Earnings Call Transcript - CC Q1 2026

Operator, Operator

Good morning. My name is Michelle, and I will be your conference operator today. I would like to welcome everyone to The Chemours Company First Quarter 2026 Results Conference Call. I would like to remind everyone that this conference call is being recorded. I would now like to hand the conference over to Brandon Ontjes, Vice President, Head of Strategy and Investor Relations for Chemours. You may begin your conference.

Brandon Ontjes, Vice President, Head of Strategy and Investor Relations

Good morning, everybody. Welcome to The Chemours Company's First Quarter 2026 Earnings Conference Call. I'm joined today by Denise Dignam, Chemours' President and Chief Executive Officer; and our Senior Vice President and Chief Financial Officer, Shane Hostetter. Before we start, I would 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 this call, we 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 is included in our press release issued yesterday evening. Additionally, we posted our earnings presentation on our website yesterday evening as well. With that, I will turn the call over to Denise Dignam.

Denise Dignam, President and Chief Executive Officer

Thank you, Brandon, and thank you, everyone, for joining us. During today's call, I will begin by discussing highlights from our recent performance before turning it over to Shane, who will provide details around our outlook for the second quarter of 2026 and some commentary on the remainder of the year. Finally, I will provide updates on our meaningful progress against our Pathway to Thrive strategy and current view of our operating environment before taking your questions. We started 2026 with strong results, delivering the first quarter that was well above earnings expectations and showcased the strength of Chemours' disciplined execution and strategic focus across the company. Both Thermal and Specialized Solutions and Titanium Technologies delivered standout performances with TSS not only achieving another quarter of double-digit year-over-year growth in refrigerants, but also excelling in quota execution and capturing additional opportunities in refrigerants through sharp market focus and agile commercial execution. TT also exceeded our earnings expectations, driven by global pricing actions, strong commercial discipline across all regions and customer segments and continued operational focus. In Advanced Performance Materials, the business worked to quickly stabilize operations following the Washington Works outage and saw the same strength in our Performance Solutions order book, especially in high-value data center and semiconductor markets. Adding to the strong performance and aligning with our efforts to improve our balance sheet, we completed the sale of nearly all of our Kuan Yin properties ahead of schedule and promptly used the available proceeds to pay down a meaningful portion of our near-term debt, further strengthening our balance sheet and enhancing Chemours' financial flexibility as we look ahead. We remain on track to complete the sale of the remaining parcel of the land in 2026, which should provide an incremental $60 million of gross proceeds. This development followed the $700 million refinancing completed in March of our 2027 unsecured notes and a portion of our 2028 unsecured notes, extending these maturities out to 2034 and increasing our balance sheet flexibility. Let me expand a bit further on the quarter's business activities. Our TSS business delivered a record first quarter with continued strength in both Freon and Opteon refrigerants, driving double-digit year-over-year growth. Net sales for TSS increased 22% versus the prior year quarter, largely driven by higher pricing, stronger volume growth and a favorable product mix across refrigerant markets. Pricing benefited from automotive aftermarket refrigerant sales in North America and Opteon blends, while overall volume growth was supported by seasonal strength. These top line results translated into record adjusted EBITDA for TSS in the quarter, with margins expanding to 33% and reflecting strong pricing realization for Freon and an improved Opteon blend mix, while higher input costs, particularly R-32, created some offset. These results underscore the power of our commercial execution and disciplined quota management. Sequentially, net sales increased 28%, consistent with the typical seasonal ramp we see across refrigerants and pricing strength in certain products. For our TT business in the first quarter, the team executed well amid a challenging market environment. We experienced continued global stability and observed solid seasonal demand improvement in North America and Europe. However, lower volumes and less favorable product mix in certain non-western markets offset these gains, resulting in reduced global volumes overall compared to the prior quarter. While volumes trended down sequentially, net sales finished within our expectations due to disciplined global pricing execution. Notably, adjusted EBITDA exceeded our expectations, driven by our pricing actions, along with strong cost management and our focus on securing supply and input optimization. In line with our efforts to improve security of supply and input optimization, we signed a long-term chlorine supply contract with a third-party chlor-alkali producer to service our DeLisle site starting in 2028. This agreement ensures a reliable supply at value-accretive economics, strengthening DeLisle's global competitiveness and supporting our operational excellence focus under Pathway to Thrive. It also reinforces Chemours' commitment to being one of the lowest-cost chloride TiO2 producers worldwide. While we had previously announced our intention to pursue an on-site facility at our DeLisle site with a third party, in March, that supply agreement terminated and we will not be proceeding with that project. As we look ahead, our team remains agile and responsive to ongoing market changes and economic uncertainty. We continue to keep our manufacturing operations flexible, modifying production levels to meet shifting demand. Our pricing strategy is firmly in place as exemplified in our recent price increase communication, first in December and continued on April 1 across all key end markets. These announcements demonstrate our ability to adjust prices while consistently delivering outstanding and dependable service and quality. The first quarter's results, with pricing up 3% sequentially, reflect the initial impact of implementing these price changes alongside our progress in operational reliability, which strengthens our ability to respond effectively to shifts in market demand. APM results in the first quarter reflected both operational and portfolio-related headwinds with net sales down year-over-year due primarily to lower volumes. Overall, first quarter sales were constrained by the Washington Works outage and the prior closure of the Advanced Materials SPS Capstone line. These factors provided a difficult comparison to last year and the outage weighed meaningfully on sales and incremental costs, resulting in a $25 million headwind in adjusted EBITDA. While our first quarter performance was not what we believe the business is capable of, with these discrete events now behind us, APM is building a more effective and efficient foundation for coming quarters. Notably, our Performance Solutions order book is seeing particular strength in high-value markets, positioning APM for continued improvement as we move through 2026. Separately, our corporate level performance also showed a significant decrease in expenses compared to the same quarter last year, largely due to lower costs associated with legacy litigation activities. We remain focused on balancing the timely execution of global corporate initiatives with appropriate cash expenditures. With that, I'll turn it over to Shane to walk through our outlook for the quarter ahead and provide thoughts on what remains for 2026.

