Greetings and welcome to the MRC Global's Fourth Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Monica Broughton, VP, Investor Relations and Treasury. Please go ahead..

Thank you, and good morning. Welcome to the MRC Global fourth quarter and full-year 2023 earnings conference call and webcast. We appreciate you joining us. On the call today, we have Rob Saltiel, 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 February 28, 2024. The dial-in information is in yesterday's release. We expect to file our annual report on form 10-K later this week, and it will also be available on our website.

Please note that the information reported on this call speaks only as of today, February 14, 2024, and therefore, you are advised that the 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 to learn more about our use of these non-GAAP measures, and to see a 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 refer 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. And now I'd like to turn the call over to our CEO, Mr. Rob Saltiel..

Thank you, Monica. Good morning, and welcome to everyone joining today's call. I will begin with a discussion of notable achievements in 2023, review our fourth quarter results at a high level, and address some of the key business drivers underpinning our 2024 outlook.

I will then turn the call over to Kelly to provide a detailed review of the quarter and 2024 guidance before I deliver a brief recap. For the full-year 2023, we had many accomplishments that I want to highlight, including setting several new MRC Global records for profit margins, balance sheet strength and working capital efficiency.

First, we generated $181 million in operating cash for the year, well above the $110 million that we previously expected. This translates to a robust 18% levered free cash flow yield for the year. We are very bullish on the cash generation potential of the company going forward.

We also set a company record for full-year adjusted gross margins at 21.5%, which is the second year in a row where we exceeded 21%. Some of our investors have expressed concerns that we might not be able to maintain margins at this level, but I am happy to report that we have now had seven quarters in a row with 21-plus-percent margins.

This is a transformational change from the high teens level of margins throughout most of our company's history. Adjusted EBITDA margins were 7.3% for 2023, the second year in a row above 7%. This is a result of both higher adjusted gross margins along with our discipline on cost management.

We've been very focused on working capital efficiency over the last few years, as evidenced by another record set in 2023 with our net working capital as a percentage of sales coming in at 15.5%.

Since 2018, we have improved this metric by 490 basis points, which is helping us to consistently generate positive cash flow irrespective of the business cycle. Our balance sheet has never been stronger with ample liquidity and the lowest leverage ratio in our public company history at 0.7 times. We expect this metric to improve even further in 2024.

Revenue grew for the third straight year in 2023 to $3.4 billion, with year-over-year growth in our PTI and DIET sectors partially offset by a slowdown in our gas utilities sector. Our PTI sector grew by 6%, driven by increased activity and market share gains in the Permian Basin, partially offset by reduced sales in California and Canada.

The DIET sector improved 5% in 2023, driven by various LNG, chemicals and refining projects. Our international business grew 13% in 2023, and is poised for double-digit improvement in 2024, supported by a healthy backlog that was 55% higher at year-end compared to the beginning of 2023.

I will now make a few comments about the fourth quarter results and then turn to our outlook. Despite a revenue pullback in the fourth quarter, we maintained strong profit margins and cash generation that exceeded our expectations. For the quarter, adjusted gross margins were 21.9% and adjusted EBITDA was $48 million, or 6.3% of sales.

In addition, we generated cash flow from operations of $89 million in the fourth quarter, aided by excellent stewardship of our working capital that allowed us to achieve $181 million for the full-year. Turning to our outlook, I will now provide some early perspectives on 2024.

First of all, we have seen a meaningful improvement in our backlog and our new orders over the first few weeks of 2024. This gives us optimism that our business is stabilizing, and we expect to return to growth in the coming quarters.

From a sector perspective, for our gas utility sector, we expect our customers to continue their destocking efforts in the near term, which could cause capital spending for the first half of the year to lag the levels we saw in the first half of 2023.

However, we expect to see an inflection point around mid-year for gas utility spending to improve once the destocking targets have been met. In addition, we expect moderation of inflation and interest rates as we move through 2024, which should improve the overall investment climate for this sector.

