Q3 2020 Chemours Co Earnings Call
His parents feed as you read these goals. I hope that you share my
Sense of optimism and purpose in our c r c I also hope you agree that these goals of a Hallmark of responsible chemistry and something that everyone in our industry should have said turning to the next chart. So what progress did we make in 2019? I'd like to share six of our achievements here across our three pillars, which I think speaks to the type of change were trying to drive over time starting with our inspired people pillar in 2019. Chemours us and Mexico were both certified for the second month of the year by great places to work with Tim Morris Mexico ranking in the top 50 in addition twelve chemours facilities were recognized by the American chemistry Council outstanding achievements and safety a testament to those patients who are living our holistic safety value ensuring that we have a strong culture in our a magnet for talent wage.
Chemical sector is a very high priority for me as I think about the long-term vision for chemours. The inspired people pillar is critical to ensuring that we continue to attract chain the best talent we can as a company moving to our shared Planet pillar chemours developed osteon to reduce global warming potential of refrigerants bought in 2019 Optima an adoption helped avoid the equivalent of $27 million metric tons of CO2 emissions about the same as taking 5.8 million offers off the road. I'm also proud to say that 48% of our products are sold in recyclable packaging and achievement both our customers and supply chain Partners have been excited to partner on our commitment to responsible chemistry is a promise to not only reduce our overall environmental footprint in Impact but to invent products which can contribute to a healthier world.
Finally or evolved portfolio pillar in 2019 the Society of the chemical industry America's group or FBI presenting Kimora's with the more metal name for the founder of until Gordon Moore. The award was presented to John swaran one of our technical fellows for his work on Teflon Eco Elite a plant-based durable water-repellent finish also made significant progress in 2019, baselining our supply chains sustainability performance increasing by nine fold our coverage to about 40% of suppliers buy spend.
Our progress here helps us to ensure that one day we can stand behind that's just the sustainability of our products, but the ingredients in Supply chains that are used to create them. I'm proud of the progress. We are making we are proving that big challenges can be solved by creativity teamwork and overall hard work. It's still early in our journey, but we're off to a solid start.
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Our next few earnings calls. I will share specific projects we have in the works to help us deliver on our ten by Thirty promised before turning things over to Samir. I'd like to close my introductory remarks with a quick recap of our COVID-19 response plan that we outlined earlier in the year. The core elements of this plan are one putting our employees customers and communities first to maintaining a strong balance sheet and liquidity position and three focusing on cash generation in 2012 as a company. We have been focused on executing against all the elements of this plan. And as you can see we remain on track headed into the fourth quarter on a success of this plan has required difficult choices hard work and shared Sacrifice from all corners of the Moors. So I would like to acknowledge all our team members for their contributions.
Thus far in the year with that. I'll turn things over to Samir to go over the results from the third quarter Samir. Thanks Mark. I'll begin my comments charge seven.
Second-quarter Revenue was one point two billion dollars down 11% from 2019 adjusted ebitda decline thirty-eight million dollars to $210 a month margins declined slightly on a year-over-year basis to 17% just decline in margins is primarily driven by lower margins and titanium Technologies and chemical Solutions wage actually offset by higher margins in Floral products.
Gaap, net income was $76 when adjusted net income was $78 million dollars this resulted in gaap earnings of $0.46 per share slash relative to last year and adjusted earnings of $0.47 per share free cash flow was $252 and Improvement of $92 off the same quarter in 2019.
A strong Castle reflects the impact of our cost control measures working capital discipline and Capital Management, which we announced earlier in the year given the current uncertainty in the bubble macroeconomic environment. We intend to continue on our strategy of running the business for cash through the fourth quarter finally board of directors approved a fourth quarter dividend of $0.25 per share. This is unchanged from the prior quarter and they'll be payable to shareholders of record as of November 16th, returning to chart 8th third quarter 2020 adjusted. But that was $210 down from 248 million dollars in third quarter of 2019 price was a headwind for all three segments in the quarter off on a year-over-year basis. Also on year-over-year basis volume was down in Florida products and chemical Solutions more than offsetting high volume and titanium Technologies.
