Venator Announces Third Quarter 2019 Results; Stable Sequential TiO2 Pricing and Accelerated Delivery of Cost Initiatives

Three months ended

Nine months ended

September 30,

June 30,

 2019

September 30,

(In millions, except per share amounts)

2019

2018

2019

2018

Revenues

$

526

$

533

$

578

$

1,666

$

1,781

Net (loss) income attributable to Venator^(a)

$

(19)

$

(368)

$

21

$

(1)

$

(94)

Adjusted net income attributable to Venator^(2)(a)

$

8

$

34

$

14

$

36

$

216

Adjusted EBITDA^(2)(a)

$

50

$

77

$

61

$

171

$

391

Diluted (loss) earnings per share^(a)

$

(0.18)

$

(3.46)

$

0.20

$

(0.01)

$

(0.88)

Adjusted diluted earnings per share^(2)(a)

$

0.08

$

0.32

$

0.13

$

0.34

$

2.02

Net cash provided by (used in) operating activities

$

14

$

1

$

(21)

$

(36)

$

306

Free cash flow^(4)(b)

$

(5)

$

(103)

$

(50)

$

(137)

$

41

(a)

Includes an $8 million nonrecurring benefit in the three and nine months ended September 30, 2019, due to a change in plant utilization rates, which increased our overhead absorption and corresponding inventory valuation at certain facilities

(b)

Does not include a $15 million benefit from monetizing cross-currency interest rate swaps in the three and nine months ended September 30, 2019

Call-in numbers for the conference call:

U.S. participants

1-833-366-1118

International participants

1-412-902-6770

(No passcode required)

Call-in numbers for the replay:

U.S. participants

1-877-344-7529

International participants

1-412-317-0088

Passcode

10135620

Table 1 — Results of Operations

Three months ended

Nine months ended

September 30,

September 30,

(In millions, except per share amounts)

2019

2018

2019

2018

Revenues

$

526

$

533

$

1,666

$

1,781

Cost of goods sold⁽¹⁾

464

463

1,461

1,110

Operating expenses

50

57

150

154

Restructuring, impairment and plant closing and transition costs

12

428

24

573

Operating income

—

(415)

31

(56)

Interest expense, net

(10)

(10)

(31)

(30)

Other income

1

4

3

8

Income before income taxes

(9)

(421)

3

(78)

Income tax (expense) benefit

(8)

55

—

(10)

Net (loss) income

(17)

(366)

3

(88)

Net income attributable to noncontrolling interests

(2)

(2)

(4)

(6)

Net loss attributable to Venator

$

(19)

$

(368)

$

(1)

$

(94)

Adjusted EBITDA⁽²⁾

$

50

$

77

$

171

$

391

Adjusted net income⁽²⁾

$

8

$

34

$

36

$

216

Basic loss per share

$

(0.18)

$

(3.46)

$

(0.01)

$

(0.88)

Diluted loss per share

$

(0.18)

$

(3.46)

$

(0.01)

$

(0.88)

Adjusted earnings per share⁽²⁾

$

0.08

$

0.32

$

0.34

$

2.03

Adjusted diluted earnings per share⁽²⁾

$

0.08

$

0.32

$

0.34

$

2.02

Ordinary share information:

Basic shares outstanding

106.6

106.4

106.5

106.4

Diluted shares

106.6

106.7

106.5

106.8

Table 2 — Results of Operations by Segment

Three months ended

Nine months ended

September 30,

Favorable /

September 30,

Favorable /

(In millions)

2019

2018

(Unfavorable)

2019

2018

(Unfavorable)

Segment Revenues:

Titanium Dioxide

$

396

$

389

2%

$

1,260

$

1,300

(3)%

Performance Additives

130

144

(10)%

406

481

(16)%

Total

$

526

$

533

(1)%

$

1,666

$

1,781

(6)%

Segment Adjusted EBITDA⁽²⁾:

Titanium Dioxide

$

51

$

75

(32)%

$

167

$

365

(54)%

Performance Additives

13

12

8%

44

59

(25)%

Corporate and other

(14)

(10)

(40)%

(40)

(33)

(21)%

Total

$

50

$

77

(35)%

$

171

$

391

(56)%

Table 3 — Factors Impacting Sales Revenue

Three months ended

September 30, 2019 vs. 2018

Average Selling Price^(a)

Local
Currency

Exchange
Rate

Sales Mix
& Other

Sales
Volume^(b)

Total

Titanium Dioxide

(7)%

(2)%

(1)%

12%

2%

Performance Additives

2%

(2)%

(2)%

(8)%

(10)%

Total Company

(4)%

(2)%

(1)%

6%

(1)%

Nine months ended

September 30, 2019 vs. 2018

Average Selling Price^(a)

Local
Currency

Exchange
Rate

Sales Mix
& Other

Sales
Volume^(b)

Total

Titanium Dioxide

(7)%

(4)%

—%

8%

(3)%

Performance Additives

—%

(2)%

—%

(14)%

(16)%

Total Company

(5)%

(3)%

—%

2%

(6)%

(a)

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

(b)

Excludes sales volumes of by-products and raw materials

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

EBITDA

Net Income
(Loss)

Diluted Earnings
(Loss) Per
Share⁽²⁾

Three months
ended

Three months
ended

Three months
ended

September 30,

September 30,

September 30,

(In millions, except per share amounts)

2019

2018

2019

2018

2019

2018

Net loss

$

(17)

$

(366)

$

(17)

$

(366)

$

(0.16)

$

(3.43)

Net income attributable to noncontrolling interests

(2)

(2)

(2)

(2)

(0.02)

(0.02)

Net loss attributable to Venator

(19)

(368)

(19)

(368)

(0.18)

(3.45)

Interest expense, net

10

10

Income tax expense (benefit)

8

(55)

Depreciation and amortization

27

33

Business acquisition and integration expenses

2

5

2

5

0.02

0.05

Loss on disposal of businesses/assets

1

—

1

—

0.01

—

Certain legal settlements and related expenses

2

—

2

—

0.02

—

Amortization of pension and postretirement actuarial losses

3

3

3

3

0.03

0.03

Net plant incident costs

4

21

4

21

0.04

0.20

Restructuring, impairment, plant closing and transition costs

12

428

12

428

0.11

4.01

Income tax adjustments⁽³⁾

—

—

3

(55)

0.03

(0.52)

Adjusted⁽²⁾

$

50

$

77

$

8

$

34

$

0.08

$

0.32

Adjusted income tax expense⁽³⁾

$

5

$

—

Net income attributable to noncontrolling interests, net of tax

2

2

Adjusted pre-tax income

$

15

$

36

Adjusted effective tax rate

35

%

—

%

EBITDA

Net Income
(Loss)

Diluted Earnings
(Loss) Per
Share⁽²⁾

Three months
ended June 30,

Three months
ended June 30,

Three months
ended June 30,

(In millions, except per share amounts)

2019

2019

2019

Net income

$

22

$

22

$

0.21

Net income attributable to noncontrolling interests

(1)

(1)

(0.01)

Net income attributable to Venator

21

21

0.20

Interest expense, net

10

Income tax benefit

(9)

Depreciation and amortization

29

Business acquisition and integration adjustments

(1)

(1)

(0.01)

Certain legal settlements and related expenses

1

1

0.01

Amortization of pension and postretirement actuarial losses

4

4

0.03

Net plant incident costs

6

6

0.06

Income tax adjustments⁽³⁾

—

(17)

(0.16)

Adjusted⁽²⁾

$

61

$

14

$

0.13

Adjusted income tax expense⁽³⁾

$

8

Net income attributable to noncontrolling interests, net of tax

1

Adjusted pre-tax income

$

23

Adjusted effective tax rate

35

%

EBITDA

Net Income
(Loss)