Despite the near-term headwinds, the long-term market fundamentals and growth potential of our gas utilities business remain very positive. We continue to expand our market share and wallet share with gas utilities, and we are competing for new utility contracts in 2024 that should expand our presence further.

Most of the work we perform with our gas utilities customers is based on multi-year programs where they evaluate and implement measures to improve their local distribution networks and, in some cases, their transmission pipelines to ensure the safety and the integrity of these systems. Since approximately 35% of the U.S.

gas distribution network today is over 40 years old or of unknown origin, this creates a steady backlog of work due to the need to upgrade and maintain these networks as they age. Additionally, as new housing starts improve with lower interest rates, this should result in further growth opportunities for this sector.

In the DIET sector, we are optimistic that we will experience modest revenue growth this year from a strong level of refinery and chemical plant maintenance activities, supplemented by a growing slate of projects.

We remain excited about energy transition growth opportunities and expect that most of the revenue in 2024 for this sub-sector will occur in the renewable fuel space. We expect a lot of new project bidding activity this year, but we will likely see most of the benefits in 2025 and beyond.

Turning to our PTI business, recent industry reports have signaled some potential risk of declining oil prices and customer spending levels in 2024. However, larger public E&P companies are expected to drive a higher percentage of the activity in 2024 in the U.S.

oil field, which bodes well for our company as our revenue for this sector is driven primarily from this customer base. Recent announcements of consolidation by our PTI customers are expected to be beneficial to MRC Global, once completed.

We partner more extensively with the acquirers than we do the targets, and the value we bring is generally better recognized by the larger operators who procure higher quality, longer life products for their oil and gas development projects.

Another positive for the PTI sector is our international oil and gas market is expected to expand, and we should benefit from our strong position in growth markets such as Norway, the UK and Middle East.

For our international segment, we expect another strong year aided by favorable fundamentals in both the PTI and DIET sectors and a healthy revenue backlog that has grown each of the last five quarters. Our international backlog at the end of the fourth quarter increased 14% over the third quarter.

We have lined up exciting projects in both PTI and in DIET and we expect another year of double-digit growth for international in 2024. Given the slower business environment in the US segment, we are laser-focused on improving the things we can control, such as our cost structure.

We are working to lower our absolute SG&A cost this year after experiencing an increase in 2023, which will support our ability to maintain healthy adjusted EBITDA margins.

We are implementing a number of cost optimization initiatives, including slower wage growth and reductions in professional fees, overtime, travel and entertainment expenses and logistics costs.

We have made significant progress elevating our adjusted gross margins and EBITDA returns over the last few years, and we are committed to not losing this momentum in 2024. In summary, we expect 2024 to be a transitional year for the company in terms of revenue, but it is clear that we have never been a stronger company than we are today.

We remain optimistic about the fundamentals of all three business sectors and their long-term outlook, given our strong market position and the expectation of demand for our products and services for decades to come.

With the recent improvements in our cost structure and our working capital efficiencies, we are well-positioned to generate significant earnings and cash flow across the business cycle.

We are targeting to generate approximately $200 million in operating cash flow in 2024, which will make us an even stronger company with minimal debt at the end of this year.

This will provide us with a lot of flexibility to pursue a capital allocation strategy that is focused on the highest return opportunities for our shareholders, including investing in our growth drivers and distributing capital to our shareholders. I will now hand it over to Kelly..

average adjusted gross margins of 21% or better; average adjusted EBITDA margins of 7%; average SG&A cost as a percent of revenue below 15%. And for cash flow from operations, we expect to exceed the cash we generated in 2023, targeting to hit $200 million in operational cash generation.

Capital expenditures are expected to be elevated this year due to our ERP initiative. We estimate total capital spend in the $40 million to $45 million range in 2024, higher than our normal run rate of approximately $15 million. And finally, we expect our effective tax rate in 2024 to be in the range of 26% to 28%.

And with that, I would like to turn it back to Rob for closing comments..

Thanks, Kelly. It bears repeating that our company is in a very strong position. And despite the pullback in activity in the second half of 2023, we achieved key milestones in profit margins, working capital efficiency and balance sheet strength, setting us up for future success.

