Q2 2021 Chemours Co Earnings Call
[music].
Good day and thank you for standing by welcome to the <unk> Company second quarter earnings call.
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Zero.
I would now like to hand, the conference over to your Speaker today, John Locke, VP corporate development and Investor Relations. Please go ahead.
Good morning, and welcome to the towards the company second quarter 2021 earnings.
Starting with call of <unk>.
Joined today by Mark Lehmann, President and Chief Executive Officer.
And the overall home senior Vice President and Chief Financial Officer.
Before the start I would like to remind you that comments made on this call as 1 of the supplemental information provided in our presentation and on our website contain forward.
And with looking statements that involve risks and uncertainties, including the impact of COVID-19 on our business and the operations.
And the other risks and uncertainties described and the documents can more supply of with the SEC.
These forward looking statements are not guarantees of future performance and are based on <unk>.
Earnings assumptions and expectations of future events that may not be realized.
Actual results may differ and Morris undertakes no duty to update any forward looking statements as the 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.
Certain investors evaluating the company's performance a reconciliation of non-GAAP terms and adjustments are included in other b and at the end of this presentation.
With that I'll turn the call over to our CEO, Mark Newman, who will review the highlights from the second quarter Mark.
Thank.
Jonathan and thank you to everyone on the call for joining us today.
And Im excited to be speaking to you today on my first earnings call.
CEO of the commodity company it is the.
Busy time here at <unk>, but the energy I feel from our people from our customers suppliers and.
And the investors is so incredible.
This has been in part driven by the broader macroeconomic recovery from COVID-19, but more importantly, I think it reflects the enthusiasm and passion of our teams and the deeply held belief that our chemistry has the.
To change the world.
That and I have charged the people of this company to drive even sharper focus on creating the best products for our customers and helping solve the world's biggest challenges from climate change to energy storage.
Power and high speed data.
And our chemistry is fundamental to the future and through our innovation, we have the power to make a difference.
There is a rich canvas of opportunity, which lays ahead of us and we are well positioned to drive long term growth for.
And the benefit of all of our stakeholders.
In 2021, we are focused squarely on delivering on our plans and ensuring that we take full advantage of market opportunities, which we are uniquely positioned to capture.
Turning now to the highlights from the second.
<unk> toward the on chart 3 dimmed.
And demand momentum from the first quarter continued into Q2 as the global recovery from COVID-19 continued at pace, we set a number of revenue and profitability of records across the portfolio in the second quarter, including at.
<unk>, the third highest quarterly sales in <unk> history.
Net sales increased 51% to $1.7 billion.
While adjusted EBITDA of $366 million increased $200 million from the prior year quarter.
Our titanium technologies results demonstrate the benefits of our Tvs strategy and the continued economic recovery driving our volume to historic levels and supporting higher Ti pure pricing across all channels.
We are delivering on the challenging.
<unk> supply chain and logistic conditions, which is becoming a real differentiator and customer choice the.
And the execution of TBS improves our quality of earnings through the cycle by creating neutrally beneficial long term relationships with our customers and.
Being a better book of business.
And our thermal and specialized solutions segment, we reported another strong quarter rebounding global markets are supporting improved volumes and higher pricing and base refrigerants.
Operationally, we have recovered well from the weather impacted.
And this quarter, which helped to support our strong margin performance in the quarter.
The global transition to H F O of technology is underway.
With many years of growth ahead and.
Enabled by better enforcement of <unk> regulations in Europe, and the coming implementation.
Asian of aim regulations in the U S.
We have shown incredible progress and our advanced performance materials segment the.
Demand has recovered across the majority of our end markets, leading to historic highs for quarterly sales and adjusted EBITDA This quarter.
The first APM is transforming fast and and primed to deliver.
The business is delivering on proof points that support our near term GDP plus growth ambitions.
Meanwhile, we are positioning ourselves to capture the secular growth overtime as key trends take.
Take hold and semiconductor manufacturing 5 key communication and hydrogen generation.
I'm, especially proud of these results in the context of global supply chains disruptions, which have impacted everything from the raw materials, we procure.
Sure to shipping containers, which we use to serve our customers.
Everyone at <unk> has stepped up over the last several months to support stable operations and I would like to take this opportunity to thank the entire team for their continued dedication to our.
Our customers.
This week, we also announced the signing of a definitive agreement to divest our mining solutions business to drive lasco 4 of $520 million or 10 times 2020 fiscal year adjusted EBITDA.
With these trends.
Transaction, we are furthering our strategy to focus our portfolio and drive long term growth around our 3 core businesses.
This was a great result for <unk> and <unk>.
Mining solutions team and for our shareholders, we executed quickly having just.
Launch the process in Q1.
And anticipate the transaction will close by the end of this year.
I would like to thank Jonathan lock and all of the <unk> team and falls for helping us achieve this great outcome.