Can I speak with a small benefit in?
Just a quarter primarily driven by a stronger Euro versus the US dollar lower-cost across the company and stronger operating performance and photo products combined for a $66,000 benefit in the quarter before we leave this chart. I do want to highlight that sales volume and all three segments experience very strong sequential improvements with the most significant being a 26000 sequential Improvement in titanium Technologies, the strong sequential demand resulted in an improvement and both adjusted ebitda and margins all covered liquidity starting on the next charged as Mark said in his opening remarks our liquidity position remains strong. We ended the quarter with 956 million dollars of cash on hand after using $300 to repay our question revolver draw from earlier in the year. Third quarter operating cash flow was $299 while capex was forty-seven million dollars a month.
41 million dollars was returned to shareholders in the form of dividends free cash flow was 252 million dollars a $92 Improvement in comparison to the same. Place. This is the third best free cash flow quarter since spin-off really highlighting the hard work and focus of everyone in the company to drive free cash flow on the top and volatile economic conditions. We ended the quarter with net debt of 3.2 billion dollars. We continue to believe that a balance sheet provides us ample flexibility to navigate these uncertain times and a pleased with a cash flow generation thus far in 2020.
Tony to attend our leverage profile maturity towers and Covenant head rules continue to be sources of strength for chemours, even in these uncertain times in total. We have approximately one point seven billion dollars of liquidy, including 956 million dollars of global cash and $306 in the US Virgin Islands Grand revolver has availability of $700 net of outstanding letters of credit.
Our senior secured net leverage ratio is 0.8 times and continues to be well below the two times maintenance cabinet-level.
Maturity towers of a balance and space with the nearest maturity in 2023. I'll now turn the call over to Mark Newman to cover our segment results. Thanks Amir. I'll call my remarks on Charlie 11, but let me start by recognizing The More Steam that since the first days of this pandemic have been focused on executing our response plan. I'm very proud of the team and the solid results delivered in a challenging Market environment. We are encouraged by the significant sequential Improvement in all regions and most of the segments. We recognize that we continue living in volatile times with tremendous opportunity ahead. We remain focused and confident in our ability to create shareholder value over the long term.
moving to the
Businesses the results in the floral products segment reflect the uneven pace of the recovery from COVID-19 a stronger-than-expected recovery in Auto production rates in the quarter resulted in increased demand for opt-in refrigerant in mobile applications. This was more than offset by week or month is demand due to our position further back in the supply chain and Adelaide demand recovery. In other polymer segments floral products net sales in the third quarter. We're $533 million dollars down 16% from the third quarter of 2019 pricing in the segment with a 5% headlines driven by Nick and contractual price adjustments adjusted if it came in at $112 million with marja
Of 21% reflecting a 200 basis-point margin improvement from the prior-year adjusted debit the in the quarto reflects a 15% Improvement, but an eight percent headman in comparison with the same period last year the lower net sales were partially offset by significant improvements in operating performance the ramp-up of optimum production at our Corpus Christi site and cost reduction efforts across the business with the current state of the global pandemic or floral products demand Outlook remains mixed often sales are dependent on a sustained recovery in automotive billion globally, which we believe is on the way we will continue our efforts to combat illegal Imports of Legacy refrigerants into the EU and believe that are dead.
If it's here will continue to drive long-term stationary adoption in 2020. We expanded our Market access in the fast-growing authors after market in the US by working with top retailers, including AutoZone and O'Reilly's in the auto oems. We are focused on maintaining profitability that allows us to continue to reinvest in this class-leading franchise.
