MRC Global Inc. Price & Performance (MRC)

Welcome to the MRC Global Fourth Quarter and Full Year twenty twenty four We appreciate you joining us. On the call today, we have Rob Fontille, President and CEO and Kelly Youngblood, Executive Vice President and CFO. There will be a replay of today's call available by webcast on our website mrcglobal.com, as well as by phone until 03/28/2025. The dial in information is in the release. Please note that the information reported on this call speaks only as of today 03/14/2025, and therefore, you are advised that information may no longer be accurate as of the time of replay. In our call today, we will discuss various non GAAP measures. You are encouraged to read our earnings release and securities filings learn more about our use of these non GAAP measures and to see reconciliation of these measures to the related GAAP items. All of which can be found on our website.

Unless we specifically state otherwise, references in this call to EBITDA refer to adjusted EBITDA. In addition, the comments made by the management of MRC Global during this call may contain forward looking statements within the meaning of The United States Federal Securities Laws, These forward looking statements reflect the current views of the management of MRC Global. However, actual results could differ materially from those expressed today. You are encouraged to read the company's SEC filings for a more in-depth review of the risk factors concerning these forward looking statements. As a result of the recent announcement related to the sale of our Canada business, Canada results have been reclassified to discontinued operations. Our comments today will reflect revenue and profitability from continuing operations only unless otherwise stated. And now, I would like to turn the call over to our CEO, Mr. Rob Saltiel.

Thank you, Monica. Morning and welcome to everyone joining today's call. I will begin with addressing the reason for delaying our earnings release, before providing an overview of our strategic accomplishments and financial highlights from 2024, followed by current thoughts on our 2025 outlook. Kelly will provide a detailed review of the quarter and guidance before I deliver As we were in the final stages of closing our books for the year, we detected two out of our more than 100 locations in North America where inventory cycle count information was not being entered into our system in accordance with our internal controls. Since this noncompliance was detected very late in the year, we decided to perform physical counts at the majority of our service centers to validate that our inventory balances were correctly stated our financial statements. Our team members performed heroically in counting over $400,000,000 of North America inventory over four weekends in February. The conclusion from this effort was that no adjusted or to our income statement for the fourth quarter. And there are no restatements required for any prior financial reporting periods. We have initiated a remediation plan to ensure that this never happens again. Turning now to more positive thoughts, 2024 was definitely a pivotal year for our company with many accomplishments that position us to achieve higher revenue growth, improved profitability and attractive shareholder returns.

I'm very pleased with the successful execution of several strategic actions as follows. First, we simplified our capital structure in late October by repurchasing preferred shares with proceeds from a new term loan B that matures in 02/1931. This action not only eliminated potential equity dilution is also expected to be accretive to both cash generation and earnings in in 2025 and beyond. [indiscernible] In conjunction with the new term loan, we extended our asset based lending facility maturity to 2029. Providing us with plenty of liquidity runway and flexibility This was negotiated at favorable terms and significantly derisks our exposure to credit markets going forward. In December, we announced the sale of our Canada business, allowing us to focus on our key geographies with the strongest revenue growth and profit potential. We expect to close the sale this month and use the proceeds to reduce debt. Furthermore, this divestiture is expected to be accretive to our overall company profitability and margins.

In early January of this year, we announced $125,000,000 share buyback program, which reflects our confidence in the company's future and the financial flexibility that we now enjoy through the strengthening of our balance sheet over the past few years. Our three pronged capital allocation strategy consists of targeting a net debt leverage ratio of less than 1.5 times which we expect to achieve by the end of this year, returning cash to shareholders and investing in our company's future growth. And finally, we initiated several new growth initiatives and originated or extended several strategic supply agreements with key customers. Our ability to delight our customers through superior service quality products ample inventory and competitive pricing, is industry leading. It is manifested through our many years of serving our customers in all three of our business sectors and our ability to pursue new business opportunities with a compelling value proposition.

Turning now to our key financial highlights from 2024. I'm extremely pleased that we generated $268,000,000 of operating cash flow from continuing operations for the full year. Which is one of the highest amounts ever achieved by our company due in large part to the significant progress we've made in improving our working capital efficiency. Our ability to generate strong operating cash flows across the business cycle has underpinned our confidence to initiate our share buyback program.

