Tronox(TROX) - 2024 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for Tronox Holdings plc, including statements of operations, comprehensive income (loss), balance sheets, cash flows, and shareholders' equity, along with detailed notes. Key financial highlights include a significant improvement in net income and comprehensive income compared to the prior year, stable total assets and liabilities, and increased cash flow from operations. Unaudited Condensed Consolidated Statements of Operations Unaudited Condensed Consolidated Statements of Operations (Millions of U.S. dollars) | Metric (Millions of U.S. dollars) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Sales | $820 | $794 | $1,594 | $1,502 | | Gross Profit | $150 | $157 | $270 | $290 | | Income from Operations | $76 | $84 | $117 | $146 | | Income Before Income Taxes | $55 | $53 | $57 | $87 | | Income Tax Provision | $(45) | $(322) | $(56) | $(331) | | Net Income (Loss) | $10 | $(269) | $1 | $(244) | | Net Income (Loss) Attributable to Tronox Holdings plc | $16 | $(269) | $7 | $(246) | | Basic EPS | $0.10 | $(1.72) | $0.04 | $(1.58) | | Diluted EPS | $0.10 | $(1.72) | $0.04 | $(1.58) | Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) (Millions of U.S. dollars) | Metric (Millions of U.S. dollars) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Income (Loss) | $10 | $(269) | $1 | $(244) | | Foreign Currency Translation Adjustments | $14 | $(30) | $(27) | $(43) | | Other Comprehensive Income (Loss) | $12 | $(21) | $(20) | $(36) | | Total Comprehensive Income (Loss) | $22 | $(290) | $(19) | $(280) | Unaudited Condensed Consolidated Balance Sheets Unaudited Condensed Consolidated Balance Sheets (Millions of U.S. dollars) | Metric (Millions of U.S. dollars) | June 30, 2024 | December 31, 2023 | | :-------------------------------- | :------------ | :---------------- | | Cash and Cash Equivalents | $201 | $273 | | Total Current Assets | $2,226 | $2,135 | | Total Assets | $6,096 | $6,134 | | Total Current Liabilities | $746 | $753 | | Total Liabilities | $4,165 | $4,154 | | Total Equity | $1,931 | $1,980 | Unaudited Condensed Consolidated Statements of Cash Flows Unaudited Condensed Consolidated Statements of Cash Flows (Millions of U.S. dollars) | Metric (Millions of U.S. dollars) | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Cash Provided by Operating Activities | $131 | $57 | | Cash Used in Investing Activities | $(136) | $(145) | | Cash (Used in) Provided by Financing Activities | $(63) | $92 | | Net (Decrease) Increase in Cash and Cash Equivalents | $(72) | $3 | | Cash and Cash Equivalents at End of Period | $201 | $167 | Unaudited Condensed Consolidated Statement of Shareholders' Equity Unaudited Condensed Consolidated Statement of Shareholders' Equity (Millions of U.S. dollars) | Metric (Millions of U.S. dollars) | Balance at December 31, 2023 | Balance at June 30, 2024 | | :-------------------------------- | :--------------------------- | :----------------------- | | Total Tronox Holdings plc Shareholders' Equity | $1,936 | $1,898 | | Noncontrolling Interest | $44 | $33 | | Total Equity | $1,980 | $1,931 | - Ordinary share dividends of $20 million were paid in both the quarter ended March 31, 2024, and June 30, 2024[16] Notes to Unaudited Condensed Consolidated Financial Statements 1. The Company Tronox Holdings plc is a vertically integrated producer of titanium-bearing mineral sands, TiO2 pigment, high purity titanium chemicals, and Ultrafine© titanium dioxide. The company operates mines and beneficiation operations in Australia and South Africa, aiming for self-sufficiency in TiO2 production. The financial statements are unaudited and prepared under U.S. GAAP, relying on management's estimates and assumptions. - Tronox's strategy is vertical integration to achieve self-sufficiency in TiO2 production at its nine pigment facilities globally, aiming to deliver low-cost, high-quality pigment[20] - The company also supplies zircon, pig iron, and rare-earth bearing mineral monazite to customers worldwide[20] 2. Revenue Revenue is recognized when customers obtain control of products, typically upon shipment or at a specified destination. The company operates as one reportable segment and disaggregates revenue by product type (TiO2, Zircon, Other) and geographic area. Total net sales for the three months ended June 30, 2024, were $820 million, and for the six months, $1,594 million. Revenue by Product Type (Millions of U.S. dollars) | Product Type (Millions of U.S. dollars) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | TiO2 | $653 | $611 | $1,259 | $1,171 | | Zircon | $85 | $95 | $173 | $167 | | Other Products | $82 | $88 | $162 | $164 | | Total Net Sales | $820 | $794 | $1,594 | $1,502 | Revenue by Geographic Area (Millions of U.S. dollars) | Geographic Area (Millions of U.S. dollars) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | North America | $222 | $204 | $414 | $393 | | South and Central America | $51 | $41 | $97 | $82 | | Europe, Middle-East and Africa | $308 | $319 | $617 | $602 | | Asia Pacific | $239 | $230 | $466 | $425 | | Total Net Sales | $820 | $794 | $1,594 | $1,502 | 3. Income Taxes The company's income tax provision for the three months ended June 30, 2024, was $(45) million, with an effective tax rate of 82%, significantly lower than 608% in the prior year. For the six months, the provision was $(56) million with an effective tax rate of 98%, down from 380%. The effective tax rates are influenced by income/losses in jurisdictions with valuation allowances and the jurisdictional mix of income. A full valuation allowance was recorded against Brazil's deferred tax assets due to operational losses and uncertainty regarding future taxable income. Income Tax Metrics (Millions of U.S. dollars) | Metric (Millions of U.S. dollars) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Income Tax Provision | $(45) | $(322) | $(56) | $(331) | | Income Before Income Taxes | $55 | $53 | $57 | $87 | | Effective Tax Rate | 82% | 608% | 98% | 380% | - A full valuation allowance of $16 million was recorded against Brazil's deferred tax assets due to operational losses and uncertainty in generating future net income[35] - Full valuation allowances are maintained for net deferred tax assets in Australia and the United Kingdom, and against specific tax assets in China, South Africa, and the United States[36] 4. Income Per Share Basic and diluted earnings per share for the three months ended June 30, 2024, were $0.10, a substantial improvement from a loss of $(1.72) in the prior year. For the six months, EPS was $0.04, up from a loss of $(1.58). The weighted-average ordinary shares outstanding increased slightly. Income Per Share Metrics (Millions of U.S. dollars) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :---------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Income (Loss) Available to Ordinary Shares (Millions of U.S. dollars) | $16 | $(269) | $7 | $(246) | | Weighted-Average Ordinary Shares, Basic (in thousands) | 158,117 | 156,780 | 157,730 | 155,986 | | Basic Net Income (Loss) Per Ordinary Share | $0.10 | $(1.72) | $0.04 | $(1.58) | | Diluted Net Income (Loss) Per Ordinary Share | $0.10 | $(1.72) | $0.04 | $(1.58) | 5. Accounts Receivable Securitization Program The company's accounts receivable securitization program was amended in April 2024, increasing the facility limit from $200 million to $230 million. As of June 30, 2024, $230 million of accounts receivables were sold and derecognized, up from $186 million at December 31, 2023. - The Securitization Facility limit was increased from $200 million to $230 million in April 2024[42] Accounts Receivable Securitization (Millions of U.S. dollars) | Metric (Millions of U.S. dollars) | June 30, 2024 | December 31, 2023 | | :-------------------------------- | :------------ | :---------------- | | Total value of accounts receivables sold and derecognized | $230 | $186 | | Unsold receivables pledged as collateral | $171 | $129 | 6. Inventories, Net Net inventories remained relatively stable at $1,424 million as of June 30, 2024, compared to $1,421 million at December 31, 2023. Finished goods constitute the largest portion. Inventory obsolescence reserves were $44 million, and reserves for lower of cost or market were $26 million at June 30, 2024. Inventories, Net (Millions of U.S. dollars) | Inventory Type (Millions of U.S. dollars) | June 30, 2024 | December 31, 2023 | | :---------------------------------------- | :------------ | :---------------- | | Raw Materials | $355 | $352 | | Work-in-Process | $151 | $141 | | Finished Goods, Net | $676 | $688 | | Materials and Supplies, Net | $242 | $240 | | Total Inventories, Net | $1,424 | $1,421 | - Inventory obsolescence reserves were $44 million at June 30, 2024, and reserves for lower of cost or market were $26 million[46] 7. Property, Plant and Equipment, Net Property, plant, and equipment, net, increased slightly to $1,841 million at June 30, 2024, from $1,835 million at December 31, 2023. Machinery and equipment represent the largest component. Depreciation expense for the six months ended June 30, 2024, was $114 million. Property, Plant and Equipment, Net (Millions of U.S. dollars) | Asset Type (Millions of U.S. dollars) | June 30, 2024 | December 31, 2023 | | :------------------------------------ | :------------ | :---------------- | | Land and Land Improvements | $241 | $237 | | Buildings | $409 | $404 | | Machinery and Equipment | $2,564 | $2,530 | | Construction-in-Progress | $372 | $319 | | Total Property, Plant and Equipment, Net | $1,841 | $1,835 | Depreciation Expense (Millions of U.S. dollars) | Depreciation Expense (Millions of U.S. dollars) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :---------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Cost of Goods Sold | $56 | $52 | $112 | $106 | | Selling, General and Administrative Expenses | $1 | $1 | $2 | $2 | | Total | $57 | $53 | $114 | $108 | 8. Mineral Leaseholds, Net Mineral leaseholds, net, decreased to $639 million at June 30, 2024, from $654 million at December 31, 2023. Depletion expense for the six months ended June 30, 2024, was $15 million. Mineral Leaseholds, Net (Millions of U.S. dollars) | Metric (Millions of U.S. dollars) | June 30, 2024 | December 31, 2023 | | :-------------------------------- | :------------ | :---------------- | | Mineral Leaseholds | $1,260 | $1,260 | | Less: Accumulated Depletion | $(621) | $(606) | | Mineral Leaseholds, Net | $639 | $654 | - Depletion expense was $8 million for the three months ended June 30, 2024, and $15 million for the six months ended June 30, 2024[50] 9. Intangible Assets, Net Intangible assets, net, increased slightly to $246 million at June 30, 2024, from $243 million at December 31, 2023. Internal-use software and other assets constitute the largest portion. Amortization expense for the six months ended June 30, 2024, was $15 million. Intangible Assets, Net (Millions of U.S. dollars) | Intangible Asset Type (Millions of U.S. dollars) | Gross Cost (June 30, 2024) | Accumulated Amortization (June 30, 2024) | Net Carrying Amount (June 30, 2024) | Net Carrying Amount (December 31, 2023) | | :----------------------------------------------- | :------------------------- | :--------------------------------------- | :---------------------------------- | :-------------------------------------- | | Customer Relationships | $292 | $(260) | $32 | $41 | | TiO2 Technology | $93 | $(47) | $46 | $49 | | Internal-Use Software and Other | $218 | $(50) | $168 | $153 | | Total Intangible Assets, Net | $603 | $(357) | $246 | $243 | Amortization Expense (Millions of U.S. dollars) | Amortization Expense (Millions of U.S. dollars) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :---------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Cost of Goods Sold | $1 | $1 | $2 | $2 | | Selling, General and Administrative Expenses | $6 | $7 | $13 | $14 | | Total | $7 | $8 | $15 | $16 | 10. Balance Sheet and Cash Flow Supplemental Information Accrued liabilities increased to $243 million at June 30, 2024, from $230 million at December 31, 2023, primarily due to employee-related costs and sales rebates. Supplemental non-cash information includes $34 million in chloride slag inventory purchases from AMIC and $7 million in proceeds from the sale of royalty interest for the six months ended June 30, 2024. Accrued Liabilities (Millions of U.S. dollars) | Accrued Liabilities (Millions of U.S. dollars) | June 30, 2024 | December 31, 2023 | | :--------------------------------------------- | :------------ | :---------------- | | Employee-Related Costs and Benefits | $114 | $111 | | Sales Rebates | $38 | $36 | | Other Accrued Liabilities | $40 | $46 | | Total Accrued Liabilities | $243 | $230 | Supplemental Non-Cash Information (Millions of U.S. dollars) | Supplemental Non-Cash Information (Millions of U.S. dollars) | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :----------------------------------------------------------- | :----------------------------- | :----------------------------- | | Operating activities - Chloride slag inventory purchases from AMIC | $34 | $0 | | Investing activities - Proceeds from sale of royalty interest | $7 | $0 | | Investing activities - In-kind receipt of AMIC loan repayment | $34 | $0 | 11. Debt Total long-term debt, net, was $2,781 million at June 30, 2024, relatively stable compared to $2,786 million at December 31, 2023. In May 2024, the company entered into a new $741 million 2024 Term Loan Facility to refinance the 2022 and 2023 Term Loan Facilities. The company was in compliance with all debt covenants as of June 30, 2024. Long-Term Debt (Millions of U.S. dollars) | Long-Term Debt (Millions of U.S. dollars) | June 30, 2024 | December 31, 2023 | | :---------------------------------------- | :------------ | :---------------- | | Term Loan Facility, net | $899 | $898 | | 2024 Term Loan Facility, net | $735 | $0 | | Senior Notes due 2029 | $1,075 | $1,075 | | Total Long-Term Debt, Net | $2,781 | $2,786 | - The 2024 Term Loan Facility, with an initial principal of $741 million, was used to refinance the outstanding 2022 and 2023 Term Loan Facilities[60][61] - The company was in compliance with all financial covenants in its debt facilities as of June 30, 2024[64] 12. Derivative Financial Instruments The company uses derivative instruments, primarily interest rate swaps and foreign currency contracts, to manage exposure to interest rate and foreign currency fluctuations. As of June 30, 2024, the fair value of derivatives designated as cash flow hedges (interest rate swaps) was $27 million in assets, and total derivatives (including currency contracts not designated as hedges) were $29 million in assets. Derivative Financial Instruments Fair Value (Millions of U.S. dollars) | Derivative Type (Millions of U.S. dollars) | Fair Value Assets (June 30, 2024) | Fair Value