10-Q: MRC Global Reports Q3 Loss Amid ERP Challenges, Merger Nears Close

MRC Global Inc. reported a net loss for Q3 2025, primarily due to operational disruptions from its new U.S. ERP system implementation and declining sales in its DIET and PTI segments, while its merger with DNOW Inc. progresses towards a Q4 2025 close.

Summary

• MRC Global Inc. reported a net loss of $9 million for the three months ended September 30, 2025, compared to a net income of $29 million for the same period in 2024.
• Sales decreased by $93 million, or 12%, to $678 million for Q3 2025 compared to $771 million in Q3 2024, primarily due to unexpected operational challenges from the U.S. ERP system implementation and market activity declines in the DIET and PTI sectors.
• Operating loss for Q3 2025 was $3 million, a significant decline from an operating income of $37 million in Q3 2024.
• For the nine months ended September 30, 2025, the company reported a net loss of $18 million, a substantial decrease from a net income of $78 million in the prior year period.
• The merger with DNOW Inc. is progressing, with stockholder approvals received on September 9, 2025, HSR Act waiting period expired on October 6, 2025, and regulatory approvals received on November 3, 2025; the merger is expected to be consummated in Q4 2025.
• The sale of Canada operations to EMCO Corporation was completed on March 14, 2025, generating $18 million in net cash proceeds and resulting in a $30 million loss from discontinued operations for the nine months ended September 30, 2025, primarily due to reclassification of foreign currency translation adjustments.
• The implementation of a new cloud-based ERP system in the U.S. segment in August 2025 caused significant, unexpected challenges that adversely affected order processing, customer shipments, software integration, and timely invoicing, impacting Q3 2025 revenue, profitability, and cash flow.
• The company's backlog increased to $571 million as of September 30, 2025, up from $549 million at September 30, 2024, with substantially all sales expected to be realized within twelve months.
• Net cash used in operating activities for the nine months ended September 30, 2025, was $67 million, a significant shift from $197 million provided in the prior year period, driven by inventory increases and lower profitability.

Sentiment

Score: 3

Explanation: The company reported a net loss and significant declines in sales and operating income, primarily due to severe disruptions from its ERP system implementation. While the merger with DNOW is progressing and the ERP issues are stated as temporary, the immediate financial impact is substantially negative, and operating cash flow turned negative.

Positives

• The International segment reported an increase in sales to $128 million for Q3 2025, up 1% from $127 million in Q3 2024, and an increase in operating income to $11 million from $9 million.
• The Gas Utilities sector, representing 40% of total company revenue for the first nine months of 2025, showed a 2% increase in revenue compared to the prior year and is expected to grow steadily due to infrastructure upgrades and new home construction.
• The company's backlog increased to $571 million as of September 30, 2025, indicating future revenue potential.
• Credit ratings have seen positive movement, with Moody's upgrading the corporate family rating to 'B1' in October 2024 and S&P affirming 'B' with a 'positive' outlook in April 2025, further moving to 'CreditWatch Positive' in June 2025 due to the DNOW merger announcement.
• The new ERP system is expected to deliver long-term operational benefits despite initial challenges.
• The DNOW Inc. merger is on track for consummation in Q4 2025, having received all necessary stockholder and regulatory approvals.

Negatives

• A net loss of $9 million was reported for Q3 2025, a significant decline from a net income of $29 million in Q3 2024.
• Sales decreased by $93 million (12%) in Q3 2025 and $159 million (7%) for the nine months ended September 30, 2025, compared to the respective prior year periods.
• Operating income shifted to a loss of $3 million in Q3 2025 from an income of $37 million in Q3 2024, primarily due to ERP implementation challenges and lower sales.
• Interest expense increased by $6 million in Q3 2025 and $10 million for the nine months ended September 30, 2025, due to higher average debt balances and interest rates.
• Net cash used in operating activities was $67 million for the nine months ended September 30, 2025, a substantial decrease from $197 million provided in the prior year, indicating a significant impact on cash flow.
• The U.S. segment's operating income decreased by $44 million in Q3 2025 and $100 million for the nine months ended September 30, 2025, largely due to ERP system implementation issues and increased SG&A expenses.
• The LIFO inventory costing methodology increased cost of sales by $13 million in Q3 2025 and $24 million for the nine months ended September 30, 2025, during a period of rising inventory costs, negatively impacting gross profit.
• The company's disclosure controls and procedures were deemed not effective as of September 30, 2025, due to a material weakness in inventory cycle count control.

