Q3 2021 Chemours Co Earnings Call
During the course of this call management will refer to certain non-GAAP financial measures that we believe are useful to investors evaluating the company's performance.
A reconciliation of non-GAAP terms and adjustments are included in our release and at the end of this presentation.
With that I'll turn the call over to our CEO, Mark Newman, who will review the highlights from the third quarter Mark.
Thank you Jonathan and thank you for joining us. This morning I'll begin my remarks on chart three.
On behalf of the <unk> team, let me say, how excited I am to be reporting our third quarter results.
This year, we have been laser focused on serving our customers putting them at the center of everything we do and helping to ensure that our world class products contributed to their success.
For the third quarter, we continued to see the payoff from those efforts we have delivered for our customers and they have delivered for us.
I would like to open our prepared remarks by taking a moment to recognize the entire <unk> team for their drive dedication and collective entrepreneurship and building. The good momentum we now have in all our businesses.
Now to the highlights from the third quarter.
We maintained our momentum from our strong second quarter into the third quarter and have now achieved our fifth consecutive quarter of sequential sales growth. We achieved these results despite the difficult operating environment and supply chain challenges across the business.
I am so proud of our team for overcoming these headwinds and delivering an outstanding quarter profit.
Profitability continues to be strong across the portfolio or 22% adjusted EBITDA margins in the quarter reflect the ability of our pricing actions to keep pace with inflation and the value <unk> chemistry provides in the market.
Samir will take you through the details during his portion of the presentation.
As we continue to grow earnings and improve the underlying quality of earnings of the business. We also continue to execute against our balanced approach to capital allocation.
We are investing in sustainable growth.
And remained steady in our commitment to returning cash to shareholders.
Reducing our gross leverage and funding our escrow commitments I have no doubt that this approach over time will create tremendous value for our shareholders.
Finally, as a result of the strong performance in Q3, I am proud to report that we will again be increasing our full year guidance I will cover this increase in more detail at the end of the presentation.
On chart four I wanted to cover our continued progress on our corporate responsibility commitments.
As you know in.
In 2018, we laid out a comprehensive set of goals covering our shared planet inspired people and of course, our evolve portfolio.
Today, I'd like to talk about or evolve portfolio and a key regulatory action, which will help to accelerate the adoption of our low global warming opt in on products.
A few weeks ago. The EPA published final rules under the aim Act.
It was originally passed by Congress in late 2020.
The aim act HFC Phasedown, which starts in 2022.
Similar to the F gas regulations in Europe.
It stepped down as designed to limit the supply of high global warming products.
And encouraging adoption of low global warming solutions like our opt in in technology.
Tim Morris is well positioned to help meet the emerging needs of our customers.
As the market transitions.
We continue to collaborate with key OEM partners to introduce newer more efficient and more sustainable products.
Leveraging the performance of opt in refrigerants.
Additionally, we continue to work with end users to retrofit their existing equipment.
And reduce their environmental impact.
<unk> is a shining example of our evolved portfolio in action.
And a key part of our commitment to driving the majority of our revenue from products, which meet UN sustainable development goals.
With that I will turn things over to Sameer to review the financial results for the third quarter.
I'll be back to talk about our revised guidance before turning to Q&A Sameer.
Thanks, Mark turning to chart five.
Results in the third quarter reflect a solid demand environment, which has markedly improved since the later stages of 2020.
Q3, net sales on $1 7 billion.
We're up 36% year over year and up 2% on a sequential basis.
Volume growth driven by the global economic recovery and robust operations led our strong year over year performance.
Improving price momentum was evidenced again this quarter, which led to sequential net sales growth.
GAAP and adjusted EPS, both amounted to $1 47 per share.
Adjusted EPS results exclude the $20 million loss on debt extinguishment related to our bond refinancing and $12 million benefit all qualified spend recovery for the Mou with Dupont and <unk>.
The third quarter represents the first time, we can recognize the recovery as part of the cost sharing agreement signed in January 2021.
As this is the first time disclosing this new item. We have included a brief description of the adjusted EBIDTA treatment in the appendix of our earnings charge.
Adjusted EBITDA increased by $162 million to $372 million.
Third quarter, driven by higher volumes and pricing with currency, providing a slight tailwind.
Adjusted EBITDA margins rose to 22% on a company might basis up from 17% in the prior year.
Free cash flow in the quarter was $244 million.
Our cash performance in the quarter reflects our continued commitment to improving the overall quality of earnings for the company and.
And converting earnings to cash.
On October 27, our board of directors approved a fourth quarter 2021 dividend of 25 cents per share.
