Venator Materials : Announces Strong First Quarter 2018 Results

Three months ended

March 31,

(In millions, except per share amounts)

2018

2017

2017

Revenues

$

622

$

537

$

528

Net income (loss) attributable to Venator

$

78

$

(16)

$

68

Adjusted net income⁽¹⁾

$

91

$

9

$

65

Adjusted EBITDA⁽¹⁾

$

157

$

49

$

118

Diluted earnings (loss) per share⁽¹⁾

$

0.73

$

(0.15)

$

0.64

Adjusted diluted earnings per share⁽¹⁾

$

0.85

$

0.08

$

0.61

Net cash provided by operating activities from continuing operations

$

51

$

21

$

157

Operating free cash flow⁽³⁾

$

23

$

(37)

$

85

Free cash flow⁽³⁾

$

(15)

$

(37)

$

80

See end of press release for footnote explanations

Call-in numbers for the conference call:

U.S. participants

1-866-807-9684

International participants

1-412-317-5415

(No passcode required)

Call-in numbers for the replay:

U.S. participants

1-877-344-7529

International participants

1-412-317-0088

Passcode

10118623

Table 1 — Results of Operations

Three months ended

March 31,

(In millions, except per share amounts)

2018

2017

Revenues

$

622

$

537

Cost of goods sold

454

465

Gross profit

168

72

Operating expenses

51

60

Restructuring, impairment, and plant closing and transition costs

9

26

Operating income (loss)

108

(14)

Interest expense, net

(10)

(12)

Other income

2

1

Income (loss) before income taxes

100

(25)

Income tax (expense) benefit

(20)

4

Income (loss) from continuing operations

80

(21)

Income from discontinued operations, net of tax

—

8

Net income (loss)

80

(13)

Net income attributable to noncontrolling interests, net of tax

(2)

(3)

Net income (loss) attributable to Venator

$

78

$

(16)

Adjusted EBITDA⁽¹⁾

$

157

$

49

Adjusted net income⁽¹⁾

$

91

$

9

Basic earnings (loss) per share

$

0.73

$

(0.15)

Diluted earnings (loss) per share⁽¹⁾

$

0.73

$

(0.15)

Adjusted earnings per share⁽¹⁾

$

0.86

$

0.08

Adjusted diluted earnings per share⁽¹⁾

$

0.85

$

0.08

Common share information⁽¹⁾:

Basic shares outstanding

106.4

106.3

Diluted shares

106.8

106.3

See end of press release for footnote explanations

Table 2 — Results of Operations by Segment

Three months ended

March 31,

Better /

(In millions)

2018

2017

(Worse)

Segment Revenues:

Titanium Dioxide

$

456

$

385

18

%

Performance Additives

166

152

9

%

   Total

$

622

$

537

16

%

Segment Adjusted EBITDA⁽¹⁾:

Titanium Dioxide

$

143

$

48

198

%

Performance Additives

24

21

14

%

Corporate and other

(10)

(20)

50

%

   Total

$

157

$

49

220

%

See end of press release for footnote explanations

Table 3 — Factors Impacting Sales Revenue

Three months ended

March 31, 2018 vs. 2017

Average Selling Price^(a)

Local

Exchange

Sales Mix

Sales

Currency

Rate

& Other

Volume^(b)

Total

Titanium Dioxide

23

%

10

%

—

%

(15)

%

18

%

Titanium Dioxide - adjusted^(c)

26

%

10

%

2

%

2

%

40

%

Performance Additives

7

%

6

%

(3)

%

(1)

%

9

%

Performance Additives - adjusted^(c)

7

%

6

%

(3)

%

—

%

10

%

Total Company

18

%

9

%

—

%

(11)

%

16

%

Total Company - adjusted^(c)

21

%

9

%

1

%

1

%

32

%

^(a)

Excludes revenues from tolling arrangements, by-products and raw materials

^(b)

Excludes sales volumes of by-products and raw materials

^(c)

Reflects lost volumes as a result of the impact of the fire at our Pori plant and closure of our Calais, Umbogintwini, St. Louis and Easton sites

Table 4 — Reconciliation of U.S. GAAP to Non-GAAP Measures

EBITDA

Income Tax
(Expense)
Benefit ⁽²⁾

Net Income
(Loss)

Diluted Earnings
(Loss) Per Share⁽¹⁾

Three months
ended

Three months
ended

Three months
ended

Three months
ended

March 31,

March 31,

March 31,

March 31,

In millions, except per share amounts

2018

2017

2018

2017

2018

2017

2018

2017

Net income (loss)

$

80

$

(13)

$

80

$

(13)

$

0.75

$

(0.12)

Net income attributable to noncontrolling interests

(2)

(3)

(2)

(3)

(0.02)

(0.03)

Net income (loss) attributable to Venator

78

(16)

78

(16)

0.73

(0.15)

Interest expense, net

10

12

Income tax expense (benefit) from continuing operations

20

(4)

(20)