As we continue to execute our strategy and generate consistently strong levels of free cash flow, we will have ample financial flexibility to deliver shareholder value through an opportunistic shareholder returns focused capital allocation strategy. These are the highlights I want to summarize before opening for Q&A.

We are targeting $200 million of cash from operations in 2024. With the working capital efficiencies we have achieved, we are well-positioned to consistently generate cash regardless of the business cycle, which is a transformational change.

We expect average adjusted gross profit to remain in the 21% range in 2024 and are targeting average EBITDA margins of 7% for the full-year. We intended to pay off our Term Loan B on or before its maturity date in September of 2024 without requiring any additional financing.

We expect to exit 2024 with a minimal net debt position and be in a positive net cash position in 2025. And lastly, before we open the call for Q&A, similar to last quarter, I want to acknowledge the rumors and speculation about one of our shareholders.

As I'm sure you can appreciate, we don't discuss the specifics of our interaction with any of our existing or potential shareholders and we won't be able to comment. As such, we kindly ask that you keep your questions in the Q&A session focused on our results. And with that, we will now take your questions.

Operator?.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] First question comes from Nathan Jones with Stifel. Please go ahead..

Good morning, everyone..

Yes. Good morning, Nathan..

Good morning, Nathan..

I just wanted to start off with cash flow, given -- you know, I'm sure you guys had trouble getting out of your office, just crawling over it all this morning. There's been a significant reduction in receivables inventories and offset a little bit by reduction in payables.

I think the cash flow guidance for 2024 would imply a pretty significant further reduction in working capital and receivables inventories payables? Can you talk about, you know, kind of what you're expecting there? I would say, probably, you would acknowledge that $200 million of CFO might not be sustainable over the long run at these levels of revenue.

So any color you can give us on what you think the sustainable cash flow level of the business is?.

Yes, Nathan, this is Kelly.

I'll start off and Rob can jump in, if he likes, but -- no, listen, you know, we've been consistent here over the last couple of years, you know, saying to the market that with our working capital efficiency that we've maintained or we've improved over the last couple of years, that we think we can consistently generate cash, you know, regardless of what the market conditions are.

And so, I think this year is a very good example of that. You know, that up slightly, not huge improvement, but up slightly on revenue. But having $181 million of cash generation, we're very proud of that. Our working capital efficiency, I think we put in our press release, it's a new record of 15.5%.

If you go back to 2018, that was around a 20% number. So we've made drastic improvement there. To answer your question, though, the sustainability, we think, as we've guided to $200 million in 2024, we're going to have some working capital influence there.

You know, we think we have room to improve our turn rates on inventory, and we've made a lot of progress on our receivables, past due receivables and things like that. But we think we can maintain and even continue to improve that in 2024.

The majority of the cash flow generation, I would say two-thirds to three quarters of it, is still going to be cash flow from operations before working capital changes. But we'll still get the benefit from working capital changes to get us up, make up that other one-third to 25% to get us up to the $200 million number.

And then I think, you know, going forward, Nathan, we're not guiding to anything right now, but we think easily we can have 100-plus, maybe even 150-plus million of cash generation per year in a, call it, a single-digit type growth market.

You know if you get into, like we were in 2022, where we had a 26% revenue growth, it's harder to achieve that kind of cash flow number. But with moderate growth, whether we're up or down, we think easily $100 million, $150-plus million is very achievable..

Thanks. I'll follow up with, I guess, cash priority. You obviously have this term loan that you have to deal with in September. It seems counterproductive for your preferred shareholder to be blocking refinancing of that.

Is there any update you can give us on any of the negotiations you've had there that might allow you to refinance that rather than have to use cash plus the ABL to pay it off, which would clearly give you guys some more financial flexibility to do some M&A or to do some share repurchase in the nearer term, rather than have to wait a little bit longer for that? So if there's any commentary you can make on that or how you're thinking about deploying capital once we resolve this issue..

Yes, Nathan, I'll jump in here. Look, we've talked about this before that we've had the disagreement previously on the previous attempt to refinance the term loan, and we continue to remain in discussions about the opportunities to get through that if, in fact, we decide to go to the market for a refinancing.