For the third year in a row, we achieved annual adjusted gross profit margins exceeding 21%, a trend that has driven a step change in our financial performance. We continue to focus on products and services where we can add the most value for our customers, which is manifested through higher gross margins. Our international segment maintained its strong momentum as an increasingly significant contributor to our company's financials with revenue growing 14% in 2024 the second consecutive year of double digit growth We enjoy an advantage position in select European and Asia Pacific markets through our service to long time MRO customers coupled with robust project related activity in the diet and PTI sectors. We expect 2025 to be another strong year for our international business supported by a robust $254,000,000 international backlog entering this year. For the full year 2024, we achieved adjusted EBITDA of $2.00 $2,000,000 representing 6.7% of sales. The EBITDA decline compared to 2023 was driven by lower revenue in our U. S. Segment, particularly in half of the year a result of project timing delays and a year end pullback in spending that was more pronounced than the seasonality we usually experience in the fourth quarter.

We believe this weakness was due to multiple factors that are temporal in nature including the uncertain investment environment around national elections, continued digestion of recent acquisitions by domestic E and P customers and the final throes of destocking for certain of our gas utilities customers. As we transition into 2025, we are increasingly optimistic about returning to growth this year. As a result, we are currently projecting a low to upper single digit percentage revenue increase as compared to 2024. This year is already off to a promising start, I will describe more fully and our optimism is underpinned by four factors. First, improving fundamentals in our gas utilities business. Second, a return to an inflationary environment for our products. Third, a strong outlook for the midstream natural gas space and fourth, our key growth initiatives that should bear fruit as we move through 2025. I will discuss each of these drivers in turn.

After two challenging years, we are finally seeing clear signs of improvement in our gas utility sector, our largest sector by revenue. The inventory destocking cycle has finally run its course inventory levels held by our customers have returned to normal levels. After two years of fairly lackluster investment replacing natural gas infrastructure, our major customers are expecting to spend significantly more in replacement CapEx this year driven by regulatory requirements and safety considerations. In addition, several of our largest customers are located in faster growing economic areas where new natural gas infrastructure is required for residential And this expected growth in gas utilities is not just a 2025 phenomenon. Based on industry sources, we expect the annual growth rates and capital expenditures for natural gas utilities that we serve to range from 4% to 6% over the next five years.

Setting us up nicely to return to stronger consistent growth through the end of this decade. The second driver for revenue growth this year is that after two years of flat to declining price levels, across our major product categories, we expect to see inflation return to the PBF business this year. The application of tariffs on imported products, not only increases the cost of those products, but it provides an impetus for competing U. S. Manufacturers to Due to the Section two thirty two tariffs on non valve steel and aluminum imports from every country, we have seen domestic steel prices rise significantly, which has had a direct impact on the prices of line pipe, and carbon steel fittings and flanges. Barring a slowdown in the overall economy, and absent any pullback on announced tariffs, we expect the current price levels to stick. We have previously communicated that inflation is generally a positive for our business. We have pass through mechanisms with our contract customers that allow periodic updates to our product prices and the majority of our product sales are based on cost plus formulas A third driver for growth this year is the improving commercial and regulatory environment for natural gas related projects in The U. S. Are bullish on the role that natural gas will play as a primary fuel for electrification to support reshored manufacturing transportation mobility and artificial intelligence applications.

Our major midstream customers have announced significant investment growth in natural gas infrastructure projects, aided by what is expected to be a more favorable and streamlined regulatory approval process under the current administration. The end of the pause on LNG project approvals creates additional opportunities for gas gathering, processing and transmission, as well as participation in the LNG conversion process itself. The opportunity to monetize the vast natural gas offers our country a competitive cost advantage that the current administration is keen to exploit. We know that capital discipline and industry consolidation will remain in important themes among major oil and gas producers. But MRC Global's ability to serve larger customers who are less reactive to commodity prices and who have more stringent requirements for quality products high service levels, systems integration and geographic coverage plays to our strengths and positions us to gain share in the PTI space. A fourth driver for our growth is several key initiatives we have undertaken that will make increasing contributions to our 2025 revenues. We have spoken previously about our focus on growing our chemicals business and this continues to be a bright spot for us.