Liabilities (June 30, 2024) | Fair Value Assets (December 31, 2023) | Fair Value Liabilities (December 31, 2023) | | :--------------------------------------- | :-------------------------------- | :------------------------------------- | :------------------------------------ | :----------------------------------------- | | Interest Rate Swaps | $27 | $0 | $18 | $0 | | Natural Gas Hedges | $0 | $0 | $0 | $1 | | Currency Contracts | $2 | $0 | $1 | $1 | | Total Derivatives | $29 | $0 | $19 | $2 | - The company maintains $950 million of interest rate swaps ($700 million maturing in March 2028 and $250 million in September 2024) to stabilize interest expense and manage interest rate exposure[68] 13. Fair Value The fair value of the company's debt and derivative contracts is determined using a fair value hierarchy. Term Loan Facilities and Senior Notes are valued using Level 1 inputs (quoted market prices), while other loans and derivative contracts use Level 2 inputs (observable inputs other than quoted prices). Fair Value of Debt and Derivatives (Millions of U.S. dollars) | Debt/Derivative (Millions of U.S. dollars) | Fair Value Liability (June 30, 2024) | Fair Value Liability (December 31, 2023) | Fair Value Asset (June 30, 2024) | Fair Value Asset (December 31, 2023) | | :--------------------------------------- | :----------------------------------- | :--------------------------------------- | :------------------------------- | :----------------------------------- | | Term Loan Facility | $906 | $903 | $0 | $0 | | 2024 Term Loan Facility | $743 | $0 | $0 | $0 | | Senior Notes due 2029 | $969 | $956 | $0 | $0 | | Interest Rate Swaps | $0 | $0 | $27 | $18 | - Fair value of Term Loan Facilities and Senior Notes are determined using Level 1 inputs (quoted market prices)[73] - Fair value of Standard Bank Term Loan Facility, Australian Government Loan, MGT Loan, foreign currency contracts, natural gas hedges, and interest rate swaps are determined using Level 2 inputs[73][74] 14. Asset Retirement Obligations Asset retirement obligations increased to $194 million at June 30, 2024, from $186 million at December 31, 2023. This increase is primarily due to additions and accretion expense, partially offset by settlements/payments. Asset Retirement Obligations Activity (Millions of U.S. dollars) | Metric (Millions of U.S. dollars) | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Beginning Balance | $186 | $161 | | Additions | $7 | $3 | | Accretion Expense | $10 | $7 | | Settlements/Payments | $(4) | $(5) | | Balance, June 30 | $194 | $161 | Asset Retirement Obligations Balance (Millions of U.S. dollars) | Asset Retirement Obligations (Millions of U.S. dollars) | June 30, 2024 | December 31, 2023 | | :------------------------------------------------------ | :------------ | :---------------- | | Current Portion | $12 | $14 | | Noncurrent Portion | $182 | $172 | | Total Asset Retirement Obligations | $194 | $186 | 15. Commitments and Contingencies The company has significant purchase commitments totaling $217 million for the remainder of 2024 and $2,380 million thereafter. Outstanding letters of credit and bank guarantees totaled $120 million at June 30, 2024. Environmental liabilities include a $42 million provision for the Hawkins Point Plant remediation. The company is also involved in other legal matters, including a UK Health and Safety matter, but does not expect a material adverse effect. - Purchase commitments total $217 million for the remainder of 2024 and $2,380 million thereafter[79] - Outstanding letters of credit and bank guarantees totaled $120 million at June 30, 2024[79] - A provision of $42 million is included in "Environmental liabilities" for the Hawkins Point Plant remediation as of June 30, 2024[80] 16. Accumulated Other Comprehensive Loss Attributable to Tronox Holdings plc and Other Equity Items Accumulated other comprehensive loss attributable to Tronox Holdings plc was $(829) million at June 30, 2024, compared to $(814) million at December 31, 2023. This change was primarily due to cumulative translation adjustments and unrealized gains/losses on hedges. Accumulated Other Comprehensive Loss (Millions of U.S. dollars) | Component (Millions of U.S. dollars) | Balance, January 1, 2024 | Balance, June 30, 2024 | | :----------------------------------- | :----------------------- | :--------------------- | | Cumulative Translation Adjustment | $(729) | $(751) | | Pension Liability Adjustment | $(92) | $(91) | | Unrealized Gains (Losses) on Hedges | $7 | $13 | | Total Accumulated Other Comprehensive Loss | $(814) | $(829) | - The Board of Directors authorized the repurchase of up to $300 million of the Company's stock through February 21, 2027, but no repurchases were made during the six months ended June 30, 2024[87] 17. Share-Based Compensation During the six months ended June 30, 2024, the company granted 808,182 time-based RSUs and 808,188 performance-based RSUs. Total share-based compensation