This amount is unchanged from the prior quarter and will be payable to shareholders of record as of November 15 2021.
Turning to chart six.
The adjusted EBITDA bridge from the third quarter.
Third quarter 2021, adjusted EBITDA was $372 million.
Up $162 million from the same period in 2020.
Volume growth was a substantial contribution to our year over year improvement with.
With continued strength in pricing.
Pricing improved across all segments and strong market demand enabled proactive actions to be taken to offset rising costs.
As a result net contribution of pricing actions, where some of the higher cost was a positive in the quarter a great result, and an area, where we will remain diligent in this inflationary environment.
Higher year over year costs in the corner were attributable to operating expenditures due to high volumes supply chain issues raw material input inflation and higher performance based compensation.
Turning now to chart seven.
Our cash position liquidity and balance sheet remains strong.
Our cash balance at the end of the third quarter was $1 billion.
Down from $1 1 billion in the prior quarter.
We generated $11 million of operating cash flow in the third quarter Capex was $67 million.
We returned more than $100 million of cash to shareholders through dividends and share repurchases.
More than $100 million of debt principle, and made an initial $100 million payment to escrow as for the Mou agreement.
Net leverage improved to two three times on a trailing 12 month basis down from two six times in the prior quarter.
We have amended our revolving credit agreement to increase borrowing capacity by $100 million.
To further enhance our strong liquidity and balance sheet.
Total liquidity stands at $1 8 billion in.
Including the revolver availability of approximately $800 million.
Turning to chart eight.
Our capital allocation framework built on the strong cash generation potential of our company and is grounded in a disciplined and balanced approach.
Through the third quarter, we have spent $194 million on capex to ensure safe and reliable operations meet our corporate responsibility commitment and in pursuit of attractive growth projects.
Such as on PFA capacity expansion to serve the high growth semiconductor industry, and enhancing our internal or sourcing capabilities.
Next we have taken several steps this year to enhance our credit profile. We have received a total of $134 million of debt principle pushed out maturities and reduce our average cost of debt.
We continue to make progress towards that $3 5 billion grew.
Gross debt target.
We also made an initial $100 million payment to the escrow account as well.
BMO your agreement.
The restricted cash on our balance sheet.
Finally, we remain committed to returning the majority of our free cash flow to shareholders. Our quarterly dividend is a bedrock commitment and has remained steady at 25 cents per share since mid 2018.
Meanwhile, our <unk> business momentum enabled us to restart share repurchases in the second quarter and accelerate that activity in the third quarter.
We spent a total of $82 million on share repurchases in the second and third quarter. This year.
We continued that steady share repurchase activity after quarter close with approximately $22 million of additional share repurchases in October.
We see value in this balanced approach to capital allocation to drive long term value creation for our investors.
On chart nine I will cover the results and outlook of our titanium technologies segment.
Demand for Tycho pigment remained very strong in the quarter with sustained market momentum across all regions and product categories.
We were pleased with an operating performance again this quarter third quarter was among the highest production month in our history, which enabled us to fully support the needs of our contracted customers. Despite a very challenging supply chain environment.
Recall that the central rule of our differentiator Tvs strategy remains to create predictable durable relationships with our customers.
Our exceptional performance during an unprecedented year of challenges reinforces the value of partnering with <unk>.
As a result, we informed new commercial partnerships this year and are enhancing the quality of our book of business.
Turning to the numbers third quarter net sales rose, 48% to $908 million.
Volumes increased 33% versus the prior year and were flat sequentially.
Price was up 14% year over year, and improved 6% sequentially driven by gains across all selling channels in the quarter. We saw the benefit of price actions taken in Q1 and Q2 in our flex channel.
Pricing in our contracted channel also improved driven by both contractual and negotiated mechanisms, reflecting an inflationary global environment.
Adjusted EBITDA for the segment rose, 73% year over year to $223 million.
Driven higher by the volume led sales recovery and better pricing.
Embedded in that improved results were higher plant fixed cost to support volume growth modestly higher raw material costs and expenses associated with supply chain disruptions.
Adjusted EBITDA margins increased 400 basis points year over year to 25% and remained stable sequentially as pricing actions successfully offset both inflationary elements and temporary costs incurred to support high customer demand.
As we look ahead, we expect a continuation of strong demand in spite of challenging macroeconomic conditions in certain parts of the world.
However, as a consequence of mobile or disruptions, we expect to experience. Some near term production constraints would you expect to normalize in 2022.
As a result, we are anticipating a high single digit sequential volume decline for the TV segment in the fourth quarter.
At the same time pricing momentum is building through contractual end market mechanisms, which will support a continuation of strong profitability.