Risks

• The risk associated with the timing of the closing of the Mergers, including the risk that the conditions to the transaction are not satisfied on a timely basis or at all or the failure of the transaction to close for any other reason or to close on the anticipated terms.
• The effect of the announcement, pendency or completion of the Mergers on business relationships and business operations generally.
• The risk that the expected benefits and synergies of the Mergers may not be fully achieved in a timely manner, or at all.
• Decreases in capital and other expenditure levels in the industries served.
• U.S. and international general economic conditions.
• Global geopolitical events.
• Decreases in oil and natural gas prices.
• Unexpected supply shortages.
• Loss of third-party transportation providers.
• Cost increases by suppliers and transportation providers.
• Increases in steel prices, which may be unable to be passed along to customers, potentially lowering profit.
• Lack of long-term contracts with most suppliers.
• Suppliers' price reductions of products sold, which could cause the value of inventory to decline.
• Decreases in steel prices, which could significantly lower profit.
• An increase in the price of goods sold if tariffs are imposed or a decline in demand for certain products if tariffs and duties are lifted.
• Holding more inventory than can be sold in a commercial time frame.
• Significant substitution of renewables and low-carbon fuels for oil and gas, impacting demand for products.
• Risks related to adverse weather events or natural disasters.
• Environmental, health and safety laws and regulations and the interpretation or implementation thereof.
• Changes in customer and product mix.
• The risk that manufacturers of the products distributed will sell a substantial amount of goods directly to end users.
• Failure to operate the business in an efficient or optimized manner.
• Ability to compete successfully with other companies in the industry.
• Lack of long-term contracts with many customers and lack of contracts with customers that require minimum purchase volumes.
• Inability to attract and retain team members or the potential loss of key personnel.
• Adverse health events, such as a pandemic.
• Interruption in the proper functioning of information systems, including adverse impacts from the implementation of a new ERP system in the U.S. segment.
• The occurrence of cybersecurity incidents.
• Risks related to customers' creditworthiness.
• The success of acquisition strategies.
• The potential adverse effects associated with integrating acquisitions into the business and whether these acquisitions will yield their intended benefits.
• Impairment of goodwill or other intangible assets.
• Adverse changes in political or economic conditions in the countries in which the company operates.
• Significant indebtedness.
• Dependence on subsidiaries for cash to meet parent company's obligations.
• Changes in credit profile.
• Potential inability to obtain necessary capital.
• Potential share price volatility and costs incurred in response to any shareholder activism campaigns.
• The sufficiency of insurance policies to cover losses, including liabilities arising from litigation.
• Product liability claims against the company.
• Pending or future asbestos-related claims against the company.
• Exposure to U.S. and international laws and regulations, regulating corruption, limiting imports or exports or imposing economic sanctions.
• Risks relating to ongoing evaluations of internal controls required by Section 404 of the Sarbanes-Oxley Act, a material weakness related to the operating effectiveness of the inventory cycle count control if it remains unremediated and the risk that controls embedded in the newly implemented ERP system in the U.S. segment fail in their design or operating effectiveness.
• Risks related to changing laws and regulations, including trade policies and tariffs.

Future Outlook

The merger with DNOW Inc. is expected to be consummated during the fourth quarter of 2025. The new ERP system is anticipated to deliver long-term benefits to operations. The Gas Utilities sector is expected to grow steadily in the coming years due to distribution integrity upgrade programs and new home construction. The Downstream, Industrial and Energy Transition (DIET) sector is projected to deliver growth driven by new energy transition-related projects, maintenance, repair and operations (MRO) activities, and project turnarounds, with expansion into mining and data centers. The Production and Transmission Infrastructure (PTI) sector expects activity to be driven by larger public exploration and production companies and significant investment growth in natural gas infrastructure projects, supported by LNG project approvals. The company is cautiously optimistic that U.S. government policies will be supportive of its business, despite monitoring waning U.S. government support for energy transition projects. The elevated revenue backlog of $571 million at the end of Q3 2025 is expected to manifest as revenue in the coming quarters.

Management Comments

• "Significant, unexpected challenges arose, which, while temporary in nature, adversely affected our ability to process orders, fulfill customer shipments, integrate with other necessary software systems and issue timely invoices." (regarding ERP system implementation)
• "At the end of September 2025, customer service levels had largely returned to normalized levels." (regarding ERP system resolution)
• "The Company continues to expect that the ERP system will deliver long-term benefits to the Company's operations."
• "We are cautiously optimistic that these policies will be supportive of our business." (regarding U.S. tariffs and policies)
• "We believe this concern has diminished in 2025 and our customers appear to have returned to more traditional spending patterns." (regarding Gas Utilities customer inventory levels)
• "The long-term market drivers remain positive due to distribution integrity upgrade programs as well as new home construction in certain U.S. states." (regarding Gas Utilities sector)
• "We continue to expect this sector to deliver growth in the coming years driven by increased customer activity levels related to new energy transition-related projects, maintenance, repair and operations ('MRO') activities and project turnaround activity in refineries and chemical plants." (regarding DIET sector)
• "We are also negotiating master service agreements with targeted owners and subcontractors for PVF work in new data center cooling systems. While still early, we are seeing encouraging momentum in both areas." (regarding DIET expansion)
• "We believe that natural gas will be a primary fuel for electrification to support re-shored manufacturing, transportation mobility and artificial intelligence applications." (regarding PTI sector)
• "Our supply chain expertise, relationships with our key suppliers and inventory position has allowed us to manage the supply chain for both inflationary and deflationary pressures."
• "Our contracts with customers generally allow us to pass price increases on to customers within a reasonable time after they occur."

