MRC Global Q1 2025 Earnings Report

MRC Global EPS Results

• Actual EPS: $0.14
• Consensus EPS: $0.08
• Beat/Miss: Beat by +$0.06
• One Year Ago EPS: $0.20

MRC Global Revenue Results

• Actual Revenue: $712.00 million
• Expected Revenue: $710.00 million
• Beat/Miss: Beat by +$2.00 million
• YoY Revenue Growth: -11.70%

MRC Global Announcement Details

• Quarter: Q1 2025
• Date: 5/6/2025
• Time: After Market Closes
• Conference Call Date: Wednesday, May 7, 2025
• Conference Call Time: 10:00AM ET

MRC Global (NYSE:MRC), through its subsidiaries, distributes pipes, valves, fittings, and other infrastructure products and services in the United States, Canada, and internationally. It offers ball, butterfly, gate, globe, check, diaphragm, needle, and plug valves; other products, such as lined corrosion resistant piping systems, control valves, valve automation, and top work components; and valve modification services, including valve control extensions, welding, hydrotesting, painting, coating, x-raying, and actuation assembly. The company also provides carbon steel fittings and flanges comprising carbon weld fittings, flanges, and piping components; stainless steel, alloy and corrosion resistant pipes, tubing, fittings, and flanges; and carbon line pipes. In addition, it offers natural gas distribution products, including risers, meters, polyethylene pipes and fittings, and various other components and industrial supplies; oilfield and industrial supplies and completion equipment, such as high density polyethylene pipes, fittings, and rods; and specialized production equipment comprising tanks and separators. Further, the company provides various services under the ValidTorque and FastTrack names. Its products are used in the construction, maintenance, repair, and overhaul of equipment used in extreme operating conditions, including high pressure, high/low temperature, and high corrosive and abrasive environments. The company was formerly known as McJunkin Red Man Holding Corporation and changed its name to MRC Global Inc. in January 2012. MRC Global Inc. was founded in 1921 and is headquartered in Houston, Texas.

MRC Global Q1 2025 Earnings Call Transcript

Key Takeaways

• Revenue up 7% sequentially to $712 M in Q1 with all three sectors growing: gas utilities +8%, downstream/refining +6%, and PTI +8%.
• Backlog increased 8% sequentially to $633 M and continued rising into Q2 (US backlog +23% YTD; gas utilities +26%), supporting expected high single- to low double-digit revenue growth in Q2.
• Adjusted EBITDA improved to $36 M (5.1% margin vs 4.8% in Q4) and operating cash flow was $21 M in Q1, with net working capital at 11.7% of sales and a full-year cash flow target of over $100 M.
• $125 M share repurchase program launched alongside maintaining $570 M of liquidity and a 1.7x net debt leverage ratio, approaching the 1.5x target.
• Growth initiatives gaining traction: chemicals backlog +32% YoY, new data center and mining contract wins, and domestic sourcing (60% US origin) to mitigate tariff risks.

Presentation

[Operator]

and welcome to MRC Global's First Quarter twenty twenty five Earnings Conference Call. At this time, participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Monica Brouton.

[Operator]

Thank you. You may begin.

[Monica Broughton, Investor Relations at MRC Global]

Thank you, and good morning. Welcome to the MRC Global First Quarter twenty twenty five Conference Call and Webcast. We appreciate you joining us. On the call today, we have Rob Faltiel, 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 05/21/2025, and the dial in information is in yesterday's release.

[Monica Broughton, Investor Relations at MRC Global]

Please note that the information reported on this call speaks only as of today, 05/07/2025, 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, referenced 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.

[Monica Broughton, Investor Relations at MRC Global]

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. As a result of the recent announcement related to the sale of our Canada business, the results of which have been reclassified to discontinued operations. Our comments today will reflect revenue and profitability from continuing operations only unless otherwise stated.

[Monica Broughton, Investor Relations at MRC Global]

And now, I'd like to turn the call over to our CEO, Mr. Rob Saltiel.

[Rob Saltiel, President and CEO at MRC Global]

Thank you, Monica. Good morning and welcome to everyone joining today's call. 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. 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.

