MRC (MRC) - 2025 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and comprehensive notes, covering financial position, performance, cash flows, and significant accounting policies and events ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) This section presents the unaudited condensed consolidated financial statements, including balance sheets, income statements, comprehensive income, equity, and cash flows, along with detailed explanatory notes CONDENSED CONSOLIDATED BALANCE SHEETS This section provides a snapshot of the company's financial position, detailing assets, liabilities, and stockholders' equity at specific points in time | Metric | June 30, 2025 (millions) | December 31, 2024 (millions) | Change (millions) | | :-------------------------------- | :----------------------- | :------------------------- | :---------------- | | Total Assets | $1,774 | $1,624 | +$150 | | Total Liabilities | $800 | $724 | +$76 | | Total Stockholders' Equity | $536 | $516 | +$20 | | Cash | $75 | $63 | +$12 | | Accounts receivable, net | $469 | $378 | +$91 | | Inventories, net | $490 | $415 | +$75 | | Current assets of discontinued operations | $1 | $36 | -$35 | | Trade accounts payable | $438 | $329 | +$109 | | Long-term debt | $445 | $384 | +$61 | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS This section presents the company's financial performance over specific periods, including sales, gross profit, operating income, and net income Three Months Ended June 30 (2025 vs. 2024) | Metric | 2025 (millions) | 2024 (millions) | Change (millions) | % Change | | :------------------------------------- | :-------------- | :-------------- | :---------------- | :------- | | Sales | $798 | $799 | -$1 | (0.1)% | | Gross profit | $151 | $169 | -$18 | (10.7)% | | Operating income | $21 | $47 | -$26 | (55.3)% | | Net income (loss) | $13 | $30 | -$17 | (56.7)% | | Basic EPS | $0.15 | $0.28 | -$0.13 | (46.4)% | | Diluted EPS | $0.15 | $0.28 | -$0.13 | (46.4)% | Six Months Ended June 30 (2025 vs. 2024) | Metric | 2025 (millions) | 2024 (millions) | Change (millions) | % Change | | :------------------------------------- | :-------------- | :-------------- | :---------------- | :------- | | Sales | $1,510 | $1,576 | -$66 | (4.2)% | | Gross profit | $293 | $328 | -$35 | (10.7)% | | Operating income | $39 | $86 | -$47 | (54.7)% | | Net income (loss) | $(9) | $49 | -$58 | N/M | | Basic EPS | $(0.11) | $0.44 | -$0.55 | N/M | | Diluted EPS | $(0.11) | $0.43 | -$0.54 | N/M | - The net loss for the six months ended June 30, 2025, was primarily due to a $30 million loss from discontinued operations, net of tax[7] CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME This section details the company's comprehensive income, including net income and other comprehensive income items not reported in the income statement Three Months Ended June 30 (2025 vs. 2024) | Metric | 2025 (millions) | 2024 (millions) | Change (millions) | | :------------------------------------- | :-------------- | :-------------- | :---------------- | | Net income (loss) | $13 | $30 | -$17 | | Total other comprehensive income (loss), net of tax | $9 | $1 | +$8 | | Comprehensive income | $22 | $31 | -$9 | Six Months Ended June 30 (2025 vs. 2024) | Metric | 2025 (millions) | 2024 (millions) | Change (millions) | | :------------------------------------- | :-------------- | :-------------- | :---------------- | | Net income (loss) | $(9) | $49 | -$58 | | Total other comprehensive income (loss), net of tax | $42 | $(4) | +$46 | | Comprehensive income | $33 | $45 | -$12 | - The six-month period in 2025 included a reclassification of $28 million of foreign currency translation adjustments to net income as a result of the sale of Canada operations[9] CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY This section outlines changes in the company's equity over time, reflecting net income, share repurchases, and other equity adjustments - Total Stockholders' Equity increased from $516 million at December 31, 2024, to $536 million at June 30, 2025[6][10] - Net income for the three months ended June 30, 2025, was $13 million, contributing to the overall equity[10] - Common stock repurchases totaled $15 million for the six months ended June 30, 2025[10] - Foreign currency translation adjustments contributed $14 million (net of reclassification) for the six months ended June 30, 2025[11] - A reclassification of $28 million in foreign currency translation adjustments to net income occurred due to the sale of Canada operations for the six months ended June 30, 2025[10] - Equity-based compensation expense was $8 million for the six months ended June 30, 2025[11] CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS This section reports the cash generated and used by the company across operating, investing, and financing activities over specific periods Net Cash Flows (Six Months Ended June 30) | Activity | 2025 (millions) | 2024 (millions) | | :------------------------------------- | :-------------- | :-------------- | | Operating activities | $(30) | $101 | | Investing activities | $(2) | $(13) | | Financing activities | $39 | $(169) | | Net increase (decrease) in cash | $7 | $(81) | - Net cash used in operating activities for the six months ended June 30, 2025, was primarily due to increases in accounts receivable and inventories and lower profitability, partially offset by an increase in accounts payable[13] - Investing activities in 2025 included $17 million provided by discontinued operations from the sale of the Canada business[13] - The shift in financing activities from cash