We are an attractive finished the year than many strong position.
Following the implementation of our Pvs strategic transformation, we believe that our business has never been better situated to service our customers and deliver for our shareholders.
Moving to chart 10.
Homeland specialized solutions delivered strong year over year growth with contributions across most regions and markets.
Robust demand, particularly in the stationary refrigerants market and better overall pricing drove the strong year over year net sales growth.
Sequentially pricing momentum build from the second quarter as product specific actions, but proactively executed to reduce the impact of rising raw material and logistics expenses.
Meanwhile, one declined quarter over quarter from the second quarter beat consistent with typical seasonal trends.
In the quarter. After you on adoption continued across all markets.
But end market demand in the automotive OEM sector was impacted by the continued semiconductor supply chain constraints.
Despite these challenges we achieved solid sales growth and profitability, which speaks to the strength and breadth of the TSS portfolio.
Looking more closely at the results third quarter net sales increased by 9% year to adhere to $318 million.
Price was a 7% tailwind on a year over year basis led by base refrigerant pricing implemented to offset rising costs.
Volumes increased 1% year over year as growth across most product categories was partially offset by headwinds from constrained automotive OEM sales.
Segment, adjusted EBITDA of $105 million in the quarter was flat with the prior year.
Adjusted EBITDA margins of 33% decline from the prior year by 300 basis points and higher sales were offset by unfavorable mix raw material inflation and increased logistics expense.
Looking ahead, we expect segment sales and profitability to follow normal seasonal patterns in the fourth quarter typically representing the softer demand period of the year.
Full year 2021, adjusted EBIDTA margins are anticipated to be in the low 30% range in line with prior expectations.
We do not foresee any change in constraint out of production in the near term with strong underlying demand for new automobiles, and historically low dealer inventories point to a normalization of opt in on auto fields, one supply chain constraints and relieved in 2022.
As Mark highlighted earlier in this call and the passing of the U S came back to the new and significant market accelerator for op unit deals.
<unk> is well positioned to support our customers' transition to low global warming climate friendly and energy efficient optimal solutions.
Turning to chart 11, I'll cover on events performance materials segment.
Our lithium business today is in a strong position as a transition from turnaround to secular growth driven by its technology leadership and our high growth categories, such as semiconductors, telecommunications and hydrogen revolution without lithium membrane technology, but segment solid performance and year over year growth reflects market recovery across all end markets and regions.
From the third quarter of 2022 trough on resilient operating model built on supply chain integration and industry, leading customer reliability and finally, the benefits from enhanced focus and accountability and a newly formed reporting segment.
In the quarter net sales improved 48% year over year to $356 million, driven primarily by 38% volume growth.
Our solid operating performance allowed us to support higher than anticipated customer demand, despite raw material availability issues.
These raw material availability issues were a factor in the 2% sequential volume decline.
Price was an 8% year over year benefit and flat sequentially.
We continue to drive pricing actions at the customer and product level, where it can sometimes be muted by a mixed effects across a diversified product portfolio as was the case this quarter.
Segment, adjusted EBITDA was $71 million.
Ah $64 million increase over last year's third quarter the year over year adjusted EBITDA growth demonstrates the operating leverage of this business and highlight the long term potential of our topline growth recovery.
Adjusted EBITDA margins of 20% improved substantially versus the prior year quarter.
Despite being weighed down by incremental costs related to the raw material and supply chain disruptions.
Looking ahead, we anticipate strong customer demand momentum to drive growth on a year over year basis with normal seasonal patterns returning in the fourth quarter.
Adjusted EBITDA margins are expected to remain steady through the fourth quarter and reach low 20 percents range in 2022, given the strong demand trajectory.
Moving ahead to our chemical solutions segment of Chartwell.
Third quarter net sales were $98 million.
An increase of 11% year on year inclusive of an 18% portfolio impact from the shutdown of our aniline business last year.
14% year over year volume growth was driven by a continuation of robust demand and sodium cyanide and glycolic acid products.
Adjusted EBITDA was $15 million for the third quarter of 2021 more since $12 million in the prior year as the impact of better volume and price more than offset modest cost headwinds from the higher raw material costs.
The previously announced sale of our mining solutions business for $520 million remains on track to close in the fourth quarter of 2021 subject to regulatory approvals and other customary closing conditions.
With that I'll turn things back over to our CEO Mark Newman Mark.
Thanks Amir.
We are updating our guidance for the full year to reflect the momentum we feel across our businesses.
We now believe that our full year 2021, adjusted EBITDA will be between $1 3 billion and $1 three 4 billion.
