The Chemours Company (NYSE:CC) Q2 2024 Earnings Call Transcript

The Chemours Company (NYSE:CC) Q2 2024 Earnings Call Transcript August 2, 2024

Operator: Good morning. My name is Regina and I will be your conference operator today. I’d like to welcome everyone to the Chemours Company’s Second Quarter 2024 Results Conference Call. Currently all participants are in listen-only mode. A question-and-answer session will follow the conclusion of the prepared remarks. I would like to remind everyone that this conference call is being recorded. I would now like to hand the conference call over to Brandon Ontjes, Vice President of Investor Relations for Chemours. You may begin the conference.

Brandon Ontjes: Good morning everybody. Welcome to the Chemours Company’s Second Quarter 2024 Earnings Conference Call. I’m joined today by Denise Dignam, Chemours’ President and Chief Executive Officer; and our Chief Financial Officer, Shane Hostetter. Before we start, I’d like to remind you that comments made on this call, as well as in the supplemental information provided on our website, contain forward-looking statements that involve risks and uncertainties as described in Chemours’ SEC filings. These forward-looking statements are not guarantees of future performance, and are based on certain assumptions and expectations of future events that may not be realized. Actual results may differ and Chemours undertakes no duty to update any forward-looking statements as a result of future developments or new information.

During the course of the call, we’ll refer to certain non-GAAP financial measures that we believe are useful to investors evaluating the company’s performance. A reconciliation of non-GAAP terms and adjustments are included in our press release issued yesterday. Also, we posted our earnings presentation to our website last evening. With that I will turn the call over to Denise Dignam.

Denise Dignam: Thank you, Brandon, and thank you, everyone, for joining us. Before we get into our call this morning, I’d like to begin by welcoming a new member of our Executive Team. I’m excited to introduce Shane Hostetter, as our new Senior Vice President and Chief Financial Officer. Shane brings over 20 years of experience to the leadership of our finance function, having previously served as the CFO of Quaker Houghton. While Shane has only been with us for a month, he’s already having a positive impact. We are happy to have Shane on board with the strong talent that he brings solidifying our leadership team. During this transition Matt Abbott, who served as our interim CFO has been key in keeping stability and continuity within our finance team.

Matt will continue in a leadership role within Chemours, returning to his previous position of Chief Enterprise Transformation Officer. I’d like to express my sincere gratitude to Matt for his tremendous effort and his leadership during a critical time for our company. In our discussion this morning, I will talk about our overall performance and some of the recent business challenges we faced and overcome. Then I will hand the discussion over to Shane, who will go over our financial performance. I will conclude by sharing our outlook for the third quarter. We’ll then close the call with a Q&A session to address your questions. In the first quarter, we faced many challenges and the second quarter continued along that course. Consistent with the demonstrated resiliency of our people, our team didn’t shy away, putting forth tremendous collaboration and leadership in the face of uncertainties, controlling what we could control as we dedicated our focus to driving business performance.

As the Chemours’ leadership team face these challenges, we did so with a renewed set of core values that were developed with inputs from across the organization. These values are the foundation of our culture, reflecting who we are as a company and what we believe. They are a key part of our formula for long-term success. They are simple, plain spoken and are present in every aspect of how we work. Safety, integrity, partnership, ownership and respect. As you are aware we recently faced a disruption in our titanium dioxide production at our Altamira, Mexico site due to a severe drought in the region. While the drought had pronounced business implication it was also very personal to our team. This was a sudden extreme shift in basic needs for our people and the communities where they live.

In response, we worked quickly to provide substantial support for those in need. I was amazed at how quickly our people organize and partnered to promptly supply potable water, food and other essential needs to those impacted. We formed a cross functional team that conducted an ongoing assessment of business impacts through scenario planning. Together, we determined the best way to meet customer demand. The duration of the downtime at our site was uncertain, and the team met regularly to ensure we upheld our commitment to our customers by optimizing our TiO2 production circuit. These plans require collaboration and agility with our TT employees working diligently around the clock with a deep sense of ownership. We take pride in our reputation as a highly reliable TiO2 supplier, and we believe our actions are a clear reflection of this.

It was through these efforts that we were able to exceed our previous volume expectations with a 16% volume increase from the first quarter. This simply was not possible without the fast action, hard work and excellent collaboration of our TT employees, our customers and our partners in the community and region. For this I thank our team. Because of this unexpected production outage during the second quarter, we incurred about $8 million of onetime costs. We anticipate this disruption will also affect our results for TT in the third quarter, which I will explain more when we talk about our outlook later. Even with these difficulties, our TT team continues to prioritize our strategic relationships with customers and to execute our TT transformation plan, targeting $125 million in cost savings in 2024.

