MRC (US:MRC)2023-08-08 21:11Financial Data and Key Metrics Changes - Overall revenue grew by 10% in the first half of 2023 compared to the same period in 2022, with EBITDA increasing by 17% and EBITDA margins improving by 40 basis points [10][11] - For Q2 2023, revenue was $871 million, a 2% sequential decline but a 3% year-over-year increase [11][30] - Adjusted gross margins were strong at 21.5%, reflecting a 30 basis point improvement over Q1 2023 [12][41] - EBITDA for Q2 was $63 million, representing 7.2% of sales, which was a 60 basis point decline from the previous quarter [15][42] Business Line Data and Key Metrics Changes - The Production and Transmission Infrastructure (PTI) sector saw a 10% revenue increase year-over-year, with Q2 revenue at $303 million, a 1% sequential increase [17][39] - The Downstream, Industrial and Energy Transition (DIET) sector experienced a 12% decline in Q2 revenue to $245 million due to project timing, but is expected to rebound with strong double-digit growth in Q3 [20][31] - Gas Utilities revenue was $323 million in Q2, a 5% increase sequentially and a 3% increase year-over-year, but is expected to moderate in the second half of the year due to customer inventory adjustments [22][38] Market Data and Key Metrics Changes - U.S. revenue was $727 million in Q2, a 2% decline from the previous quarter, while international revenue was $106 million, a 3% increase driven by the PTI sector [32][33] - The international segment backlog increased by 30% since the beginning of the year, indicating strong future growth potential [25] Company Strategy and Development Direction - The company expects upper single-digit revenue growth for 2023, with double-digit growth anticipated in the PTI sector and high single-digit growth in the DIET sector [27][46] - The focus on diversification is paying off, with approximately two-thirds of revenue generated outside traditional oil fields, positioning the company for long-term growth [52] Management's Comments on Operating Environment and Future Outlook - Management noted that the current destocking in the Gas Utilities sector is expected to be a temporary issue, with strong CapEx budgets remaining intact for the long term [58][74] - The company remains optimistic about the International segment, which is expected to lead growth in energy transition projects [26][52] Other Important Information - The company generated $20 million in cash from operations in Q2 and expects to generate approximately $90 million in net cash flow from operations for the full year [44][46] - SG&A expenses for Q2 were reported at $130 million, representing 14.9% of sales, with expectations to average around 14% for the second half of the year [34] Q&A Session Summary Question: Insights on revised revenue outlook for Gas Utilities and changes in PTI and DIET - Management explained that the destocking in Gas Utilities was due to customers reducing inventory levels after previous high demand, and they expect this to be a temporary situation [56][58] - For PTI, the focus on major operators in the Permian Basin is driving growth, while DIET is expected to see a strong rebound in Q3 due to project activity [59][60] Question: Preferred outcome regarding capital structure and term loan - Management aims for an amicable resolution with preferred shareholders, emphasizing the importance of maintaining a strong balance sheet and avoiding dilution [64][66] Question: Cash flow from operations guidance and inventory management - The reduction in cash flow guidance was attributed to lower revenue and slower growth in Gas Utilities, leading to higher inventory levels than anticipated [69][70] Question: Confidence in Gas Utilities destocking and future revenue growth - Management expressed confidence that the destocking is a short-term issue and that the fundamentals of the business remain strong, with expectations for a return to normal growth rates in 2024 [74][78]