Tronox Holdings plc Q1 FY2026 Earnings Call

Good morning, and welcome to the Tronox Holdings First Quarter 2026 Earnings Call. As a reminder, this conference call is being recorded. I would now like to turn the call over to Jennifer Guenther, Chief Sustainability Officer, Head of Investor Relations and External Affairs. Thank you. Please go ahead.

Thank you, and welcome to our first quarter 2026 conference call and webcast. Turning to Slide 2. On our call today are John Romano, Chief Executive Officer; and John Srivisal, Senior Vice President and Chief Financial Officer. We will be using slides as we move through today's call. You can access the presentation on our website at investor.tronox.com. Moving to Slide 3. A friendly reminder that comments made on this call and the information provided in our presentation and on our website include certain statements that are forward-looking and subject to various risks and uncertainties, including, but not limited to, the specific factors summarized in our SEC filings. This information represents our best judgment based on what we know today. However, actual results may vary based on these risks and uncertainties. The company undertakes no obligation to update or revise any forward-looking statements. During the conference call, we will refer to certain non-U.S. GAAP financial terms that we use in the management of our business and believe are useful to investors in evaluating the company's performance. Reconciliations to their nearest U.S. GAAP terms are provided in our earnings release and in the appendix of the accompanying presentation. Additionally, please note that all financial comparisons made during the call are on a year-over-year basis unless otherwise noted. It is now my pleasure to turn the call over to John Romano. John?

Thanks, Jennifer, and good morning, everyone. We'll begin this morning on Slide 4. But before turning to our first quarter highlights, I want to address the situation in the Middle East. First and foremost, we offer our thoughts to those affected. Since the conflict began, the safety of our employees has been our top priority. With respect to our operations in Saudi Arabia, our teams continue to operate safely and responsibly throughout the quarter, and I want to recognize their focus and professionalism during this challenging period. While the situation remains fluid, we're seeing significant impacts across the chemical sector and specifically the TiO2 industry. While various costs such as natural gas, diesel, freight and insurance are rising, one of the most meaningful cost increases has been sulfur and sulfuric acid. I mentioned on our Q4 earnings call that sulfur prices in China had increased approximately 160% since the end of 2024 due to supply tightening and demand increases. Now that figure is almost 300% as the conflict has exacerbated impacts to the industry. This is having significant impacts on TiO2 producers that produce sulfate TiO2 predominantly in China, where approximately 80% of the production capacity is sulfate technology. This challenge is not only increasing costs, but also availability, which we believe will have a negative impact on Chinese producers' ability to produce and ship TiO2, the extent of which will depend on how long the conflict lasts. While many TiO2 producers are challenged by various aspects of the recent conflict, with our broad geographic footprint and more than 90% of our capacity being chloride technology, Tronox is well positioned to reliably supply our customers despite the challenging geopolitical backdrop. We'll review this in more detail throughout the call. Turning to the quarter. We delivered a strong and better-than-expected top line performance and achieved EBITDA above the midpoint of our guidance. Volumes exceeded our expectations across both TiO2 and zircon with TiO2 reaching its highest Q1 level since 2022 and zircon delivering its strongest performance since Q4 of 2021. This is the result of disciplined commercial execution, enhanced customer engagement and the strategic positioning of our products in key markets supported by our global presence. We continue to see meaningful structural benefits from antidumping measures in protected markets, particularly in Europe, Brazil and Saudi Arabia. With the announcement of antidumping investigations against Chinese TiO2 in the U.K. and Australia, we hope to build on the gains we are seeing in countries that have already acted to strengthen their domestic producers. These measures are having a significant impact on trade flows and positive volume trends for Tronox. Combined with our global footprint and reliable supply, this allowed us not only to serve our customers effectively, but also capture the upside as the supply dynamic shifted. While Asia Pacific volumes were impacted by the temporary stay on duties in India, performance in the region was more resilient than we expected, reflecting the value customers place on Tronox as a key supplier to the region. On pricing, we saw a clear inflection during the first quarter. TiO2 price actions took effect as planned, and we announced additional pricing actions and targeted surcharges that are beginning to roll through in the second quarter. Zircon pricing was stable in Q1, and the announced price increases for Q2 are being implemented as communicated on our last earnings call. Planned and unplanned production curtailments in the industry have led to tighter supply dynamics, supporting price momentum, which we expect will continue throughout the year. From a cost perspective, we continue to see the benefits from actions underway, including our cost improvement program, which remains on track to deliver $125 million to $175 million of run rate savings at the end of 2026. These benefits helped to offset a portion of the headwinds we faced during the quarter, including higher sales volumes pulling forward sales of higher cost inventory. That was the direct result of deliberate actions we took late last year to preserve cash and manage inventory, some of which continued into this year, including lowering operating rates and idling two mines in one of our furnaces in South Africa. In Q1, we ramped up operating rates at our pigment plants to meet the increased demand for our products, which we will touch on a bit later in the call. In addition, we saw higher cost inflation late in the quarter as the conflict in the Middle East impacted raw material prices. Our commercial team has implemented increases through surcharges, though there will be a lag between when these take effect versus the more immediate impact to our operations. We will continue to assess cost headwinds and take the necessary targeted actions as needed to avoid margin erosion. We continue to prioritize free cash flow and working capital efficiency, reducing inventory by approximately $75 million in the quarter. Due to our strong commercial performance, we upsized our AR securitization facility by $25 million in the quarter and added an additional $20 million earlier this week. We expect free cash flow to improve in the second quarter, largely offsetting the seasonal cash used in Q1, and we expect to deliver meaningful positive cash flow for the full year 2026. I'll speak to our expectations for the second quarter and the full year in more detail in the call. But for now, I'm going to turn the call over to John to review our financials for the first quarter in more detail. John?

