Good morning. My name is Emma and I'll be your conference operator today. At this time, I would like to welcome everyone to the Chemours Company First-Quarter 2022 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply follow the Operator Instructions. If you'd like to address your question, again, please follow the Operator Instructions. Thank you. Jonathan Lock, Senior Vice President and Chief Development Officer. You may begin.

Hi. Welcome to the Chemours Company's First-Quarter 2022 Earnings Conference Call. I'm joined today by Mark Newman, President and Chief Executive Officer and Sameer Ralhan, Senior Vice President and Chief Financial Officer. Before we start, I'd like to remind you that comments made on this call as well as the supplemental information provided in our presentation and on our website contain forward-looking statements that involve risks and uncertainties, including the impact of COVID-19 on our business and operation and the other risks and uncertainties described in the documents Chemours has filed with the SEC. 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 this call, management will 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 release and at the end of the presentation. As a reminder, our prepared remarks, a full transcript, and an audio recording plus our earnings deck have been posted to our website alongside our earnings release. This morning's call will focus purely on Q&A. With that, I'll turn the call over to our CEO, Mark Newman.

Thanks, Jonathan. And good morning, everyone. I hope everyone is well and thank you for joining us. As Jonathan said, and in keeping with our refreshing simplicity value, we have made a change to our earnings call format starting this quarter in order to make this time more efficient and useful for everyone here. So with that, Emma, we're now ready for Q&A.

At this time, we ask that you limit yourself to one question and one follow-up. Your first question comes from the line of John McNulty with BMO Capital Markets. Your line is now open.

Good morning. Thanks for taking my question. Congratulations on some really solid results. And I guess to that, the TSS segment was a lot stronger than expected. Can you parse out the various buckets as to what drove the huge jump in margins and the strength that you're seeing? Can you help us to understand that a little bit better? And how to think about the sustainability of that as we look through the rest of the year and into next year.

Hey, John. Thanks. And good morning. Let me start first with the quarter and then I will get into TSS. And then I'll ask Sameer to reflect on how he sees the numbers for the rest of the year in keeping with our guidance. The quarter was strong. It showed Chemours wide improvements with momentum in all three businesses, despite the limitations affecting TT. I think this is really the beginning of evidence of long-term secular trends that are going to benefit all three businesses, but in particular, will benefit TSS on low global warming refrigerants and propellants and foaming agents. APM, as it relates to the mega trends that are unfolding today on Semicon, hydrogen and the presence of EVs is noteworthy. There’s a lot going on in the company that to me shows the importance of TSS and APM in the quarter. They are increasing contributions to Chemours earnings, which gives us confidence despite the limitations on the guidance we’ve provided for the year. As it relates to your question, I think a couple of things are going on in the quarter and in the year I’d like to highlight. First, refrigerant demand remains very strong. As you can imagine, folks are coming back to offices, they're going to restaurants and hotels. So, a lot of demand here on stationary that we like. Demand on auto OEMs is impacted by the ongoing Semicon shortage. Q1 was particularly weak as you'll see from the earnings reports by OEM customers, but full-year is looking as a year-over-year improvement from a volume perspective based on IHS. Clearly, where the market is, there are some structural shifts happening. Here in the U.S., the implementation of the Aim Act is taking effect at a time when demand is strong. Clearly, there are supply issues related to China affecting availability. So, Q1 was particularly strong. But as we look out to the year, our view is demand remains very strong on the institutional stationary side. The APM framework is working. We're also encouraged by ongoing developments in Europe to make F-Gas regulation better. So I’ll ask Sameer to provide additional commentary on the full year, but this is a great business, with long-term secular growth, multiyear secular growth, and EBITDA margins north of 30%.

Yeah, Mark. I think, just quickly while one other thing I would add is that when considering the year, the trends you talked about regarding the TSS business, we feel very strong about how they will be shaping the rest of the year. That’s all reflected in the guidance we've given. The market and the regulatory mechanism is at work and it's been the entire portfolio of the TSS business, so we feel really good that despite the automotive OEM demand headwinds, we are in a very strong place; the TSS business is firing on all cylinders.

Got it. That’s helpful color. And then maybe, Mark, to one of the other points you brought up on the ore front, it looks like that may be a little bit of an issue and could drag on a little longer than you thought. Can you give us an update on how you're thinking about that? And also, I think you were looking to add capacity through debottlenecking over the next couple of years. How do the ore supply issues factor into that as you consider that capacity coming on?

