Chemours Company (The)

Good day and thank you for standing by. Welcome to the Key Morris Company second quarter earnings call. At this time, our participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, John Locke, BP Corporate Development and Investor Relations. Please go ahead.

Good morning, and welcome to the Chemours Company's second quarter 2021 earnings conference call. I'm joined today by Mark Newman, President and Chief Executive Officer, and Sameer Raham, Senior Vice President and Chief Financial Officer. Before we start, I'd like to remind you that comments made on this call, as well as the supplemental information provided in our presentation and on our website, contain forward-looking statements that involve risks and uncertainties. including the impact of COVID-19 on our business and 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 this presentation. With that, I'll turn the call over to our CEO, Mark Newman, who will review the highlights from the second quarter. Mark?

Thank you, Jonathan, and thank you to everyone on the call for joining us today. I'm excited to be speaking to you today on my first earnings call as CEO of the Chemours company. It's a busy time here at Chemours, but the energy I feel from our people, from our customers, suppliers, and investors is so incredible. This has been in part driven by the broader macroeconomic recovery from COVID-19. But more importantly, I think it reflects the enthusiasm and passion of our teams and a deeply held belief that our chemistry has the power to change the world. To that end, I have charged the people of this company to drive even sharper focus on creating the best products for our customers and helping solve the world's biggest challenges, from climate change to energy storage to high-speed data. Our chemistry is fundamental to the future, and through our innovation, we have the power to make a difference. There is a rich canvas of opportunity which lays ahead of us, and we are well positioned to drive long-term growth for the benefit of all our stakeholders. In 2021, we are focused squarely on delivering on our plans and ensuring that we take full advantage of market opportunities, which we are uniquely positioned to capture. Turning now to the highlights from the second quarter on chart three, demand momentum from the first quarter continued into Q2 as a global recovery from COVID-19 continued at pace. We set a number of revenue and profitability records across the portfolio in the second quarter, including achieving the third highest quarterly sales in Chemours history. Net sales increased 51% to $1.7 billion, while adjusted EBITDA of $366 million increased $200 million from the prior year quarter. Our titanium technologies results demonstrate the benefits of our TVS strategy and the continued economic recovery, driving our volumes to historic levels and supporting higher tie pure pricing across all channels. We are delivering on the challenging supply chain and logistic conditions, which is becoming a real differentiator in customer choice. The execution of TVS improves our quality of earnings through the cycle by creating mutually beneficial long-term relationships with our customers and building a better book of business. In our thermal and specialized solutions segment, we reported another strong quarter. Rebounding global markets are supporting improved volumes and higher pricing in base refrigerants. Operationally, we have recovered well from the weather impacted first quarter, which helped to support our strong margin performance in the quarter. The global transition to HFO technology is underway, with many years of growth ahead, enabled by better enforcement of FGAS regulations in Europe and the coming implementation of AIM regulations in the U.S. We have shown incredible progress in our advanced performance material segment. Demand has recovered across the majority of our end markets, leading to historic highs for quarterly sales and adjusted EBITDA this quarter. APM is transforming fast and primed to deliver. The business is delivering on proof points that support our near-term GDP plus growth ambitions. Meanwhile, we are positioning ourselves to capture secular growth over time as key trends take hold in semiconductor manufacturing, 5G communication, and hydrogen generation. I'm especially proud of these results in the context of global supply chain disruptions. which have impacted everything from the raw materials we procure to shipping containers, which we use to serve our customers. Everyone at Chemours has stepped up over the last several months to support stable operations. And I would like to take this opportunity to thank the entire team for their continued dedication to our customers. This week, We also announced the signing of a definitive agreement to divest our mining solutions business to Drozdlovsk for $520 million, or 10 times 2020 fiscal year adjusted EBITDA. With this transaction, we are furthering our strategy to focus our portfolio and drive long-term growth around our three core businesses. This was a great result for Chemours. the mining solutions team and for our shareholders. We executed quickly, having just launched the process in Q1 and anticipate the transaction will close by the end of this year. I would like to thank Jonathan Locke and all of the Chemours team involved for helping us achieve this great outcome. Before turning things over to Sameer, I wanted to cover one more topic. The most recent publication of our 2020 Corporate Responsibility Commitment Report released a few days ago. The annual publication of our CRC report has become a tradition at Chemours, which I look forward to. Four years into our sustainability journey, we continue to make significant progress against an ambitious set of 2030 goals. I'll discuss the content of the report in more detail here on chart 4. In 2018, we set out to chart a new course for Chemours and the chemical industry more broadly. We introduced a comprehensive set of goals designed to push ourselves to a higher standard. and we have been relentless in our pursuit of these goals over the last several years. As a reminder, these goals cover our shared planet, inspired people, and an evolved portfolio. When we set these goals, we weren't entirely sure how we would achieve them by 2030, but we have attacked them with the same resolve we took to the spin, our transformation, and reshaping our portfolios. As you can see on chart five, even in a year marked by COVID-19, our teams have rallied around this common cause to deliver significant progress across the board. This is so important and exciting to me because we know that priorities become clear on the times of duress. In 2020, we kept our focus on our North Star, keeping our people safe and serving our customers. but also saw to it that we continue to make progress against our CRC goals. On the shared planet, we have reduced our fluorinated organic compound emissions and our greenhouse gas emissions by 48% and 29% respectively from our 2018 baselines. We are on track to hit both our 99% reduction target for fluorinated compound emissions and our 60% absolute reduction in greenhouse gas emissions by 2030. We are targeting net zero greenhouse gas emissions by 2050. In our Inspired People pillar, I would like to highlight the increase in female representation on the senior executive team, up to 44% as of July 1st, from 13% only a few years ago. There's still work to be done to ensure our overall workforce gets to 50% women by 2030, but I am proud of the success we have had at the leadership level thus far. With respect to the ethnic diversity of our U.S. workforce, we are nearing our goal of 20%, again, with significant representation on our senior executive team. Finally, in the Evolve portfolio, Over one-third of our products, by revenue, make a specific contribution to the UN Sustainable Development Goals. As we move closer to our goal of ensuring 50% or more of our revenue comes from offerings that make specific contribution to the UN Sustainable Development Goals. The headlines are, of course, Option and Nafion. but Chemours is making a difference much more broadly across the portfolio. For all the details, please have a look at our CRC report posted on our investor relations website. With that, I'll turn things over to Samir to review the financial results for the quarter. I'll be back to talk about our revised guidance before turning to Q&A. Samir?