Diluted Earnings
(Loss) Per
Share⁽²⁾

Nine months ended

Nine months ended

Nine months ended

September 30,

September 30,

September 30,

(In millions, except per share amounts)

2019

2018

2019

2018

2019

2018

Net income (loss)

$

3

$

(88)

$

3

$

(88)

$

0.03

$

(0.82)

Net income attributable to noncontrolling interests

(4)

(6)

(4)

(6)

(0.04)

(0.06)

Net loss attributable to Venator

(1)

(94)

(1)

(94)

(0.01)

(0.88)

Interest expense, net

31

30

Income tax expense

—

10

Depreciation and amortization

82

102

Business acquisition and integration expenses

3

9

3

9

0.03

0.08

Separation expense, net

—

1

—

1

—

0.01

Loss on disposal of businesses/assets

1

2

1

2

0.01

0.02

Certain legal settlements and related expenses

3

—

3

—

0.03

—

Amortization of pension and postretirement actuarial losses

11

10

11

10

0.10

0.09

Net plant incident costs (credits)

17

(252)

17

(252)

0.16

(2.36)

Restructuring, impairment, plant closing and transition costs

24

573

24

573

0.23

5.37

Income tax adjustments⁽³⁾

—

—

(22)

(33)

(0.21)

(0.31)

Adjusted⁽²⁾

$

171

$

391

$

36

$

216

$

0.34

$

2.02

Adjusted income tax expense⁽³⁾

$

22

$

43

Net income attributable to noncontrolling interests, net of tax

4

6

Adjusted pre-tax income

$

62

$

265

Adjusted effective tax rate

35

%

16

%

Table 5 — Selected Balance Sheet Items

September 30,

December 31,

(In millions)

2019

2018

Cash and cash equivalents

$

40

$

165

Accounts and notes receivable, net

366

351

Inventories

496

538

Prepaid expenses and other current assets

88

71

Property, plant and equipment, net

936

994

Other assets

404

366

Total assets

$

2,330

$

2,485

Accounts payable

$

287

$

400

Other current liabilities

116

135

Current portion of debt

16

8

Long-term debt

737

740

Non-current payable to affiliates

34

34

Other non-current liabilities

295

313

Total equity

845

855

Total liabilities and equity

$

2,330

$

2,485

Table 6 — Outstanding Debt

September 30,

December 31,

(In millions)

2019

2018

Debt:

Senior Notes

$

371

$

370

Term Loan Facility

362

365

Other debt

20

13

Total debt - excluding affiliates

753

748

Total cash

40

165

Net debt - excluding affiliates

$

713

$

583

Table 7 — Summarized Statement of Cash Flows

Three months ended

Nine months ended

September 30,

September 30,

(In millions)

2019

2018

2019

2018

Total cash at beginning of period

$

50

$

354

$

165

$

238

Net cash provided by (used in) operating activities

14

1

(36)

306

Net cash used in investing activities

(19)

(104)

(101)

(266)

Net cash (used in) provided by financing activities

(4)

(3)

13

(17)

Effect of exchange rate changes on cash

(1)

3

(1)

(10)

Total cash at end of period

$

40

$

251

$

40

$

251

Supplemental cash flow information:

Cash paid for interest

$

(18)

$

(16)

$

(41)

$

(41)

Cash paid for income taxes

(1)

(8)

(4)

(28)

Capital expenditures

(27)

(105)

(110)

(272)

Depreciation and amortization

27

33

82

102

Changes in primary working capital:

Accounts receivable

49

42

(28)

(14)

Inventories

(3)

(21)

27

(67)

Accounts payable

(28)

(1)

(72)

(18)

Total cash provided by (used in) primary working capital

$

18

$

20

$

(73)

$

(99)

Three months ended

Nine months ended

September 30,

September 30,

(In millions)

2019

2018

2019

2018

Free cash flow:

Net cash provided by (used in) operating activities

$

14

$

1

$

(36)

$

306

Capital expenditures

(27)

