Earnings Call Transcript - CC Q1 2023

Operator, Operator

Good morning, and welcome to the Chemours Company First Quarter 2023 Earnings Call. As a reminder, this conference call is being recorded. I would now like to turn the call over to Jonathan Lock, SVP and Chief Development Officer. Thank you. Please go ahead.

Jonathan Lock, SVP and Chief Development Officer

Thanks, Julianne, and good morning, everybody. Welcome to the Chemours Company's First Quarter 2023 Earnings Q&A 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 as described in our 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 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 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. Mark?

Mark Newman, President and CEO

Thank you, Jonathan, and thank you all for joining us this morning. Our strong performance in the first quarter is a testament to our secular growth thesis at work and the strength of our overall portfolio. TSS and APM continue to deliver products the world needs and which underpin many strategic as well as emerging technologies. Despite the challenges faced by our TT segment, we remain confident in a gradual recovery throughout the year with improvements in margins, moderating raw material costs, and cost optimization measures implemented across the portfolio. With a strong first quarter, we are reaffirming our full year guidance but we acknowledge the uncertainty of the macro environment and its potential impact on the second half of the year. We're closely monitoring the situation, and we are prepared to adapt as necessary. With that, Julianne, let's move to questions.

Operator, Operator

Our first question comes from Duffy Fischer from Goldman Sachs.

Duffy Fischer, Analyst

First question just on TSS. With the step-down or the pending step down, can you go through how much of the price benefit you've seen over the last year has come from the HFO side kind of the mix shift? And how much has come from HFC just kind of getting squeezed on volume? And what's your expectation this year in the U.S. kind of what the market share being HFC and HFO will be for the market?

Mark Newman, President and CEO

Yes, Duffy, that's a great question. The 10% decrease from last year will continue at that level until the end of this year, where we anticipate a 30% decrease. We believe there will be buyers in the second half of the year who are looking to purchase ahead of that decline. In a market with limited supply, this will help support prices. We do not foresee significant year-over-year price increases like we experienced last year, but we expect the market to remain dynamic. Regarding HFO volumes, the growth in our portfolio, as seen in the first quarter, is linked to both the adoption of HFO and a strong performance in the auto OEM market, which has benefited us. I'll ask Sameer to share a few more insights, but these are the key points.

Sameer Ralhan, Senior Vice President and CFO

Thanks, Mark. And Duffy, the only other comment I would add is, as you kind of think about the pricing, you should really think about the realization. As the quota steps down, we think about pricing, not just from just one product point of view, think about the optimization across the portfolio just to make sure we can meet all the needs of the customers and really maximize on the pricing side as well. So think about an optimization problem across the product portfolio rather than just focusing on product by product.

Duffy Fischer, Analyst

Fair enough. So regarding TiO2, we’ve seen another quarter where our sales to customers are significantly lower than their sales out. If we look back a year ago, it seemed there was no TiO2 inventory in the system at all. Can you clarify how we built so much inventory, especially last summer, when it seems like we’ve been destocking from the fall until now? What gives you confidence that we will balance our sales and their sales for TiO2?

Mark Newman, President and CEO

Yes. So the year started off relatively slowly. We predicted what we expect to be a gradual recovery. Sequentially, our volumes were up 1% but down year-over-year. As we look at the market, what we're seeing is signs of the destocking is over in Europe and to some extent, China. And then we're seeing a little bit more cautious behavior here in North America with some of the recent news flow. As we look to the whole year, we are expecting a gradual recovery. Our expectation sequentially going into Q2 would be for a double-digit sequential growth. But we're not basing our year on a rapid volume recovery, given some of the sentiment here in North America. I'll ask Sameer to comment further, but I'd say those are the main stories for now.

Sameer Ralhan, Senior Vice President and CFO

Yes. I think Mark you covered all the key points. So Duffy, I think as you're going to think about from the demand perspective, really, if you look into the guide, as we kind of think about the guide affirmation, TiO2 is going to be a little weaker than what we thought at the beginning of the year. But from a sequential perspective, we should expect a double-digit volume improvement as we get into the second quarter.