used to cash provided was primarily due to fewer debt payments and no preferred dividends in 2025, offset by common stock repurchases ($15 million) and lower net proceeds from revolving credit facilities[13] NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS This section provides detailed explanations and additional information supporting the condensed consolidated financial statements NOTE 1 – BACKGROUND AND BASIS OF PRESENTATION This note describes the company's business, the planned merger with DNOW Inc., the sale of Canada operations, and the accounting principles used for financial statement preparation - MRC Global Inc. is a global distributor of pipe, valves, fittings ("PVF") and infrastructure products and services across Gas Utilities, DIET (downstream, industrial, energy transition), and PTI (production and transmission infrastructure) sectors[14] - On June 26, 2025, MRC Global entered into a Merger Agreement with DNOW Inc., where each MRC Global common stock share will convert into 0.9489 shares of DNOW common stock, subject to shareholder and regulatory approvals[15][16] - A termination fee of $45.5 million would be payable under specified circumstances if the Merger Agreement is terminated[17] - The company incurred $6 million and $7 million in third-party legal and consulting costs for the three and six months ended June 30, 2025, respectively, related to the merger, recorded in SG&A expenses[18] - The unaudited condensed consolidated financial statements are prepared in accordance with Rule 10-01 of Regulation S-X[19] - The sale of Canada operations was completed on March 14, 2025, with historical results reflected as discontinued operations[20][21][22] - The company adopted ASU 2023-09 on January 1, 2025, for enhanced income tax disclosures and is evaluating ASU 2024-03 (effective after December 15, 2026) for detailed expense disclosures[23][24][25][26][27] NOTE 2 – DISCONTINUED OPERATIONS This note details the financial impact and accounting treatment of the company's discontinued Canada operations - The sale of Canada operations to EMCO Corporation was completed on March 14, 2025, generating net cash proceeds of $18 million[28] - A pre-tax, non-cash loss of approximately $22 million on discontinued operations was recorded in Q4 2024[28] - A cumulative foreign currency translation adjustment of $28 million was released from accumulated other comprehensive income and recognized in the condensed consolidated statement of operations for the six months ended June 30, 2025[31] - The total loss from discontinued operations, net of tax, for the six months ended June 30, 2025, was $(30) million[31] - The company recognized $1 million in income for transition services provided to EMCO Corporation for the three and six months ended June 30, 2025[29] Discontinued Operations Financials (Six Months Ended June 30) | Metric | 2025 (millions) | 2024 (millions) | | :------------------------------------- | :-------------- | :-------------- | | Sales | $16 | $62 | | Operating loss | $(3) | $(1) | | Reclassification of foreign currency translation adjustments | $(28) | — | | Loss from discontinued operations, net of tax | $(30) | $(1) | Disposal Group Assets and Liabilities (June 30, 2025 vs. December 31, 2024) | Category | June 30, 2025 (millions) | December 31, 2024 (millions) | | :------------------------------------- | :----------------------- | :------------------------- | | Current assets of discontinued operations | $1 | $36 | | Current liabilities of discontinued operations | $0 | $21 | NOTE 3 – REVENUE RECOGNITION This note explains the company's policies for recognizing revenue, including contract assets, deferred revenue, and disaggregated sales data - Revenue is generally recognized upon shipment or delivery of products, with payment typically due within 30 days[33] - Contract assets increased to $39 million as of June 30, 2025, from $18 million as of December 31, 2024, due to delayed invoicing for customer-specific documentation[36] - Deferred revenue increased to $22 million as of June 30, 2025, from $16 million as of December 31, 2024. The company recognized $14 million of deferred revenue from December 31, 2024, during the six months ended June 30, 2025[37] Disaggregated Revenue by Sector and Geography (Three Months Ended June 30) | Sector | U.S. 2025 (millions) | International 2025 (millions) | Total 2025 (millions) | U.S. 2024 (millions) | International 2024 (millions) | Total 2024 (millions) | | :------------------------------------- | :------------------- | :-------------------------- | :------------------ | :------------------- | :-------------------------- | :------------------ | | Gas Utilities | $299 | $0 | $299 | $287 | $0 | $287 | | DIET | $162 | $61 | $223 | $188 | $68 | $256 | | PTI | $197 | $79 | $276 | $202 | $54 | $256 | | Total Sales | $658 | $140 | $798 | $677 | $122 | $799 | Disaggregated Revenue by Sector and Geography (Six Months Ended June 30) | Sector | U.S. 2025 (millions) | International 2025 (millions) | Total 2025 (millions) | U.S. 2024 (millions) | International 2024 (millions) | Total 2024 (millions) | | :------------------------------------- | :------------------- | :-------------------------- | :------------------ | :------------------- | :-------------------------- | :------------------ | | Gas Utilities | $572 | $0 | $572 | $552 | $0 | $552 | | DIET | $324 | $119 | $443 | $390 | $133 | $523 | | PTI | $353 | $142 | $495 | $402 | $99 | $501 | | Total Sales | $1,249 | $261 | $1,510 | $1,344 | $232 | $1,576 | NOTE 4 – INVENTORIES This note provides details on the composition and