MRC (MRC) - 2021 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Financial Statements (Unaudited) The unaudited financial statements show a return to profitability in Q2 2021 after significant prior-year impairments Condensed Consolidated Balance Sheets Total assets slightly decreased to $1,745 million due to lower cash, while liabilities rose on higher trade payables Condensed Consolidated Balance Sheet Highlights (in millions) | Balance Sheet Item | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Current Assets | $961 | $966 | | Cash | $63 | $119 | | Accounts receivable, net | $382 | $319 | | Inventories, net | $484 | $509 | | Total Assets | $1,745 | $1,781 | | Total Current Liabilities | $466 | $399 | | Trade accounts payable | $350 | $264 | | Long-term debt, net | $296 | $379 | | Total Liabilities | $854 | $801 | | Total Stockholders' Equity | $347 | $350 | Condensed Consolidated Statements of Operations The company returned to profitability in Q2 2021 with $4 million in net income, reversing a major prior-year loss Statement of Operations Highlights (in millions) | Metric | Q2 2021 | Q2 2020 | H1 2021 | H1 2020 | | :--- | :--- | :--- | :--- | :--- | | Sales | $686 | $602 | $1,295 | $1,396 | | Gross Profit | $112 | $79 | $215 | $227 | | Goodwill & Intangible Asset Impairment | $0 | $242 | $0 | $242 | | Operating Income (Loss) | $10 | $(289) | $13 | $(267) | | Net Income (Loss) | $4 | $(281) | $1 | $(272) | | Net Loss Attributable to Common Stockholders | $(2) | $(287) | $(11) | $(284) | | Diluted Loss Per Share | $(0.02) | $(3.50) | $(0.13) | $(3.47) | Condensed Consolidated Statements of Cash Flows Operating cash flow was $47 million in H1 2021, with total cash decreasing by $56 million after debt repayments Cash Flow Summary (in millions) | Cash Flow Activity | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Net cash provided by operations | $47 | $84 | | Net cash used in investing activities | $(2) | $(5) | | Net cash used in financing activities | $(101) | $(90) | | Decrease in cash | $(56) | $(11) | | Cash -- beginning of period | $119 | $32 | | Cash -- end of period | $63 | $19 | Notes to the Condensed Consolidated Financial Statements Notes detail revenue disaggregation, debt facilities, and legal contingencies, noting no new impairments in 2021 - The company is a global distributor of pipe, valves, and fittings (PVF) to the gas utilities, downstream/industrial, upstream production, and midstream pipeline sectors[14][20] Disaggregated Revenue by Sector - Q2 2021 vs Q2 2020 (in millions) | Sector | Q2 2021 Sales | Q2 2020 Sales | | :--- | :--- | :--- | | Gas utilities | $269 | $205 | | Downstream & industrial | $191 | $176 | | Upstream production | $143 | $134 | | Midstream pipeline | $83 | $87 | | Total | $686 | $602 | - In 2020, the company recorded a $217 million goodwill impairment charge and a $25 million tradename asset impairment charge due to the negative impact of the COVID-19 pandemic on the oil and gas industry[41][42][44] - The company has a Senior Secured Term Loan B with a balance of $297 million and an $800 million Global ABL Facility, which was undrawn as of June 30, 2021[45][48] - The company is a defendant in approximately 586 lawsuits involving asbestos claims, with potential liabilities substantially covered by third-party insurance[64] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Q2 2021 revenue grew 14% YoY, driven by sector recovery, improving profitability and maintaining strong liquidity Recent Trends and Outlook The business environment improved in H1 2021 with strong sequential sales growth and a positive outlook for the gas utilities sector - In H1 2021, WTI oil prices averaged $62.21/barrel, up from $36.58 in H1 2020, and natural gas prices increased to $3.22/MMBtu from $1.80/MMBtu[80] - The company experienced 13% sequential sales growth in Q2 2021, following 5% growth in Q1 2021, indicating a recovery from the 2020 downturn[84] - The gas utilities business, the company's largest sector (39% of Q2 2021 revenue), is expected to have the most significant revenue improvement in 2021 with a double-digit percentage increase over 2020[86] - Company backlog increased to $394 million as of June 30, 2021, up from $340 million at year-end 2020, indicating strengthening demand[92] Results of Operations Q2 2021 sales rose 14% YoY to $686 million, with Adjusted EBITDA more than doubling to $36 million Q2 2021 vs Q2 2020 Performance (in millions) | Metric | Q2 2021 | Q2 2020 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Consolidated Sales | $686 | $602 | $84 | 14% | | U.S. Sales | $558 | $474 | $84 | 18% | | Gross Profit | $112 | $79 | $33 | 42% | | Operating Income (Loss) | $10 | $(289) | $299 | N/M | | Net Income (Loss) | $4 | $(281) | $285 | N/M | | Adjusted EBITDA | $36 | $17 | $19 | 112% | H1 2021 vs H1 2020 Performance (in millions) | Metric | H1 2021 | H1 2020 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Consolidated Sales | $1,295 | $1,396 | $(101) | (7)% | | Gross Profit | $215 | $227 | $(12) | (5)% | | Operating Income (Loss) | $13 | $(267) | $280 | N/M | | Net Income (Loss) | $1 | $(272) | $273 | N/M | | Adjusted EBITDA | $60 | $51 | $9 | 18% | - Adjusted Gross Profit for Q2 2021 was $134 million (19.5% of sales), compared to $118 million (19.6% of sales) in Q2 2020[102][103] Liquidity and Capital Resources The company maintains strong liquidity of $507 million after generating operating cash and making debt payments - Total liquidity as of June 30, 2021 was $507 million, consisting of $63 million in cash and $444 million in excess availability under the Global ABL Facility[144][143] - In April 2021, the company made a required payment of $86 million on its Term Loan based on excess cash flow generated in 2020[142] - Net cash from operating activities was $47 million for H1 2021, compared to $84 million in H1 2020, with the change primarily due to working capital fluctuations[149] - In Q1 and Q2 2021, Moody's and S&P revised the company's ratings outlook to stable from negative[145] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are interest rates, foreign currency, and steel prices, with no material changes reported - Primary market risks include interest rates, foreign currency fluctuations, and steel price volatility[154] - There have been no material changes to market risk policies or sensitive instruments since the fiscal year ended December 31, 2020[154] Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls - The CEO and CFO concluded that disclosure controls and procedures were effective as of the end of the period[155] - No changes in internal control over financial reporting occurred during Q2 2021 that have materially affected, or are reasonably likely to materially affect, internal controls[156] PART II – OTHER INFORMATION Legal Proceedings The company faces various legal proceedings, none of which are expected to have a material adverse effect - The company is involved in various legal proceedings incidental to its business, but management believes none will have a material adverse effect[159] - Information regarding asbestos cases is detailed in Note 11 of the financial statements[161] Risk Factors This section references previously disclosed risk factors from the 2020 Annual Report with no material updates - The report refers to the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2020[162] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds were reported for the period - None[163] Defaults Upon Senior Securities No defaults upon senior securities were reported for the period - None[164] Mining Safety Disclosures No mining safety disclosures were reported for the period - None[166] Other Information No other information was reported for the period - None[167] Exhibits This section lists filed exhibits, including CEO/CFO certifications and iXBRL financial data - Exhibits filed include CEO and CFO certifications and iXBRL data files[168]