[Rob Saltiel, President and CEO at MRC Global]

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. In addition, we are very encouraged by our growing backlog, which increased 8% sequentially in the first quarter to $6.00 $3,000,000 with growth across all sectors. 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 April compared to the beginning of the year.

[Rob Saltiel, President and CEO at MRC Global]

This expanding backlog increases our confidence that we will achieve another quarter of strong sequential revenue improvement in the second quarter. Although each of our sectors is performing well, I'm especially optimistic about our gas utilities business, which is our largest end market. After a couple of challenging years, this business is experiencing a significant resurgence and through the April we have seen a 26% increase in backlog. The pre release of our first quarter financial results a few weeks ago has allowed us to begin execution of our previously announced $125,000,000 share repurchase program. 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.

[Rob Saltiel, President and CEO at MRC Global]

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. With our current net debt leverage ratio at 1.7 times and strong available liquidity of $570,000,000 we are well positioned to execute on all three priorities this year. Turning now to our key first quarter financial highlights. Revenue increased by 7% sequentially to $712,000,000 with growth in each of our end market sectors led by gas utilities. We are expecting a recovery in several of our larger gas utilities customers' activity levels with destocking in the rearview mirror.

[Rob Saltiel, President and CEO at MRC Global]

The diet sector also experienced solid increases driven by chemicals mining and refining activity. Finally, the PTI sector activity also picked up with solid gains in both The U. S. And international segments. Adjusted gross profit margins continued to be strong at 21.5% in the first quarter above our 21% target.

[Rob Saltiel, President and CEO at MRC Global]

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. We delivered adjusted EBITDA of $36,000,000 or 5.1% of sales, a nice improvement over the fourth quarter. We expect quarterly adjusted EBITDA margin percentages to exceed 6% of sales in the second quarter as revenue improves sequentially. We generated $21,000,000 of operating cash flow from continuing operations for the first quarter reflecting our focus on working capital management and good cost control. Our net working capital as a percentage of sales was a solid 11.7, demonstrating our operational efficiency and disciplined inventory management.

[Rob Saltiel, President and CEO at MRC Global]

As stated previously, our ability to generate strong operating cash flows across the business cycle has underpinned our confidence in exercising our share buyback program and we are on target to generating $100,000,000 or more in cash flow from operations in 2025. Now I will provide an update on some of the growth related topics we addressed on our March earnings call. First, our gas utility sector 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. Our gas utilities backlog is the highest it has been in three quarters.

[Rob Saltiel, President and CEO at MRC Global]

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. We remain optimistic about this end market sector regardless of the uncertain macroeconomic conditions. 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.

[Rob Saltiel, President and CEO at MRC Global]

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 Emtek Services joint venture. 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. It is clear that the current tariff situation brings significant uncertainty, just on product costs for our customers, but also what it could mean for potential demand destruction in the second half of the year. Our company is extremely adept at navigating global supply chain challenges for our customers, a skill we honed during the COVID pandemic. 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.

[Rob Saltiel, President and CEO at MRC Global]

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. Our China sourced products represent less than 15% of our total U.

[Rob Saltiel, President and CEO at MRC Global]

S. Product mix and this clearly represents the biggest risk of major business disruptions due to tariffs. 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. Tariffs remain a fluid situation and we will continue to update our investors on future calls. We continue to expect a growing role for natural gas and associated investment in midstream infrastructure playing a bigger role in our U.

[Rob Saltiel, President and CEO at MRC Global]

S. PTI sector sales. 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 sub sector, while upstream revenues remained generally flat.

[Rob Saltiel, President and CEO at MRC Global]

In addition, while U. S. PTI backlog grew 28% in the first quarter, midstream outpaced upstream and this has continued into the second quarter as well. 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. With WTI oil prices currently at multi year lows, while natural gas prices have rallied off of twenty twenty four levels, we expect that The U.

[Rob Saltiel, President and CEO at MRC Global]

S. Midstream sub sector will outpace upstream for a while longer. We also expect that the larger E and P players will play an increasingly significant role in U. S. Oilfield activity as more price sensitive producers reduce activity levels in the second half of this year.