Shane Hostetter, Senior Vice President and Chief Financial Officer

Thank you, Denise, and good morning, everyone. As shared in the earnings materials available on our investor website, I now would like to discuss our expectations for the second quarter and provide some updates on our business as we look ahead. Beginning with TSS. For the second quarter, we project net sales to rise sequentially in the low- to mid-teens percent range, primarily attributable to favorable seasonal trends related to the cooling season in the Northern Hemisphere. It is worth noting that some demand and associated sales, having about a $10 million impact on adjusted EBITDA, were pulled forward into the first quarter due to timing, which modestly tempers the sequential progression we would have otherwise expected and added strength to our first quarter TSS performance. Despite this pull forward, the seasonal uplift we anticipate for TSS will be underpinned by strength across our Opteon and Freon channels. Adjusted EBITDA for TSS is also expected to grow sequentially, ranging from $210 million to $225 million, primarily driven by seasonality as well as specific opportunities our commercial team is capturing in the Freon aftermarket and continued transition to Opteon refrigents. In the first quarter and into the second, weakness in residential demand was more pronounced than anticipated. This softer demand has been largely driven by a slower start to the residential cooling season, which has delayed equipment installations and associated aftermarket activity, and is consistent with what we are hearing more broadly across the residential HVAC value chain. Specific to expectations in the first quarter and into the second quarter, overall aftermarket demand has slowed as new equipment demand has decelerated into distribution networks, an important leading indicator for downstream demand. Looking to the full year, we continue to expect year-over-year growth in the business supported by our strong market position, regulatory tailwinds and overall pricing. However, we remain appropriately cautious on residential demand segments. One other important factor to consider is that TSS is a quota-managed business. Our company can drive differentiated value through disciplined execution, allocating our available quota to the most attractive pockets of demand. While we do not expect the same year-over-year double-digit top line growth for the remainder of 2026 as comparisons begin to reflect the regulatory-driven adoption under the U.S. AIM Act that drove robust demand in late 2025, we remain bullish on the opportunity ahead as we allocate our quota to achieve optimal profitability. Overall, demand across our Opteon channels, together with continued momentum in the Freon automotive aftermarket supports the growth profile and consistent margins we outlined last quarter. For our TT business, we expect sequential net sales to increase in the mid- to high-teens percentage range in the second quarter, driven by a more favorable seasonal comparison and related pricing actions. This improvement is supported by increased mineral sales following first quarter timing dynamics related to our mining restructure as well as some strength we are seeing in our TiO2 pigment sales amid actively developing global market conditions. Our guide for the second quarter anticipates the initial effects of the price increase on April 1, as well as the continuing effects from pricing increases announced in December. These adjustments are being applied across our key end markets as contracts allow. Although global geopolitical events continue to affect supply chains and impact the worldwide TiO2 market, both directly and indirectly, we are confident that our TT business is strategically positioned to take advantage of emerging opportunities. Aligned with the current market environment and the improved agility of our operating circuit for the second quarter, we expect TT's adjusted EBITDA to range between $40 million and $50 million. Although geopolitical outcomes remain uncertain and the related market impact is unclear, recent enhancements to our operating circuit and improved visibility of order timing support the second quarter earnings. As the year develops, consistent with prior messaging, we are controlling what we can control, and we intend to stay true to our commercial strategy, which will be supported by robust pricing efforts that will continue based on our assessment of market conditions. We remain resolute in our belief that this strategy positions our TT business for success regardless of market and demand conditions. Now for our APM business. For the second quarter, we anticipate net sales to increase within the low- to high-30% range on a