Thank you, John. Turning to Slide 5. We generated revenue of $760 million, an increase of 3% versus the first quarter of 2025, driven by higher TiO2 and zircon volumes. Loss from operations was $41 million. Net loss attributable to Tronox is $103 million. These results include $15 million of restructuring and other charges, net of taxes, primarily related to the closures of Botlek and Fuzhou. Adjusted diluted earnings per share was a loss of $0.55. Adjusted EBITDA was $62 million, and our adjusted EBITDA margin was 8.2%. As is typical for the first quarter, free cash flow was a use of $135 million. Capital expenditures were $67 million. Now let's move to the next slide for a review of our commercial performance. As John mentioned, volumes were stronger than anticipated across both TiO2 and zircon and pricing increased in line with our expectations. Sequentially, TiO2 revenues increased 7%, driven by a 4% increase in volumes and a 3% increase in average selling prices, including mix. Volumes exceeded our expectations, driven by stronger demand on the back of the structural shifts that John mentioned earlier. Zircon revenues increased 14% sequentially, driven by higher volumes predominantly driven by customers realigning suppliers in a capacity-constrained environment. Zircon pricing remained stable during the quarter, in line with expectations and price increases were announced in the first quarter that will take effect in the second quarter as we referenced on our last earnings call. Revenue from other products decreased 27% sequentially and 35% compared to the prior year, mainly driven by timing of pig iron bonds, which we will recover in Q2. Turning to the next slide, I will now review our operating performance for the quarter. Our adjusted EBITDA of $62 million represented a 45% decline year-on-year as a result of unfavorable pricing, including mix, exchange rate headwinds, higher production costs and higher freight costs. This was partially offset by the increase in sales volumes and SG&A savings. Year-over-year production costs increased $7 million, driven by deliberate actions taken over the last year to improve cash generation, along with a higher mix of higher cost tons released from inventory as sales volumes increased. Sequentially, adjusted EBITDA increased 9%. Favorable pricing, including mix, higher sales volume and improved production costs were partially offset by exchange rate headwinds, higher freight and SG&A costs. Turning to the next slide. We ended the quarter with total debt of $3.3 billion and net debt of $3.2 billion. Our weighted average interest rate in Q1 was 5.95%, and we maintained swaps such that approximately 74% of our interest rates are fixed through 2028. Importantly, our next significant debt maturity is not until 2029. We do not have any financial covenants on our term loans or bonds. We do have one spring financial covenant on our U.S. revolver that we do not expect to trigger. Liquidity as of March 31 was $406 million, including $126 million in cash and cash equivalents. This amount excludes the GBP 50 million Emirates Revolver, which is undrawn and not expected to be renewed following its expiration in June. We also repaid our $40 million Saudi EXIM facility in the first quarter. We have been in discussions with Saudi EXIM and are confident in getting a renewal. It just has taken a bit more time given the conflict in the Middle East. This amount has not yet been included in our liquidity figures. Additionally, as we have said in the past, we will continue to be proactive with our capital structure. And towards that end, as John mentioned, we upsized our AR securitization facility by $25 million in the first quarter and by an additional $20 million earlier this week. Working capital was a use of approximately $59 million in the first quarter, excluding $19 million of restructuring payments related to the closures of Botlek and Fuzhou. First quarter working capital was better than expected, driven by stronger-than-anticipated sales lines and better-than-planned inventory reductions from targeted working capital initiatives. Capital expenditures of $67 million in the quarter were primarily related to maintenance and safety, and we returned $8 million to shareholders in the form of dividends during the quarter. And with that, I'll hand it back to John to review our capital allocation priorities. John?