By the end of the second quarter, we have reached approximately $100 million in savings compared to the prior year, offsetting price declines. For the rest of the year, we anticipate continuing to make strong progress against our plan, with year-over-year comparative savings slightly less than the first half, considering that we commenced our transformation plan in the middle of the third quarter last year. Now let’s talk about TSS. In TSS, we continue to experience a seasonal demand pattern. Although there was a slower start to the cooling season in the northern hemisphere, it has quickly warmed up. However, even with this elevated summer season the market is still affected by excess HFC inventory. As we discuss our results for TSS’ refrigerants, we’ve updated our sales reporting this quarter to break our refrigerant sales from two separate product categories.

Opteon refrigerants, reflecting our low global warming potential offering and Freon refrigerants. For the second quarter, Opteon refrigerants continue to see strong adoption, reflecting double-digit quarterly sales growth both sequentially and year-over-year while approaching 60% of our total refrigerant sales. This growth shows the effects of the US AIM Act and EU F-Gas regulations that have progressively lowered the production and importation of high global warming potential refrigerants since they’ve gone into effect. Our Freon refrigerant sales for the second quarter were generally flat from the first quarter, with year-over-year double-digit decline driven by lower volumes under the regulatory step downs. Weaker volumes in Freon refrigerants were further compounded by softer HFC pricing, primarily due to elevated market HFC inventory levels and a slower start to the cooling season.

We attribute these HFC inventory levels to higher than expected pre-AIM inventory build in the US, and we continue to believe that these market inventory levels will remain elevated through the rest of the year. To further underscore as the US AIM act enacts its regulatory phase down, we are observing strict adherence and enforcement concerning the regulation. These efforts are evidenced through the US Department of Commerce’s ongoing work to mitigate circumvention of duties and the US Customs and Border Patrol, continued activities to restrict illegal importation of refrigerant. At APM, we see the continued macro recovery across APM’s portfolio with sequential double-digit top-line growth in both the Advanced Materials and Performance Solutions portfolio, in-line with expectations.

Our corporate expenses were generally in-line with expectations as well. While the second quarter provided us with various complex business dynamics, the team has remained focused on business performance, while remaining grounded in our core values. Before I hand the call over to Shane, I want to recognize our team by highlighting a couple of recent business accomplishments. First we recently received our permit to expand production of Teflon PFA resin at our Washington Works manufacturing site in West Virginia. This was a significant undertaking for the Chemours team. Our ability to secure a permit was critical, as our customers rely on us as the only US-based supplier of this material, which is essential for the fabrication of semiconductor chips.

I’ll speak more to the opportunities we see with Teflon PFA later. And second in June, we released our seventh annual sustainability report, Partnering for Progress which outlines Chemours’ progress towards meeting our 2030 corporate responsibility commitment goals. Our commitment to sustainability, as well as responsible manufacturing is unwavering, and is reflected in the significant progress that we continue to make in meeting and exceeding our commitments to reducing emissions, innovating to achieve more sustainable products and investing in the communities where we operate. Specific to our sustainability initiatives, I’m proud to highlight the approval by SBTi, the science-based targets initiative of our near-term target to cut our Scope 1 and 2 greenhouse gas emissions by 60%.

In addition to a new Scope 3 emissions target to reduce emissions by 25% per ton of production by 2030. This rigorous 22 month long process required close engagement between Chemours and SBTi including a thorough review of our underlying plans, calculations and methodologies. The approval by SBTi reflects our commitment to let science inform and guide our actions, as we continue to make a meaningful impact in the global fight against climate change. I’d now like to hand it over to Shane to walk through our financial results.

Shane Hostetter: Thank you, Denise, and good morning, everyone. First and foremost I’m very excited to join Chemours as our new CFO. In my early time with Chemours, I’ve been impressed with the unified direction and the commitment to success of all our people, and I’m eager to help move our strategic goals forward to create more value for our shareholders. I joined Chemours because of its industry-leading portfolio, its operational expertise and its resilient culture. I’m proud to say that my expectations are aligned with what is being executed. I’m confident that the drive of our people, along with our vast portfolio of industry-leading performance chemicals will ensure the successful delivery of our long-term growth initiatives.

Moving into our financial results. Our consolidated net sales for the second quarter were approximately $1.5 billion which were down 6% year-over-year. This sales decline was largely driven by lower pricing of 6% and portfolio impacts of 1%, which were partially offset by a 1% increase in volumes. Our consolidated adjusted EBITDA decreased from $324 million in the prior year to $206 million for the current quarter. This decline was driven by lower pricing, cost absorption Freon production and currency impacts. These headwinds were partially offset by ongoing TT transformation plan benefits, which strategically align with our focus on enhancing TT earnings and mitigating cyclical impacts. Second quarter adjusted EBITDA also includes a $6 million unallocated item related to third-party costs associated with the TT transformation plan.

We anticipate this amount to approximate the same amount in the third quarter. Our consolidated adjusted net income was $57 million in the current quarter compared to $167 million in the prior year. And our adjusted net income per diluted share was $0.38 in the current quarter compared to $1.10 in the prior year. Our corporate expenses were $77 million in the second quarter, which aligned with our expectations. This $14 million increase in corporate expenses compared to the prior year was primarily due to costs associated with addressing our material weaknesses in internal controls over financial reporting and the implementation of recommendations from the Audit Committee’s Internal Review. In total, these costs approximated $11 million in the quarter with the remaining increase in corporate expenses, largely driven by additional litigation costs.

