The Chemours Company (NYSE: CC) — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Unaudited statements are prepared under U.S. GAAP. Chemours is a global performance-chemicals company with reportable segments in Titanium Technologies, Thermal & Specialized Solutions, and Advanced Performance Materials.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net sales | $1.487bn | $1.777bn | $4.666bn | $5.456bn |
| Gross profit | $281m | $432m | $1.059bn | $1.414bn |
| Gross margin | 18.9% | 24.3% | 22.7% | 25.9% |
| Net income (loss) attributable to Chemours | $20m | $240m | $(212)m | $675m |
| Diluted EPS | $0.13 | $1.52 | $(1.42) | $4.21 |
| Adjusted EBITDA | $247m | $363m | $874m | $1.241bn |
| Operating cash flow | Not separately provided | Not separately provided | $72m | $594m |
| Capital expenditures | Not separately provided | Not separately provided | $235m | $240m |
| Free cash flow | Not separately provided | Not separately provided | $(163)m | $354m |
Adjusted FCF, a non-GAAP measure introduced in Q3 to exclude specified unusual PFAS/PFOA settlement payments and fees, was $(126)m for the first nine months of 2023 versus $379m in the comparable 2022 period. Adjusted EBITDA and adjusted FCF are company-defined non-GAAP measures and should be considered alongside GAAP results.
Segment performance
- Titanium Technologies: Q3 sales fell 21% to $690m and Adjusted EBITDA fell 50% to $69m; margin was 10% versus 16%. Softer demand and lower pricing weighed on results.
- Thermal & Specialized Solutions: Q3 sales rose 5% to $436m; Adjusted EBITDA was flat at $162m and margin declined to 37% from 39%. Opteon adoption and higher volume supported sales.
- Advanced Performance Materials: Q3 sales fell 24% to $343m and Adjusted EBITDA fell 39% to $68m; margin was 20% versus 25%. Weaker demand in economically sensitive markets was the main pressure.
Liquidity, debt, and balance sheet
- At September 30, cash and cash equivalents were $852m; a further $595m was restricted cash in the U.S. public water system settlement fund and was not freely available. Total current assets were $3.683bn and current liabilities $2.195bn.
- Total debt principal was $4.015bn; long-term debt, net, was $3.944bn. Net leverage was 3.2x, up from 1.5x at September 30, 2022. Q3 net interest expense was $55m, versus $41m.
- The amended credit agreement provides a $900m revolving facility; reported availability was $801m at quarter-end, subject to the agreement’s conditions. There were no revolver borrowings and $99m of letters of credit outstanding.
- In August, Chemours refinanced its prior term loans with new dollar and euro term loans maturing in 2028. Effective rates at quarter-end were 8.82% on the dollar loan and 7.86% on the euro loan. The company noted a springing maturity tied to the May 2026 notes.
- Cash, cash equivalents, and restricted cash together totaled $1.447bn. The company stated liquidity was sufficient to fund planned operations and obligations through at least October 2024.
Material changes and unusual items
- Q3 sales declined 16% year over year, primarily from a 15% volume decline; nine-month sales declined 14%, principally from a 16% volume decline. Lower volumes in Titanium Technologies and Advanced Performance Materials drove most of the contraction.
- Q3 net income included a $106m pre-tax gain on the August sale of the Glycolic Acid business for $138m net proceeds. The sale was not classified as a discontinued operation.
- Q3 restructuring, asset-related, and other charges were $124m, mainly tied to the Kuan Yin, Taiwan plant closure and Titanium Technologies transformation. The company also wrote off $28m of unusable raw materials through cost of goods sold. It expects a further $20m–$30m of decommissioning and dismantling costs.
- Nine-month SG&A was $1.067bn, including $675m of legal charges, notably Chemours’ $592m share of the public water system settlement accrued in Q2. The settlement fund was funded in September, using term-loan proceeds, MOU escrow funds, and available cash.
- Operating cash flow fell to $72m from $594m. Management cited lower earnings, working-capital changes, higher Fayetteville spending, and payment timing; investing cash use was partly offset by Glycolic Acid sale proceeds.
- Other accrued liabilities rose to $1.039bn from $300m, mainly reflecting the public water settlement accrual and other legal accruals. Total accrued litigation was $724m at quarter-end, including $633m classified as PFAS-related.
Outlook, risks, and contingencies
- 2023 outlook: Management expects normal seasonal sequential demand softness in Q4 for Titanium Technologies, with input-cost benefits from the Kuan Yin closure. Thermal & Specialized Solutions expects continued Opteon adoption but uncertainty in automotive and construction recovery. Advanced Performance Materials expects weaker demand in its Advanced Materials portfolio, partly offset by strength in differentiated Performance Solutions products.
- Planned 2023 capital expenditures were approximately $400m: about $200m for growth and $200m for maintenance and sustainability. Management expects the Titanium Technologies transformation initiatives to provide about $100m of earnings benefit in 2024.
- The $1.185bn public water system settlement fund was preliminarily approved by the court; final approval was pending at quarter-end. The agreement does not resolve all PFAS claims, including opt-outs, certain non-drinking-water claims, and future contamination claims.
- Environmental remediation liabilities were $605m, including $399m for Fayetteville. The filing estimates potential environmental liabilities could be up to approximately $730m above the accrued amount under adverse changes in circumstances; this is not an estimate of maximum exposure. PFAS litigation and certain other claims remain unquantifiable, and additional losses could be material.
- Key uncertainties include the final court disposition of the water settlement; outcomes of PFAS, PFOA, and environmental proceedings; changing U.S. and European PFAS/HFC regulation; remediation requirements and costs; end-market demand, inflation and raw-material costs; variable-rate interest expense; and access to refinancing or other funding.
- The Kuan Yin facility closure and organizational redesign will result in employee separations and continuing shutdown work. Chemours also abandoned its planned ERP implementation, recording $16m of related charges in the first quarter.
Most important facts for investors to verify
- Whether the public water system settlement received final court approval, and how any objections or opt-outs affect Chemours’ obligations.
- Subsequent PFAS litigation developments, MOU cost-sharing and escrow terms, and any changes to the $724m litigation accrual or environmental reserves.
- Actual Q4 and full-year performance against segment outlook, including volume trends, margins, and delivery of the expected $100m 2024 transformation benefit.
- Cash generation, working-capital needs, capital spending, restricted-cash availability, and compliance with credit-facility covenants as net leverage remains elevated.
- Whether the proposed additional $20m–$30m Kuan Yin shutdown costs and potential remediation exposure are reflected in later results or estimates.