Our U. S. Chemicals backlog at the February 2025 significantly higher than the same time last year and we expect revenues this year to be up high single digits over 2024. We've expanded our presence in The U. S. Mining sector opening a new service center in Arizona in 2024 and significantly increasing our sales and marketing efforts across the Western U. S. We expect this business to grow at a compound annual rate over the next three to five years. We've also recently expanded our product offerings to include commercial grade PBF products used in the cooling systems for data centers. Although we have only been focusing on this exciting high growth business for less than six months, have already secured commitments of more than $10,000,000 in sales to date and we have many large revenue opportunities in the data center pipeline. One of our most exciting growth prospects for 2025 is our Emtek joint venture which we are announcing on today's call. Among other services, Emtek will incorporate automatic meter reading technology onto natural gas meters to allow for the wireless transmission of gas usage data from the meter to the utility. This assembly step in the smart meter development process has been cumbersome for it opens up a strong avenue to increase our gas meter sales by tens of millions of dollars we currently have relatively low penetration versus our other gas products.

Our partner in this joint venture understands the technical requirements for smart meters through previous OEM experience and also qualifies the JV as a diverse supplier to purchasing utilities who are often subject to state level public utility commission diversity contracting goals. We have pre marketed our service offering to our major customers expect a strong reception. I mentioned previously that we were off to a good start this year. So let me share some of these early results. We've seen our average daily intake or bookings through mid March increased 11% compared to the fourth quarter twenty twenty four average.

Addition, is also up 11% compared to year end, with all three business sectors increasing. First quarter revenue is expected to improve by a low single digit percentage compared to the fourth quarter.

But the building backlog and increasing intake levels give us confidence that we will see stronger double digit sequential growth to materialize in the second quarter. In closing, we begin 2025 with an improving business climate and a simplified and strengthened balance sheet.

Our focus is on returning to revenue growth in 2025 by expanding our market presence in our existing business lines while pursuing higher growth opportunities including data centers, chemicals and mining. We remain committed to generating significant operating cash flow across the business cycle. This cash generation capability along with our improved capital structure provides us with significant flexibility to further reduce our leverage return cash to shareholders and invest in growth initiatives for our future. And with that, I will now hand it over to Kelly. Thanks, Rob, and good morning, everyone. My comments today will be primarily focused on sequential results comparing the fourth quarter of twenty twenty four to the third quarter of twenty twenty four unless otherwise stated, Also, as mentioned by Monica, our Canada results are now reflected in discontinued [indiscernible] So unless stated otherwise, my comments will be referring to the company's financial results MRC continuing operations. [indiscernible] Total company sales for the fourth quarter were $664,000,000 a 14% sequential decrease and 10% lower than the same quarter a year ago. From a sector perspective, gas utility sales were $253,000,000 in the fourth quarter a $40,000,000 or 14% decline. The decline was primarily driven by reduced customer activity resulting from higher than normal fourth quarter seasonality and delayed spending that is expected to materialize in 2025.

As we said, coming into 2024, this was anticipated to be a transitional period for our gas utility customers due to destocking and reduced project activity. However, we are now encouraged to see increases in new order intake Also noteworthy our recent capital spending projections for the gas utility market reflecting mid single digit increases in spend for not only 2025, but for the next five years as well. The diet sector fourth quarter revenue was $2.00 8,000,000 a decrease of $31,000,000 or 13% primarily due to the timing of project deliveries and turnaround activity declines at the end of the year. We expect projects and turnaround activity to pick up significantly in 2025 supported by year to date increases in our backlog. DTI sector revenue for the fourth quarter was $2.00 $3,000,000 a decrease of $36,000,000 or 15% due to reduced upstream activity and a more pronounced year end seasonal pullback. From a geographic segment, segment perspective, US revenue was $542,000,000 in the fourth quarter a $102,000,000 or 16% decrease from the previous quarter. And as Rob previously mentioned, we expect to return to growth in 2025 for our U. S. Business, driven by the growth initiatives that he outlined.

International revenue was $122,000,000 in the fourth quarter, down $5,000,000 or 4% from lower turnaround activity and timing of project deliveries. Our international business had another impressive year with a 14% year on year revenue growth in 2024 the second year in a row with double digit growth. And the outlook for the International segment remains positive with expectations for solid revenue growth in 2025 as well. Now turning to margins. Adjusted gross profit for the fourth quarter was $146,000,000 or 22%, compared to $163,000,000 or 21.1% in the third quarter. The 90 basis point improvement is largely due to favorable product MRC, and also notable is the positive impact to adjusted gross profit due to the removal of Canada's results. The margin improvement for the full year 2024 related to Canada divestment was approximately 30 to 40 basis points. Reported SG and A for the fourth quarter was $123,000,000 or 18.5% of sales as compared to $120,000,000 or 15.6% for the third quarter. Adjusted SG and A for the fourth quarter twenty twenty four $119,000,000 dollars slightly lower than the third quarter's $120,000,000 reflecting our commitment to cost discipline and optimization initiatives undertaken this year. Adjusted EBITDA for the fourth quarter was $32,000,000 or 4.8% of sales, We achieved an adjusted EBITDA for the full year of $2.00 $2,000,000 or 6.7%.