Operator, Operator

Our next question comes from Hassan Ahmed from Alembic Global Advisors.

Hassan Ahmed, Analyst

Just wanted to sort of touch on TiO2 as well. I mean, look, as I take a look at sequential volumes, they were just up 1%. And as I take a look at the landscape, one of your large competitors had sort of significantly higher volume gain sequentially. So I'm just trying to understand in terms of market share, globally, are you guys seeing any losses? How should we think about that?

Mark Newman, President and CEO

Yes. When I look at the year-over-year comparison for Tronox, we are down 30% to 35% from last year, and our competitor is also down 30%. There is a relative difference, which I acknowledge, and I believe it mainly relates to regional strengths. We are focused on aligning our operations with market demand and prioritizing cash flow throughout the year. I think we are managing the situation effectively, and as I mentioned earlier, we expect to see double-digit volume growth starting in the next quarter. We are careful in our market approach. Additionally, much of our business operates on long-term contracts often linked to share of requirements, so I am confident this does not indicate a significant market share shift; it's more about regional differences between us and some of our other multinational competitors.

Hassan Ahmed, Analyst

Thank you, Mark. I have a quick question about the full year guidance. You clearly exceeded the Q1 estimates, and your annualized EBITDA is already around $1.2 billion. As we progress through the year, considering an improvement in demand, the reopening of China, and other positive factors, I hope to see an enhancement in TiO2 results as well. Don't you think the reiteration of $1.2 billion to $1.3 billion appears somewhat conservative?

Mark Newman, President and CEO

So Hassan, I think we are kind of a team that under-promises and over-delivers. And I think as we sat here with a good 1Q in hand, our view was, given all of the global macro uncertainties and particularly some of the banking uncertainties here in the U.S., it made sense at this point in the year to be careful. And so I think it's with that view that we have reaffirmed our full year guide. Clearly, there are some aspects in the second half, which could go either way. And so I think our perspective at this point is to reaffirm our full year guide. But I'll ask Sameer to make a few comments as well.

Sameer Ralhan, Senior Vice President and CFO

Thanks, Hassan. Fair point from your side. But as we kind of think about the guide, what we gave at the beginning of the year and where we are, there's a lot of moving pieces, as Mark said, from a macroeconomic perspective that we kind of reflected into this. But overall, if you look at from the business-to-business perspective, as I said earlier, TiO2 is probably a little weaker than what we thought at the beginning of the year. And TSS, of course, given the performance we saw in Q1, it's going to be at a better place than what we had when we gave the guide at the beginning of the year, and APM generally in line from where we were at the beginning of this year. So that's how you should think about the three businesses where they were at the beginning of the year when we gave the guide and now when we are reiterating the guide.

Operator, Operator

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

John McNulty, Analyst

So Mark, regarding TSS, you mentioned that you anticipated strong demand in the second half of the year due to the upcoming reduction in HFCs in 2024. Your volumes were quite robust in the first quarter. Are you observing any earlier demand than expected for Opteon in some of your HFOs before that reduction, or is this driven by other factors?

Mark Newman, President and CEO

Yes, John, what's driving volume in Q1 was the strong automotive sales rate that we observed. Auto volumes were robust in both Europe and the U.S. Looking at the full year, one key question is where auto volumes will go. Clearly, automotive companies are producing cars with the supply chain becoming more normalized. However, the concern remains whether this trend will continue throughout the year due to higher interest rates. I would say our record Q1 performance in TSS is partially attributed to strong automotive demand, but it's also influenced by the ongoing adoption of Opteon in the stationary segment. Additionally, strong HFCs have benefited from an effective AIM and F-gas framework. As Sameer mentioned, TSS is off to a very strong start, and we anticipate a great year for TSS. TT seems to be starting off a bit weaker than anticipated, but with a focus on cost reduction and a gradual recovery in volume, we expect to return this business to 20% EBITDA margins by the end of the year. The team is diligently working on growth for TSS and APM while also addressing cost management in TT.