Our prior guidance.
Our revised guidance is now up 50%.
From 2020 levels at the midpoint of our new range of 132 billion.
We are reducing our capex guidance by $25 million to approximately $325 million.
Based on the timing of projects, our free cash flow is now anticipated to be greater than $500 million.
Raise from greater than $450 million previously.
We are looking forward to finishing the year with great momentum.
And are confident in our ability to drive sustained growth in earnings across our businesses with high free cash flow conversion.
With that operator, please open the line for questions.
Thank you.
Tom I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad well pause for just a moment to compile the Q&A roster.
And your first question comes from John Mcnulty from BMO Capital markets. Please go ahead, yes.
Yeah. Thanks for taking my question and congratulations on a really strong quarter.
When we look at the titanium technologies business, clearly pricing kind of hit an inflection at least relative to the prior quarters, where things are strong before but they kind of really kicked up now I guess can we unpack that a little bit like how should we think about what the what the pricing was safe for the Ava contracts versus kind of the.
More portal based order almost spot type contract.
We're kind of the big drivers of the of this big incremental price kick up if you can help us to understand that.
Hey, good morning, John and thanks for the question listen, we really take a lot of comfort in our go to market strategy with Tvs we.
Believe it's working effectively and we believe it's resonating with our customers.
Nearly our price activity in the quarter is a combination of.
In all of our three channels distribution flex.
And contractual customers.
Some of which are driven by by PPI indicators, which remain strong so it's really a combination of.
Very high spot prices based on availability today, which are reflected in both our flash.
Flex and distribution channels.
Well as robust signals that allowed us to take price on our contractual book of business.
Okay Fair enough and then speaking to the to the or I guess supply issues that were mentioned in.
In the prepared remarks can you give us a little bit of color as to what's driving that is it is it nearly a freight issue is it access to some of the mines, where they were a little bit down over the last quarter or two I guess, how should we be thinking about that and how how does it get remedied I know it sounded like you have some confidence that that won't be an issue.
2022.
But what gives you that confidence.
Yes so.
As you will have read there are several major force matures in the mining space this year.
And those are well publicized that are impacting or available availability as we close out the year our expectation based on all of our current intelligence is that is being resolved.
But probably won't be fully resolved.
Until the end of the first half of next year. So this is something that.
We are watching closely.
But it will impact.
Our volumes as we indicated.
In Q4 and at the beginning of next year.
Got it that's helpful and maybe if I can sneak one last one in just around.
Around the it the pricing that you saw in particular in the TSS segment. It was it was really strong and I guess is it.
Is it all just you pushing through price to offset raw materials I guess, we had heard there might have been.
Some price spikes because of the dual.
Dual control issues in China around F gases, and I guess I'm curious if that's having any impact on some of the European business. Maybe if you can just give us a little color there. Thanks, a lot for the help.
Yes so.
I want to compliment our TSS team.
It was a challenging quarter from a volume perspective, with all that's happening on semicon and auto.
We expect semi con to resolve itself again in 2022.
But the team did a very nice job on on our stationary market portfolio and took advantage of some of the shortages in the marketplace.
In particular, you mentioned availability of product from China.
With our local manufacturing here in the U S. So yes, I think the team was very.
Focused on our North America book of business.
<unk> remains very robust and supply constrained given some of the factors you just mentioned.
Great. Thanks, very much for the color.
Thank you.
Thank you. Your next question comes from Hassan Ahmed from LNG. Please go ahead.
I'm wondering mark.
Hassan.
Last question.
And getting with the raw material side of things.
Obviously, we've seen.
A significant sort of escalation in natural gas prices globally.
And in Europe, and the U S in particular.
Chlorine supply seems to be.
A bit of an issue as well so.
Within the U S.
What are you guys seeing in terms of.
Your own chlorine sourcing.
And in the rest of the globe.
How are you seeing the cost curves being impacted by this natural gas price escalation and and obviously the impact that it has on the chlorine side of things.
So I'm going to start with SNF Samir, who also has responsibility for our procurement to add some additional color, but let me start by answering your question and thanking our procurement and supply chain teams for just an outstanding job in managing our sourcing.
And supply.
To our operations.
Let me also add that our operations are primarily domiciled here in the U S. So while we are seeing energy inflation globally on a relative basis, we remain very cost advantaged.
With our U S manufacturing, so I'll ask Samir to add some additional color, but clearly.
We are staying on top of sourcing maybe just on Clarion before I ask <unk> to comment.
We are well supplied by several strategics in North America, I would say all of the main strategic suppliers.
