Tronox(TROX) - 2024 Q1 - 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 (loss) income, balance sheets, cash flows, and shareholders' equity for the three months ended March 31, 2024 and 2023, along with detailed notes explaining accounting policies, revenue disaggregation, income taxes, debt, derivatives, and related party transactions Unaudited Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations (Three Months Ended March 31) | Metric (Millions of U.S. dollars) | 2024 | 2023 | | :-------------------------------- | :--- | :--- | | Net sales | $774 | $708 | | Cost of goods sold | $654 | $575 | | Gross profit | $120 | $133 | | Selling, general and administrative expenses | $79 | $71 | | Income from operations | $41 | $62 | | Interest expense | $(42) | $(33) | | Interest income | $4 | $3 | | Other (expense) income, net | $(1) | $2 | | Income before income taxes | $2 | $34 | | Income tax provision | $(11) | $(9) | | Net (loss) income | $(9) | $25 | | Net (loss) income attributable to Tronox Holdings plc | $(9) | $23 | | Basic (Loss) Earnings per share | $(0.06) | $0.15 | | Diluted (Loss) Earnings per share | $(0.06) | $0.15 | Unaudited Condensed Consolidated Statements of Comprehensive (Loss) Income Condensed Consolidated Statements of Comprehensive (Loss) Income (Three Months Ended March 31) | Metric (Millions of U.S. dollars) | 2024 | 2023 | | :-------------------------------- | :--- | :--- | | Net (loss) income | $(9) | $25 | | Other comprehensive income (loss): | | Foreign currency translation adjustments | $(41) | $(13) | | Pension and postretirement plans: Actuarial loss | $0 | $1 | | Realized (gains) losses on derivatives reclassified | $(1) | $3 | | Unrealized gains (losses) on derivative financial instruments | $10 | $(6) | | Other comprehensive loss | $(32) | $(15) | | Total comprehensive (loss) income | $(41) | $10 | | Comprehensive (loss) income attributable to Tronox Holdings plc | $(40) | $6 | Unaudited Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (Millions of U.S. dollars) | Asset/Liability/Equity | March 31, 2024 | December 31, 2023 | | :--------------------- | :------------- | :---------------- | | ASSETS | | | | Cash and cash equivalents | $152 | $273 | | Accounts receivable, net | $378 | $290 | | Inventories, net | $1,403 | $1,421 | | Total current assets | $2,159 | $2,135 | | Property, plant and equipment, net | $1,804 | $1,835 | | Mineral leaseholds, net | $639 | $654 | | Intangible assets, net | $243 | $243 | | Total assets | $6,022 | $6,134 | | LIABILITIES AND EQUITY | | | | Accounts payable | $398 | $461 | | Accrued liabilities | $240 | $230 | | Total current liabilities | $691 | $753 | | Long-term debt, net | $2,780 | $2,786 | | Total liabilities | $4,097 | $4,154 | | Total Tronox Holdings plc shareholders' equity | $1,882 | $1,936 | | Total equity | $1,925 | $1,980 | | Total liabilities and equity | $6,022 | $6,134 | Unaudited Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (Three Months Ended March 31) | Cash Flow Activity (Millions of U.S. dollars) | 2024 | 2023 | | :-------------------------------------------- | :--- | :--- | | Cash used in operating activities | $(29) | $(79) | | Cash used in investing activities | $(76) | $(91) | | Cash (used in) provided by financing activities | $(12) | $120 | | Effects of exchange rate changes | $(2) | $1 | | Net decrease in cash and cash equivalents and restricted cash | $(119) | $(49) | | Cash and cash equivalents and restricted cash at end of period | $154 | $115 | Unaudited Condensed Consolidated Statement of Shareholders' Equity Changes in Shareholders' Equity (Three Months Ended March 31, 2024) | Metric (Millions of U.S. dollars, except shares) | Balance at Dec 31, 2023 | Net Income | Other Comprehensive (Loss) Income | Share-based Compensation | Ordinary Share Dividends | Balance at Mar 31, 2024 | | :----------------------------------------------- | :---------------------- | :--------- | :-------------------------------- | :----------------------- | :----------------------- | :---------------------- | | Tronox Holdings plc Ordinary Shares (thousands) | 156,794 | — | — | 1,050 | — | 157,838 | | Tronox Holdings plc Ordinary Shares (Amount) | $2 | — | — | — | — | $2 | | Capital in Excess of Par Value | $2,064 | — | — | $6 | — | $2,070 | | Retained Earnings | $684 | $(9) | — | — | $(20) | $655 | | Accumulated Other Comprehensive Loss | $(814) | — | $(31) | — | — | $(845) | | Total Tronox Holdings plc Shareholders' Equity | $1,936 | $(9) | $(31) | $6 | $(20) | $1,882 | Changes in Shareholders' Equity (Three Months Ended March 31, 2023) | Metric (Millions of U.S. dollars, except shares) | Balance at Dec 31, 2022 | Net Income | Other Comprehensive (Loss) Income | Share-based Compensation | Ordinary Share Dividends | Balance at Mar 31, 2023 | | :----------------------------------------------- | :---------------------- | :--------- | :-------------------------------- | :----------------------- | :----------------------- | :---------------------- | | Tronox Holdings plc Ordinary Shares (thousands) | 154,497 | — | — | 2,221 | — | 156,717 | | Tronox Holdings plc Ordinary Shares (Amount) | $2 | — | — | — | — | $2 | | Capital in Excess of Par Value | $2,043 | — | — | $6 | — | $2,049 | | Retained Earnings | $1,080 | $23 | — | — | $(20) | $1,083 | | Accumulated Other Comprehensive Loss | $(768) | — | $(17) | — | — | $(785) | | Total Tronox Holdings plc Shareholders' Equity | $2,357 | $23 | $(17) | $6 | $(20) | $2,349 | Notes to Unaudited Condensed Consolidated Financial Statements Note 1. The Company - Tronox Holdings plc operates titanium-bearing mineral sand mines and beneficiation operations in Australia and South Africa, producing feedstock materials for TiO2 pigment, high purity titanium chemicals, and Ultrafine© titanium dioxide. The company's strategy is vertical integration to achieve self-sufficiency in TiO2 production at its nine pigment facilities globally[23][104] - The accompanying condensed consolidated financial statements are unaudited and prepared in accordance with U.S. GAAP for interim financial reporting, reflecting all normal recurring adjustments[24][25] - The company is evaluating new FASB ASUs 2023-07 (Improvements to Reportable Segment Disclosures) and 2023-09 (Improvements to Income Tax Disclosures), effective for fiscal years beginning after December 15, 2023, and December 15, 2024, respectively, for potential incremental disclosures[28][29] Note 2. Revenue - Revenue is recognized when customers obtain control of products, typically at shipment or specified destination. Contract assets are minimal, and contract liabilities (deferred revenue) were $1 million at March 31, 2024, up from less than $1 million at December 31, 2023[30][31][32] - Tronox operates as a single reportable segment and disaggregates revenue by product type and geographic area[33] Net Sales by Geographic Area (Millions of U.S. dollars) | Geographic Area | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------------ | :-------------------------------- | :-------------------------------- | | North America | $192 | $189 | | South and Central America | $46 | $42 | | Europe, Middle-East and Africa | $309 | $282 | | Asia Pacific | $227 | $195 | | Total net sales | $774 | $708 | Net Sales by Product Type (Millions of U.S. dollars) | Product Type | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------ | :-------------------------------- | :-------------------------------- | | TiO2 | $605 | $560 | | Zircon | $88 | $72 | | Other products | $81 | $76 | | Total net sales | $774 | $708 | - The ten largest third-party customers accounted for 37% of consolidated net sales in both periods, with no single customer representing 10% or more[35] Note 3. Income Taxes Income Tax Provision and Effective Tax Rate (Three Months Ended March 31) | Metric (Millions of U.S. dollars) | 2024 | 2023 | | :-------------------------------- | :--- | :--- | | Income tax provision | $(11) | $(9) | | Income before income taxes | $2 | $34 | | Effective tax rate | 550% | 26% | - The effective tax rate for Q1 2024 was 550% compared to 26% in Q1 2023, influenced by income/losses in jurisdictions with valuation allowances, non-taxable items, prior year accruals, and jurisdictional mix of income[37] - Tronox maintains full valuation allowances on net deferred tax assets in Australia and the United Kingdom, and against specific tax assets in South Africa and the United States, due to uncertainty of realization[39] - The company expects no material impact on 2024 income tax provisions from the UK's Pillar Two legislation or other jurisdictions' domestic minimum taxes[41] Note 4. Income Per Share Income Per Share (Three Months Ended March 31) | Metric | 2024 | 2023 | | :---------------------------------------- | :-------- | :-------- | | Net (loss) income available to ordinary shares (Millions of U.S. dollars) | $(9) | $23 | | Weighted-average ordinary shares, basic (thousands) | 157,331 | 155,175 | | Weighted-average ordinary shares, diluted (thousands) | 157,331 | 156,641 | | Basic net (loss) income per ordinary share | $(0.06) | $0.15 | | Diluted net (loss) income per ordinary share | $(0.06) | $0.15 | Anti-dilutive Shares Not Recognized (Thousands) | Type of Shares | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------ | :-------------------------------- | :-------------------------------- | | Options | 4,397 | 265,376 | | Restricted share units | 1,285,008 | 2,798,108 | Note 5. Accounts Receivable Securitization Program - Tronox operates an accounts receivable securitization program, which was amended in April 2024 to increase the facility limit from $200 million to $230 million. The program term remains November 2025[45][134] - As of March 31, 2024, $200 million of accounts receivables were sold and derecognized, up from $186 million at December 31, 2023. The company retained $171 million in unsold receivables pledged as collateral[47] Receivables Sold and Fees Incurred (Three Months Ended March 31) | Metric (Millions of U.S. dollars) | 2024 | 2023 | | :-------------------------------- | :--- | :--- | | Cash proceeds from collections reinvested | $222 | $144 | | Incremental accounts receivables sold | $236 | $138 | | Fees incurred | $3 | $2 | Note 6. Inventories, Net Inventories, Net (Millions of U.S. dollars) | Inventory Category | March 31, 2024 | December 31, 2023 | | :-------------------- | :------------- | :---------------- | | Raw materials | $342 | $352 | | Work-in-process | $141 | $141 | | Finished goods, net | $682 | $688 | | Materials and supplies, net | $238 | $240 | | Inventories, net | $1,403 | $1,421 | - Inventory not expected to be sold within one year was approximately $60 million at March 31, 