Thank you, John. Turning to Slide 9. Our capital allocation priorities remain unchanged and focused on cash generation. We continue investing to maintain our assets, our vertical integration and projects critical to furthering our strategy, including rare earths. As the market recovers, we'll resume debt paydown, targeting long-term net leverage of less than 3x. We'll do that the same way we navigated this downturn, by staying focused on what we can control and influence, reinforcing the business through cost reduction and cash improvement actions. While prioritizing cash has meant a near-term trade-off to EBITDA, these actions strengthen the foundation of the company. With that, I'd like to turn to 2026 guidance and walk through some of the assumptions that will drive our performance for the year. So turning to Slide 10. For the second quarter of 2026, we expect TiO2 volumes to increase sequentially in the high single-digit range. The volume momentum we're seeing is primarily driven by the structural shift in supply dynamics in addition to seasonal demand improvement. This is supported by our ability to reliably serve customers across our global operational footprint. On pricing for TiO2, we saw an improvement in the first quarter, and we expect that momentum to build through the second quarter. We're now gaining significant traction on announced increases in every region. We expect TiO2 pricing to increase in the mid-single-digit range in the second quarter compared to the first quarter, and we will continue to evaluate additional price actions and targeted surcharges depending upon the supply-demand dynamics and the evolving situation in the Middle East. We expect zircon volume levels to moderate slightly due to inventory availability following a very strong first quarter. On zircon pricing, our previously announced increases have been implemented in the second quarter. And as John mentioned earlier, the zircon market has seen increasing capacity constraints, which we do not expect to abate in the near term. As a result, we expect the pricing momentum to carry through into the third quarter. From an operational standpoint, as planned, our west mine and one furnace in Namakwa as well as our Wonnerup in Australia remained idled. We also had two meaningful planned outages in the second quarter, one on the pigment side and one on the feedstock side to conduct statutorily required and routine maintenance. These actions will carry a near-term cost impact to EBITDA. This will be partially offset as we start selling through lower cost tons in Q2 that were produced in Q1. The net effect of these changes will be a $10 million to $15 million cost headwind in Q2 versus Q1. As a result, we expect second quarter adjusted EBITDA to be in the range of $65 million to $85 million. We expect free cash flow to be positive in the second quarter, clawing back a large majority of the cash used from the first quarter. With our pricing momentum, combined with our inventory reductions and continued operating discipline, we are well positioned as we move into the second half of the year. Based on what we know today, we are confident that we will generate meaningful positive free cash flow for the full year 2026. Incorporated into our positive cash flow guide for the year are the following assumptions on cash. Net cash interest of approximately $190 million, net cash taxes of less than $10 million, capital expenditures of approximately $260 million, and we expect working capital to be a source of cash well in excess of $100 million. Turning to Slide 11. From a broader perspective, we're operating in a volatile environment. In that context, our focus remains firmly on the things we can control and influence. Over the last several quarters, we've taken deliberate steps to strengthen the business, improving our cost structure, optimizing mix and reinforcing pricing discipline while maintaining flexibility in how we run our operations. These actions are already positively impacting volumes and pricing even as external conditions remain dynamic. Global supply chains have been affected by the conflict in the Middle East, resulting in shortages across certain regions. As a result, customers are turning to dependable suppliers contributing to the growth in our order book. At the same time, overall supply remains tighter, though uneven across regions and products, which reinforces the need to continually assess how the supply picture develops. Trade defense remains an important part of the equation. Antidumping measures are in place across several key markets. And as I noted earlier, trade defense agencies in the U.K. and Australia have also opened investigations on Chinese dumping, including the possibility of provisional duties. We are also taking definitive actions on pricing. As I mentioned earlier, we are implementing price increases in all regions in addition to select surcharges in markets impacted by cost escalation from the conflict in the Middle East. Against that backdrop, we are managing inventory while maintaining flexibility. While we are not bringing all idle mining assets back online, we are evaluating selective ramp-ups where it makes sense, particularly for products where inventory levels are low, such as zircon. Our disciplined and adaptable approach positions Tronox to manage through the current environment and capture meaningful step-up in earnings momentum. Turning to the next slide, I'll provide a brief update on the rare earth initiatives we have. During the quarter, we continue to make significant advancements in our rare earth strategy. Our primary objective remains to move further downstream into the production of separated rare earth oxides, all while maintaining a disciplined approach to capital management. Meaningful progress has been achieved in advancing towards our definitive feasibility study, and we are actively evaluating various development pathways. These pathways are being considered with a clear focus on prioritizing returns and limiting any incremental leverage on our balance sheet. At the same time, we're engaging broadly with stakeholders, including potential customers, strategic partners and funding sources to identify the most viable and responsible way forward for the project. These ongoing discussions are instrumental in shaping our approach and ensuring that we pursue opportunities that align with both our strategic vision and our values. Earlier in the week, the Australian government awarded us federal major project status, which was posted on the Australian government site this morning, and this was a significant acknowledgment of the viability of our project. Our approach remains steadfast in its dedication to generating long-term shareholder value. We are carefully balancing strategic opportunities with prudent financial management. We believe that the rare earths represents a compelling growth platform for Tronox, leveraging our existing mining footprint and our expertise in hydrometallurgical and chemical operations to create new avenues for sustainable growth. So that concludes our prepared remarks. We'll now move to the Q&A portion of the call. So I'll hand the call back over to the operator to facilitate.