4

Depreciation and amortization

34

30

Business acquisition and integration expenses

2

—

(1)

—

1

—

0.01

—

Separation expense, net

1

—

—

—

1

—

0.01

—

Net income of discontinued operations

—

(8)

—

—

—

(8)

—

(0.08)

Amortization of pension and postretirement actuarial losses

3

4

—

—

3

4

0.03

0.04

Net plant incident costs

—

5

—

(1)

—

4

—

0.04

Restructuring, impairment, plant closing and transition costs

9

26

(1)

(1)

8

25

0.07

0.24

Adjusted⁽¹⁾

$

157

$

49

$

(22)

$

2

$

91

$

9

$

0.85

$

0.08

Adjusted income tax expense (benefit)⁽²⁾

$

22

$

(2)

Net income attributable to noncontrolling interests, net of tax

2

3

Adjusted pre-tax income⁽¹⁾

$

115

$

10

Adjusted effective tax rate

19

%

N/A

EBITDA

Income Tax
(Expense)
Benefit ⁽²⁾

Net Income
(Loss)

Diluted Earnings
(Loss) Per Share⁽¹⁾

Three months
ended

Three months
ended

Three months
ended

Three months
ended

December 31,

December 31,

December 31,

December 31,

In millions, except per share amounts

2017

2017

2017

2017

Net income

$

70

$

70

0.66

Net income attributable to noncontrolling interests

(2)

(2)

(0.02)

Net income attributable to Venator

68

68

0.64

Interest expense

11

Income tax expense from continuing operations

24

(24)

Depreciation and amortization

32

Business acquisition and integration expenses

3

(1)

2

0.02

Separation expense, net

7

—

7

0.07

U.S. income tax reform

(34)

16

(18)

(0.17)

Amortization of pension and postretirement actuarial losses

4

—

4

0.04

Restructuring, impairment, plant closing and transition costs

3

(1)

2

0.02

Adjusted⁽¹⁾

$

118

$

(10)

$

65

0.61

Adjusted income tax expense⁽²⁾

$

10

Net income attributable to noncontrolling interests, net of tax

2

Adjusted pre-tax income⁽¹⁾

$

77

Adjusted effective tax rate

13

%

See end of press release for footnote explanations

Table 5 — Selected Balance Sheet Items

March 31,

December 31,

(In millions)

2018

2017

Cash

$

223

$

238

Accounts and notes receivable, net

452

392

Inventories

482

454

Prepaid and other current assets

93

85

Property, plant and equipment, net

1,444

1,367

Other assets

304

311

Total assets

$

2,998

$

2,847

Accounts payable

$

402

$

401

Other current liabilities

269

244

Current portion of debt

9

14

Long-term debt

743

743

Non-current payable to affiliates

34

34

Other liabilities

304

306

Total equity

1,237

1,105

Total liabilities and equity

$

2,998

$

2,847

Table 6 — Outstanding Debt

March 31,

December 31,

(In millions)

2018

2017

Debt:

Senior Notes

$

370

$

370

Term Loan Facility

366

367

Other debt

16

20

Total debt - excluding affiliates

752

757

Total cash

223

238

Net debt - excluding affiliates

$

529

$

519

Table 7 — Summarized Statement of Cash Flows

Three months ended

March 31,

(In millions)

2018

2017

Total cash at beginning of period^(a)

$

238

$

30

Net cash provided by operating activities^(a)

51

22

Net cash used in investing activities^(a)

(67)

(59)

Net cash (used in) provided by financing activities^(a)

(8)

41

Effect of exchange rate changes on cash

9

1

Total cash at end of period^(a)

$

223

$

35

Supplemental cash flow information:

Cash paid for interest

$

(19)

$

(2)

Cash paid for income taxes

(15)

(2)

Capital expenditures

(73)

(19)

Depreciation and amortization

34

30

Changes in primary working capital:

  Accounts and notes receivable

(50)

(4)

  Inventories

(12)

(1)

  Accounts payable

7

6

$

(55)

$

1

Three months ended

March 31,

(In millions)

2018

2017

Free cash flow⁽³⁾:

Net cash provided by operating activities from continuing operations

$

51

$

21

Capital expenditures

(73)

(19)

Cash received from (investment in) unconsolidated affiliates, net

6

(3)

Other investing activities excluding transactions with former parent and cash flows related to sales of businesses/assets

—

(36)

Non-recurring separation costs^(b)

1

—

   Total free cash flow

$

(15)

$

(37)

Adjusted EBITDA

$

157

$

49

Capital expenditures excluding cash paid for Pori rebuild

(20)

(19)

Cash paid for interest

(19)

(2)

Cash paid for income taxes

(15)

(2)

Primary working capital change

(55)

1

Restructuring

(9)

(26)

Pensions

(3)

(4)

Maintenance & other

(13)

(34)

Operating free cash flow

23

(37)

Net cash flows associated with Pori

(38)

—

Total free cash flow⁽³⁾

$

(15)

$

(37)