I think one of the things that we've been pleasantly surprised with is how much cash generation we've actually been able to deliver.

As Kelly said, we've talked about this for quite some time that we need to be able to demonstrate we can generate cash across the cycle, and to do so in, I would say, pretty large amounts, given the comment you made when we opened the call. And I'm really proud of the fact that our team has been able to do that.

It's obviously a combination of profitability of the business.

Our team has done a great job on collections and reducing our day sales outstanding, and making sure as well that we're more efficient with our inventory, that we can generate more revenue and more profitability with less inventory, which is a key metric when you're in the distribution business.

So all those things lining up have really demonstrated we can generate a lot of cash. And in fact, we're generating so much cash that we can basically pay off the term loan with a combination of cash and pulling on the ABL without any necessity of refinancing.

Now, opportunistically, to the extent that we have a resolution with the disagreement with the preferred shareholder, we could consider doing exactly what you say, which is taking out an additional financing vehicle to do some other things, potentially with returning cash to shareholders.

But at this point in time, the base case is we use a combination of the ABL and cash to retire the Term Loan B in September..

Thanks. Go ahead, Kelly..

Hey, Nathan, I was just going to add one more thing to what Rob said.

When we saw how much cash we generated closing out '23 and what we're projecting for 2024, we saw pretty quickly that if we went out to the market to do a refi of the term loan, we were going to be putting a lot of cash just immediately on the balance sheet, right? I mean, like, literally, like a couple of hundred million of cash on the balance sheet.

And we can always go back out to the market. You know, there's no -- there is nothing that says we have to do it right now. We always have that flexibility. And so, you know, time is on our side. We got, you know, very good projections ahead of us.

As Rob said in his prepared comments and I think I mentioned it too, we're going to have minimal net debt at the end of the year. So we think we're very well-positioned..

Yes, I think you're in a good spot for that. Just on the ERP system, I guess the implication is about $30 million of CapEx in '24 on that.

Can you talk about how long the total roll-out is and what the total cost of the ERP system is going to be, and then what you expect to be the financial and operational benefits that you can generate from that new system?.

Yes. Absolutely, Nathan. A good question. We said in the prepared comments, the total project cost, we're estimating around $50 million. We think we'll incur $25 million to $30 million of that here in 2024 with the remainder in 2025. We think we'll be fully up and running on the new system in the second half of '25. So this doesn't go on for many years.

It's really just kind of an 18-month period that we're going to be doing, the implementation. And so, you know, that's on top of our normal run rate of CapEx, around $15 million to get you to the guide that we have this year of $40 million to $45 million.

The benefits we expect to receive, we're kind of really just in the early days of the design phase right now. But let me tell you, we've been working on this for over a year. We spent the first six months of last year going through software selection to make sure we were getting the best fit tool for our business.

And then we spent really the second half of the year making sure we got a best-in-class implementation partner to take us through the whole process. And some of the benefits we think we're going to get. If you look at just the maintenance cost we have on the existing system versus the new, it's $2 million annual savings from that alone.

Being on a mainframe system, which is what we are right now on the North -- for North America, there's just a lot of compatibility issues, integration issues with other equipment, software, industry standards. So that system has served us very well for many decades, but it just becomes more and more challenging to maintain an old system like that.

And even just hiring employees and contract resources to maintain, support and operate the system becomes very difficult. And so, it really is time for us to move on to something new. And, you know, as far as you know -- I know there's always concern about the level of risk of a new system like this.

But let me tell you, as I mentioned, we spent the last year doing our homework. We've selected a first class team of MRC employees to work on this. Many of them, this is not their first ERP project. They've worked on other ERP implementations, and so they're not new to this. This is a North America-only implementation, which I think is very important.

We're not dealing with a lot of, you know, countries around the globe which can introduce different risk. If you look at our footprint here in North America, between our service centers and our RDCs, we have a very standardized approach and processes and the way we run the business. And then we really intend to have very little to no customization.

