if we have increases due to tariffs, you know we've got to work on passing those through
Speaker Change: and obviously that could create an opportunity for some increased margin dollars for us but as I said before our focus is really on maintaining customer relations making sure our customers are managing through this and that we don't run into issues of cost or availability down the road.
That's really helpful color.
Speaker Change: Maybe on inventory. It looks like inventory stepped up a little bit in the first quarter. Did you maybe stock strategically a little bit of additional inventory get ahead of tariffs or maybe just visibility on your backlog any color on inventory this year.
Speaker Change: Yeah, I will tell you that we leaned in a bit on this, expecting that some terrorists were coming.
Speaker Change: At the same time, the first quarter is typically when we do increase our inventory to prepare for the rest of the year.
Speaker Change: So I our supply chain team I think did a good job of making sure that we had ample inventory, but of course we don't want to get too far over our skis knowing that this [inaudible]
tariff situation is-
Speaker Change: Volvital and the dynamic, it seems to be changing with some regular frequency.
Speaker Change: But we did lean in on that. I think that does give us an advantaged inventory position.
Speaker Change: as we work our way through this. So yes, that was something that we had had some foresight on and we did lean in a bit on that in the first quarter.
Speaker Change: Okay, then shifting gears a little bit to gas utilities, sounds like there's a solid momentum there, more
Speaker Change: The Conditional Energy Sector. You know, maybe give any updates on
Speaker Change: Opportunities to Game Additional Market Share or Wallet Share with some of your larger customers
Speaker Change: Yeah, I'll say a couple of things about gas utilities. First of all, we are really excited to return to growth on our gas utilities business.
Speaker Change: This has been a consistent growth engine for this company for many years.
Speaker Change: really until the last couple of years and as we talked about before coming out of the pandemic
You know, we were
Our customers were holding...
Speaker Change: Extra Inventory. Some of the fabricators were holding extra inventory and we had extra inventory. So we had to go through this destocking period which now we can finally declare is fully behind us. So we're really excited about the fact that this business is now returned to growth.
Speaker Change: We do have growth opportunities in terms of market share in the sense that there are gas utilities that we don't...
Currently served.
Speaker Change: and, or if we serve them, maybe we don't serve them in all regions in which they operate.
At the same time, we've got opportunities [inaudible]
Speaker Change: to increase our wallet share. You know, we talked a lot on our last earnings call about our MTECH.
Services Joint Venture, where we're actually…
I'm going to be providing a very valuable service.
Speaker Change: Smart Meter applications for our customers and clearly this opens up an opportunity for us to do more meter business with our customers which currently we only do with a handful of our customers but obviously there's a significant revenue opportunity if we could take over more of that meter business.
Speaker Change: and then there are a few other services that we're looking at in accordance with the MTech services venture as well.
Speaker Change: So we really like our growth prospects in gas utilities. We're excited that we're back to growth. We're also excited that the gas utility space is largely insulated from the tariff impacts.
Speaker Change: So that helps our customers focus on their business and worry less about cost and availability so a good story all around on gas utilities.
Speaker Change: Hey Adam, I'll just add as well. When you look at the backlog growth, we talked about him 8% growth for the full company in Q1, gas utilities was in line with that at 8%.
Speaker Change: April , as of the end of April , if you look at the year-to-date improvement that we've experienced in gas utilities compared to March, 17%, 17% improvement, so really when you look at the full year-to-date is 26% up.
Speaker Change: Since the beginning of the year was 17% of that just occurring between March and April .
Speaker Change: and so that gives us tremendous confidence for the coming quarters, not just Q2, and as Rob said, since that business is more insulated.
Speaker Change: We don't think there's going to be much pressure if any. We think it's really back to the normal kind of cake of growth rates that we had historically in that part of our business.
Speaker Change: And this is typically when we would build backlog because there's a construction season associated with the projects that our gas utilities put in place.
Speaker Change: and to really see that pickup in backlog here in the early spring really sets us up nicely for summer and autumn construction which is supportive of our expectation of nice growth and gas utilities this year.
It's great to hear it. Thank you for taking my questions.
You're welcome. Thank you.
Speaker Change: Our next question comes from Chuck Minovino, with Seth Gujana Financial Group. Please proceed with your question.
Hi, good morning.
Good morning, Caltech.
Speaker Change: Just one more on that gas utility side. I think you mentioned that maybe it's a seasonal issue, but was curious that 19th, I think it was a 19% or so increase in backlog in April versus the 1st quarter. I was kind of curious if that was
Speaker Change: Like you said, maybe it's a seasonal construction related issue or I didn't know if it was more political or tariff or macro or what but but was just kind of curious if you kind of think you could touch on that a little bit more and then also do you see backlog continuing to grow even with the growth in the revenues and gas utilities as well kind of as we look through the rest of the quarter. I'm sure you're right.
