Chemours Co. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. Chemours is a global performance-chemicals company reporting in Titanium Technologies, Thermal & Specialized Solutions, Advanced Performance Materials, and Other.
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Net sales | $1.536 billion | $1.764 billion |
| Gross profit / margin | $368 million / 24.0% | $486 million / 27.6% |
| Income before taxes | $173 million | $280 million |
| Net income | $145 million | $234 million |
| Diluted EPS | $0.96 | $1.43 |
| Adjusted EBITDA | $304 million | $403 million |
| Operating cash flow / free cash flow | $(119) million / $(210) million | $2 million / $(104) million |
Sales fell 13% year over year as volume declined 18%, partly offset by 6% higher pricing; currency was a 1% headwind. Segment Adjusted EBITDA was $70 million for Titanium Technologies (down from $206 million), $185 million for Thermal & Specialized Solutions (up from $174 million), $84 million for Advanced Performance Materials (down from $88 million), and $10 million for Other (versus zero). Corporate and Other costs were $45 million, resulting in consolidated Adjusted EBITDA of $304 million.
Margins and drivers: Titanium Technologies’ Adjusted EBITDA margin fell to 11% from 22%, reflecting weaker demand, inflation and lower fixed-cost absorption. Thermal & Specialized Solutions’ margin was 38% versus 41%; higher prices and volume lifted EBITDA, partly offset by input-cost inflation. Advanced Performance Materials’ margin was 22% versus 23%, with lower volumes and inflation weighing on results.
Balance sheet and liquidity
- Cash and cash equivalents were $816 million at March 31, 2023, down from $1.102 billion at year-end; cash, including restricted cash, was $1.021 billion.
- Total debt principal was $3.649 billion; net debt was $2.833 billion. Net leverage was 2.2x, versus 1.8x a year earlier.
- Current assets were $3.202 billion and current liabilities $1.745 billion. Accounts receivable rose to $837 million and inventory to $1.486 billion from year-end, contributing to working-capital cash use.
- No borrowings were outstanding under the $900 million revolving credit facility; $110 million of letters of credit were outstanding. Management said available liquidity was sufficient to fund operations and obligations through at least April 2024.
- The company paid $37 million in dividends and repurchased $13 million of shares in the quarter. The declared dividend was $0.25 per share; $496 million remained available under the share-repurchase authorization.
Material changes and notable items
- Cash used by operations was $119 million, compared with $2 million generated a year earlier. Management cited lower earnings, working-capital movements and higher Fayetteville spending, partly offset by lower incentive payments and the absence of the prior-year $25 million Delaware settlement payment.
- Capital spending was $91 million, compared with $106 million. Q1 free cash flow was negative $210 million, versus negative $104 million.
- Q1 restructuring, asset-related and other charges were $16 million, including abandonment of a new ERP implementation: $11 million software-cost write-off, $4 million contract termination costs and $1 million employee separation charge.
- The company amended its credit facilities to replace LIBOR with SOFR. Its receivables securitization facility limit increased from $150 million to $175 million and its term was extended to March 31, 2025, subject to earlier termination provisions.
- Environmental remediation liabilities totaled $648 million, including $449 million for Fayetteville. Management estimated potential environmental liabilities could be up to approximately $740 million above the accrued amount under adverse changes in circumstances; this is not an estimate of maximum exposure.
Outlook, risks and contingencies
For 2023, management expected Titanium Technologies demand to begin recovering gradually in EMEA and China, while emphasizing uncertainty about timing and pace. It expected improved refrigerant demand and continued Opteon adoption in Thermal & Specialized Solutions, with uncertainty in automotive and construction markets and raw-material headwinds. In Advanced Performance Materials, stronger demand for differentiated Performance Solutions products was expected to be offset by weak, economically sensitive Advanced Materials demand and inflationary pressures. Planned 2023 capital expenditures were approximately $400 million, including about $200 million for growth and $200 million for maintenance and sustainability. No full-year earnings or revenue target is stated in the provided filing text.
PFAS-related litigation, remediation and regulation are significant uncertainties. Chemours reported $648 million of environmental remediation accruals and described material potential additional losses that could not be reasonably estimated. The company’s January 2021 MOU with DuPont, Corteva and EID provides for sharing certain legacy PFAS costs equally between Chemours and the other parties collectively, subject to the agreement’s terms and a $4 billion Qualified Spend threshold. Chemours expected to contribute another $50 million to the related escrow by September 30, 2023. Aggregate Qualified Spend under the MOU was $351 million through March 31, 2023.
Other exposures include ongoing PFAS/AFFF litigation and mediation, the Fayetteville Consent Order and remediation program, and a proposed EPA drinking-water rule that could affect remediation requirements and costs. The filing also identifies potential uncertainty from new U.S. and European PFAS restrictions, environmental compliance, commodity and energy costs, macroeconomic demand, foreign exchange, variable-rate debt and financial-market disruption. Management stated that the possible loss range for several PFAS matters was not estimable.
Key facts for investors to verify
- Whether the sharp decline in Titanium Technologies volumes and EBITDA stabilizes, and whether the company’s assumed gradual demand recovery materializes.
- Working-capital and cash-flow trends, including receivables, inventory, and the effect of receivables securitization on reported liquidity.
- Progress, timing and cost of Fayetteville remediation and drinking-water commitments; compare future estimates with the $449 million Fayetteville accrual and the disclosed potential environmental exposure.
- Developments in PFAS litigation, mediation, EPA rulemaking and the MOU cost-sharing/escrow arrangements, including whether losses or required contributions change.
- Capital-spending delivery against the approximately $400 million 2023 plan, alongside debt maturities—particularly the $1.102 billion principal due in 2025—and leverage.