John McNulty, Analyst

Got it. Okay. And then maybe just as a follow-up on the TSS business. So the margin snapped back really nicely from the 4Q kind of the dip that we saw. I guess when I think about this business, normally, 1Q isn't the strongest kind of margin quarter just because you've got a little bit more auto, a little bit less kind of stationary. Is that the right way to think about it? And should we be expecting the margins to push higher here just given the strength in autos, which is kind of a constant price degradation story and the lack of like big refrigerant demand in the first quarter? So should we be seeing margin improvement as we kind of go through the year here? Is that the right way to think about it?

Mark Newman, President and CEO

Yes. I believe that when comparing to the fourth quarter, we previously informed you and our investors that several factors made Q4 an outlier rather than an indication of future performance. Looking at the entire year for TSS, I anticipate it to be somewhat similar to last year. As noted in the recent quarter, our margins have slightly decreased year-over-year due to rising input costs. Nonetheless, we expect this business to achieve top line growth in the low double digits along with very attractive EBITDA margins throughout the year. Sameer?

Sameer Ralhan, Senior Vice President and CFO

Yes. Thanks, Mark. John, I think, as Mark mentioned, you should consider the margin for the full year to be similar to last year. I want to highlight that in the fourth quarter last year, we had some unusual factors. However, if you consider Q4 as a whole, we always experience seasonal impacts that affect our margins. During that period, we see more sales in the Southern Hemisphere, and there was also some slowdown in the automotive sector, which influenced the Q4 margins. But overall, if you look at the first three quarters of the year, you should anticipate margins to be comparable.

Operator, Operator

Our next question comes from Josh Spector from UBS.

James Cannon, Analyst

This is James Cannon speaking on behalf of Josh. I wanted to focus more on the TSS segment and the volume aspect. It appears that your results exceeded the auto builds for the year. Can you clarify if this was due to channel fill or other factors that contributed to making the first quarter particularly strong? Additionally, how should we anticipate the sequential trends as we progress through the year?

Mark Newman, President and CEO

Yes, I would say that the automotive segment is part of our growth. However, as I mentioned earlier, there is also continued adoption in the stationary sector. As we previously indicated, many stationary original equipment manufacturers have begun using our Opteon refrigerants and blends in their products. We are experiencing the effects of this adoption on the stationary side, along with some other specialty HFO chemistry in the foam area. Therefore, the growth is quite broad-based. Yet, when it comes to our expectations, the robust automotive production certainly contributed positively in the first quarter.

Sameer Ralhan, Senior Vice President and CFO

Yes. James, the only other color I would add to, this is Sameer, is as you kind of think about Opteon Solutions, we are the Tier 1 supplier. So we have pretty much direct line of sight into the bills, and there's a limited inventory. So we see that demand pick up or slow down pretty quickly in our business.

James Cannon, Analyst

Okay. Yes. And just as a follow-up to that, if I think about OEMs kind of pulling forward adoption into the first quarter, does that offset maybe what I would think of as a normal seasonal uplift in the second quarter?

Mark Newman, President and CEO

So clearly, in our full year guide, we're being very thoughtful here not to project out Q1 overage as a full year concept. We tend to stick closer to the IHS forecast in terms of our auto outlook. So clearly, the rate of auto builds beyond Q1 could either be a positive or a negative factor relative to what we would expect in normal seasonality.

Operator, Operator

Our next question comes from Arun Viswanathan from RBC Capital Markets.

Arun Viswanathan, Analyst

I guess I have a similar question to some of those others. So first off, if you just think about Q1 north of $400 million, obviously, you can't annualize that. But Q2 and Q3 seasonally should be higher. What are some of the differences this year that you're seeing that would kind of affect the normal seasonality? And could you just remind us what was the total of, say, the one-time items in Q4 that led to that lower number?