This performance demonstrates our operational resilience to despite market headwinds in the second half of the year.

Tax expense in the fourth quarter was $4,000,000 as compared to $3,000,000 of expense in the third quarter The fourth quarter taxes were primarily impacted by currency exchange gains related to an intercompany debt restructuring project and lower pre tax income for the quarter. For the fourth quarter, net loss from continuing operations was $1,000,000 or $0.14 per diluted share as compared to net income from continuing operations of $29,000,000 or $0.27 per diluted share in the third quarter of twenty twenty four. Adjusted net income from continuing operations was $4,000,000 and $25,000,000 for the fourth quarter and third quarters of twenty twenty four, respectively.

Our capital expenditures came in a little lower than we had expected at $28,000,000 due to capital spending related to our ERP project shifting from 2024 into 2025. And in the fourth quarter, we generated $73,000,000 in cash flow from continuing operations We also had an exceptional cash flow performance for the full year of 2024 with operating cash flow from continuing operations reaching $268,000,000 our highest level in years and greatly exceeding our original annual target of $200,000,000 Working capital efficiency this quarter exceeded expectations with a record low 11.2% net working capital to sales ratio. Both inventory reductions and strong cash exceptional result. Moving to liquidity and our capital structure. [indiscernible] the fourth quarter, we made significant changes to our capital structure to provide a stable platform to grow our business and return cash to shareholders. We entered into a new $350,000,000 senior secured term loan B with a 02/1931 maturity with the proceeds used to repurchase all of the convertible preferred shares at a slight discount.

This action eliminated potential equity dilution concerns from conversion of the preferred shares into common shares and it also eliminated the $24,000,000 in non tax deductible preferred dividends that were paid each year. We were able to implement this new simplified capital structure with terms that are to be accretive to both cash generation and earnings in 2025 and beyond. In conjunction with our term loan launch, Moody's upgraded our Corporate Family Rating one notch from B2 to B1 with a stable outlook, a clear validation of our improving financial strength reflecting our moderate leverage, ample interest coverage, and outstanding operating performance. Additionally, S and P Global affirmed our B rating specifically highlighting our recent preferred equity repurchase as leverage neutral and beneficial for our financial flexibility. Another big achievement was successfully amending our asset based lending facility extending its maturity to 2029 with a committed borrowing capacity of $750,000,000 The facility maintains the highly competitive borrowing rates of our previous facility. And this extension complements our term loan B and substantially strengthens and derisk our capital structure by reducing our exposure We finished the year with strong liquidity of $523,000,000 including $460,000,000 of availability on our ABL and $63,000,000 of cash at year end.

Our leverage ratio based on net debt of $324,000,000 was 1.6 times our total net balance was debt balance was $387,000,000 We believe we are on track to achieve our target leverage ratio of 1.5 times or lower by the end of twenty twenty five, while also allowing us to return cash to shareholders and maintain strong credit metrics. Now I'll cover our outlook. Looking ahead to 2025, we expect low to upper single digit revenue growth for the total company. We are also currently forecasting all three business sectors to deliver revenue increases this year with each sector experiencing growth at a similar range as the total company. We are also targeting the following key metrics for 2025. First, we expect to generate operating cash flow of at least $100,000,000 maintaining our strong cash generation profile. Our adjusted gross margin is projected to average approximately 21%. [indiscernible] anticipate adjusted SG and A expenses to range between 15% to 16% of total revenue as we maintain operational discipline while supporting growth initiatives. Capital expenditures are expected to be approximately $45,000,000 for the year elevated from our normal levels as we expect to go live with our ERP implementation in the second half of this year.

Post implementation, we expect our annual CapEx to return to the historic run rate of approximately $15,000,000 We are on budget and on schedule with the ERP project and are very excited about the benefits it is expected to yield. We expect our effective tax rate in 2025 to be in the range of 26% to 28% and we expect first quarter revenue to be up low single digits but we believe we will have a strong double digit based on the current trends we are seeing in our backlog and intake that are very encouraging. We would then expect the typical cadence in revenues with the third quarter as our strongest quarter of the year followed by a seasonal decline in the fourth quarter. Reported SG and A in the first quarter is expected to be slightly elevated compared the fourth quarter due to the typical increase at the beginning of the year in employee related taxes and benefits and elevated expenses related to our delayed filing.