expense was $4 million for the three months and $10 million for the six months ended June 30, 2024. Unrecognized compensation cost for unvested awards was $39 million. - Granted 808,182 time-based RSUs and 808,188 performance-based RSUs during the six months ended June 30, 2024[88] Share-Based Compensation Expense (Millions of U.S. dollars) | Share-Based Compensation Expense (Millions of U.S. dollars) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :---------------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Stock Compensation Expense | $4 | $5 | $10 | $11 | - Unrecognized compensation cost for unvested awards was $39 million at June 30, 2024, to be recognized over approximately 2.1 years[88] 18. Pension and Other Postretirement Healthcare Benefits Total net periodic pension cost for the six months ended June 30, 2024, was $1 million, and postretirement healthcare plan cost was $1 million. The company contributed $3 million to its pension plans during the six months and expects to contribute $5 million for the remainder of 2024. Net Periodic Cost (Millions of U.S. dollars) | Net Periodic Cost (Millions of U.S. dollars) | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :------------------------------------------- | :----------------------------- | :----------------------------- | | Pensions | $1 | $0 | | Postretirement Healthcare Plans | $1 | $1 | - The company contributed $3 million to its pension plans during the six months ended June 30, 2024, and expects to contribute approximately $5 million for the remainder of 2024[93] 19. Related Parties Cristal International Holdings B.V. (a subsidiary of Tasnee) owns a 24% interest in Tronox. The company has an Option Agreement with AMIC (jointly owned by Tasnee and Cristal) regarding the acquisition of a titanium slag smelter facility. The agreement was amended in February 2024, extending the renegotiation period and establishing in-kind repayment of Tronox Loans through chloride slag deliveries. The outstanding balance of Tronox Loans to AMIC was $58 million at June 30, 2024. The company also has a MGT Loan with Cristal, with an outstanding balance of $22 million at June 30, 2024. - Cristal International Holdings B.V. (a Tasnee subsidiary) holds a 24% ownership interest in Tronox[95] - The Option Agreement with AMIC for the titanium slag smelter was amended, extending the renegotiation period and stipulating in-kind repayment of Tronox Loans via chloride slag deliveries[98] Tronox Loans to AMIC (Millions of U.S. dollars) | Tronox Loans to AMIC (Millions of U.S. dollars) | June 30, 2024 | December 31, 2023 | | :---------------------------------------------- | :------------ | :---------------- | | Principal Balance | $50 | $80 | | Accrued Interest Income Balance | $8 | $12 | | Total Outstanding Balance | $58 | $92 | MGT Loan to Cristal (Millions of U.S. dollars) | MGT Loan to Cristal (Millions of U.S. dollars) | June 30, 2024 | December 31, 2023 | | :--------------------------------------------- | :------------ | :---------------- | | Note Payable, due within 1 year | $7 | $7 | | Note Payable, due longer than 1 year | $15 | $18 | | Total Outstanding Note Payable | $22 | $25 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Tronox's financial performance and condition for the three and six months ended June 30, 2024. It highlights revenue growth driven by increased sales volumes, despite declining average selling prices. The company saw significant improvements in net income and comprehensive income, largely due to deferred tax asset adjustments and a royalty interest sale. Liquidity remains strong, supported by cash and credit facilities, while debt obligations were managed through refinancing. The discussion also covers non-GAAP financial measures and ongoing IT transformation. Overview Tronox Holdings plc is a vertically integrated producer of titanium-bearing mineral sands and TiO2 pigment, aiming for self-sufficiency in TiO2 production. The company also produces zircon, pig iron, and monazite. This section provides management's perspective on financial condition and results, including non-GAAP measures. - Tronox's core business involves mining and beneficiation of titanium-bearing mineral sands to produce feedstock for TiO2 pigment, high purity titanium chemicals, and Ultrafine© titanium dioxide[108] - The company's strategy emphasizes vertical integration to achieve self-sufficiency in TiO2 production and deliver low-cost, high-quality pigment globally[108] Business Environment Second quarter 2024 revenue increased 3% year-over-year, driven by higher sales volumes of TiO2 and zircon, despite declines in average selling prices. Sequentially, Q2 2024 revenue increased 6% from Q1 2024, primarily due to higher TiO2 sales volumes. Gross profit improved sequentially due to better production costs and higher TiO2 volumes. - Q2 2024 revenue increased 3% YoY, driven by higher TiO2 (16% volume increase) and zircon sales volumes, partially offset