Before turning things over to Sameer I wanted to cover of 1 more topic.
The most recent publication of our 2020 corporate responsibility commitment report released a few days ago.
The annual publication of our CRC report has become a tradition of <unk>, which I look forward to.
4 years into our sustainability.
Any journey, we continue to make significant progress against an ambitious set of 2030 goals I'll discuss the content of the report in more detail here on chart 4.
In 2018, we set out to chart, a new course for <unk> and the <unk>.
The pivotal the industry more broadly.
We introduced a comprehensive set of goals designed to push ourselves to a highest standard and we have been relentless in our pursuit of these goals over the last several years.
As a reminder, these goals cover of our share planet.
Inspired people.
Chemical and and evolved portfolio when we set these goals we weren't entirely sure how we would achieve them by 2030, but we have attacked them with the same resolve we took to the spin our transformation and reshaping our portfolio.
As.
People can see on chart 5 even in a year Mark by COVID-19, our teams have rallied around this common cause to deliver significant progress across the board.
This is so important and exciting to me because we know that priorities become clear on the times of duress.
In 2020, we kept our focus on our norstar, keeping our people safe and serving our customers, but also saw to it that we continue to make progress against our CRC goals.
And the share planet, we have reduced our fluorinated organic compound emissions.
And our greenhouse gas emissions by 48% and 29% respectively from our 2018 baselines.
We are on track to hit both our 99% reduction target for Fluorinated compound emissions and under 60%.
<unk> absolute reduction in greenhouse gas emissions by 2030.
We are targeting net zero of greenhouse gas emissions by 2050.
And are inspired people pillar I would like to highlight the increase in female representation on the senior executive.
The team.
Up to 44% as of July 1 from.
From 13% only a few years ago.
There is still work to be done to ensure our overall workforce gets the 50% women by 2030.
I am proud of the success, we have had and the leadership.
The ship level, thus far.
With respect to the ethnic diversity of our U S workforce, we are nearing our goal of 20%.
Again with significant representation on our senior executive team.
And finally in the evolve portfolio.
Over 1 third.
And of our products by revenue make a specific contribution to the UN sustainable development goals.
As we move closer to our goal of ensuring 50% or more of our revenue comes from offerings that make specific contribution to the UN sustainable development goals.
The headlines are of course opt in and the feeling but Tim Morris is making a difference much more broadly across the portfolio.
For all of the details. Please have a look at our CRC report posted on our Investor Relations website.
With that I'll turn things over to Sameer.
The review of the financial results for the quarter all the back to talk about our revised guidance before turning to Q&A Sameer.
Thanks, Mark turning to chart 6.
Results of the second quarter continued the trend from Q1 with demand improving across the portfolio.
Q2, net sales of 1.
$7 billion were up 51% and year over year, and 15% on a sequential basis the <unk>.
Mobile recovery continued to pick up steam across most of our end markets.
GAAP EPS loss of 39 per share and adjusted EPS of $1.20 per share.
And adjusted EPS reflects.
Here to rack of 2 key charges.
$169 million related to the remediation of on site water and physical site to address legacy liabilities.
And $25 million associated with the Delaware settlement, which we announced several weeks ago Mark.
Some of these in more detail on the next chart.
Adjusted EBITDA.
And by $200 million.
The $366 million and the second quarter, driven by higher volumes and pricing with currency, providing a slight tailwind.
Margins rose to 22% on a company wide basis.
Free cash flow and the quarter was $189 million.
Our cash performance and the quarter reflects.
Our continued commitment to improving the overall quality of earnings of the company and more importantly, converting earnings to cash.
On July 28, our board of directors approved of the third quarter of 2021 dividend of 25 cents per share since.
This amount is unchanged from the prior quarter and will be payable to shareholders of record as of August 16.
And 2021.
Turning to chart 7 let's take a closer look and the composition of the 2 key charges, we took and the quarter, including the potential cash flow impact over time.
And as previously announced we entered into a settlement with the state of Delaware and the second quarter of which <unk> and will be a 50% of the cost of about 20.
And this amount is expected to be paid and the third quarter. This year.
Second chart is the 169 million add back to adjusted EBITDA related to legacy remediation of Fayetteville works and.
As you will recall, our consent order with the state of North Carolina has 4 key elements first.
Emissions from air, which we addressed with the thermal oxidizer that became operational in December 2019.
Second the charges of process water, which we are addressing with the offside treatment.
Third treatment of legacy Offsite drinking water supplies, which we are addressing and the surrounding community.
And last 1 from.
The remediation of legacy onsite ground and surface water contamination.
The charge of 169 million debt, we have taken and this quarter is primarily related to our current estimate to address this last item as you can see at the bottom of the chart is primarily composed of estimated cost to build of valuable and the long term operations monitoring.
During and maintenance costs.