That introduces risk when you do that. And with the cloud-based systems you have today, off the shelf, they give you virtually all the functionality that you need. I mean, off the shelf functionality, there's hundreds or even thousands of companies that are using the software package already.

And so, it's not like you're having to program things from the ground up. It's already been proven and in use for many years now. And so, we feel pretty comfortable. And then on top of that, we're going to have multiple, what we call, conference room pilot testing before we go live with the system to make sure that everything's working correctly.

So we're very excited about it. I think this is going to be a game changer for the company. It's going to help us with our reporting, our forecasting.

We've made a lot of improvement in working capital efficiencies, but I think this new system is going to take us even to the next level in-demand forecasting’s and better inventory management and things like that..

Great. That's awesome. Thank you..

Next question comes from Ken Newman with KeyBanc Capital Markets. Please go ahead..

Hey. Good morning, guys..

Good morning, Ken..

Good morning..

You know, the cash flow comments earlier were very helpful. Thought I'd maybe ask the working capital question a little differently. Obviously, working cap is going to benefit from the lower revenue in the next few quarters.

But is there a way maybe to quantify what working cap as a percentage of revenue gets to longer term? Is there a target that you'd be willing to quantify?.

Yes. So we finished last year at 15.5%, you know, net working capital as percent of revenue. As we mentioned, that's a record. You know, it's been trending lower for the last several years. We think we can continue to do even better on that metric. I'm hoping that we can get a 14 handle on that percent versus a 15. And it's always a function.

Inventory, we can -- it's a lot easier for us to control. We'll be reducing inventory in 2024. The receivable side of it, getting the collection from customers, can vary quarter by quarter. I'll say the fourth quarter of '23, we had really strong collections coming in.

We were able to do a lot of improvement on past due receivables, and we just got to stay on top of that, keep working it. But again, I think we'll be in that 14% to 15%, you know, percentage range when you look at the net working capital as a percent of revenue..

Got it. That's very helpful. And then maybe just go a little bit more in depth on, you've got the ERP system that your initiative that you're working on this year.

But what else can you talk to that's structurally giving you better line of sight on that working capital outlook?.

Yes, I mean -- I think, as I mentioned, the inventory management is something that we're really extremely focused on, centralizing inventory where we can, reducing turn rates where we can. As I mentioned, I think the ERP -- we made a ton of progress in that area.

But I think the ERP system is going to take us even to the next level with improving analytics. You know, we're going to have some AI functionality that's going to be embedded, machine learning type functionality, but just the forecasting capability, better reporting and things like that.

We think we can continue to improve on top of what we've done today. And that working capital metric as a percent of sales will just continue to improve..

Yes, and if I could jump in. We've really spent a lot of time focusing on inventory efficiency. I mean, inventory is where the distributor puts his or her capital dollars and that has to be an efficient metric for us. In fairness, I don't think we focused on that as much as maybe we could have or should have in previous years.

And we've done a lot of centralization of the decision-making around inventory purchases and we're making sure that any inventory that we add to our system will absolutely pay for itself and then some.

And so, I think going forward, you're just going to see the manifestation of that change in outlook and focus on inventory management to increase our turn rates and just make sure we have more productive, more profitable inventory, which again is a key driver of the working capital efficiency measure..

Yes. Maybe another follow-on question to one that Nathan asked earlier. But in terms of, you know, you're going to be close to, you know, zero net debt by the end of the year, you could argue that maybe that's too low of a net leverage structurally longer term.

So I guess how do you think about the capital structure once you pay that off? And I guess where on the priority list would a take out of the preferred land for capital deployment?.

Well, we think it's a little premature on this call to talk about all the things that we're going to be doing four quarters from now.

But we did want to give you as investors some insight to how we're thinking about the capital structure and the flexibility that we're going to have that frankly, we've never had as a public company to really consider these things and not over-lever ourselves.

But we're -- you know, we're going to keep a really open mind about how that balance sheet is managed and what is the right level of leverage for us. You know, you asked the question about where's the preferred. You know, currently, the interest or the dividend that we pay and the interest -- the 6.5% coupon that's on that preferred.