Thanks, Mark. Turning to Charge 6. Results in the second quarter continued the trend from Q1, with demand improving across the portfolio. Q2 net sales of $1.7 billion were up 51% year-over-year and 15% on a sequential basis. The global recovery continued to pick up steam across most of our end markets. GAAP EPS was $0.39 per share, with adjusted EPS of $1.20 per share. Adjusted EPS reflects add-back of two key charges – $169 million related to remediation of on-site water at our faithful site to address legacy liabilities, and $25 million associated with the Delaware settlement, which we announced several weeks ago. I'll cover these in more detail on the next chart. Adjusted EBITDA increased by $200 million to $366 million in the second quarter, driven by higher volumes and pricing, with currency providing a slight tailwind. Margins rose to 22% on a company-wide basis. Free cash flow in the quarter was $189 million. Our cash performance in the quarter reflects our continued commitment to improving the overall quality of earnings for the company and, more importantly, converting earnings to cash. On July 28, our Board of Directors approved a third quarter 2021 dividend of $0.25 per share. This amount is unchanged from the prior quarter and will be payable to shareholders of record as of August 16, 2021. Turning to Charge 7, let's take a closer look at the composition of the two key charges we took in the quarter, including the potential cash flow impact over time. As previously announced, we entered into a settlement with the State of Delaware in the second quarter, of which Camorra will bear 50% of the cost, or $25 million. This amount is expected to be paid in the third quarter this year. Second chart is a $169 million add-back to adjusted EBITDA related to legacy remediation at FaithfulWorks. As you will recall, our consent order with the state of North Carolina has four key elements. First, emissions to air, which we addressed with a thermal oxidizer that became operational in December 2019. Second, discharges of processed water, which we are addressing with off-site treatment. Third, treatment of legacy off-site drinking water supplies, which we are addressing in the surrounding community. And last one, remediation of legacy on-site ground and surface water contamination. The charge of $169 million that we have taken in this quarter is primarily related to our current estimate to address this last item. As you can see at the bottom of the chart, it's primarily composed of estimated cost to build a barrier wall and the long-term operations monitoring and maintenance costs. We anticipate regulatory approval from North Carolina on the design of the barrier walls during the second half of 2021 and expect construction to take place throughout all of 2022 and first quarter 2023. The bars on the right-hand side of the page illustrate the free cash flow impact of the entire faithful accrual of $355 million over 20 years. Over the next three years, Comores will spend roughly $80 million on construction and startups. Maintenance and operating costs are expected to be approximately $5 million of cash spent per year. Both of these figures assume a benefit of cost sharing under the MOU with DuPont and Coteva until the year 2040. We are proud of the work our teams are doing to ensure we live up to our consent order and enhance the sustainable manufacturing practices of the fatal work site. which we expect to continue to be a key employer in the region and will play a key role in the growth of our APM business, serving markets such as 5G and the hydrogen economy. We continue to work cooperatively with the state of North Carolina to put the final pieces of the project in place. I hope that this chart is helpful to our investors to understand not just its impact on our free cash flow, but also a clear demonstration of what we're doing to honor our commitments. Turning to chart eight, let's review the adjusted EBITDA bridge for the second quarter. The second quarter 2021 adjusted EBITDA was $366 million, up $200 million from the same period in 2020. Higher pricing in TT and APM more than offset contractual price downs in TSS. Volume was a big story in Q2 on a year-over-year basis. We delivered significantly higher volumes across all of our operating segments, led by TT and TSS. I'll cover the segment-specific drivers and provide a bit more color in a few charts. High costs in the quarter were attributable to operating costs due to production ramp-up and supply chain issues. Raw material input inflation increased costs related to environmental and legacy costs and higher performance-based compensation. We continue to operate well despite global logistics and supply chain issues. Turning now to chart nine, where I'll cover liquidity. Our cash position, liquidity, and balance sheet remain strong as we move into the second half of the year. Our cash balance at the end of second quarter was $1.1 billion, up from $1 billion in the prior quarter. We generated $256 million in operating cash flow in the second quarter, while CapEx was $67 million. We returned $42 million to shareholders in the form of dividends, repurchased $13 million of stock and reduced the U.S. dollar term loan by $23 million. We will continue to have a balanced approach to capital allocation. Net leverage improved to 2.6 times on a trailing 12-month basis, down from 3.4 times in the prior quarter. Total liquidity is solid at $1.8 billion, including revolver availability of $689 million. We continue to be well-positioned and have balance and flexibility to support our operations and supply chain to meet increasing customer demand. On chart 10, I'll cover the results and outlook of our titanium technology segment. Accelerating economic activity and normalizing seasonal consumption led to strong demand for type of pigment in the second quarter. Demand has steadily improved across all end markets, product categories, and geographies. Strong sequential volume growth reflected typical seasonal gains and progress towards our share recovery target. Our ability to meet robust customer demand was achieved despite supply chain and logistics issues around the world. Our flexible manufacturing circuit and the dedicated work of our operations, procurement, and supply chain teams led to record operating performance. Turning