We anticipated regulatory approval from North Carolina on the design of the barrier of wall. During the second half of 2021 and expect construction to take place throughout all of 2022 and first quarter of 2023.
The bars on the right hand side of the page illustrate the free cash flow impact of the <unk>.
Entire Fayetteville accrual of $355 million over 20 years.
Over the next 3 years promotional spend roughly $80 million on.
<unk> and startup.
The maintenance and operating costs and expected to be approximately $5 million of cash spend per year.
Both of these figures assume of benefit of cost share.
Airing under the Mou with Dupont and co timber until the year 2040.
We are proud of the work our teams are doing to ensure we live up to our consent order and enhance the sustainable and manufacturing practices of the faith and Worksite, which.
Which we expect to continue to be a key employer and the region and the play a key role.
And the growth of our APM business, serving markets, such as <unk> and the hydrogen economy.
We continue to work cooperatively with the state of North Carolina to put the final pieces of the project and place.
Hope that this chart is helpful to our investors to understand not just of its impact on our free cash flow, but also of.
Clear demonstration of what we're doing to honor our commitments.
Yeah.
Turning to chart 8 let's review the adjusted EBITDA Bridge for the second quarter.
The second quarter 2021, adjusted EBITDA was $366 million up $200 million from the same period in 2020.
Other pricing and TD and the APM more than offset contractual price downs and TSS.
Volume was the big story and Q2 on a year over year basis, we.
We delivered significantly higher volumes across all of our operating segments.
Led by TT and TFS.
And I'll cover the segments specific drivers.
And provide a bit more color and a few charts.
Our thoughts and the quarter were attributable to operating cost due to production ramp up and supply chain issues raw material input inflation increased cost related to environmental and legacy costs and higher performance based compensation.
We continue to operating well despite.
Logistics and supply chain issues.
Turning now to chart 9 but also of our liquidity.
Our cash position liquidity and balance sheet remained strong as we move into the second half of the year.
Our cash balance of the end of second quarter was $1.1 billion.
Up from $1 billion and the prior quarter.
We generated $256 million and operating cash flow in the second quarter, while capex was $67 million.
We returned $42 million to shareholders and the form of dividends and repurchased $13 million of stock and reduce the U S dollar term loan by $22 million.
Globally, we continue to have a balanced approach of capital allocation.
Net leverage improved to 2.6 times on a trailing 12 month basis down from 3.4 times and the prior quarter.
Total liquidity of solid at $1.8 billion and.
Including the revolver availability of $689 million.
We continue.
Continued to be well positioned and have balance sheet flexibility to support our operations and supply chain to meet increasing customer demand.
On chart 10, I'll cover the results and outlook of our titanium technologies segment.
Accelerating economic activity and normalizing seasonal consumption led to strong demand for type of pigment and.
Reorder.
Demand has steadily improved across all end markets product categories and geographies.
Strong sequential volume growth reflected typical seasonal gains and progress towards our share recovery target.
Our ability to meet robust customer demand was achieved despite supply chain and logistics issues.
The second around the world.
Our flexible manufacturing circuit and the dedicated work of our operations procurement and supply chain teams led to record operating performance.
Turning to the numbers.
Second quarter net sales rose, 76% to $859 million.
Volume increased 6.
The 6% versus the prior year and 15% sequentially.
Price was up 5% of year over year, and improved 3% sequentially driven by gains across all selling channels.
In the quarter, we began to see the benefit of price actions taken over the preceding 2 quarters and flex.
Pricing and our contracted EBITDA channel also improved driven by both contractual and negotiated and mechanisms.
<unk> and inflationary global environment.
Adjusted EBITDA for the segment rose, 133% to $219 million.
Driven higher by the volume of <unk> sales recovery.
Adjusted.
Adjusted EBITDA margins increased by 600 basis points to 25%.
Embedded in and out of improved results for our hydro plant fixed cost to support volume growth modestly higher Ros and expenses associated with supply chain disruptions.
Multiyear supply contracts insulate us from short term movements.
Price looked like most of the industry, we were dealing with lingering raw material shortages that force us to operating and manufacturing circuit, some optimally to meet higher customer demand.
And we look ahead, we expect continued strong performance and the second half with demand, reflecting typical seasonal patterns.
Our teams of 100% focused.
And for the customers, increasing demand and driving adjusted EBITDA margin expansion.
Normalized <unk> of supply chain challenges will be a key component in achieving this goal.
Moving to charge of 11.
Thermal and specialized solutions delivered a strong year over year second quarter with contributions across all regions.
Based on the market driven by the economic recovery with the sequential upside driven further by strong seasonal refrigerant trends.
After you and adoption drove improvement across stationery and automotive markets. Despite constrained automotive production from the ongoing semiconductor chip shortages.
Our customers continue to select opt.
And as the refrigerant solution of the future and.
And <unk> is the partner of choice.
