Q3 2023 The Chemours Co Earnings Call
Good morning, My name is Rob and I will be your conference operator today at this time I would like to welcome everyone to the <unk> Company third quarter 2023 results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question during this.
Time simply press Star followed by the number one on your telephone keypad. If you would like to withdraw your question again press the star one.
Brandon <unk>, Vice President of F. P <unk> and Investor Relations you May begin your conference.
Hi, Thanks, Rob Good morning, everybody welcome to the <unk> company's third quarter 2023 earnings Q&A Conference call.
Joined today by Mark Newman, President and Chief Executive Officer, and Senior Vice President and Chief Financial Officer, Jonathan Lock.
Before we start I'd like to remind you that comments made on this call as well as well as in the supplemental information provided in our presentation on our website contain forward looking statements that involve risks and uncertainties as described in <unk> SEC filings.
These forward looking statements are not guarantees of future performance and are based on certain assumptions and expectations of future events that may not be realized.
Actual results may differ and <unk> undertakes no duty to update any forward looking statements as a result of future developments or new information.
During the course of this call management will refer to certain non-GAAP financial measures that we believe are useful to investors evaluating the company's performance.
Reconciliation of non-GAAP terms and adjustments are included in our release and at the end of our presentation.
As a reminder, our prepared remarks, a full transcript plus our earnings have been posted to the Investor Relations section of our website along with our earnings release. This morning's call will focus purely on Q&A.
That I will turn the call over to our CEO Mark Newman Mark Thanks, Brendan and good morning, everyone. Thanks for joining us.
2023 has been a challenging year.
With a weaker second half than we expected, but the <unk> team remains focused on driving long term shareholder value.
Rob: Good evening, my name is Rob, and I will be your conference operator today.
Rob: At this time, I would like to welcome everyone to the Camurts Company third quarter 2023 results conference call. All lines have been placed on mute to prevent any background noise.
And Amy.
Improvements in our three industry leading businesses.
Rob: After the speakers remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star one. Thank you.
Most of our year over year performance deterioration has been driven really by lower <unk> volumes and we have responded.
With.
The auctions of the TT transformation plan, which will shine through in 2024.
Brandon Ontjes: Brandon Ontjes, Vice President of FPNA and Investor Relations, you may begin your conference. Hi, thanks Rob. Good morning everybody.
We see demand weakness decelerating.
Brandon Ontjes: Welcome to the Camurts Company's third quarter 2023 earnings Q&A conference call. I'm joined today by Mark Newman, President and Chief Executive Officer, and Senior Vice President and Chief Financial Officer, Jonathan Lock. Before we start, I'd like to remind you that comments made on this call, as well as in the supplemental information provided in our presentation and on our website, contain forward-looking statements that involve risks and uncertainties as described in Camurts's SEC violence.
Our APM business is also seeing some demand weakness, especially in advanced materials, but we have achieved again double digit growth.
Year to date of 11% in our performance solutions and this business remains tied in to long term secular gains in advanced electronics and clean energy, which we are hugely excited about.
And then finally, our TSS business continued with strong performance with another record net sales. This is the seventh quarterly net sales record in a row.
Brandon Ontjes: These forward-looking statements are not guarantees of future performance and are based on certain assumptions and expectations of future events that may not be realized. Actual results make differ and Camurts undertakes no duty to update any forward-looking statements as a result of future developments or new information. During the course of this call, management will refer to certain non-GAP financial measures that we believe are useful to investors evaluating the company's performance. A reconciliation of non-GAP terms and adjustments are included in our release and at the end of our presentation. As a reminder, our prepared remarks of full transcript plus our earnings SEC have been posted to the investor relations section of our website along with our earnings release.
And as we look again to 2024, we have the step down.
In the APAC, that's going to drive further off 10 adoption and beyond 24.
<unk> of immersion cooling in 2025, so again, we're excited about the work that's underway here at the company and despite the challenging environment, we see herself and remain focused on what we have.
To do going forward.
Into 2024.
So with that I'll turn it over to Rob to begin our Q&A.
Brandon Ontjes: This morning's call will focus purely on Q&A.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
Mark Newman: With that, I'll turn the call over to our CEO, Mark Newman, Mark. Thanks, Brendan, and good morning, everyone. Thanks for joining us.
And your first question today comes from the line of Duffy Fisher from Goldman Sachs. Your line is open.
Mark Newman: You know, 2023 has been a challenging year with a week or second half than we expected. But the Camurts team remains focused on driving long-term shareholder value and improvements in our three industry-leading businesses. Most of our year-of-a-year performance deterioration has been driven really by lower TT volumes. And we have responded with reductions of the TT Transformation Plan which will shine through in 2024 as we see demand weakness decelerating. Our APM business is also seeing some demand weakness, especially in advanced materials, but we have achieved, again, double-digit growth, year-to-date of 11% in our performance solutions. And this business remains tied in to long-term secular gains in advanced electronics and clean energy which we're hugely excited about.