to the numbers, Second quarter net sales rose 76% to $859 million. Volume increased 66% versus the prior year and 15% sequentially. Price was up 5% year-over-year and improved 3% sequentially, driven by gains across all selling channels. In the quarter, we began to see the benefit of price actions taken over the preceding two quarters in flex. Pricing in a contracted AVA channel also improved, driven by both contractual and negotiated mechanisms, reflecting an inflationary global environment. Adjusted EBITDA for the segment rose 133% to $219 million, driven higher by the volume-led sales recovery. Adjusted EBITDA margins increased by 600 basis points to 25%. Embedded in our improved results were higher plant fixed costs to support volume growth, modestly higher raws, and expenses associated with supply chain disruptions. Multi-year supply contracts insulate us from short-term movements in price, but like much of the industry, we were dealing with lingering raw material shortages that forced us to operate the manufacturing circuit suboptimally to meet higher customer demand. As we look ahead, we expect continued strong performance in the second half with demand reflecting typical seasonal patterns. Our teams are 100% focused on supporting customers, increasing demand, and driving adjusted EBITDA margin expansion. Normalization of supply chain challenges will be a key component in achieving this goal. Moving to chart 11. Thermal and specialized solutions delivered a strong year-over-year second quarter, with contributions across all regions and markets driven by the economic recovery, with sequential upside driven further by strong seasonal refrigerant trends. Option adoption drove improvement across stationary and automotive markets, despite constrained automotive production from the ongoing semiconductor chip shortages. Our customers continue to select Option as the refrigerant solution of the future, and see Comores as a partner of choice. Earlier this quarter, we announced that Johnson Controls had selected Option XL41 to replace R410A in North America in HABC products and air-cooled scroll chillers. We also announced our support of the Beijing 2022 Olympic Winter Games with Option load GWP refrigerants at a number of facilities. These are great wins for the Comores Option franchise and for the planet. Looking more closely at the results, Q2 net sales increased by 47% year-over-year to $314 million and increased 12% sequentially. Volume growth led to year-over-year recovery. Price was a 3% headwind on a year-over-year basis, driven by contractual price downs in certain product categories, but rose 5% on a sequential basis. Pricing reflected improved demand conditions, including stronger enforcement of FGAS in Europe and healthier demand in the Americas. Segmented adjusted EBITDA increased 113% year-over-year to $117 million in the quarter. Adjusted EBITDA margins increased 1,000 basis points to 34% versus the prior year quarter. higher sales volumes, mix, and improve client operating rates more than offset modest headwinds from lower segment prices and higher costs needed to support higher demand. Looking ahead, we expect a continued market recovery along normal seasonal patterns. Adjusted EBITDA margins are anticipated to continue in the low 30% for the remainder of 2021. We are well-positioned to support customers' transition from legacy HFCs to next-generation low global warming potential solutions as U.S. AIM regulation accelerates opt-in adoption. EPA is working to codify standards for HFC transitions under the U.S. AIM Act, which is expected to go into effect January 1, 2022. Turning to chart 12, I'll cover our advanced performance materials segment. I would like to start by highlighting the strong performance for the segment, which just delivered its highest quarterly net sales and adjusted EBITDA in commerce history. The segment continues to benefit from strong demand, with strength in our electronics, communications, industrial, and transportation markets. Logistics and raw material availability challenge our ability to meet demand in this quarter. It's a testament to our employees and the collaboration of our suppliers and customers that enabled us to achieve the results we share today. We continue to drive pricing actions at the customer and product level, which can sometimes be muted by mixed effects across our diversified product portfolio, as was the case this quarter. Given the specialty nature and high-performance characteristics of APM products, we work with our customers to ensure that our pricing is reflective of the values they provide. Net sales improved 24% year over year to $362 million, driven primarily by 19% volume growth. Segmented adjusted EBITDA was $74 million, a 76% increase over last year's second quarter of $42 million, and a notable 45% improvement sequentially. The sequential EBITDA growth demonstrates the operating leverage of this business and highlights the long-term potential of our top-line growth journey. Adjusted EBITDA margins of 20% improved 600 basis points versus the prior year quarter, exceeding our initial expectations and previous guidance for high themes margins, despite being weighed down by costs related to supply chain disruptions and higher performance-based compensation. Looking ahead to the rest of the year, we anticipate strong customer demand to continue to drive growth on a year-over-year basis. We believe full-year adjusted EBITDA margins will be in the high teens percent range, and we remain committed to achieving low 20% in 2022. Moving ahead to our chemical pollution segment on chart 13, second quarter net sales were $94 million, an increase of 15% year-over-year, inclusive of a 17% portfolio impact from the shutdown of our annulment business last year. 26% year-over-year volume growth was driven by a continuation of a robust demand in sodium cyanide and glycolic acid products. We expect momentum to continue in mining solutions with steady improvement in the core mining environment, and the demand for glycolic acid is expected to remain strong as well. Adjusted EBITDA was $19 million for the second quarter of 2021, with modest cost headwinds from logistics and supply chain considerations offsetting a better sales performance. With that, I'll turn things back over to our CEO, Mark Newman. Mark?