[Rob Saltiel, President and CEO at MRC Global]

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. We have spoken previously about our focus on growing our chemicals business and this continues to be a bright spot for us. Our U. S. Chemicals backlog at the April 2025 is 32% higher than the same time last year and we expect U.

[Rob Saltiel, President and CEO at MRC Global]

S. Chemicals revenue to be up high single digits over 2024. Our expansion into data centers and mining applications is also gaining traction. We are negotiating master service agreements with targeted owners and subcontractors for PBF work in new data center cooling systems. Our bookings this year already exceed $10,000,000 and we have tens of millions of dollars of opportunities under pursuit.

[Rob Saltiel, President and CEO at MRC Global]

Our mining sector initiative is also showing excellent growth potential with increased bidding for MRO and project activity as well as new customer acquisitions. We expect our mining business to grow at a compound annual rate of approximately 10% over the next three to five years. In summary, first quarter results were very strong to start 2025 and we are very optimistic about the second quarter as well. We have seen our total U. S.

[Rob Saltiel, President and CEO at MRC Global]

Backlog continue to rise into the second quarter with a 23% increase through the April compared to year end and with all three business sectors increasing double digit percentages. Along with increased intake levels and near term project deliveries, this positive momentum underpins our confidence in our second quarter revenue growth projections. We currently expect second quarter revenue to improve by a high single to low double digit percentage as compared to the first quarter. 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 can best navigate these market disruptions and uncertainties.

[Rob Saltiel, President and CEO at MRC Global]

Although the second half of twenty twenty five may represent more risk due to these uncertainties, we do not have sufficient evidence to alter our previous annual guidance. 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. 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, EVP & CFO at MRC Global]

Thanks, Rob, and good morning, everyone. My comments today will primarily be focused on sequential results comparing the first quarter of twenty twenty five to the fourth quarter of twenty twenty four unless otherwise stated. Also as mentioned by Monica, our Canada results are reflected in discontinued operations. So unless stated otherwise, my comments will be referring to the company's financial results from continuing operations. Starting with revenue, we achieved sales of $712,000,000 in the first quarter, representing a 7% sequential increase from Q4 twenty twenty four and down 8% compared to the same quarter a year ago.

[Kelly Youngblood, EVP & CFO at MRC Global]

From a sector perspective, gas utilities were $273,000,000 in the first quarter, a $20,000,000 or 8% increase driven by customers returning to normalized buying patterns as they prepare for the construction season and specific customers increasing their 2025 capital budgets. The diet sector first quarter revenue was $220,000,000 an increase of $12,000,000 or 6% due to chemical project deliveries, mining activity and refinery turnarounds. PTI sector revenue for the first quarter was $219,000,000 an increase of $16,000,000 or 8% due to several U. S. Midstream customer natural gas pipeline projects as well as multiple upstream projects in the North Sea.

[Kelly Youngblood, EVP & CFO at MRC Global]

In The U. S, 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, U. S. Revenue was $591,000,000 in the first quarter, a $49,000,000 or 9% increase, and all end market sectors improved led by the gas utility sector with a $21,000,000 increase, followed by the diet sector, which increased $19,000,000 and the PTI sector, which increased $9,000,000 International revenue was $121,000,000 in the first quarter, down $1,000,000 or 1% as the increase in PTI sector revenue was offset by reduced diet sector revenue, primarily due to the timing of project deliveries.

[Kelly Youngblood, EVP & CFO at MRC Global]

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 to margins. Adjusted gross profit for the first quarter was $153,000,000 or 21.5% compared to $146,000,000 or 22% in the fourth quarter of twenty twenty four. The variance in margin percentage is due to geographic and product mix. Reported SG and A for the first quarter was $124,000,000 or 17.4% of sales as compared to $123,000,000 or 18.5% in the fourth quarter.

