Good morning. My name is Rob, and I will be your conference Operator today. At this time, I would like to welcome everyone to the Chemours Company second 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 press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again press star, one. Thank you. Jonathan Lock, Senior Vice President and Chief Development Officer, you may begin your conference.

Hi, good morning everybody. Welcome to the Chemours Company’s second 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 in 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 operations 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 our presentation. As a reminder, our prepared remarks, a full transcript and an audio recording plus our earning deck has 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. Mark?

Thank you, Jonathan. I hope everyone is doing well, and I appreciate you joining us today. Our record-setting quarter demonstrates the strength of the structural growth we are pursuing and our ability to execute even in a challenging supply chain environment. Our four priorities remain improving the earnings power of TT through the cycle, driving secular growth in TSS and APM, managing and resolving legacy liabilities, and returning the majority of free cash flow that we generated to shareholders. We believe these four priorities will generate significant shareholder value over time. With that, Rob, let’s open the line for Q&A.

Your first question comes from Arun Viswanathan from RBC Capital Markets. Your line is open.

Great, thanks for taking my question. Good morning. I hope you guys are well. I guess—you know, obviously some very strong performance here. Your pricing in TSS was above our expectations and similar to last quarter, so it sounds like that is persisting. Maybe could you just comment on that first?

Hey, good morning Arun. Yes, we had a record-setting quarter in our TSS business, also established another new record in APM, which had a record last—in our Q1 results. Candidly, when I look at our performance, we have industry-leading businesses in all three segments, which all contributed in various ways to our results this quarter. Clearly, the market remains quite dynamic from a refrigerant perspective, and we continue to see high demand, a very dynamic environment in which we are obviously taking advantage of supply-demand dynamics in the market. Demand remains strong, as I said, in Q1 with a number of institutional users, whether it’s in the office space, hotel space, restaurant space coming back online in a post-COVID environment, and so demand remains strong, and we’re taking advantage of that. Clearly, as you saw in our TSS results, we also had volume growth, and we continue to believe that we have a decade of growth ahead of us in this business as we see the transition from legacy refrigerants to low global warming refrigerants and our Opteon brand in particular, so very pleased with the structural growth we’re seeing in our TSS and our APM businesses.

Arun, this is Sameer. I just want to point to one more thing to what Mark said, is as you look at the pricing across our businesses, especially in TSS and APM, as we’ve talked in the past, there’s a big focus around driving the value and use, but pricing as well. As you know, our products are essential in driving larger secular trends and really enabling them, so as we look into that and the value that we deliver to our customers, so there’s a big focus on the value in used pricing as well, which is—what you’re seeing in the numbers now.

Great, thanks Sameer and Mark. I guess just for a quick follow-up on the cash flow uses, can you just remind us of your priorities now, what you’ll be funding for the PFAS side as well as potentially some capital return? Thanks.

Yes. We continue to invest in our business for long-term growth, especially in TSS and APM. In TSS, we just announced the investment in Corpus based on our projection of growth and the need for added capacity, so to be on the 2025 time frame based on our updated projections. We’re investing for growth, for example in APM around semiconductors, where we remain sold out. You just saw the CHIPS Act get passed, so we expect even more demand coming there. These are high-return growth projects. We’re also investing obviously in run and maintain and sustainability as we move towards meeting our reduction of greenhouse gas targets and fluoro-organic compounds, so we’re investing in the business for the long-term creation of value and growth. But based on our cash generation, we’re also able to allocate and return the majority of our free cash flow to investors or to our shareholders, and we’re doing that through a stable dividend and a steady diet of stock repurchases. I’ll ask Sameer to just comment on the level of stock repurchases year to date.

Thanks Mark. Arun, as you have seen, we’ve had a pretty steady diet of share buybacks in the first half of the year. That’s in line with how we outlined for the beginning of the year. We’ll expect to continue to do that, and meanwhile, as Mark said, we’re investing in the growth and our strength of the free cash flow provides us the ability to even chip away at the debt side. You have seen us—our commitment to get our gross debt down to $3.5 billion, and we continue to make progress on that side as well while putting money in escrow to continue to strengthen the balance sheet. Again, the strength of the free cash flow provides us the ability to execute on all fronts.

Thanks.

Your next question comes from the line of Matt DeYoe from Bank of America. Your line is open.