Mark Newman, President and CEO

Yes. I think we've gone through the Q4 deltas. And obviously, if you want to talk to the IR team, they'll be happy to give you more color. I think we went through it in some detail on the last call. But clearly, I think the main delta that we're seeing as we start the year is stronger auto builds in Q1. We'll see if those persist in Q2. Europe is clearly better. Europe is feeling strong as we start the year. In the U.S., I think the outlook is more cautious, if I could use that word. And we will see how that translates into a normal cooling season with a hotter weather in the summer. So I think as we think of the year, we'll look at how the summer season plays out in terms of temperature that could affect our seasonality, along with auto builds. And then in the second half of the year, what we would be looking for are people buying ahead of the step down on HFCs to use up their quotas and so that could be a positive versus normal seasonality. I just want to reaffirm what Sameer said earlier that this is a very seasonal business. Q4 tends to be our weakest quarter. But as we said, Q4 last year had a number of items, including some LIFO items that really impacted the quarter and which we have taken you guys through before.

Arun Viswanathan, Analyst

Great. And then just on APM. You also seem to be, I guess, a little bit different from what we're seeing on the electronics side. So maybe just kind of walk through some of the end markets in APM and highlight some of the areas of strength that you're seeing and maybe weakness if there are any?

Mark Newman, President and CEO

Yes. APM consists of two distinct portfolios: Performance Solutions and Advanced Materials. Advanced Materials is more sensitive to economic fluctuations, and we have observed a decline in volume within these broad industrial applications. Additionally, we are intentionally reducing focus on certain markets to allocate resources toward the growth of Performance Solutions. In terms of strengths, our Teflon PFA is essential for any new semiconductor fabrication facilities. Despite some overall softness in the electronics sector, there remains significant emphasis on constructing new fabs for higher quality, lower node size chips, where our high-purity PFA plays a crucial role. The primary limitation for us in producing both PFA and Nafion membranes for hydrogen, where we are currently sold out, is how quickly we can increase capacity and obtain necessary permits for expansion at our facilities. There is a dynamic within the APM segment this year, where Advanced Materials are more influenced by global macroeconomic conditions, as reflected in our results from Q1, while the growth of Performance Solutions is primarily dependent on our ability to enhance capacity, which the team is actively working on.

Sameer Ralhan, Senior Vice President and CFO

Yes, I would like to add a couple of points regarding the APM segment. As we mentioned at the start of the year, this is a year of transition for APM. You can see that reflected in Performance Solutions, which is up 20%, while Advanced Materials is down 8%. Advanced Materials is more sensitive to economic conditions, so this is something to consider when thinking about the overall seasonality for the year, along with the APM transition and the full-year guidance.

Operator, Operator

Our next question comes from John Roberts from Credit Suisse.

John Roberts, Analyst

On your earlier comment about the regional mix difference with Tronox and TiO2, does that imply the U.S. went through a bigger supply chain correction? And would that be because the U.S. does tinting at the stores while ex-U.S. is factory tinted so maybe there's just structurally more channel inventory of paint that contains pigment in the U.S. versus international?

Mark Newman, President and CEO

Yes, John, I'm not sure if that's entirely accurate. What we do believe is that many U.S. customers are being a bit more cautious than they typically would at this time of year. However, we have a stronger presence in the U.S. market compared to Europe, which, as I mentioned earlier, experienced significant destocking in Q4 but has recovered well. For instance, Europe has performed strongly for us in TSS, benefiting from the robustness of that economy. Conversely, we have less representation in Europe regarding TiO2 compared to some of our other multinational competitors. Therefore, I think the situation is more about Europe's strong recovery and a degree of caution in the U.S. There may also be some differences in market exposure between coatings and plastics, for example.