Turning to our business segment performance, starting with TT. In the second quarter, TT’s net sales decreased 5% year-over-year to $673 million. This decline was primarily driven by a 7% decrease in price and a 1% impact from foreign exchange, which were partially offset by a 3% increase in volumes. Despite the unplanned downtime at our Altamira, Mexico manufacturing site due to the extreme drought in the region, our volumes still grew ahead of expectations. This was largely due to robust demand in Asia Pacific and North America compared to the prior year. While TT’s second quarter adjusted EBITDA decreased 8% to $80 million compared to the prior year, the segment’s adjusted EBITDA margin remained flat at 12%. TT’s experienced the local pricing declines that I mentioned earlier, as well as currency impacts, but this was partially offset by reduced costs from the TT transformation plan, which continues its strong execution and is outpacing expectations.

On a sequential basis, TT’s net sales increased by 14%, which was driven by a 16% rise in our volumes, a strong result given the headwinds we faced due to the Altamira downtime I mentioned before. TT’s pricing and foreign exchange impacts each pose a 1% headwind sequentially. Moving now to our TSS segment. For the second quarter, TSS’ net sales were approximately $513 million, a 2% decrease from the prior year. This decline in net sales was driven by lower pricing of 4%, which was partially offset by a 2% increase in volumes. As shared earlier, TSS’ decrease in pricing was driven by our Freon refrigerants portfolio which was influenced by elevated HFC inventory levels from excess pre-AIM inventory builds prior to 2022, as well as a slower start to the cooling season.

And to a lesser extent, we did experience lower pricing in our foam, propellants and other portfolio. TSS’ volume growth was driven by our Opteon refrigerants portfolio which was fueled by continued adoption in stationary, as well as transition in the automotive air for market. Also, our Opteon volume growth was complemented by robust propel demand in our foam, propellants and other portfolio. In the second quarter, TSS’ adjusted EBITDA decreased 25% year-over-year to $161 million, resulting in a lower adjusted EBITDA margin of 31%. This decline was primarily driven by lower pricing, increased costs to secure additional near-term quota allowances in connection with the US EPA’s technology transitions ruling, and reduced fixed cost absorption in our Freon refrigerants production in connection with lower HFC demand, due to regulatory step downs in the United States and the EU.

On a sequential basis, TSS’ net sales rose by 14%, which was driven by a 17% increase in volumes, partially offset by a 3% decline in pricing. The increase in volumes reflects seasonal trends in refrigerants as well as stronger propel of demand in the foam, propellants and other portfolio sequentially. Now turning to APM. Net sales for APM were $339 million in the current quarter which was down 12% compared to the prior year. This decline was due to decreases in price, volume and currency of 7%, 4% and 1% respectively. The price decline was primarily influenced by soft market dynamics across the Advanced Materials portfolio, as well as shifts in product mix within the Performance Solutions portfolio compared to the prior year. APM’s volume decline was concentrated in the Advanced Materials portfolio which reflected weaker demand in economically sensitive end-markets.

APM achieved adjusted EBITDA of $45 million in the second quarter which marks a significant decline compared to the prior year. The decrease was primarily driven by lower pricing, currency and impacts from other income. These additional items also impacted APM’s adjusted EBITDA margin which decreased 8 percentage points to 13%. Sequentially, APM’s net sales increased by 13%, which was driven by a 16% rise in volumes, but tempered slightly by a 2% decline in pricing and a 1% currency headwind. APM’s higher volumes were largely driven by a modest recovery in economically sensitive end markets across the portfolio. Separately, the company’s other segment had net sales and adjusted EBITDA of $13 million and $3 million, respectively in the current quarter.

Turning now to our balance sheet and liquidity. As of June 30, 2024 our consolidated gross debt was $4 billion, and we have approximately $1.5 billion in liquidity, which includes $604 million in unrestricted cash and cash equivalents and $852 million in revolver capacity. Our net leverage ratio increased to 4.4 times in the second quarter. While our net leverage ratio remains elevated due to the market cycle, we remain in compliance with our covenants, and we did not draw on our revolver during the quarter. The company used $620 million of operating cash flow in the second quarter of 2024, which was $687 million more than the same quarter last year. As we anticipated, this higher cash usage was due to the release of $606 million in restricted cash and cash equivalents, which was reflective of the company’s 2023 contribution to the Water District settlement fund, including interest.