Thanks, Samir. We are updating our guidance for the full year to reflect the momentum we feel across the business. We now believe that our full year 2021 adjusted EBITDA and adjusted EPS will be in the upper end of the previously communicated range. Recall that we had raised both of these figures during our Q1 earnings announcement. We are leaving our free cash flow guidance unchanged at greater than $450 million to reflect the impact of one-time cash payments in the year. including our Ohio MDL payment earlier in the year and a recent settlement with the state of Delaware, which Samir took us through. Operating cash flow continues to be strong. This outlook, of course, excludes the impact of the mining solutions divestiture that we just announced. We believe we are well set up for a great 2021. and will continue to focus on executing our differentiated business strategies throughout the year. We remain fully committed to generating significant earnings and free cash flow through the cycle, improving our quality of earnings over time, and maximizing the value of Chemours over the long term. In July, we celebrated our sixth birthday as a company. It's hard to believe how quickly the time has flown. We have achieved a lot in the last six years, and our bright future is built upon the strong foundation we have laid as a team. It all starts with our people, the 6,500 employees of Chemours who I am so proud to lead. I look forward to continuing our great work together. As CEO, I promise to lead with an eye toward helping each of you succeed and enjoy a rewarding career at Comoros. Together, we must continue to move fast and with the entrepreneurial spirit that has served us so well since then. As I think about the future, it is impossible to ignore the macro trends and the context in which we operate. As a chemical company with a long and proud heritage, we are the foundation for innovation around the world. Improvements in the performance, environmental footprint, and cost of our products has a multiplier effect well beyond Chemours. Option and Nafion are just two examples of how Chemours chemistry can change the world. We will continue to deliver market-leading improvements in our industry to help power the future. I look forward to engaging with you, our investors, over the coming months to help you see the full potential of this company through our eyes. I believe the future is bright here at Chemours and I appreciate your support in helping us achieve all that we're capable of. With that, operator, please open the line for questions.