Recovery and polymers will be slower to develop given our position in most Supply chains, but we remain well-positioned and are actively managing our supply chains to adjust to changing customer needs quickly. We continue to see real long-term potential in the growth of fluoropolymers tied to the hydrogen economy and 5G through our Venture activities as Mark mentioned earlier. We continue to be laser focused on delivering solid operational performance alongside productivity gains to bolster margins in our Flora businesses.
moving on to
For chemical Solutions segment on chart 12 sales in the third quarter were $88 million dollars down 37% reflecting the lower Revenue income our sale of our business last year and lower demand in mining Solutions customer mine shutdowns driven primarily by COVID-19, which stood in the second quarter continue to impact mining solution and results in the third quarter adjusted evidence was twelve million dollars and segment margins of 14% off declined two hundred basis points from 16% in the prior year. This result reflects licensing income recognized in the same period of last year partial offset by our cost-saving efforts.
As we move forward the man should normalize as customer Minds return to full operation. We continue to focus on our full-year cost reduction actions. It's generation and operational Readiness. Finally. We remain on track to shutdown our end Lynn business at the end of this year.
I'll cover our titanium Technologies on the next chart third-quarter sales came in at $612 billion dollars almost equal to that of last year off volumes were 4% higher on a year-over-year basis in the quarter. However volumes were up 26% on a sequential basis as we move past the the bottom on the back of a stronger Coatings Plastics and laminate demand.
Price was stable on the sequential basis a product of our type your value stabilization strategy and a v a contract structure.
Despite the improving results. We continue to experience demand Hedren's related to COVID-19 across some in markets and segments. We are working with our own customers in real time to adjust to changing demand patterns and fully utilizing all three of our key TBS channels Beyond RAV a contracts. The flex platform allowed us to serve non-contracted customers as they experience supply chain needs meanwhile distributes just allowed us to reach additional customers and territories to supplement demand during the COVID-19 recovery.
Segment adjusted ebitda of $129 million dollars resulted in margins of 21% this two hundred basis points sequentially improvements reflects, the benefit of improved circuit utilization and higher volumes partially offset by choices to improve cash flow in 2028 and ready our circuits for higher utilization in 2021. Looking ahead. We continue to believe we're in the beginning stages of a black market recovery.
as
Mentioned this could be impacted by the course of the COVID-19 pandemic that we are actively monitoring. We will continue to manage our inventory levels to support our customer needs through the recovery while optimizing our net working capital with that all turn things back over to mark
Thanks, Mark turning to the last chart. I'd like to end the prepared portion of our remarks today with a few thoughts on the shape of the recovery and the Outlook more broadly.
This year has certainly been a challenge on a number of fronts from COVID-19 to social justice to the unusually strong hurricane season. However, the people of chemours have risen to each and every challenge with Incredible determination. It has been inspiring to see this team undeterred by the events of 2020 and continuing to push forward on behalf of our customers.
Tomorrow is is adapting in real time. And we have used the pandemic as an opportunity to further streamline our ways of working we've been able to maintain and in many cases actually improve productivity over the course of the last several months. I expect that many of these changes will become permanent. It will increase the clock speed of chemours going forward looking at my views that we continue to be in the early stages of a recovery. We believe that the second quarter was the low point of the pandemic across most and markets are off. The books has stabilized and in many cases are improving as a company. We remain focused on the things we can control including operational excellence working capital and inventory management and supplying our customers with what they need.
These efforts are directed at maximizing cash generation, which gives us strategic flexibility and staying power through these uncertain times while the balance sheet provides flexibility and staying power. We must never lose sight of what gives us our true strength. We have the best people technology products of anyone in the industry. We continue to drive from low-cost and then new and exciting products and brings a life our vision of responsible chemistry. These attributes are foundational to the company and give me confirmation that our future is bright and The Best Is Yet To Come
Was that operator, please open the line for questions?
Thank you, as a reminder to ask a question. You would need to press star one on your telephone to withdraw your question. Press the pound or haschke. Please standby wage and a roster.
And your first question here comes from the line of John McNulty from BMO Capital markets, please go ahead your line is now open. Yeah, good morning. Thanks for taking my question. So, you know, maybe the first one with regard to the price mix in titanium Technologies was down about 5% which seemed actually a little bit a little bit lower than what we would have expected. So can you speak to the Dynamics that Thursday that are driving that right now and and also how we should be thinking about that going forward and if if we if we if there's any kind of light at the end of the tunnel in terms of maybe starting to see that turn up as well.