The settlement became effective in May 2024 where the company no longer maintained its reversionary interest in the fund. The company spent $73 million on capital projects in the second quarter of 2024 generally in line with expectations compared to $58 million in the prior year with the difference in spending being driven by overall payment timing. Also, the company distributed $38 million in dividends to its shareholders in the quarter. We anticipate our unrestricted cash and cash equivalents will remain at a similar level for the rest of the year. We project some working capital inflows in the second half as we work to reduce inventory and we focus on timely payments from our customers. Overall, we are confident in our current liquidity as well as our future cash flow capabilities, which will assist with creating further balance sheet capacity.

As we look ahead to the rest of 2024, we do not anticipate any liquidity concerns that would impact compliance with our banking covenants. Related to capital allocation consistent with our values and sustainability goals I wanted to take a moment to highlight our key priorities, as we remain focused on driving shareholder value. First we will pursue focused investments in growth initiatives to enhance our portfolio. Second, we’re committed to improving our leverage profile. Third, we will responsibly resolve contingent legal and/or accrued environmental liabilities on terms and basis deemed to be in the best interest of the company and our stakeholders. And finally, and equally important we’ll provide cash to our shareholders through our quarterly dividends.

Separately as an update to the remediation of our material weaknesses, we have provided disclosure in Item 4 of our Form 10-Q, though I want to highlight a couple of items. During the second quarter, we completed the modification of processes and procedures with respect to managing ethics complaints. Also, we implemented enhancements to our controls over the verification of vendor master file changes to prevent unauthorized cash disbursements. These enhancements require a sufficient period of time to evaluate and test whether the controls are operating effectively. Overall, we continue to dedicate significant resources towards these efforts and remain committed to their timely remediation. To conclude while the quarter’s results were not what we wanted, I am encouraged by several aspects of our performance.

TT had solid demand and continues to have strong execution against this transformation plan. TSS saw double-digit growth in Opteon year-over-year. And macro recoveries in APM are providing solid business momentum. With this foundation on top of our focus on sustainability growth initiatives, I am confident that our approach is the right foundational strategy to create shareholder value. Denise, back over to you.

Denise Dignam: Thank you, Shane. Let’s look ahead to the next quarter. Consistent with recent quarters, we are providing a view of the upcoming quarter. On a consolidated basis we expect a sequential low to mid-single-digit decline in net sales continuing into the third quarter with a consolidated adjusted EBITDA anticipated to be down high single digits. Our sales forecast reflects the impact of unplanned downtime at our TT site in Altamira, Mexico seasonality paired with weaker Freon refrigerant pricing in TSS and partial offsets from a continued modest recovery in APM. For the third quarter, these sales assumptions anticipate the continued strong adoption of Opteon refrigerants projecting double-digit year-over-year growth, and APM’s Performance Solutions portfolio showing strong year-over-year growth.

In TT, while we haven’t seen major catalysts indicating a broad TiO2 recovery, demand remained stable as we enter the third quarter. Had we not experienced the downtime in the second quarter due to the severe drought in Altamira, we believe our third quarter sales will be flat to the prior year. Considering adjusted EBITDA for TT, we also anticipate that one-time costs associated with the production downtime are expected to range between $15 million and $20 million in the third quarter. We do not expect the impact of the Altamira downtime to extend beyond the third quarter. We anticipate a sequential reduction in corporate expenses in the third quarter as we make thoughtful choices on spending and as we make demonstrable progress on the remediation of our material weaknesses in internal controls over financial reporting and the adoption of other recommendations from the Audit Committee’s internal review.

As we move into the second half of 2024, I want to reiterate my priorities to drive shareholder value: one, take costs out in APM, building on what we have done in TT, as well as our functional and corporate overhead and two, invest in our businesses where we have significant opportunities to grow. We believe that these priorities are essential for Chemours’ future success, leveraging our operational expertise and innovation edge to our advantage across our businesses. Leaning into our advantages in innovation. One of the key growth markets in front of us is in supporting the advancement in artificial intelligence and high performance computing. Both our TSS Opteon refrigerant and APM Performance Solution portfolios have opportunities in this space, which is driving our focused investment in these businesses.

Last quarter, in my prepared remarks, I mentioned the advantages of Opteon 2P50, a new fluid for use in 2 phase immersion cooling. With liquid cooling being more effective means to cool data center hardware than aircon, we believe Opteon 2P50, is an innovative solution that outperforms both single phase and direct to chip alternative liquid cooling technology. Opteon 2P50 immersion cooling provides clear benefits; the potential to reduce the space needed for data center facilities by approximately 60%, enabling cooling energy savings of up to 90% and nearly eliminating water consumption in most climates. These benefits deliver tangible cost savings, which was evidenced in a recent study that we participated in with liquid stack and Syska Hennessy, which showed that Opteon 2P50 immersion cooling solution had the lowest total cost of ownership compared to the other cooling options.