Yeah. So let me answer the question in a couple of ways. As we look at our ore situation for the full year, we now recognize that we will remain ore constrained into the second half. When exactly in the second half is moving around, but our guidance contemplates probably not having ore constraints resolved meaningfully before Q4. With that in mind, I think we’ve been able to narrow the range of outcomes. Clearly, our guidance range got narrowed. We acknowledge that this will go into Q4 but the team has done a phenomenal job of finding ore where it can. The range of outcomes in terms of ore availability in my view is now more well-defined. I also want to reiterate that we continue to give priority to our contracted customers and to the highest value applications. So the team has done a nice job making sure we are serving our strategic customers with whom we want to grow, as we focus on higher-value applications and our pricing mechanisms, we are staying ahead of cost inflation. We continue to focus on capacity and releasing the 10%. We’re constrained for a few more quarters, but that’s not the way we plan to run the business. One of my focused priorities as CEO is to take steps to improve the earnings quality of TiO2 through the cycle. We have the best book of business; we’re servicing those customers despite being constrained. We’re focused on how we expand capacity to grow with those customers and take actions that will reduce earnings volatility through the cycle.

Got it. Thanks very much for the color.

Your next question comes from the line of Arun Viswanathan with RBC Capital Markets. Your line is now open.

Thank you for taking my question. Congratulations on this year's progress. You mentioned some positive trends in the stationary sector. Considering that and a possible recovery in OEM, what do you think is the foundational level of earnings for TSS? Could you provide some growth rates, margin levels, or any other information that would help us understand how that business is performing?

Yeah. Arun, great question. I’ll just remind everyone we’re going to have a TSS mini Investor Day on May 16, where we’ll provide a lot more insights into that segment. It’s been on our list to do and clearly we feel the time is right. I view this business, and Alicia and her team see this as a business with multi-year secular growth. I think we’d say it's in the mid-to-high single-digit range as people adopt low global warming refrigerants, propellants for many different applications as well as foaming agents. The team is doing a phenomenal job making sure we have capacity in all those verticals to drive adoption of low global warming products both in the EU and in the U.S. Then we see it as a decade of secular growth, mid-to-high single digits, in a business that we think has EBITDA margins in the low 30s. Clearly, this year we're off to a great start, so we might be higher this year, but generally speaking, we're looking to capture the growth with EBITDA margins above 30%.

Thanks, that's very helpful. If I could, as a follow-up, just ask about potential updates there by year-end. Would you expect any updates regarding settlements with water districts? What are you working on that side?

We are very focused on managing and resolving legacy liabilities consistent with the MOU. Last year, we were able to reach an agreement with the state of Delaware and North Carolina, where we’re very focused on the remediation work and specifically a barrier wall that will reduce seepage to the Cape Fear River. The team is focused on that. I’d say the three companies are aligned, having signed the MOU, to move forward and resolve legacy liabilities in a smart way that our shareholders and our stakeholders and communities would applaud. So the work there is ongoing. I won’t comment on specific outcomes in the future, but the team, including our General Counsel, Dave Shelton, is quite focused on getting something done here.

Thanks.

Your next question comes from the line of Josh Spector with UBS. Your line is now open.

Hi guys, this is James Cannon on for Josh. I was wondering if you could talk about the TSS pricing in the quarter; it was up quite a bit. If you could just share some comments on how much of that is due to your actions versus market dynamics and if the pricing in HFCs is driving a little bit more of a shift towards Opteon, if that’s occurring faster than your expectations.

So thanks for the question. We continue to see increased adoption in Opteon and the related improvement in mix as a result of that. Clearly, as I said in my earlier remarks, market demand in stationary, which is particularly biased to HFCs today or legacy refrigerants, is very strong. There is a seasonal factor in the year, but there's also the impact of a lot of folks returning to offices, travel picking up, and just greater demand for institutional use of stationary refrigerants, which today remains biased to HFCs. The team is very proactive; from a pricing perspective, I wouldn't want anybody to think that this team isn’t focused on the supply-demand dynamics. To your point, there are regulatory impacts aimed here in the U.S. F-Gas in Europe, which provide a structural shift in the marketplace that will continue for many years.

Great. Thank you.

Your next question comes from the line of Mike Leithead with Barclays. Your line is now open.

All right. Thanks. Good morning, guys. First, to comment, the switch to the conference call format directly to Q&A is awesome. I wanted to go back or kind of stick on TSS. Could you talk about what you saw in the market on the legacy or HFC refrigerant pricing side this quarter? Additionally, could you update us on the situation regarding illegal imports in Europe?