sequential basis, primarily due to the resumption of normal operations at the Washington Works. Specifically, adjusted EBITDA is forecasted to be between $12 million and $18 million. While sequential growth in EBITDA is expected, earnings remain in the low targeted levels as cost pressures and volume limitations related to the Washington Works downtime experienced in the first quarter continue to weigh on second quarter profitability. Although we are facing outage-related constraints, our APM order velocity has reached a level that has not been experienced in the past several years. Within our Performance Solutions portfolio, demand remains strong in the semiconductor and data center end markets, which are driving orders for our Performance Solutions products. These sectors are tied to growing and sustainable demand for APM's products and are areas where Chemours is uniquely positioned to serve these customers. In addition to our higher-value end market activity, our Advanced Materials portfolio was also experiencing strong order levels. While the industrial end markets that advanced materials generally serve remain weak, our commercial team is seeing signs of destocking for specialty materials that may have been overbought in prior years. While the impact of these demand tailwinds is limited in our second quarter outlook, we see a pathway to achieve significant second half strength while the macroeconomic environment remains tepid. On a consolidated basis, we anticipate our second quarter net sales to increase in the range of 15% to 20% sequentially with consolidated adjusted EBITDA expected to range between $220 million to $250 million. Also, we anticipate corporate expenses to range between $45 million and $50 million. Our capital expenditures for the second quarter are expected to be in the range of $50 million with free cash flow generation of at least $100 million. In connection with the strong free cash flow we anticipate for the second quarter, we expect to realize interest expense savings in the quarter as we reduced our debt by approximately $160 million. Also, we remain committed to enhancing our balance sheet flexibility, including the $700 million refinancing completed in March, which builds on the close to $2 billion of near-term debt we have addressed since the fourth quarter of 2025. We are proud of these efforts, which strengthen our balance sheet and enhance financial flexibility, key enablers of our Pathway to Thrive strategy. Turning to the full year. Despite a mixed global operating environment that includes challenging commercial end markets and overall raw material and other cost inflation, we still expect our full year consolidated net sales, adjusted EBITDA and capital expenditure forecast to align with our previous guidance. Full year free cash flow conversion is now expected to be above 20%, slightly lower than our prior guidance, driven by one-time land sale tax implications, which impact free cash flow. That said, the earlier-than-anticipated closure of the majority of the Kuan Yin parcels positions Chemours to immediately begin to deliver as we pay down approximately $150 million of our outstanding Euro Term Loan B. As we close the final Kuan Yin land parcel and repatriate the remaining proceeds expected this year, we intend to use those proceeds to continue redeeming future debt maturities — this positive development, paired with our diligent cash management activities, provides us with confidence toward achieving our liquidity objective of net leverage below 3x adjusted EBITDA. For 2026, we now anticipate our net leverage ratio will be below 3.8x adjusted EBITDA by the end of the year. Additionally, our efforts will provide approximately $9 million in interest expense savings to the company going forward annually by year-end after the referenced repayments. Overall, we started the year out well. Looking at that, we see strong pricing momentum in TT, robust refrigerant demand and operational reliability improvement across our sites, which gives us confidence to deliver a step-up performance in the second half of the year, enabling us to deliver on our full year guide. Also, we remain front-footed on our assessment of operational and commercial impacts stemming from geopolitical considerations around the globe to ensure we address inflation ahead of any financial impact as well as addressing any potential opportunities as they present themselves. We have the right team in place and a strong understanding of our customer base to achieve the goals and outlook we have laid out for the current year. Given these perspectives on the second quarter and the remaining year, I'd like to now hand the call back over to Denise to share her closing thoughts and perspectives.