Our first question comes from David Begleiter from Deutsche Bank.

John, on your Q2 EBITDA guidance, even taking into account the cost headwinds you laid out there, how is the low end of that guidance range playing out for you? What would you need to see to get there sitting here today?

Maybe I'll speak more toward how I get to the high end of the range as opposed to the low end of the range. A lot of that's going to depend on volume. When we entered the year, if you think about supply-demand globally, there was a deficit with all the capacity that had been pulled out. So when I say that deficit, there was less supply than there was demand. We were expecting volume improvements. We had a 9% increase in volume in the fourth quarter and a 5% increase in the first quarter, and I've just given you an idea of what our volume increase looks like for the second quarter. That high single-digit number could be in the teens if we have the inventory to actually fill those orders. We preposition inventory globally to make sure we can meet our customers' demand, and we've done a very good job. Our commercial team has done an excellent job of doing that. With the conflict in the Middle East, there have been some delays in shipping. That's not the bigger issue. The bigger issue is that we depleted a lot of our inventory, and we've got more orders on our order book than we can fill. So to the extent we can fill those orders, we'll be closer to the top end of that range. There are other elements that factor into the EBITDA guide. I mentioned we had two major outages, one on the pigment side and one on the mining side of the business. One of those is a statutorily required maintenance project that is done every 10 years. If we come out of that outage on track or earlier, that could have a positive impact on EBITDA and the same thing with the SR kiln reline, which is on the mining side. That happens about every four years. These were planned outages, not unplanned. The SR kiln is about halfway through the process. We're making good progress. And we have a very good plan for our outage at our pigment plant. So there are many puts and takes on where we are on that guide.