And that diversification of supply in a remains a strength for us as we move through the cycle Samir Thanks, Mark Hudson as we kind of talked to earlier as well right.
We tend to source flooring geographically in the same region as well as you can imagine so that helps us diversify quite a bit.
Our ultimate our plant in Mexico, which is one of our largest plants, we tend to secure fluorine recently over there and also in Colombia in Taiwan as well. So is it going to look at the mix, we are pretty geographically diversified as well as company wide or the supply perspective, as well and lastly, if you recall in near Johnson will be have a colocation.
I did.
Out of that plant as well with potential supply pretty much all of the needs of other clients over there. So you had a.
Pretty good place.
Perfect.
Follow up in terms of obviously the cash flow in the quarter was great cash flow guidance for Q4 look solid as well.
Obviously.
Did the buybacks that you did in Q3.
And in October as well, so how should we think about the pace of buybacks or.
How you guys are thinking about the strategy associated with.
With buying back shares.
Shareholder returns.
And good innovation.
So it has been we are very committed to returning the majority of our free cash flow to our shareholders. Our board is supportive of this capital allocation strategy.
And we believe the value that we create for our shareholders longer term is benefited by that strategy, along with deleveraging the company and funding the escrow against.
No legacy liability.
Against the Mou commitment so we think those three add.
Aspects of capital allocation, so called balanced capital allocation.
Our most prudent.
But within that framework, we will be returning the majority of free cash flow to our investors.
Through the dividend and through buybacks, which as you see accelerated significantly in Q3.
Very helpful. Thank you so much.
<unk>.
Yes.
And your next question comes from the line of Bob Court with Goldman Sachs. Please go ahead.
Thanks, very much Mark you mentioned on Atvs you had some negotiated mechanisms I guess I was under the impression most of those contracts have long duration. So give us a sense of how you are able to have negotiated pricing within the Tvs framework.
Yes.
Yes, so we have.
Yes.
Quite frankly, most of our contracts.
Our Eva portfolio, our contracted book of business remain.
Hi to PPI.
But we also have contractual arrangements, which have market mechanisms as well. So it's a combination of both but the majority of today I think are tied.
Two.
We have shared with you our PPI mechanism going forward.
And is there anything about the blueprint from Europe, you could give us some insight onto what you expect in TSS in the U S. As the <unk> is.
And force.
In terms of maybe.
Hey, you got some cannibalization of older products that have to fade away, but you've got newer presumably higher margin products coming in what was sort of the net of it all that you've experienced in Europe and should that be the blueprint in North America.
So clearly Bob that Florida was overshadowed by the auto production.
In the quarter.
We continued to rollout.
Our <unk> brand technology in Europe, and North America.
But we are continuing to see with a robust marketplace that we have in refrigerants.
Higher pricing on base refrigerants, many of which come out of China. So it really was a mix of.
No.
All of those factors. We are also working with the Oems on the change of hardware and so when we look at this business with the aim act now here in the U S.
F gas regulation is working better and the movement of Oems to HFF technology all of three other risk factors. We think will continue to drive secular revenue growth in our TSS business.
We tend to see as you know is the first year of a step down.
<unk> is not as significant.
But as you move through time with the next step down on the the aim Act.
<unk> for 2024, and we would expect a nice growth curve here as we move out towards 2024.
Got it thanks very much.
Thank you.
And your next question comes from Josh Spector from UBS. Please go ahead.
Yes, hi, guys. Thanks for taking my question I guess, maybe.
Maybe just follow up on the aim that I know the EPA published kind of initial quota for next year. I was just wondering when you guys look at how that was allocated was there anything interesting to you guys better or worse than expected and impacts your view into next year or perhaps longer term based on that initial allocation.
Yes, Josh.
Were closely with the EPA they saw the input from all the major industry participants and we're very pleased to say that the quota allocation was in line with expectations and in our view.
<unk> is really a great.
Way to drive the adoption of <unk> technology.
Going forward. We are also very pleased with the work that the EPA is doing.
And learning from what happened in Europe with F gas around illegals.
So just really want to compliment the administration.
For the focus on climate and focus on regulation that is going to work to drive low global warming refrigerants adoption.
Okay.
Thanks Scott.
I guess shifting gears to APM.
Volumes remained pretty strong year over year, just wondering how youre thinking about volumes in the <unk> in early 2022, and then you noted strength in certain markets is that enough to offset some weaker OEM demand or perhaps some softening in other markets that you would expect continued growth or do you expect perhaps a more lag impact.
To have an impact on growth in early 2002.
So I'd say in all.
We see very strong demand momentum in our APM business.