Denise Dignam, President and Chief Executive Officer

Thank you, Shane. As I look across our first quarter performance, we continue to see clear progress against our Pathway to Thrive strategy, which remains the foundation for how we operate, allocate capital and create long-term value. We remain on track and are seeing tangible accomplishments across all pillars, including improved operational reliability, disciplined cost execution, targeted growth investments, continued portfolio improvement and efforts to de-risk our balance sheet aimed at strengthening the business over time. Our teams are performing effectively across all five pillars. In the area of operational excellence, we continue to integrate the Chemours Business System to implement lean principles, ensuring a high standard of consistency, reliability and cost efficiency. Although CBS was implemented earlier this year, we are already observing positive outcomes. For enabling growth, our focus remains on areas that set us apart and provide clear market advantages. This is evidenced by ongoing momentum in Opteon refrigerants, increased engagement within high-value end markets across TSS and APM and continued efforts to drive value through recent pricing strategies. For portfolio management paired with our disciplined capital allocation approach, we've improved our balance sheet with the nearly completed Kuan Yin land sale and existing cash reserves, enabling a reduction in debt that will continue through the year. We are dedicated to aggressively reducing our leverage while making steady progress and are strengthening the long-term pillar where we are progressively working to reduce our exposure to legacy matters. These efforts highlight our focus on de-risking Chemours to ensure our ability to secure our future in exciting high-value end markets and opportunities. In taking a broader view of Chemours, we are closely monitoring the ongoing conflict in the Middle East and the resulting volatility across energy markets and global chemical supply chains, which is adding uncertainty to the broader macro environment with the potential to weigh on demand, particularly in more impacted regions. To this, we are focused on actively working to mitigate cost headwinds through core price and other pricing mechanisms. As sulfur markets tightened due to this conflict, sulfate-based TiO2 producers are seeing tangible cost inflation, creating potential opportunities for those producers to respond. Chemours has decades of leadership in the titanium dioxide market with deep technical, commercial and regional expertise. As conditions evolve and potential tailwinds emerge, we are applying that experience with discipline, remaining selective and deliberate as we monitor the macro environment and act accordingly. In parallel, we are taking a disciplined approach to risk management across the enterprise, prioritizing cost control, supply chain resilience and capital allocation to ensure flexibility in this uncertain macro environment. We believe that our positioning, considering these market dynamics, provides opportunities for Chemours as we move into the second half. Before we move to questions, I want to thank our employees around the world for their continued focus, resilience and commitment. Their execution and adaptability are central to our performance and our progress against Pathway to Thrive. I'd also like to thank our customers for their ongoing partnership and trust as we support their needs across critical end markets. With a strong start to the year, the right strategic actions underway and a proven ability to execute through uncertainty, Chemours is well positioned to deliver on our commitments and drive sustained value creation for all of our stakeholders as 2026 progresses. With that, I'd like to open the line for your questions.