Hi, this is Ross Huffman on for Matthew DeYoe. My first question is the EPA set a health advisory for GenX, which I think is the first consideration for GenX. Do you think that this is the first step to inclusion of GenX in any pending circular decisions to be made later this year?

Yes, we don’t see a tie-in between the health advisory and circular. Clearly we see a—a normal process as I understand it is a health advisory precedes an MCL, or a drinking water standard, and so clearly we are challenging the health advisory based on the science. In our view, both the assessment from a toxicity perspective, and exposure perspective, and the due process that should have been followed in something like this, so we’ve decided to challenge this particular thing from a legal perspective. But in the quarter, as you saw, we took a charge related to the connection between the health advisory and the consent order in the State of North Carolina, so we believe the science is flawed, and we’re challenging it on that basis, but given the connection in our consent order, it gave rise to the charge in the quarter.

Got it, thank you. I guess a quick follow-up, if we look at something like the heat wave in Europe in Q2, is that driving a lot of volume for your business, and is that something that’s just kind of responsive to weather in general?

Typically—it’s a great question. Typically when you have a really warm summer, it can extend the season in terms of either retrofits or upgrades, or simply just replacement of refrigerants in existing equipment. Clearly we see a long-term growth projection in refrigeration as a class given rising global temperatures, but we also see, obviously, the transition to more sustainable refrigerants, where we are a market leader. The point that you are raising may not create increased demand, although it will extend the season somewhat that we normally see, but it really speaks to the long-term growth of refrigerants and our ability to deliver a decade of mid single-digit growth, high-mid single-digit growth in this business.

Great, thank you.

Your next question comes from the line of John McNulty from BMO Capital Markets. Your line is open.

Yes, good morning. Thanks for taking my questions. Obviously some really chunky margins in the APM segment, given your shift toward more high-value solutions. Was there anything unusual about this quarter’s strength that maybe we shouldn’t necessarily assume continues, and I guess also in your prepared commentary, you kind of highlighted you’re in year one of a multi-year journey and transformation in this business. Can you give us maybe a little bit of a peek at year two and the type of actions that may continue as we look on the growth and on the margin side for the business?

Hey John, thanks for the question. When you think of where APM came from a little over a year ago, it’s become a real contributor to the total earnings of the company, so we’re very excited about where we go from here and the ability to sustain double-digit margins going forward. What we’ve said historically about APM is it has very high operating leverage, so clearly we’re sold out on many product lines, so we are having really great demand, and as a result really great mix with the business. I wouldn’t point to anything unusual in the quarter, but I think if you look on a full-year basis, our guidance would still be in the low 20s EBITDA margins on a more modest volume print with normal seasonality. Clearly the journey continues in transforming and accelerating this business, and we’re really proud of what the teams accomplished, but we’re not ready at this point to sort of change the margin profile. Sameer, do you have anything else?

Nothing, Mark. You laid it out pretty well, and John, as you know, this is a business in which we have the most operating leverage, so as we look at the volume as it came in the second quarter, and especially in the first half, that drove the margin; but as we move into the second half with some of the plant turnarounds coming and some of the seasonality that typically comes in Q4, I think overall for the full year, you’ll still see us in the low 20s, and that’s the target that we have, as Mark outlined.

Got it, fair enough. Then on the TSS segment, the pricing was obviously really strong, up 39%, almost 40%. Was this largely the Opteon side really kicking in or can you speak to the HFC side, or was it both? I guess, how should we think about the dynamics that drove that really high level of pricing?

Yes, I would say it’s both. We’re seeing really good demand, strong demand for our refrigerants. Clearly, as you know, a lot of the installed base today is based on a legacy refrigerant platform, but we’re also seeing increased strength of adoption and speed of adoption of Opteon, which you would expect as base refrigerant prices are higher. I mean, that’s basically how the quota mechanism works. John, maybe with that, we felt it was time to add some incremental capacity at our Corpus facility. It is, in our view, the lowest cost facility in the world and as we project out the adoption beyond ’25, we thought it was the right time to add some incremental capacity there to that facility. Again, this speaks to the thesis of refrigeration as a whole as a growing product class, and obviously within that, the transition to low global warming refrigerants is really benefiting our business, and we want to be ready to support our customers in that regard.

Got it. Thanks very much for the color.

