Tronox Holdings plc — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Tronox operates mineral-sands mines and beneficiation operations and produces titanium dioxide (TiO₂) pigment, zircon and related products. It reported one operating and reportable segment.
Financial and operating highlights
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Net sales | $891 million | $722 million |
| Gross profit / gross margin | $206 million / 23% | $175 million / 24% |
| Operating income | $125 million | $79 million |
| Net income attributable to Tronox | $19 million | $32 million |
| Basic / diluted EPS | $0.13 / $0.12 | $0.23 / $0.22 |
| Operating cash flow | $135 million | $(28) million |
| Capital expenditures | $58 million | $38 million |
| Adjusted EBITDA (non-GAAP) | $225 million | $174 million |
- Sales rose 23% year over year. TiO₂ revenue increased 20% to $696 million, mainly on higher sales volumes; zircon revenue rose 89% to $123 million, principally on higher volumes. Feedstock and other product revenue declined 6% to $72 million.
- Gross margin declined one percentage point. Management attributed pressure primarily to foreign exchange, partly offset by Cristal synergies and favorable volume and mix. SG&A fell 14% to $81 million.
- Cash and cash equivalents were $759 million at March 31, versus $619 million at year-end 2020. Total debt was approximately $3.4 billion and net debt approximately $2.7 billion; management reported net debt to trailing-twelve-month Adjusted EBITDA of 3.8x.
- Working capital was $1.4 billion, down from $1.7 billion at December 31, 2020. Reported available liquidity was $1.222 billion; management estimated approximately $740 million after accounting for the April repayment of the 2025 notes, call premium and related interest.
Material changes, outlook and risks
- Management said the market recovery continued and the company sold its highest-ever quarterly volumes of TiO₂ and zircon. Sequential revenue increased 14%, supported by double-digit volume growth in both products and a 3% rise in TiO₂ average selling prices.
- In March, Tronox refinanced its term loan and issued $1.075 billion of 4.625% notes due 2029. It repaid $615 million of 2026 notes on March 31 and $450 million of 2025 notes on April 1. The new term loan matures in 2028; the new revolving facility matures in 2026. Management expects annualized interest expense to decline by $30 million.
- The refinancing and related transactions contributed to a $34 million debt-extinguishment loss, including a $21 million call premium. Other income/expense included an $18 million breakage fee and related costs from terminating the TTI acquisition. Adjusted EBITDA is a non-GAAP measure; the company cautions that its calculation may not be comparable with other companies’ measures.
- Management expects operating cash flow and available borrowings to fund operations, capital expenditures, interest and debt repayments over the next 12 months, contingent on achieving its forecast. COVID-19 and broader macroeconomic conditions could adversely affect results; the company said it may reduce capital spending and operating costs if needed. No quantified revenue or earnings guidance is provided in the filing.
- Key exposures include commodity-price and foreign-exchange volatility, floating-rate debt, customer credit and environmental compliance costs. The company recorded a $60 million provision for remediation at the Hawkins Point site. Litigation with Venator includes Venator’s $75 million break-fee claim and Tronox’s $400 million counterclaim; the outcome is uncertain.
- Tronox reported compliance with debt covenants at quarter-end. The revolving facility has a springing leverage covenant if borrowings exceed 35% of commitments; management did not expect it to be triggered under its current planning. Full valuation allowances remain on certain deferred tax assets, and management noted possible reversal of some allowances within the next year as profitability improves.
Important facts for investors to verify
- Post-April note redemption cash, revolver borrowings and liquidity; the reported quarter-end liquidity figure predates those transactions.
- Whether higher sales volumes and prices persist, and whether foreign-exchange movements and production costs continue to weigh on gross margin.
- Debt, leverage and interest savings after refinancing and subsequent debt prepayments.
- Developments in the Hawkins Point remediation and Venator litigation, including any change to recorded liabilities or potential exposure.
- Realization of deferred tax assets and the assumptions underlying non-GAAP Adjusted EBITDA.