valuation methods of the company's inventories, including LIFO accounting - Total inventories, net, increased to $490 million as of June 30, 2025, from $415 million as of December 31, 2024[6][42] Inventory Composition (June 30, 2025 vs. December 31, 2024) | Category | June 30, 2025 (millions) | December 31, 2024 (millions) | | :------------------------------------- | :----------------------- | :------------------------- | | Valves, automation, measurement and instrumentation | $221 | $206 | | Carbon steel pipe, fittings and flanges | $153 | $135 | | Gas products | $281 | $265 | | All other products | $143 | $104 | | Less: Excess of weighted-average cost over LIFO cost (LIFO reserve) | $(291) | $(280) | | Less: Other inventory reserves | $(17) | $(15) | - The company uses the last-in, first-out ("LIFO") method for valuing U.S. inventories, which reduces net income during inflationary periods and increases it during deflationary periods[42] NOTE 5 – LEASES This note outlines the company's lease assets, liabilities, expenses, and related terms, including commitments from discontinued operations Lease Assets and Liabilities (June 30, 2025 vs. December 31, 2024) | Category | June 30, 2025 (millions) | December 31, 2024 (millions) | | :------------------------------------- | :----------------------- | :------------------------- | | Operating lease assets | $159 | $170 | | Total lease assets | $168 | $178 | | Total lease liabilities | $183 | $193 | - Operating lease expense was $11 million for the three months ended June 30, 2025 (vs. $10 million in 2024) and $23 million for the six months ended June 30, 2025 (vs. $21 million in 2024)[47] - Finance lease expense was $1 million for the three months ended June 30, 2025 (vs. less than $1 million in 2024) and $2 million for the six months ended June 30, 2025 (vs. less than $1 million in 2024)[47] - The weighted-average remaining lease term for operating leases was 11 years for both periods ended June 30, 2025, and 2024[50] - The weighted-average discount rate for operating leases was 6.8% for June 30, 2025 (vs. 6.7% in 2024)[50] - In connection with the sale of the Canada business, three operating lease commitments were assigned to buyers, with the company remaining obligated if buyers fail to perform. Undiscounted remaining lease payments totaled $7 million as of June 30, 2025[51] NOTE 6 – DEBT This note details the company's debt structure, including term loans, revolving credit facilities, interest rates, and restrictive covenants Components of Debt (June 30, 2025 vs. December 31, 2024) | Category | June 30, 2025 (millions) | December 31, 2024 (millions) | | :------------------------------------- | :----------------------- | :------------------------- | | Senior Secured Term Loan B | $343 | $344 | | Global ABL Facility | $106 | $43 | | Total Debt | $449 | $387 | - The Senior Secured Term Loan B has an original principal amount of $350 million, matures in October 2031, and will be paid off or amended upon closing of the DNOW merger[53] - The Global ABL Facility is a $750 million revolving credit facility maturing in November 2029, with $499 million of Excess Availability at June 30, 2025. It must also be paid off or amended upon closing of the DNOW merger[61] - The weighted average interest rate on outstanding borrowings was 7.25% at June 30, 2025, down from 7.79% at December 31, 2024[69] - The Term Loan contains restrictive covenants limiting the company's ability to make investments, incur additional debt, sell assets, and pay dividends, but does not include financial maintenance covenants[58] NOTE 7 – INCOME TAXES This note presents the company's income tax expense, effective tax rates, and factors influencing tax variations Income Tax Expense and Effective Tax Rate (Three Months Ended June 30) | Metric | 2025 (millions) | Effective Tax Rate | 2024 (millions) | Effective Tax Rate | | :------------------------------------- | :-------------- | :----------------- | :-------------- | :----------------- | | Income tax expense | $5 | 28% | $12 | 29% | Income Tax Expense and Effective Tax Rate (Six Months Ended June 30) | Metric | 2025 (millions) | Effective Tax Rate | 2024 (millions) | Effective Tax Rate | | :------------------------------------- | :-------------- | :----------------- | :-------------- | :----------------- | | Income tax expense | $6 | 22% | $20 | 29% | - The decrease in income tax expense for both periods is primarily due to decreased profitability, and for the six-month period, a tax windfall on stock vestings. Effective tax rates differ from the U.S. federal statutory rate of 21% due to state income taxes, non-deductible expenses, and differing foreign income tax rates[70][71] - The company is evaluating the impact of the recently enacted One Big Beautiful Bill Act (July 4, 2025) on its effective tax rate and deferred tax assets[72] NOTE 8 – REDEEMABLE PREFERRED STOCK This note describes the repurchase of the company's outstanding Series A Convertible Perpetual Preferred Stock and its terms - On October 29, 2024, the company repurchased all outstanding Series A Convertible Perpetual Preferred Stock for $361 million plus $4 million in accrued dividends, funded by the Term Loan, cash on hand, and Global ABL Facility drawings[74] - The Preferred Stock had a stated value of $1,000 per share and cumulative dividends payable quarterly at 6.50% per annum[75] - It was convertible into common stock at an initial rate of 55.9284 shares per preferred share[75] NOTE 9 – STOCKHOLDERS' EQUITY This note details changes in stockholders' equity, including share repurchases, outstanding