2024, recorded in 'Other long-term assets'[50] - Inventory obsolescence reserves were $44 million at March 31, 2024, and reserves for lower of cost or market and net realizable value were $27 million[51] Note 7. Property, Plant and Equipment, Net Property, Plant and Equipment, Net (Millions of U.S. dollars) | Category | March 31, 2024 | December 31, 2023 | | :------------------------ | :------------- | :---------------- | | Land and land improvements | $236 | $237 | | Buildings | $401 | $404 | | Machinery and equipment | $2,524 | $2,530 | | Construction-in-progress | $325 | $319 | | Other | $61 | $60 | | Subtotal | $3,547 | $3,550 | | Less: accumulated depreciation | $(1,743) | $(1,715) | | Property, plant and equipment, net | $1,804 | $1,835 | Depreciation Expense (Millions of U.S. dollars) | Category | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------------------- | :-------------------------------- | :-------------------------------- | | Cost of goods sold | $56 | $54 | | Selling, general and administrative expenses | $1 | $1 | | Total | $57 | $55 | - Substantially all property, plant and equipment is pledged as collateral for the company's debt[53] Note 8. Mineral Leaseholds, Net Mineral Leaseholds, Net (Millions of U.S. dollars) | Category | March 31, 2024 | December 31, 2023 | | :------------------------ | :------------- | :---------------- | | Mineral leaseholds | $1,249 | $1,260 | | Less: accumulated depletion | $(610) | $(606) | | Mineral leaseholds, net | $639 | $654 | - Depletion expense for mineral leaseholds was $7 million for the three months ended March 31, 2024, down from $8 million in the prior year period[55] Note 9. Intangible Assets, Net Intangible Assets, Net (Millions of U.S. dollars) | Category | March 31, 2024 Gross Cost | March 31, 2024 Accumulated Amortization | March 31, 2024 Net Carrying Amount | December 31, 2023 Gross Cost | December 31, 2023 Accumulated Amortization | December 31, 2023 Net Carrying Amount | | :------------------------ | :------------------------ | :-------------------------------------- | :--------------------------------- | :--------------------------- | :----------------------------------------- | :---------------------------------------- | | Customer relationships | $291 | $(255) | $36 | $291 | $(250) | $41 | | TiO2 technology | $93 | $(45) | $48 | $93 | $(44) | $49 | | Internal-use software and other | $208 | $(49) | $159 | $201 | $(48) | $153 | | Intangible assets, net | $592 | $(349) | $243 | $585 | $(342) | $243 | - Capitalized internal-use software costs not yet amortized totaled $131 million at March 31, 2024[57] Amortization Expense (Millions of U.S. dollars) | Category | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------------------- | :-------------------------------- | :-------------------------------- | | Cost of goods sold | $1 | $1 | | Selling, general and administrative expenses | $7 | $7 | | Total | $8 | $8 | - Estimated future amortization expense for intangible assets is $24 million for the remainder of 2024, $35 million for 2025, and $116 million thereafter[57] Note 10. Balance Sheet and Cash Flow Supplemental Information Accrued Liabilities (Millions of U.S. dollars) | Category | March 31, 2024 | December 31, 2023 | | :---------------------------- | :------------- | :---------------- | | Employee-related costs and benefits | $99 | $111 | | Related party payables | $9 | $1 | | Interest | $4 | $16 | | Sales rebates | $43 | $36 | | Taxes other than income taxes | $12 | $6 | | Asset retirement obligations | $12 | $14 | | Other accrued liabilities | $61 | $46 | | Accrued liabilities | $240 | $230 | Supplemental Non-Cash Information (Millions of U.S. dollars) | Item | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | | Operating activities - Chloride slag inventory purchases from AMIC | $18 | $0 | | Operating activities - MGT sales made to AMIC | $2 | $1 | | Investing activities - In-kind receipt of AMIC loan repayment | $18 | $0 | | Financing activities - Repayment of MGT loan | $2 | $1 | - Capital expenditures acquired but not yet paid decreased to $43 million at March 31, 2024, from $67 million at December 31, 2023[59] Note 11. Debt Long-Term Debt, Net (Millions of U.S. dollars) | Debt Instrument | March 31, 2024 | December 31, 2023 | | :------------------------------ | :------------- | :---------------- | | Term Loan Facility, net | $899 | $898 | | 2022 Term Loan Facility, net | $389 | $390 | | 2023 Term Loan Facility, net | $346 | $347 | | Senior Notes due 2029 | $1,075 | $1,075 | | Standard Bank Term Loan Facility | $60 | $64 | | Australian Government Loan, net | $1 | $1 | | MGT Loan | $23 | $25 | | Finance leases | $42 | $43 | | Long-term debt | $2,835 | $2,843 | | Less: Long-term debt due within one year | $(27) | $(27) | | Debt issuance costs | $(28) | $(30) | | Long-term debt, net | $2,780 | $2,786 | - On May 1, 2024, Tronox entered into a new $741 million 2024 Term Loan Facility to repay in full the outstanding 2022 and 2023 Term Loans[62][129] - The company is in compliance with all financial covenants in its debt facilities as of March 31, 2024[65] - Short-term debt includes a $4 million insurance premium financing balance at March 31, 2024, to be repaid over 9 months at an 8% fixed annual interest rate[63][64] Note 12. Derivative Financial Instruments Fair Value of Derivatives (Millions of U.S. dollars) | Derivative Type | March 31, 2024 Assets | March 31, 2024 Accrued Liabilities | December 31, 2023 Assets | December 31, 2023 Accrued Liabilities | | :-------------------------------- | :-------------------- | :--------------------------------- | :----------------------- | :------------------------------------ | | Interest Rate Swaps | $28 | — | $18 | — | | Natural Gas Hedges | — | $1 | — | $1 | | Currency Contracts (not designated as hedges) | $1 | — | $1 | $1 | | Total Derivatives | $29 | $1 | $19 | $2 | Derivatives' Impact on Statement of Operations (Millions of U.S. dollars) | Impact on Earnings (Pre-Tax Gain (Loss)) | Three Months Ended March 31, 2024 Cost of Goods Sold | Three Months Ended March 31, 2024 Other (expense) income, net | Three Months Ended March 31, 2023 Cost of Goods Sold | Three Months Ended March 31, 2023 Other (expense) income, net | | :--------------------------------------- | :----------------------------------- | :-------------------------------------------- | :----------------------------------- | :-------------------------------------------- | | Currency Contracts (not designated) | — | $(6) | — | $(7) | | Currency Contracts (designated) | — | — | $(2) | — | | Natural Gas Hedges | $(1) | — | $(1) | — | | Total Derivatives | $(1) | $(6) | $(3) | $(7) | - The company uses $950 million in interest rate swaps as cash flow hedges to stabilize interest expense, with a net unrealized gain of $28 million recorded in accumulated other comprehensive loss at March 31, 2024[68][69] - Foreign currency contracts are used to hedge forecasted sales and cost of goods sold for South African and Australian subsidiaries, and to reduce exposure of balance sheet accounts to exchange rate fluctuations[70][71] Note 13. Fair Value Fair Value of Debt and Derivative Contracts (Millions of U.S. dollars) | Instrument | March 31, 2024 Asset | March 31, 2024 Liability | December 31, 2023 Asset | December 31, 2023 Liability | | :-------------------------- | :------------------- | :----------------------- | :---------------------- | :-------------------------- | | Term Loan Facility | — | $903 | — | $903 | | 2022 Term Loan Facility | — | $393 | — | $394 | | 2023 Term Loan Facility | — | $350 | — | $351 | | Standard Bank Term Loan Facility | — | $60 | — | $64 | | Senior Notes due 2029 | — | $966 | — | $956 | | Australian Government Loan | — | $1 | — | $1 | | MGT Loan | — | $23 | — | $25 | | Interest rate swaps | $28 | — | $18 | — | | Natural gas hedges | — | $1 | — | $1 | | Foreign currency contracts | $1 | — | $1 | $1 | - Fair values for Term Loan Facilities and Senior Notes are determined using Level 1 inputs (quoted market prices). Standard Bank Term Loan, Australian Government Loan, and MGT Loan fair values use Level 2 inputs (transactions in listed markets or contracted amounts)[73] - Fair values for foreign currency contracts, natural gas hedges, and interest rate swaps are determined using Level 2 inputs (observable inputs other than quoted prices in active markets)[74] Note 14. Asset Retirement Obligations Asset Retirement Obligations (Millions of U.S. dollars) | Activity | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------------ | :-------------------------------- | :-------------------------------- | | Beginning balance | $186 | $161 | | Additions | $5 | $1 | | Accretion expense | $5 | $4 | | Remeasurement/translation | $(7) | $(2) | | Other, including change in estimates | — | $(3) | | Settlements/payments | $(1) | $(3) | | Balance, March 31, | $188 | $158 | Asset Retirement Obligations Breakdown (Millions of U.S. dollars) | Category | March 31, 2024 | December 31, 2023 | | :------------------------ | :------------- | :---------------- | | Current portion | $12 | $14 | | Noncurrent portion | $176 | $172 | | Asset retirement obligations | $188 | $186 | - Asset retirement obligations primarily cover rehabilitation, restoration, landfill capping, and decommissioning costs[77] Note 15. Commitments and Contingencies - Purchase commitments totaled $280 million for the remainder of 2024, $170 million for 2025, and $1,431 million thereafter[79] - Outstanding letters of credit and bank guarantees were $102 million at March 31, 2024, with $48 million related to the sale of Hawkins Point[80] - The company has a $42 million provision for environmental liabilities related to the Hawkins Point Plant remediation, following its sale to the Maryland Port Administration in December 2022[81] - Tronox received a summons in February 2024 regarding alleged non-compliance with UK health and safety legislation at its Stallingborough pigment plant, but does not expect a material adverse effect[81] Note 16. Accumulated Other Comprehensive Loss Attributable to Tronox Holdings plc and Other Equity Items Changes in Accumulated Other Comprehensive Loss (Three Months Ended March 31, 2024) | Component | Balance, Jan 1, 2024 | Other Comprehensive (Loss) Income | Amounts Reclassified | Balance, Mar 31, 2024 | | :------------------------ | :------------------- | :-------------------------------- | :------------------- | :-------------------- | | Cumulative Translation Adjustment | $(729) | $(40) | — | $(769) | | Pension Liability Adjustment | $(92) | — | — | $(92) | | Unrealized Gains (Losses) on Hedges | $7 | $10 | $(1) | $16 | | Total | $(814) | $(30) | $(1) | $(845) | Changes