Q1 2021 Chemours Co Earnings Call
Earnings Conference call and.
I'm joined today by Mark Giordano, President and Chief Executive Officer, Mark Newman, Senior Vice President and Chief operating Officer, and senior Ralph on 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.
And Keith described in the documents Morris as 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 <unk> 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 will turn the call over to our CEO.
Mark Mcdonald, who will review the highlights from the first quarter Mark.
Thank you Jonathan and thank you everyone for joining us today.
I'll begin my commentary with the first quarter highlights on chart three.
It is hard to believe but it has now been more than one full year since the beginning of the COVID-19 pandemic.
Throughout that time I have continually been impressed by the company's focus on our North star the safety of our people and their families while supporting our customers and the communities and which we operate.
And that's bad rock commitment and has allowed us to serve our customers safely and respond quickly as the recovery has gained momentum.
I would like to recognize the efforts of our entire global employee base over what has been a difficult period.
Our focus diligence and resilience is truly amazing.
Looking at the Q1 results demand remains strong as the world needs through what we hope are the final few months of the pandemic net.
Net sales rose, 10% to $1 4 billion with adjusted EBITDA up 4% to $268 million. Despite weather challenges, we encountered in the quarter.
And our titanium technologies segment, we continue to see a rising tide of coatings and plastics and laminate demand into the second quarter.
Contractor and renovation and remodel demand had been strong thus far in 2021 building on the strong DIY and momentum from 2020.
Our customers continue to see the value proposition of our long term contracts and we continue to add new customers across all segments. So the TV ads family.
And our thermal and specialized solutions segment demand for Opdivo and remains strong despite constrained automotive build rates.
We continue to see opt in and blend adoption and stationary applications and growth in the automotive aftermarket.
And the U S. We expect the EPA to implement a framework to transition to lower global warming refrigerants under the <unk> Act later this year and believe a unified global transition toward and <unk> technology is underway.
Demand and our advanced performance materials segment has rebounded strongly across the majority of our end markets.
Q1 was a solid proof point and our ability to increase margins across the portfolio and APM as demand normalizes.
Commercial activity across most end markets has been robust and supply chains restock and overall demand has increased creating tightening supply conditions around the world.
In addition, we continue to make progress against our key growth programs and Semicon five G and the hydrogen economy.
While demand has been strong across the board winter storm jewelry affected our profitability and the quarter.
Our concentration of operating assets and the southern U S region has affected results across all our segments with the largest impact in our TSS segment with two key plant sites and Texas <unk>.
And Mark will discuss this in more detail, but I am proud of the way our teams quickly responded to minimize the impact on our people facilities and customers.
Looking ahead, we continue to gain confidence and our outlook. Despite the winter storm headwinds of the first quarter as.
As a result, we are raising our 2021 full year guidance by $100 million on both below and high end of the range.
We now project full year adjusted EBITDA of between $1 1 billion and $1 two 5 billion.
We also are raising our free cash flow guidance by $100 million to greater than $450 million, Mark Newman, who will take you through our higher guidance targets later in the presentation.
Moving beyond financials in March we announced a strategic review of our mining solutions business and.
As you all know we have significantly improved the performance of our chemical solutions segment since spin and <unk>.
<unk> behind the most attractive portions of the business, improving operating efficiency and driving stronger commercial focus with an item maximizing shareholder value.
We are and the early days of our review, but hope to have some news to share later in the year.
Turning to chart four.
Since the launch of our first corporate responsibility report and 2018, we have been pursuing a set of 10 ambitious goals designed around inspired people are shared planet and evolve portfolio.
These goals were always designed to lead and push ourselves and the chemical industry to a higher standard.
Last month, we announced and updated climate goal and.
And doing so we extended our leadership on climate related issues and the chemical industry.
<unk> will achieve a 60% absolute reduction and scope, one and scope two carbon emissions from our operations by 2030 on our way to achieving net zero by 2050. This commitment does not include the profound impact our products will have on climate.
And <unk> refrigerants to Gnathion membranes are products are fundamental to helping the world achieve the aims of the Paris agreement.
Our commitment to all our stakeholders shines through and our CRC program and I know these commitments will serve as a guiding light for Moore's long into the future.
With that I will turn things over to Samir for a more detailed look at our results Sameer.
Thanks Mark.
Turning to chart five results and the first quarter were solid as demand continues to improve steadily from Q4.
Q1, net sales of $1 4 billion was up 10% year over year and grew nearly $100 million or 7% and a sequential basis.
Demand was strong across most segments and end markets.
GAAP EPS came in at <unk> 57 per share net adjusted EPS of <unk> 71 per share and different EBITDA and the first quarter growth of $268 million compared.
Compared to $257 million and the prior year quarter, adjusted EBITDA was negatively impacted by $9 million due.
Due to fixed cost under absorption related to operational disruptions created by winter storm here.
As a result margins and the quarter were 19% one percentage point, nor as compared to the prior year quarter.
We expect storm related cost headwinds to ease through the second quarter.
Our vs in more detail and the subsequent charts GAAP.