Yeah, good morning, John.
You know, I guess the best way to look at that first is look at it sequentially, right? So if you look at it from second quarter to third-quarter, you got to strip out, you know, everything in our prices both minerals as well as took two big men. So when you strip out minerals, which is primarily Zircon, um, you know, you're more in the range of about a 1% Delta second quarter the third quarter and if you dig into that one more time and what you'll see is that's primarily all product mix. So if you go count by account by account, we didn't really change price at all. It's all it's all product mix from that standpoint 15% you're talking about is really year-on-year. That was all from the end of last year. If you remember we really tried to drive market share specifically in the Plastics Market where we lost a lot of share and not really occurred at the end of 2019. So you're not seeing any Delta in price going on right now. If that's that's helpful and then and just maybe as a as a follow-up like in the titanium Technologies area wage
You had some really impressive volumes in the quarter and it looks like there's there's a lot of puts and takes going on right now. I mean, it certainly looks like inventories are low. You've got relatively strong demand, but you've got food researching. I guess. Can you give us your thoughts on how to think about you know, whether we're going to see the usual seasonal dip in the fourth quarter and maybe early thoughts on on twenty Twenty-One when you're thinking about volume growth in this in this segment. Yeah, I'd say the volume across tio2 for us has been really demand related. So you still continue to have strong demand DIY continue to be strong in third-quarter contractor Coatings have been picking up, you know, we saw a significant laminate Improvement. So a lot of our laminate customers with furniture and flooring really picked up that's more Europe and Asia, but that was a big pick up for us at the same time. So we're seeing demand ugh pull through being very strong when you look at it from a regional perspective.
John double-digit growth across every region whether it's North America Asia, including China Europe and Latin America. So we're seeing very strong pick up from a volume across the segments across all the regions that we can we think is going to continue and because of that we we do not feel at this point in time that we're going to see a seasonal drop in the fourth quarter.
Got it. Thanks very much for the caller. Sure.
Your next question comes from the line of David Fisher from Berkeley, please go ahead your line is now open.
Yes, good morning. Fellas a couple of questions around. So first one is just relative to before in the mobile market. How close is she back to the same levels of volume?
Have been very encouraged by strong Auto, you know, especially in the US and Western Europe, but we're still down in the quarter year-over-year walk in with the step-down coming in Europe. The first step that we had was very beneficial for you guys, but we didn't have the illegal import issue at that time with that over wage paying it through the illegal Imports. Do you think that most of the benefit of the step down or do you think you guys will still see a big bump in the hfo from that step down next year. Yeah, I would say we're encouraged by the fact that the step down is coming and you know the efforts continue to ramp up around illegal Imports as we've said in Prior callback you think this is going to take you know, some time to to bear fruit and obviously, you know, they're still illegal product in the market in spite of the stuff down. So, you know, yep.
Census Duffy this is going to take you know, more than one or two quarters, and we certainly don't see any further deterioration, you know, in terms of year-over-year performance package added to illegals and so with the step down and the work we're doing on illegals, you know, we would expect to see continued strengthening, but it's it's going to be a slower recovery there.
Okay, and then maybe sneak in one last one Dupont CEO on their call said that they had had recent conversations with you guys about, you know a potential deal. So from your side, can you just bought a frame what you think the likelihood it is and kind of what the framework of a deal might look like.
Yeah W, it's Mark. We continue to have conversations and I continue to talk to you know, we talked this week. So from that standpoint, you know, we're we're trying to make progress their life as I've always said, you know that the key for us is to make sure that we have if we come up with a an agreement that it's something that our shareholders will Embrace right? So it's got to be sharing friendly for us. And I know it feels the same way. It's got to be shareholder-friendly for him. So tell us that's that's the Bellwether for us. This has got to be something that our shareholders would look at and say this is something that that works for them. And so these are complicated and they just take they take time and you know, we keep working through issues and I think we have less issues now than the first time we had talked to you guys about this. Um, so I'm optimistic we can get there but it's always hard work from that standpoint. But yeah, we are we continue to talk and our goal is to get this thing done own name.