Industry Context

The Gas Utilities sector is driven by ongoing maintenance and upgrading of aging energy infrastructure, with approximately 34% of gas distribution main and service line miles over 40 years old or of unknown origin, ensuring stable demand for replacement products. The Downstream, Industrial and Energy Transition (DIET) sector is experiencing project delays and cancellations due to higher steel prices from recent U.S. tariffs and softness in refining and chemicals markets, but anticipates future growth from energy transition projects, MRO, and expansion into new markets like mining and data centers, though U.S. government support for energy transition is waning. The Production and Transmission Infrastructure (PTI) sector, the most cyclical, is influenced by oil and natural gas price volatility, with recent OPEC+ production increases leading to price decreases. However, larger public exploration and production companies are expected to drive activity, and significant midstream investment growth is anticipated due to increased LNG project approvals, positioning natural gas as a primary fuel for electrification and industrial applications. Overall, the industry faces challenges from tariffs, which can impact project economics, and ongoing labor constraints, though supply chain expertise helps manage these pressures.

Corporate Governance

Legal Proceedings

• Named as one of many defendants in approximately 478 lawsuits involving approximately 1,043 claims related to alleged asbestos exposure, with applicable third-party insurance substantially covering these claims.
• Currently undergoing a multi-state unclaimed property audit, with the timing and outcome unpredictable, and potential for adverse impact if found in noncompliance.
• Subject to customer claims regarding defective products or warranty repairs/replacements in the ordinary course of business, with manufacturers generally required to indemnify the company against product liability claims.

Stakeholder Impact

• Shareholders: Experienced a net loss and decreased earnings per share, but the impending merger with DNOW Inc. offers potential future value through conversion to DNOW shares and expected synergies. The share repurchase program was suspended due to the merger agreement.
• Customers: Faced temporary disruptions in order processing, shipments, and invoicing due to the ERP system implementation, though customer service levels had largely returned to normalized levels by the end of Q3 2025.
• Employees: Management has taken measures, including hiring additional employees and enhanced training, to address the adverse impacts of the ERP implementation.
• Creditors: Increased debt balances and interest expense. Credit ratings are below investment grade, but Moody's and S&P have issued positive outlooks/upgrades, with S&P's 'CreditWatch Positive' reflecting the anticipated DNOW merger, which includes DNOW's commitment to pay off/discharge the Global ABL Facility.

Next Steps

• Consummation of the Mergers with DNOW Inc. during the fourth quarter of 2025.
• The ERP system is expected to deliver long-term benefits to the company's operations.
• Management is implementing a remediation program to enhance the operating effectiveness of its inventory cycle count control, including hiring additional resources, engaging a consulting firm, and enhancing training.
• The company will continue to evaluate the impact of the One Big Beautiful Bill Act policies in future periods.
• The company will continue to monitor the impact of the ERP system implementation on its processes, procedures, and internal controls over financial reporting.
• Monitoring customers' plans for and the pace of development of energy transition projects.
• Expected realization of the $571 million backlog as revenue in the coming quarters.

Key Dates

Recommendation

The company is experiencing significant operational headwinds, particularly from its ERP system implementation, which led to a net loss and substantial declines in sales and operating income. However, the impending merger with DNOW Inc. is a transformative event that is expected to close in Q4 2025, and DNOW has committed to addressing MRC Global's debt. The long-term benefits of the ERP system are also anticipated. Given the short-term challenges but the imminent strategic shift and potential for future synergies from the merger, a 'hold' recommendation is appropriate as investors await the completion of the merger and the realization of its benefits, as well as the resolution of operational issues.

Keywords

MRC Global, DNOW, merger, 10-Q, Q3 2025, financial results, ERP system, pipe valves fittings, PVF, energy transition, oil and gas, gas utilities, downstream, industrial, production and transmission infrastructure, supply chain, tariffs, debt, liquidity, internal controls