MRC Global Inc

NYSE:MRC

Earnings Call Analysis

Strong Margins Amid Revenue Fluctuations

In the third quarter, U.S. revenue rose to $745 million, a 2% increase. Adjusted gross profit reached $189 million, maintaining margins over 21% for the sixth straight quarter. SG&A expenses were reduced to $123 million from $130 million last quarter, after adjustments. The company achieved a net income of $29 million. Looking ahead, a seasonal downtrend in revenue is expected, falling potentially 5-10%, influenced by the gas utility sector. International growth is projected to hit mid-teens percentages, while modest growth in the U.S. is contrasted by a decline in Canada. Full-year adjusted gross margins should remain around 21%, with an EBITDA margin above 7%.

Steady As She Goes with Optimism on the Horizon

Despite a softened pace in top-line growth, the quarter saw the company reaching $888 million in revenue, a 2% sequential rise. Investors should note the continued dedication to high EBITDA margins, which for the sixth time in a row exceeded 7%, landing at 7.9%, coupled with a commendable adjusted gross profit margin steadfastly above 21%. The EBITDA itself expanded by 11%, amounting to $70 million. A stand-out performance was delivered by the DIET sector, which fully leveraged the quarter, clocking in a robust 14% sequential growth.

Gas Utility Sector Faces Temporary Setbacks

The gas utility sector, however, has been navigating through marginally lower sequential revenue, primarily due to a phase of inventory destocking among customers — expected to prevail for one or two more quarters. The sector is also feeling the pinch from heightened interest rates and inflation, which have dipped the available capital expenditure for products, particularly affecting line pipe sales, which reported a significant 20% plunge in revenue.

Future Outlook: A Mixture of Caution and Confidence

Looking forward, while 2024 revenue forecasts remain under wraps, the company hints at a bullish sentiment for the PTI sector, bolstered by healthy oil prices and projected capital hikes in North America and beyond. The gas utilities are presumed to advance with restraint, though the DIET sector could enjoy an upsurge from sturdy refinery and chemical plant ventures. The expectation set here is a mix of optimism tempered with caution, acknowledging the solid fundamentals across all sectors despite near-term challenges.

Solid Performances Across The Board with Minor Slips

The narrative for the quarterly sales story was dominated by two sectors: the DIET sector, which surged forward with a 14% increase due to thriving project activities, and the PTI sector, which saw mild deceleration owing to project and shipment scheduling, though it managed a 10% year-on-year spike. One surprise came in the form of postponed deliveries, initially anticipated within the quarter yet veering into the next. Such shifts underscore the sector's dynamism and its occasional unpredictability.

A Balancing Act Between Margins and Market Pressures

The steady ship of adjusted gross margins at over 21% is particularly impressive given the headwinds faced, including line pipe deflation. This is evidence of smart maneuvering through product mix enhancement, favorable contracting, and a boost from the international segment's revenue, which contributes positively to overall margins. Operating costs were well-managed, with a slight downtick in Selling, General & Administrative Expenses from 14.9% to 14.2% of sales, reflecting a strong command over the cost structure.

International Growth and Canada's Steady Keel

International sales slightly dipped by 1%, still, the company harbors a bullish outlook backed by a 35% upsurge in backlog, with notable advances in the PTI and DIET sectors. Not to be overlooked, Canada's revenue held steady at $38 million, providing a dependable, if unexciting, performance.

Financial Muscle Flexing: Cash Flow and Liquidity

With a formidable $102 million generated in operational cash flow and beating the full-year target ahead of time, financial health remains robust. Coupled with increased year-end cash flow projections from operations, now pegged at approximately $110 million, the liquidity front looks promising. The company's leverage ratio underlines this strength, tallying at 0.9x — a fall below the anticipated threshold sooner than projected.