Yes, good morning, guys.
Mark I was I was hoping you could just walk through.
On the step down for HR flow coming up this year.
Stork Lee it seems like Theres been a little bit more pre buying of the older product.
But at this time that doesn't seem to have happened. So can you just walk through what's transpired over the last year or do we build a little bit HFC volume at the distributor level earlier this year and Thats why there is not kind of a price bump in a run for the door here late.
Then how do you see that playing out next year. It seems like there is distribution inventories when next year do you see that.
Push that the step down you will kind of really starts to accelerate the volumes for a feature phone.
Yeah, So definitely a great question and as you said.
We have always indicated that we would we would wait till Q4 to see based on usage of inventory and quota usage in the year, whether we would indeed have a step up in HOS HFC volumes interestingly, what we have.
Mark Newman: And then finally, our TSS business continued with strong performance with another record net sales. This is the seventh quarterly net sales record in a row. And as we look again to 2024, we have the step down in the AMAC that's going to drive further optian adoption. And beyond 24, of Immersion Cooling in 2025.
Seen in Q4.
His hire HFC pricing and so there is an indication in my mind that there is.
Increasing interest in Hfcs ahead of the quota step down.
Clearly as we go into 2024, our view will be that.
There will be continued ramp up.
Rob: So, again, we're excited about the work that's on the way here at the company and despite the challenging environment we see yourself in, remain focused on what we have to do going forward into 2024. So with that, I'll turn it over to Rob to begin our Q&A.
In <unk> volumes.
Whether that happens at the beginning of the year.
Or more ratably.
Wait to see but clearly as we look at the OEM adoption of <unk> platforms, we see meaningful growth in <unk> in 2024.
Rob: At this time, I would like to remind everyone in order to ask a question, press star, then the number one on your telephone keypad.
For the full year.
Okay, and then in Europe, we had an issue about a year into their big step down where you started to get some illegal product flowing in.
Patrick Fischer: And your first question today comes from the line of Deputy Fischer from Goldman Sachs. Your line is open. Yes, good morning, guys.
How are you guys set up differently in the U S have you identified potential routes for that and then who is I guess kind of policing force if you notice that.
Mark Newman: Mark, I was hoping you could just walk through on the step down for HFO coming up this year. Historically, it seems like there's been a little bit more pre-buying of the older product. But this time that doesn't seem to have happened. So can you just walk through what's transpired over last year? Do we build a little bit of HFC volume at the distributor level earlier this year? And that's why there's not kind of a price bump in a run for the door here late.
You would go after do you feel like that setup well enough that you can stop that from happening in the U S.
Well first of all.
We did a lot of work as an industry with the EPA and implementing the aim act.
To take every precaution to make sure that didn't happen here clearly.
There is there is fewer board is as it relates to the U S, Canada and Mexico than there is in the EU with 28 member.
Mark Newman: And then how do you see that playing out next year? It seems like there is distribution, you know, inventories. When next year do you see that push that the step down, you know, kind of really starts to accelerate the volumes for HFO?
Countries.
But listen I think the industry.
Not not just us, but the Oems who have invested significantly in the <unk> franchise.
Mark Newman: Yeah, so that's a great question. And, you know, as you said, we have always indicated that we would we would wait till Q4 to see, you know, based on usage of inventory and quota usage in the year, whether we would indeed have a step up in HFC volumes. Interestingly, what we have seen in Q4 is higher HFC pricing. And so there is an indication in my mind that there is, you know, increasing interest in HFCs ahead of the quota step down.
We are very focused on rolling out that adoption, obviously theres meaningful climate benefit with.
With <unk> and so I think that risk is a lot lower.
Here in the U S and certainly we're not seeing any meaningful indication of that risk today.
Great. Thank you guys.
Your next question comes from the line of John Mcnulty from BMO capital markets. Your line is open.
Yes. Good morning, Thanks for taking my question. So I was hoping maybe we could peel back the onion, a little bit on the TT business, because the volume weakness that youre seeing.
Mark Newman: Clearly, as we go into 2024, our view will be that, you know, there will be continued ramp up in HFO volumes, you know, whether that happens at the beginning of the year or more radibly, you know, we'll wait to see.
Definitely doesn't seem to be matching up with what the end customers' volumes are doing.
And I guess I'm, a little bit surprised it's gotten actually worse as we've gone through the year.
