MRC (US:MRC)2023-11-08 18:06Financial Data and Key Metrics Changes - Total company sales for Q3 2023 were $888 million, a 2% sequential improvement from Q2 2023 [42] - Adjusted gross profit for Q3 was $189 million or 21.3%, a 20 basis point decline from Q2 [5] - Adjusted EBITDA for Q3 was $70 million or 7.9% of sales, marking the sixth consecutive quarter with adjusted EBITDA margins exceeding 7% [46] - Cash flow from operations in Q3 was $102 million, bringing year-to-date cash flow to $92 million, exceeding the full-year guidance of $90 million [46][54] Business Line Data and Key Metrics Changes - Gas Utilities sales were $314 million in Q3, a $9 million or 3% decrease sequentially [22] - DIET sector revenue was $279 million, an increase of $34 million or 14% due to increased turnaround project activity [22] - PTI revenue declined by 3% sequentially to $295 million, primarily due to timing of shipments and project activity [62] Market Data and Key Metrics Changes - U.S. revenue was $745 million in Q3, a 2% increase from the previous quarter, driven by the DIET sector [62] - International revenue was $105 million, down $1 million or 1%, but backlog increased by 35% since the beginning of the year [62] Company Strategy and Development Direction - The company aims to maintain adjusted gross margins in the 21% range and adjusted EBITDA margins in excess of 7% for the full year 2023 [6][54] - The company is optimistic about the underlying fundamentals of all three sectors and their longer-term outlook, with expectations for growth in PTI and DIET sectors in 2024 [61] - The company is looking to return to M&A to grow the business, emphasizing a disciplined approach to acquisitions [73] Management's Comments on Operating Environment and Future Outlook - Management noted that destocking by customers is expected to continue for 1 to 2 quarters, impacting revenue in the Gas Utilities sector [20][66] - The company expects a seasonal sequential revenue decline of 5% to 10% in Q4, with the International segment expected to approach mid-teens percentage growth for the full year [6] - Management expressed confidence that line pipe prices have likely bottomed and expects a return to normal purchasing levels as the destocking phase concludes [60] Other Important Information - The company has a current availability on the ABL of $696 million, with total liquidity of $748 million [23] - The leverage ratio based on net debt of $251 million was 0.9x, dropping below the 1x hurdle a quarter earlier than expected [23] Q&A Session Summary Question: What visibility is there on the timing of the destocking cycle? - Management indicated that destocking is a significant factor affecting revenue and is expected to be a shorter-term phenomenon, likely lasting for about two quarters [66] Question: How are interest rates and inflation impacting customer spending? - Management noted that higher interest rates and inflation are challenges for customer spending, but they believe these factors are nearing a bottom [67] Question: Is there visibility on the rig count and potential increases in customer spending? - Management believes the rig count has bottomed and expects a pickup in activity as customers finalize their budgets for 2024 [68] Question: Would the gas utility business have grown in 2023 without destocking? - Management stated that without destocking, they believe the gas utility business would have seen growth, as it has historically grown more than 20% in previous years [70]