As we indicated in the call just a lot of factors.
Whether youre looking at.
EV adoption semi con.
Consumer electronics I mean, these are all markets that are growing well above GDP. These are high single digit growth markets at least and so.
We are we are seeing really great demand signals.
It is true that with auto production being down there will be some impact, but we're not seeing that impact in our business and in fact based on our ability to run our plants well.
My view is we continue to even gain share in some of those markets. That's driving demand Sameer, yes, Mark Josh only have one more thing I would add is as you are going to look at the growth.
This growth should be driving the bottom line as well from a margin perspective, we should be in the <unk> and as you're going to get into the next year with the demand momentum that Mark just talked about we should be driving EBITDA margins in the low twenties at least next year.
Okay. Thank you guys.
Thank you.
And your next question comes from Josh Silverstein.
Wolf Research. Please go ahead.
Okay.
Hey, Thanks, good morning, guys.
It was helpful. The slide on capital allocation I was just curious.
The timing of when you wanted to get to $3 5 billion of gross debt.
<unk> been at the kind of one $5 billion Mark for cash for about a year now.
As long as they get bigger with the mining solutions sale, where do you want that cash balance.
That versus going straight to debt or shareholder returns.
So.
Clearly we've indicated that.
Our $3 5 billion growth target is something that we believe we should achieve over the next three years, including what we've done this year.
We have the ability to accelerate that if need be but it's always going to be in the context of returning the majority of free cash flow.
To our investors as we move through the cycle.
We will continue to assess with our board our priorities.
For capital as we move through time, but thats going to be our framework that we use similar and then if you have any other comments you want to share nothing modulate out when we set that $3 $5 billion target, who said it can be over three years, including this year. So we made a nice progress this year in reducing that debt.
And but at the same time, we've been allocating cash back to the shareholders as well so given the strength of the cash generation of this company, we see ourselves achieving these goals.
On annual basis.
So I think we had a pretty good place from a capital allocation point of view.
I guess the follow up to that how big will you, let the cash balance.
You can see a couple of quarters out both the bottoms of million.
The mining solutions, so you can get up to $2 billion.
Do you want to stay at $1 billion of cash I guess.
The capacity for you guys to return capital to shareholders.
Again, we will continue to assess with input from investors and our board, how we allocate cash going forward.
Im probably will say a little bit more about that as we go into next year.
With the mining solutions divestiture behind us.
Thanks for that and then just on the titanium side.
You mentioned the orchestrating production.
Are you running your facilities as much as demand allows or you're actually running below capacity.
Just wanted to get a sense of how you guys are running right now.
Yes, our plants continued to run very well and maybe just on that point the focus on keeping our employees safe and running reliable operations.
Has served us well through Covid. It's also served our customers well.
So this or constraint we think is temporal.
As I said it will affect it as part of our guide for Q4 down being down sequentially and.
And we expect this to resolve itself in the first half of next year based on all of our indicators today.
Yes.
Great. Thanks, guys.
Thank you.
Your next question comes from Matthew Deyoe from Bank of America. Please go ahead.
Thank you, yes, sorry about that.
On mute for a second.
Hi.
Sure.
Sure.
Sorry, I'm, just pulling up my notes.
No.
The APM business and.
The pricing that you saw in the quarter.
How much of this can we kind of draw some tightness in the market.
Is there some function that is.
Perhaps tied to logistical constraints in shipping availability and perhaps that.
Slowing the flow of illegal refrigerants down into Europe.
Trying to judge because.
Prices really strong right now and within that as they are.
The lower comps to autos on op beyond and so looking at.
Where demand is.
So Matt I, just want to make sure we're talking about the thermal and specialized solutions.
Segment right.
Oh, that's a refrigerant.
Talking about TSS my thoughts right, yes, Okay, just clarify so clearly that Florida, yes, the volume in the quarter was impacted by the year over year comps, mainly on our our auto OEM business, you will recall last year Q.
<unk> was a very vibrant recovery.
Auto plants being down earlier in the year when with Covid and then.
This quarter being obviously impacted by a lot of announcements from auto Oems on curtailing production.
For Semicon shortage. So you should look at this volume impact as as being.
Driven primarily by auto OEM and somewhat offset.
The work the team did in.
In the stationary blends market with a strong north American market, which is also reflected in the price.
Okay.
So this isn't much as it relates to I mean, because I know price pressure in legacy refrigerants and Europe has been kind of a consistent issue with the illegal trade flow. So I was just kind of wondering.
<unk>.
We continue to see.
Continued improvement clearly Europe is not as vibrant as as.
North America market you have seen.