Sameer Ralhan, Senior Vice President and CFO

Yes, John, this is Sameer. I would ask you to consider the bigger picture here. It's quite straightforward in our view because it’s largely a timing issue. Europe entered a recession earlier and has started recovering, as we noted even in the fourth quarter of last year. So while Europe is on the mend, the U.S., where we have greater exposure, is becoming more cautious as we assess the effects of the financing markets on the construction sector. Therefore, I suggest we approach this more from a broad timing perspective rather than focusing on any single product or channel.

John Roberts, Analyst

Right. And then secondly, are you seeing any TiO2 customers exit the price stabilization contracts and go back to less formulaic pricing?

Mark Newman, President and CEO

No. I'd say our contracts remain in place. And as I've said many times, we have had no major customer exit any of our major contracts.

Operator, Operator

Our next question comes from Vincent Andrews from Morgan Stanley.

William Tang, Analyst

This is Will Tang speaking for Vincent. Referring back to an earlier question, you mentioned that the destocking observed in EMEA and China has mostly concluded. Does this imply that if the macroeconomic environment weakens from this point, you would anticipate an increase in TiO2 volumes, specifically your TiO2 volume, in order to align with the targeted sell-in and sell-out rates?

Mark Newman, President and CEO

I'm not sure I fully understand the question, but I think our expectation is we'll continue to see a gradual recovery in TiO2 volumes throughout the year and sequentially going from Q1 to Q2, double-digit volume growth.

Sameer Ralhan, Senior Vice President and CFO

Yes. And also, as you kind of think about our TVS customers, right, where the incentive to build the inventory as they were going to talk about in the past, is lower as these are percent volume commitment. So I think the volume that you're going to see pull through from them is going to be more representative of their demand.

Mark Newman, President and CEO

I believe our auto build forecast for the year is linked to IHS. We have observed strong auto builds from the start, and there is an indication that they will remain robust as we move into April. This could serve as a beneficial factor for us. Additionally, when comparing electric vehicles to internal combustion engines, the charging capacity of EVs is greater. Therefore, the increasing adoption of EVs positively impacts our business. We will provide more detailed information on the overall EV mix as it expands over time. It's important to note that the charging capacity in an EV is larger compared to a traditional internal combustion engine, which uses a heat pump to warm the cabin during winter.

Operator, Operator

Our next question comes from Matthew DeYoe from Bank of America.

Unidentified Analyst, Analyst

Yes, I’m speaking on behalf of Matt. First, I’d like to ask about your TiO2 margins, which have increased by 11% but are still lower than some competitors. Can you explain whether this is primarily due to differences in vertical integration or if there are other structural factors contributing to Chemours' lower margins? Additionally, you previously mentioned focusing on closing the Titanium Technologies segment. Could you elaborate on the initiatives you are undertaking in this area?

Mark Newman, President and CEO

Yes. So clearly, we're not happy with our current margins. And as I said earlier in the call, have a keen focus on the cost side of that business as we go through the year with the expectation that we'll exit the year at 20% EBITDA margins based on both a gradual volume recovery, and the work we're doing on the cost side. Denise Dignam who's come into the role of TiO2 President, or TT President, has a really good track record of being focused on the cost side of the business, which he did in APM. And so I think Denise and the team are really focused on how we drive that business forward. The other thing I would tell you is we're clearly adjusting our capacity to be more in line with the volume in the market with the focus on running the business on a full year for cash flow. So I'd tell you, I don't know if margins are always comparable when you have a mix of, say, mining and pigment, but also when you look at how you're running the circuit with a focus on cash generation. So listen, there are a number of differences. I would say, let's focus on our margins. We're not happy at the 11% level. And the team under Denise's leadership is focused on improving the margin as we move through the year with a target to exit the year at a 20% EBITDA margin.