Finally, we remain committed to achieving our target net debt leverage ratio of 1.5 times before year end 2025. This disciplined approach to balance sheet management combined with our strong cash flow generation will enable us to begin executing this year on our $125,000,000 share repurchase program that we announced in early January. While also maintaining ample financial flexibility for future growth opportunities.

Our focus on operational excellence and strategic positioning in our growing markets coupled with our strengthened capital structure, gives us confidence in our ability to achieve these targets. And with that, I'll turn it back over to Rob.

Thanks, Kelly. As we conclude today's call, I want to emphasize the significant progress we've made in positioning [indiscernible] for sustained success. 2024 was transformative for our capital structure by simplifying and strengthening our balance sheet and creating a more efficient and flexible financial foundation. We generated $268,000,000 in operating cash flow from continuing operations, the highest in many years, as we continue to achieve high gross margins on our sales and improve our working capital efficiency. The strategic decision to divest our Candid operations further enhances our margin profile and allows us to focus resources on our highest growth opportunities. For 2025, we see encouraging signs of growth across all business sectors driven by four factors that include improving fundamentals for gas utilities, product price inflation, a bullish natural gas midstream outlook and several key growth initiatives already bearing fruit. Expect to maintain adjusted gross margins of approximately 21%. We further expect to generate at least $100,000,000 in operating cash flow. Our three pronged capital allocation strategy includes our commitment to a strong balance sheet, new $125,000,000 share repurchase program and several growth initiatives. 2025 has started well with strong momentum and we are well positioned to deliver value for our shareholders while maintaining our industry leadership position.

And with that, we will now take your questions. Operator?

First question comes from Nathan Jones with Stifel. Please proceed with your question. Good morning, everyone.

Good morning, Nathan. Good morning, Nathan.

I guess I'll start with a question around revenue. Fourth quarter was a bit below expectations and the first quarter is kind of seasonally in line with the 4Q to 1Q normal progression. So again, a bit low, I guess. And so revenue guidance really hinges on that step up from 1Q to 2Q. And I know you talked about better order rates and building backlog in the first quarter. But I'm hoping you could just go into a bit more detail on where you're seeing that strength, what gives you confidence in this sustainability of that strength that will then carry through into the back half of the year?

Yes. Thanks, Nathan. I'll start this off and see if Kelly has anything to add. But clearly, what really drove our weakness last year was The U. S. Segment. And as we said in our prepared comments, we're really off to a strong start this year. In The U. S. Segment alone, we're up about 19% in backlog Where we sit today relative to year end.

And [indiscernible] that is just a really tremendous increase, but it also really points out how we were struggling to book business at the end of the last year. And I gave the reasons for for that in our prepared comments. But we really are seeing strength across all three of our sectors in The U. S. Segment. And we expect to continue to see our backlog grow as we go through the year. We're getting a lot of positive signals from customers. And as we talked about the drivers for our business, we're through the destocking on the gas utilities finally, which is really making us very excited about this year relative to the last couple of years for that The tariffs situation and the inflation that's accompanied that is giving us some real optimism for additional revenue and gross margin certainly against average cost. That will support the business going forward. And then the whole bullishness around the midstream space and monetization of natural gas assets in The U. S. Has been extremely exciting and we're already seeing a lot of opportunities in activity in that midstream space. And then as I also mentioned, the chemicals, the mining and the data center businesses that we're working on are all showing additional signs of growth.

So So the year is going to start off a little slower in terms of the relative increases just because the first quarter is somewhat determined by the backlog that you had in the prior February. But as we build the backlog significantly as we're doing right now, you're going to see that manifest itself in higher revenues and profitability in future quarters. And that's why we're bullish on a double digit improvement in revenue for the second quarter sequentially over the first. Kelly, anything you want to add to that? You pretty well covered it, Rob. The only thing I would add is when you look at that that 19% growth in backlog in The U. S, it is a double digit improvement that we're seeing in all three sectors. And then the Q4 fall off that we saw as we talked about in the prepared remarks, That was due to timing of projects and kind of delay or pullbacks just greater than the normal seasonality But the visibility we have of those projects that were originally intended to hit in 2024 Now we're seeing a lot of that hitting both projects and turnaround activity hitting in the second quarter.