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

Great, thanks. Good morning guys. First one, just on the Fayetteville environmental remediation charge in Q2, can you just help us with what the cash spend related to that was in Q2 and just how we should think about related cash spend over the next 12 months there?

Yes Mike, this is Sameer. I’ll take this one. Essentially when you look at the charge overall, if you just zoom up and look at overall spend at the Fayetteville site, roughly $250 million will be spent over the next three years from a free cash flow perspective. A big chunk of that, frankly, is construction of the wall, and as you know, that $250 million is subject to the 50% recovery from DuPont and Corteva, as per the MOU agreement that we have with them, and beyond that, the remaining $260 million is really a long-term spend. That’s really maintenance, monitoring and operations of the offsite and onsite operations over the next 20 years, so there’s a very slow burn on that one. As we kind of laid that out, that’s roughly $16 million per year amongst all of us, and half of that is recoverable from DuPont and Corteva per MOU, so roughly $8 million a year. So it’s really the upfront, the construction of the wall, but beyond that, these are pretty small numbers.

Got it, makes sense. Then secondly for TiO2, you obviously talked about ore constraints through the fourth quarter. I guess if we just take a step back, bigger picture in a world where we’re probably a bit constrained in ore, can you just talk about your comfort in your availability and sourcing for ore over the next, say, few years for Chemours?

Yes, we continue to look for opportunities to strengthen our ore sourcing. Clearly, we’re the largest commercial buyer of ilmenite, so we do have a significant market presence. We work with all the strategic ore suppliers. We also work with some of the more junior miners in the space. Sitting here today, our view is the ore constraints will relieve in Q4, consistent with our prior outlook, and again, we remain confident that through a whole host of market mechanisms, we can bring on more ore supply. As I said in Q1, the world is not short of titanium-bearing ores, but clearly we need more mining to be brought online, and we’re confident given the market dynamics and given our presence in the market, that that’s very achievable.

Great, thanks.

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

Yes, hey guys. Thanks for taking my question. Just going back to TSS and focusing on the volume side, at least versus our estimates, that’s where there was some of the bigger surprise, but curious if you could comment on the 15% growth, where you saw the biggest opportunity there by market. Especially given automotive down year-over-year, that’s a pretty impressive number. How do you think the second half develops at this point? Were there some earlier sell-ins or anything else to note that you’re seeing in the second half, that may be similar or different? Thanks.

Yes, I’d say the second half, we’ve reminded folks all year, is subject to normal seasonality. You normally see a lot of demand in Q1 and Q2, as I said earlier. With a hot summer, that could make Q3 marginally better, but clearly we expect normal seasonality in the second half where it would be weaker. On auto, which you mentioned, we see auto consistent with IHS forecasts, being up slightly year-over-year. I think IHS is around 3% or 4%, so our full year is based on that outlook. The auto industry remains very challenged from a supply chain perspective, so that’s baked into our numbers. But the big driver of volume for us is really the transition on the stationary side. As I said in Q1, we have signed up with major OEMs of stationary equipment, from chillers to cooling equipment for supermarkets to air conditioning, and so that adoption is going quite well. Clearly, with both F-gas in Europe and now AIM in the U.S., OEMs have two very large markets to serve that are moving to low global warming, so it’s really on that basis that we’re seeing this kind of growth. Again, that kind of growth is implied in the investment we’re making at Corpus, where we see a decade of growth related to this transition.

Thanks. Just on the cost side, where you guys talked about higher raw material costs in the second half, is that in some of your back-integrated products or is that some purchased products? I’m curious if you could comment on how you see second half transpiring - is there another step-up we should be considering into 2023, or is it more transient than that?

Hey Josh, this is Sameer. Let me just take that and then Mark can jump in. Essentially when you look at the cost side into the second half, yes, some of it is just really things moving to the inventory, be it through our own manufacturing or some of the components that we purchase from other places, and that dynamic you’re going to see, frankly, in the quote and the TSS and APM side as well where the supply chains tend to be a little longer, right? As we’ve told in the past, in the polymers, materials can sit through the inventory as they go through different components, almost six months or more, so you’re going to see some of this stuff on the raw material inflation side that happened early in the year kind of really channeling through the system and showing up in the second half. That’s a dynamic for both the segments.

Okay, thank you.