in Accumulated Other Comprehensive Loss (Three Months Ended March 31, 2023) | Component | Balance, Jan 1, 2023 | Other Comprehensive (Loss) Income | Amounts Reclassified | Balance, Mar 31, 2023 | | :------------------------ | :------------------- | :-------------------------------- | :------------------- | :-------------------- | | Cumulative Translation Adjustment | $(710) | $(15) | — | $(725) | | Pension Liability Adjustment | $(78) | $1 | — | $(77) | | Unrealized Gains (Losses) on Hedges | $20 | $(6) | $3 | $17 | | Total | $(768) | $(20) | $3 | $(785) | - The Board authorized a new $300 million share repurchase program through February 21, 2027, replacing the previous program. No repurchases were made in Q1 2024[84][127] Note 17. Share-Based Compensation - In Q1 2024, Tronox granted 806,893 time-based RSUs vesting over three years and 806,900 performance-based RSUs (half based on relative TSR, half on 2026 ROIC)[85] - Unrecognized compensation cost for unvested awards was $46 million at March 31, 2024, to be recognized over approximately 2.3 years[86] - Stock compensation expense was $6 million for both the three months ended March 31, 2024, and 2023[87] Note 18. Pension and Other Postretirement Healthcare Benefits Net Periodic Pension Cost (Millions of U.S. dollars) | Component | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Service cost | $1 | $1 | | Interest cost | $4 | $4 | | Expected return on plan assets | $(5) | $(5) | | Total net periodic cost | $0 | $0 | Net Periodic Postretirement Healthcare Cost (Millions of U.S. dollars) | Component | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Interest cost | $1 | $1 | | Total net periodic cost | $1 | $1 | - The company contributed $1 million to its pension plans in Q1 2024 and expects to contribute approximately $7 million for the remainder of 2024[88] Note 19. Related Parties - Cristal International Holdings B.V. (a Tasnee subsidiary) owns 24% of Tronox's ordinary shares[90] - Tronox has an Option Agreement with AMIC (jointly owned by Tasnee and Cristal) to acquire 90% of an SPV holding a titanium slag smelter facility in KSA. The option expired in May 2023 but renegotiations were extended to December 31, 2024[91][92][93][94] - As part of the AMIC agreement, Tronox provided $125 million in loans, with repayment now occurring through in-kind chloride slag deliveries (65%) and cash purchases (35%) at a Slag Price. Full repayment is due by January 2025[92][94] Tronox Loans Outstanding Balance (Millions of U.S. dollars) | Component | March 31, 2024 | December 31, 2023 | | :------------------------ | :------------- | :---------------- | | Principal balance | $65 | $80 | | Accrued interest income balance | $10 | $12 | | Total outstanding balance | $75 | $92 | Chloride Slag Purchases from Slagger (Millions of U.S. dollars) | Settlement Type | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------------------ | :-------------------------------- | :-------------------------------- | | Settled as in-kind repayment of Tronox Loans | $16 | — | | Settled in cash | $8 | $43 | | Total chloride slag purchases | $24 | $43 | - Tronox acquired MGT assets from Cristal, assuming a $36 million MGT Loan. Repayment is based on MGT delivered to ATTM (a joint venture with AMIC and Toho Titanium), with an estimated maturity of 4-5 years[97] MGT Loan Outstanding Note Payable (Millions of U.S. dollars) | Component | March 31, 2024 | December 31, 2023 | | :---------------------------- | :------------- | :---------------- | | Note payable, due within 1 year | $7 | $7 | | Note payable, due longer than 1 year | $16 | $18 | | Total outstanding note payable | $23 | $25 | MGT Sales to ATTM (Millions of U.S. dollars) | Item | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :---------------------------------- | :-------------------------------- | :-------------------------------- | | MGT sales made to ATTM as product is delivered | $13 | $11 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Tronox's financial condition and results of operations for the three months ended March 31, 2024, compared to the prior year. It covers key financial metrics, business environment trends, liquidity, capital resources, and non-GAAP financial measures, highlighting increased revenue driven by higher sales volumes but decreased gross profit due to lower selling prices Overview - Tronox operates titanium-bearing mineral sand mines and beneficiation operations in Australia and South Africa, producing feedstock for TiO2 pigment and other titanium chemicals. The company's strategy emphasizes vertical integration to achieve low-cost, high-quality pigment production[104] Business Environment - First quarter revenue increased 9% year-over-year, driven by higher sales volumes of TiO2 (up 18%) and zircon (up 43%), despite a 10% decline in TiO2 average selling prices and a 21% decline in zircon average selling prices[105] - Sequentially, Q1 2024 revenue increased 13% from Q4 2023, primarily due to 18% higher TiO2 volumes and 54% higher zircon volumes, with zircon pricing remaining flat[105] - Gross profit decreased year-over-year due to unfavorable selling prices but increased sequentially due to higher sales volumes, improved absorption from higher production, and the absence of non-repeating charges[105][106] - As of March 31, 2024, total available liquidity was $629 