Taking the Forecasted Dip in Stride

A forecasted seasonal dip of 5% to 10% in revenues for the fourth quarter, possibly even skewing towards the higher end, doesn't diminish the anticipation for mid-teens growth in the international sector and incremental growth in the U.S. Unfortunately, Canada is projected for an upper single-digit drop. The PTI and DIET sectors remain the bright spots, both expected to deliver upper single-digit percentage growth for the year. Recurring themes for the fiscal year's end include the anticipation of gross margins around the 21% mark and EBITDA margins above 7%.

Earnings Call Transcript 2023-Q3

[Operator]

Greetings, and welcome to MRC Global's Third Quarter 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Monica Broughton, Vice President, Investor Relations and Treasury. Thank you. You may begin.

[Monica Schafer, executive]

Thank you, and good morning. Welcome to the MRC Global Third Quarter 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 November 22, 2023. The dial-in information is in yesterday's release.

We expect to file our quarterly report on Form 10-Q later today and it will also be available on our website. Please note that the information reported on this call speaks only as of today, November 8, 2023, 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 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 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.

[Robert Saltiel, executive]

Thank you, Monica. Good morning, and welcome to everyone joining today's call. I will begin with a high-level overview of our third quarter results and sector performance and then provide some preliminary thoughts about 2024. Kelly will provide a detailed review of the third quarter financial results before I end our prepared remarks with a brief recap.

We continue to execute well for our customers in the third quarter despite the fact that our rate of top line growth slowed a bit. Revenue for the third quarter was $888 million, up 2% sequentially over the second quarter. We generated $70 million of adjusted EBITDA, up 11% sequentially, resulting in an EBITDA margin of 7.9%. This marked the sixth consecutive quarter for our EBITDA margin to exceed 7% as well as our sixth consecutive quarter for adjusted gross profit margin to exceed 21%.

We also realized $102 million of cash flow from operations in the quarter, bringing our year-to-date cash flow to $92 million, exceeding our guidance for the full year. The strong cash flow result was a feed through excellent work by our supply chain and operations teams in managing our inventory levels and our finance team in managing our working capital components effectively.

Cash flow generation across the business cycle, even in growth periods when more working capital is required, is imperative for our company and our shareholders, and we are pleased with this result. Turning now to our sectors. Our DIET sector experienced a strong 14% sequential growth in the third quarter that would have been even higher had not some of our larger orders for chemical and refining customers slipped into the fourth quarter due to project delays.

We also made 2 significant announcements involving our DIET sector since our last earnings call. The first was the 5-year extension of our enterprise frame agreement with our long-time customer, Shell. Much of our future activity with Shell is expected to involve energy transition and chemical projects with a large international component.

We also announced our role as a major supplier of valves to Preem's biofuel project in Sweden, further demonstrating the opportunities that our energy transition business brings as well as the benefits of our global footprint.

PTI revenue declined by 3% in the third quarter sequentially as we experienced a general drop in North American oilfield activity. We continue to perform well in our biggest PTI region, the Permian Basin, as the large publicly traded customers there continue to provide us steady work. We believe that recent announcements of acquisitions of major producers in the Permian Basin and Rockies have the potential to be beneficial to MRC Global once completed.

We work more extensively with the acquirers today than we do the targets and we are built for customers who value high quality, longer life products that we purchase consistently through their enterprise agreements.

In contrast to the exciting growth in the Permian Basin, our customers operating in the California oilfield have faced a difficult regulatory environment that has inhibited investment and production growth. Decreased activity in California contributed to our lower PTI revenue in the third quarter.

In our gas utility sector, we also experienced a slight sequential revenue decline. As we discussed on our last call, the normalization of product supply chains has led our customers to focus on destocking their own inventories as a near-term priority. We expect this destocking to continue for 1 or 2 quarters longer.

In addition, higher interest rates have raised the bar for new projects, while higher labor and construction costs have reduced the share of CapEx that is available for product purchases. It is noteworthy that most of our various product line sales this year within the gas utility sector are in line or higher than last year, with the exception of line pipe.

