MRC GLOBAL INC. (MRC) Q1 2025 Earnings Summary

Executive Summary

• Q1 2025 revenue was $712M, up 7% sequentially, with adjusted gross margin 21.5% and adjusted EBITDA $36M; net income from continuing operations was $8M while a $30M discontinued loss drove net loss attributable of $(22)M .
• Compared to Wall Street consensus, MRC slightly beat on revenue ($712M vs $710M*) and beat on normalized EPS ($0.14 vs $0.085*); adjusted EBITDA printed $36M vs consensus EBITDA $35.7M*, roughly in line (methodologies vary)*. Values retrieved from S&P Global.
• Backlog rose 8% q/q to $603M, with April backlog up materially across sectors; management guides Q2 revenue to increase high-single to low-double digit sequentially and expects Q2 adjusted EBITDA margin to exceed 6% .
• Capital allocation underway: $125M share repurchase program commenced; liquidity was $570M and net debt leverage 1.7x, with a target ≤1.5x longer term .

What Went Well and What Went Wrong

What Went Well

• Sequential revenue growth across Gas Utilities (+8% to $273M), DIET (+6% to $220M), and PTI (+8% to $219M), driving company revenue up 7% q/q .
• Gross margin quality held: adjusted gross margin 21.5% (above 21% target); CFO reiterated full-year adjusted gross margin projected ~21% or higher .
• Backlog momentum: total backlog $603M (+8% q/q) with U.S. backlog up 23% by end of April; Gas Utilities backlog up 26% year to date, supporting Q2 sequential growth .
• Management quote: “We exceeded our expectations on all key financial metrics… We currently expect second quarter revenue to improve by a high single to low double-digit percentage” .

What Went Wrong

• Year-over-year decline: sales down 8% vs Q1 2024; gross margin 19.9% vs 20.5% prior year; adjusted EBITDA down to $36M from $57M a year ago as large 2024 projects rolled off .
• DIET and PTI sectors declined y/y: DIET down 18% to $220M and PTI down 11% to $219M vs Q1 2024, reflecting timing/project completion in 2024 .
• Discontinued operations (Canada) generated a $30M loss, producing GAAP net loss attributable of $(22)M despite $8M continuing ops net income .
• Analyst concern: evolving tariff regime (100%+ on China items, broad steel/aluminum tariffs) could create pricing and demand uncertainty in 2H; management is mitigating via domestic sourcing (>60% U.S.-sourced) and supplier negotiations .

Financial Results

Consolidated Performance vs Prior Quarters

Segment Sales

Notes: Q1 2025 Gas Utilities +3% y/y and +8% q/q; DIET −18% y/y, +6% q/q; PTI −11% y/y, +8% q/q .

KPIs and Balance Sheet

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “We exceeded our expectations on all key financial metrics… each of our 3 business sectors achieved sequential revenue growth… backlog… increased 8% sequentially to $603 million” – Rob Saltiel .
• “We currently expect second quarter revenue to improve by a high single to low double-digit percentage as compared to the first quarter” – Rob Saltiel .
• “Our balance sheet remains healthy… liquidity of $570 million… leverage ratio… 1.7x… we continue to target… 1.5x… while also executing our share buyback program” – Kelly Youngblood .
• “Gas Utilities… more insulated… budgets are typically more resistant… backlog for this sector is up 26% as of the end of April” – Kelly Youngblood .

Q&A Highlights

• Tariffs and pricing: Management emphasized dynamic tariff regime (steel/aluminum, 10% broad tariffs, >100% on China), domestic sourcing (>60%) and passing through cost-plus pricing while protecting customer relationships .
• Inventory strategy: Company leaned in on inventory in Q1 anticipating tariffs, improving availability while remaining prudent amid volatility .
• Gas Utilities margins: Gross margins at or slightly below company average, but scale/limited SKUs drive stronger net margins; backlog seasonality supports growth through construction season .
• PTI outlook: U.S. midstream strength offsetting upstream risk amid low WTI; about half of quarterly revenue and backlog midstream-related .
• Growth vectors: Chemicals backlog +32% y/y; data center bookings >$10M with MSAs underway; mining expected ~10% CAGR over 3–5 years .

Estimates Context

• Q1 2025 vs Consensus:
  • Revenue: $712M actual vs $710M estimate* → slight beat. Values retrieved from S&P Global.
  • Primary EPS (normalized/diluted): $0.14 actual vs $0.085 estimate* → beat. Values retrieved from S&P Global.
  • EBITDA: $36M adjusted vs $35.7M estimate*/$28M SPGI actual (differences reflect GAAP vs adjusted conventions)*. Values retrieved from S&P Global.
• Forward (Q2 2025): Consensus indicated continued sequential growth; management guided Q2 revenue +HSD–LDD and adjusted EBITDA margin >6% .

Values retrieved from S&P Global.
Note: EBITDA definitions vary; company emphasizes Adjusted EBITDA.

Key Takeaways for Investors

• Sequential recovery underway: Gas Utilities normalization and midstream project activity drove 7% q/q revenue growth and set up Q2 for further high-single to low-double digit sequential increase .
• Gross margin durability: Adjusted gross margin of 21.5% remains above the 21% target; management expects ~21% or higher for FY 2025 .
• Cash generation and leverage discipline: OCF from continuing ops was $21M in Q1, with ≥$100M targeted for FY 2025, and net debt leverage at 1.7x with a 1.5x target .
• Capital returns: Share repurchase program execution began in Q2, supported by $570M liquidity; an ongoing buyback is a potential stock support catalyst .
• Sector mix matters: Gas Utilities is defensive vs tariffs/commodity swings, while PTI midstream exposure provides resilience; upstream risk acknowledged amid low WTI .
• Project pipeline: International PTI (North Sea) and DIET turnarounds/chemicals initiatives plus data center cooling PVF opportunities (> $10M bookings) expand medium-term addressable revenue .
• Watch tariff developments: Management’s mitigation (domestic sourcing, supplier negotiations) is proactive, but tariff-driven cost/demand dynamics remain a key 2H watch item .

*Values retrieved from S&P Global.