Yes, it could be good for our shareholders.
Great. Thank you guys.
Your next question comes from the line of Josh sector with abs, please go ahead your line is now open.
Yeah. Hey guys. Thanks for taking my question. Just wondering within fluoropolymers. Can you give us some granularity around how much the automotive exposed polymers were down maybe relative to the rest of them are segments and you know how you're thinking about that developing over the next quarter in terms of a lack of coverage based on where you are in the supply chain. Is that something you see getting better next quarter or is that still a longer-term recovery? They're thanks. Yeah, I would say Auto represents probably close to twenty-five to thirty percent of our polymer busy. So it's a meaningful portion and obviously within the polymer space we tend to be you know at a tier-three level in the supply chain. So further back within the quarter while we were down sequentially on polymers, we did see, you know continued strengthening in the court in Q3. So as we look to Q4 we would expect you know to see
the continued strengthening their
Okay, thanks and and you're shifting gears in terms of your CR seagulls. I thought the sustainability offering Target was kind of interesting, you know, you're aiming to get to around fifty percent of sales meeting you and sustainability goals from your earlier report. You're around 10% or so. I think that's a a pretty big gap. I mean, I'm assuming aapki on growth within the mix is a factor and closing that Gap, but I'm wondering, you know outside of that. What do you guys do to get there? Yeah. So, you know, I I said on top of that team in terms of every month we go through our progress there and waging interim goals to get to uh are twenty Thirty goals. We are on track and all our interim goals. I feel very confident. We're going to get the 50% ya aapki on is going to be a big play on that if we have a lot of offering them both on the t t side as well as in the floral polymer side, they're going to be added to this. So so this is something we keep in front of us all the time and our new product development, which we're going to really drive a game.
Forward, you know, don't forget.
You know, we are the leader in membranes in the hydrogen economy. Our Navy on membrane is is sort of the Bellwether if you will both on fuel cells as well as on Earth hydrogen generation. So that's going to be a key part of our growth as well.
Your next question comes from the line of Bob court with Goldman Sachs, please go ahead your line is now open. Thanks very much. Was hoping maybe you could help me with dimensional eyes the upside in in titanium Technologies, you know, you've you've you've gone through the stabilization process and prove that you can keep prices at a pretty healthy level even a Wyndham and disappears. Just curious. How do you think about the up cycle and demand comes back? Obviously you guys get a disproportionate amount of the volume benefit but is it a is it an issue can get back into the sort of mid forties ebitda levels or because there won't be as strong of a price component to an upside Global should we think about something more moderated? Yeah. I think I think Bob going to have to think about our business being more like the mid-to-upper 20s in terms of ebitda margins. That's that's the more logical place for us to be you know, is we put these contracts in place for our customers?
Number one, it gives them stability. It also gives them the ability not to add inventory when they don't need to so we think the benefit of sort of cutting down this by a stock these stock kind of cycle is worth that that Sacrifice from that standpoint. So these will be very healthy margins, but they'll be more like in the mid-20s to Upper 20s as we're going forward. And as you see, you know, we are seeing the volume start to build so building with our customers. Most of this volume increase is happening with our a V8 contract customers, right? So picking the right customers and and working with them is really what's going to benefit us.
Got it and and Mark Newman. I think you said something about your situation in the floor polymers where your position is in the supply chain needs a slower recovery. Can you explain maybe a little bit more specifically what you mean there? Yeah. I just mean uh, you know, we are supplying to folks who make parts for the Auto industry. So we're we're we're you know, lower-wage not direct so aapki and we Supply directly to Auto oems in the polymer space as it relates to Auto. We're supplying to folks who are making components for auto off. So we're further back in the supply chain and my only point near Bob is the the recovery is, you know is a phase delay because we're further back in the supply chain. So wage when you look at Q2 polymers, they didn't they weren't as impacted by the disruption would COVID-19. Sa option was opt-in came roaring back.