And this quarter, we announced the Johnson controls has selected <unk> and excellent 41 to replace our Forte and <unk> in North America, and <unk> products and air cooled Chillers.
We also announced the support of the Beijing 2000.
And 22 Olympic Winter games, with opt in and load DWP refrigerants and a number of facilities.
These agreements, while the commodity <unk> and franchise and for the planet.
Looking more closely and the results Q2, net sales increased by 47% year over year to $340 million and increased.
12% sequentially.
Volume growth led the year over year recovery.
Brian from the 3% headwind on a year over year basis, driven by contractual price downs and certain product categories, but rose 5% on a sequential basis.
Pricing reflected improved demand conditions, including stronger in force.
<unk> of ex gas and Europe, and healthier demand and the Americas.
Segment, adjusted EBITDA increased 113% year over year to $117 million and the quarter.
The adjusted EBITDA margins increased thousands of <unk>.
This points to 34% versus the prior year quarter.
Horsemint of sales volume mix and improved plant operating rates more than offset modest headwinds from lower segment prices and higher cost needed to support higher demand.
Looking ahead, we expect the continued market recovery along normal seasonal patterns.
Adjusted EBITDA margins are anticipated to.
Pioneer and the low 30 percents for the remainder of 2021.
We are well positioned to support customers transition from legacy Hfcs to next generation global warming potential solutions as U S game regulation and accelerates after you and adoption.
EPA is working to codify standards for HFC transmissions.
Under the U S. <unk> Act, which is expected to go into effect January 1.2022.
Turning to chart call on top of our advanced performance materials segment.
I would like to start by highlighting the strong performance for the segment were just delivered its highest quarterly net sales and adjusted.
And the EBITDA in <unk> history the.
The segment continues to benefit from strong demand.
With the strength in our electronics, <unk> communications industrial and transportation markets.
Logistics, and raw material availability and challenge our ability to meet demand and this quarter.
Testament to our employees and the collaboration.
<unk> and of our suppliers and customers that enabled us to achieve the results we share today.
We continue to drive pricing actions and the customer and product level, which can sometimes be muted by mix effects across our diversified product portfolio.
As was the case this quarter.
Given the specialty nature and high performance characteristics of APM.
And products, we work with the customers to ensure that the pricing is reflective of the value they provide.
Net sales improved 24% year over year to $362 million drill.
And driven primarily by 19% volume growth.
Segment, adjusted EBITDA was $74 million of <unk>.
76%.
Over the last years second quarter of $42 million and of notable 45% improvement sequentially.
The sequential EBITDA growth demonstrates the operating leverage of this business and highlights the long term potential of our topline growth journey.
Adjusted EBITDA margins of 20% improved.
The increase of 600 basis points worsening of the prior year quarter exceed.
Exceeding our initial expectations and previous guidance for high teens margins, despite being weighed down by costs related to supply chain disruptions and higher performance based compensation.
Looking ahead to the rest of the year, we anticipate strong customer.
The demand to continue to drive growth on a year over year basis.
We believe full year adjusted EBITDA margins will be in the high teens percent range and we remain committed to achieving the low 20 percents in 2020.2.
Moving ahead to our chemical solutions segment on chart 13 second quarter net sales were 94.
$4 million and increase of 15% year over year inclusive of over 17% portfolio of impact from the shutdown of our analog business last year.
26% year over year volume growth was driven by a continuation of our robust demand and sodium cyanide and glycolic acid products.
We expect momentum to continue and lending solutions with steady improvement and the core mining environment.
And the demand for glycolic acid is expected to remain strongest ball.
Adjusted EBITDA with the $19 million for the second quarter of 2021 with modest cost headwinds from logistics and supply chain considerations offsetting of.
Sales performance.
With that I will turn things back over to our CEO, Mark Newman and Mark.
Thanks Samir.
We are updating our guidance for the full year to reflect the momentum we feel across the business we.
We now believe that our full.
Better 2021, adjusted EBITDA, and adjusted EPS will be and the upper end of the previously communicated range.
Recall that we had raised both of these figures during our Q1 earnings announcement.
We are leaving our free cash flow of guidance unchanged at greater than 4.
All year and $50 million.
To reflect the impact of 1 time cash payments and the year.
Including our Ohio and deal payment earlier, and the year and our recent settlement with the state of Delaware, which Samir took us through.
Operating cash flow.
400 continues to be strong.
This outlook of course excludes the impact of the mining solutions divestiture too that we just announced.
We believe we are well set up for a great 2021, and we'll continue to focus on executing our differentiated business strategy.
Throughout the year.
We remain fully committed to generating significant earnings and free cash flow through the cycle in.
Improving our quality of earnings over time, and maximizing the value of <unk> over the long term.
In July we celebrated.
<unk> is our sixth birthday as a company it's hard to believe how quickly the time has flown.