In this product group, we have experienced significant deflation over the past year and increasing competition leading to approximately 20% lower line pipe revenue this year in our gas utility sector.

In particular, some of our major customers have significantly reduced spending in the line pipe product group, but we expect these customers to return to previous spending levels as we move through next year. Additionally, we have avoided chasing low-margin sales with our line pipe inventory, which has allowed us to preserve an adjusted gross profit percentage in excess of 21%, but at the cost of a lower top line.

The good news is we expect that line pipe prices have likely bottomed so this headwind should diminish over the next year. Despite the temporary pause in the growth of our gas utility sector, the fundamentals of this business remain very strong. We maintain a leading market position and we have served many of our customers for more than a decade. We are integral supply chain partners for these utilities and we have been entrusted with the responsibilities previously under the purview of the utility that would, in many cases, require significant cost and effort to migrate back in-house.

These utilities have recognized that MRC Global's ability to purchase at scale and to provide value-added services, provide significant cost savings and a better quality supply chain result. Additionally, this sector has historically been less susceptible to a major slowdown due to its reduced dependency on energy demand and commodity prices. Kelly will provide more detail in his section about our outlook for the fourth quarter, but a big positive that I want to mention is that we now expect to generate approximately $110 million in cash from operations this year, exceeding our previous guidance of $90 million.

Looking ahead to 2024, we are not quite ready to provide specific revenue guidance as many of our customers are still determining their capital budgets for next year. However, I will offer some perspectives on the key drivers. We expect that the PTI sector will benefit from generally high oil prices supported by OPEC Plus and increased capital spending by producers in North America and international markets.

We expect our gas utilities customers to grow capital spending at a more muted pace with the majority of their activity concentrated in the second half of the year when the bulk of the destocking is concluded. We expect the DIET sector to benefit from robust refinery and chemical plant maintenance activities, supplemented by a strong and growing slate of projects. In summary, we remain optimistic about the underlying fundamentals of all 3 sectors and their longer-term outlook. I will now hand it over to Kelly.

[Kelly Youngblood, executive]

Thanks, Rob, and good morning, everyone. My comments today will primarily be focused on sequential results comparing the third quarter of 2023 to the second quarter of 2023, unless otherwise stated. Total company sales for the third quarter were $888 billion, a 2% sequential improvement. From a sector perspective, gas utility sales were $314 million in the third quarter a $9 million or 3% decrease due to the reasons Rob mentioned earlier.

The DIET sector third quarter revenue was $279 million, an increase of $34 million or 14% primarily due to increased turnaround project activity. But as expected, this sector had a rebound in sales compared to the second quarter, but some deliveries that were originally expected in the third quarter slipped into the fourth quarter. As we have mentioned before, this sector has a significant amount of project activity, which can create substantial variability between quarters.

The PTI sector revenue for the third quarter was $295 million, a decrease of $8 million or 3% sequentially, primarily due to the timing of shipments and project activity. Compared to the third quarter of 2022, PTI sales are up 10% and backlog is up 12%, driven by growth in the International segment.

From a geographic segment perspective, U.S. revenue was $745 million in the third quarter and $18 million or a 2% increase from the previous quarter driven by the DIET sector, which was up $31 million or 17%, partially offset by declines in our gas utilities and PTI sectors, which were down $10 million and $3 million, respectively.

Canada revenue was $38 million in the third quarter, flat compared to the prior quarter. International revenue was $105 million in the third quarter, down $1 million or 1%, essentially flat. We remain very optimistic about the outlook for our International segment, which has experienced a 35% increase in backlog since the beginning of the year with double-digit growth in both the PTI and DIET sectors.

Now turning to margins. Adjusted gross profit for the third quarter was $189 million or 21.3%, a 20 basis point decline from the second quarter. Although we have experienced deflation in our line pipe business this year, along with inflation stabilization across most other product lines.