shares, and accumulated other comprehensive loss - In January 2025, the board authorized a share repurchase program for common stock up to $125 million, expiring January 2, 2028[77] Share Repurchases (Three Months Ended June 30, 2025) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :------------------------------------- | :----------------------------- | :--------------------------- | | April 1 - April 30, 2025 | 179,900 | $11.67 | | May 1 - May 31, 2025 | 1,037,056 | $12.46 | | June 1 - June 30, 2025 | — | — | | Total | 1,216,956 | $12.35 | - The company repurchased 1,216,956 shares for a total cost of $15 million during the three and six months ended June 30, 2025[78] - As of June 30, 2025, there were 84,984,602 shares of common stock outstanding[80] - The Merger Agreement restricts further common stock repurchases between June 26, 2025, and the earlier of the closing or termination of the agreement[78] - Accumulated other comprehensive loss decreased to $(195) million as of June 30, 2025, from $(237) million as of December 31, 2024, primarily due to currency translation adjustments[80] Earnings Per Share (Three Months Ended June 30) | Metric | 2025 | 2024 | | :------------------------------------- | :----- | :----- | | Basic EPS | $0.15 | $0.28 | | Diluted EPS | $0.15 | $0.28 | Earnings Per Share (Six Months Ended June 30) | Metric | 2025 | 2024 | | :------------------------------------- | :------ | :----- | | Basic EPS | $(0.11) | $0.44 | | Diluted EPS | $(0.11) | $0.43 | NOTE 10 – SEGMENT INFORMATION This note provides financial data disaggregated by the company's operating segments and product lines - The company operates in two reportable segments: U.S. and International, serving Gas Utilities, DIET, and PTI sectors. Canada operations were reclassified as discontinued[82][83][84] Sales by Segment (Three Months Ended June 30) | Segment | 2025 (millions) | 2024 (millions) | Change (millions) | % Change | | :------------------------------------- | :-------------- | :-------------- | :---------------- | :------- | | U.S. | $658 | $677 | -$19 | (3)% | | International | $140 | $122 | +$18 | 15% | | Total Consolidated Sales | $798 | $799 | -$1 | (0.1)% | Sales by Segment (Six Months Ended June 30) | Segment | 2025 (millions) | 2024 (millions) | Change (millions) | % Change | | :------------------------------------- | :-------------- | :-------------- | :---------------- | :------- | | U.S. | $1,249 | $1,344 | -$95 | (7)% | | International | $261 | $232 | +$29 | 13% | | Total Consolidated Sales | $1,510 | $1,576 | -$66 | (4)% | Operating Income by Segment (Three Months Ended June 30) | Segment | 2025 (millions) | 2024 (millions) | Change (millions) | % Change | | :------------------------------------- | :-------------- | :-------------- | :---------------- | :------- | | U.S. | $9 | $38 | -$29 | (76)% | | International | $12 | $10 | +$2 | 20% | | Total Operating Income | $21 | $47 | -$26 | (55)% | Operating Income by Segment (Six Months Ended June 30) | Segment | 2025 (millions) | 2024 (millions) | Change (millions) | % Change | | :------------------------------------- | :-------------- | :-------------- | :---------------- | :------- | | U.S. | $16 | $72 | -$56 | (78)% | | International | $23 | $16 | +$7 | 44% | | Total Operating Income | $39 | $86 | -$47 | (55)% | Total Assets by Segment (June 30, 2025 vs. December 31, 2024) | Segment | June 30, 2025 (millions) | December 31, 2024 (millions) | | :------------------------------------- | :----------------------- | :------------------------- | | U.S. | $1,421 | $1,278 | | International | $345 | $301 | | Discontinued operations | $1 | $36 | | Total Assets | $1,774 | $1,624 | Sales by Product Line (Six Months Ended June 30) | Product Line | 2025 (millions) | 2024 (millions) | Change (millions) | % Change | | :------------------------------------- | :-------------- | :-------------- | :---------------- | :------- | | Line Pipe | $166 | $238 | -$72 | (30.3)% | | Carbon Fittings and Flanges | $196 | $198 | -$2 | (1.0)% | | Valves, Automation, Measurement and Instrumentation | $571 | $563 | +$8 | 1.4% | | Gas Products | $396 | $380 | +$16 | 4.2% | | Stainless Steel and Alloy Pipe and Fittings | $74 | $73 | +$1 | 1.4% | | General Products | $107 | $124 | -$17 | (13.7)% | | Total Sales | $1,510 | $1,576 | -$66 | (4.2)% | NOTE 11 – FAIR VALUE MEASUREMENTS This note explains the fair value measurements of the company's financial instruments, particularly debt - The fair values of most financial instruments (cash, receivables, payables, accrued liabilities) approximate their carrying values[89] Debt Carrying Value vs. Fair Value | Metric | June 30, 2025 (millions) | December 31, 2024 (millions) | | :------------------------------------- | :----------------------- | :------------------------- | | Carrying value of debt | $449 | $387 | | Fair value of debt | $460 | $394 | - The fair value of debt is estimated using Level 2 inputs, which are quoted market prices[89] NOTE 12 – COMMITMENTS AND CONTINGENCIES This note outlines the company's various legal, environmental, and contractual commitments and potential liabilities - The company is a defendant in approximately 451 asbestos lawsuits involving 1,016 claims, with most settled, dismissed, or resolved, and substantially covered by insurance. The likelihood of a material adverse effect is remote[91] - Various other legal claims and proceedings are incidental to the business, with insurance coverage, and are not expected to have a material adverse effect[92] - The company is undergoing a multi-state unclaimed property audit, the