Chemours Co. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Chemours is a global performance-chemicals company with four reportable segments: Titanium Technologies, Thermal & Specialized Solutions, Advanced Performance Materials, and Chemical Solutions. Amounts below are in millions of U.S. dollars unless stated otherwise.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net sales | $1,680 | $1,233 | $4,770 | $3,631 |
| Gross profit / margin | $427 / 25.4% | $257 / 20.8% | $988 / 20.7% | $754 / 20.8% |
| Net income | $214 | $76 | $375 | $200 |
| Diluted EPS | $1.27 | $0.46 | $2.21 | $1.21 |
| Adjusted EBITDA | $372 | $210 | $1,006 | $633 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $606 | $454 |
| Free cash flow | Not provided for quarter | Not provided for quarter | $412 | $240 |
Q3 sales rose 36%; management attributed the increase principally to higher volume (25 percentage points) and pricing (11 points). Nine-month sales increased 31%, primarily on volume growth. Higher raw-material, freight, distribution, and logistics costs partly offset revenue growth. Q3 operating income is not separately stated in the supplied filing text; gross profit and operating expenses are reported.
Q3 segment Adjusted EBITDA: Titanium Technologies $223 (prior-year $129); Thermal & Specialized Solutions $105 ($105); Advanced Performance Materials $71 ($7); Chemical Solutions $15 ($12). Corporate and Other was a $42 cost. For nine months, segment results were $611, $315, $196, and $43, respectively, with Corporate and Other costs of $159. The strongest improvement was in Titanium Technologies and Advanced Performance Materials.
Liquidity, debt, and capital allocation
- At September 30, cash and cash equivalents were $1,031; an additional $100 was restricted in the PFAS MOU escrow. Total current assets were $3,371 and current liabilities $1,779.
- Total debt principal was $3,890, versus $4,061 at December 31, 2020; net debt was $2,859. The reported net leverage ratio was 2.3x, compared with 3.7x a year earlier. Interest expense was $45 for Q3 and $142 for nine months.
- Operating cash flow increased to $606 for nine months. Capital expenditures were $194; free cash flow was $412. Cash generation benefited from earnings and higher accounts payable, partly offset by increased receivables and inventory.
- The company issued $650 of 4.625% notes due 2029 and used the proceeds with cash on hand to retire its $750 of 7.000% notes due 2025, recognizing a $20 extinguishment loss. The revolving facility was amended after quarter-end: commitment increased from $800 to $900 and maturity extended to October 2026.
- Nine-month shareholder returns included $123 of dividends and $80 of share repurchases. The quarterly dividend was $0.25 per share; $346 remained authorized under the repurchase program at quarter-end.
Material changes, outlook, and risks
- Environmental liabilities: Accrued environmental remediation increased to $556 from $390 at year-end, including $351 for Fayetteville Works, North Carolina, versus $194 at year-end. Q2 estimate revisions added $49 for barrier-wall construction and $60 for future operation of the groundwater extraction and treatment system. Management cited substantial design, regulatory, construction, and operating-cost uncertainties; potential environmental liability could be up to approximately $670 above the accrued amount under adverse changes.
- PFAS matters: Under a January 2021 MOU, Chemours bears half of covered future legacy PFAS costs and DuPont and Corteva collectively bear the other half, subject to a $4 billion aggregate Qualified Spend limit and other MOU terms. Chemours deposited $100 into escrow in September. Q3 Qualified Spend of approximately $30 was subject to review; the filing says a receivable would be recorded after review. The company expected at least $30 of MOU recoveries in Q4.
- Fayetteville developments: Potential revisions to drinking-water obligations following EPA’s GenX toxicity assessment and NC DEQ notices concerning downstream wells were disclosed after quarter-end. Their financial impact was not estimable and no additional liability was recorded for these matters. Further costs, delays, or regulatory actions could adversely affect results and cash flows.
- Mining Solutions divestiture: Chemours agreed to sell the business for approximately $520 cash, with closing expected in Q4 2021, subject to customary conditions and regulatory approval. The business was classified as held for sale; management expected a pretax gain at closing. The filing reports $412 of held-for-sale assets and $8 of related liabilities.
- 2021 outlook: Management expected strong TiO2 volume and improved pricing; improved refrigerant demand with continuing EU illegal-import and automotive semiconductor constraints; stronger polymer demand; and continued demand in Chemical Solutions. 2021 capital expenditure expectations were reduced by $25 to approximately $325. No numerical full-year sales, earnings, or Adjusted EBITDA guidance is provided in the supplied filing text. Management expected liquidity to be sufficient through at least November 2022.
- Other exposures: The filing discusses numerous PFAS/PFOA claims, environmental proceedings, and regulatory uncertainty, including proposed EU PFAS restrictions and EPA actions. A reasonable loss estimate is unavailable for several matters. COVID-19, supply-chain constraints, raw-material inflation, foreign exchange, and potential regulatory changes are also cited risks.
Important facts for investors to verify
- Whether the Mining Solutions sale closed on schedule, its realized proceeds and gain, and the use of proceeds.
- Progress and final cost estimates for Fayetteville remediation, required NC DEQ approvals, and any expanded drinking-water obligations.
- Amounts and timing of PFAS MOU recoveries, escrow contributions, and any changes to cost-sharing or the $4 billion Qualified Spend framework.
- Whether volume, pricing, input-cost, and supply-chain trends support the stated segment outlook and approximately $325 capital-spending plan.
- Debt maturities, refinancing terms, liquidity availability, and the sustainability of dividends and share repurchases alongside environmental and legal cash obligations.