And so the visibility we have supported by the backlog gives us a lot of confidence in that Q2 double digit improvement.

So you said 19% increase in backlog from the end of the year. I would guess that backlog typically does increase from the end of the year to now. Is 19% materially above what a normal seasonal increase in backlog would look like?

Yes, absolutely. And depending on how much the timing of projects, you don't always see an increase. Going from the end of the year into the first quarter. And I think that was one of our challenges last year was that we had kind of a steady decline in our backlog certainly in The U. S. Segment. As we went through the year. Our international business, I do want to touch on, international business continues to be very strong, both in terms of bookings and and billing. And so that's why we continue to expect growth in that business and that's after a couple of really strong years. But the backlog situation we're seeing in The U. S. Right now is really very different from what we saw last year.

And again, it gives us a lot of confidence in future quarters.

Would just add as well. If you look at the backlog where we're at today is over $600,000,000 and that's where we were kind of back in Q1 of last year. This is the best backlog we've seen in a twelve month period. Which is very encouraging.

Thanks. I guess my follow-up question is going to be on gross margins. Gross margin in 2024, adjusted gross margin in 2024 was right under 22% and the guidance for 2025 is average at 21%. I would have thought that you have some tailwinds to gross margins in 2025 in terms of tariffs and inflation and things like that and some growth So maybe you can talk about what the what the other side of the equation is that is holding you back a little bit on gross margins in 2025?

Yes. Nathan, I'll start. I think there's a couple of things there. In 2024, especially in the first half of the year, we had we had some some large sales. We had accretive margins. That are not expected to repeat. But still feel very confident of achieving of a 21% type margin. So that's good for us. The international margins we have are accretive to the overall company average and so that's going to be very supportive. I think the think you're hitting on a good point though that if the tariffs are a bit of an unknown right now. And if we really start to see a material improvement related to inflation and tariffs, that would certainly suggest an upside to the guidance we have on the margin. So could it be conservative? It certainly could be. Just we'll just have to see how it plays out.

Okay. Thanks. I'll pass it on. Thanks for taking my questions.

Great. Thanks, Nathan.

Our next question comes from Chris Dankert with Loop Capital Markets. Please proceed with your question.

Hey, good morning, guys.

I guess maybe first off to the point of clarification. On that gross margin guide, are you assuming no tariff impact in that 21% guide at this point? Or is there something baked that number right now?

Yes, I'll take this one, Chris. Look, I would say that we have a modest amount of inflation built into that. But probably not the full extent of what you might infer from the tariffs as they're currently being deployed and probably for the full year, I think we would all agree that it's a bit uncertain how many of these tariffs are going to be applied and how how long they're going to endure. But to Kelly's comment, I think that there's certainly potential upside in both revenue and adjusted gross margins and profitability If these tariffs continue to hold at current levels and and the areas and products covered either hold or extend from where they are today. So I'd say that there's definitely some upside involved and we probably included again a modest assumption around inflation in the numbers we've given.

Got it. That's really helpful. Thank you. And then definitely exciting news about the Emtek JV here. I guess maybe could you flesh out a little bit what the opportunity looks like there? What kind of drove the excitement on the market? Just kind of maybe just give us a little bit of a path of what you're seeing there that that kind of led you down this road?

Yes, I'm glad you asked the question because we're really excited about this and we're going to have a dedicated press release on this joint venture coming out later this morning.

But as a practical matter, our gas utilities business is our largest sector. By revenue. But interestingly less than 10% of our revenue is involved with meter sales.

And only a small handful of our contract customers in the gas utility space do we provide meters to? We typically we build our relationships with our customers, we start with more commodity products like polyethylene pipe and even some carbon steel pipe for a number of our customers. But then getting to meter sale is something that you kind of graduate to over time. We just have a small handful of customers and like I say, less than 10% of our revenue that we're accruing today for those sales. But what this joint venture allows us to do is to really play integral role in a key process where smart meters are replacing the current sort of manually read meters and that process of getting that communications chip joined with the gas meter is cumbersome, logistically challenging. And frankly, a lot of the meter producers don't like doing it. So we're really filling a void in the market with this joint venture.

Which will be a great service to gas utilities customers, both the ones we currently serve and then where the real upside is for MRC Global is an opportunity expand our meter business again from that under 10% to something significantly higher by offering this service to those utilities. An added benefit of the joint venture is that our partner qualifies as a diverse owner and manager and because of that, a number of our utilities that are subject to public utility commission diverse purchasing practices will look on this very favorably.