by an 8% decline in TiO2 average selling prices[109] - Sequentially, Q2 2024 revenue increased 6% from Q1 2024, primarily due to an 8% increase in TiO2 volumes[109] - Gross profit improved sequentially in Q2 2024 due to improved production costs and higher TiO2 sales volumes[110] Condensed Consolidated Results of Operations Three Months Ended June 30, 2024 compared to the Three Months Ended June 30, 2023 Net sales increased by 3% to $820 million, primarily due to higher TiO2 sales volumes. Gross profit decreased by $7 million, and gross margin declined to 18.3% from 19.8%, mainly due to lower selling prices of TiO2, Zircon, and pig iron, partially offset by improved production costs. Net income significantly improved to $10 million from a loss of $269 million, largely due to deferred tax asset valuation allowance adjustments and the sale of a royalty interest. Condensed Consolidated Results of Operations (Millions of U.S. dollars) | Metric (Millions of U.S. dollars) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Variance | Percentage Change | | :-------------------------------- | :------------------------------- | :------------------------------- | :------- | :---------------- | | Net Sales | $820 | $794 | $26 | 3% | | Gross Profit | $150 | $157 | $(7) | (4.5)% | | Gross Margin | 18.3% | 19.8% | (1.5) pts| | | Net Income (Loss) | $10 | $(269) | $279 | 103.7% | | Adjusted EBITDA | $161 | $168 | $(7) | (4.2)% | - TiO2 revenue increased 7% ($42 million) due to a $102 million increase in sales volumes, partially offset by a $57 million decrease in average selling prices[113] - Zircon revenue decreased 11% ($10 million) due to a 15% decrease in average selling prices, partially offset by a 4% increase in sales volumes[113] Six Months Ended June 30, 2024 compared to the Six Months Ended June 30, 2023 Net sales increased by 6% to $1,594 million, driven by higher sales volumes of TiO2 and Zircon. Gross profit decreased by $20 million, and gross margin declined to 16.9% from 19.3%, primarily due to lower selling prices, partially offset by improved absorption from higher production volumes. Net income significantly improved to $1 million from a loss of $244 million, mainly due to deferred tax asset valuation allowance adjustments and the sale of a royalty interest. Condensed Consolidated Results of Operations (Millions of U.S. dollars) | Metric (Millions of U.S. dollars) | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | Variance | Percentage Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :------- | :---------------- | | Net Sales | $1,594 | $1,502 | $92 | 6% | | Gross Profit | $270 | $290 | $(20) | (6.9)% | | Gross Margin | 16.9% | 19.3% | (2.4) pts| | | Net Income (Loss) | $1 | $(244) | $245 | 100.4% | | Adjusted EBITDA | $292 | $314 | $(22) | (7.0)% | - TiO2 revenue increased 8% ($88 million) due to a $204 million increase in sales volumes, partially offset by a $115 million decrease in average selling prices[119] - Zircon revenue increased 4% ($6 million) due to a 21% increase in sales volumes, partially offset by a 17% decrease in average selling prices[119] Other Comprehensive Income (Loss) Other comprehensive income was $12 million for the three months ended June 30, 2024, a significant improvement from a loss of $21 million in the prior year, driven by favorable foreign currency translation adjustments. For the six months, other comprehensive loss was $20 million, an improvement from $36 million in the prior year, also due to favorable foreign currency translation adjustments. - Other comprehensive income for Q2 2024 was $12 million (vs. $(21) million loss in Q2 2023), primarily due to $14 million in favorable foreign currency translation adjustments[124] - Other comprehensive loss for the six months ended June 30, 2024, was $20 million (vs. $(36) million loss in prior year), primarily due to $27 million in unfavorable foreign currency translation adjustments (less unfavorable than prior year)[125] Liquidity and Capital Resources Total available liquidity was $680 million at June 30, 2024, including $201 million in cash and cash equivalents and $479 million available under revolving credit agreements. Total debt was $2.8 billion, with a net debt to trailing-twelve-month Adjusted EBITDA ratio of 5.2x. The company expects sufficient cash from operations for the next twelve months, supported by various credit facilities. Liquidity Metrics (Millions of U.S. dollars) | Liquidity Metric (Millions of U.S. dollars) | June 30, 2024 | December 31, 2023 | | :------------------------------------------ | :------------ | :---------------- | | Cash and Cash Equivalents | $201 | $273 | | Available under Revolving Credit Agreements | $479 | $468 | | Total Available Liquidity | $680 | $761 | - Total debt was $2.8 billion, and net debt to trailing-twelve-month Adjusted EBITDA was 5.2x as of June 30, 2024[110] - The company has no financial covenants on its term loan or bonds and only one springing financial