[Kelly Youngblood, EVP & CFO at MRC Global]

Adjusted SG and A for the first quarter was $121,000,000 slightly higher than the fourth quarter's '1 hundred and '19 million dollars reflecting the typical increase of employee related costs at the beginning of

[Kelly Youngblood, EVP & CFO at MRC Global]

the year. Adjusted EBITDA for the first quarter was $36,000,000 or 5.1% of sales, an improvement over the fourth quarter results of $32,000,000 and 4.8% as a result of operating leverage on higher revenue. Interest expense was $9,000,000

[Kelly Youngblood, EVP & CFO at MRC Global]

in the first quarter of twenty twenty five compared to $7,000,000 in the prior quarter. Tax expense in the first quarter was $1,000,000 with an effective tax rate of 11% as compared to $4,000,000 of expense in the fourth quarter. For the first quarter, net income from continuing operations was $8,000,000 or $09 per diluted share as compared to a net loss from continuing operations of $1,000,000 or a negative $0.14 per diluted share in the fourth quarter of twenty twenty four. Adjusted net income from continuing operations was $12,000,000 and $4,000,000 for the first quarter of twenty twenty five and the fourth quarter of twenty twenty four respectively. Our capital expenditures were $9,000,000 for the first quarter above historical averages due to our ERP implementation.

[Kelly Youngblood, EVP & CFO at MRC Global]

Our working capital management remained strong with net working capital this quarter at 11.7% of sales. This efficiency contributed to operating cash flows from continuing operations of $21,000,000 in the first quarter. Moving to liquidity and capital structure. Our balance sheet remains healthy with ample liquidity of $570,000,000 including $5.00 $7,000,000 of availability on our ABL and $63,000,000 of cash at the end of the first quarter. Our leverage ratio based on net debt of $3.00 $8,000,000 was 1.7 times and our total debt balance was $371,000,000 We continue to target a leverage ratio of 1.5 times, while also executing our share buyback program.

[Kelly Youngblood, EVP & CFO at MRC Global]

Now I'll cover our outlook. 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. 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. Currently, 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.

[Kelly Youngblood, EVP & CFO at MRC Global]

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. We will update our guidance as necessary in future quarters when there is greater clarity. 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. For example, our gas utility sectors 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.

[Kelly Youngblood, EVP & CFO at MRC Global]

The year to date increase in backlog for this sector is up 26% as of the April. Therefore, we continue to expect 2025 annual revenue to be up mid single digits or potentially higher in 2025 over 2024. 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 April, this business is off to a strong start this year. The PTI sector results are more sensitive to lower commodity prices and could experience some restraint in The US should the macroeconomic conditions result in reduced demand.

[Kelly Youngblood, EVP & CFO at MRC Global]

We believe this sector of our business has the most risk at this point due to lower oil price expectations. However, we are fortunate with our customer mix in this sector as it is more heavily levered towards IOC and large public companies that typically maintain higher activity levels than their smaller competitors in this environment. The year to date backlog for this sector is up 7% as of April 30. Specific to the second quarter, our guidance is unchanged from our earnings pre release. We expect revenue to be up high single to low double digits compared sequentially to the first quarter supported by a strong backlog position.

[Kelly Youngblood, EVP & CFO at MRC Global]

We are also targeting the following key metrics for 2025. We continue to target operating cash flow of at least 100,000,000 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. Regarding cadence of cash flow for the upcoming quarters, this year may look a little different. In the first quarter, we generated solid cash flow, which is not always the case.

[Kelly Youngblood, EVP & CFO at MRC Global]

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. The third and fourth quarters are expected to return to positive cash generation. Our adjusted gross margins is projected to average approximately 21% or higher. Capital expenditures are expected to be approximately $45,000,000 for the year elevated from our normal levels due to our ERP implementation. And moving into 2026, we expect our annual CapEx to return to a more historical run rate of approximately $15,000,000 We are on budget and on schedule with the ERP project and are very excited about the benefits it is expected to yield.

[Kelly Youngblood, EVP & CFO at MRC Global]

Finally, we remain committed to achieving our target net debt leverage ratio of 1.5 times. Our disciplined approach to balance sheet management combined with our strong cash flow generation have enabled us to begin executing on our 125,000,000 share repurchase program, while also maintaining ample financial flexibility for future growth opportunities. And with that, I'll turn it back over to Rob.