Operator, Operator

The first question will come from Joshua Spector with UBS.

Joshua Spector, Analyst (UBS)

I wanted to ask just on TSS and specifically in the first quarter, where you're talking about some of the benefits from the pricing step up in the Freon products into the auto aftermarket. I was wondering if you can characterize that. Was that more of a step up in some contract type structure? Or is that more of a tightening of the legacy refrigerant market? And did you expect that, I guess, when you gave your guidance earlier in the year?

Denise Dignam, President and Chief Executive Officer

Thanks for the question, Josh. From Freon, we as a business are always looking to optimize our EBITDA per quota. We do see strength in the auto aftermarket, and we are uniquely positioned when it comes to the auto aftermarket. We are one of two domestic suppliers of R-134a versus other foreign suppliers. We also have a great quoted position. There are also some constraints for other suppliers that are stemming from EPA-regulated phase down of a key raw material that goes into the process of TCE. So we see this as very sticky. Going into the quarter, we did anticipate strength, maybe not as high as it turned out to be, but we certainly expect that to continue.

Joshua Spector, Analyst (UBS)

Okay. And I guess just sticking with TSS and thinking about Q2, I think your comments clearly say you expect weaker residential OEM. I think that's the interpretation. So you're being somewhat conservative there. Does that help your view on margins in the quarter? And I guess there's just a bunch of moving parts now — costs moving up, you're trying to get pricing and generally just trying to understand kind of the margin cadence you'd expect as either OEM comes back into the mix or some other factors maybe help on the cost side as you go further through the year?

Denise Dignam, President and Chief Executive Officer

We always talk about the TSS business to be around the low-30% margin or higher, so that's kind of where we are. When I think about equipment installations in 2026, our projection is around 7.5 million units which is really low. We expect that to grow as there's more optimism around housing and a longer-term expectation closer to 9 million units. We see a lot of strength in our aftermarket positioning and a lot of growth coming from that. So we anticipate Opteon still to be a very good growth year for us.

Shane Hostetter, Senior Vice President and Chief Financial Officer

Josh, just to add as well, you mentioned Q2 guide being a little weak. I do want to emphasize, we talked about a $10 million adjusted EBITDA impact that was pulled into the first quarter. Our commercial team executed very well at the end of the quarter, and we shifted about $10 million in EBITDA into the first quarter. If you normalize Q2 for that $10 million, I think you would see more seasonal trends.

Operator, Operator

Our next question is going to come from the line of John Roberts with Mizuho.

Analyst, Analyst (Mizuho, on for John Roberts)

This is an analyst on for John. A question on APM. With the Washington Works outage and your closure of the SPS Capstone line, what should we expect to see in terms of a sustainable earnings power of the segment? And also what's the timing of this ramp?

Denise Dignam, President and Chief Executive Officer

Thanks for the question. We expect the APM business to be in the $30 million to $40 million EBITDA range, and we definitely expect to get back to that range in the back half of the year. We have a really strong order book. When you look at our Performance Solutions portfolio, it's really centered around semiconductor growth and data center. So you'll start to see that as you get into the back half.

Analyst, Analyst (Mizuho, on for John Roberts)

And switching gears here. On Corpus Christi, you shared what your playbook is if the city declares a Level 1 water emergency. What levers can you pull here potentially?