covenant on its Cash Flow Revolver, which is not expected to be triggered[110] Cash and Cash Equivalents - Cash and cash equivalents totaled $201 million at June 30, 2024[130] - Cash is held across various jurisdictions: $30 million in Europe, $37 million in the US, $52 million in Australia, $21 million in Brazil, $36 million in South Africa, $6 million in Saudi Arabia, and $18 million in China[132] Repatriation of Cash - Undistributed earnings in specific foreign subsidiaries are indefinitely reinvested, with no income tax provision made, except for China where withholding tax accruals are reflected since 2022[133] Stock Repurchases - A new share repurchase program of up to $300 million was authorized through February 21, 2027[134] - No stock repurchases were made during the six months ended June 30, 2024[134] Debt Obligations Debt Metrics (Millions of U.S. dollars) | Debt Metric (Millions of U.S. dollars) | June 30, 2024 | December 31, 2023 | | :------------------------------------- | :------------ | :---------------- | | Long-Term Debt, Net | $2,781 | $2,786 | | Net Debt | $2,606 | $2,551 | - The 2024 Term Loan Facility of $741 million was used to refinance the outstanding 2022 and 2023 Term Loan Facilities[136] Off-Balance Sheet Arrangements - The accounts receivable securitization program facility limit was increased to $230 million in April 2024[138] - The program involves selling accounts receivable to a bankruptcy-remote subsidiary, leading to derecognition from the balance sheet[137] Cash Flows Cash Flow Activity (Millions of U.S. dollars) | Cash Flow Activity (Millions of U.S. dollars) | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------------------------------------- | :----------------------------- | :----------------------------- | | Cash Provided by Operating Activities | $131 | $57 | | Cash Used in Investing Activities | $(136) | $(145) | | Cash (Used in) Provided by Financing Activities | $(63) | $92 | - The increase in operating cash flow was driven by lower working capital use, including decreases in inventories and prepaid assets, and an increase in accounts payable[140] Contractual Obligations Contractual Obligations (Millions of U.S. dollars) | Contractual Obligation (Millions of U.S. dollars) | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | | :------------------------------------------------ | :------ | :--------------- | :-------- | :-------- | :---------------- | | Long-term debt, net and lease financing | $3,662 | $218 | $465 | $2,958 | $21 | | Purchase obligations | $3,531 | $330 | $418 | $497 | $2,286 | | Operating leases | $277 | $31 | $53 | $43 | $150 | | Asset retirement obligations and environmental liabilities | $457 | $29 | $56 | $53 | $319 | | Total | $7,927 | $608 | $992 | $3,551 | $2,776 | Non-U.S. GAAP Financial Measures Management uses non-U.S. GAAP financial measures like EBITDA, Adjusted EBITDA, and Adjusted net income to evaluate operational performance, providing additional insight into ongoing business trends. These measures exclude nonrecurring and non-cash items to offer a normalized view. Adjusted EBITDA for the six months ended June 30, 2024, was $292 million, a decrease from $314 million in the prior year. - Non-U.S. GAAP measures (EBITDA, Adjusted EBITDA, Adjusted net income) are used by management to evaluate operating performance, providing insight into ongoing business trends by excluding nonrecurring and non-cash items[145][146] Non-U.S. GAAP Financial Measures (Millions of U.S. dollars) | Metric (Millions of U.S. dollars) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Income (Loss) (U.S. GAAP) | $10 | $(269) | $1 | $(244) | | EBITDA (non-U.S. GAAP) | $167 | $156 | $279 | $291 | | Adjusted EBITDA (non-U.S. GAAP) | $161 | $168 | $292 | $314 | Net Debt to Trailing-Twelve Month Adjusted EBITDA (Millions of U.S. dollars) | Metric (Millions of U.S. dollars) | June 30, 2024 | December 31, 2023 | | :-------------------------------- | :------------ | :---------------- | | Net Debt | $2,606 | $2,551 | | Trailing-Twelve Month Adjusted EBITDA | $502 | $524 | | Net Debt to Trailing-Twelve Month Adjusted EBITDA | 5.2x | 4.9x | Recent Accounting Pronouncements The company is evaluating new FASB ASUs 2023-07 (Improvements to Reportable Segment Disclosures) and 2023-09 (Improvements to Income Tax Disclosures), which are effective for fiscal years beginning after December 15, 2023, and December 15, 2024, respectively. - Evaluating FASB ASU 2023-07 (Improvements to Reportable Segment Disclosures), effective for fiscal years beginning after December 15, 2023[24] - Evaluating FASB ASU 2023-09 (Improvements to Income Tax Disclosures), effective for annual periods beginning after December 15, 2024[25] Environmental Matters Tronox is subject to stringent environmental laws and regulations globally, incurring significant compliance costs. The company believes it is in material compliance with applicable rules and regulations. - The company is subject to