Unidentified Analyst, Analyst

Perfect. And as a follow-up, I want to ask a little bit about your agreement with TC Energy on a couple of green hydrogen plants. If you can provide a little bit more detail regarding the investment size, the size, I guess, of electrolyzers, the hydrogen capacity. And just trying to understand, will all of this hydrogen be used by Chemours to kind of decarbonize your own product? Or do you see yourself participating in selling green hydrogen to others as well?

Mark Newman, President and CEO

We are very excited about our involvement in renewable hydrogen, which we believe plays a significant role in decarbonizing global economies, and we aim to lead by example. We are collaborating with TC Energy as part of the ARCH2 Hub application, a demonstration hydrogen project in West Virginia where TC Energy is a partner. Our agreement with TC Energy includes supplying Nafion membranes for the electrolyzers used at these facilities, and we plan to utilize some of the hydrogen produced at these West Virginia sites in our own plants, as part of our commitment to decarbonization. Recently, we received two Department of Energy Awards for our efforts to enhance the sustainability of our plants. We are on track to achieve a 60% reduction in absolute greenhouse gas emissions by 2030 through various initiatives, including this collaboration, across all our plants. We are thrilled about the project and the memorandum of understanding we just signed with TC Energy, who is also a partner in the ARCH2 Hub submission to the Department of Energy.

Operator, Operator

Our last question comes from Laurence Alexander from Jefferies.

Laurence Alexander, Analyst

You mentioned the potential pull forward in refrigerants ahead of the step down. How much of an impact do you think that would have on your volumes after the regulation change?

Mark Newman, President and CEO

We will have to wait and see what kind of summer we have. My sense is that the step down is likely to generate some level of buying activity as people assess how much of their quota they have used this year, considering the demand this summer and how much they have left to utilize by the end of the year. In a market with volume restrictions based on quotas, this could lead to stronger prices in the second half. It might also affect seasonal demand patterns throughout the year regarding HFC demand as people evaluate their quota usage against actual market demand. We will need to wait and see, but overall, it should have a positive impact on the business ahead of the step down next year.

Laurence Alexander, Analyst

Great. Can you provide an idea of the difference between Opteon's current position in both mobility and stationary applications and what full market penetration looks like? How much of an increase in EBITDA do you expect before reaching just trend growth?

Mark Newman, President and CEO

Yes. Laurence, I wouldn't step away from our sort of long-term guide that we gave in our Investor Day. This is a high single-digit top line CAGR with EBITDA greater than 30%. Clearly, as we said in this call, we are expecting overall margins to be close to where they were last year on a full year basis. But our long-term guide would be, with that in mind, that this is a business with robust top line growth and the team very focused on making this both a high-margin business and a high cash conversion business as we move forward in time.

Laurence Alexander, Analyst

Okay. Great. And then just lastly, there's a large chunk of fluoropolymer and related chemistries market share available after 2025. Can you give a sense of how much of that Chemours should be able to pick up? And do you need to do any investments in 2024 on either in terms of new formulations, qualifications, customer service cost or CapEx to pick up that share?

Mark Newman, President and CEO

Yes. Laurence, it's a great question. We obviously believe that fluoropolymers are essential for modern living, but they are also key to renew economy whether we're talking about high-speed data, AI, electric vehicles, hydrogen. And our big investments in APM today are focused on hydrogen, where we are wanting to do a significant expansion of our Nafion membrane capacity and capabilities. We're also expanding our Teflon PFA line in our Washington Works plant in West Virginia, which, by the way, we're the only PFA supplier in the U.S. So if there's a U.S. onshoring of chips, we're key to that whole activity. So listen, the investments that we've announced today are both in Teflon PFA as well as the hydrogen facility, which we would like to cite in Villers-Saint-Paul in France, and we continue to be focused on those near-term opportunities. But the team is also very focused on debottlenecking a number of our plants. Again, whether it's demand for materials on the EV side, we're really focused on the growth in our Performance Solutions business, which as you saw in the quarter, was up 20% and really is subject to more of our ability to bring capacity online more quickly. Interestingly, Performance Solutions was 31% of the portfolio last year. In this recent quarter, it's 39%. So that higher CAGR is making the APM segment a lot more specialized as we move forward in time. And candidly, when I look at our TSS and APM business, I really would agree with the sentiment that our multiple doesn't reflect the power of the earnings of those businesses over time. So we're very excited about where we go from here, and the team is very focused on delivering.