Denise Dignam, President and Chief Executive Officer

Thanks for the question. This is something that has been on our radar for the better part of two years. We've been very proactive. Right now, there is a potential for a 25% curtailment, which is potentially announced for the fourth quarter. That is already dialed into our outlook. So we do not see any hiccups from that. We also have a very robust supply chain. If it came to other knobs, we have other partners that we work with that can supply our customers.

Operator, Operator

Our next question comes from the line of John McNulty with BMO.

John McNulty, Analyst (BMO)

So I wanted to dig into one of the points that you were bringing up towards the end around some of the sulfur-related impact on other parts of the TiO2 producer market. We've seen some significant price hikes from a lot of the Chinese producers because of sulfur constraints. How do you think about your playbook as you push through the rest of this year in terms of either going after price and working under that higher pricing umbrella that some of your competitors are pushing, or going after volumes that may be left on the table if you don't raise price quite as much? How are you thinking about that from a playbook perspective? And can you speak to your ability to address some of the international markets that are starting to see some of that aggressive pricing?

Denise Dignam, President and Chief Executive Officer

Great. Our playbook is, as we've talked about before, to gain share in fair trade regions while prioritizing profitability. We came out in December ahead of any disruption and started raising prices; we were successful. You can see going into the first quarter, our pricing is up 3%, and we're going to continue to look for opportunities to raise price. We already made an announcement for a price increase of the same order of magnitude in April. We have great flexibility in our contracting around driving pricing. We'll continue to pursue share in fair trade markets but prioritize profitability and raising prices. With sulfur costs increasing, there is an opportunity for adjustments across the cost curve for producers.

Shane Hostetter, Senior Vice President and Chief Financial Officer

I would just add, John, if markets pick up and there are volume opportunities, you might remember in the third quarter last year we talked about bringing capacity down about 10% to 20% to align with demand expectations. We have a flexible operating circuit that we can bring back up to address demand as well.

Denise Dignam, President and Chief Executive Officer

Yes. Even in the first quarter, we saw volumes increasing compared to what we had expected and were able to respond.

John McNulty, Analyst (BMO)

Got it. Okay, that's helpful. And then I guess, can you just give us an update on your 2PIC solution? I think NTT was doing some heavy trials on you. I think you've also got some potential capacity coming up later this year. Can you give us an update on how that's progressing?

Denise Dignam, President and Chief Executive Officer

Yes, we're excited. Toward the end of the year we will have the capacity that comes on, and we'll be using it to sample customers as well as refine our process technology for future scale up. Regarding NTT, the 12-month field trial using our fluid was successful. There were no signs of fluid or equipment degradation. There were prospective customers and partners that have seen the fluid in action. We'll continue working with NTT and continue to expand the visibility of that technology.

Operator, Operator

Our next question comes from the line of Hassan Ahmed with Alembic Global Advisors.

Hassan Ahmed, Analyst (Alembic Global Advisors)

Shane, a question around your Q2 as well as full year guidance. If I take a look at what you guys have guided to, you're guiding to a first half EBITDA of around $404 million. If I compare that to what that implies for the back half of the year, it's essentially a range of $396 million to $496 million. I'm trying to figure out the bridge to the higher end of that EBITDA range. What gets us to that incremental almost $100 million on the higher end side of things, particularly factoring in seasonality and the like?

Denise Dignam, President and Chief Executive Officer

Thanks for the question, Hassan. Coming into 2026 we were very optimistic on growth from 2025 to 2026, and we remain optimistic. When you think about pricing, we have very strong pricing. Volumes are relatively stable and our cost actions are working. We feel good about the growth year-over-year. I'll turn it over to Shane for more specifics.

Shane Hostetter, Senior Vice President and Chief Financial Officer

Thanks for the question, Hassan. As you put the math to it, it looks like we're back-end weighted. But remember, we started out the year really slow in APM with Washington Works outages. We mentioned $25 million in the first quarter, and we also had some expense come through as well as constraints on overall sales into the second quarter. Normalizing for the second half gives a good runway to reach the balance. Outside of that, we talked about TT with strong pricing and tailwinds, and Denise mentioned the strong adoption in December and the April actions. We're controlling what we can control, operating effectively, and APM has a strong order book — the best we've seen in several years. We feel very confident with this guide. As we think about opportunities within TiO2, I think there's upside and tailwinds as well.