We have been successful maintaining adjusted gross margins in excess of 21% of sales due to a higher margin product mix, improved contract terms and a higher contribution of revenue from our international segment, which is accretive to overall company gross margins. This makes the sixth consecutive quarter with adjusted gross margins exceeding 21%.

Reported SG&A for the third quarter was $126 million or 14.2% of sales as compared to $130 million or 14.9% for the second quarter. This quarter includes $3 million of pretax charges related to a customer settlement in our U.S. segment, offset by a $4 million favorable adjustment for insurance. Due to the nonrecurring nature of the customer settlement expense, we have excluded it from our SG&A expense this quarter to arrive at a net adjusted SG&A expense for the third quarter of $123 million.

Adjusted EBITDA for the third quarter was $70 million or 7.9% of sales, a 70 basis point improvement from the second quarter. This makes the sixth consecutive quarter with adjusted EBITDA margins exceeding 7%, significantly stronger than our historic results. Tax expense in the third quarter was $14 million with an effective tax rate of 29% as compared to $2 million of expense in the second quarter. The difference in the effective rate and the statutory rate is due to state income taxes, nondeductible expenses and differing foreign income tax rates.

For the third quarter, we have net income attributable to common stockholders of $29 million or $0.33 per diluted share and our adjusted net income attributable to common shareholders on an average cost basis, normalizing for LIFO adjustments and other items, was $28 million or $0.32 per diluted share.

In the third quarter, we generated $102 million in cash from operations and a net $92 million year-to-date. As Rob noted, the performance this quarter allowed us to achieve our full year cash flow target a quarter early due to strong working capital efficiencies and we expect to generate additional cash flow from operations in the fourth quarter, enabling a full year cash from operations of approximately $110 million. This is an increase of the $90 million target we mentioned last quarter.

Turning to liquidity and capital structure. Our current availability on the ABL is $696 million and including cash, our total liquidity is $748 million. Our leverage ratio based on net debt of $251 million was 0.9x, dropping below the 1x hurdle a quarter earlier than expected. With the cash we expect to generate in the coming year, we believe liquidity and the leverage ratio will continue to show improvement.

And if we do not refinance our term loan B that matures in September of 2024, we expect to have plenty of capacity under our ABL to use, if needed, to address payment of the balance before maturity. As noted in our earnings call last quarter, given our ability to repay the term loan using the ABL with no impact to current assets. We have continued to classify the term loan as long-term debt despite the term loan technically maturing within 1 year. This designation on the balance sheet will continue throughout 2024 as long as the existing term loan remains outstanding.

Turning now to the fourth quarter. We currently expect a seasonal sequential revenue decline of 5% to 10%, and this year could be at the higher end of the range due to the factors already discussed related to the gas utility sector.

For the full year, our International segment is expected to approach a mid-teens percentage level of growth, followed by our U.S. segment with a low single-digit increase in Canada with an upper single-digit decline. From a sector perspective, we expect our highest full year growth percentages to be in the PTI and DIET sectors with upper single-digit percentage growth.

And gas utilities, as explained earlier, has experienced some near-term headwinds and as a result, is expected to have a mid-single-digit decline for the full year. Also for the full year, we expect to maintain adjusted gross margins in the 21% range and adjusted EBITDA margin in excess of 7%. We intend to provide -- we intend to provide 2024 guidance on our fourth quarter call. And with that, I would like to turn it back to Rob for closing comments.

[Robert Saltiel, executive]

Thanks, Kelly. These are some of the key highlights I want to summarize before opening for Q&A. Cash flow generation remains a top priority across the business cycle. We generated $102 million of cash from operations in the third quarter, even as we grew our revenue sequentially. We now expect to exceed our prior guidance of $90 million for full year 2023. We expect adjusted gross profit to remain in the 21% range and adjusted EBITDA margins to be in excess of 7% for the full year 2023.