Opteon 2P50 had a cost advantage of up to 40% over the next best liquid cooling alternatives. We continue to plan the launch of Opteon 2P50 by mid-2026, and see this as an opportunity to meaningfully participate in the overall data center liquid cooling market. As we progress towards commercialization, we remain focused on ensuring that our product is safe for use throughout its life cycle and meets the appropriate regulatory registration requirements in the markets that we want to serve. We are in the qualification process with key hyperscalers, server and chip manufacturers who see Opteon 2P50, as an essential solution for efficiently and effectively cooling server chip hardware. Specifically, high performance chips and GPU hardware that will be instrumental in supporting artificial intelligence computing sources which are more energy intensive in nature.

These qualification periods take time to complete. We look forward to providing updates, as we progress in future periods. Our Performance Solutions portfolio in our APM segment is also enabling the high-performance computing market with our Teflon PFA resin, a critical material for semiconductor manufacturing which has expanded opportunity in the US enabled by the US Chips and Science Act. As the only US based PFA resin manufacturer, a secure domestic semiconductor supply chain is not complete without our high grain Teflon PFA resin. Teflon PFA is an absolute requirement to avoid contamination in the chip manufacturing process. It’s used through out of fab infrastructure from fluid delivery and filtration systems to flow meters and wafer handling.

In other words, it is our high-purity resin that enables the ultra-clean environments needed for advanced chip production. Teflon PFA helps to ensure fab reliability and uptime, as well as the safe high-yield production of semiconductor chips. To emphasize our focus on investing for growth in this area. As I mentioned earlier, we recently obtained our permit for our newly finished Teflon PFA production expansion at our Washington Works manufacturing site in West Virginia. This has been a key priority for our APM leadership team over the last year, and I want to acknowledge those on the Chemours team who worked hard to complete this project and the strong support we received throughout the value chain. Our Teflon PFA product continues to be sold out and we look forward to starting operations, which we anticipate will commence by early September.

We are excited about being able to serve our customers in this market and the long-term growth prospects for Teflon PFA. At Chemours, we’re passionate about driving shareholder value through innovation, specifically contributing to advancements in artificial intelligence and high performance computing. These innovative advances are just a few of the developments in TSS’ Opteon refrigerants and APM’s Performance Solutions portfolios that are driving growth. In closing, while we exit a challenging quarter, we continue to build upon strong business fundamentals by solidifying our management team, continuing to drive costs out of the business, investing for growth, pursuing disciplined capital allocation and building upon a corporate culture that reflects the core values that I highlighted earlier.

It is our people that make Chemours who we are, and I want to thank our dedicated global team of 6,100 employees for their commitment to our customers and executing with operational excellence. We will now open the line to take your questions.

Q&A Session

Operator: [Operator Instructions] Our first question will come from the line of John McNulty with BMO Capital Markets. Please go ahead.

John McNulty: Yeah. Good morning thanks for taking my question and Shane, congratulations on the role. Look forward to working with you. I had a question on the TSS business. Obviously, the Freon drag in terms of pricing around some of the inventory, I don’t know, I guess, pre-stocking ahead of — and now we’re kind of dealing with the destock, clearly putting some real pressure on the profitability of the business. I guess, — it sounds like you have some conviction that this is going to end at the end of the year. I guess, can you help us to understand that a little bit better and how to think about the inflection point coming? And then I guess in addition to that, maybe just a follow up question would be, we are — in the past, we’ve been pretty used to seeing Chemours sell your allocations.

And yet this time around you actually ended up having to buy extra allocation and there was a cost to it for you. So I guess can you help us to understand that dynamic and what the magnitude of that actually was?

Denise Dignam: Yes for sure. Thanks, John for the questions. First of all, yes we are seeing significantly depressed pricing in HFC inventories that are at a high level, and we’re — with the quota step downs that are — you said you asked do we have confidence and this is going to end. With the quota step downs that are occurring that will be occurring, we definitely see that happening. We have experience with that with R-22. And we are also seeing in Europe, it is a smaller part of our market, so you don’t see that as dramatically but it is absolutely happening in Europe. It is really part of the mechanism. The phase down is really working. And I want to bring us back to what our strategy is. We are really about driving our Opteon growth and we had year-over-year double digit growth and also sequential double-digit growth.

And we’ve had no price deterioration. So when you think about that, right, we’ve already — we’ve always said that we have a step down in pricing when it comes to auto OEMs. So you can see the impact other segments coming in like stationery and automotive aftermarket which I think is really a big statement. So your other question was around just quote and why this year, and I’d say, this is a — this year issue. We quote is always a part as you said. We sell, we also buy, we have bought in the past. This year is different. And it really is caused by the technology transition delay of a year. So when you think about what our plan was coming into the year that really flipped because while we are still seeing tremendous growth, the growth actually would have been stronger.

But we are seeing that there is still a demand for HFCs. And for every unit of Opteon, you actually need to — for every four units of Opteon, it actually is one unit of Freon. So it is a massive impact. So in order to meet customer demand, we are out in the market and we bought quota in the second quarter. And we believe we’ll be doing that in the future in this year. But again, it’s really tied to this delay in the technology transition.