At this time, if you would like to ask a question, press star one on your telephone keypad. Again, that is star number one. Your first question is from John Minotti with BMO Capital Markets.

Yeah, good morning. Thanks for taking my question. Maybe a quick or relatively easy one to start out. On the TIO2 business, you commented in the release that you saw pricing across all channels. Can you maybe unpack that a little bit for us and speak to the pricing trends that you were able to capture in the TVS side of the business, the contract side of the business, and then maybe give us a little bit of color as to what you were seeing in the portal and distributor side? Mm-hmm.

Yeah, good morning, John. And really a great interest in supply from our Type Pure franchise throughout the quarter. You know, as we've said, we adjust pricing regularly on our Flex portal and through our distributor channel. And as well, there are mechanisms to pass on price increases contractually through our ABA contract. So, you know, we're seeing you know, clearly with our strong production in the quarter, an ability to supply more product through our flex and AVA channels. But we're also seeing an ability to take price based on our contractual arrangements and where PPI is coming in this year. Maybe on PPI, I think the view is, you know, we'll see mid to high single digits this year. These are through published indices. But again, that's the primary mechanism in ABA, and we continue to take advantage of that contractually.

Got it. That's some helpful color. And then thinking about the TSS segment, It sounds like the AIM Act is going to be certainly a sizable contributor to growth. Can you help us to quantify how additive that will be as you look to 2022 when it first gets initiated into the U.S.?

So, first of all, we're very excited about the AIM Act and the of the EPA regulations that are being designed and should be finalized later this year. And we believe that will provide a significant leg of growth in the stationary market for Optian especially. And our expectation is the initial step down from a quarter perspective is approximately 10% from the baseline. That jumps up to 40% from the baseline by 2024. So our expectation is we'll start to see some impact in 2022, but that impact will become more significant as people migrate to HFO technology. Clearly, as you heard in the call, we have OEM manufacturers who are already switching their product line. So that, along with the mechanism on the will really drive demand.

Great. Thanks very much for the caller.

Your next question is from Bob Cort with Goldman Sachs.

Thank you very much. Good morning. Mark, I was wondering, you guys talked about sort of flexing your circuit in TT in order to meet customer demand. I presume that to mean higher grade, more costly ores. I'm wondering if you could help quantify what the penalty on margins was. Or maybe as you look forward, how much more margin uplift you might expect in TT?

Yeah, I'll ask Samir to make some additional comments here. But as we look at the year, clearly there is operating leverage in our TT business, which you see with the margin expansion going from Q1 to Q2. We are having to give up some expansion in margins. really to focus on meeting, you know, strong customer needs and addressing all of the supply chain disruption. So as we said earlier in the year, you know, we've really not been able to, quote, unquote, optimize the circuit given strong demand and, you know, our desire to meet customer needs first. But as we work through the year, I think we continue to look for opportunities to optimize some areas. Yeah, thanks, Mark.

Bob, you know, only additional comment I would make is as the war markets have normalized, there will be an opportunity for us to optimize the circuit and drive the margins up. But given how the supply chain is lined up right now, we expect it to be more of a Q4 phenomenon than Q3 phenomenon.

So Q3 margins should be in line with where we are in Q2.

Got it. And then in APM, you know, you had a very respectable improvement in margins, obviously a lot of volume recovery and fixed cost leverage coming through. Kind of surprised with that kind of volume cadence, there was no pricing. So can you talk about the competitive dynamic there? I would have suspected that maybe broadly pricing across that franchise would have improved. Thanks.