(105)

(110)

(272)

Other investing activities

8

1

9

6

Non-recurring separation costs^(a)

—

—

—

1

Total free cash flow^(4)(b)

$

(5)

$

(103)

$

(137)

$

41

Adjusted EBITDA⁽²⁾

$

50

$

77

$

171

$

391

Capital expenditures excluding cash paid for Pori rebuild

(25)

(30)

(73)

(72)

Cash paid for interest

(18)

(16)

(41)

(41)

Cash paid for income taxes

(1)

(8)

(4)

(28)

Primary working capital change

18

20

(73)

(99)

Restructuring

(5)

(11)

(22)

(29)

Maintenance & other

(22)

(38)

(40)

(60)

Net cash flows associated with Pori

(2)

(97)

(55)

(21)

Total free cash flow^(4)(b)

$

(5)

$

(103)

$

(137)

$

41

See end of press release for numbered footnote explanations

(a)

Represents payments associated with our separation from Huntsman

(b)

Does not include a $15 million benefit from monetizing cross-currency interest rate swaps in the three and nine months ended September 30, 2019

(1)

Cost of goods sold for the nine month period ended September 30, 2019 increased by $351 million from the same period in the prior year primarily as a result of the recognition of $325 million of insurance proceeds which was an offset to cost of goods sold in 2018.

(2)

Our management uses adjusted EBITDA to assess financial performance. Adjusted EBITDA is defined as net income/loss before interest income/expense, net, income tax expense/benefit, depreciation and amortization, and net income attributable to noncontrolling interests, as well as eliminating the following adjustments: (a) business acquisition and integration expenses/adjustments; (b) separation expense/gain, net; (c) loss/gain on disposition of business/assets; (d) certain legal settlements and related expenses/gains; (e) amortization of pension and postretirement actuarial losses/gains; (f) net plant incident costs/credits; and (g) restructuring, impairment, and plant closing and transition costs/credits. We believe that net income 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.

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/adjustments; (b) separation expense/gain, net; (c) loss/gain on disposition of business/assets; (d) certain legal settlements and related expenses/gains; (e) amortization of pension and postretirement actuarial losses/gains; (f) net plant incident costs/credits; and (g) restructuring, impairment, and plant closing and transition costs/credits. Basic adjusted net earnings 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 per share reflects all potential dilutive ordinary shares outstanding during the period increased by the number of additional shares that would have been outstanding as dilutive securities.

Adjusted net income (loss) and adjusted net earnings (loss) per share amounts are presented solely as supplemental information. These measures exclude similar noncash items as Adjusted EBITDA in order to assist our investors in comparing our performance from period to period and as such, bear similar risks as Adjusted EBITDA as documented above. For that reason, adjusted net income and the related per share amounts, should not be considered in isolation and should be considered only to supplement analysis of U.S. GAAP results.

(3)

Prior to the second quarter of 2019, the income tax impacts, if any, of each adjusting item represented 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.

Beginning in the three- and six-month periods ended June 30, 2019, income tax expense is adjusted by the amount of additional tax expense or benefit that we would accrue if we used non-GAAP results instead of GAAP results in the calculation of our tax liability, taking into consideration our tax structure. We use a normalized effective tax rate of 35%, which reflects the weighted average tax rate applicable under the various jurisdictions in which we operate. This non-GAAP tax rate eliminates the effects of non-recurring and period specific items which are often attributable to restructuring and acquisition decisions and can vary in size and frequency. This rate is subject to change over time for various reasons, including changes in the geographic business mix, valuation allowances, and changes in statutory tax rates.

We eliminate the effect of significant changes to income tax valuation allowances from our presentation of adjusted net income to allow investors to better compare our ongoing financial performance from period to period. We do not adjust for insignificant changes in tax valuation allowances because we do not believe it provides more meaningful information than is provided under GAAP. We believe that our revised approach enables a clearer understanding of the long term impact of our tax structure on post tax earnings.

(4)

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.