[Rob Saltiel, President and CEO at MRC Global]

Thanks, Kelly. As we conclude today's call, I want to emphasize our strong start to 2025 and our confidence in the future. We have returned to growth in both revenue and backlog across all three market sectors and we have launched our $125,000,000 share repurchase program. Our financial position remains solid with ample liquidity and excellent working capital efficiency. We are generating healthy cash flow with $21,000,000 from continuing operations in the first quarter and we are on track to deliver over $100,000,000 for the full year.

[Rob Saltiel, President and CEO at MRC Global]

Looking ahead, we expect growth opportunities across all our sectors driven by improving fundamentals for gas utilities, several promising growth initiatives in our diet sector and a strong U. S. Natural gas midstream outlook and our advantage positioning with large customers in the PTI space. 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.

[Rob Saltiel, President and CEO at MRC Global]

And with that, we will now take your questions. Operator?

[Operator]

Thank you. At this time, we'll be conducting a question and answer session.

[Operator]

You.

[Operator]

Our first question comes from Nathan Jones with Stifel. Please proceed with your question.

[Adam Farley, Associate Analyst at Stifel Financial]

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

[Rob Saltiel, President and CEO at MRC Global]

Morning, Adam.

[Adam Farley, Associate Analyst at Stifel Financial]

On hey. Good morning. Wanted to start on, the tariff discussion. Maybe just at a higher level, how is inflation tracking in the business today? You know, what product areas are seeing the most tariff related price increases from suppliers?

[Adam Farley, Associate Analyst at Stifel Financial]

And and then maybe any expectation on on how gross margins will read through this year?

[Rob Saltiel, President and CEO at MRC Global]

Yeah. I think it's fair to say that the tariff situation is highly dynamic and still evolving. I think we've I think most people are aware that there are tariffs right now on steel and aluminum products coming from anywhere outside The U. S. And then elsewhere, we've got 10% tariffs on all products from other nations other than China, where we have over 100% tariff today.

[Rob Saltiel, President and CEO at MRC Global]

So the biggest impacts we're seeing currently are importing steel products, typically pipes, fittings and flanges and then anything that comes from China. 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, 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.

[Rob Saltiel, President and CEO at MRC Global]

One is, first of all, we are pushing back where we can on any increases related to the tariffs. Obviously, with our business basically returning EBITDA margins of $05 or $06 on every dollar, 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. But clearly, we want to do everything we can to help our customers get through 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.

[Rob Saltiel, President and CEO at MRC Global]

And so that's been a big focus of our team and will continue to be a focus of our team as this situation evolves. In terms of what it's actually doing in terms of our pricing right now, I would tell you that most of the tariff impacts are going to be seen in future quarters, right? So it takes a quarter or two for these impacts to really be seen. But ultimately, as we've talked about before, we do sell a lot of our products on a cost plus basis. Clearly, the tariff is a price increase.

[Rob Saltiel, President and CEO at MRC Global]

It's a cost of the product that's paid for by the importer of record and then passed through to us to some degree. So if we have increases due to tariffs, we've got to work on passing those through. 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.

[Adam Farley, Associate Analyst at Stifel Financial]

Okay. That's really helpful color. Maybe on inventory, it looks like inventory stepped up a little bit in the first quarter. Did you maybe stock strategically a little a little bit of additional inventory, get ahead of tariffs or maybe just visibility on your backlog? Any color on inventory this year?

[Rob Saltiel, President and CEO at MRC Global]

Yes. I will tell you that we leaned in a bit on this expecting that some tariffs were coming. At the same time, the first quarter is typically when we do increase our inventory to prepare for the rest of the year. So 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 tariff situation is volatile and dynamic.

[Rob Saltiel, President and CEO at MRC Global]

It seems to be changing with some regular frequency. But we did lean in on that. I think that does give us an advantaged inventory position as we work our way through this. So yes, that was something that we had some foresight on and we did lean in a bit on that in the first quarter.