See end of press release for numbered footnote explanations

^(a)

Includes discontinued operations

^(b)

Represents payments associated with our separation from Huntsman

⁽¹⁾

Our management uses adjusted EBITDA to assess financial performance. Adjusted EBITDA is defined as net income (loss) before interest expense, net, income tax (benefit) from continuing operations, depreciation and amortization, and net income attributable to noncontrolling interests, after eliminating the following: (a) business acquisition and integration expenses; (b) separation expense, net; (c) net income of discontinued operations net of tax; (d) amortization of pension and postretirement actuarial losses; (e) net plant incident (credits) costs; and (f) restructuring, impairment, plant closing and transition costs. We believe that net income (loss) is the performance measure calculated and presented in accordance with U.S. GAAP that is most directly comparable to adjusted EBITDA.

We believe adjusted EBITDA is useful to investors in assessing our ongoing financial performance and provides improved comparability between periods through the exclusion of certain items that management believes are not indicative of our operational profitability and that may obscure underlying business results and trends. However, this measure should not be considered in isolation or viewed as a substitute for net income or other measures of performance determined in accordance with U.S. GAAP. Moreover, adjusted EBITDA as used herein is not necessarily comparable to other similarly titled measures of other companies due to potential inconsistencies in the methods of calculation. Our management believes this measure is useful to compare general operating performance from period to period and to make certain related management decisions. Adjusted EBITDA is also used by securities analysts, lenders and others in their evaluation of different companies because it excludes certain items that can vary widely across different industries or among companies within the same industry. For example, interest expense can be highly dependent on a company's capital structure, debt levels and credit ratings. Therefore, the impact of interest expense on earnings can vary significantly among companies. In addition, the tax positions of companies can vary because of their differing abilities to take advantage of tax benefits and because of the tax policies of the various jurisdictions in which they operate. As a result, effective tax rates and tax expense can vary considerably among companies. Finally, companies employ productive assets of different ages and utilize different methods of acquiring and depreciating such assets. This can result in considerable variability in the relative costs of productive assets and the depreciation and amortization expense among companies.

Nevertheless, our management recognizes that there are limitations associated with the use of adjusted EBITDA in the evaluation of us as compared to net income. Our management compensates for the limitations of using adjusted EBITDA by using this measure to supplement U.S. GAAP results to provide a more complete understanding of the factors and trends affecting the business rather than U.S. GAAP results alone.

In addition to the limitations noted above, adjusted EBITDA excludes items that may be recurring in nature and should not be disregarded in the evaluation of performance. However, we believe it is useful to exclude such items to provide a supplemental analysis of current results and trends compared to other periods because certain excluded items can vary significantly depending on specific underlying transactions or events, and the variability of such items may not relate specifically to ongoing operating results or trends and certain excluded items, while potentially recurring in future periods, may not be indicative of future results. For example, while EBITDA from discontinued operations is a recurring item, it is not indicative of ongoing operating results and trends or future results.

Adjusted net income is computed by eliminating the after-tax amounts related to the following from net income attributable to Venator Materials PLC ordinary shareholders: (a) business acquisition and integration expenses; (b) separation (gain) expense, net; (c) U.S. income tax reform; (d) (gain) loss on disposition of businesses/assets; (e) net income of discontinued operations; (f) certain legal settlements and related expenses; (g) amortization of pension and postretirement actuarial losses; (h) net plant incident (credits) costs; (i) restructuring, impairment, plant closing and transition costs. Basic adjusted net earnings (loss) per share excludes dilution and is computed by dividing adjusted net income by the weighted average number of shares outstanding during the period. Adjusted diluted net earnings (loss) per share reflects all potential dilutive common shares outstanding during the period increased by the number of additional shares that would have been outstanding as dilutive securities. For the periods prior to our IPO, the average number of common shares outstanding used to calculate basic and diluted adjusted net income per share was based on the ordinary shares that were outstanding at the time of our IPO. Adjusted net earnings (loss) and adjusted net earnings (loss) per share amounts are presented solely as supplemental information.

⁽²⁾

The income tax impacts, if any, of each adjusting item represent a ratable allocation of the total difference between the unadjusted tax expense and the total adjusted tax expense, computed without consideration of any adjusting items using a with and without approach. We do not adjust for changes in tax valuation allowances because we do not believe it provides more meaningful information than is provided under U.S. GAAP.

⁽³⁾

Management internally uses a free cash flow measure: (a) to evaluate the Company's liquidity, (b) to evaluate strategic investments, (c) to evaluate the Company's ability to incur and service debt. Free cash flow is not a defined term under U.S. GAAP, and it should not be inferred that the entire free cash flow amount is available for discretionary expenditures. The Company defines free cash flow as cash flows provided by (used in) operating activities from continuing operations and used in investing activities. Free cash flow is typically derived directly from the Company's consolidated and combined statement of cash flows; however, it may be adjusted for items that affect comparability between periods. Free cash flow is presented as supplemental information.