We have achieved a lot and the last 6 years.
And our bright future is built upon the strong foundation, we have laid as the team.
It all starts with our people.
<unk> 500 employees of <unk>, who I am so proud to lead.
I look forward to continuing our great work together.
As CEO I promise to lead with an eye toward helping each of you succeed and enjoy a rewarding career and <unk>.
The silver we must continue to move fast and with the entrepreneurial spirit that has served us so well since spin.
As I think about the future it is impossible to ignore the macro trends and the context in which we operate.
As the chemical company.
To get long and proud heritage.
We are the foundation for innovation around the world.
Improvements and the performance environmental footprint and cost of our products has a multiplier effect well beyond kumars opt.
The <unk> 10, and Nathan and are just 2 examples.
And with all of her Morris chemistry can change the world, we will continue to deliver market leading improvements.
In our industry to help power of the future.
I look forward to engaging with you our investors over the coming months to help you see the full potential.
Some of this company through our eyes.
I believe the future is bright here at <unk> and I appreciate your support and helping us achieve all of that we're capable of.
With that operator, please open the line for questions.
At this time and if you would like.
Potential of a question press star 1 on the telephone keypads and again that it's time and the number 1. Your first question is from John Mcnulty with BMO capital market.
Yes. Good morning. Thanks for thanks for taking my question, maybe and maybe a quick or relatively easy wanted to start out.
On the <unk> business you commented in the in.
And the release that you saw pricing across all channels can you, maybe unpack that a little bit force and speak to the pricing trends that you that you were able to capture and the TBS side of the business of the contracts out of the business as well as and then and then maybe give us a little bit of color as to what you were seeing and the portal and distributor side.
Yes, good morning, John.
To ask and really.
Right.
Interest and supply from our type of pure franchise true.
The core debt.
And as we've said, we adjust pricing regularly on our flex portal and through our distributor channel.
And as well.
And there are mechanisms.
And on price increases.
Contractual rates through our Ava contracts, so we're seeing.
Clearly with our strong production and the BARDA and the ability of some volume or product.
Through our <unk> and aviation channel.
But we're also seeing.
And then in.
To take price and.
The tracks will arrangement and were.
Coming into this year.
Maybe non PCI.
The mid to high single day this year.
Sort of publish.
But again Thats the primary mechanism.
And <unk>.
And the advantage of that.
Contractually.
Got it that's that's some helpful color and then and.
And then thinking about the TSS segment.
It sounds like the the.
<unk> is going to be certainly a sizable sizable contributor to growth can you help us to quantify.
Hi.
Additive that will be as you look to 2022, when it first gets initiated into and into the U S.
Yes.
So first of all of it.
Very excited about the.
And Matt.
And then.
Each of the regulations that are.
Design.
And should be finalized later this year.
And we believe that will provide a significant leg of growth.
Hey, Sherri and market.
The board and especially.
And our expectation is the initial step down from a quarter perspective.
And then the 10%.
From the baseline that jumps up to 40% of the baseline by 2024.
Our expectation of Haynesville of start.
The impact in 'twenty 2.
But the impact will become more sticky.
And as people migrate the ACI both technology.
Clearly.
And as you heard in the call we have OEM manufacturers, who are already speaking of product line, so that along with the order of magnitude on the peak.
We're ready to drive and then.
Great. Thanks, very much for the color.
Yes.
Your next question is from Bob <unk> with Goldman.
Edman sacks.
Thank you very much good morning.
Mark I was wondering you guys talked about sort of flexing your circuit in TT and order to meet customer demand.
I presume that to mean higher grade more costly or.
I'm wondering if you could help quantify what the penalty.
<unk> on margins was.
Or maybe as you look forward how much more margin uplift you might expect and TT.
Yes.
And to make and additional comments here, but as we look at the year clearly there is operating leverage in our business.
Do you see with the.
The margin expansion.
Going from Q1 to Q2.
We are happy to give up.
Expansion and margin Randy.
Randy and focus on maintaining strong customer needs.
And the threat of thing all of the supply chain disruption so as.
And early in the year.
Really not been able to quote and quote optimize the circuit given the strong demand.
And our desire and meet customer needs first.
As the as we work through the year I think we continue to look for opportunities and my semi.
Yes, Thanks, Mark and Bob 1 of your additional.
The comment I would make it and the core markets of normalized it.
It will be the opportunity first of all kinds of circuit and trying to margins up but given the other but likely and the lineup right now do you expect more book.
Q4 phenomenon.
So keep the margins should be like the <unk>.
Sure.
Got it and then and APM.
You had a very respectable improvement and margins, obviously, a lot of volume recovery and fixed cost leverage coming through.
Kind of surprised of that kind of volume cadence. There was no pricing. So can you talk about the competitive dynamic there I would suspect suspected that maybe broadly pricing across the franchise would have improved.