First, Michael, thanks for the feedback on the call format. Another core value for Chemours is being customer-centered, so it’s good to get customer feedback in this regard. On TSS, the pricing on HFCs, as we said, is driven by both the structural shifts in the marketplace, driven by the Aim Act in the U.S. and F-Gas in Europe, as well as the demand we’re seeing due to various factors I already mentioned. We’re encouraged by ongoing enforcement actions in Europe regarding HFCs. There are also draft regulations related to enforcement in F-Gas in Europe that we find promising. Those regulations are now in effect, but as an industry participant, we will be very helpful in working with regulators. I also want to give recognition to the EPA for the Aim regulations in the U.S. They’ve learned from what happened in Europe and taken steps to improve the situation. Sameer, do you want to comment on some EPA actions that we think are helping? Clearly, this is a combination of market demand and the favorable impact of the transition from HFCs to Opteon taking place in the quarter.

Yes. Thanks, Mark. Michael, let me address a bit more on the pricing side and then I'll move to the EPA enforcement. As Mark mentioned, the current market dynamics are strong; Opteon represents a low-global warming potential alternative that is paving the way for the future. We’re well-positioned to help our customers transition to this new technology over time. You should think about the solution offerings we’re providing as value-based pricing. You can see that in the margins of the TSS and APM businesses. On the EPA side, especially in the U.S., it’s encouraging to see how the EPA has learned from some issues in Europe and put mechanisms in place that give us comfort and confidence in enforcing the Aim Act. There are initiatives like having standardized tracking processes, providing 14-day advance notice for bringing in material into the U.S., enabling better customs and border control on product legitimacy. A cross-agency task force has been set up to coordinate actions, which is something that took a long time in Europe. Importantly, the AMAK gives the Clean Air Act Authority the ability to impose criminal penalties, which provides further assurance. Referring back to the experience in Europe, getting compliance and enforcement in place took time, but mechanisms are already established and they provide us confidence in the structural trends we’re seeing.

That's super helpful context. Maybe second question for Sameer. Looking at the full-year outlook, you revised EBITDA guidance by quite a bit, at about 160 million at the midpoint. Yet operating cash flow only goes up about 50 million, which is a lower conversion than I expected. Why is that?

Yeah. That’s primarily due to the working capital dynamics as we think about driving growth in the business. We want to ensure we have inventories in place, both on the raw and product sides. There’s nothing more to it; it's mostly driven by working capital.

If I could add a couple of comments, obviously working capital with higher input costs necessitates a bigger investment on our balance sheet today. Clearly, we're being rewarded for that in terms of the margins in our business. Our guide indicates we’re looking at cash flow greater than 550 million. If you take 550 and divide it by the midpoint range, you’re at a 36% cash conversion rate, and we typically aim for 35% to 40%. So view the 550 as a floor in our guidance. The other point I’d make is that regarding some of our APM businesses, which by the way had a record quarter; we’re seeing demand for Teflon PFA that goes into the Semicon industry, and we’re already sold out on that expanded capacity. We’re seeing double-digit growth rates, so we aim to leave flexibility in our free cash flow guide to make prudent investments in areas of the business where we see explosive growth for multiple years to come. Again, there’s nothing wrong with our cash flow guide; it serves as a deemed floor. I also want to emphasize that we’re seeing opportunities across all three businesses that align with our focus on shareholder value creation.

All right. Thank you.

Your next question comes from the line of Hassan Ahmed with Alembic Global Advisors. Your line is now open.

Morning, Mark. I wanted to revisit some of your commentary about ore constraints. Is it primarily due to logistics and supply chain/shipping issues, or is something more secular going on there? If it is, what does that imply for the prospects for industry capacity growth?

Hassan, I wouldn’t point to anything that’s more secular here. Clearly, within a 12-month frame, which is our fiscal year 2022, we acknowledge that starting the year with Richard's Bay Minerals constraints is compounded by the conflict in Ukraine. Within this frame, there are limitations on what you can do, strictly based on our access on the spot market. Logistics also play a role; even if you identify ore today, it takes significantly longer to get it to our shores or to our plants. This situation is not secular; it’s simply a recognition of where we are with respect to fiscal year 2022. I’d expect us to be beyond this constraint sometime in Q4, and I felt it was time to acknowledge that and update the guidance to clarify that it will reduce TT volumes in the upcoming quarters. I expect Q2 to be flat in quarters that typically show higher volume. It’s essential to emphasize that this is a fiscal year 2022 issue affecting the next two or three quarters.