outcome of which cannot be predicted, but an adverse decision could have an impact[93] - Product claims from customers are generally indemnified by manufacturers, and the ultimate disposition is not expected to have a material adverse effect[94] - Customer contracts dictate sales terms and are subject to audits, but historical settlements have not been material[95] - Purchase obligations primarily consist of inventory purchases, with potential cancellation fees or penalties[96] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's analysis of the company's financial condition, operational results, and future outlook, including the impact of strategic transactions and market trends Cautionary Note Regarding Forward-Looking Statements This section advises that the report contains forward-looking statements subject to risks and uncertainties, which are not guarantees of future performance - The report contains forward-looking statements regarding future events, business strategies, anticipated merger benefits, and financial results, which are not guarantees of future performance[98] - These statements involve known and unknown risks and uncertainties, many beyond the company's control, including those related to the DNOW merger (approvals, integration, synergies), economic conditions, commodity prices, supply chain issues, and regulatory changes[98][100] - The company undertakes no obligation to publicly update or revise any forward-looking statement, except as required by law[102] Overview This section provides a general description of the company's business, its role as a global distributor, and the sectors it serves - MRC Global Inc. is a leading global distributor of pipe, valves, fittings ("PVF") and other infrastructure products and services[101] - The company serves diversified energy, industrial, and gas utility sectors, including Gas Utilities, DIET (downstream, industrial, energy transition), and PTI (production and transmission infrastructure)[103] - It offers approximately 200,000 SKUs from over 7,100 suppliers and serves over 8,300 customers through approximately 200 service locations globally[103] Key Drivers of Our Business This section identifies the primary factors influencing the company's revenue and profitability, including market demand, commodity prices, and economic conditions - Revenue is predominantly derived from selling PVF and other supplies to gas utility, energy, and industrial customers, dependent on their maintenance and expansionary expenditures[104] - Gas Utility and Energy Infrastructure Integrity and Modernization: Driven by upgrades and replacements, offering stable business independent of commodity prices[105] - Oil and Natural Gas Demand and Prices: Impacts customer capital spending, pipeline additions, refinery utilization, and petrochemical processing[105] - Economic Conditions: Changes in the general economy or energy sector can cause demand for products to vary[105] - Manufacturer and Distributor Inventory Levels: Fluctuations can lead to oversupply or undersupply, affecting pricing and profitability[105] - Steel Prices, Availability and Supply and Demand: Volatility influences pricing, availability, sales, and operating profitability, with supply chain disruptions and logistical challenges also playing a role[105] Planned Merger with DNOW Inc. This section outlines the details of the proposed merger with DNOW Inc., including the stock conversion ratio and conditions for completion - On June 26, 2025, MRC Global entered into a Merger Agreement with DNOW Inc. The transaction involves a two-step merger where MRC Global will become a wholly owned, direct subsidiary of DNOW[104][106] - Each share of MRC Global common stock will be converted into the right to receive 0.9489 shares of DNOW common stock[107] - The completion of the mergers is subject to shareholder and regulatory approvals and other customary closing conditions[107] MRC Global Sale of Canada Business This section discusses the completed sale of the Canadian operations, its financial impact, and the reclassification of historical results - The company completed the sale of its Canadian operations to EMCO Corporation on March 14, 2025, using the proceeds to reduce debt[108] - A pre-tax, non-cash loss of approximately $22 million on discontinued operations was recorded in Q4 2024[108] - Upon completion, a cumulative foreign currency translation adjustment of $28 million was released from accumulated other comprehensive income and recognized in the condensed consolidated statement of operations for the six months ended June 30, 2025[108] - The historical results of the Canada segment have been reflected as discontinued operations in the condensed consolidated financial statements for all prior periods[108] Recent Trends and Outlook This section analyzes current market trends, political impacts, and sector-specific performance, providing an outlook on future business conditions - New U.S. political policies, including reduced tax rates, support for oil and gas producers, and tariffs on imported goods (especially steel and products from China), could impact the business, though the overall effect remains unclear[109] - Revenue for the three months ended June 30, 2025, increased $86 million sequentially from Q1 2025 but decreased $1 million year-over-year from Q2 2024[110] - For the first six months of 2025, Gas Utilities comprised 38% of total revenue, DIET 29%, and PTI 33%[110] - The Gas Utilities sector saw a 4% YoY revenue increase for H1 2025 and a 10% sequential increase in Q2 2025, driven by infrastructure upgrades and new