Hassan Ahmed, Analyst (Alembic Global Advisors)

Very helpful. And as a follow-up on the TT side of things, you commented on sulfuric acid and some of the price increases. Where do costs sit today and how does that impact the rationalization we were seeing, particularly in China? As I've run my numbers, some of the latest rounds of price hikes in TiO2 barely cover higher costs coming from higher sulfur prices. Was the state of margins for TiO2 pretty dire even prior to this run-up in sulfuric acid prices? Are a large chunk of producers still losing money despite these price hikes? How does that affect rationalization, particularly in China going forward?

Denise Dignam, President and Chief Executive Officer

Thanks for the question. Our strategy is to be a low-cost chloride producer globally, and we continue on that path. We are positioned on the left side of the cost curve. For sulfate producers, depending on how much sulfur increases, they could move to the right on the cost curve and that will influence their capacity decisions. I can't speak to every competitor's decisions, but we are clearly focused on our strategy of gaining share in the fair trade market, continuing our advocacy and being a reliable supplier to our customers.

Operator, Operator

Our next question comes from the line of Arun Viswanathan with RBC Capital Markets.

Arun Viswanathan, Analyst (RBC Capital Markets)

Congrats on the results. For TT, you're guiding to about $40 million to $50 million for Q2 EBITDA. How does that evolve as you move through the year? Are there any discrete items like cost reductions or maybe something on the ore supply side that would lift that in Q3? Or is it going to be mainly dependent on demand?

Denise Dignam, President and Chief Executive Officer

I would say that we definitely see improvement as we go through the year, and I would point to two primary factors. We are not building any volume upside into our outlook; it's really pricing and continuing cost reduction work. Our cost-out efforts are showing evidence and we saw benefits in the first quarter that we expect to continue through the rest of the year.

Arun Viswanathan, Analyst (RBC Capital Markets)

Okay. And another question on TSS. When you think about last year, you had a pretty big step-up because of quota dynamics. How are you seeing growth play out this year in TSS? In the absence of that step-up, do you still have a strong backlog catching up? Also, comment on the pricing and mix environment — will you be selling any more Freon, and would that affect the mix positively or negatively? Is the destocking all done?

Denise Dignam, President and Chief Executive Officer

Yes. We still expect year-over-year growth in Opteon and TSS. As we get to the second half of the year, we expect more normalization because of the prior regulatory-driven adoption. We see a lot of upside in the aftermarket as new equipment gets installed, and we have a very strong position in the aftermarket. Regarding Freon, we see stickiness in our pricing and volumes because of our position in the auto aftermarket. We feel very optimistic about growth for the rest of the year. As it relates to margins, we've talked about low-30% plus margins in this business, and we feel confident with that. Seasonally, Q2 and Q3 tend to be the strongest margins and we anticipate that again.

Operator, Operator

Our next question comes from the line of Pete Osterland with Truist Securities.

Peter Osterland, Analyst (Truist Securities)

I wanted to start on TT. You called out lower TiO2 sales in North America in the first quarter. Sales were down about 12% year-over-year in the region. Was that a reflection of underlying market demand, or anything to note from a customer inventory perspective? Going forward over the next couple of quarters, what's your outlook for the North American market?

Denise Dignam, President and Chief Executive Officer

Coming into the year, we projected volumes and particularly in North America, volumes were lower than we had anticipated. As we go into the second quarter, we definitely see a step-up with the coating season.

Peter Osterland, Analyst (Truist Securities)

Okay. And as a clarification on your free cash flow guidance being lower to above 20% from 25%, does that represent anything other than the tax outflow from the Kuan Yin proceeds? Any other cash headwinds you hadn't previously incorporated?