Obviously, this is a very volatile market. Raw material costs have escalated significantly and are very volatile in the quarter. So while generally our guide range is informed more heavily by our commercial side, as John mentioned, we do see some volatility on the raw material side. And as you know, we are implementing surcharges as well. We expect over the fullness of time to recover that and be margin neutral around it, but there is some delay, particularly in Q2.

Specifically, when the conflict started, we saw cost increases and we had inventory that we had to work through with our customers. Not all of our inventory was impacted by that conflict immediately. The surcharges we're implementing are largely driven by sulfur, so the biggest surcharge we're implementing is for our Bahia facility and it went into effect May 1. We had all of April where we didn't actually get the benefit of that. Then in May and June, we will get the benefit of that surcharge.

No, very helpful. And John, just on the European capacity situation with Lomon buying Greatham and announcing a restart of production. Why do you think these former Venator assets are largely still running or up and running in this weakened demand environment?

Scarlino and Palva, I think those assets will come back up. It will take time to do that. It's hard to say if you are starting a plant that had been down for a period of time. Those are two separate buyers. I do believe one of them was a previous sulfuric acid producer, so there was a strategic reason why they brought that plant back up. Both of those plants were a nameplate capacity of 80,000 tons each. On the announced closure with Lomon buying the facility at Greatham, I believe that's going to take longer. The reality is that plant has been down since September. They made an announcement that they had hired back 132 people. We've got a plant not far from there that's equivalent size; 132 people is not going to run the full breadth of that production. So there's lots of assumptions on what Lomon may do. As I mentioned in the prepared comments, the U.K. has now officially launched an antidumping initiative and we have good confidence that we'll get good results and possibly provisional duties in place maybe sometime in the third quarter. That would affect not only finished pigment but also products for TiO2 at lower concentrations. There are rumors they may bring in unfinished pigment and finish it at the plant. If antidumping is effective, that would prohibit that as well. It's a chloride facility. Chloride facilities that have been down for an extended period are harder to bring back up. That technology is unique—plasma arc chloride oxidation technology—which took many years to develop, and it is not without its challenges.

Our next question comes from John McNulty from BMO Capital Markets.

So because of past changes in the mine, operations getting shut down like at Botlek as an example, there's a lot of volatility on the cost of product and cost of inventory working through your P&L. Can you help us with some kind of a benchmark on how to think about how those costs improve as we go through the year, whether it's on a cost per ton basis? Can you help us get a little peek behind the curtain in terms of how to think about how the cost side flows through? You were pretty clear on price and how you're thinking about volumes, but the cost side seems to be a big part of the equation that's a little bit opaque right now.

In the fourth quarter of last year, we were slowing down production and weren't running assets as hard. Stallingborough went down for extended maintenance, which had an impact on our cost. In the first quarter, we sold more of that higher-cost inventory than we expected, which affected earnings. We do believe that, as I mentioned on the call, in Q2 we'll start to sell more of the inventory that we produced in Q1, which was lower cost. There are many reasons costs have gone up: escalations from the war and other inflationary pressures. We are making good progress on cost. The cost improvement program is moving in the right direction. For 2026, we'll be running assets at higher rates and we've taken actions to mitigate costs. Where we are getting escalations on cost, we are implementing surcharges to cover them. So it's a combination of mix, cost improvement actions, and surcharges where appropriate.

The impact of shutting down and idling some of those facilities for planned maintenance and otherwise was a $10 million to $15 million net headwind versus Q1. If you isolate those operating impacts for Q2, it is likely in the $20 million to $25 million range. We expect a pretty meaningful earnings uplift in the second half of the year, in both Q3 and Q4. We don't have any significant unplanned outages in the second half, so you would expect that adjustment to flow back in Q3 and Q4.

Got it. Okay, that's helpful to fill in some of the color there. Second, on cash flow. You had $135 million use of funds in Q1, and you think you get the bulk of that back in Q2. EBITDA is up maybe $10 million. Can you help bridge the rest of that? Presumably it's going to be working capital—can you unpack that a little bit?

