MRC (MRC) - 2021 Q3 - Quarterly Report

PART I Financial Statements (Unaudited) Presents MRC Global Inc.'s unaudited condensed consolidated financial statements and related accounting notes Condensed Consolidated Balance Sheets As of September 30, 2021, total assets were $1,719 million, a slight decrease from $1,781 million at year-end 2020, primarily due to reduced cash and inventories, while total liabilities increased to $743 million Condensed Consolidated Balance Sheet Highlights (in millions) | Account | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Current Assets | $945 | $966 | | Cash | $47 | $119 | | Inventories, net | $471 | $509 | | Total Assets | $1,719 | $1,781 | | Total Current Liabilities | $440 | $399 | | Trade accounts payable | $329 | $264 | | Long-term debt, net | $323 | $379 | | Total Stockholders' Equity | $331 | $350 | Condensed Consolidated Statements of Operations For Q3 2021, the company reported a net loss of $11 million on sales of $685 million, while the nine-month net loss was $10 million, a significant improvement from a $269 million net loss in 2020 Statements of Operations Summary (in millions, except per share data) | Metric | Q3 2021 | Q3 2020 | YTD 2021 | YTD 2020 | | :--- | :--- | :--- | :--- | :--- | | Sales | $685 | $585 | $1,980 | $1,981 | | Gross Profit | $95 | $114 | $310 | $341 | | Operating (Loss) Income | $(7) | $14 | $6 | $(253) | | Net (Loss) Income | $(11) | $3 | $(10) | $(269) | | Diluted Loss Per Share | $(0.21) | $(0.04) | $(0.34) | $(3.50) | - The nine-month period in 2020 included a significant $242 million goodwill and intangible asset impairment charge, which was the primary driver of the large operating and net losses for that period[7] Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2021, net cash provided by operations was $16 million, a significant decrease from $178 million in the prior-year period, mainly due to increased working capital needs Cash Flow Summary (Nine Months Ended Sep 30, in millions) | Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operations | $16 | $178 | | Net cash used in investing activities | $(4) | $(7) | | Net cash used in financing activities | $(82) | $(162) | | (Decrease) increase in cash | $(70) | $9 | Notes to the Condensed Consolidated Financial Statements Details accounting policies and financial statement disclosures, including revenue, LIFO inventory, debt, and 2020 goodwill impairment - Revenue is primarily recognized when products are shipped or delivered, with the Gas Utilities sector generating $750 million in revenue for the first nine months of 2021[20][30] - The company uses the last-in, first-out (LIFO) method for its U.S. inventories, with the LIFO reserve at $183 million as of September 30, 2021[31] - In 2020, the company recorded a $217 million goodwill impairment charge and a $25 million tradename impairment charge due to the sharp decline in oil and gas demand caused by the COVID-19 pandemic, with no impairment charges in 2021[40][41][43] - As of September 30, 2021, the company had $297 million outstanding on its Senior Secured Term Loan B and $28 million on its Global ABL Facility[44] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses Q3 and YTD 2021 financial performance, including business drivers, operational results, LIFO impact, and liquidity Recent Trends and Outlook The business has seen recovery in 2021 from the 2020 lows, with revenue trending 18% higher than the second half of 2020, driven by diversification into stable sectors like gas utility - The company has diversified its end markets, with 69% of Q3 2021 revenue derived from the gas utility and downstream, industrial and energy transition (DIET) sectors[86] - The gas utility sector, the company's largest, grew 22% in the first nine months of 2021 compared to the same period in 2020[87] - The company is experiencing significant inflation in certain product categories, especially carbon steel pipe, but is generally able to pass price increases to customers[95] Backlog by Segment (in millions) | Segment | Sep 30, 2021 | Dec 31, 2020 | Sep 30, 2020 | | :--- | :--- | :--- | :--- | | U.S. | $297 | $193 | $215 | | Canada | $30 | $13 | $15 | | International | $113 | $134 | $145 | | Total | $440 | $340 | $375 | Results of Operations For Q3 2021, consolidated sales increased 17% year-over-year to $685 million, but reported gross profit fell due to a $32 million unfavorable LIFO impact, while adjusted EBITDA improved Q3 2021 vs Q3 2020 Performance (in millions) | Metric | Q3 2021 | Q3 2020 | % Change | | :--- | :--- | :--- | :--- | | Consolidated Sales | $685 | $585 | 17% | | U.S. Sales | $570 | $463 | 23% | | Gross Profit | $95 | $114 | (17)% | | Adjusted Gross Profit | $137 | $115 | 19% | | Operating (Loss) Income | $(7) | $14 | N/M | | Net (Loss) Income | $(11) | $3 | N/M | | Adjusted EBITDA | $39 | $24 | 63% | YTD 2021 vs YTD 2020 Performance (in millions) | Metric | YTD 2021 | YTD 2020 | % Change | | :--- | :--- | :--- | :--- | | Consolidated Sales | $1,980 | $1,981 | (0)% | | Gross Profit | $310 | $341 | (9)% | | Adjusted Gross Profit | $389 | $390 | (0)% | | Operating Income (Loss) | $6 | $(253) | N/M | | Net Loss | $(10) | $(269) | (96)% | | Adjusted EBITDA | $99 | $75 | 32% | - The LIFO inventory costing method significantly impacted reported gross profit, increasing cost of sales by $32 million in Q3 2021 compared to an $11 million decrease in Q3 2020[106] Liquidity and Capital Resources The company's primary liquidity sources are cash from operations and its $750 million Global ABL Facility, with total liquidity of $492 million as of September 30, 2021 - Total liquidity as of September 30, 2021, was $492 million, comprising $47 million in cash and $445 million in Excess Availability under the Global ABL Facility[145] - In September 2021, the Global ABL Facility was amended and renewed, reducing its size to $750 million and extending its maturity to September 2026[144] - In April 2021, the company made an $86 million payment on its Term Loan as required by the excess cash flow provision for the year 2020[143] Quantitative and Qualitative Disclosures About Market Risk The company is primarily exposed to market risks from unfavorable movements in interest rates, foreign currencies, and steel price volatility, with no material changes to these risks since December 31, 2020 - The company's primary market risks are related to interest rates, foreign currency fluctuations, and steel price volatility[154] - No material changes to market risk policies or positions occurred during the quarter[154] Controls and Procedures As of September 30, 2021, the CEO and CFO concluded that the company's disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during Q3 2021 - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of the end of the quarter[155] - No changes occurred during the third quarter of 2021 that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[156] PART II – OTHER INFORMATION Legal Proceedings The company is subject to various claims and legal proceedings incidental to its business, including asbestos-related claims, but management believes no pending proceedings are likely to have a material adverse effect - The company is a defendant in asbestos-related lawsuits but states that insurance should cover a substantial majority of existing and future claims, and the likelihood of a material adverse effect is remote[65][161] - Management's opinion is that no pending legal proceedings are likely to have a material effect on the company's business or financial condition[159] Risk Factors This section refers to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2020, indicating no new significant risk factors to report - The report directs readers to the risk factors detailed in the Annual Report on Form 10-K for the year ended December 31, 2020[162] Other Information The company and its named officers amended performance share unit award agreements to adjust the net income calculation for the RANCE metric, removing the impacts of LIFO inventory costing methodology - Performance share unit award agreements for named officers were amended to exclude the impact of LIFO inventory accounting from the RANCE calculation[167]