Yeah. These are high-value-in-use polymers, and they're priced, for the most part, based on value-in-use. There is a bit of a mix in that, but you have a strong economic recovery like we're seeing. towards sort of the more commoditized end of the spectrum. So I would say there's a mixed impact there as well. And then finally, we're taking price through the quarter, but you'll see the impact here as we move forward through time of that showing up more in our results.

Great. Thanks for the help. Thank you.

Your next question is from Josh Spector with UBS.

Yeah, hey, guys. Thanks for taking my question. I guess when you talk about and key out to normal seasonal trends in second half, can you just give us some more color on if that's a function of demand or more supply constraints? And, you know, within that outlook, where do you think your inventory is and customer inventory is in the year at this point?

So, you know, we continue to see strong, second half demand across all of our businesses, including in TIO2. And clearly, as we've stated, we're taking action to be able to supply our customer needs. As we look at inventories across, especially in TIO2, you know, our sense in talking to our customers is inventories remain low. And, you know, below where folks would like to see them in the in the entire supply chain. As we look into 2022, clearly we see the potential impact of the stimulus coming. That's usually a high correlation to strong PI2 demand. So looking out today, we certainly see very strong second half demand. Some of it is primary demand. Some of it is really a preference for Tide Pure and the TBS strategy and us taking share. And then as we look beyond 2021, clearly, you know, we could see the impact of the stimulus and rebuilding inventory.

Okay, thanks. I appreciate that. And, you know, in your slide on your outlook, you talk about the majority of free cash flow being returned to shareholders, which isn't a change from how I talked about it previously. But you have a high-cash position now. You're getting more cash from mining solutions. So how quickly do you return that cash to shareholders and what's the right level of cash that you think you should be holding on a normalized basis?

So maybe I'll ask Samir to comment on the right level of cash. But clearly, you know, as we said in the call, we view our capital allocations as being balanced. There's a certain level of deleveraging, which we think is prudent. you know, from our learnings coming through the depths of the COVID-19 pandemic. And then we continue to return cash to shareholders through dividends and stock repurchases, which we started in the quarter. So we're going to have this balanced view going forward while we continue to reinvest prudently in the business. Samir, I'll ask you to make a few comments. Yeah, thanks, Mark.

with respect to the mining solutions point that you made, I think the way you should be thinking about is the proceeds of mining solutions, of course, give us a little more degrees of freedom, but proceeds of mining solutions combined with a strong operating cash flow will be used in mining with a capital allocation policy and debt agreements. So you'll see us using it in a balanced form, and that is composed of debt reductions, investments, and share buybacks.

Okay, thank you.

Your next question is from Matthew Leo with Bank of America.

Matthew Leo Hi. So, it looks like price declines in TSS are starting to moderate a bit. Is there any real tangible evidence that illegal refrigerant trade into Europe is slowing, or is that more a function of just perhaps the shipping constraints we're seeing more broadly? And if it is the former, how can you expect pricing to develop in that segment? And, you know, when, theoretically, if it's possible, would we see, you know, that royalty income flow back to the company? Is that, you know, still kind of out of the question?

So, Matt, you know, we remain very positive on our outlook for the TSS business. It's a multi-year secular growth trend with both Epgams and Deems. As to your question on pricing, you know, we have cost downs in some of our large OEM contracts, mainly on the automotive side. But across the rest of the portfolio, it's really driven by market dynamics. You know, as we said on earlier this year, we see improving market dynamics in both North America and in Europe. In Europe, if you read the polling post, you'll see that there's been a higher pace of significant seizures of illegal refrigerants. And as we said earlier this year, it's a combination of economic recovery, higher base refrigerant prices, and enforcement that really is driving a better market tone. So the overall pricing performance in the quarter is a function of you know, better fundamentals in North America and Europe, along with our cost downs that we have in some of our large OEM contracts.

Just one more point, if I would add, is Matt's point on the royalty sales. I'm assuming you mean quota sales. Effectively, the way you should think about this thing is, Alicia and team, you know, this is looking at the full trade, you know, spectrum. This can be monetization of the CO2 equivalents. It can be through quota sales or product sales. So, It doesn't have to necessarily come through the quota field. We optimize it across the portfolio.

Okay. And one more, if I can. Does the TVA and flex portal mix in 2Q shift back to more normal levels? Because it seemed like 1Q was pretty contract heavy. And I guess of that 15% quarter-over-quarter increase in TAO2, how much of that was the flex volumes?