Q3 and and
Polymers is seeing a a lagged recovery. So, you know, I'd say as it relates to Auto, you know expect to see you know more of a lag there.
And should it be a whipping effect. Then when it kicks back in there should be that same sort of surge that you've seen in in optio nor know. We we would expect that the volumes go up from here. Yes from Q3 for sure. Yes. Okay. Thanks guys. Your next question comes from the line of Jeff from JPMorgan Chase. Go ahead. Your line is now open. Thanks very much. You know, if I think about in some historical terms, maybe your home speak in 2017, and maybe there are twenty to thirty percent lower today in the old days people used to describe. The titanium. Dioxide industry is growing at about a 3% rate. Do you think the industry has grown at a 3% rate since 2017 or if it hasn't what what rate?
Do you think it's grown added? How is the industry changed over time in your placement? Oh for sure. You know, this is a GDP growth industry Jeff. So from that standpoint, we're always going to be right around GDP as an industry some some years. It's a little bit above some years as a little bit below and again, one of the concepts we had with valuable ization was to stop the talking restocking phenomenon, which would drive, you know volumes way above GDP some years and way below GDP other years. So I think the best way to look at this industry is GDP growth. That's how that's how we look at it from that standpoint. Um, and our goal is going to be, you know, can we add minimum be at kind of growth rate and where we can gain market share because we have better products or better service or you know, the customer mix that we have is going to be growing faster. That's how we're going to be above GDP.
Going forward but I think as an industry overall. That's the best way to think about it.
Okay, and in your negotiation with DePaul, is it fair to say that your objective is to have some kind of cap on liabilities. Is that what you're trying to Iraq or you're trying to achieve something else? Yeah again, you know, I'm not going to go through the details of the of the negotiation but you know, we're we're looking for some level of shared between the two, you know, because as you know today we have those liabilities are heading towards us and so from that standpoint, what's most important to us is a level of sharing and I think that's that's that's high on the list for us. Okay. Great. Thank you so much.
Next question comes from the line of Vincent Andrews from Morgan Stanley, please go ahead your line is now open. Thank you and good morning. Everyone was just as we moved here in November and you're probably starting your 2021 planning process. I wonder if you could just give us sort of some some Dimension around how you're thinking about both the you know, the the Box you took out this year as well as a capex that came out this year how much of that uh, you might be able to keep out permanently were spraying back in 21, and then, you know tie that into titanium, you know, when do you think you'll get back to the plan you were on coming into the year, which was to focus on, you know, really getting that that market share back. Thanks.
Maybe just to get started on that and I'll have some year to sort of add some a little bit of color from that standpoint on the cost. You're right. We're we're no different than everyone else. They're strong. You are planning sort of hard to do perfect planning when you're in the middle of a pandemic, but we do see the recovery happening. You know, we we see that continuing here in the fourth quarter, which I think is going to happen is confidence going into 2021. Um, we will continue to look at opportunities to gain market share on the t t side as we've said we did not want to be disruptive when the markets wage sort of in flux as they've been but I think we're getting to a point now where we're seeing things get a little bit more stable. We're able as you can see from our volumes this quarter. I think we're going to be able to talk to show some some level of market share gains without having to do anything with price basically by driving with our customers that that were working with as well as seeing. Yep.
Recovery and some of the markets where we have some Advantage like laminates, you know as from the cost perspective. Maybe I'll ask some here to talk a little bit about the cost and the and the capex side at least of how we're thinking of that right now.