[Adam Farley, Associate Analyst at Stifel Financial]

Okay. And then shifting gears a little bit to gas utilities. It sounds like there's solid momentum there, more defensive market versus the traditional energy sector. Maybe do you have any updates on opportunities to gain additional market share or wallet share with some of your larger customers this year?

[Rob Saltiel, President and CEO at MRC Global]

Yes. 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. This has been a consistent growth engine for this company for many years, really until the last couple of years. And as we talked about before, coming out of the pandemic, we were our customers were holding extra inventory as some of the fabricators were holding extra inventory and we had extra inventory.

[Rob Saltiel, President and CEO at MRC Global]

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 has now returned to growth. We do have growth opportunities in terms of market share in the sense that there are gas utilities that we don't currently serve 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 to increase our wallet share. We've talked a lot on our last earnings call about our MTech Services joint venture, where we're actually going to be providing a very valuable service to help smart meter applications for our customers.

[Rob Saltiel, President and CEO at MRC Global]

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. And then there are a few other services that we're looking at in accordance with the MTech Services venture as well. So we really like our growth prospects in gas utilities. We're excited that we're back to growth.

[Rob Saltiel, President and CEO at MRC Global]

We're also excited that the gas utility space is largely insulated from the tariff impacts. 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.

[Kelly Youngblood, EVP & CFO at MRC Global]

Hey, Adam, I'll just add as well. When you look at

[Kelly Youngblood, EVP & CFO at MRC Global]

the backlog growth, we talked about an 8% growth for the full company in Q1. Gas Utilities was in line with that at 8%. But April as of the April, if you look at the year to date improvement that we've experienced in gas utilities compared to March, it's 17% improvement. So really when you look at the full year to date, it's 26% up since the beginning of the year with 17% of that just occurring between March and April. And so that gives us tremendous confidence for the coming quarters, not just Q2.

[Kelly Youngblood, EVP & CFO at MRC Global]

And as Rob said, since that business is more insulated, we don't think there's going to be much pressure, if any. We think it's really back to the normal kind of CAGR growth rates that we had historically in that part of

[Kelly Youngblood, EVP & CFO at MRC Global]

our business.

[Rob Saltiel, President and CEO at MRC Global]

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. And to really see that pickup in backlog here in the early spring really sets us up nicely for summer and autumn construction, which will which is supportive of our expectation of nice growth in gas utilities this year.

[Adam Farley, Associate Analyst at Stifel Financial]

That's great to hear.

[Adam Farley, Associate Analyst at Stifel Financial]

Thank you for taking my questions.

[Rob Saltiel, President and CEO at MRC Global]

You're welcome. Thank you.

[Operator]

Our next question comes from Chuck Minavino with Susquehanna Financial Group. Please proceed with your question.

[Charles Minervino, Equity Research Analyst at Susquehanna International Group]

Hi, good morning.

[Rob Saltiel, President and CEO at MRC Global]

Good morning, Chuck.

[Charles Minervino, Equity Research Analyst at Susquehanna International Group]

Just

[Charles Minervino, Equity Research Analyst at Susquehanna International Group]

one more on that gas utility side. I think you mentioned that maybe it's a seasonal issue, but was curious that 19% I think it was a 19% or so increase in backlog in April versus the first quarter. I was kind of curious if that was, 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 was just kind of curious if you kind of think if 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 in Gas Utilities as well kind of as we look through the rest of the quarter?

[Rob Saltiel, President and CEO at MRC Global]

Yes. I think we pretty much hit this one in the sense that this is typically when you would be building backlog associated with the construction season. Again, the gas utilities are much less exposed than our other sectors to potential tariff impacts. So I don't really think the pickup there in backlog is related to the tariffs per se. I will also say though that we've talked many times and we did in today's call as well about the build out of natural gas infrastructure.

[Rob Saltiel, President and CEO at MRC Global]

So the opportunity for gas utilities, some of whom have got transmission assets as well as distribution assets to increase their transmission assets. That's certainly been part of building up the backlog as well. We've seen a really nice pickup 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 in 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.