For Q2, we have some structural differences primarily related to our interest payments—there are lower interest payments in Q2 and Q4 relative to other quarters, about $50 million. The rest relates to inventory conversion and cash. We set out to operate for cash and have proven that with a $75 million reduction of inventory in Q1. We expect a significant amount of inventory conversion in Q2 and then a bit less throughout the year, but still generating significant cash inflow for the full year. Inventory is the biggest driver of getting to our full-year expectation of meaningful positive free cash flow.

Our next question comes from Duffy Fisher from Goldman Sachs.

First question just on zircon. Zircon for three years in a row in Q1 has been down on price/mix, and collectively that's down 56% on your published numbers over that period, yet you sold 57% more volume at that level. If things are tightening, why wouldn't you hold back supply and try to push for more price? It feels like you're selling a lot of volume at rock-bottom prices that allow customers to build inventory and could make prices harder later in the year. Why not take a value-over-volume strategy in zircon similar to TiO2?

We had opportunities to sell more in the first quarter than we actually acted on. There is a balance between meeting customer requirements and pushing price. We've announced and implemented price increases that take effect in Q2. If we could perfectly time selling inventory at the highest price, we would, but we have contractual commitments and strategic customer relationships to manage. We are seeing a tightening in the market—there are outages and capacity offline—which supports higher prices beyond Q2. So we are balancing volume and price while prioritizing strategic, longer-term customer relationships rather than purely spot sales.

Fair. On TiO2, you talked about the Chinese potentially getting impaired in some markets or boxed out with antidumping measures. Their sulfur price is up, but their March export number was extremely high. Do you think that month was an aberration and you'll see export numbers come down meaningfully? How do you reconcile those export numbers where exports are growing in what should be a more difficult market for them to export into?

I would expect those March numbers to reverse in subsequent months because the conflict began late February and many shipments were already in transit. The stay on duties in India and the timing produced some bumps in exports for March. Based on what we're seeing in the market now, exports should move down in April and May. Regarding sulfur, the price increases announced by Chinese producers are barely covering incremental sulfur costs. Sulfur availability is constrained: about 78% of sulfur goes into fertilizer, which affects allocation and availability for TiO2 producers. Second- and third-tier producers are curtailing production not because of price but because they cannot get sulfur. We're seeing that in our order book, with certain regions unable to fill orders. When the market inflects—which we believe it has—pricing is moving up faster than we expected and we're well into negotiations for pricing into the third quarter.

Our next question comes from Jeff Zekauskas from JPMorgan.

In thinking through the Chinese export data, for the first three months of the year, sulfate exports were flat to down. The growth in exports was in chloride, going from about 100,000 tons to about 135,000 to 138,000 tons. Where is that chloride going? What markets are Chinese exporters being more aggressive in for chloride-based tons?

Right now chloride exports are going where buyers of sulfate TiO2 are looking to shift to chloride formulations. Companies like Lomon Billions are selling what they're producing. Chloride production in China is a smaller portion—about 20%—so the majority of Chinese production is sulfate and is heavily impacted by sulfur availability. There was a spike in exports recently, but I expect that to reverse in coming months as sulfur constraints and trade dynamics reassert themselves.

When you talked about a mid-single-digit price increase for the second quarter in TiO2, what part of that is surcharge and what part is base price? All things being equal, do you expect your prices to cover your costs in the second quarter, or not?

When we think about surcharges versus price increases, the majority of what we're implementing is price increases in every region. The large percentage of our surcharges are in Brazil to cover sulfur. Proportionally, less than one-third of what we're doing is surcharges and everything else is price increases. As we move into Q3, we haven't announced additional surcharges; the price momentum for Q3 is all price increases. If raw material prices continue to fluctuate, we will implement surcharges to prevent margin erosion. On India, there was a stay on duties and we saw a lift in exports into India, but our volumes in India did not decline as expected because of our market position and customer relationships. We are focusing on securing volumes with strategic customers through contracts rather than spot sales.

Our next question comes from Hassan Ahmed from Alembic Global.

You made comments around the rise in sulfuric acid prices and what that's done to the cost curves. Pre-conflict, a large chunk of capacity on the cost curve was in the red. Given the recent moves, that chunk is likely still in the red. What are you seeing in terms of rationalization? Previously you offered a view on how much capacity rationalization might happen—how should we think about that now in light of current cost curves, sulfur availability, and Venator assets?