John McNulty: Got it. Okay. No, that’s helpful. And then maybe we can just shift over to the TiO2 platform. So obviously a lot of noise around Altamira, but it does seem like the overall TiO2 markets are actually — if you took Altamira out of the equation, you actually did a little bit better than maybe expected. So I guess can you speak to the markets that you are seeing right now and how you think they progress over the next 12 months, just given what should be an improving coatings market, as we look out over the next 12 months potential for tariffs in certain regions. I guess can you help us to think about how you see that market playing out over, again the next 12 months?

Denise Dignam: Sure. Yes. I mean right now, I would — what I’d say is, we see stable demand. And actually, going into the third quarter, we could have sold more. And we believe we could have sold similar sales as we did in the third quarter of ’23. We definitely see — the bottom is here. We have confidence with the potential for a Fed interest rate cut in September, and we think that’s going to bring some real confidence to consumers as we end the year. We don’t see a major catalyst right now. But as I said, the potential interest rate drop, also the tariffs in Europe are also going to be going to help us as well. There is a lot of inventory that was imported ahead of those. But we definitely see as we end the year, we are going to start seeing some momentum in Europe as well.

John McNulty: Great. Thanks very much for the color.

Operator: Our next question comes from the line of Mike Leithead with Barclays. Please go ahead.

Mike Leithead: Hi. Thanks. Good morning team. And I just want to say I appreciate the increased disclosure around the TSS product breakout starting this quarter. That’s very helpful. First question, I want to follow-up on the HFC market. Can you just help us better contextualize HFC pricing? It’s obviously tracking lower than where people thought. But just where are we in pricing if you were to look over the past, I don’t know a couple of years or so. Where are we relative to the historical context? And how comfortable are you that this starts to bottom out here as we go into the back half of this year?

Denise Dignam: Yes. I mean pricing is elevated, I will say, versus where it is been in prior year, but significantly lower than our expectations. As I said in response to John’s questions, we definitely see that there is going to be a turnaround there. I mean the whole philosophy around the quota reduction is going to drive more scarcity when the quotas reduce. So we definitely see that turning around. It is been a pattern we saw at R-22 we are seeing in Europe now where Europe is more advanced in the phase down.

Mike Leithead: Great. That’s helpful. And then I just wanted to ask on debt and leverage, maybe for Shane. Can you speak to the cash you expect to generate in the back half of this year? And just — where do you, big picture, want to get with leverage before utilizing cash for, say, some more discretionary areas?

Shane Hostetter: Yes. Thanks Mike. As I indicated in the script, we see cash balances being stable in the latter half, similar to that side, indicating some cash inflows from working capital as we work to improve collections, as well as working down some of the inventory on that side. As a long-term target, we are targeting to get below 3 times sustainably, but such will take some time as we improve our earnings coming out, where I would say is your trough levels and hopefully, the markets improve here in the near future.

Mike Leithead: Great. Thank you.

Operator: Our next question comes from the line of John Roberts with Mizuho. Please go ahead.

John Roberts: Thanks. Congrats on getting the Teflon environmental permit here. Before you launch Opteon 2P50 in I guess, mid-2026, are you going to need a similar permit? Are we going to go through a similar type process for that?

Denise Dignam: Thank you for the congrats on the PFA permit. It’s definitely really exciting for us. Related to the Opteon 2P50, clearly, we are going to need permits. Wherever we want to sell, we are going to need to get product registration and permit. So there are things that we’re working on in all the countries where we want to sell.

John Roberts: And then Altamira is a pretty important asset. Is there anything you can do to make that plant more resistant to further droughts?

Denise Dignam: Yes. Good question. I mean we never take a good crisis to — miss a great crisis to improve. So we actually did substantial work as we entered this crisis to look at how we can reduce our need and our water usage. So it is a really great efforts by our engineering team. So that’s one thing, and we are continuing to work on that. The other thing is we have some other engineering solutions that we’re pursuing locally ourselves and also with the local government. And then thirdly, we do have options relative to supply chain, what kind of inventory we keep during those periods. So we’re going to be deploying all those strategies. It’s certainly a key focus for us to never have that situation again.

John Roberts: Thank you for that.

Operator: Our next question comes from the line of Josh Spector with UBS. Please go ahead.

Josh Spector: Hi, good morning. I had a couple of questions, a follow-up on TSS. I guess I’m somewhat confused with the commentary around fixed cost absorption being a headwind in Freon. Basically, you’re saying demand is slightly higher than you expected and you’re buying quota. On the other hand, inventories are higher. And I guess your comments seem to indicate that you’re saying it’s down because of the step down. I guess wouldn’t that have been a planned impact that you could try to mitigate or work through? So can you talk to what’s going on there and maybe help size what that impact is 2Q, 3Q?

Denise Dignam: The fixed cost absorption for Freon and why that is a headwind. Is that correct? Yes. I mean just because when we say that demands for Freon it’s — year-over-year, it’s actually down, right? As you think about the quota step-down, it’s actually down. So that’s really what’s driving the fixed cost absorption issue in that product line.