Understood. Very helpful. As a follow-up, sticking to TT, we’ve seen a fair degree of raw material inflation, be it chlorine or ore. On the other side, pricing for pigment has been strong as well. Holistically, how do you view the global cost trends? Are some marginal players still facing financial difficulties due to these changes? If so, what percentage do you feel are currently in the red?

I’m not going to comment on our competitors, but we’re grateful for where we stand on the cost curve and for our continued focus on efficiency. Our EBITDA margin in this business is unlikely to reach target levels of mid-twenties until we're no longer ore constrained. However, as I look at cost dynamics globally, I'm pleased that most of our plants rely on natural gas in the U.S., although those prices are also up. Thus, our ability to weather cost increases is solid, due to how efficiently we convert ore into pigment. The team is doing a great job addressing this, especially in TT and across all businesses. Despite being constrained, our operations are well-managed.

Hassan, I would add one point: when assessing the longer-term situation, there's a nuanced impact regarding cost curves and the perspective of our customers. Our value proposition is becoming evident, as we demonstrate the ability to supply on time and fulfill commitments even amidst challenging supply chain environments. This capability will influence our business's growth, pricing strategies and margin generation. Mark will elaborate on raw material issues, but pricing-wise, we’ve managed well against inflationary pressures. The constraints will impact our ability to optimize output, thus reflecting the margin profile.

Very clear. Thank you for your time, Mark.

Your next question comes from the line of Matthew DeYoe with Bank of America. Your line is now open.

Morning. Speaking with TT, tier 2 pricing was 24% higher year-over-year, which seems remarkably strong, given the ties to TPI and associated contracts. How are you managing to secure such a significant increase considering your sales mix, and how much is linked to the purchase price?

That's a great question. The team has adeptly capitalized on the tight marketplace and higher input costs. We continue to see PPI adjustments—tied to that pricing—happening semi-annually, which have been substantial. We’re improving our mix of customers, so new clients enter with today's prices rather than historic ones. Part of our business is also linked to a flexible distribution model with spot prices, which are considerably high amidst current demand. Collectively, these elements help explain the pricing power we've demonstrated—a viewpoint that had historically been doubted regarding TSS.

Okay. Given the significant exposure in Europe and the automotive sector, how did your volumes and market demand trend through the quarter? How does April look, and what’s the May order book reflecting, especially with macro concerns?

It’s hard not to listen to all the conversations about a recession looming in 2023. When we revised our full-year guide, we were aware of all the macro issues facing us, so we had to adopt a more constructive approach in our guidance by defining low-end and high-end scenarios, with an expectation that today we’d be midway through the guidance range. Across our three businesses, demand remains strong. North America is notably stronger than globally, but we see very good demand in both AP and EMEA, to a lesser extent in Latin America. Demand remains robust across several product lines, and we continue to be sold out in some areas. In APM, for instance, we have a record quarter and see a significant mix shift in that business. Sure, some consumer coatings are down, but our Teflon PTFE for EV battery applications is up dramatically. Our membrane business on hydrogen is taking off as well. To summarize, despite widespread scrutiny about global macro issues, we heed these risks in our planning, and we’re seeing high demand across our sectors.

The point I’d add regarding 2022 is that inventories play a crucial role in this situation. If you examine inventories from our perspective throughout the supply chains, they’re rather low. For that reason, we maintain strong expectations for demand in 2022.

Your next question comes from the line of PJ Juvekar with Citi. Your line is now open.

Hi, this is Eric Petrie for PJ. In your TSS segment, your main competitor in HFOs is doubling capacity in the fourth quarter last year. Since you completed your Corpus Christi expansion in 2019, how do you foresee your capacity needs, and what associated CapEx do you anticipate moving forward?

That’s a great question, Eric. When we installed our Corpus capacity, it was a 3X expansion. We sized our expansion with the understanding that the U.S. would adopt the Kigali amendment to the Montreal Protocol alongside the F-Gas in Europe. We monitor capacity for our base refrigerant business and have brought additional capacity online with other HFO molecules. Alicia and her team keep a close eye on this business to stay ahead of the curve regarding capacity. This business not only holds very high EBITDA margins but also generates substantial free cash flow since we’ve carried out considerable front-end investments in capacity and materials. However, over time, we need to consider how to invest in capacity to support long-term secular growth in this sector. More on this to come, but we’re structured appropriately for where we see the market moving.

Thank you. Regarding the pricing of 40% in the quarter, do you believe it can maintain throughout '22, or how do you foresee the comparisons as supply issues in China are resolved?