It's hard to estimate precisely when Chinese capacities will be taken offline permanently, but Tier 2 and Tier 3 producers have already pulled back production, largely due to sulfur availability rather than price alone. The price increases announced in China are barely covering sulfur cost increases. When sulfuric acid prices move up, it has a leverage effect on TiO2 costs. We've seen smaller plants idle capacity over the last six months, and we've permanently closed our Botlek plant. Subsidies in China complicate the picture. I cannot give a definitive timeline for capacity rationalization, but we expect continued stress, and feedstock prices like ilmenite have begun to move up as TiO2 pricing strengthens. Our vertical integration is advantageous in this inflationary environment.

You mentioned Q2 volumes could be higher depending on regional inventory availability. Which regions are seeing the leanest inventory levels? Are you prioritizing volume growth or price protection in those regions?

Asia Pacific, particularly India, is seeing the leanest inventory levels and strong inflows of orders along with price improvement. Brazil has inventory limitations and Europe to a certain extent. North America is seeing seasonal uplift in demand. We're prioritizing strategic customers and contractual relationships rather than spot sales. Where inventory is limited, volumes may shift toward regions generating higher margins, but repositioning inventory is taking more time than historically due to the conflict in the Middle East. Our operation in Saudi Arabia is running well and at higher rates, supporting supply into Europe and the Middle East where Chinese supply is constrained.

Our next question comes from Josh Spector from UBS.

When you talk about the extra demand that may not be filled, what region is that coming from? Is that more orders from existing customers or new customers?

We're getting a lot of inquiries from new customers, most of which we are not filling because we have limited spot volume. We're focusing on strategic customers. Asia, particularly India and other parts of Asia Pacific, is where we're seeing the most inbound orders and the hardest region to fill. It's not that we're not filling existing orders; customers are increasingly seeking more volume than we can provide given current inventory constraints.

On pricing, do you have lagged pricing implementation in some contracts such that pricing increases you expect in Q3 or Q4 are already known from prior conversations? Is this different from past cycles and does that slow down visible pricing recovery?

Yes, we have margin stability agreements, largely in the Americas, which create some lag in when price increases are implemented. That mechanism tempers the amount we realize in Q2 but will benefit Q3. We have fewer of these arrangements than in APAC, and they haven't materially changed versus prior cycles, but they do affect the timing of realized pricing improvements.

Our next question comes from Frank Mitsch from Fermium Research.

Last year was difficult and the lowest earnings level since 2016. It seems things are set up better in 2026, but using the midpoint of your Q2 guide you're starting the first half down $68 million year-over-year. How realistic is it to expect that 2026 would be up over 2025?

If you pull out the planned outages, which are $10 million to $15 million, that midrange of the guide effectively gets higher. We expect meaningful uplift in the second half of the year. Price increases, the cost improvement program, lower-cost tons produced in Q1 that we will sell through, and mining project progress will all contribute to improving results. Pricing is moving up and we have room for meaningful earnings improvement as the market strengthens. We are confident in getting into the triple-digit adjusted EBITDA range in the second half of the year when these factors come together.

On cash levels, Q1 cash is relatively low historically. What cash balance do you feel comfortable maintaining to run the company?

We look at liquidity holistically given facilities around the world. We can operate with $75 million to $100 million of cash over the long term and can move balances around within the quarter. We had $406 million of liquidity at the end of Q1. We feel confident in our ability to manage cash flow and balances. Q1 is always a big use quarter and we expect significant cash generation in Q2 and the remainder of the year, primarily by reducing inventory. We've already shown we can generate cash with a $75 million inventory reduction in Q1.

Our next question comes from Roger Spitz from Bank of America.

Your 2026 working capital guide of well in excess of $100 million inflow—is that on a reported basis? For instance, you increased your off-balance sheet AR securitization by $45 million. Presumably you're going to fill that and get $45 million of inflow, but that is just financing receivables. Is your working capital guide net of that, or does that $45 million help you get to greater than $100 million?