million, including $152 million in cash and $477 million under revolving credit agreements. Total debt was $2.8 billion, with net debt to trailing-twelve month Adjusted EBITDA at 5.2x[106] Condensed Consolidated Results of Operations Key Financial Results (Three Months Ended March 31) | Metric (Millions of U.S. dollars) | 2024 | 2023 | Variance | | :-------------------------------- | :--- | :--- | :------- | | Net sales | $774 | $708 | $66 | | Gross profit | $120 | $133 | $(13) | | Gross Margin | 15.5% | 18.8% | (3.3) pts | | Income from operations | $41 | $62 | $(21) | | Net (loss) income | $(9) | $25 | $(34) | | Effective tax rate | 550% | 26% | | | EBITDA (non-U.S. GAAP) | $112 | $135 | $(23) | | Adjusted EBITDA (non-U.S. GAAP) | $131 | $146 | $(15) | - Net sales increased by 9% ($66 million) year-over-year, primarily due to higher sales volumes of TiO2 and Zircon[108] Net Sales by Product Type (Three Months Ended March 31) | Product Type | 2024 (Millions of U.S. dollars) | 2023 (Millions of U.S. dollars) | Variance (Millions of U.S. dollars) | Percentage Change | | :------------ | :------------------------------ | :------------------------------ | :---------------------------------- | :---------------- | | TiO2 | $605 | $560 | $45 | 8% | | Zircon | $88 | $72 | $16 | 22% | | Other products | $81 | $76 | $5 | 7% | | Total net sales | $774 | $708 | $66 | 9% | - Gross profit decreased by $13 million, with gross margin falling from 18.8% to 15.5%, mainly due to a 9-point unfavorable impact from lower TiO2 and Zircon selling prices, partially offset by favorable impacts from foreign exchange rates, zircon volume growth, and improved absorption from higher production volumes[107][109][115] - Selling, general and administrative expenses increased by $8 million (11%) due to a $6 million rise in employee costs[110] - Income from operations decreased by $21 million to $41 million, primarily due to lower selling prices for TiO2 and Zircon and higher SG&A expenses[111] - Interest expense increased by $9 million due to higher effective interest rates and average outstanding debt balances[112] - Other (expense) income, net was a net expense of $1 million, primarily from $3 million in Securitization Facility fees, partially offset by $2 million in net realized and unrealized foreign currency gains[113] - Other comprehensive loss was $32 million in Q1 2024, compared to $15 million in Q1 2023, mainly due to unfavorable foreign currency translation adjustments of $41 million[116] Liquidity and Capital Resources Liquidity (Millions of U.S. dollars) | Component | March 31, 2024 | December 31, 2023 | | :------------------------------ | :------------- | :---------------- | | Cash and cash equivalents | $152 | $273 | | Available under the Cash Flow Revolver | $335 | $343 | | Available under the Standard Credit Facility | $53 | $55 | | Available under the Emirates Revolver | $63 | $64 | | Available under the SABB Facility | $20 | $20 | | Available under the Bank Itau Facility | $6 | $6 | | Total | $629 | $761 | - Working capital increased to $1.5 billion at March 31, 2024, from $1.4 billion at December 31, 2023[118] - Non-guarantor subsidiaries of the Senior Notes due 2029 represented approximately 17% of total consolidated liabilities and 40% of total consolidated assets at March 31, 2024, and 45% of total consolidated net sales for Q1 2024[119] - Principal factors affecting external cash sources include debt covenants, increasing interest rates on floating rate debt, demands for financial assurance, credit rating downgrades, and market volatility[121] - Credit ratings remained Ba3 stable outlook with Moody's and B positive and stable with Standard & Poor's[122] - Cash and cash equivalents were $152 million at March 31, 2024, with significant amounts held in Europe ($19M), United States ($35M), Australia ($32M), Brazil ($22M), South Africa ($18M), Saudi Arabia ($10M), and China ($15M)[125] - The company's Board authorized a new $300 million share repurchase program through February 21, 2027. No repurchases were made in Q1 2024[127] - Long-term debt, net was $2.8 billion at March 31, 2024, with net debt at $2.7 billion[128] - The accounts receivable securitization program facility limit was increased from $200 million to $230 million in April 2024[134] Cash Flows (Three Months Ended March 31) | Cash Flow Activity (Millions of U.S. dollars) | 2024 | 2023 | | :-------------------------------------------- | :--- | :--- | | Cash used in operating activities | $(29) | $(79) | | Cash used in investing activities | $(76) | $(91) | | Cash (used in) provided by financing activities | $(12) | $120 | | Net decrease in cash and cash equivalents and restricted cash | $(119) | $(49) | - Cash used in operating activities decreased by $50 million year-over-year to $29 million, primarily due to higher use of cash for working capital (increase in accounts receivable and decrease in accounts payable/accrued liabilities), partially offset by decreases in inventories and prepaid assets[136] - Cash used in investing activities decreased to $76 million from $91 million, mainly due to lower capital expenditures as the Atlas Campaspe mine development was completed in 2023[137] - Cash used in financing activities was $12 million, a significant shift from $120 million provided in the prior year, primarily due to $11 million in