For the quarter was $60 million, our use of cash flow sales $21 million.
Up $41 million from the prior year period fourth.
And fourth quarter is typically a heavy cash usage quarter locomotives as we build inventory in anticipation of both coating season, and cooling season, and our core markets.
Consistent with the past several quarters, we have put a strong focus on cash and our results speak to our ability to execute against that strategy.
And we continue to believe that we are well positioned to serve our customers and the spring and summer months.
On April 29, our board of Directors approved a second quarter 2021 dividend of 25 per share.
And is unchanged from the prior quarter and will be payable to shareholders of record as of May 17th 2021, we continue to deliver consistent and stable dividends to our shareholders. This quarter marks our <unk> consecutive quarter of dividends at the current level.
Table and return of cash to shareholders to all parts of the economic cycle.
Turning to chart six let's review the anticipate EBITDA bridge for the first quarter.
First quarter 2021, adjusted EBITDA was $268 million.
Up 4% from the prior year period.
A couple and mix and contractual price downs were a headwind on a year over year basis, but were more than offset by stronger volume for the first quarter currently with a small benefit and the fourth quarter as a euro U S. Dollar exchange rate continue to move and our favorite.
Higher costs were a big story here and the first quarter and masked some of the top line strength across the company.
And legacy environmental and remediation costs were a headwind.
Mainly related to 12 million and additional depreciation expense at Fairfield works.
And the remainder of the cough and cold in the quarter were related to winter some jewelry, both operational and supply chain and I'll cover and the next chart.
Turning now to chart seven our results and Q1 were impacted by a number of one off issues related to the winter storm here. While we are by no means unique and exposure here, we wanted to be very transparent as to the scope of the issues for our investors day.
Deep freeze across Texas, and most of the southwest from winter storms and recreated unprecedented supply chain disruptions and operational challenges at several commercial locations.
Tended freezing conditions worse pipes debit buildings.
Access to power and other critical utilities and strength of employees due to unfavorable conditions.
Working tirelessly around the clock or teens and leaned into the safety obsession and expedited sales apparel hundreds of water and steam leaks.
<unk> and maintenance schedules were possibly pull forward critical raw materials are qualified as new source materials and creative and logistics solutions are deployed to minimize disruptions from counsel and futility and supplier force matures.
I am proud of how our teams responded and this dynamic situation to quickly return service to our customers and safely ramp our site back to full operational capability.
As a result of the store, we and from a first quarter expenses of $16 million from plant repairs and higher than normal utility charges. These items are excluded from adjusted EBITDA. However, 9 million of expenses related to under absorption of plant fixed costs, primarily stemming from operational disruptions and the TSS segment are and.
Diluted and the first quarter adjusted EBITDA.
Let's turn to chart and I'll turn on liquidity.
Our cash position liquidity and balance sheet remained strong.
Our cash balance at the end of the first quarter was $1 billion.
Operating cash flow was $59 million, while capex was $60 million and the first quarter retail and $41 million for shareholders and the form of dividends and.
We ended the first quarter of 2021 with $4 billion of gross debt and debt net of cash was 3 billion, resulting in trailing net leverage ratio of approximately three four times.
We continued to be well positioned from a balance sheet and liquidity perspective, as the recovery continues and have positioned ourselves well to benefit from demand towards the balance of the year with that I'll turn things over to Mark Newman, Our Chief operating officer Mark.
Thanks Amir.
Everyone I hope you are all safe and well.
On chart nine I'll cover the results and outlook of our titanium technologies segment.
Titanium technologies continues to experience improvement pigment demand as the economic recovery gained speed tie pure demand across our end markets product categories and geographies remains strong and assign that the momentum from Q4 has carried into the first part of 2000 and <unk>.
One as you heard from Samir global logistics issues and winter storm, Yuri were both headwinds and the quarter, but our operations supply chain and logistics teams have rallied and their support of our customers.
And we have prioritized product availability for our long term Ava contract customers consistent with our Tvs strategy I am very proud of our ability to deliver high quantity tide pure pigment around the world at a time when some of our competitors have struggled.
Activity on our flex portal has been robust and spans all regions and product grades price continues to inflect upward reflecting stronger demand conditions.
As a result of these tighter market dynamics, we continue to sign up new AVR customers, who are drawn to the combination of supply reliability service and quality that only <unk> can provide.
These new long term contracts demonstrate the value of TBS and are the foundation for a deep long term relationships with these customers.
Turning to the numbers first.
And first quarter net sales rose, 18% to $723 million volume increased 16% versus the prior year adjusted EBITDA for the segment rose 22% to $169 million.
Despite the headwinds from the winter storm and logistics issues around the globe price was up slightly on a sequential basis, despite some customer and product mix drag.
As we look ahead, our returned to more normalized order patterns and Eva growth and Q1 leads us to believe volumes will be strong throughout the balance of the year.
We believe that renovation and remodel trends are strong with stimulus and infrastructure potentially providing longer term tailwind.
Over the coming months, we intend to make steady market share gains with the goal of returning to our capacity share by year end.