So as we said in the prepared comments, this could really unlock tens of millions of dollars of incremental revenue through meter sales that we don't currently have to our gas utilities customer base.

We're very excited about this. We been working on it for a long time. It was coincidental we were able to bring everything to closure right here as we're doing the earnings call, but we're happy to have a favorable coincidence in this case. And really excited about the future.

That's really great color. Thank you so much. If I could just follow-up one little bit there. I guess my assumption would be metering is there's more engineering content involved Does that help with the margin as well? Is that part of why again the gas utility margin is higher so this would be generally accretive?

Yes. I mean, the real opportunity here is to is to be in the meter business with our customers where we're not currently able to do that. And as I said, I think this joint venture will open that up that opportunity for us where it doesn't currently exist. The JV itself will also be a profit making entity but it's providing a very specific service And of course, with our ownership being roughly half of the JV, we'll get half of those proceeds. But again, the real opportunity for MRC Global is to create more meter sales, again tens of millions of dollars of revenue and then the margin that we typically get on our gas products on that will accrue in terms of profitability. So us.

Understood. Well, thanks for all the detail and congrats on all the changes and upgrades this year.

Appreciate it. Thank you.

Our next question comes from Josh Jain with Daniel Energy Partners. Please proceed with your question. Thanks. Good morning. First question I wanted to ask was just on the international markets and outlook into 2025. Could you maybe speak to the bright spots you're seeing versus where things might be a bit softer? And I think you highlighted $254,000,000 of international backlog. How does that typically compare to where we are on a year over year basis?

Yes.

I mean, this is about the largest backlog we've had in many years in our international business. And one thing to keep in mind with our international business, unlike our U. S. Business, international is driven primarily by projects. It's also driven primarily by valve sales. So that business as a whole tends to be a little lumpier depending on the project activity. But it also tends to be accretive to to margins because of the valve sales versus more commodity product sales. And we have really carved out an extremely exciting niche in certain of our European markets. Think Norway, The UK, The Netherlands, Central Europe, These areas have been really strong spots for us. Both in terms of the PTI space, so offshore platforms in the Norwegian and North Sea, as well as the diet space Again, think Refining and Chemicals in Central Europe and The UK.

So this business has continued to be very strong for us. The other thing that they're still doing more of over there than they are here is energy transition projects. So we still see a lot more involvement of energy transition projects, whether that be wind or sustainable aviation fuel, And I think everybody's clear that a lot of that has slowed down here in The U. S. So we're really excited about our business. Both in Europe and in Asia Pacific. We're growing that business in The Middle East.

And we feel really good about additional growth prospects in the international business this year.

Thanks for that. And then as my follow-up, maybe we could just talk about capital allocation a bit and just on the M and A side, valuations really across all sectors have compressed since the beginning of the year in the public space. And I'm just curious, has this made M and A opportunities more attractive to you? Or could you speak to where you are on the capital allocation front for M and A versus the $125,000,000 share repurchase program and just what is of highest priority sort of as you look forward into 2025 and beyond?

Yes. Well, look, let me just do a little bit of history here first. Before looking forward. But traditionally, this company has been over levered and and also in possession of a a complicated balance sheet with the preferred shares. And I think our teams did an excellent job in delevering and now simplifying the balance sheet with the retirement of the preferred at the end of last year. And replacement of that with a term loan. As we've mentioned in our prepared comments, and elsewhere, we do want to maintain prudent leverage. So our goal is to get to 1.5x net debt leverage ratio at some time in this year. So we would definitely want to keep that focus on a prudent balance sheet. We think it makes sense for the risk profile of our business and the cyclicality that sometimes accrues And again, having been on the other side of that, we definitely want to maintain that that low leverage ratio. In addition to that, we believe that it's time to start returning cash shareholders, which is why we entered into the share buyback program, announced that in January. And through the course of this year, we hope to execute on that.

We did say on our announcement of that buyback program, that we did not we did not plan to purchase any shares back before the second quarter. That's still obviously going to be the case. Given where we are right now. But as we go through the year, both systematically and opportunistically, we will look to repurchase shares to the benefit of our shareholders.

And M and A is something that we continue to look at. We've been somewhat hamstrung with with the balance sheet in the past from doing anything significant. I think as our balance sheet continues to improve and we continue to delever even with our capability to return cash to shareholders and investing in growth. We'll have further opportunities to bring M and A back into the fold here. We haven't done M and A for about a decade now. And the balance sheet where it is and and the opportunity for share purchases to continue even while we do M and A M and A is something that we will definitely consider.