So I think what we said on Q1, what we said earlier is, you know, we've decided to take our share of ABA contracts, you know, up towards 70%. You know, we had previously been closer to 60%. And that really is part of our strategy by Ed Sparks and the team in really – making the business more sticky, building a better quality book going forward with long-term contracts, and customers coming back to Chemours and wanting us to supply them. So we've leveraged a very tight market to build out our ABA book. So, you know, that's really where we are today. Our expectation is we would like to stay in that range of about 70%. because we want to be able to supply all of our ABA customers. Most of these contracts, as you know, are based on some share or share commitment, so we have to grow with our customers and be able to support them. We are very dedicated to all three of our channels as part of our TVA strategy, and we really view flex and distribution as a way of making sure we can serve all our customers' needs.

Okay, thanks. And your next question comes from the line of Hassan Ahmad with Element Global.

Morning, Mark. Mark, obviously very strong volumes within titanium dioxide, you know, great 15% sequential gains and the like. Now, you know, we know obviously you guys had commented on regaining pretty much all your lost market share by year end. So I'm just trying to figure out where we stand with regards to sort of regaining that lost share. Have you guys played catch up as yet? And I guess where I'm going with the conversation is, how should we be thinking about volume growth in the back half of the year? Do you feel that you will grow at a more rapid rate in the market?

You know, I would say we, based on our assessment, and it's a market that we'll have to look at where everyone reports in the quarter, but certainly based on our assessment today, You know, our view is that we continue to regain share. And, in fact, you know, I think it's very likely that we have recaptured, you know, all the share that we lost in implementing TBS. And, you know, with respect to the second half, I'd just say, you know, we see strong demand in the second half. Our team is very focused on being able to supply that. from both a supply chain and operations perspective going forward.

Understood, understood. And now sticking to TIO2, more on the raw material side of things, you know, obviously on the ore side, we've seen sort of supply issues, be it in South Africa, be it in Sierra Leone. And, you know, it seems some of these issues will linger on for a while. So how are you guys thinking, particularly as you look at 2022 and contracts get reset and the like, How are you thinking about availability as well as pricing for ore? And, you know, part and parcel with that, you know, it seems chlorine supply now is becoming a bigger issue as well, and chlorine prices obviously marching up as well. So, you know, what's the thought process over there, and how do you feel about that market as well?

We remain well positioned with respect to our supply of all of our inputs to meet our customers' needs for 2021 and continue to work on our book for 2022 based on our outlook today. So clearly, as I mentioned earlier, some of the supply chain factors, whether it's availability or other inputs, is really having the impact that we can't optimize our circuits to optimize margin against such a high demand that we're seeing. Our focus really remains on supplying our customers. This is a huge part of our value proposition, and it's a strengthening part of our franchise as we regain shares. So this has been the focus. Our view is that things moderate going into the second half and into 2022. Some of these disruptions will be transitory, and we'll be able to optimize our circuit more fully. So, Mehran, if you have any other comments. No, thank you, Mark, just as well.

As Mark said, all the raw materials that we secure, we secure it from diverse set of suppliers on long-term contractual basis. We make every effort to ensure that these are staggered and that includes or entering.

Very helpful. Thanks so much, guys.

Your next question is from Vincent Andrews with Morgan Stanley.

Hi, this is Steve Haynes on for Vincent. Staying on TIO2, I was wondering if we could just talk a little bit about demand trends in China and whether you're seeing any types of slowdown or if it's remaining strong and any additional comments that you might have on export outlook. That would be great.

On our TIO2 demand, we're seeing strong demand across really all of our product lines and in every region. We continue to have a great franchise in China, which is growing. So with respect to exports from China and Chinese producer market share, our assessment is it's actually declined this year based on inability to supply the market needs.

Thank you.

Your next question is from Arun Biswathan with RBC.

Thanks for taking my question. I'm just curious, could you comment on the disruptions and supply chain issues for TTE? Any impact as that flows through for you guys? Would that be positive just given your flexibility to source from several areas? Thanks.

Yeah, as we said earlier, we source all of our major inputs very strategically. We have long-term contracts. We diversify our supply base. As Samir said, we ensure that they're well-layered so we don't have too many contracts expiring at any one time. And with that, we remain well-supplied despite a lot of challenges from a supply chain perspective. The main impact it's having on our business is our inability to, say, optimize our shortcuts to drive production, let's say, from our lowest-cost plants to optimize or blends, that sort of thing. But these, in our view, are transitory aspects. We continue to evaluate. And the team has just done an amazing job from procurement, supply chain, operations, and customer service to ensure we continue to meet customer needs to the best ability.