Margins should improve as production continues to ramp up across the next several quarters I am very proud of the resilience of the business has shown over the course of the first year of the COVID-19 pandemic.
And our ability to quickly pivot and adapt to the ever changing market conditions.
Through it all we have demonstrated the quality and differentiation of the Thai pure franchise setting the stage for significant value creation and the coming years.
Moving to chart 10, and the thermal and specialized solutions demand signals continued to strengthen and the first quarter with order patterns, reflecting pre pandemic seasonality opt in adoption and the automotive and stationary applications continue as the world recognizes the importance that law.
Low global warming refrigerants will play in combating climate change.
Looking more closely at the results Q1, net sales were $304 million nearly flat from Q1, and 2020, but up 12% on a sequential basis.
Improved adoption rates of op 10 planes and stationary applications were offset by a decline in volumes related to the expected regulatory phase out of legacy base refrigerants.
While overall demand for opt and his strong semiconductor shortages slowed the automotive build rates in Q1, leading to modest adjustments and customer order patterns at present, we anticipate a continuation of constrained automotive bill rates in Q2 and through year end.
Segment, adjusted EBITDA rose, 6% to $93 million and the first quarter.
This was the result of improved operating rates at our Corpus Christi facility, which more than offset the $7 million of under absorbed fixed costs from winter storm Yuri plant downtime looking.
Looking ahead I am confident that we will put the one time issues from Q1 behind us and are well positioned for a strong Q2 and Q3 as the cooling season gets underway.
Auto aftermarket adoption and the market for opt in and stationary blends continues to grow as equipment conversion start to take hold.
In Europe, we see a steady cadence of illegal HFC refrigerants seizures through continued enforcement and awareness campaigns behind the F gas regulation.
And the U S. We applaud the efforts of the EPA and engaged industry stakeholders, who have been working with such an aggressive timeline to codify standards for HFC transitions. We expect this will accelerate the transition and the stationary market to <unk> behind the recently passed.
The aim act we are mindful of the impact lower automotive build rates could have on demand from mobile <unk> and refrigerants and continue to manage our supply chain and close coordination with our customers.
Turning to chart 11, I'll cover our advanced performance materials segment.
The rebound, which started in Q4 2020 continued in Q1 2021.
Net sales improved 14% to $333 million and March was a record month for APM as underlying demand accelerated late in the quarter. The recovery has been broad based with demand rising across the breadth of our product mix and across all geographies.
Segment, adjusted EBITDA was $51 million flat to last year's first quarter margins sequentially rose to 15% weighted down by higher accruals for incentive compensation in the quarter as well as the impact of fixed cost under absorption versus Q1 and 2020.
Due to supply chain issues related to winter storm Yuri.
As we said on the fourth quarter call.
We have significant operating leverage across the segment.
Our results and the first quarter illustrate this potential on a sequential basis revenue was up $54 million, resulting in an earnings lift of $26 million.
Looking out across the rest of 2021 day out.
Look remains strong we remain focused on topline and recovery and growth while executing on productivity and cost improvement actions to enhance returns we believe margins and this business will return to the high teens, starting in the second quarter.
APM is prepared to seize the moment.
Have already made great strides delivering on our 2020 performance improvement plan with a rapid return to pre pandemic quarterly sales reliable plant operations and realizing significant progress towards our high teens EBITDA margin target.
Despite this notable improvement we recognize the importance of defining our post recovery strategy and better communicating our enthusiasm for the opportunity in this segment with this in mind, we are planning to host an investor deep dive later this year to unpack, the ATM segment, and a greater level of detail.
Moving ahead to our chemical solutions segment on chart 12 first quarter net sales were $76 million.
Excluding the portfolio impact of the shutdown of our aniline business last year chemical solutions sales increased 2% on a year over year basis, driven by improving demand for sodium cyanide and continued strong demand for performance chemicals and intermediate products <unk>.
Adjusted EBITDA was $10 million for the first quarter of 2021, including $2 million impact from freezing conditions at our Memphis facility in February.
We anticipate continued momentum and mining solutions, driven by robust demand conditions and gold mining continued to improve.
Glycolic acid demand remains strong and we anticipate a return to more normal and adjusted EBITDA margins across the business over the course of 2021.
Turning to the next chart.
The strength of our Q1 results and the momentum we're seeing in both volume and price across our core markets give us confidence that our 2021 results will be higher than we communicated in our Q4 call.
As a result, we are raising our adjusted EBITDA guidance by $100 million.
And between $1 1 billion and $1 two 5 billion.
Our revised guidance is now up 34% from 2020 levels at the midpoint of one one and $705 billion.
We continue to drive a disciplined approach to Capex in 2021 with no change to that metric at approximately $350 million as a result, our free cash flow guidance is now greater than $450 million up a $100 million from our prior guidance.
Our focus on our North Star and cash generation has not waned with a recovery underway.
We remain fully committed to generating significant earnings and free cash flow through the cycle and maximizing the value of <unk> long term.
With that I'll turn things back over to Mark <unk> for some closing thoughts.
Thanks Mark.
Turning to the last chart.