Our diversification strategy is paying off with each of our 3 sectors providing approximately 1/3 of our revenues with largely uncorrelated business drivers. We anticipate positive drivers for our PTI and DIET sectors in 2024 that should compensate for any first half potential weakness in gas utilities.

And lastly, before we open up the call for Q&A, I do want to acknowledge that there have been articles in the media relating to an activist investor in our stock. As I'm sure you can appreciate, we don't discuss the specifics of our interactions with any of our existing or potential shareholders, and we won't be able to comment on this situation.

As such, we ask that you keep your questions in the Q&A session focused on our quarterly results. And with that, we will now take your questions. Operator?

[Operator]

[Operator Instructions]. Our first question comes from the line of Tommy Moll with Stephens.

[Thomas Moll, analyst]

I wanted to start on gas utilities. It's a 2-part question, just to follow up on some of the things you laid out, Rob. First on the destocking. Anything you could point to that gives you visibility on the timing of that cycle? And then maybe a newer topic to hit on today. You called out interest rates and inflation as impacting the rate of customer spend and the real underlying demand. How much visibility do you have there? And could those factors get worse before they get better?

[Robert Saltiel, executive]

Yes. Thanks, Tommy. As far as the destocking is concerned, our team maintains a regular dialogue with all of our significant customers to really understand what their plans are for the remainder of this year and into next year. And as we talked about on the last call, it's very clear that a lot of our major customers really are reducing their inventory levels, having kind of seen the normalization of the supply chains and realized that they were holding too much inventory and too many different piles.

And some of that inventory that we're holding, they're not pulling on as much as they would because they've got some of their own inventory to work themselves through. As we've said on a number of occasions, we think that this is a shorter-term phenomenon, probably a 2 quarter or so phenomenon. And as we continue to have dialogue with customers, they seem to reaffirm that. But we want to be clear that this is somewhat fluid in development because we really haven't seen this for a while. And obviously, as we move ourselves into 2024, we'll be able to check it in more detail.

But again, if you look at the fundamentals of our business, there's a tremendous amount of infrastructure out there that still needs to be replaced, updated, modernized the quote is basically that about 1/3 of the gas utility lines out there are over 40 years old. And so there's tremendous modernization that needs to take place. We also have, obviously, a lot of demand for upgrading meters and some of those projects have been delayed, but we know that those projects are going to go through.

And then we also mentioned in the prepared comments that some of the decline that we're seeing in the gas utility space has really been around a curtailment of line pipe purchases. So that's actually been concentrated among some of our bigger customers. And that's been something that we think is going to be a transient effect. We've seen line pipe pricing bottom and we expect that we'll see more normal purchases to line pipe as we move through next year.

And then finally, I do want to say a couple of things around our gaining a market share. We've added new customers. We've got more customers in the pipeline that we think we can add to our business as we move into '24. And when we look at budgets, even though budgets haven't really been announced across the board yet, the ones that are announcing seem to be increasing their budgets for next year. And ultimately, even with the destocking, we think that we're going to start to see a pickup next year in our revenues as these effects I've talked about kind of work themselves through.

So destocking is a big part of it. But as you said in the second part of your question, interest rates, inflation, all these things sort of eat into product purchases.

And in the discussions we've had with customers, they've indicated that, yes, the destocking is a big part of it, but they've got fixed CapEx budgets. And then with the cost of construction going up with the challenges of clearing hurdle rates for projects all these things sort of work to challenge the environment. We think that these factors are nearing a bottom or certainly are not going to get worse as we go past this fourth quarter into next year but I think we're really going to have to kind of see how that develops.

And again, we're more bullish on the second half of next year than we are in the first half as it relates to gas utilities, and we'll see how this develops.

[Thomas Moll, analyst]

Rob, to pivot for a follow-up on PTI. The rig count here in North America obviously dropped pretty quickly over the last quarter. We're also now getting close to budgeting season for your customers for next year. Do you have any visibility at this point to that rig count having bottomed? Or any visibility to customers potentially picking up rigs anytime soon?