Our next question comes from Nathan Jones with Stifel. Please proceed with your question. Nathan, are you muted? You're live with the speakers.

Sorry about that. You guys gave adjusted gross margin and SG and A guidance, but didn't give specific EBITDA margin guidance. Can you fill in the blanks there for us either just on what EBITDA margin guidance is or kind of what you're expecting for stock comp in D and A for us to get there?

Yes, Nathan, I'll take that one. [indiscernible] you kind of run through the model with the guidance that we provided, it pretty much gets you into an EBITDA margin kind of in the mid-six percent range. The 6.5 ish As we've talked about though, I think if the tariffs and inflation really start to help us out there, and our international margins hanging there strong what they have been, I think there's upside to that. To get that percentage higher. But we're just taking a conservative view right now because the tariff situation seems to change every couple of days. We'll see where it all [indiscernible] inflation this year with the tariffs. But just taking a more conservative approach on that until it gets more more clear.

And then I just wanted to finish off the inventory issue. It sounds like when you finished I mean, you said you counted $400,000,000 of inventory, which is essentially all of your inventory. It sounds like you found that there were no differences, no material difference [indiscernible] between where it was initially and where it ended up. And this was more of an issue around process and then how that stuff was entered. So maybe you could just put a ball on that and then talk about any reviews you've done for processes to make sure we don't run into any kind of issues like this again? Thanks.

Yes, Nathan, I'll take this. And let me just start at the outset and say that what we do to verify our inventory is very consistent with what other companies in the distribution space do. And that is we perform regular, in fact daily cycle counts which is basically picking particular products and counting the inventory that day And then over the summation of the year, you basically counted every item of inventory at least once And some items of inventory, particularly the fast moving items, you've counted them multiple times. So this process is a well well used and well known and respected process for counting inventory. However, it depends on the faithful execution of the process for that to be effective. And as I mentioned in our prepared comments, out of over 100 locations, we detected two where the entry of the counts into the system was not being faithfully executed. Couple of deviations on that basically created an issue about the integrity the process and the integrity of the control. And in order to verify that we didn't have any material errors in our inventory, we decided that we would go back and physically count all these locations.

That was a very very significant step for us to undertake. As I mentioned, it involved a number of people working diligently over weekends and evenings to make sure that could get all these counts right. But it was very gratifying to result in the fact that yes, the variances that came out of that were effectively immaterial and that the inventory balances on our balance sheet were substantially and materially correct. So So you're right. I mean, the issue related to the process itself and then the fact that we weren't executing against that process the way we should have been. So we've got a remediation plan that we're putting in place and and we're going to make sure this doesn't ever happen again.

Kelly, you want to give some details on that?

Yes. Nathan, obviously, as Rob said, the cycle count process will continue like it has been. I mean, even our auditors have said the the process that we had in place is a well designed process. It was execution problem on that process is where is where the issue arose. But I think as far as remediation, we are planning to have what I would call a major step up in oversight and monitoring of the cycle count process going forward. To make sure that nothing like this happens again. We are planning to engage a consulting firm to come in. And just we think we've got it covered, but just to make sure there's not some best practices out there that other companies are using that we should be considering. So we're going to bring someone in to kind of review and provide rec recommendations on our current process. We're looking at making some changes in resources to have more expertise and oversight over inventory management and kind of develop And of course training, there's going to be a full blown training initiative here and retraining to make sure that employees know the importance of this and operational leaders are going to be heavily involved at the same time.

And then the last thing, which is really significant is the Oracle implementation. That's going to be going live here in the second half of the year. And just being a more modern cloud based system, it's going to have a lot of reporting and monitoring capabilities that we don't have today. And just really automate a lot of things like we're going to be using scanner technology a lot more with the new system. So a lot of the manual input that we have in our current system is going to be completely eliminated and be automated going forward. And that in itself enhances the control environment around the cycle counts. So Oracle will be a major step up for us MRC making sure that this is fully remediated as well. So we're going to be all over it and we've got it fully covered and And as Rob said, we feel comfortable this will never happen again.

It won't never happen again.

Thanks for taking my questions.

You're welcome. Thank you. We've reached the end of the question and answer session. I'd now like to turn the call back to Monica Brownen for closing comments.

Thank you for joining us today and for your interest in MRC Global. We look forward to having you join us for our first quarter conference call in May. Have a great day.