And can say without hesitation and I have never felt as positive about the future of <unk> as a day to day to.
To start our foundation is strong we continue to safely navigate the impact of the COVID-19 pandemic and have demonstrated our resilience as a company our balance sheet continues to be a source of strength, even through the sharpest economic disruption since the financial crisis.
And we had gained alignment with Dupont and core timber on our legacy liabilities with a solid framework to reduce our risk and move forward.
Secondly, the recovery across all our end markets is well underway.
Oh, two dynamics continue to improve driven by end market demand across the globe.
Operating on growth continues to gain steam as the world embraces climate friendly low global warming potential HMO technology is the future of refrigeration and air conditioning.
And ATM demand continues to grow as industrial demand picks up and advanced technology raises the bar for material performance.
Finally, we are executing our new capacity and product development to fuel our future growth and semicon, we are expanding our PFA capacity in order to meet increasing demand for semiconductor infrastructure, we are well positioned to provide strategic capacity in markets, including the U S.
And we're significant new fab capacity will come online over the coming decade and.
And <unk>, we are working on the next generation laminate structures to provide chipset solutions necessary to deliver the fastest implementations of <unk> and frequencies above 24 gigahertz and how did you do any we are continuing our work and the fundamental electrochemistry and gnathion membrane.
And to rapidly improve durability efficiency and lifecycle cost our work is critical to enabling low cost hydrogen and electrolysis and reaching diesel parity and heavy duty transport to help decarbonize the global economy by.
By 2030, we believe the total addressable market and hydrogen membranes could be $2 billion to $3 billion.
From the strength of the near term to recovery to the long term potential and the portfolio I believe the future is bright for <unk>.
Two are 6500 employees I am so proud of your grit determination and excellence.
Our customers you are the reason we are here.
And we will continue to bring the best products services and values to help you win and the marketplace.
And finally to our investors. We appreciate your trust in Us and your shared belief and the long term value potential of <unk>.
With that operator, let's open the line for questions.
As a reminder to ask a question you will need to press star one on your telephone keypad.
And sorry your question from calendar hash key.
Your first question comes from John Mcnulty from BMO capital markets. Your line is open.
Yes, Thanks for taking my question and congratulations on a solid set of results. Despite a really difficult that a headwind.
My first question was just on the euro impact and supply chain impact on.
And the titanium tech business, specifically I'd love to understand how that might have mixed the volumes and that business and what you could have delivered if it hadn't been for those disruptions and then also I guess my assumption would be since those volumes might have been directed more to the portal customers.
That might have also had a negative impact on pricing for you and the quarter and I guess, how how would that maybe played out differently. If we hadn't seen the impact from euro and the supply chain at that business.
Yes, good morning, John and Great question and Youre.
Your hypothesis is right on.
The storm affected.
The Lille and affected our Johnson and built facility and because of natural gas issues affected altamira as well. So we had some supply issues through that.
Storm.
And prioritize our Ava contract customers. So we made sure that they've got the supplies that they needed.
We actually had customer.
Customers come to us.
Who will not EBITDA contract customers looking for supply because we werent the only ones that were difficult and supplying and again as prior prioritizing and our EMEA contract customers, but also we added new 88 long term contract customers during that period as well so.
Your hypothesis is right, we probably had less.
Business through the portal than we normally would.
Probably skewed price a little bit from that standpoint.
The same time because we.
Some of those disruptions are or blended with a little bit higher than normal to be able to get as much.
Production out as possible so.
And so our variable margin with a little bit higher as well because of that.
So yes, it could have been a stronger quarter without that winter storm, both on a I'd say and supply standpoint boast both on a cost standpoint as well as price.
A solid quarter and the team did a great job and getting US back up made sure. We took care of all of our EMEA customers the right way, but it could have been a little bit stronger.
Got it got it no. That's helpful. And then maybe just a follow up on.
And the <unk> business.
And as as we look throughout the rest of this year I mean, <unk> was obviously youre kind of and off and odd one for a whole host of reasons I guess, how are you thinking about that.
Normal seasonal pattern for the <unk> business and and also against compounded by that how should I think about your ability to meet the capacity out there versus what seems to be a pretty tight market, where maybe others can I guess, how should we be thinking about that.
Yes.
I'd say it is a tight market we.
Continue to operate all our facilities.
<unk> strongly almost full from that standpoint, we believe we have the capacity to be able to service our customers going forward as we've talked about in the past we have some incremental capacity work that we can do across the.
And the fleet of our facilities that would come on board and the.
And the $22 23 kind of timeframe.
But in the meantime, we feel like we have adequate capacity to be able to handle that.
Just as you said and what Youre seeing is a very different dynamic here, which is youre not seeing a lot of inventory build in the channel.
And youre seeing prices being thoughtful in terms of how they're being and going into the market from that standpoint.
So I believe and.
And as we look at the portal, we have a portal that people are putting in orders, even six months out and those prices are different than what they would be now. So I think we can service our customers going forward I. Just don't think there is excess inventory anywhere in the channel right now.
Got it helpful color, thanks very much.
Sure thing.