Josh Spector: Okay. Yes. I guess my expectation would be that was expected, and I guess, maybe we should have expected it. And I don’t know if my line is breaking up or yours, but maybe you are not able to hear me completely. But I’ll try again at a high level and just ask around TSS. Within 2Q, 3Q there is a number of unique things going on this year. Throwing pricing aside, I guess whatever issues you would call out in terms of one-time cost impacting you? You said the quota by, I don’t know if the fixed cost absorption thing is more of a 2024 or a longer-term issue, you have some higher cost material, you are buying on Opteon to fill the gap until you get Corpus. So no demand improvement to go from 2024 to 2025. How much is EBITDA helped from some of these things abating? Or is that not the right way to think about this?

Denise Dignam: Yes. I mean, there are a number, as we’ve talked about before, there’s a number of things that are impacting our cost in TSS. Some of them are one-time, some of them will be ongoing. So from a Corpus expansion perspective, we have additional costs associated with capital that we are incurring this year. We also have additional volume that we’re buying from our JV partner in China, which when we have this product online, you’ll see that drop in price — I’m sorry, cost going into 2025. We expect a two year ramp of that plant. We’re adding 40% capacity. The fixed cost absorption, depending on what happens, I mean we have inventory of our Freon product. And depending on what happens with demand, it’s either going to be a tailwind or it will remain a headwind.

But as you — I’m trying to think of the other one is quota. We believe that, that is going to be more opportunistic going into 2025, versus this year, it was a headwind, and that was specifically related to the technology transition. Does that answer your question, Josh?

Josh Spector: Yes, except the quantitative side of it, but I’ll follow up off-line. Thank you.

Operator: Our next question comes from the line of Hassan Ahmed with Alembic Global Advisors. Please go ahead.

Hassan Ahmed: Congratulations, Shane, on the new role. My first question is on the TT side of things. I was pleasantly surprised seeing the sequential uptick in volumes, around 16%, particularly with what transpired in Altamira. Can you just talk a bit about maybe potentially what you saw across the regions? Were you gaining market share despite the outage that you guys saw?

Denise Dignam: Thanks for the question, Hassan. The way I would characterize it is that we have — we see our share is stable. And we kind of see across the regions. We saw a little bit of uplift in North America and Asia ex-China. But I’d characterize it as stable demand and stable share.

Hassan Ahmed: Fair enough. And just continuing with sort of the TT side of things. I mean, obviously the whole antidumping side of things in the European Union recently popped up, and we all know that historically, 15,000 to 20,000 tonnes a month of product is transported from China to the EU. And it just seems that regionally some of these anti-dumping measures are actually expanding. So I mean, how should we think about the profitability impact maybe the EBITDA impact for you guys?

Denise Dignam: I agree with you. The EU antidumping is definitely an opportunity for us. It is an opportunity for us to gain share. And there are — these things are increasing, and you probably are aware of Brazil action that is currently happening, and I probably wouldn’t stop it at that. I’d just say that we have really — I don’t know I would quantify it per se, but you know the impact of volume what that has on our EBITDA, and it definitely will accelerate our EBITDA growth.

Hassan Ahmed: Very helpful. Thank you so much.

Operator: Our next question will come from the line of Laurence Alexander with Jefferies. Please go ahead.

Laurence Alexander: Good morning. Two questions. I guess, Shane, just would love to hear your thoughts on differences in culture or how you see sort of how commercial is operating from a working capital perspective? Or any other observations you’d like to share? And I guess, separately, on the data center opportunity, given how fast that industry appears to be scaling up, you have these long-term targets for TSS in the high single digits. Would we be looking at sort of being higher than that in the kind of early 2030s if your products get approved and adopted?

Shane Hostetter: Thanks, Laurence. I’ll start off. I won’t compare and contrast anything. I’d just say, as far as Chemours goes and just my expectations of the company, I’m very excited to be here. I mentioned in my script, I came to the company for its innovation and just its commitment to the world and its new emerging technologies, as well as the people and for that matter just the resiliency of all the people around here. And really excited to be here in my first month. It is exactly what I expected coming in. As I think about your specific question around working capital, obviously, just initial views. But I mentioned in the script, we will work to appropriately collect from our customers on that side as well as reduce inventories on that side. So that’s to track to push improvements on our overall working capital going forward to enhance cash flows.

Denise Dignam: Yes. Maybe I will add on to even that first segment. I know you didn’t ask me about culture, but I’d love to just add on. As I mentioned in my prepared remarks, we did a complete values refresh for the company. And we did it extremely collaboratively. We had over 1,200 people submit surveys. We did over 50 focused groups. We had participation from over 22 countries. We have a really sound and solid future in this company, and I’m really proud of the team. Moving on to data centers and what we project, could it be higher than high-single digits as we get to the end of the decade. I think — we’re not going to — at this point, this is what we are saying. One thing that we have to recognize with this technology is this is not a drop in replacement.