Laurence Alexander, Analyst

Are you considering expanding into new formulations and chemical markets, or is it primarily about meeting the significant growth opportunities in your existing markets and keeping up with demand?

Mark Newman, President and CEO

Yes. The team is really focused on where we can add more value in sort of adjacent applications or provide more value in some of our downstream applications. Obviously, we're very thoughtful about potential channel conflicts. But we think there's real value in understanding how the chemistry works from all the way back from the monomer right through to the end application. And some of these are, for example, manifesting themselves in joint ventures. So we did a joint venture with FUMATECH in Germany on fuel cell membranes, where we have all the supply chain, we have all the chemistry from the monomer forward but they have a lot of expertise in membrane capacity. So we're working with them on that.

Sameer Ralhan, Senior Vice President and CFO

Yes. Laurence, this is Sameer. The only one thing I would add is as you kind of think about the growth in that business is we had a big change in strategy under Denise when he had laid out the APM business. Effectively, it's going to be market-led innovation, but we have some very unique properties that our materials apply. And as you're going to think about the market needs, it's going to be market-led innovation that's going to drive the growth of business.

Operator, Operator

And we have a follow-up question from Matthew DeYoe from Bank of America.

Matthew DeYoe, Analyst

A couple of last questions since we have some time. The first one was in the TiO2 segment, you had previously mentioned that you see EBITDA for this year kind of as a worst-case scenario of $500 million. And just given the current outlook Q1 performance, I'm wondering, is it still the case that you're targeting at the mean $500 million for 2023?

Sameer Ralhan, Senior Vice President and CFO

Yes. This is Sameer. I'll take this one. Yes, we stand by the number you had in the past that, that, hey, given all the changes and the market dynamics that we had in the business, the trough should be 500-ish is how we're going to talk about.

Matthew DeYoe, Analyst

Okay. Perfect. And the second one is in your APM segment, you're talking about higher production and raw material costs. Can you provide a little bit more color on the inflation you're seeing there, both in terms of what level of inflation and also what categories, what raw materials are still going up?

Sameer Ralhan, Senior Vice President and CFO

Yes. This is Sameer, I'll start and Mark can add color. Overall, as you're going to think about the inflation side, it really depends business to business, right, because they all consume very different raw materials. So I won't generalize over the top. But the comment I do like to make is, as we laid out in the script as well is as we progress through the year, we expect the inflation headwinds to moderate and that should really help drive the margin as well. And that's reflected in how we're going to think about the TT margin recovery as we go through the year. So overall, the headwinds are moderating quite a bit as the supply chains have eased.

Mark Newman, President and CEO

Yes. Now clearly, I'd say energy to some degree or we're seeing prices have already rolled over significantly. And as we look to the rest of the year, our procurement team is really taking advantage of a low inflation environment to drive cost improvement across the portfolio.

Sameer Ralhan, Senior Vice President and CFO

Yes. And as you kind of look at the last comment I would make is look at the earnings slides as well, right? Again, in this quarter, the pricing has stayed ahead of the costs line item as well. So we are staying super focused on the commercial side as well to make sure we stay ahead of any inflations.

Operator, Operator

We have no further questions. I would like to turn the call back over to Mark Newman for closing remarks.

Mark Newman, President and CEO

So thank you all for your interest in Chemours today. The team is remaining very focused on delivering another great year, and it's great to reaffirm our guide for the full year. And we look forward to seeing you on the road and to taking your follow-up questions throughout the day today. Thank you.

Operator, Operator

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