Your next question comes from Josh Spector from UBS. Your line is open.
Thank you and good morning. This is Matt strong ski on for Josh can you provide some details and what is baked into guidance regarding production costs, such as energy or other inputs.
Yes.
Ill, let Samir give you a little bit more detail, but.
Maybe just from a standpoint of how we're looking at guidance.
We see strong demand across all our segments right now.
Our guidance reflects probably low a.
A level of conservatism, which is really based on macroeconomic issues.
Things, we're keeping an eye on the pandemic.
From a standpoint of India, and Brazil still have some issues are.
Our hearts and thoughts go out to our colleagues and India and Brazil are still struggling through the pandemic, maybe more than anywhere else and the.
World and.
And we're keeping our eye on auto OEM builds across the world is the chip shortages getting and the way of that right. Now. So those are the things that are probably driving our.
Conservatism from that standpoint.
But outside of that we expect very strong demand we are operating our facilities extremely well, we don't see any foresee any other issues Sameer anything you'd want to add to that.
Mark you summarized it well and the only other thing I would sales on the cost side of the question look as you said earlier net and our contracts pretty nicely. So given the contract and we have in place for a majority thereof.
And we're in a pretty good position and.
And the nature of those contracts and we already reflected and the great.
Thank you and then from my follow up the release mentioned that the percent of customers on long term agreements increased during the quarter, where these new contracts materially different and it.
Turning to pricing than the previous contract.
Well I'll, let mark.
And that for you, but just.
So it's sort of level set for everyone. We've said on the <unk> side.
And we want.
Our balance of 88 contracts to be somewhere between 60% to 70% of our total volume and we're going to stay in that range I think the the perturbation that we saw from winter storm Yuri.
Prove that.
Want to be in that range to be able to support.
And <unk> customers going forward, so we're going to.
Sort of in that range as we go into new contracts or with new customers and Ava contracts.
<unk> said that where they are today, they're not set and some previous level, but mark do you want to go into any more detail on that mark.
Mark we don't comment on price by channel, but but I'd just emphasize the point you raised which is.
And when we enter into new contracts. The reference point for pricing is where pricing is today and where it was.
Previously so that's that's the benchmark rate and then maybe I'll just emphasize also that we're leveraging this very tight demand situation on tio too.
To improve the quality of our business and to layer and.
More business Thats on long term contracts and which we think is desirable.
As we improve the tio to a business going forward and we continue to regain market share.
<unk>.
All our product segments.
Very helpful. Thank you.
Your next question comes from Bob <unk> from Goldman Sachs. Your line is open.
Good morning. This is Tom Glinski on for Bob first question just on the TT business.
How should we think about what you have baked in to the full year guide from pricing standpoint, I would think based on your earlier comments the sequential improvement and the.
Second quarter should likely exceed the sequential improvement that you realized and the first quarter or so.
Just some commentary there would be helpful.
Sure Tom Mark why don't you wanted to yeah, I think as we indicated in our call. We have seen an inflection and price we see good market momentum. So our expectation going forward is that the market remains strong and we will certainly.
Have a good mix of both Eva and flex business.
I'd also mention that in a sense with the storm Yuri our plants have run very well so our plants ran well in March our plants are run and have run well and April so our ability to serve all of our channels.
Remains very favorable and clearly as you would expect the flex channel is where when markets are tight you can take the most price. So I'd say, we fact that certainly that into our outlook and as Mark mentioned some of our guidance philosophy.
Safi.
It's been somewhat conservative given some of the broader macroeconomic factors that we're watching.
Got it Okay. That's helpful and then on the TSS business, you called out additional seizures of illegal refrigerants, I'm, assuming and Europe.
So this reads positively, but I'm just wondering if this could potentially signal that we've seen a pickup and the absolute level of illegal imports. So just naturally.
There is some more seizures being associated with those so I guess are there more legal imports coming into the region and there were and maybe 369 months ago or is it just purely that enforcement is improving.
And I'll let.
And mark to answer that and Ah.
Because I think thats real important for everyone and understand what we're seeing and Europe.
Maybe just to give a little bit of context time from that standpoint.
We're very positive about what we're seeing with opt in right now all across the world and.
And with the EPA.
Coming out with their initial draft rules, just yesterday I think you see built into that that theyre going to move forward, we will applaud the biden and administration for being able to aggressive as they are getting back into the kigali kind of.
A level here, but at the same time I think the U S B and a lot from Europe in terms of how they're putting in protections against illegal imports as well, but mark why don't you explain what we're seeing and Europe at the same time.
Yes, Thanks, Mark overall, I'd say, we're very encouraged by the tone of the market in Europe and refrigerants.
<unk> stationary refrigerants, both legacy and <unk> blends.
A combination of and.
Continued improvement on the enforcement side.
Recall earlier this year, we had a step down and the quota and of course, we're starting to see some in the early stages of recovery.
In terms of commercial buildings and meeting refrigerants as we come into the cooling season, and then we come out of COVID-19.
As we start to emerge from that and Europe. So overall I'd say, we're encouraged and I think it's all three factors.