[Charles Minervino, Equity Research Analyst at Susquehanna International Group]

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?

[Rob Saltiel, President and CEO at MRC Global]

Yes. I think we've talked about this before, but I would say on a gross margin basis, it's probably at or slightly lower than what we do across the rest of the company. But because of the scale benefits and the fact that we've got very high volume of a more limited number of SKUs on a net margin basis that 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.

[Charles Minervino, Equity Research Analyst at Susquehanna International Group]

Got

[Charles Minervino, Equity Research Analyst at Susquehanna International Group]

you. 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 I 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 the strength or weakness there?

[Rob Saltiel, President and CEO at MRC Global]

Yes. You're right about the 16%, and that's a backlog increase from April to the beginning of the year. And I would say that pickup is primarily in the refining and chemical space. We're not really seeing as much in energy transition certainly in The U. S.

[Rob Saltiel, President and CEO at MRC Global]

Most of our energy transition business now is in international. But it's really a nice pickup in refining turnaround activity that we're getting ready for. And at the same time, we've talked a lot about our chemicals initiative, really growing our market share there. We picked up new customers. There's some significant projects in the chemical space that we're involved in.

[Rob Saltiel, President and CEO at MRC Global]

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. Mining is an area where we continue to put emphasis. We've got dedicated products and a dedicated sales and marketing effort for the mining business here in the Western United States. We know that mining is going to be a growth area with a focus on strategic minerals and self sufficiency.

[Rob Saltiel, President and CEO at MRC Global]

So that's a big part of what we're doing in the diet space backlog growth as well.

[Charles Minervino, Equity Research Analyst at Susquehanna International Group]

Thank you.

[Rob Saltiel, President and CEO at MRC Global]

You're welcome.

[Operator]

Our next question comes from Chris Stankert with Loop Capital Markets. Please proceed with your question.

[Christopher Dankert, SVP - Equity Research at Loop Capital Markets LLC]

Hey, good morning guys. Thanks for taking the questions. I guess first off, maybe first off, just a tangential question to the tariffs. I guess given that there is a bit more pricing support here on line pipe specifically, are we in a position to start seeing some recovery in margins for that product group?

[Rob Saltiel, President and CEO at MRC Global]

Yes. I think the line pipe situation is also evolving quite a bit in the sense that we saw steel prices come back up and now they really seem to have stabilized. And of course, a lot of steel of course is imported into The U. S. And now we've got significant tariffs on that.

[Rob Saltiel, President and CEO at MRC Global]

As we talked about on 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. I think the question going forward is what's tariffs stick and how does the overall demand for line pipe go from here. But I would say that generally speaking, we could see some margin strength just coming out of the strategic buys that we made coming into the year and that will probably manifest itself in future quarters.

[Christopher Dankert, SVP - Equity Research at Loop Capital Markets LLC]

Got it. Glad to hear that sounds like a constructive setup for you guys on that front. 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 U. S.

[Christopher Dankert, SVP - Equity Research at Loop Capital Markets LLC]

And then kind of how they're thinking about investment given the current backdrop?

[Rob Saltiel, President and CEO at MRC Global]

Well, look, think we all have to acknowledge that WTI oil is at multiyear lows right now And dipping below $60 a barrel is clearly going to have some impact on activity in The U. S. Oilfield. I think we've seen recently some of the larger independents focused on the Permian announced CapEx cuts for this year. We always want to remind our investors that MRC Global is particularly levered to larger players.

[Rob Saltiel, President and CEO at MRC Global]

These are the large publicly traded companies, some of whom are integrated in nature and some of whom we've got strategic deals with. 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 in terms of how they set their budgets and adjust their activity. But there's no question that lower oil prices and the potential for them to potentially go even lower is going to have an impact on activity. I would tell you that we are not seeing anything from our customers that's indicating that they're going to be either reducing budgets or activity in any significant way.

[Rob Saltiel, President and CEO at MRC Global]

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, we'll have to see what that impact does to The U. S.

[Rob Saltiel, President and CEO at MRC Global]

Oilfield. So there are 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.