Okay.
These are high value and use polymer and their price.
For the most part based on value and use.
And there is a bit of a mixed impact, but you have a strong economic recovery like we're seeing.
And towards.
Other than the more commoditized and of the space.
So I would say there is a mix impact there as well and then finally you know.
And we were taking price through the core of them.
But you will see the impact here as we move forward through time of that showing up more and our results.
Great. Thanks for the help.
Thank you.
Your next question is from Josh Spector with UBS.
Yeah, Hey, guys. Thanks for taking my question I guess, when you talk about and tea aloe to normal seasonal kinds of second half.
Give us some more color and if that's a function of demand or more supply constraints.
And within that outlook, where do you think your inventories and customer inventories and the year at this point.
So we continue to see strong.
And second half demand across all of our business and you could.
Moving and Tio too.
And clearly as we've stated.
We're taking action to be able to supply our customer needs.
And so kind of inventories across the especially and Ti to.
Our defense and talking to our customers the inventory of its remained level.
And the low where folks would like the E them and.
The.
And the entire supply chain.
As we look into 2020, 2 clearly we see the impact of the potential impact of the stimulus coming and usually a high correlation to the strong demand you know looking out 10 day, we certainly see a very strong second half demand some of it is primary.
But some of it is it's really a preference for tide pure and the T V and strategy.
And us taking share and then as we look beyond 2021 clearly we could see the impact of the stimulus and rebuilding inventory.
Okay, Thanks, and I appreciate it.
You know and munis fly and on your outlook you talk about the majority of free cash flow and returned to shareholders, which isn't a change and I talked about of previously.
And the high cost and now and get more tests of the mining solutions.
And how quickly do you and returning that cash to shareholders and look the right.
And cash.
And the holding on a normalized basis.
So maybe I'll ask <unk> to comment on the right level of cash but clearly.
And we set in the.
And all.
We view, our capital allocation and being balanced.
And as the starting to level of.
Lot of leveraging which we see as prudent from.
All of our learnings coming true.
The depth of the COVID-19 pandemic and then we continue to return the cash to shareholders through dividends and stock repurchases, which we started in the Florida.
We're going to have this balanced view of going forward.
And while we continue to invest reinvest prudently and the.
And the Merrill Lynch and make a few kind of got it. Thanks.
Thanks, Mark I think Josh the way you should be thinking about us from a balance sheet perspective is and we said and you're right. We do want and reduce our gross debt by roughly half of 1 billion over the next few years, so you're going to see us using our cash flow and a.
And balanced.
I want to make sure on net.
The times.
With respect to the mining solutions point of the debate and I think the way you should be thinking about is the proceeds of mining solutions and of course, given the little more degrees of freedom of grocery the mining solutions combined with our strong operating cash flow will be.
In line with the capital allocation policy and.
The agreement.
And of course doing and using it and a balanced.
And that is composed of debt reductions of investments and share buybacks.
Okay. Thank you.
Your next question is from Matthew.
The <unk> with bank of America.
Hi.
So it looks like price declines and PSS are starting to moderate a bit.
Is there any real tangible evidence that the legal refrigerant trade into Europe is slowing or is that more a function of just perhaps of the shipping constraints, we're seeing more broadly.
And.
And if it is if it is the former.
And how can you expect pricing to develop in that segment and.
And when theoretically if.
It is possible would we see that royalty income flow back to the company or is that still kind of out of the question.
So some of that.
We really.
We remain very positive on our outlook.
And for the TSA.
It's a multiyear second the growth trend.
Both Afghan and Dean.
To your question on pricing.
We have cost down and some of our large OEM.
The contract.
And on the automotive side.
And across the rest of the portfolio, it's really driven by market dynamics as we said on earlier this year, we see improving market dynamics.
And in both North America and in Europe.
And in Europe.
And when you read the pooling OSB youll see that theres been some debt.
A higher pace.
And features of the legal refrigerant.
The refrigerant.
And as we said earlier this year and the combination of economic recovery.
And base refrigerant prices and enforcement.
That really is driving a bit of market.
No.
And the overall pricing performance in the Florida is a function of.
Better fundamentals in North America and Europe.
Along with our cost down and we have and some of our large OEM contracts.
It's.
It's 1 of those Mark just 1 more point, if I would add is Matthew point on the.
And the royalty sales of assuming you mean quarter of sales effectively the way you should think about the thing and installation team.
Looking at the full spectrum that can be monetization of the theater, regardless it can be true quota sales of product sales. So it doesn't have to necessarily come through the quarter.
And there'll be optimize it across the portfolio.
Okay, and 1 more if I can.
Does the PVA and flex mix.
Flex portal mix into the queue shift back to more normal levels and it seemed like <unk> was pretty contract heavy and I guess and thats, 15% quarter over.
Increase in tier 2 and how much of that was with the flex volumes.