But caesars the level of seizures and the level of profit.
And while we call Internet take down and switches product being marketed on the Internet.
And have improved year over year, and we're encouraged by what we're seeing and Europe and we're also encouraged as Mark said by.
And the recent action by the EPA to form ranks on the amax. So overall.
This is the next stage of opt in and growth on the stationary side, both in Europe, and the USA and the team's ready to service that demand.
That's helpful. Thank you guys.
Okay.
Your next question comes from Hassan Ahmed of Alembic Global Advisors. Your line is open.
Good morning, guys.
Zone.
Hi, there a question around titanium dioxide volumes.
And obviously your volumes were quite strong and our year over year basis, but sequentially after around 2%.
So when I sort of sit there and sort of compare and contrast, and two other large competitors sequentially. They seem to have had a larger thumbs up and volumes. So I'm just trying to sort of reconcile.
The sequential and sort of uptick and your volumes relative to the commentary that you gave about sort of steel and being able to regain lost market share through the course of the year.
Right.
And good questions and I would say you got to remember last year and so if you look at quarter to quarter year on year. If you will year on year, we had a very strong first quarter last year.
With things really starting to ramp up and.
Our opinion and things were significantly starting to ramp up from a standpoint of the.
<unk> industry and then obviously, we saw COVID-19 hit us, which made a big difference but.
From the standpoint of comparison I think you've got to think of it from that standpoint, and also as we talked about we had some disruption from the winter storm from that standpoint, I think youre going to see us continually gain and volume.
Through the rest of the year as well as we anticipate gaining share for the rest of the year and going forward, but you just had a.
I would say.
<unk> year on year, not as strong a year on year comparison, because of a quarter last year.
But I began as going forward down going into the second quarter and beyond Youre going to see a lot more strength from a volume perspective and.
Understood understood and now switching gears to the feedstock side.
And again sticking to titanium technologies.
It seems that ore availability was tight.
Last quarter seems to have only gotten and guide this quarter, particularly from what I'm hearing out in the out in China, and then you have company and <unk> coming out and reporting sort of.
Production declines so a two part question one and what are you guys seeing incomes of more cost inflation and how are you handling that and Bakken parcel with that what are you guys seeing Inc.
And <unk>.
Cost cuts, where do you see the high and the cost curve currently with the sort of oil price inflation that we're seeing.
Yes.
Start with we have long term contracts and our ore. So we are not seeing or inflation. At this time from that standpoint, we have plenty of supply and more from that perspective as well so.
From an ore side, we feel very comfortable where we are throughout the rest of the year.
Thank you are seeing some issues in.
Sulphate ilmenite in China, which is a little bit tighter obviously, that's not us are our big play as everyone knows is chloride ilmenite, where we have.
Ample supply to be able to support us going forward from that standpoint. So.
From the standpoint of.
Pricing, obviously, we don't talk about pricing directly but.
Our whole concept of bringing TBS to our customers was to give them predictable pricing and to give them predictable supply and I think the past several months and proven the value of that strategy.
Not just for us, but for our customers, which is the reason we installed it. So I think that the right things are happening for our customers and the marketplace. They know where they can get product. They know they can get it from us they know what their price is going to be going forward. They know the mechanisms how that's going to change.
And because of that I think for the first time and a long time youre not seeing the spikes that normally incur in.
I would say a wording issue well where people are bringing in lots of inventory because they just don't need to do that so I think youre seeing a very different dynamic in this.
<unk> market, which I would say is going to be more of a steady growth versus driving to a peak that that didn't crashes and I think youre going to see steady growth here, that's going to benefit everyone and Mark I don't know if you want to add anything to that but I think it's a different dynamic and then what.
And we've seen before and this marketplace.
Yes, Mark I would just make three points.
One is were well supplied on or we continue to focus on in our plants on being able to run.
More ilmenite and reduce our dependency on high grade ore, but we remain well supplied obviously in Q1, given the strength of the market and some of the disruption and we had with you worry.
We did and optimize our ore blend and our to meet customer demand and then the other point I'd make which goes back to where you started and a sequentially. We had a much stronger Q4 than some of our competitors. So the sequential comparison doesn't look as good it's impacted by euro, but it's also impacted by a.
Really strong.
Q4, so overall as we look forward, which I think is where you should be focused is our ability to supply.
Based on our nameplate capacity and how well our plants is running.
And is good and we're taking advantage of the strong market conditions. Despite some other disruption we had in Q1.
Very helpful. Thank you so much guys.
Okay.
Your next question comes from Duffy Fischer from Barclays. Your line is open.
Yes, good morning Fellows.
Question on <unk>.
T O to what's possible from a volume side. So if demand continues and we use Q1 as the baseline.
And obviously you had some issues and disruptions, but my guess is you probably also sold a little bit out of inventory that you carried over and so when we think about that sales level from Q1 going forward. The rest of this year. If demand is there to net volume move up 5%, 10% how much more room on a quarterly basis do you have to grow off of Q1.
And then when we get into 2022, when do those debottleneck and all.
Through that we can see even more volume.
Yes, So and then maybe I'll start Wm Mark.