Shane Hostetter, Senior Vice President and Chief Financial Officer

Thanks, Pete. Yes, this is really specific to the Kuan Yin land sale. We have taxes that are forecasted to be in operating cash flow, whereas the Kuan Yin proceeds will be outside of free cash flow. So it's really a presentation matter. I will emphasize that 20% is a floor — we're confident in generating upside and we'll continue to focus on free cash flow generation.

Operator, Operator

Our next question comes from the line of Duffy Fischer with Goldman Sachs.

Patrick Fischer, Analyst (Goldman Sachs)

Question on the new chlorine contract. One, is it more of a cost-plus or a market-minus type contract? And two, compared to what you've paid over the last two or three years, is it a meaningful cost advantage for you when that rolls through?

Denise Dignam, President and Chief Executive Officer

Thanks, Duffy. We can't discuss specific contractual terms. All I can say is this provides secure, reliable supply at a very attractive rate. It secures our competitive position and it's very aligned with our drive to the left side of the cost curve.

Patrick Fischer, Analyst (Goldman Sachs)

On the Q1 slide deck, you called out $17 million of one-time impacts that you thought were going to happen in TT. With that quarter now done, did that come in at $17 million? Were they higher or lower? Did some of that get pushed into Q2? Can you talk about that?

Shane Hostetter, Senior Vice President and Chief Financial Officer

Thanks, Duffy. That related to some ore mix items and seasonal impacts. I would say the $17 million we anticipated did come through, though we also experienced some one-time benefits. Net, we saw slightly less than the full $17 million impact, with the offset not material.

Operator, Operator

Our next question comes from the line of Laurence Alexander with Jefferies.

Daniel Rizzo, Analyst (Jefferies, on for Laurence)

This is Dan Rizzo on for Laurence. You mentioned Freon is sticky. Will that stickiness be restocking for this year or is it a multi-year growth story? Could Freon augment Opteon as Opteon adoption slows?

Denise Dignam, President and Chief Executive Officer

We see a multi-year trajectory of strength for Freon. We manage quota to optimize margins per CO2 equivalent. We have an advantaged position in the U.S. for this product, a good quota position, and our process is not impacted by certain EPA actions. So we expect this to be persistent. The demand is primarily coming from the auto aftermarket, and with the long tail for ICE vehicles, this supports Freon sales over multiple years.

Operator, Operator

Our last question will come from the line of Vince Andrews with Morgan Stanley.

Vincent Andrews, Analyst (Morgan Stanley)

Can you comment on the TiO2 market and the potential impact to the market and to you from the restart of some Venator assets — one in Italy and one in the U.K. — which may restart at some point? What do you think that will do to the market and how will you respond?

Denise Dignam, President and Chief Executive Officer

I think there could be a small impact, but we'll see how those assets start up; they will need work to restart. If anything, we might see something next year. For the U.K. asset, our biggest concern would be circumvention of antidumping tariffs or pull-through of other Chinese volume, but we see the risk as low. We have active trade advocacy efforts to prevent circumvention and to strengthen rules of origin. Overall, we don't see this as a major impact; these are high-cost facilities to operate.

Vincent Andrews, Analyst (Morgan Stanley)

Shane, a follow-up on the cash flow. When you put out the 25% number previously, you announced the land sale. At the time, did you expect to avoid taxes on that and then that didn't play out? What happened there?

Shane Hostetter, Senior Vice President and Chief Financial Officer

Thanks, Vince. At the time we were fine-tuning the overall distribution plan out of Taiwan. The original 25% did not take into account the tax item, and the presentation changed because the taxes are forecasted to hit operating cash flow while the land proceeds are outside of free cash flow. That said, we've announced net proceeds of about $290 million and are seeing net proceeds likely a bit higher — roughly in the $310 million range net. So while the presentation changed, the overall proceeds and deleveraging impact remain strong.

Operator, Operator

And I'm showing no further questions at the time. Ladies and gentlemen, this will conclude today's question-and-answer session as well as today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.