Speaker Change: Yeah, I think we pretty much hit this one in the sense that, you know, this is typically when you would be building backlog associated with the construction season.
Speaker Change: Much less exposed than our other sectors to potential tariff impacts. So I don't really think the pick up there and backlog is related to the tariffs.
per se. I will also say that we've talked [inaudible]
Speaker Change: Many times than we did in today's call as well about the build out of natural gas infrastructure. So the opportunity for gas utility, some of whom have got transmission assets as well as distribution assets to
Increase their- [inaudible]
Speaker Change: They're transmission assets. That's certainly been part of building up the the the backlog as well. You know, we've seen a really nice pickup
in our room.
Speaker Change: in our work with midstream companies and the gas utilities that are in that space are picking up as well. So, it's really a combination of those things, but look, it really does set us up nicely for a nice pickup and revenue for gas utilities this year, and we'll continue to look for that backlog to build really through this quarter and set us up nicely for the rest of the year.
Speaker Change: Does the gas utilities business carry higher margins, or does that incremental work there carry kind of margin accretion along with it, or is it more the volumes will kind of carry that higher?
Speaker Change: Yeah, I think we've talked about this before, but I would say on a
Speaker Change: on a gross margin basis is probably at or slightly lower than what we do across the rest of the company.
Speaker Change: But because of the scale benefits and the fact that we've got very high volume of a more limited number of SKUs.
Speaker Change: on a net margin basis. It probably comes out ahead of the rest of the business. So that kind of gives you a little sense of how that comes out relative to gross and net margins.
Speaker Change: Gotcha. And then just one last one for me. The diet sector, I think you mentioned a 16% backlog increase if I caught that correctly. I know there's a lot of different end markets going on there so it was just wondering if you can talk a little bit about kind of a little below the surface there downstream versus energy transition. Like where you're seeing kind of some of those strength or weakness there.
Speaker Change: Yeah, you're right about the 16% and that's a backlog increase from end of April to the beginning of the year and I would say that pick up is is primarily in the refining in chemical space.
Speaker Change: You know, we're not really seeing as much an energy transition, certainly in the U.S., most of our energy transition business now is in international.
Speaker Change: But it's really a nice pick up and refining turnaround activity that we're getting ready for And at the same time, we've talked a lot about our chemicals
Speaker Change: Initiative really growing our market share there. We've picked up new customers.
Speaker Change: that were involved in and those have really been driving a lot of that growth in the diet backlog. And then the other thing I will talk about is mining, you know, mining is an area where we continue to put emphasis, we've got dedicated products and the dedicated sales and marketing efforts for the mining business here in the Western United States. We know that mining is going to be a growth area with the focus on strategic minerals and self-sufficiency, so that's a big part of what we're doing in the diet space backlog growth as well.
Thank you.
You're welcome.
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Speaker Change: Our next question comes from Chris Dankert with Loop Capital Markets. Please proceed with your question.
Hey, morning guys. Thanks for taking the questions.
Speaker Change: I guess, first off, maybe first off, just a, no, call it a tangential question to the tariffs. I guess, given that there is a bit more pricing support here, online pipes specifically. Are we in a position to start seeing some recovery and margins for that, that product group?
Speaker Change: Yeah, I think the the line pipe situation is also evolving quite a bit in the sense that, you know, we saw steel prices come back up and now they really seem to have stabilized and of course
Speaker Change: A lot of steel, of course, is imported into the US, and now we've got the
You know, we've got significant tariffs on that.
Speaker Change: As we talked about it in an earlier call, we did lean in on some inventory builds earlier in the year, so we feel like our pipe inventory was in a good shape to start the year, so we do have some opportunities, I think, to sell some of that pipe at some reasonably healthy margins.
Speaker Change: I think the question going forward is, you know, what stair, a tariff stick and how does the overall demand for line pipe go from here? But I would say that generally speaking, you know, we could see some margin strength just coming out of the the strategic buys we made coming into the year and and that will probably manifest itself in future quarters.
Speaker Change: Got it. Glad to hear the sounds of a constructive setup for you guys on that front.
Speaker Change: and then I guess for my second question, I mean obviously we've seen oil prices come off quite a bit here. Your customers don't react to that quickly but maybe just what's the tone from some of your upstream customers in the US and kind of how they're thinking about investment given the current backdrop.
Speaker Change: Well, look, I think we all have to acknowledge that WTI will is in multi-year lows right now.
Speaker Change: and dipping below $60 a barrel is clearly going to have some impact on activity in the US oil field. I think we've seen recently some of the larger independence focused on the Permian Announce CapEx cuts for this year.
Speaker Change: We always want to remind our investors that MRC Global is particularly levered to larger players.
Speaker Change: Some of whom are integrated in nature and some of whom we've got strategic deals with.