Go into any more detail, but we have.
We expect demand will continue to strengthen.
Throughout the year, we have the capacity to be able to meet that going forward.
And we have a variety of ways to increase our capacity even before we do all the Debottlenecking work as you know or blenders is one aspect of that but we are operating our facilities now these.
These facilities take a little bit of time to ramp up to full capacity. We are in the midst of that right now, but we feel very very confident that we can supply the needs for this year and we do anticipate the demand to continue to be strong.
For the rest of the year going forward and Mark I don't know, if you want to add and <unk>.
Mark.
The only thing I would emphasize for Duffy is you need to separate.
Our ability to supply and a ramp up mode with pretty strong demand coming out of Q4 into Q1.
And winter storm euro versus our nameplate on and our ability to supply.
Going forward. So so certainly I wouldn't want you to to gear our Q1.
Ability is.
Our ability to supply based on our Q1 volumes.
Because of winter storm, Yuri and our continued focus on on on running all of our plants.
At.
At their capability.
Great. Thanks, and then maybe just a follow up on my earlier point with the EPA rule that came out yesterday.
And obviously a lot of the headlines were pretty force.
A big step.
Relative to what you've been working with and have over the line.
Several years, where does this more and when we think of Europe as a template there was kind of one year that ended up being a big step change for Egfr driving drove growth HFC pricing actually their first year you had a step down the way you read the text of what came out yesterday, what year is going to be.
The big move and the U S market. If this gets implemented as they wrote it yesterday.
Yes, so and like I said Duffy, we are very supportive of the.
The aggressiveness.
The administration Im trying to get this out and trying to get a final rule in September which we think is going to be very helpful. Obviously. This is the first draft rule. So we'll have our comments that we will be working with them on.
And the baseline that's being set up 21%.
2011% and 2013, we think is a solid baseline.
Holiday now and figure out the quarter off of that.
I think is going to be interesting, but they pretty much are lining us up with co galleys. So.
A big step down based on could gallium would occur and 40% step down which is huge and 2024. So I think youre going to see 2022, and 2023 be positively affected to get in front of that from a standpoint of.
And remember we are one of only two players who have the <unk> technology, that's going to be able to drive the new adoptions and as the big Oems move quickly to be able to get their equipment in place.
And that's going to play well. So you have the benefit as you said.
And quota and the HFC prices that should should move in accordance with that but we have the the bigger advantage, which is we get into <unk> and marketplace as well, which we think is going to be even.
A bigger advantage for us going forward, so I would say.
We're still early days and I'm looking at it we just looked at it last night because it just came out but I would say the framework is there and we will give our comments to the EPA from their draft rule to make sure that they understand that the two big players here are U S manufacturers, who invented this technology and.
We believe that we should have some advantage because of that.
Great. Thanks, guys.
Yes.
Yes.
Your next question comes from Arun just wanted from from RBC capital markets. Your line is open.
Great Thanks, and good morning.
And just wanted to ask a question I guess on.
Titanium technologies so.
Could you just describe the inflationary environment there I know that you have.
And through some supply chain disruptions, but.
Obviously.
You may also not be as exposed to raw material inflation, just given your flexibility, but what are you seeing there and.
If there is inflation.
Editor space.
You view that as a slight positive.
Yes, and I'll let.
Mark give you a little bit more color here, but as I said, we have long term contracts.
In place with.
Both our or and our other raw materials like full range. So we feel very confident from a standpoint of supply around those for the remainder of the year and.
And and a lot of those cases those are multi year contracts from from.
From our standpoint as well so we're very very solid in terms of.
And from that standpoint.
And again we.
The whole concept of our Ava contracts and GBS are really about making sure that we're getting and predictable pricing.
To our customers going through this and so lining up our supply.
Situation and a way that allows us to be able to have our solid margins and and not have to pass all that onto our EBITDA contract holders and very important but mark I don't know if you want to add any more to that.
The only thing I'd add is clearly we're protected with our multiyear contracts and we're very careful in terms of how we layer our contracts and to avoid significant.
Duration exposure.
I'd also remind everyone that arun that we.
With our ability to run chloride.
Chloride ilmenite and lower grades of ore.
Our advantage versus our competition in an environment, if there would be more.
Or inflation going forward and then the third point is clearly in Q1.
To meet customer demand with winter storm Yuri.
Didnt optimize our ore blend, but that is something we will continue to focus on.
As we go forward.
Which would improve our variable cost structure.
As we move out several quarters.
Great Thanks, and as a quick follow up.
It seemed like the recovery started in China.
Maybe there's been a little bit of moderation there recently.
Is that accurate and I guess and then.
And I guess I am referring to tier two and then.
Similarly, do you expect to kind of North America, and Europe to kind of follow and the next.
A year or so.
And pick up some of that slack, if China is stabilizing or how would you kind of characterize the regional dynamics.
Mark do you want to yes.
And I'd say, our business and China is very strong and in fact, where we participate in the market.
And the high grade ore space, as we said and the call our volumes are up and.
Across the board and every region and every product line. So.