home construction, and is expected to have steady, less volatile growth[111][112] - The DIET sector's revenue decreased 15% YoY for H1 2025 but is expected to grow from energy transition projects, MRO, and refinery turnarounds, with expansion into mining and data centers[113][114] - The PTI sector, the most cyclical, experienced a 1% YoY revenue decrease for H1 2025, influenced by volatile oil and natural gas prices and potential declines due to OPEC+ increased production plans, though larger public E&P companies are expected to drive activity[115][116][117] - Inflation for products eased in 2024, but U.S. tariffs in 2025 have caused price increases, which the company aims to pass on to customers[118][119] - Inventory levels have been reduced due to supply chain normalization, and labor constraints continue to impact SG&A expenses[121] Backlog This section reports the total value of unshipped customer orders and the expected timeline for their realization as revenue - The total backlog of unshipped customer orders was $589 million as of June 30, 2025, compared to $558 million as of December 31, 2024, and $599 million as of June 30, 2024[122] Backlog by Segment (June 30) | Segment | 2025 (millions) | 2024 (millions) | | :------------------------------------- | :-------------- | :-------------- | | U.S. | $352 | $328 | | International | $237 | $271 | - Substantially all backlog sales are expected to be realized as revenue within twelve months[122] Results of Operations This section provides a detailed comparative analysis of the company's financial performance for the current and prior periods Three Months Ended June 30, 2025 Compared to the Three Months Ended June 30, 2024 This section compares the company's financial results for the second quarter of 2025 against the same period in 2024 Sales by Sector (Q2 2025 vs. Q2 2024) | Sector | 2025 (millions) | % of Total | 2024 (millions) | % of Total | Change (millions) | | :------------------------------------- | :-------------- | :--------- | :-------------- | :--------- | :---------------- | | Gas Utilities | $299 | 37% | $287 | 36% | +$12 | | DIET | $223 | 28% | $256 | 32% | -$33 | | PTI | $276 | 35% | $256 | 32% | +$20 | | Total | $798 | 100% | $799 | 100% | -$1 | - Consolidated sales decreased by $1 million to $798 million. U.S. sales decreased by $19 million (3%) due to fewer DIET and PTI projects, offset by Gas Utilities growth. International sales increased by $18 million (15%) driven by PTI[125][126] - Gross profit decreased by $18 million (11%) to $151 million (18.9% of sales), primarily due to lower sales and reduced margins in line pipe. LIFO increased cost of sales by $10 million in Q2 2025 vs. $1 million in Q2 2024[127][131] - SG&A expenses increased by $8 million to $130 million (16.3% of sales), mainly due to $6 million in legal and professional fees for the DNOW merger and higher personnel expenses[132][133] - Operating income decreased by $26 million (55%) to $21 million, primarily due to lower sales and increased SG&A. U.S. operating income decreased by $29 million, while International increased by $2 million[134][135][136] - Interest expense increased by $3 million to $10 million, due to higher benchmark interest rates on the Term Loan[137] - Other, net, increased to $7 million income from $2 million income, including $3 million from an asset disposal and $1 million from transition services for the Canada business sale[138][140] - Income tax expense decreased by $7 million to $5 million, due to decreased profitability. The effective tax rate was 28% (2025) vs. 29% (2024)[142] - Net income from continuing operations decreased by $17 million (57%) to $13 million, due to lower sales and margins[145] - Adjusted EBITDA decreased by $11 million (17%) to $54 million (6.8% of sales)[145] Six Months Ended June 30, 2025 Compared to the Six Months Ended June 30, 2024 This section compares the company's financial results for the first six months of 2025 against the same period in 2024 Sales by Sector (H1 2025 vs. H1 2024) | Sector | 2025 (millions) | % of Total | 2024 (millions) | % of Total | Change (millions) | | :------------------------------------- | :-------------- | :--------- | :-------------- | :--------- | :---------------- | | Gas Utilities | $572 | 38% | $552 | 35% | +$20 | | DIET | $443 | 29% | $523 | 33% | -$80 | | PTI | $495 | 33% | $501 | 32% | -$6 | | Total | $1,510 | 100% | $1,576 | 100% | -$66 | - Consolidated sales decreased by $66 million (4%) to $1,510 million. U.S. sales decreased by $95 million (7%) due to fewer DIET and PTI projects. International sales increased by $29 million (13%) driven by PTI[149] - Gross profit decreased by $35 million (11%) to $293 million (19.4% of sales), primarily due to lower sales and reduced margins in line pipe. LIFO increased cost of sales by $11 million in H1 2025 vs. $2 million in H1 2024[150][151] - SG&A expenses increased by $12 million to $254 million (16.8% of sales), mainly due to $7 million in legal and professional fees for the DNOW merger and higher personnel expenses[155][156] - Operating income decreased by $47 million (55%) to $39 million, primarily due to lower sales. U.S. operating income decreased by $56 million, while International increased by $7 million[157][158][159] - Interest expense increased by $4 million to $19 million, due to higher benchmark interest rates on the Term Loan[160] - Other, net, increased to $7 million income from $1 million expense, including $3 million from an asset disposal and $1 million from transition services for the Canada business sale[161][162] - Income tax expense