[Christopher Dankert, SVP - Equity Research at Loop Capital Markets LLC]

That's really great color. And I guess not to put too fine a point on it, it sounds like you feel comfortable that any kind of incremental slowdown would be contemplated in the current guidance range for the year here?

[Rob Saltiel, President and CEO at MRC Global]

Yeah, I think that's right. And I'll also point out because I focused on oil, if you look at the natural gas pricing, natural gas pricing is pretty healthy. And I think everybody understands as we talked about before that natural gas role in electrification is the transition fuel is going to continue to increase. And so a lot of what we're seeing in the PTI space now is really midstream related. We used to break out upstream and midstream, and it got to the point where the midstream was small enough that we really combined them into PTI.

[Rob Saltiel, President and CEO at MRC Global]

I will tell you that almost half of our revenues have in the quarter have really come through midstream opportunities. And going forward 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. As I mentioned, we're well insulated there.

[Christopher Dankert, SVP - Equity Research at Loop Capital Markets LLC]

Again, great color. Thanks so much for the time guys.

[Operator]

Our next question comes from Blake MacLean with Daniel Energy Partners. Please proceed with your question.

[Blake McLean, Managing Director at Daniel Energy Partners]

Hey, good morning, y'all.

[Rob Saltiel, President and CEO at MRC Global]

Hey, morning, Blake.

[Blake McLean, Managing Director at Daniel Energy Partners]

I wanted to touch on the PTI business internationally. So revenues were up strong 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.

[Rob Saltiel, President and CEO at MRC Global]

Yes. Look, we are projecting growth in our PTI space this year internationally. Keep in mind, international, most of the work we do is project related. And so a lot of the revenues that we'll see in 2025 are based on projects that we secured last year. 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 who are either doing life extensions on existing platforms or incremental development of hydrocarbons in response to the energy balance disruption that's taken place since the Russian Ukraine war took place.

[Rob Saltiel, President and CEO at MRC Global]

So 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. 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.

[Blake McLean, Managing Director at Daniel Energy Partners]

Got it. Thanks for that. And then you elaborated a little bit on the opportunity set around mining. Maybe just talk a little bit about the data opportunity set and how we should think about that and how you guys think about that?

[Rob Saltiel, President and CEO at MRC Global]

Yes. Look, we're really excited about data centers. I think everybody knows that there's tremendous demand for data centers themselves. And when you look at the opportunities for pipes, valves and fittings as part of the cooling systems as well as some of the transmission and transportation and natural gas for the power generation part of this, this can be a real exciting development for MRC Global. As we talked about before, it's relatively early days for us in this space.

[Rob Saltiel, President and CEO at MRC Global]

We've been in it for a little over six months. We're over $10 plus million in terms of actual commitments at this point and we have tens of millions of dollars of opportunities under bid or discussion. And it is a project related business. We're working with fabricators, general contractors, EPCs. There's a whole, if you will, ecosystem of players involved in this business.

[Rob Saltiel, President and CEO at MRC Global]

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. 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 $10,000,000 threshold in a short period of time. We've got a lot under discussion in bid right now.

[Rob Saltiel, President and CEO at MRC Global]

But this could easily be a 50,000,000 or $100,000,000 business if the right projects go our way.

[Blake McLean, Managing Director at Daniel Energy Partners]

Excellent. Okay. Thank you guys very much for the time this morning.

[Rob Saltiel, President and CEO at MRC Global]

You're welcome.

[Operator]

We have reached the end of the question and answer session. I would now like to turn the call over to Monica Bratton for closing comments.

[Monica Broughton, Investor Relations at MRC Global]

Thank you for joining us today and 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.

[Operator]

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.

Participants

Executives

• Monica Broughton, Investor Relations
• Rob Saltiel, President and CEO
• Kelly Youngblood, EVP & CFO

Analysts

• Adam Farley, Associate Analyst at Stifel Financial
• Charles Minervino, Equity Research Analyst at Susquehanna International Group
• Christopher Dankert, SVP - Equity Research at Loop Capital Markets LLC
• Blake McLean, Managing Director at Daniel Energy Partners