So I think what we said on Q1 and our.
And we said earlier.
We decided to take our.
Share of 88 contracts.
Up towards 70%.
At quarter end, and we had previously had been closer to 60% and net really as part of our strategy by Ed Sparks and the team and really.
Making the business more sticky and building a better quality of book going forward.
And with long term contract and customers coming.
Coming back to Kenmore and wanting.
And just supply and and so we've leveraged a very tight market.
To build out our EBITDA book, So that's really where we are today. Our expectation is we would like to stay in that range of about 70%.
Sure.
Because we don't really want and we want to be able to supply.
All of our customers.
Most of these contracts that are based on some share or share commitment and so.
We have to grow with our customers and be able to support them. We are very dedicated to all 3.
And of our channel.
As part of our TV strategy and we are.
Rarely do flex and distribution as a way of making sure. We can serve all of our customers.
Okay. Thanks.
And your next question comes from the line of Hassan Ahmad with Alembic Global.
Good morning, Mark.
Mark obviously very strong volumes within titanium dioxide, you know, great, 15% sequential gains and the lake.
Now we know obviously you guys had commented.
And the regaining pretty much all your loss of market share by year, and so I'm just trying to figure out where we stand with regards to.
2 sort of regaining that lost share.
And just played catch up as yet and I guess, where I'm going with the conversation is how should we be thinking about volume.
Growth in the back half of the year.
Do you feel that you will grow at a more rapid rate and the market.
And I would say.
The based on our assessment and it and it.
Mark and then we'll have to look at where everyone reports in the quarter.
On certainty and RF.
Yes.
And our view is that we continue.
To regain share and in fact I think.
Nicely and we have recaptured.
And this year that we lost and implementing.
And in implementing a tedious and.
But with respect to the second half I'd, just say, we see strong demand.
And the second half of our team is very focused on being of the supply of that.
And from both the supply chain and operations perspective going forward.
Understood understood and now sticking to co 2.
More on the raw material side of things.
And obviously on the ore side, we've seen sort of supply issues be it and South Africa be it in Sierra Leone, and and you know it seems some of these issues will linger on for a while so how are you guys thinking, particularly as you look at 2022 and contracts get reset.
And the like how are you thinking about availability as well as pricing for ore and.
Part and parcel with that.
It seems a chlorine supply now is becoming a bigger issue as well and chlorine price of obviously marching up as well so so what's.
The thought process over there and how do you feel about that market as well.
We remain well positioned with respect to our supply of all of volume.
Meet our customers' needs.
For 2020.1.
Work on our book.
To date and our outlook today.
And so clearly and as I mentioned earlier.
Some of the supply chain back to us.
Whether it's Oregon, the Ben and.
And the Olympia or other inputs.
Is Israeli and having the impact that we can optimize of our circuit.
And to optimize margin.
Against such a high demand and we're seeing our focus really remains on supplying our customers.
This is a huge part of our value proposition and and the strengthening.
Of our franchise has been regained share. So this has been the focus our view is as things moderate going into the second.
And it's really too some of.
Of these disruptions will be transitory and we will be able to to optimize our share it more fully and merit and if you have any other comment Stephanie and Mark adjusted growth.
And Mark venerate and other raw materials and be secure the stipulated from diverse suppliers and long term contractual basis.
And we make every effort to ensure that these are staggered and the income or inventory.
Very helpful. Thanks, so much guys.
Your next question is from from Vincent Andrews with Morgan Stanley.
Hi, This is Steve Haynes on for Vincent and staying on the Iot I was wondering.
And so we could just talk a little about demand trends in China, and whether you're seeing any type of slowdown and that's remaining strong and and any additional commentary you might have on.
Export outlook.
Great.
And our CIO to demand, we're seeing strong demand across.
The all of our product line and at Embraer.
Region.
And we continue to have a great franchise and China.
Which is it's growing so.
With respect to exports from China, and Chinese producers of market share.
And our RFS weighted.
The activity.
Your line.
This year based on any of it.
The supply of the market the.
Okay. Thank you.
Your next question is from Arun Viswanathan with RBC.
Thanks for taking my question.
I'm just curious.
And when you could you comment on the disruptions and supply chain of Qs for the cheap for T T.
So we went from Richard the page.
The issues, but.
As that flows through.
For you guys would that be positive just given.
Fair flexibility the source from several of them.
The areas. Thanks.
Yeah, as we said earlier we.
And we source all of our major input very strategically we have long term contracts.
And we diversified our supply base.
As the mayor said, we ensure.
Yes, they are.
Well the layers and so you don't have to make contracts expiring at any 1 time.
And what is that.
We remain well supplied by a lot of challenges from the supply chain perspective.
The main impact it's having on our business is our inability to say all compliance of our share.
The.
And the drive production from our lowest cost plant.
To optimize floor plan that sort of thing.