decreased by $14 million (70%) to $6 million, due to decreased profitability and a tax windfall on stock vestings. The effective tax rate was 22% (2025) vs. 29% (2024)[164] - Net income from continuing operations decreased by $29 million (58%) to $21 million, due to lower sales and margins[165] - Loss from discontinued operations, net of tax, increased to $30 million loss from $1 million loss, primarily due to the reclassification of foreign currency translation adjustments ($28 million) and decreased revenues from the Canada business sale[167] - Adjusted EBITDA decreased by $32 million (26%) to $90 million (6.0% of sales)[170] Liquidity and Capital Resources This section discusses the company's ability to meet its short-term and long-term financial obligations, including available credit facilities and cash on hand - Primary credit facilities include a $750 million Global ABL Facility (matures Nov 2029) and a $350 million Senior Secured Term Loan B (matures Oct 2031)[171] - As of June 30, 2025, the Global ABL Facility had $106 million in borrowings and $499 million of Excess Availability. The Term Loan had an outstanding balance of $343 million (net of discount/costs). Both facilities must be paid off or amended upon DNOW merger closing[172] - Total liquidity, comprising cash on hand and Global ABL Facility availability, was $574 million as of June 30, 2025[173] - Cash on hand was $75 million as of June 30, 2025, with a significant portion held in foreign subsidiaries[174] - The company's credit ratings are below 'investment grade'. Moody's upgraded the corporate family rating to 'B1' in October 2024. S&P affirmed 'B' with a 'positive' outlook in April 2025, then 'CreditWatch Positive' in June 2025 due to the DNOW merger announcement[175] - The company was in compliance with credit facility covenants as of and during the six months ended June 30, 2025, and expects to remain so[176] - Management believes current liquidity sources are sufficient to satisfy anticipated cash requirements for the foreseeable future[176] Cash Flows This section analyzes the company's cash generation and usage from operating, investing, and financing activities Net Cash Flows (Six Months Ended June 30) | Activity | 2025 (millions) | 2024 (millions) | | :------------------------------------- | :-------------- | :-------------- | | Operating activities | $(30) | $101 | | Investing activities | $(2) | $(13) | | Financing activities | $39 | $(169) | | Net increase (decrease) in cash | $7 | $(81) | - Net cash used in operating activities was $30 million in H1 2025, a decrease from $101 million provided in H1 2024, primarily due to increases in inventory and receivables and lower profitability, partially offset by increased payables[179] - Net cash used in investing activities was $2 million in H1 2025, including $17 million provided by discontinued operations from the Canada business sale[180] - Net cash provided by financing activities was $39 million in H1 2025, a significant change from $169 million used in H1 2024, primarily due to fewer debt payments and no preferred dividends in 2025, offset by common stock repurchases and lower net proceeds from revolving credit facilities[181] Critical Accounting Policies This section highlights the accounting policies that require significant management judgment and estimation, which could materially impact financial reporting - The preparation of financial statements requires management to make judgments, estimates, and assumptions about highly uncertain matters that could materially impact financial presentation[182] - For a detailed description of critical accounting policies, refer to "Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Annual Report on Form 10-K for the fiscal year ended December 31, 2024[183] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The company is primarily exposed to market risks associated with unfavorable movements in interest rates, foreign currencies, and steel price volatility. No material changes to market risk policies or instruments were reported since the December 31, 2024, Annual Report on Form 10-K - The company is primarily exposed to market risks related to interest rates, foreign currencies, and steel price volatility[184] - There have been no material changes to the company's market risk policies or market risk sensitive instruments and positions as described in its Annual Report on Form 10-K for the fiscal year ended December 31, 2024[184] ITEM 4. CONTROLS AND PROCEDURES Management concluded that disclosure controls and procedures were not effective as of June 30, 2025, solely due to a material weakness in the operating effectiveness of its inventory cycle count control. A remediation plan is underway, including hiring expertise, engaging consultants, enhancing training, and implementing a new ERP system by the end of 2025 - Management concluded that disclosure controls and procedures were not effective as of June 30, 2025, solely due to a material weakness regarding the operating effectiveness of its inventory cycle count control[185] - The remediation plan includes hiring additional resources with inventory management expertise, engaging a consulting firm for process improvement, enhancing training programs for operational leaders and warehouse staff, and implementing a new cloud-based ERP system by the end of 2025[186] - The material weakness will not be considered fully remediated until the new processes have been in operation and successfully tested for a period of time[187] - No other material changes in internal control over financial reporting occurred