Sure. Thanks Mark levenson and if you look at the actions that we took this this here on the cost side, you know, roughly 160 Million worth of crossed out. I would say, you know eighty percent is not covered by Q3 and as we can start looking at 21, we expect to retain at least 20% of that next year still, you know, we're working on things to see what how we can increase but at least twenty percent we feel comfortable and confident that we can retain in 21
And then as you going to look at the capex side, you know, we reduce the capex 125 million this year from the initial guide that we had given a four hundred, you know for for capex. You need the way you should think about missing for us as long as we have told in the past running maintained roughly 225 kind of range and have another fifty million tied to the corporate responsibility commitment that we have made and then Thursday, we do have some growth initiatives that you want to bring along but you know as we give the 21 guide will be lot more transparent and give you guys the building block but that's all you should really think about this thing 225 million roughly run a pain fifty million dollars in the industrial zip code it varies we have a year, but that's a corporate responsibility commitment capital and then we do have some you know, really high return growth stuff that we want to bring bring back.
Thank you very much guys.
Your next question comes from the line of a used car from City, please go ahead your line is now open. Hi. Good morning Mark. Is there a patreon for PJ Thursday morning on the note adoptee on expansion in to AutoZone. And O'Reilly. What is the address will Market opportunity there? And what kind of growth rate should we expect and is that retail exposure of a drag or benefits a current margins? Yeah. So that's a that's a big opportunity for us. And I don't know if Mark wants to add anything to the tail end of this one, but that's a huge opportunity for us and remember still early Innings on the aftermarket, right? Because it's only been just a few years since at the end has been at the OEM level so you can you can look at them as a as a nice growth rate, you know, they are very solid margins. So these are these are plus margins above what you would have at the OEM level and the market is God.
Continue to grow as you have more and more Vehicles out there that that have opteon in them. So having this direct Channel if you will.
To these two very very key players is extremely important for our future growth and I don't know Mark if you want to add anything to my the only thing I would add is obviously, you know, you know the sare log in the US and Europe so think of that, you know, all of the US by 2021 being on hfo technology and then think of that car park growing every year in terms of hfo including opt-in usage. So significant car part already in the US and Europe and growing every year at us are so pretty significant growth near-term. And and this is this is good business for us.
Also, thank you and then secondly tio2 do you expect continued margin expansion in fourth-quarter similar to competitor current order books?
We had our margins, you know, you saw our margins improved from obviously last quarter this quarter. I think our margins will be similar as we're going into the fourth quarter. Where are you going to see the the the the change in margin in terms of how that starts moving up is as we get more utilization on our facilities. So as volumes come into our uh-uh income into the Moors. That's where you're going to see the margin expansion. We believe that'll be more in line with twenty Twenty-One than you'll see in the fourth quarter.
And and the only other thing I would add is, you know, we continue to focus on running the business for cash. So, you know, we we make those trade-offs as as we look at at large in versus cash as we go into the end of the year.
Your next question comes from the line of a room this woman from RBC Capital markets, please go ahead your line is now open great. Thanks for taking my question. I just wanted to get your thoughts on maybe some of the the consultant outlooks in tio2. It looks like you know, maybe they have a a small increase on price down next year in the back half. Um, maybe fifty dollars a ton or 2% and then they also have um, you know, maybe a a larger decrease in feedstock assumptions wage, um, maybe $100 a ton or so, um, and I guess are you seeing you know, that kind of um Trends in both in pricing as well as costs over the next month, or is that something that you think could happen or could we see a larger increase in the back half of next year in pricing tanks?
So so, you know, I'd say, you know from a pricing perspective. We did see some you know, you know nominal increases on our Flex channel in the quarter. So we're seeing you know, Flex is a portal that we can use as Market tightness goes forward. So, you know, my, you know, Mark commented right at the beginning that you know on an account level basis, you know prices were stable sequentially, but we are starting to see, you know, some indications in the flex Channel, you know that we could take price, you know over time as it relates to or you know, we we remain well supplied on or and we see or as as quite stable in the current environment. So, you know, I wouldn't comment just walk on in terms of what we would expect for or but other to say that the market seems quite stable to us today.
And then just as a follow-up.
Could you also you know maybe provide some color on where you think inventories are in different regions, um as well as exports, uh, you know, it appears that the industry has gone through a couple of years of pretty sizable piece talking yet. Um, you know, maybe there's some skewness in in these days sales measures, um, because demand is is down. Um, so would you say actual inventories are kind of normal or high or low or how would you kind of characterize the inventory picture out there? Thanks.