Speaker Change: So everybody is going to have some reaction to these lower oil prices in terms of activity on the margin. I would say that our customer base is more resilient, thinks about it more as a manufacturing rather than opportunistic production.
Speaker Change: in terms of how they set their budgets and adjust their activity.
Speaker Change: Budgets or activity in any significant way, but I think that this is a situation that's evolving as well. And as we talked about the impact of tariffs, potentially what it could do to the overall economic activity in the U.S. and potentially the world.
Speaker Change: We'll have to see what that impact does to the U.S. oil field. So there potentially some headwinds going forward. I think we're as insulated as anybody given our customer base and the arrangements that we have with our customers.
Speaker Change: That's really great color. And I guess not to put too fine a point at it, but it sounds like you feel comfortable, you know, any kind of incremental slowdown would be contemplated in the current guidance range for the year here.
Speaker Change: Yeah, I think that's right, and I'll also point out because I focused on oil, but if you look at the natural gas pricing, natural gas pricing is pretty healthy.
Speaker Change: and so a lot of what we're seeing in the PTI space now is really mid-stream related. You know, we used to break out upstream and mid-stream and it got to the point where the mid-stream was small enough that we really combined them into into PTI. I will tell you that almost half of our revenues [inaudible]
Speaker Change: You know, in the quarter have really come through midstream opportunities [inaudible]
Speaker Change: and going forward, you know, about half of our backlog is in the midstream space as well versus just upstream. So there is some resilience in PTI when you look at the natural gas component, the midstream component of that. It's really the upstream component that's most at risk and as I mentioned, we're well insulated there.
. . . . . .
Again, great color. Thanks so much for the time, guys.
Speaker Change: As a remind, if you like to ask a question, please press star one on your telephone keypad. One moment please, while we poll for questions.
Speaker Change: Our next question comes from Blake McLean, with Daniel Energy Partners. Please proceed with your question.
Take it more than you all.
Good morning, Blake.
I wanted to touch on the PTI business internationally, so revenues grew up.
Speaker Change: You know, it's wrong in Q1 and I was hoping you could just maybe talk a bit about the runway there, how you're thinking about growth this year and going forward and maybe walk through some of the specific regions or opportunities that might be useful color.
Thank you.
Speaker Change: Yeah, look, we are projecting growth in our PTI space this year internationally. Keep in mind that international most of the work we do is project related.
Speaker Change: and so a lot of the revenues that we'll see in 2025 are based on projects that we secured last year.
Speaker Change: and we talked a little bit about this in our prepared commentary but think about the North Sea, the Norwegian Sea, Europe generally, what's happening there in terms of our involvement with customers.
Speaker Change: who are either doing life extensions on existing platforms or incremental development of hydrocarbons.
in response to the energy balance disruption that's taking place.
since the Russian Ukraine war took place.
Speaker Change: So, you know, we feel good about the growth internationally in PTI. Again, that's almost entirely upstream. There's really not a huge midstream component to that.
Speaker Change: but having this solid backlog really gives us confidence that we're going to see some healthy growth in PTI this year over where we were in 2024.
Got it
Speaker Change: Thanks for that. And then you elaborated a little bit on the opportunity set around mining. Maybe to talk a little bit about the data center opportunity set and how we should think about that and how you guys think about that.
Speaker Change: Yeah, look, we're really excited about data centers. I think everybody knows that there's tremendous demand for
Thank you.
Speaker Change: Data Centers themselves, and when you look at the opportunities for pipes, valves, and fittings
Speaker Change: as part of the cooling systems as well as some of the
Speaker Change: Transmission and Transportation and Natural Gas for the power generation part of this.
This can be a real exciting development for
Speaker Change: for MRC Global. As we've talked about before, it's relatively early days.
Speaker Change: For us in this space, we've been in it for a little over six months [inaudible]
We're over 10 plus million dollars in terms of
Speaker Change: of actual commitments at this point, and we have tens of millions of dollars of opportunities under bid or discussion.
with Fabricators.
General Contractors, EPCs.
There's a hole.
Speaker Change: of players involved in this business. We're putting master service agreements in place with a number of these groups so that we're positioned to bid and win on future jobs.
Speaker Change: This could be a really big business for us but like a lot of project business we don't want to call it before we've actually got it in place like I said we've crossed the 10 million dollar threshold in a short period of time we've got a lot under under discussion in bid right now but this could easily be you know a 50 or a hundred million dollar business if the right projects go our way. [inaudible] I'm sorry I'm sorry I'm sorry I'm sorry
. . . . .
Speaker Change: Excellent. Okay, thank you guys very much for the time this morning.
You're welcome.
Speaker Change: We have reached the end of the question-to-answer session. I would now like to turn the call over to Monica Broughton for closing comments.
Monica Broughton: Thank you for joining us today for your interest in MRC Global. We look forward to having you join us for our second quarter conference call. Later this year. Have a great day. Thanks.
Speaker Change: This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.