[Robert Saltiel, executive]

Yes. I mean we read all the typical industry outlooks as everybody else, and we talk to our customers as well. And we certainly have the view that the rig count has bottomed in the third quarter. We've seen a pick up 3 out of the last 4 weeks. We think it's going to pick up as we move into 2024. Obviously, we need to see the budgets actually crystallize from the individual producers and obviously, we're much more heavily levered to the publicly traded larger companies and again, with a big focus on the Permian Basin.

But previously, people have talked about CapEx spending being up kind of mid-single digit for North America. We don't have any reason to believe that, that's changed. And again, the trend should be in our friendly direction, believing that it's bottomed in the third quarter, picking up in the fourth quarter.

And keep in mind, odd business, which is really removed from drilling. It's really on the production post completion side. There's typically a 1- to 2-quarter delay between seeing that rig count pick up and seeing the PTI business grow from there. So that's really our outlook, Tommy, and we'll just have to watch as the budgets get set among these major operators.

[Operator]

Our next question comes from the line of Nathan Jones, Witt Stifel.

[Nathan Jones, analyst]

I'm going to follow up on some of the gas utility stuff here. Obviously, you've called out destocking is having a big impact on the business here with a few other things. Is there any way that you can quantify what you think your customers have destock in terms of inventory this year and will continue to destock maybe for the next couple of quarters?

[Robert Saltiel, executive]

Well, it's a great question, Nathan. I think as a practical matter, it's difficult to break down each of these individual components. We think the destocking is the major component. But as we mentioned before, the challenge of getting any projects across the line with higher interest rates and the fact that the cost of construction eats into a fixed CapEx budget, all these things are coming together. And keep in mind that each individual utility has its own set of circumstances that drive one or more of these factors to have a bigger or smaller role depending on the situation.

One of the things that's worth mentioning is that if you look at our top 25 customers, through 3 quarters of this year, 14 of those have actually increased their spending with us and 11 have reduced. So each utility is kind of doing its own thing. It turns out that some of our bigger utilities have really pulled back on the spending. And again, that's because they overloaded on inventory relative to the rest of the group as we were coming out of the pandemic, and they were concerned about the availability of products.

So it really is a bit of a mosaic and it's individual utility by utility. But again, what we're talking about here on the call are general trends that we think will persist as we move into 2024.

[Nathan Jones, analyst]

Maybe I picture asking it this way. If there was not a customer destocking, do you think that the gas utility business would have grown in '23 rather than shrunk?

[Robert Saltiel, executive]

Yes. If you look at year-to-date, we're basically flat in '23 versus '22. We're obviously modeling a weaker fourth quarter than what we had last year. And unequivocally, without the destocking, we would -- we believe we would be seeing growth in the gas utility space. This is a business that's grown more than 20%, 2 years running. Obviously, we knew we would come off the boil a little bit on that growth rate. But we certainly didn't see the business being down this year relative to last year.

And again, the discussions that we've had with customers indicate that they got a bit over their skis to be really safe. Again, I've said before, this is a conservative customer set. They provide a public service. They have to have their products when they need them in order to modernize and update their facilities to make sure that they're safe and reliable. So it's not really a big surprise that if one sector was going to get over its skis in terms of making sure they had what they needed, it would be the gas utility space. That's where we are today without the destocking, we absolutely expect the business would have grown this year.

[Nathan Jones, analyst]

Yes, everybody built too much inventory when they didn't know when they could get any inventory. Just a last quick one on the meter side of it. I was a bit surprised to hear that they're slowing down the deployment of smart meters. I would have thought the ROI on that kind of deployment would have been there to maintain that as a higher priority for gas utilities. Just any commentary on why you think that's slowing down and I'll pass it on.