debt repayments in 2024 versus $126 million in short-term debt drawdowns in 2023[138] Contractual Obligation Payments Due by Year (Millions of U.S. dollars) | Obligation Type | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | | :---------------------------------- | :---- | :--------------- | :-------- | :-------- | :---------------- | | Long-term debt, net and lease financing (including interest) | $3,719 | $227 | $475 | $2,620 | $397 | | Purchase obligations | $2,485 | $322 | $328 | $444 | $1,391 | | Operating leases | $227 | $32 | $43 | $32 | $120 | | Asset retirement obligations and environmental liabilities | $455 | $24 | $56 | $52 | $323 | | Total | $6,886 | $605 | $902 | $3,148 | $2,231 | Non-U.S. GAAP Financial Measures - Management uses non-U.S. GAAP financial measures like EBITDA, Adjusted EBITDA, Adjusted net (loss) income, Diluted adjusted net income per share, and net debt to trailing twelve months Adjusted EBITDA to evaluate operational performance and for planning/budgeting[140][142] Reconciliation of Net (Loss) Income to EBITDA and Adjusted EBITDA (Three Months Ended March 31) | Metric (Millions of U.S. dollars) | 2024 | 2023 | | :-------------------------------- | :--- | :--- | | Net (loss) income (U.S. GAAP) | $(9) | $25 | | Interest expense | $42 | $33 | | Interest income | $(4) | $(3) | | Income tax provision (benefit) | $11 | $9 | | Depreciation, depletion and amortization expense | $72 | $71 | | EBITDA (non-U.S. GAAP) | $112 | $135 | | Share-based compensation | $6 | $6 | | Accretion expense and other adjustments to ARO and environmental liabilities | $7 | $2 | | Accounts receivable securitization program | $3 | $2 | | Foreign currency remeasurement | $(2) | $(1) | | Other items | $5 | $2 | | Adjusted EBITDA (non-U.S. GAAP) | $131 | $146 | Net (Loss) Income and Adjusted EBITDA as % of Net Sales (Three Months Ended March 31) | Metric | 2024 | 2023 | | :------------------------------------ | :------ | :------ | | Net sales | $774 | $708 | | Net (loss) income (U.S. GAAP) as a % of Net sales | (1.2)% | 3.5% | | Adjusted EBITDA (non-U.S. GAAP) as a % of Net sales | 16.9% | 20.6% | Net Debt to Trailing-Twelve Month Adjusted EBITDA (Millions of U.S. dollars) | Metric | March 31, 2024 | December 31, 2023 | | :------------------------------------ | :------------- | :---------------- | | Long-term debt, net | $2,780 | $2,786 | | Short-term debt | $4 | $11 | | Long-term debt due within one year | $27 | $27 | | (Less) Cash and cash equivalents | $(152) | $(273) | | Net debt | $2,659 | $2,551 | | Trailing-twelve month Adjusted EBITDA (non-U.S. GAAP) | $509 | $524 | | Net debt to trailing-twelve month Adjusted EBITDA | 5.2x | 4.9x | Reconciliation of Net (Loss) Income Attributable to Tronox to Adjusted Net (Loss) Income Attributable to Tronox (Three Months Ended March 31) | Metric | 2024 (Millions of U.S. dollars) | 2023 (Millions of U.S. dollars) | | :------------------------------------ | :------------------------------ | :------------------------------ | | Net (loss) income attributable to Tronox Holdings plc (U.S. GAAP) | $(9) | $23 | | Other | $2 | $1 | | Adjusted net (loss) income attributable to Tronox Holdings plc (non-U.S. GAAP) | $(7) | $24 | | Diluted (loss) net income per share (U.S. GAAP) | $(0.06) | $0.15 | | Other, per share | $0.01 | — | | Diluted adjusted net (loss) income per share attributable to Tronox Holdings plc (non-U.S. GAAP) | $(0.05) | $0.15 | Recent Accounting Pronouncements - Refer to Note 1 of the condensed consolidated financial statements for details on recently issued accounting pronouncements[154] Environmental Matters - Tronox is subject to stringent international, federal, state, and local environmental laws and regulations, incurring significant compliance costs. The company believes it is in material compliance with applicable environmental rules[155] - Future costs for capital improvements and general compliance under environmental laws are expected to be significant[155] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section outlines Tronox's exposure to various market, credit, operational, and liquidity risks, and how these are managed through operating activities, financing, and derivative instruments. It details risks related to commodity prices, customer credit, interest rate fluctuations, and foreign currency exchange rates Market Risk - Tronox is exposed to market risk from commodity price fluctuations for its products and raw materials, which can impact product margins and profitability[158] - Strategies to mitigate market risk include sales contract provisions for passing on costs, formula price contracts, fixed purchase commitments, and diversifying customers by geography and industry[158] Credit Risk - Credit risk is concentrated in trade accounts receivable from sales to customers, particularly in the TiO2 industry due to its high concentration[159] - The company performs ongoing credit evaluations and may tighten credit terms, but historical losses from bad debt have been insignificant. International operations also expose the company to trade restrictions and sovereign risk[159] - The ten largest third-party customers accounted for 37% of consolidated net sales in Q1 2024 and Q1 2023, with no single customer representing 10% or more[159] Interest Rate Risk - Tronox is exposed to interest rate risk on its floating