Yeah, I'd say sitting here today. You know, we think inventory levels are pretty normal. Obviously, you know, there was quite a bit of destocking last year. So we certainly are not dealing with a significant inventory overhang in our view and obviously, you know, you saw the robust nature of sales Improvement sequentially long as that continues, you know inventory from a day's perspective, you know would continue to come down. So, you know our sense is, you know, we're in the early stages of a recovery and you know, we we see, you know volume to the upside from from where we sit today.
Ruin, it's more just to add to that remember the value proposition that we have in our a v a contract is that customers don't have that inventory so they don't have the stock up right. There's no, there's no logic for them. They have to do that. They're not having to get in front of a price increase. So, you know again, we believe that uh, our customers are there volume is wrong demand related and if we look across all the regions, we look across all the the segments. We really believe that this is demand related not inventory related that said as as we start seeing and as I mentioned early on we see a fourth-quarter that is not your typical fourth quarter of of seasonality. It's appears to be continued strength in volume in the fourth quarter. We may expect that, uh, hopefully to continue into the first quarter or assuming that there's no issues, you know with COVID-19 going forward. Um, you know, our job is to make sure we have the inventory and our side availab.
To our customers for their growth. So as we look at you know how to manage cash for the rest of the year mark said it really well. We are managing for cash. But at the same time we want to make sure we have the inventory, customers need as they grow into the next quarter. So we're always looking at that but inventory in the channel, I think it's very normal. In fact, I'd say is is not long anticipated if you will inventory bills as you would normally see in a typical cycle because of the nature of our a V8 contracts.
Great. Thanks. Yep. Your next question comes from the line of Rodger Smith with Bank of America, please go ahead your line is now open. Thank you and good morning. How much is there are you producing and selling it in Metro Times? Is that most all from the folks in Georgia mine, or is it also from the old Shark Tank?
Yes.
It's it's from our it from our own minds down in Florida and Georgia. We don't we don't break that out right now, um Rodger from that standpoint, but all those are con that we produce is out of both, Florida and, Georgia.
And in terms of not by on membranes, can you give any sense of what percent of sales that is? I mean, is it a couple of percent or less or more meaningful? Yeah, I would say we we don't we don't break out that product line usage but it would be it would be a more meaningful percent than what I quote it. Yeah, and I say Rodger Murphy on from a membrane standpoint is something that we're probably going to bring forward early next year to everybody and talk a little bit more about em, because it's always been you know, a product line that we've had. It's been increasing around the fuel-cell side, but really where we see the biggest opportunity is going to be in Generation Um, so we'll we'll probably break that out to you guys in a maybe a very specific way to to share where we see the growth opportunities on Navy on sometime in the first half of next year off.
Okay, so it's not just using core alkaline membrane sales right. Now you're saying it's also used in some fuel cells as well at the moment. Yes used in all three right? It's used in chlor-alkali, which is the additional place for it. It's used in fuel cells. Remember Dupont was one of The Originators of fuel cell technology. So it's used in in fuel cells and it's used in hydrogen membranes all three today.
Thank you very much. And there are no further questions at this time. I will turn the call back over to mark for.
Great. Well, thank you all thanks for taking the time this morning. I know we're in some strange times. I don't know if I can get any stranger, you know after going through the what was a wild night from the presidential election and I have a feeling it's going to be a wild few days. But I do want to just reinforced. You know, we feel very good about the quarter. We just had we feel very good about where things are leading off the next quarter and hopefully, you know, our goal is continually to be managing this business for cash making sure that we're delivering everything that our customers need and making sure all our families are safe as we get through this pandemic. So all I'd say is thank you all very much for your time. Thanks for your interest. Please stay safe and stay well.
And ladies and gentlemen, this concludes today's conference calls. Thank you for participating. You may now disconnect dead dead dead dead dead.
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