Some notable seizures. So we think in four spend is improving and then clearly the supply out of China for those people who are depending on China supply has been impacted by some of the factors there as well Sameer I don't know if you have any more to add yes, mark millennial.
One point that I would add is as we kind of look at the pricing the North America stationary market remains very strong so that isn't a very nice driver from the pricing perspective as well.
Okay, and I know you mentioned that you had.
In the U S have taken steps to kind of eliminate some of the legal trade flow.
Europe, so opening that yet.
So certainly as we look at as we look into next year.
We would expect at some point during the year to see improving availability of semiconductors to auto.
We are seeing improved.
Enforcement of F gas rules.
And we will be in the first year of the aim Act.
Stepped down 10% step down here in the U S. So.
All of the indicators are pointing in the right direction and we think over time, we will continue to drive the secular growth in that business.
Thanks and goodbye.
Thank you.
Your next question comes from Duffy Fischer from Barclays. Please go ahead.
Yes, good morning, guys.
Duffy.
First question just starting TT.
We use Q3 as a baseline.
Where production in Q3 would that close to kind of the Max production for you guys and then notwithstanding maybe Q4 and Q1, where you have some or issues how much more.
Metrically can we grow <unk> as we get in towards the back half of next year and then even into 2023.
Yes so.
Our plants ran very well in Q2 and continued to run very well in Q3, so lots of credit to our premium.
And as we said we were running.
<unk>.
As best we could to supply the market.
In a way that we.
Thought it was prudent.
Clearly Duffy is we've said we're working on.
Debottlenecking across our entire fleet and we would expect a lot of those projects to start to bring additional capacity to bear as.
As we end 2022 and come into 2023 is our current forecast so the team's doing a nice job of Debottlenecking our plants.
But yes, we ran pretty well flat out in Q2 and Q3 starting in Q4.
The volumes reflect.
Well reflect or availability.
And we're very focused having improved our book of business.
With Tvs to grow with our customers, we have more inbound requests from customers wanting to sign up on contractual basis.
Then we can order today and the team has done a nice job of using the current market of our contractual book and really sign up really strategic customers that were interested in growing with long term. So we're going to be very focused on how we grow with our strategic customers, who see the value of proposition.
<unk> Tvs.
And the reliability of supply that you can expect from <unk>.
Great. Thanks, and then with <unk>.
Mining chemicals.
That goes in the fourth quarter, what happens with that segment kind of what's left behind and will you basically shut that down and roll that into other segments and kind of just stranded costs things like that.
Listen.
Mining solutions is the largest piece of what is in that business. Today, we were left with our performance chemicals business that are Sameer to comment on on kind of his thinking here, yes. Thanks, Mark Duffy the remaining business is primarily going to be glycolic acid business. It's a great business as we kind of think about.
<unk>.
The impact that Covid.
He has had on the disinfection market, it's a great only north American producer in the marketplace. So it's a great business and from our perspective.
The intention is to keep it separate from our financial disclosure point of view not to blend it in any of the remaining three segments, but as we are going to file our 10-K, we will lay out the details.
Great. Thank you guys.
Yeah.
Thanks, Kevin.
Your next question comes from Vincent Andrews from Morgan Stanley. Please go ahead.
Hi, guys. This is will.
On for Vincent just one quick question also coatings customers had noted that there.
Having availability issues with other raw materials have you guys seen any.
King.
Right.
You bet.
And how would you characterize the risk.
<unk>.
Raw material relationship.
Okay.
Yes.
Youre, absolutely right that there's been a number of supply chain issues into it has had some impact on their ability to produce in the quarter, but still demand remains very strong and one thing I will tell you is as we start next year, we start with a lot of momentum from a day.
<unk> perspective, but even as that normalizes over time, we expect a significant.
Restocking of the supply chain.
From here all the way through retail.
Which will provide a nice steady lift for volumes going forward.
Thank you.
Thank you.
Your next question comes from Iran. Viswanathan from RBC capital markets. Please go ahead.
Great. Thanks for taking my question too.
Would you expect growth in EBITDA I guess.
TT.
As well as TSS and ATM across the board.
Or would you expect.
<unk> to be constrained by the ore availability and be more flat as you look into 'twenty two.
Yes, Ron will have a lot more to say about 2022 early next year, when we close out 2021.
But we certainly like the momentum that we see in our all of our businesses as we close out the year clearly.
Or availability.
With respect to T T M.
And semicon availability with respect to <unk>.
Demand in TSS demand.
Our factors that will impact.
Our outlook for 2022, so we're continuing to assess these things.