[Robert Saltiel, executive]

Yes. Some of that is still down to supply chain challenges actually on the meters. And in particular, without getting too technical, some of the telecommunications capabilities of those smart meters. The folks who manufacture those have been limited in their production and also the meter industry is a fairly concentrated industry. It doesn't have necessarily all of the production volume that meets demand. And so that's also been a factor. But like any projects, you clearly have to focus on safety and reliability even before you focus on, let's say, how we can make more money. Those projects are going to happen.

In some cases, we've got inventory of these meters, these smart meters so that they can be installed over the next few months. But like everything, the utilities are having to just take a close look at what is absolutely critical and then the things that they can defer, they're moving to the right. But again, on the meter side, there has been some production bottlenecks that have also moved some of those projects into '24 that would have happened in '23.

[Operator]

Our next question comes from the line of Chris Dankert with Loop Capital Markets.

[Christopher Dankert, analyst]

I guess given all the destocking going on, that does suggest you bought to carry some -- a lower amount of inventory kind of an opportunity on the working capital side is given what the capital needs are here. I guess, any comments on just cash generation, maybe in the shorter term, I know it's difficult without guiding '24, but maybe the next in 3, 6, 9 months, how do we think about cash generation or kind of where inventory levels can come down to?

[Robert Saltiel, executive]

Yes. Well, thanks for bringing up the silver lining here because we seem to be focusing on all the negatives around destocking and how it's impacting our revenue on the gas utility side. I mean, clearly, as the supply chains have debottlenecked and become more normalized, this has given us an opportunity to manage our own inventory more efficiently. And the fact that we're able to produce the same amount of revenue with a lower amount of inventory and lower amount of working capital in addition to the strong margins that we've been able to generate has really allowed us to generate so much cash, and we're very excited about that.

I mean if you think about what's the role of a corporation, ultimately, it's to generate cash. And this company and this management team is dedicated to generating cash across the entire business cycle. We grew our revenue 2% quarter-to-quarter, generated over $100 million of revenue -- sorry, of cash flow from operations. That's a great story. And as we go to '24, we're not giving guidance on this call, but we certainly expect to generate a significant amount of cash next year as well. So we've got a much improved balance sheet. We're at a record low for net debt as a public company. So all these things around destocking and getting our own house in order as it relates to inventory should be very positive for investors because we're going to be generating a lot of cash. And I think ultimately, that's what investors want to say.

[Christopher Dankert, analyst]

Yes. Understood. And I guess maybe if I could zoom out even further for just a moment. I mean, this time next year, we're going to have some of the capital structure issues a little bit more decided. But no matter what leverage is going to be quite low. I guess any thoughts on just capital deployment priorities once we kind of get through some of the pending issues there?

[Robert Saltiel, executive]

Yes, that's a great question. Thanks for asking it. Because we were getting questions a year ago on capital allocation, and those who will remember or pull up the transcripts will recall that we said we need to demonstrate that we will generate cash even as the business grows. Well, it looks like we're doing that. And the fact that we're able to generate cash across the cycle gives us more financial flexibility. We would really like to get back to M&A to grow this company.

This company hasn't done any significant M&A since 2014. We want to be thoughtful about how we grow our business, we want to make sure that we're getting into businesses that we feel like we can compete with, effectively, we can add value to based on our existing either product mix, customer mix, geography, what have you. But we want to make sure that we're very disciplined about that M&A.

We haven't had really the flexibility to think about M&A in a big way because we've been heavily levered. We think that's actually been a detriment to the company's ability to trade in the market because people were concerned about overleveraged, especially as we were going into the pandemic. But this company will now have more financial flexibility going into '24 than we will have had probably in our entire existence as a public company. And we will continue to scan the market for attractive M&A for ways to profitably grow our business.

[Operator]

There are no further questions. I'd like to hand the call back to Monica Broughton for closing remarks.

[Monica Schafer, executive]

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

[Thomas Moll, analyst]

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.