That's a pretty attractive financing right now in today's market, at least with where interest rates are today, and even accounting for the lack of a tax shield. Going forward, if interest rates get reduced, then maybe the dividend looks a little more expensive than it does today.

But right now, we really haven't made any decisions about how and whether the preferred needs to be taken out. Again, we've got a lot more flexibility than we've ever had before, and we'll consider that as we go forward.

Certainly, you know, one thing that we do want to give some shareholders some reassurance on is that we certainly would try to avoid any kind of a dilution event of conversion of the preferred into common stock. Obviously, the stock price has got to move a bit more from where it is today.

So that's something that shareholders should have in their mind. But look, if we find ourselves in a position where we've got enough cash to fund growth, enough cash potentially to return to common, and additionally we see an attractive opportunity to take out the preferred, we'll certainly look to do that..

That's helpful. If I could just squeeze one more in.

I know that there's a lot of moving pieces and parts here just on the macro outlook, but I'm curious if you've seen any impacts from the Administration's halt on LNG permitting and just where does that fit into your DIET and PTI guidance for the year?.

Yes. I would say, it's early days to really assess what's happened on that yet.

Clearly, it feels a little bit like an election year action, given the importance of LNG exports to many of our allies around the world, and the fact that the US still has abundant supplies of natural gas that is cheap and can be transported safely and reliably around the world.

So we think LNG is going to continue to be a strong growth vehicle for the country and then, frankly, for our DIET sector. The projects that we're already involved in that don't involve shipping LNG to non-FTA members, those are obviously going forward.

And then going on the projects that are under consideration, at this point, we really haven't seen any direct effects of that on our business, but obviously, we'll watch the space as we go forward. We hope this is a temporal issue that works itself out, because, again, we're bullish on LNG, and this is a great growth opportunity for MRC Global..

Very helpful, guys. Thank you..

You're welcome..

Next question, Chris Dankert with Loop Capital. Please go ahead..

Hey, morning, guys..

Good morning..

Glad to hear about the kind of proactive efforts around SG&A, and thank you for kind of getting into the moving parts there.

But maybe can you try and size what some of these proactive actions are for '24 and maybe just even kind of level set us for what to expect going into the first quarter on SG&A?.

Yes, I mean, look, we're -- we recognize that as revenues stagnate or potentially even fall a little bit from '23 to '24, that we really need to make sure that our cost structure reflects that. And we've identified a number of initiatives, some of which I talked about generally in the prepared comments, for how we can reduce our SG&A this year.

We're really looking at kind of single-digit reduction. So this is not a massive reduction because we're looking at 2024 as a transition year. We fully expect that we're going to get back on a growth trajectory.

So we're not looking to take a -- really a significant reduction in SG&A, which then would cause us to not be in position to capitalize on the growth we expect in 2025. But as a practical matter, you know, we obviously are expecting slower wage growth this year. I think everybody is seeing that across industry and certainly here in the US.

We've mentioned that professional fees, some of our travel and entertainment expenses, overtime, all those things potentially can come down with lower activity or flat activity relative to what we'd expected previously. Logistics costs we think we can reduce as well through some additional efficiencies in our regional distribution center network.

So we're going to be looking at a new RDC in the Atlanta area that's going to give us some savings on freight costs. So we got a number of things identified which will take that number down. Again, I think you should really focus on kind of low single-digit reduction in the SG&A in aggregate.

But that's the kind of reduction that given we're going to be flat to slightly down on revenue, at least we anticipate that, that will allow us to maintain that 7% EBITDA margin. And we think that's really important for shareholders and something that we want to make sure that we preserve as we move through this transition year..

And Chris, I would just add. You asked about Q1. I would keep Q1 SG&A pretty consistent to where we were in Q4, but then it'll be stepping down each quarter through the year as we progress. And then, as we said in our guidance, we think we can keep that as a percent of revenue below 15%. In 2023, we were 14.7%.

So still keeping it -- that percentage in that same range..

Got it. That's all. Extremely helpful. Thank you for the color there, guys.