extensive environmental laws and regulations, with compliance costs expected to remain significant[158] - Management believes the company is in material compliance with applicable environmental rules and regulations[158] Item 3. Quantitative and Qualitative Disclosures About Market Risk Tronox is exposed to various market, credit, operational, and liquidity risks. Market risk from commodity price fluctuations is managed through contract provisions and a diverse customer mix. Credit risk from trade accounts receivable is mitigated by ongoing evaluations. Interest rate risk on floating rate debt is managed with interest rate swaps. Currency risk from international operations is addressed using foreign currency contracts. Market Risk - Exposure to market risk from commodity price fluctuations for products and raw materials[160] - Mitigation strategies include sales contract provisions for cost pass-through, formula price contracts, fixed purchase commitments, and a diverse customer base[160] Credit Risk - Significant credit risk exposure in trade accounts receivable, especially in cyclically affected industries[160] - The ten largest third-party customers accounted for 36% of consolidated net sales for the six months ended June 30, 2024[160] Interest Rate Risk - A hypothetical 1% increase in interest rates would decrease pre-tax income by approximately $7 million annually[161] - The company uses $950 million in interest rate swaps ($700 million maturing in March 2028 and $250 million in September 2024) to manage interest rate exposure[163] Currency Risk - Exposure to currency risk from operations in Australia, Brazil, China, South Africa, the Netherlands, and the United Kingdom, especially where revenues are in USD and expenses in local currencies[164] - Uses foreign currency contracts as "economic hedges" for forecasted non-functional currency sales and cost of goods sold, and to reduce balance sheet exposure[165][166] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2024. The company is undergoing a multi-year IT-enabled transformation program that is expected to result in changes to internal control over financial reporting, which management will continue to evaluate and monitor. Evaluation of Disclosure Controls and Procedures - Disclosure controls and procedures were evaluated and deemed effective as of June 30, 2024[168] Changes in Internal Control over Financial Reporting - A multi-year IT-enabled transformation program, including financial system upgrades, is expected to result in changes to internal control over financial reporting[170] - No other material changes in internal control over financial reporting occurred during the quarter ended June 30, 2024[171] PART II – OTHER INFORMATION Item 1. Legal Proceedings Information on legal proceedings is incorporated by reference from Note 15 to the financial statements. The company discloses proceedings with monetary sanctions above $1 million. - Legal proceedings information is incorporated by reference from Note 15, with a disclosure threshold of $1 million for environmental proceedings[173] Item 1A. Risk Factors There have been no material changes to the risk factors disclosed in the company's Annual Report on Form 10-K. - No material changes to risk factors from the Annual Report on Form 10-K[174] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The Board authorized a $300 million stock repurchase program through February 21, 2027. No shares were purchased under this program during the three months ended June 30, 2024. - A $300 million stock repurchase program was authorized through February 21, 2027[176] - No shares were purchased under the repurchase program during the three months ended June 30, 2024[176] Item 3. Defaults Upon Senior Securities No defaults upon senior securities were reported. - No defaults upon senior securities[179] Item 4. Mine Safety Disclosures Not applicable. - Not applicable[179] Item 5. Other Information Mr. Russell Austin, Senior Vice President, Global Operations, will leave Tronox effective December 1, 2024. No directors or officers had Rule 10b5-1 trading arrangements during the quarter. - Mr. Russell Austin, Senior Vice President, Global Operations, will depart effective December 1, 2024[177] - No directors or officers had Rule 10b5-1 trading arrangements during the three months ended June 30, 2024[177] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications (Rule 13a-14(a), Section 1350) and iXBRL financial statements. - Includes certifications (Rule 13a-14(a), Section 1350) and iXBRL financial statements as exhibits[180] SIGNATURES The report is signed on behalf of Tronox Holdings PLC by D. John Srivisal, Senior Vice President, Chief Financial Officer, and Jonathan P. Flood, Vice President, Controller and Principal Accounting Officer, dated August 2, 2024. - The report was signed by D. John Srivisal (SVP, CFO) and Jonathan P. Flood (VP, Controller and Principal Accounting Officer) on August 2, 2024[182][183]