We certainly like the demand momentum that we see in all three businesses and we think our go to market strategy, our cost position and our ability to run our plants reliable reliably are all contributing.
Two our outlook as we go into 2022.
And then if I could ask on TSS, if I compare TSS 'twenty one.
Versus 18 looks.
It looks like youre going to be down about $125 million or so which is pretty much in line with the amount that I think you guys have kind of.
Forgone because of the import issue in Europe.
Is that accurate and I guess, how do you expect to kind of recoup that or how does that recuperation kind of evolve over the next three years is it ratably or what do you expect that will happen on the <unk>.
Well clearly 2018 was the combination of good S guests enforcement.
And still higher volumes on base refrigerants at the time.
And quarter sales.
Related to F gas quota that so you had sort of all of those factors occurring at the same time.
As we move forward in time, and then obviously the semi con impact on auto builds this year clearly as that alleviates itself.
Gas gets better enforced and the aim act trips and here in the U S. We would expect.
For us to be able to grow revenue and earnings in our TSS business going forward, we tend not to forecast and our outlook.
Quota sales, but in a more robust.
Marketplace with appropriate enforcement on quarters.
Those tend to have value over time as well.
Thanks.
Thank you.
And your next question comes from Laurence Alexander from Jefferies. Please go ahead.
Hi, This is Marie Mulino for Laurence today.
Just.
A couple of quick questions first one on the China and then just a duration did you see any impact on your plan there.
EPS, how do you see as.
And then winter shaping up.
Fairly.
Fairly minimal impact in our business as it relates to.
The dual control.
In China.
As I said earlier in the call.
We are very diversified in our supply.
And in our procurement so we're not seeing.
Any any significant direct impact in our business clearly the availability of product out of China is affecting the overall market tone across several of our businesses.
And we're seeing that impact, but I'd say net net it's not a significant impact.
For <unk> today.
Thanks.
The second one.
Yes.
Matthew on business I understand that a little bit of a long term play.
Do you see right now.
Sure.
If the growth in demand is on track according to your expectations.
We're very excited about our role in the hydrogen economy and the role of our products in.
Reducing greenhouse gas and Decarbonising the global economy.
We are seeing.
In a meaningful increases off of a relatively small base in terms of segment revenue today.
But as we look out based on announced projects and projects that are yet to be announced.
We see really meaningful growth in this segment.
<unk>, we had shared in our investor deep dive that by 2030, we expect the membrane market.
For both deals.
Fuel cells and electrolyze to be in the $2 billion to $3 billion range of which we would be a market participants. So we're very excited about the long term growth here and we're investing.
Both from a product perspective, and liberating capacity to be able to serve that market need.
We have the largest installed monomer capacity related.
To this product.
In the world and probably the only such capacity here in the U S. So we're very excited about how we leverage that starting point to be a meaningful player in the hydrogen economy.
Thank you.
Thank you.
Again, if you'd like to ask a question press star.
One on your telephone keypad.
And the next question comes from Bob <unk> from Goldman Sachs. Please go ahead.
Okay. Thanks, guys just had a follow up.
Curious mark.
Great.
Nathan we get some electronics exposure in some pretty attractive margins there.
Do you ever think about trying maybe to monetize that asset given the value we have seen some other transactions in this space in the.
Pretty wide gap to where your own equity trades is that ever considerations of a best owner mindset, where someone else might be willing to value it at a far higher multiple than the market.
So Bob clearly, we're very excited about the future of <unk>.
Our fluorinated chemistry businesses, both TSS and APM and our decision earlier this year to create two segments was really to have the right strategy to grow those businesses and our ability to fund those businesses as well.
To your point.
We believe given the secular growth of our of our TSS and APM business.
And the improving earnings quality of our <unk> business.
That we believe our stock remains.
White undervalued and so a key part of our capital allocation.
Mains in our repurchases of stock as we move forward.
Clearly over time as we assess the portfolio. This is something that we will continue to review with our board, but Theres no plans at this time.
Hi.
Do what you are suggesting that we could look at.
That remains an option of our company that we will assess as we move forward.
Great. Thank you.
And there are no further cloud julianne thanks, all for joining today, we're really.
Focused on delivering a great year at <unk>. We believe we have the right go to market strategy in our in our businesses.
Our teams remain very focused on keeping our employees safe running our plants well.
And being focused on meeting the needs of our customers and that's serving us really well across 6500 employees.
For their focus.
Through the pandemic and we.
We really look forward.
To finishing the year, well and to keeping that momentum as we go into 2022. So thank you.
This concludes today's conference call.
You may now disconnect.
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Okay.
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Sure.
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Okay.