during the second quarter of 2025, apart from these remediation efforts[188] PART II – OTHER INFORMATION This section provides additional information not covered in the financial statements, including legal proceedings, risk factors, equity sales, and exhibits ITEM 1. LEGAL PROCEEDINGS The company is involved in various legal claims and proceedings incidental to its business, including asbestos and product liability claims. Management believes no pending legal proceedings are likely to have a material adverse effect on the business, financial condition, results of operations, or cash flows, as most are covered by insurance or manufacturer indemnification - The company is subject to various claims and legal proceedings incidental to its business, maintaining insurance coverage to reduce financial risk[190] - Management believes there are no pending legal proceedings likely to have a material effect on the business, financial condition, results of operations, or cash flows[191] - Product claims from customers are considered ordinary and routine, with manufacturers generally required to indemnify the company, and are not expected to have a material adverse effect[192] - Information regarding asbestos cases and other claims is detailed in Note 12 to the unaudited condensed consolidated financial statements[192] ITEM 1A. RISK FACTORS This section highlights risks specific to the company and general market factors, with a particular focus on risks related to the planned merger with DNOW Inc. These merger-related risks include the uncertainty of obtaining necessary approvals, potential disruptions to business relationships, negative impacts if the merger fails to complete, restrictions on business activities prior to closing, and the possibility that anticipated synergies may not be fully realized - The company is affected by risks specific to its operations and general global market factors, as detailed in its Annual Report on Form 10-K[193] - The Mergers are subject to numerous conditions, including shareholder and regulatory approvals, which may delay completion or result in termination of the Merger Agreement[194][195] - Business relationships may be disrupted due to uncertainty associated with the Mergers, potentially affecting results of operations, cash flows, and financial position[196] - Failure to complete the Mergers could negatively impact the company's stock price, financial results, and cash flows, and incur significant costs[198] - The Merger Agreement imposes restrictions on business activities prior to the Effective Time, potentially limiting new opportunities[199] - The anticipated benefits and synergies from the Mergers may not be fully achieved or may take longer to realize than expected, adversely affecting the combined company's business[201][202] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS This section details the common stock repurchases made during the three months ended June 30, 2025, under the $125 million share repurchase program authorized in January 2025. The company repurchased 1,216,956 shares for $15 million at an average price of $12.35 per share, with no repurchases in June 2025 due to the merger agreement - In January 2025, the company's board of directors authorized a share repurchase program for common stock up to $125 million[205] Share Repurchases (Three Months Ended June 30, 2025) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Approximate Dollar Value of Shares that May Yet Be Purchased (millions) | | :------------------------------------- | :----------------------------- | :--------------------------- | :-------------------------------------------------------------------- | | April 1 - April 30, 2025 | 179,900 | $11.67 | $2 | | May 1 - May 31, 2025 | 1,037,056 | $12.46 | $13 | | June 1 - June 30, 2025 | — | — | — | | Total | 1,216,956 | $12.35 | — | - No shares were repurchased in June 2025 due to the restriction imposed by the Merger Agreement[78][204] ITEM 3. DEFAULTS UPON SENIOR SECURITIES No defaults upon senior securities were reported for the quarter ended June 30, 2025 - No defaults upon senior securities were reported for the quarter ended June 30, 2025[206] ITEM 4. MINING SAFETY DISCLOSURES No mining safety disclosures were reported for the quarter ended June 30, 2025 - No mining safety disclosures were reported for the quarter ended June 30, 2025[207] ITEM 5. OTHER INFORMATION No director or executive officer adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement" during the quarter ended June 30, 2025 - No director or executive officer adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement" during the quarter ended June 30, 2025[208] ITEM 6. EXHIBITS This section lists all exhibits filed with the Form 10-Q, including the Merger Agreement, corporate organizational documents, bonus letters, certifications (CEO, CFO), and financial information formatted in iXBRL - Key exhibits include the Agreement and Plan of Merger (Exhibit 2.1), Amended and Restated Certificate of Incorporation (3.1.1, 3.1.2), Amended and Restated Bylaws (3.2), Omnibus Amendment (10.1), Bonus Letter (10.2), CEO/CFO Certifications (31.1, 31.2, 32), and financial information formatted in Inline Extensible Business Reporting Language (iXBRL) (101, 104)[209] SIGNATURES This section contains the formal declaration that the report has been duly signed on behalf of MRC Global Inc. by Kelly Youngblood, Executive Vice President and Chief Financial Officer, on August 6, 2025 - The report was signed by Kelly Youngblood, Executive Vice President and Chief Financial Officer, on August 6, 2025[213]