And then I guess just with the Trans Mountain Pipeline nearing completion, how do we think about opportunities in Canada, perhaps more broadly? I mean, do we see more refining opportunity? Are things, you know, tapering off, now that's done? How do we think about Canada overall?.

Well, Canada, to be fair, has been a bit of a challenge for us in terms of the revenue profile and for a couple of reasons. I think you see that a lot of the larger players in Canada that we typically serve are not as active in that market as they are in, let's say, some other upstream markets like the Permian Basin.

So that's been the challenge for us. And, you know, it's a very competitive market as well. And so, you know, we are seeing the start to the year, as Kelly mentioned, you know, increasing in backlog and we say across all segments. So that includes Canada. So we are seeing some really nice stuff up there to start the year.

We're also seeing some attractive projects, some of which fall in the energy transition space up there as well. So there are some good things happening in Canada. But before we get too excited about the Canadian market, we just need to make sure that we can consistently generate revenue and profitable revenue up there.

And what has been historically or recently historically for us has been a pretty tough market..

Yes, makes sense. If I could sneak just one last one in. Again, like I say, net cash position in '25, more optionality than recent years here.

Where would you see kind of any potential M&A opportunities? Obviously, excluding the destocking, gas utility has been a great kind of organic story, but where maybe are some of the gaps that M&A could kind of help bolster growth here, if any?.

Yes, look, we -- we're going to look at various capital allocation strategies and we're a big belief that -- big believers that growing our business is important to shareholders as well. Obviously, any M&A that we would consider or undertake has to be really thoughtful and absolutely accretive to the story and to the financials of the company.

We're big believers that if you can get scale economies in a business that, that is certainly a really good way to gain market share and also to have some synergies right out of the gate in terms of cost reduction, but -- and then opportunities potentially to expand the scope of services that we provide, those kind of things are fair game as well.

But I don't want to get too far ahead of ourselves in terms of saying that we've got a very, let's say, well-developed M&A plan around particular acquisitions. We continue to look at the market and see what makes sense.

Again, it's going to have to be a high hurdle for any significant M&A to really make our cut, because we're really conscious of the fact that we've got, you know, to do right by our shareholders in terms of making sure that they share in the bounty that we're now developing through all this cash generation. So I would just say, stay tuned on that.

And as and when we see deals that make sense for this company, we'll certainly be happy to share those thoughts when they're developed..

Understood. Well, best of luck on '24, guys..

Great. Thank you..

Next question. Tommy Moll with Stephens Inc. Please go ahead..

Good morning. This is Max Kane on for Tommy.

I was wondering if you could provide us with any additional color on gross margin seasonality for '24 and whether or not you're expecting margins to be sequentially higher in 1Q?.

Yes. Well, Max, we guided that we thought for the full-year average, we feel comfortable that we can maintain the 21%-plus margins that we've been enjoying for seven quarters in a row now. So we're pretty proud of that fact. I think in Q4, we had elevated margins of 21.9% that was really strong.

We had some good sales, some bulky line pipe sales that came in at high margins that helped prop that up higher than just the normal kind of low 21% range. I think in Q1, you won't see a 21.9%. It is going to moderate from that level, but still be above the 21% -- 21 -- call it, low 21% type range is probably what we're thinking.

But again, for the full-year, we're proud seven quarters in a row. We're going to keep that trend going. The one that really works against us there is the line pipe margins. There has been deflation over the last year or so that we have to deal with.

But we've been focusing on product mix and the higher margin product categories to offset or help offset the impact that we see in line pipe. Also, with the double-digit growth that we've had in the international business, that is a nice tailwind for us because the international business has accretive gross margins compared to the company average.

And so, we feel like everything's pointing in the right direction to keep that trend going at 21%-plus..

Okay, great. Yes, thanks for the color. And, yes, you've already covered the rest of my questions, so I'll go ahead and turn it back. Have a nice day..

Thank you..

Thank you..

Thank you. I will now turn the call over to Monica Broughton for closing remarks..

Thank you all for joining our call 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..

This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation..