Tronox Reports Third Quarter 2019 Financial Results
Strong execution on operating and commercial initiatives across unmatched global
footprint and margin benefits from vertical integration
Raising target for 2019 acquisition synergies
Third Quarter 2019 Highlights:
| • | Net loss from continuing operations of ($12) million including purchase accounting and transaction-related costs |
| • | Adjusted EBITDA of $184 million; Adjusted EBITDA margin of 24 percent equal to second quarter 2019 on pro forma basis (Non-GAAP) |
| • | GAAP diluted loss per share from continuing operations of ($0.13) |
| • | Adjusted diluted EPS of $0.21 (Non-GAAP) |
| • | TiO2 selling prices less than 1 percent lower on local currency basis and volumes down sequentially within seasonally typical range, 7 percent, versus second quarter 2019 on pro forma basis |
| • | Synergies of $45 million delivered since Cristal TiO2 acquisition closing in April 2019 |
Other Highlights:
| • | Raising target for acquisition synergies for 2019 to $65 million from $45 million |
| • | Returned approximately $309 million to shareholders year-to-date through repurchase of approximately 21.5 million shares and regular dividend payments |
Full Year 2019 Outlook on Reported Basis:
| • | Revenue of $2,650-2,700 million |
| • | Adjusted EBITDA of $615-635 million (Non-GAAP) |
| • | Adjusted diluted EPS of $0.33-0.44 (Non-GAAP) |
| • | Free Cash Flow of $120-135 million (Non-GAAP) |
Full Year 2019 Outlook on Pro Forma Basis:
| • | Revenue of $3,015-3,065 million |
| • | Adjusted EBITDA of $680-700 million (Non-GAAP) |
| • | Adjusted diluted EPS of $0.25-0.36 (Non-GAAP) |
STAMFORD, Conn., Nov 7, 2019 – Tronox Holdings plc (NYSE:TROX) (“Tronox” or the “Company”), the world’s leading integrated manufacturer of titanium dioxide pigment, today reported its financial results for the quarter ending September 30, 2019, as follows:
Summary of Financial Results for the Quarter Ending September 30, 2019
Reported Basis
| (Millions of dollars) | | | Q3 2019 | | | | Q3 2018 | | | | Y-o-Y % ∆ | | | | Q2 2019 | | | | Q-o-Q % ∆ | |
| Revenue | | $ | 768 | | | $ | 456 | | | | 68 | % | | $ | 791 | | | | (3 | %) |
TiO2 | | | 603 | | | | 307 | | | | 96 | % | | | 625 | | | | (4 | %) |
| Zircon | | | 68 | | | | 72 | | | | (6 | %) | | | 88 | | | | (23 | %) |
| Feedstock and other products | | | 97 | | | | 67 | | | | 45 | % | | | 78 | | | | 24 | % |
| Electrolytic | | | - | | | | 10 | | | | (100 | %) | | | - | | | | - | |
| Net (Loss) Income from Continuing Ops | | $ | (12 | ) | | $ | 15 | | | | (180 | %) | | $ | (55 | ) | | | 78 | % |
| Adjusted EBITDA | | $ | 184 | | | $ | 128 | | | | 44 | % | | $ | 195 | | | | (6 | %) |
| Adjusted EBITDA Margin % | | | 24 | % | | | 28 | % | | | | | | | 25 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | Y-o-Y % ∆ | | | | | | | | Q-o-Q % ∆ | |
| | | | Volume | | | | Price | | | | | | | | Volume | | | | Price | |
TiO2 | | | 106 | % | | | (5 | %) | | | | | | | (2 | %) | | | (1 | %) |
| Local Currency Basis | | | - | | | | (5 | %) | | | | | | | - |
| | | -- | |
| Zircon | | | (1 | %) | | | (5 | %) | | | | | | | (19 | %) | | | (4 | %) |
Pro Forma Basis
| (Millions of dollars) | | | Q3 2019 | | | | Q3 2018 | | | | Y-o-Y % ∆ | | | | Q2 2019¹ | | | | Q-o-Q % ∆ | |
| Revenue | | $ | 768 | | | $ | 832 | | | | (8 | %) | | $ | 827 | | | | (7 | %) |
TiO2 | | | 603 | | | | 629 | | | | (4 | %) | | | 657 | | | | (8 | %) |
| Zircon | | | 68 | | | | 104 | | | | (35 | %) | | | 89 | | | | (24 | %) |
| Feedstock and other products | | | 97 | | | | 89 | | | | 9 | % | | | 81 | | | | 20 | % |
| Electrolytic | | | - | | | | 10 | | | | (100 | %) | | | - | | | | - |
|
| Net (Loss) Income from Continuing Ops | | $ | 26 | | | $ | 41 | | | | (37 | %) | | $ | 32 | | | | (19 | %) |
| Adjusted EBITDA | | $ | 184 | | | $ | 215 | | | | (14 | %) | | $ | 200 | | | | (8 | %) |
| Adjusted EBITDA Margin % | | | 24 | % | | | 26 | % | | | |
| | | 24 | % | | | |
|
| | | | | | | | | | | | | | | | | | | | | |
| | | | Y-o-Y % ∆ | | | | | | | | Q-o-Q % ∆ | |
| | | | Volume | | | | Price | | | | | | | | Volume | | | | Price | |
TiO2 | | | 3 | % | | | (7 | %) | | | | | | | (7 | %) | | | (1 | %) |
| Local Currency Basis | | | - | | | | (5 | %) | | | | | | | - | | | | -- |
|
| Zircon | | | (32 | %) | | | (4 | %) | | | | | | | (20 | %) | | | (4 | %) |
(1) Adjusted from the prior quarter due to purchase accounting revisions.
CEO Commentary
Commenting on the third quarter results, Jeffry Quinn, chairman and chief executive officer of Tronox said, “Our third quarter performance clearly demonstrated the inherent stability and resilience of our vertically integrated global footprint in a challenging global macro-economic environment. Since the close of the Cristal transaction, our performance has shown that we are well-positioned to deliver superior value across wide-ranging economic conditions. Our performance was driven by strong execution on the many operating and commercial initiatives that are within our control, such as delivering the synergies, optimizing our global operating footprint, taking advantage of our vertical integration, managing overhead and wisely allocating capital.
“Through the end of the third quarter, we have delivered total synergies of $45 million since closing the Cristal TiO2 acquisition, of which $21 million have been reflected in our EBITDA, $13 million will be reflected in EBITDA in future quarters, and $11 million are cash synergies not reflected in EBITDA. We are raising our target for total synergies in 2019 to $65 million. Our Adjusted EBITDA margin of 24 percent equaled that of the second quarter on a pro forma basis, despite sales volume declines in zircon and pigment, reflecting the margin benefits from our vertical integration and our successful operational excellence program.
“We benefit from alignment with TiO2 customers that are growing faster than the overall market and our sales are well balanced across the world’s regions. The success of our bespoke win-win margin stability initiative is enhancing the stability of our top line relative to historical industry patterns. This stability is reflected in our global average TiO2 selling price, which has remained essentially level on a sequential basis across 2019. Though we are experiencing some softness in zircon demand in the near-term, primarily in China, this high-value co-product continues to deliver strong profitability and margin enhancement. We see the medium-term outlook for zircon as good, with steady GDP-level demand growth and increasing supply tightness globally.
“Our global team is moving forward into 2020 together as one new Tronox. We are executing very well and generating significant momentum toward creating the world’s leading TiO2 company -- an enterprise that displays greater stability in financial performance and cash generation across cycles by utilizing our vertical integration and margin stabilizing commercial approach.”
The Board of Directors declared a quarterly dividend of $0.045 per share payable on December 2, 2019, to shareholders of record of the Company’s ordinary shares at the close of business on November 19, 2019.
Fourth Quarter and Full Year 2019 Outlook
Regarding the Company’s outlook for the fourth quarter and full year 2019, Quinn commented, “While global macro-economic conditions remain uncertain and considering the near-term softness in zircon demand as well as our confidence in our ability to deliver our increased synergy target, we are revising our outlook for the fourth quarter 2019 and full year 2019 to:
| (Millions of dollars) | | Revenue | | | Adjusted EBITDA | | | Adjusted EPS | | | Free Cash Flow | |
| Fourth Quarter 2019 | | $ | 700-750 | | | $ | 160-180 | | | | 0.01-0.11 | | | | |
| Full Year 2019 As Reported | | $ | 2,650-2,700 | | | $ | 615-635 | | | | 0.33-0.44 | | | $ | 120-135 | |
| Full Year 2019 Pro Forma | | $ | 3,015-3,065 | | | $ | 680-700 | | | | 0.25-0.36 | | | | | |
Note: for the Company’s guidance with respect to fourth quarter and full-year 2019 Adjusted EBITDA, Adjusted Diluted EPS and Free Cash Flow, we are not able to provide without unreasonable effort the most directly comparable GAAP financial measure, or reconciliation to such GAAP financial measure, because certain items that impact such measure are uncertain, out of the Company’s control or cannot be reasonably predicted.
Financial Summary for the Quarter Ending September 30, 2019
Tronox reported revenue of $768 million for the third quarter 2019, an increase of 68 percent from $456 million in the third quarter 2018. Excluding revenue of $10 million in the year-ago quarter from the Electrolytic business sold in September 2018, revenue increased 72 percent versus the prior-year quarter. Income from operations of $48 million compared to $53 million in the year-ago quarter. Net loss from continuing operations attributable to Tronox of $19 million, or ($0.13) per diluted share, compared to net income from continuing operations attributable to Tronox of $6 million, or $0.05 per diluted share, in the year-ago quarter. Net loss from continuing operations attributable to Tronox in the third quarter 2019 included amortization of inventory step-up, restructuring and integration costs, and a charge for a potential capital gains tax payment that, combined, totaled $49 million or $0.34 per diluted share. Excluding these items, adjusted net income attributable to Tronox (Non-GAAP) was $30 million, or $0.21 per diluted share. Adjusted EBITDA of $184 million increased 44 percent compared to $128 million in the prior-year quarter.
Note: Since Tronox and Cristal combined their respective businesses on April 10, 2019 and to assist in the following discussion of third quarter 2019 performance compared to the third quarter 2018 and the second quarter 2019, we have provided the results on both a pro forma basis and a reported basis.
Third Quarter 2019 vs. Third Quarter 2018
Reported Basis
| • | Revenue of $768 million, increased 68 percent from $456 million; excluding $10 million of revenue in the year-ago quarter from the Electrolytic business sold in September 2018, revenue increased 72 percent |
| • | TiO2 pigment sales of $603 million, including revenue from the acquired Cristal operations, increased 96 percent compared to $307 million |
| • | Zircon sales of $68 million including revenue from the acquired Cristal operations, decreased 6 percent from $72 million |
| • | Feedstock and other products sales of $97 million, including revenue from the acquired Cristal operations, increased 45 percent from $67 million |
| • | Adjusted EBITDA of $184 million increased 44 percent compared to $128 million, driven primarily by incremental Cristal adjusted EBITDA, favorable foreign exchange and favorable margin benefits from the shift to fully integrated operations; partially offsetting the increase was lower contribution margin on lower sales volumes, higher production costs and lower pigment and feedstock selling prices |
| • | SG&A expenses were $82 million including SG&A costs from the acquired Cristal business compared to $62 million; partially offsetting the increase were $12 million of lower professional fees related to the acquisition |
| • | Interest expense of $51 million increased from $47 million in the year-ago quarter due primarily to higher average interest rates for borrowings in South Africa, partially offset by lower average debt |
Pro Forma Basis
| • | Revenue of $768 million was 8 percent lower than $832 million driven primarily by lower zircon sales volumes, lower TiO2 selling prices, unfavorable translation of the Euro, and the absence of revenue from the Electrolytic business sold in September 2018; excluding revenue of $10 million in the year-ago quarter from the Electrolytic business, revenue was 7 percent lower |
| • | TiO2 pigment sales of $603 million were 4 percent lower compared to $629 million; sales volumes increased 3 percent; selling prices were 5 percent lower on a local currency basis and 7 percent lower on a U.S. dollar basis |
| • | Zircon sales of $68 million decreased 35 percent from $104 million, as selling prices were 4 percent lower and sales volumes were 32 percent lower due to softer market conditions, primarily in China |
| • | Feedstock and other products sales of $97 million increased 9 percent from $89 million on higher CP slag sales |
| • | Adjusted EBITDA of $184 million was 14 percent lower than $215 million, as lower zircon sales volumes, lower TiO2 selling prices, unfavorable translation of the Euro, and higher operating costs due to production downtime at the legacy Cristal Gingko mining operations in Australia (full operations resumed in August 2019) were partially offset by favorable foreign exchange on costs, primarily the Australian dollar and South African rand |
| • | Selling, general and administrative expenses (“SG&A”) of $82 million decreased from $91 million, primarily due to lower employee-related costs |
| • | Interest expense of $51 million decreased from $53 million in the year-ago quarter due to lower average debt levels |
Third Quarter 2019 vs. Second Quarter 2019
Reported Basis
| • | Revenue of $768 million, decreased 3 percent compared to $791 million |
| • | TiO2 pigment sales of $603 million decreased 4 percent compared to $625 million; sales volumes declined 2 percent; selling prices were less than 1 percent lower on a local currency basis and on a U.S. dollar basis |
| • | Zircon sales of $68 million decreased 23 percent from $88 million, driven by a 19 percent decrease in sales volumes and 4 percent lower selling prices |
| • | Feedstock and other products sales of $97 million increased 24 percent from $78 million driven by higher CP slag and pig iron sales volumes |
| • | Adjusted EBITDA of $184 million decreased 6 percent compared to $195 million, primarily due to lower sales volumes for TiO2 and zircon, partially offset by favorable FX on costs and lower SG&A expenses |
| • | SG&A expenses were $82 million compared to $103 million, driven primarily by reduced discretionary spending, lower employee-related expenses and lower transaction and integration costs related to the acquisition |
| • | Interest expense of $51 million compared to $54 million in the prior quarter primarily due to lower debt |
Pro Forma Basis
| • | Revenue of $768 million decreased 7 percent from $827 million on lower TiO2 and zircon sales volumes, partially offset by higher CP slag sales volumes |
| • | TiO2 pigment sales of $603 million were 8 percent lower compared to $657 million; sales volumes were 7 percent lower, within seasonally typical range; selling prices were less than 1 percent lower on a local currency basis and U.S. dollar basis |
| • | Zircon sales of $68 million decreased 24 percent from $89 million driven by 20 percent lower sales volumes and 4 percent lower selling prices |
| • | Feedstock and other products sales of $97 million increased 20 percent from $81 million driven by higher CP slag and pig iron sales volumes |
| • | Adjusted EBITDA of $184 million decreased 8 percent from $200 million, driven primarily by lower TiO2 and zircon sales volumes; higher production costs were offset by favorable foreign exchange on costs, primarily the Australian dollar and South African rand |
| • | SG&A expenses were $82 million compared to $85 million, primarily due to lower professional service expenses |
| • | Interest expense of $51 million compared to $54 million due to lower average debt balances |
Other Financial Information
| • | On September 30, 2019, debt was $3,122 million and debt, net of cash and cash equivalents was $2,817 million |
| • | As of September 30, 2019, liquidity was $661 million comprised of cash and cash equivalents of $305 million and $356 million available under revolving credit agreements |
| • | In the third quarter 2019, capital expenditures were $59 million and depreciation, depletion and amortization expense was $74 million |
| • | Tronox has returned approximately $309 million to shareholders year-to-date in 2019 through the repurchase of approximately 21.5 million shares and regular dividend payments |
Webcast Conference Call
Tronox will conduct a webcast conference call on Friday, November 8, 2019, at 8:30 a.m. ET (New York). The live call is open to the public via internet broadcast and telephone.
Internet Broadcast: tronox.com
Dial-in Telephone Numbers:
U.S. / Canada: +1.877.831.3840
International: +1.224.633.1393
Conference ID: 4496552
Conference Call Presentation Slides will be used during the conference call and will be available on our website: tronox.com
Conference Call Replay: Available via the internet and telephone beginning on November 8, 2019, 11:30 a.m. ET (New York), until November 15, 2019, 11:30 a.m. ET (New York)
Internet Replay: tronox.com
Replay Dial-in Telephone Numbers:
U.S. / Canada: +1.855.859.2056
International: +1.404.537.3406
Conference ID: 4496552
Upcoming Conferences and Investor Meetings
During the fourth quarter 2019, a member of management is scheduled to present at the following conferences:
| • | TZMI Congress 2019, Singapore, November 12, 2019 |
| • | Goldman Sachs Mining & Metals Conference, New York, November 20, 2019 |
| • | Citi Basic Materials Conference, New York, December 3, 2019 |
| • | Bank of America Merrill Lynch Leveraged Finance Conference, Boca Raton, FL, December 4, 2019 |
Accompanying conference and meeting materials will be available at http://investor.tronox.com
About Tronox
Tronox Holdings plc is one of the world’s leading producers of high-quality titanium products, including titanium dioxide pigment, specialty-grade titanium dioxide products and high-purity titanium chemicals; and zircon. We mine titanium-bearing mineral sands and operate upgrading facilities that produce high-grade titanium feedstock materials, pig iron and other minerals. With nearly 7,000 employees across six continents, our rich diversity, unmatched vertical integration model, and unparalleled operational and technical expertise across the value chain, position Tronox as the preeminent titanium dioxide producer in the world. For more information about how our products add brightness and durability to paints, plastics, paper and other everyday products, visit Tronox.com.
Forward Looking Statements
Statements in this release that are not historical are forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements, which are subject to known and unknown risks, uncertainties and assumptions about us, may include projections of our future financial performance (including anticipated synergies) based on our growth and other strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance, actual synergies, or achievements to differ materially from the results, level of activity, performance, anticipated synergies or achievements expressed or implied by the forward-looking statements. These and other risk factors are discussed in the Company’s filings with the Securities and Exchange Commission (SEC), including those under the heading entitled “Risk Factors” in our Annual Report on Form 10-K/A for the year ended December 31, 2018.
Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for our management to predict all risks and uncertainties, nor can management assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance, synergies or achievements. Neither we nor any other person assumes responsibility for the accuracy or completeness of any of these forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. Unless otherwise required by applicable laws, we undertake no obligation to update or revise any forward-looking statements, whether because of new information or future developments.
Use of Non-U.S. GAAP Financial Information
To provide investors and others with additional information regarding the financial results of Tronox Holdings plc, we have disclosed in this press release certain non-U.S. GAAP operating performance measures of EBITDA, Adjusted EBITDA, Adjusted EBITDA margin and Adjusted net loss attributable to Tronox, including its presentation on a per share basis, and a non-U.S. GAAP liquidity measure of Free Cash Flow. These non-U.S. GAAP financial measures are a supplement to and not a substitute for or superior to, the Company’s results presented in accordance with U.S. GAAP. The non-U.S. GAAP financial measures presented by the Company may be different from non-U.S. GAAP financial measures presented by other companies. Specifically, the Company believes the non-U.S. GAAP information provides useful measures to investors regarding the Company’s financial performance by excluding certain costs and expenses that the Company believes are not indicative of its core operating results. Beginning with the reporting of our first quarter of 2019 results, we modified our definition of the Adjusted EBITDA metric to exclude all realized and unrealized gains and losses caused by foreign currency re-measurement to be more consistent with how we report this metric to our lenders. We have revised the comparable periods for consistency. The presentation of these non-U.S. GAAP financial measures is not meant to be considered in isolation or as a substitute for results or guidance prepared and presented in accordance with U.S. GAAP. A reconciliation of the non-U.S. GAAP financial measures to U.S. GAAP results is included herein.
Management believes these non-U.S. GAAP financial measures:
| • | Reflect the ongoing business of Tronox Holdings plc in a manner that allows for meaningful period-to-period comparison and analysis of trends in its business, as they exclude income and expense that are not reflective of ongoing operating results; |
| • | Provide useful information to investors and others in understanding and evaluating the operating results and future prospects of Tronox Holdings plc; |
| • | Provide an additional view of the operating performance of the Company by adding interest expense & income, income taxes, depreciation, depletion and amortization to the net income. Further adjustments due to gain (loss) on extinguishment of debt, stock-based compensation charges, transaction costs associated with acquisitions, integration costs, purchase accounting adjustments, foreign currency re-measurements, impairments, settlements of pension and postretirement plans, impacts of tax settlements on non-income related taxes, severance expense, and noncash pension and postretirement expense and accretion expense are made to exclude items that are either non-cash or unusual in nature; |
| • | Adjusted EBITDA is one of the primary measures management uses for planning and budgeting processes and to monitor and evaluate financial and operating results. Adjusted EBITDA is not a recognized term under U.S. GAAP and does not purport to be an alternative to measures of our financial performance as determined in accordance with U.S. GAAP, such as net income (loss). Because other companies may calculate EBITDA and Adjusted EBITDA differently than Tronox, EBITDA may not be, and Adjusted EBITDA as presented in this release is not, comparable to similarly titled measures reported by other companies; and |
| • | We believe that the non-U.S. GAAP financial measure “Adjusted net income (loss) attributable to Tronox Holdings plc” and its presentation on a per share basis provide useful information about our operating results to investors and securities analysts. We also believe that excluding the effects of these items from operating results allows management and investors to compare more easily the financial performance of our underlying businesses from period to period. |
For the Company’s guidance with respect to the fourth quarter 2019 and full year 2019 Adjusted EBITDA, Adjusted diluted earnings per share and Free Cash Flow, we are not able to provide without unreasonable effort the most directly comparable GAAP financial measure, or reconciliation to such GAAP financial measure, because certain items that impact such measure are uncertain or out of our control, or cannot be reasonably predicted.
Unaudited Pro Forma Financial Information
On April 10, 2019, we announced the completion of the acquisition of the TiO2 business of Cristal which impacts the comparability of the reported results for 2019 compared to 2018 and the third quarter of 2019 compared to the third quarter of 2018 and the second quarter of 2019. Since Tronox and Cristal have combined their respective businesses effective with the merger date of April 10, 2019, the three and nine months ended September 30, 2019 reflect the results of the combined business from April 10, 2019, while the three and nine months ended September 30, 2018 include only the results of the legacy Tronox business. To assist with a discussion of the 2019 and 2018 results on a comparable basis, certain supplemental unaudited pro forma income statement and Adjusted EBITDA information is provided on a consolidated basis and is referred to as “pro forma information.” The pro forma information has been prepared on a basis consistent with Article 11 of Regulation S-X, assuming the merger and merger-related divestitures of Cristal’s North American TiO2 business and the 8120 paper laminate grade had been consummated on January 1, 2018. In preparing this pro forma information, the historical financial information has been adjusted to give effect to pro forma adjustments that are (i) directly attributable to the business combination and other transactions presented herein, such as the merger-related divestitures, (ii) factually supportable, and (iii) expected to have a continuing impact on the combined entity’s consolidated results. The pro forma information is based on management’s assumptions and is presented for illustrative purposes and does not purport to represent what the results of operations would actually have been if the business combination and merger-related divestitures had occurred as of the dates indicated or what the results would be for any future periods. Also, the pro forma information does not include the impact of any revenue, cost or other operating synergies in the periods prior to the acquisition that may result from the business combination or any related restructuring costs.
Media Contact: Melissa Zona
+1.636.751.4057
Investor Contact: Brennen Arndt
+1.646.960.6598