We certainly see this as being in the very early innings of a good recovery.
And we believe the strength that we're seeing from consumer demand around the world is is going to last and certainly for some time to come and then the strength that we see coming behind that.
With infrastructure spending.
It could extend that.
Significantly so.
And we certainly believe we're in the early innings of a very good recovery and.
And as Mark alluded to earlier and a structurally we like some other things that we're doing in terms of our participation and the tier two market, which which should give us a good run here.
Thank you.
Your next question comes from P. J <unk> from Citi. Your line is open.
Hey, Mark this is Eric Petrie on for P. J.
Good morning.
You've noted sales opportunities from hydrogen membrane and the $2 billion to $3 billion by 2030.
I'm not sure could you capture and then.
And then volumes.
The increase this quarter.
Yes so.
I'd say, we continue to see.
<unk> and <unk> and ACM business, It goes and a variety of places obviously fuel sales as well. So yes, we continue to see strength and the and the Gnathion business from ourselves and we are the.
We are the membrane if you will for this going forward. So I think our share is going to be really dependent on the developments that we can do to make this membrane.
And you continue this membrane to be the standard and the industry I'm convinced that the membrane is going to be the driver of efficiency and cost reduction for hydrogen which is why it's going to be successful going forward, but.
And as Mark alluded to in his comments, we're going to do a deep dive on this segment for for all of you because we get a lot of questions on that so hopefully and the next few months, we will we'll get that on the calendar for everyone and we will go through a lot more detail on why we have so much confidence in this space why we believe this membrane is real.
These standard.
In the industry and especially for heavy duty diesel as well as force electrolysis going forward and fuel cells in general. So again, we feel that we should be able to capture cigna.
A significant portion of that.
Of that market. If we can continue to drive the developments that we're driving right now.
And then secondly in order and the recovery and your end markets. So a question on free cash flow to buybacks potentially later this year and 2022.
Yes, Sameer why don't you talk a little bit about how we're thinking about our use of cash right now.
Yeah. Thanks, Mark Eric If you look at the Mark highlighted some of the interesting from a growth opportunity and <unk> investments and the PSA site.
We are pretty excited about film and think that we see from an organic growth perspective, and we continue to support their well, we can do that rather than the capex price that the agreement and this year and both low levels.
And moving forward.
But overall you'd be have authorization from from our forward with respect to share buybacks and we'll be looking at that and overall the other thing I would say is from a leverage perspective.
And we're looking at.
Growth leverage reduction over the next three years and so I'll try to get the debt down too.
$2 $5 billion range, Steven and see us using some other free cash flow will reduce the growth that is well typically pretty balanced and move forward.
Thank you.
Your next question comes from Vincent Andrews from Morgan Stanley and your line is open.
Hi, This is Steve Haynes on for Vincent Thanks for taking my question.
Just on coming back to tier three and margin pretty quick I think last quarter, you made a comment that for the full year, you're expecting margins to be and kind of mid 20% range is that kind of still what you're looking for given that there is some incremental cost there.
Should it be a little bit lower now.
You mean on the.
<unk>.
Correct Yeah.
Yes, I would say as we look forward.
Mid to high <unk> is where we should be aiming the margin. So we don't see any.
<unk> effect.
And on margin going forward I would say, we see a positive affect us as Mark said and we had a first quarter that.
We did and operate them.
The way, we normally would because we had to ramp up production pretty quickly we had to get product out because of the downtime from the storm. So we didnt optimize our ore blends and so as we go forward I think youll see us optimizing our ore blends and theres going to be a little bit of a positive.
Price impact as well so I would say margins should go up from the first quarter and should be in that mid to upper twenties range.
Okay. Thank you and then really quick on cash flow I think.
And receivables and a big a big.
Big build this quarter.
And that kind of expect it to reverse.
What are your general working capital assumptions and low free cash flow guidance for 2020, Yes, I'll, let Sameer give you the detail there, but do remember that we had a big revenue quarter. So there is a reason for.
Receivables to go up and the big revenue quarter, but Sameer and do you want to add anything.
No I think Mark you said it.
Pick up and the revenue and also the timing given that it happened in the quarter. So I will.
And read too much into it.
DSO levels were pretty consistent from what we would see two other.
The seasonality and the business right and this and the timing and you started seeing the pickup.
And into sales.
And then the cooler and the defense market.
DSO is pretty consistent with what we would typically you have a system of the season.
And maybe the only thing I would remind everyone is whenever you have sales backend loaded in the quarter because of winter storm here in February it tends to drive a slightly higher receivables and then you might otherwise see so nothing unusual there.
Thank you.
There are no further questions and I'll now.
And I'll turn the call, Oregon, Mark for <unk>.
And for closing remarks.
Thanks, Jacqueline and listen I, just want to reiterate how a.
Close my remarks, we feel very very positive.
Where we are right now as a company, but really about the future as well so.
And you probably heard it and our tone, but.
We go through the year, we hope to give you a little bit more insight into why we feel really good about those segments that we have and how we're growing them going forward. So again. Thank you as always for your interest and the company and thanks for your support.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
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