We include the AR securitization in our working capital numbers when we report. However, our guidance for well in excess of $100 million of working capital inflow was not driven by AR securitization activities; it is primarily inventory conversion. The range could vary, so if it is $100 million versus $200 million, it could be around that number, but inventory is the main driver.

On sulfate prices rising so much, I understand you can't simply swap process technology for certain paint formulations. Do you think customers will push to shift formulations to chloride-based when possible? How much can that shift in practice, or will people just accept higher-priced sulfate-based formulations?

Customers already buy from Chinese sulfate producers because historically that price gap existed. The announced price increases on sulfate have narrowed that gap and are providing incentive to shift to chloride. However, chloride capacity is constrained and there is not enough supply to meet all that demand. Our capacity is predominantly chloride and customers want to move to chloride, but there simply isn't sufficient chloride supply globally to fill that shift. So while customers are trying to shift, the constrained supply limits how much can practically move over the short term.

To clarify on the AR securitization, when we report we include it in free cash flow and working capital numbers, but the increase in our working capital guide was driven by inventory, not AR securitization.

Our next question comes from John Roberts from Mizuho.

On the mid-single-digit quarter-over-quarter improvement in TiO2 prices for the June quarter, how much of that is surcharge versus base prices going up? And is that mid-single digit a blend of low single digits in the U.S. and mid- to high single digits outside the U.S.?

Pricing is increasing everywhere. I won't provide a detailed regional breakdown, but the majority of the mid-single-digit increase is pure price increases globally. The majority of surcharges are sulfur-based out of Brazil, and less than one-third of our actions are surcharges. Margin stability agreements will temper what we realize in Q2 and will shift some benefit into Q3. Q3 pricing will likely move up at a higher step rate than Q2.

Why are zircon volumes moderating a little bit in the June quarter?

Our inventories are lower than they should be and repositioning inventory takes time. Zircon inventories are located in South Africa and Australia and require shipping. Some consignment inventory has been depleted in the first quarter. It's not an order book issue; it's an inventory availability issue. The quarter is still strong on tonnage and is more than our average quarterly production for the year.

It is still a very strong quarter if you look at tonnage and it is above our average quarterly production for the year.

Our next question comes from Vincent Andrews from Morgan Stanley.

Two quick questions on sulfur. First, have you had any difficulty procuring sulfur in Brazil? Second, in the event of a conflict resolution, how quickly do you think Chinese production ramps back up and would there be a risk premium remaining in sulfate pricing?

We are not having trouble getting sulfuric acid for our Brazil operations; the issue is negotiation on price. In China, exports of sulfuric acid to support TiO2 production have essentially stopped and there are limitations on where sulfur can be sent. Qatar production has been affected since the conflict started. There has been a structural shift in sulfur supply and demand and prices have increased dramatically—what was a 160% increase is now closer to 300% since the end of 2024. Even if the conflict ends, there will be collateral impacts on availability for a period. I believe there will be a risk premium on sulfur and likely on sulfate TiO2 pricing for some time given the structural changes in supply and demand.

Our last question comes from Pete Osterland from Truist.

Across your TiO2 production footprint, are there any mismatches regionally between where you have pricing power and where cost inflation is being most strongly felt? How has that impacted your strategy on operating rates in the current environment?

At this stage we have ramped up most assets. The plant in Saudi Arabia is running particularly well and we are bringing an additional line online. Surcharges have been concentrated around sulfur costs, largely in Brazil. We are getting price increases in every region but margin stability agreements cause some timing differences. We will continue to adjust operating rates with agility and prioritize running assets where it makes the most sense to serve customers and protect margins.

Given how diversified you are, are there any regions where you're seeing elevated risk of demand destruction that could impact volumes as you implement pricing surcharges if we stay in an inflationary environment?

Demand destruction from TiO2 price increases is unlikely in the near term because prices have been depressed for a long period and the market is adjusting. However, if the conflict in the Middle East is prolonged and broad inflation increases across raw materials persist, there could be some negative impact. We are monitoring that closely and will remain agile in our production and operating plans.

We have no further questions. This will conclude today's conference call. Thank you for your participation. You may now disconnect.