In our view of are transitory and.
Thanks.
And to evaluate.
And the team has just done an amazing job.
From the procured.
<unk> supply chain operations and customer service.
And sure we could.
The meet customer needs of the pet.
The.
Okay. Thanks for that and just the similarly.
Over on the mobile side for refrigerants.
Would you expect.
From some.
And the extra catch up next year due to the chip shortage.
Thanks.
Yes, that's probably that's a great question and that's 1 of the areas, where we could see some noise in our Q2 results and expect to see some as we move through the rest of this year.
Most of the auto Oems.
Of our minutes are indicating to us debt to the extent they can they will try to catch up in the second half of this year.
And even the inventories remain extremely so based on all of the public data net where we and our.
The patient and.
The demand from and auto perspective.
We'll go well ahead of 2022.
Oems try to rebuild the election, and I'm, sorry, and ready to respond the very strong customer demand.
Thanks.
Your next question is from P. J <unk> of Macquarie.
And with city.
Hi, Good morning, it's Eric Petrie on for P. J.
Hi, Eric how are you.
And how did your and Gnathion the iron exchange membranes grow in the quarter of first half and are you seeing greater demand pull from Electra libraries, or how you're going to fuel cells currently.
And we continue to see growth.
Across all of our AC and segment, including the scan.
As we highlighted in our ATM deep dive.
Any of this.
And Q2.
We see this business kind of in 3 phases.
And 1 where we are today in the pretty significant turnaround and the.
The expansion of margin.
And the Florida, the second Israeli of GDP plus growth.
Through product development across the entire portfolio and then thirdly the bulk.
Focus on the secular growth.
And.
Towards the middle of the decade around hydrogen and biology.
So we're spending a lot of money today in that business on product development and working within the ecosystem of the hydrogen economy to the tie ourselves in very well with both.
And the growth is.
Membranes for electrical lines of it.
And fuel cells. So a lot of work going on there and we continue to see improvement and that business, but that really becomes and the secular growth that start.
Towards the middle of the decade.
Okay helpful.
And just secondly, you announced.
And thank ground breaking of the new mining facility for titanium or is there and Florida.
Increase your backward integration into orders or is that the replace declining production and the other sites.
And that's primarily.
The replay.
Mines that are of end of life and Florida. So our view is continues to be approximately 10% of integrated.
Based on our Florida, Georgia complex.
And but great great ore bodies and great supply.
Given all.
Of the supply chain risks that we're seeing today.
Thank you Mark.
Thank you.
And your final question comes from Roger Spitz with Bank of America.
Thank you a lot of good morning.
The first is.
Mining solutions would you be prepared to provide us.
The 2 around June of <unk>.
1000, EBITDA and recognizing that the business has materially improved.
Improved since the.
The 2020.
And I'm not sure I heard your question could you repeat it.
And of course would you be able to provide mining some.
P and L.
LTM June 2021.
Sales and EBITDA.
Yeah, Ron and his domain.
1 of the jump in.
Don't disclose that but overall at the time thinking about the money and business based on the commentary and Q1 and Q2, so you'll see.
The strength of the.
The visit from a year on year basis, but I wouldn't.
The increase is not as much of the earnings that you would expect the particular stated the multiples.
So just the book.
Of all of the business and the proceeds of the guidance to 10 times.
Even if you look at it.
So it's true.
Got it and makes it takes that.
And secondly, you spoke about normal seasonality and Q3 for tier 2 but will give a pair of to give any view of.
And what that year over year 2.
And 2 volumes. So you guys might look like.
And Q3.
The well.
And he said and normal seasonality, but the very strong second half and then.
And then just about 1 of them 1 of them quite old and as Roger of at the point the entity.
People are running flat out given the order book or sort of issues that would be that'd be below rates on any of the call. The at this point of our circuit is running flat out as we kind of get into Q4 wasn't good and.
Turning to optimize it further as Mark said earlier of the call. So.
At this point, it's all about many of the customers coming up.
Got it thank you very much.
Okay.
I will now turn the call from Mark Newman for closing remarks.
Well thanks, everyone.
The opportunities are being with us today, when I reflect on the court of and will be our year to date.
And just very thankful to our 6500 amazing employees.
Or so many achievements responding to really strong demand.
The meeting.
Our customers' needs.
And going out of secular growth, especially in our 2 floor of businesses.
Looking for opportunities to selectively resolve legacy liabilities.
And our progress on our corporate responsibility commitment and we are.
Doing the.
And in an environment that's challenging.
And we continue to Delever the company and we continue to return cash to shareholders.
So just really thankful for the forecast.
The execution and of the accountability of the team and.
We remain as I said early of focused on delivering.
A great 2021, so thank you.
Yeah.
Ladies and gentlemen, this concludes today's conference.
Conference call. Please disconnect.
Good morning.
[music].