I would characterize the quarter as a mixture of post-pandemic recovery, seasonal factors, regulatory-driven structural shifts alongside strong economic demand globally. This business usually experiences greater seasonality in the first half versus the second half. Many pricing actions arise as we anticipate cost increases that’ll materialize later in the year. Our long-term aspiration for this segment remains low 30% EBITDA margins, with growth rates as previously discussed, but given the strong start to the year, we could be higher.

Thank you, Mark.

Your next question comes from the line of Laurence Alexander with Jefferies. Your line is now open.

Hi, this is Kevin Estok on for Laurence. Thank you for taking my question. First, I’d like to ask about your non-U.S. opportunities. How do you think lockdowns in China will impact your business in the remaining year? Additionally, regarding Europe, have you had meaningful sales in Ukraine, Russia, and Eastern Europe? Will you source natural gas from alternative locations?

We are monitoring the situation in Ukraine and mainland China, keeping those affected in our thoughts. We announced a suspension of any operations in Russia regarding business with Russian entities, along with charitable contributions for humanitarian aid. I’ll ask Sameer to elaborate on specific impacts of both China, which we mentioned in our guidance, and Ukraine within the quarter.

Thanks, Mark. Concerning the Russia and Ukraine situation, we reported last year that our revenue derived from these areas was around 1%, significantly concentrated in the TT business. Given the current supply-demand dynamics in the TiO2 market, we don’t foresee any challenges placing that volume elsewhere. Hence, we’re confident the topline won’t be significantly impacted overall. From the cost perspective, we did absorb a charge of roughly $10 million tied to our operations—centered on certain receivables and inventory write-offs. That said, we do not anticipate further impacts for the remainder of the year. Regarding China, the situation is evolving. We monitor it closely, as every business experiences different variations of impact. Currently, we don’t expect a material impact based on direct assessments. If shutdowns continue, it could affect the Chinese economy and have ripple effects globally, but we’re well-positioned in terms of raw material needs from that region.

Thank you.

Your next question comes from the line of Vincent Andrews with Morgan Stanley. Your line is now open.

Hi guys. This is Will Tang on for Vincent. Just a quick follow-up regarding the situation in China. We’ve observed the continued increase in Chinese TiO2 exports this year. Can you comment on the local production and demand, and to what extent you perceive heightened exports as a risk to TiO2 prices elsewhere?

First, we see very limited intersection between China's export grades and the markets and applications we serve. While we are aware of an increase in exports, they have limited influence on our business. Our operations in China for TiO2 lean towards high-end applications, such as coatings and laminates. Much of our work relates to high-end furniture for export. Presently, demand in China for TiO2 is strong, and while we appreciate increased product supply from China due to reduced local demand, it poses minor relevancies for our global business.

Thank you.

That concludes today's Q&A. I now turn the call back over to Mark Newman.

Yes. Thank you, everyone. We look forward to seeing you all very soon at our mini Investor Day, where we will provide insights into TSS. There have been many great questions today, and we felt it was time to share more on this segment moving forward. In closing, I'd like to emphasize that we remain committed to our four key areas for long-term value creation, as demonstrated in the quarter. Firstly, we seek to improve TT earnings while growing with strategic customers. As I noted, we have the best book of business, and our team is continuously working to enhance that business’s earnings quality and cash conversion. Secondly, we aim to drive secular growth in TSS and APM through innovative chemistry. TSS has shown remarkable progress this quarter, with more to come. In APM, we’re witnessing the significant impact of our shift towards higher-value applications. Our science in APM is vital to the clean energy landscape, whether it’s concerning hydrogen, electric vehicles, or the evolving electronics revolution. We play an integral role in Semicon, being the sole producer of PFA, critical to the global market and the establishment of a U.S. Semicon supply chain. We’re excited about our contributions here. Our third focus remains managing and resolving legacy liabilities consistent with the MOU. This is a priority for a group of dedicated professionals. Lastly, we will continue returning a majority of our free cash flow to shareholders. We made notable progress in completing existing shareholder authorizations, which we intend to finalize in Q2. Our Board has approved a new authorization of $750 million through 2025. We will keep investing behind the first three priorities to drive significant shareholder value, and item four—returning a major portion of cash via dividends and stock repurchases—will compound value creation over time. The leadership team is enthusiastic about these four priorities that we believe will yield substantial value for our shareholders in the years ahead. Thank you and have a great day.

This concludes today's conference call. Thank you for attending. You may now disconnect.