rate debt facilities. A hypothetical 1% increase in interest rates would result in an approximate $7 million net decrease to pre-tax income annually[160] - The company uses $950 million in interest rate swaps, designated as cash flow hedges, to stabilize interest expense and manage exposure to interest rate movements[162] Currency Risk - Currency risk arises from fluctuations in foreign exchange rates impacting balance sheets and earnings, particularly in Australia, Brazil, China, South Africa, the Netherlands, and the United Kingdom[163] - The company uses foreign currency contracts, including cash flow hedges for forecasted sales/costs and non-designated hedges for balance sheet accounts, to reduce exposure to currency fluctuations (e.g., South African Rand, Australian Dollar, Euro, Pound Sterling, Saudi Riyal)[164][165] Item 4. Controls and Procedures This section details the evaluation of Tronox's disclosure controls and procedures and internal control over financial reporting. Management concluded that disclosure controls and procedures were effective as of March 31, 2024, and notes ongoing IT-enabled transformation programs that will lead to changes in internal controls - Tronox's management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2024[166] - The company is undergoing a multi-year IT-enabled transformation program, including upgrades to financial systems, which is expected to result in changes to internal control over financial reporting as implementation phases occur[168] - No other material changes to internal control over financial reporting occurred during the quarter ended March 31, 2024[169] PART II – OTHER INFORMATION Item 1. Legal Proceedings This section incorporates by reference information on legal proceedings from Note 15 of the financial statements, detailing environmental matters and other lawsuits. The company uses a $1 million threshold for disclosing administrative or judicial environmental proceedings - Information on legal proceedings is incorporated by reference from Note 15 - Commitments and Contingencies[172] - The company uses a $1 million threshold for disclosing environmental proceedings that may result in monetary sanctions[173] Item 1A. Risk Factors This section advises readers to consider risk factors discussed in the Annual Report on Form 10-K and subsequent SEC filings. It states that there have been no material changes to the risk factors previously disclosed - Readers should carefully consider risk factors from the Annual Report on Form 10-K and subsequent SEC filings[174] - No material changes have occurred to the risk factors disclosed in the Form 10-K[174] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section provides information on purchases of the company's common stock. During the three months ended March 31, 2024, Tronox made no repurchases under its $300 million share repurchase program authorized in February 2024 Purchases of Equity Securities (Three Months Ended March 31, 2024) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value That May Yet Be Purchased Under the Program | | :-------------------------------------- | :------------------------------- | :--------------------------- | :------------------------------------------------------------------------------- | :------------------------------------------------------------------- | | January 1, 2024 through January 31, 2024 | — | — | — | $300,000,000 | | February 1, 2024 through February 29, 2024 | — | — | — | $300,000,000 | | March 1, 2024 through March 31, 2024 | — | — | — | $300,000,000 | | Totals | — | — | — | $300,000,000 | - On February 21, 2024, the Board authorized a new $300 million share repurchase program through February 21, 2027. No repurchases were made during Q1 2024[177] Item 3. Defaults Upon Senior Securities This section states that there were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities[179] Item 4. Mine Safety Disclosures This item is not applicable to the company - This item is not applicable[180] Item 5. Other Information This section confirms that there is no other information to report and that no directors or officers had any non-Rule 10b5-1 trading arrangements during the quarter - No other information to report[181] - No directors or officers had any non-Rule 10b5-1 trading arrangements during the three months ended March 31, 2024[181] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including employment agreements, credit agreement amendments, certifications (Rule 13a-14(a) and Section 1350), and iXBRL financial statements and taxonomy documents - Exhibits include the Employment Agreement for Mr. John D. Romano, Amendment No. 4 to the Amended and Restated First Lien Credit Agreement, and Rule 13a-14(a) and Section 1350 Certifications[183] - The filing includes financial statements formatted in iXBRL, along with associated taxonomy extension documents[183] SIGNATURES SIGNATURES This section contains the required signatures for the Form 10-Q report, signed by D. John Srivisal, Senior Vice President, Chief Financial Officer, and Jonathan P. Flood, Vice President, Controller and Principal Accounting Officer, on May 2, 2024 - The report was signed on May 2, 2024, by D. John Srivisal, Senior Vice President, Chief Financial Officer, and Jonathan P. Flood, Vice President, Controller and Principal Accounting Officer[186]