Okay, thanks for that. And just similarly, Over on the mobile side for refrigerants, would you expect, you know, some extra catch-up next year due to the shortage over there? Thanks.

Yeah, that's probably – that's a great question. And, you know, that's one of the areas where we've seen some noise in our Q2 results and expect to see some, you know, as we move through the rest of this year. Most of the other OEMs are indicating to us that to the extent they can, they will try to catch up in the second half of this year. Diva inventories remain extremely low based on all the public data that we're reading. And so our expectation is, you know, the demand from an auto perspective, you know, will go well into 2022. as OEMs try to rebuild dealer inventories and really respond to very strong customer demand for new vehicles. Thanks.

Your next question is from PJ Ubicar with Citi.

Hi, good morning. It's Eric Petrione for PJ. Hi, Eric. How did your Naceon ion exchange membranes grow in the quarter of first task? Are you seeing greater demand flow from electrolyzers or hydrogen fuel cells currently?

You know, we continue to see growth across all of our APM segments, including Napion. You know, as we highlighted in our APM deep dive earlier in Q2, you know, we see this business kind of in three phases. One, where we are today is a pretty significant turnaround as you saw with the expansion of margins in the quarter. The second is really a GDP plus growth, you know, through product development across the entire portfolio. And then thirdly, you know, the focus on secular growth, you know, as we move towards the middle of the decade around hydrogen and 5G. So we're spending a lot of money today in that business on product development and working within the ecosystem of the hydrogen economy to tie ourselves in very well with both the growth in membranes for electrolysis and fuel cells. So a lot of work going on there, and we continue to see improvement in that business, but that really becomes the secular growth that starts I'd say toward the middle of the decade.

Okay, helpful. Just secondly, you announced, I think, groundbreaking of a new mining facility for titanium ores in Florida. Will that increase your backward integration into ores, or is that to replace declining production at other sites?

That's primarily to replace other mines that are end of life in Florida. So, you know, our view is continues to be approximately 10% integrated based on our Florida-Georgia complex mining. But great ore bodies and great supply given all the supply chain risks that we're seeing today.

Thank you, Mark.

Thank you.

And your final question comes from Roger Spitz with Bank of America.

Thank you. Good morning. First is, mining solutions, would you be prepared to provide us LTM June 21 sales and EBITDA, recognizing that the business has materially improved since the 2020?

I'm not sure I heard your question. Could you repeat it for me, please?

Of course. Would you be able to provide mining solutions LTM, June 2021, sales and EBITDA.

Yeah, Ron, this is Samir. Why don't I jump in? As you know, we don't disclose that, but overall, if you think about the mining solution business, based on the commentary in Q1 and Q2, yes, we have seen, you know, strength in the business on a year-on-year basis, but I would, you know, the increase is not such in the earnings that you would expect, the material change in the multiples, that's where you're

we got a 10 times rate, even if you look at it on LTV.

Got it. And secondly, you spoke about normal seasonality in Q3 for TR2, but would you prepare to give any view of, you know, what that year-over-year TR2 violence for you guys might look like?

No, not really. What we've said is, Normal seasonality, but very strong second half demand.

One more point I would add is, Roger, at this point, you know, the edit team are running the circuit kind of flat out, given the open sort of issues that some people have raised already on the call. So at this point, our circuit is running flat out. As we kind of get into Q4, we'll get an opportunity to optimize it further, as Mark said earlier in the call. So at this point, it's all about meeting the customer needs that we have.

Got it. Thank you very much.

I'll now turn the call to Mark Newman for closing remarks.

Thanks, everyone, for being with us today. When I reflect on the quarter and where we are here today, I'm just very thankful to our 6,500 amazing employees for so many achievements, responding to really strong demand, meeting our customers' needs, going after secular growth, especially in our two floral businesses, you know, looking for opportunities to selectively resolve legacy liabilities and, you know, our progress on our corporate responsibility commitments. And we're doing this in an environment that's challenging. And, you know, we continue to delever the company. We continue to return cash to shareholders. So just for example, for the focus, the execution, and the accountability of the team. And we remain, as I said earlier, focused on delivering a great 2021. So thank you.

Ladies and gentlemen, this concludes today's conference call. Please disconnect.