This is — it’s going to require some time for retrofits or as you build new — it’s really as you’re building new data centers that you use this technology. So it’s going to take some time to develop. We definitely see it as a meaningful contributor as we get to 2030.

Laurence Alexander: Thank you.

Operator: Our next question comes from the line of Arun Viswanathan with RBC Capital Markets. Please go ahead.

Arun Viswanathan: Great. Thanks for taking my questions. Congrats Denise and Shane on those roles, and I appreciate the comments. I guess — just wanted to ask first on TT. So it sounds like utilization rates are probably still in the 50% to 70% range. I don’t know if that’s accurate, but maybe you can just characterize or give us some kind of range on where you think both industry and conversion utilization rates are on TT? And if they are in that range, do you think that any footprint rationalization would be necessary? Obviously, you guys sit on the lower end of the cost curve and we appreciate your flexibility on or use, but are there any structural oversupply issues in any markets that we should think about? Maybe I will start with that.

Denise Dignam: Okay. Thanks, Arun. Thanks for the question. We don’t comment on utilization rates. But certainly, as I think about pricing stabilization I don’t think of utilization rates in that range. And I’m not going to comment on any footprint rationalization. But only to your point of it is really important in a commodity business to be left side of the cost curve, and that’s where we’re focused. And we see with our TT transformation plan that we are ahead of plan. Through June, we are already $100 million less in — towards that achievement of the $125 million cost savings that we laid out at the end of last year.

Arun Viswanathan: Okay. That’s great. And then could you — well, maybe I’ll ask another question as well. The immersion cooling opportunity, we had heard I guess, in the past that the size of that is maybe on the order of Opteon or it could be a similar kind of driver of future earnings for you guys. So I know that could be different between PS and DSS. But how are you thinking about the — or how should we frame the opportunity for Chemours in immersion cooling?

Denise Dignam: Yes. The TAM for the liquid cooling market by 2028 is like $2.5 billion to $3.2 billion. As I said, our technology is a little different, requires different equipment. But we expect it to be meaningful by 2030. So I think you can draw the conclusion that it is a very significant opportunity for us and will be a big part of our future.

Arun Viswanathan: Great. Thanks.

Operator: [Operator Instructions] Our next question will come from the line of Vincent Andrews with Morgan Stanley. Please go ahead.

Vincent Andrews: Thank you. Good morning. I want to clarify a couple of things on the 2P50 product. Denise, I think — if I heard everything you said correctly, and I may not have. When you spoke earlier about the — I believe you said it was 40% — provided a 40% cost savings for the customer. I assume, based on your later comments, that’s if I’m building a brand-new data center, your product versus the incumbent offers that versus if I already have a data center, that math wouldn’t apply because it is not a drop in replacement and I’d have to buy some other equipment. Is that the correct way to think about it?

Denise Dignam: Yes. Hi Vincent, thank you for the question. Yes, that is the right way to think about it. And that’s why it is going to take some time to develop. It is going to take the adoption and — but we’re super excited about it. I mean, this is such a compelling value proposition especially where we are in this point in time in the world when it comes to water and power and space and the needs of computing power in the future.

Vincent Andrews: And just to follow up on that, there were the two other things that you mentioned. One was that you’re in a qualification process with all the sort of large folks that would like to use it. And then you, yourself, if I heard you correctly, wouldn’t have the product available until 2026 is a function of production or permits or what have you. So those I assume are two separate processes where you have stuff you have to do on your own and then you have to be qualified in. So could you just walk us through sort of what’s the big mile posts are on both sides of that equation, so that we can be following along and understand what’s happening as it happens.

Denise Dignam: Yes sure. So for the qualification, we actually mean substantial volumes in order to do the qualification. So we are in the process of that right now. It’s going to take six months to nine months, and we’re in the middle of those process — that process with various hyperscalers. So that — that’s that piece. In parallel, we are working on commercial scale quantity, and that is what we’re saying we will have available in 2026.

Vincent Andrews: Okay, thank you very much.

Operator: Our next question comes from the line of John McNulty with BMO Capital Markets. Please go ahead.

John McNulty: Yeah, good morning. Sorry, just one follow-up. I had a question just on the balance sheet. I think you spoke to — you’ve made the cash payment out to the water districts as part of the cleanup of that liability. You still have $600 million or so of restricted cash sitting on the balance sheet, I guess that strikes me as higher than I guess I would have thought post that payout. So can you help us to understand what that kind of is holding as far as a placeholder or why it is sitting in restricted cash?

Shane Hostetter: Hi, John, related to the restricted cash payment, it was settled in this quarter for about $600 million when the outflow. If you look on the balance sheet, our restricted cash balance is not $600 million. You might be reflecting what it was last quarter or last year that side. So you would see a significant decline in our restricted cash, I think it is around $60 million in this quarter. I’m sorry, $50 million.

Operator: We have reached the end of our question-and-answer session. Thank you for joining the Chemours second quarter 2024 results conference call. You may now disconnect.