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

Hi everyone. I understand you've been selling through ABA contracts at a stable level. Given the current uncertain macroeconomic situation, are you considering increasing that proportion, or is that still your target for now?

No, clearly as we’ve said in the past, we have what we consider to be our best book of contracted business, and we target a level of about 70%, and that allows us in a tight market, like we’ve been experiencing, the ability to ensure we can meet all of our customer needs. Now, I’m really proud of our TT team and how they have achieved very, very high rates of delivery to promise, in the upper 90s to be honest, despite some of the ore challenges we’ve had this year. Going forward, I would expect that number to remain around the target, and clearly it will modulate depending on demand from contracted customers and demand in the spot market. I think our view is this is a really prudent level going forward, and I don’t see any fundamental change. To the point you mentioned about seeing some potential weakness, clearly this is a strength for the franchise as we go if we see any further weakening. We’re seeing some weakness today in parts of Europe, and AP especially in China, but to have this strong book of business if you see any global macro weakening from here, is a really great thing, and the team is very focused on how we modulate the circuit to optimize the needs of the market going forward with this contract book of business in place. It’s a great franchise, and we’re really proud of what we’ve built here.

Got it, and then I guess just as a little follow-up, some coatings players have kind of talked about destocking opportunities, both for retailers as well as within their own inventories on the TiO2 side, which kind of, I guess, seems to run opposite to what you and other TiO2 producers have been talking about over the past few quarters. Could you give us a little update on how you guys are thinking about the channel inventory situation right now?

You know, we’ve also read some of the comments around destocking, I would say particularly in EU and Asia. Clearly, the way we supply our customers is they don’t have an incentive to build massive inventory given our commitment to supply and the pricing certainty that they enjoy, so our assessment is inventories are still relatively low. They may be better than they were at the beginning of the year, and the consumer, as we look at the data around U.S. consumer, remains relatively strong even though they may be spending a little bit more money on travel at the moment. Net-net, we feel really good about the strength of our contracts and the relationships that we have with a large number of strategic users of our pigment, both in the coatings segment and in the laminate space.

Got it, thank you.

Again, if you would like to ask a question, please press star then the number one on your telephone keypad. Your next question comes from the line of Laurence Alexander from Jefferies. Your line is open.

Hi, good morning. This is Kevin Estok on for Laurence. I know you guys touched a little bit on your end markets, but I guess I was wondering specifically maybe where you see the greatest changes happening currently, and as recessionary risks rise, which ones do you see maybe deteriorating the most? Obviously the recovery in China has been sort of tepid with the reopening. I’m just curious what you’re seeing there as well and how that’s impacting demand.

Listen, we read all the same global macro data that you guys read, and obviously we’ve seen the recent print on U.S. GDP. I’d say in our business, most of the weakness we’ve seen to date has been in Europe and parts of Asia, specifically China. I’d say beyond that, not much more to report at this point. Clearly on APM, we remain sold out in several product lines. We’ve seen some fade in some of the less strategic parts of our business around consumer coatings, for example, but we’ve been able to reuse that capacity for higher-value applications in use. In TSS, we’ve seen a very robust first half. We expect normal seasonality in the second half, and I would say in TT, we also expect more normal seasonality as we go into Q3 and Q4. I’d say the team has done a really nice job through the expansion we saw coming out of COVID, and I expect the team to do a great job as we go into the back half of the year, even if there are some changes from a global macro perspective. Sameer, I don’t know if you have any other thoughts?

No, I think Mark, you said it right. It’s really around Europe and Asia in pockets, frankly. The APM and TSS businesses continue to execute well, execute great, and we see tremendous opportunities, and we read what’s in the macro like everybody else, like you said.

Okay, great. Thank you.

There are no further questions at this time. Mr. Mark Newman, I turn the call back over to you for some closing remarks.

Well listen, thank you all for your interest and continued support of Chemours. I’m immensely proud of what the team has accomplished, especially in the last year as I look across our three businesses, how we’ve met the challenges on the ore side, for example in TT, but also the long-term growth that we’re seeing in TSS and APM. We’ve talked a lot about this to you in our investor meetings, and we’re delivering against that commitment to drive growth in those two businesses, so we’re immensely excited about the future and where we can take the business from here, and look forward to meeting with you in the coming weeks as we get out on the road. Take care.

This concludes today’s conference call. Thank you for your participation. You may now disconnect.