Mark Newman: But clearly, as we look at the OEM adoption of HFO platforms, you know, we see meaningful growth in HFOs in 2024 for the full year. Okay.
Normally I'd be a little nervous youre, losing share or something like that but in this case, you've got a lot of longer term contracts locked up so it doesn't look like that's the case. So I guess can you help us to think about where that demand disconnect is and when maybe we see the end of that destocking and kind of a normalization.
Mark Newman: And then in Europe, we had an issue about a year into their big step down where you started to get some illegal product flowing in. How were you guys set up differently in the US? Have you identified potential routes for that? And who is, I guess, kind of the policing force, if you notice that that you would go after, do you feel like that's set up well enough that you can stop that from happening in the US?
It's lower than kind of whatever 2019 type levels, but but but when we see a normalization of that business I guess, how should we be thinking about that.
So John it's a great question and as I said in my opening remarks. We are we are seeing clear indications of this demand weakness decelerating. We typically think of a T T cycle as 12 to 18 months and clearly.
Patrick Fischer: Yeah, well, first of all, we did a lot of work as an industry with the EPA in implementing the AMAC to, you know, take every precaution to make sure that didn't happen here. Clearly, you know, there's, there's few abortas, you know, as it relates to the US, Canada, and Mexico, then there is in the EU with 28 member countries. But listen, I think the industry, not just us, but, you know, the OEMs who have invested significantly in the HFO franchise are very focused on rolling out that adoption. Obviously, there's meaningful climate benefit with HFOs. And so, I think that risk is a lot lower here in the US, and certainly we're not seeing any meaningful indication of that risk today. Great, thank you guys.
When we look at volume demand deterioration starting in late Q3 last year.
We're at the 12 month Mark of here and.
As I said.
We're seeing real deceleration in demand reduction and in fact, I would say as we.
We look at our AP order book, we're seeing indication there of regaining demand now.
As we look out into next year, our expectation would be that.
Demand gains are more gradual.
But it feels to us like the Destocking is over.
And obviously as we go into Q4, which is typically a weaker quarter for TT. Our expectation is that volumes will be flat to slightly down and I'll ask Jonathan to comment on on sort of more volume details there yes.
John Mcnulty: Your next question comes from a line of John McNulty from BMO Capital Markets. Your line is open. Yeah, good morning. Thanks for taking my question. So I was hoping maybe we could peel back the onion a little bit on the TT business because the volume weakness that you're seeing definitely doesn't seem to be matching up with what the end customers volumes are doing. And I guess I'm a little bit surprised it's gotten actually worse as we've gone through the year and normally I'd be a little nervous you're losing share or something like that.
Yes, Mark Thanks, just just building on your comments as you said, we are starting to see some green shoots here in AP, while demand around the rest of the world is is is fairly muted.
John Mcnulty: But in this case, you've got a lot of longer term contracts locked up so it doesn't look like that's the case. So I guess can you help us to think about where that demand disconnect is and when maybe we see the end of that destocking and kind of a normalization, you're going to think it's lower than kind of whatever 2019 type levels. But when we see a normalization of that business, I guess how should we be thinking about that?
Part of the part of the transformation plan part of the TT transformation plan that we started with the <unk> shutdown was to control will be can control right. So that plan is going to deliver $15 million of cost savings in the fourth quarter.
And.
50 to 100 over the course of next year right. So we plan on having on showing a $100 million improvement in our TT earnings profile into 2024, and Thats really what the team is focused on driving for the remainder of the year and on into next year. So.
John we're really excited about on the transformation in TT, that's underway and ensuring that we can be.
<unk>, the most cost competitive the lowest cost and the best <unk> producer in the world.
Mark Newman: Yeah, so John is a great question. As I said in my opening remarks, we are seeing clear indications of this demand weakness decelerating. We typically think of a TT cycle as 12 to 18 months. And clearly, when we look at volume demand deterioration starting in late Q3 last year, we're at a 12 month market here. And as I said, we're seeing real deceleration in demand reduction. And in fact, I would say, as we look at our AP or the book, we're seeing indication there of regaining demand.
Got it Okay fair enough and then maybe we could just shift on our second question just.
Over to the TSS business in the data center opportunity that you that you highlighted in the prepared remarks, you are talking about some some pretty significant cost.
In terms of how Datacenters can cut down their energy I guess can you help us.
In some way to frame the market potential for a product like this.
As you kind of ramp it up in late 'twenty, five and into into 'twenty six 'twenty seven.
Yeah. So so first of all the immersion cooling.
Market represents a whole new add to our TSS franchise beyond the strong Uptown platform. So we are hugely excited about the potential of a almost another business on top of what we already have.
Mark Newman: Now, as we look out into next year, our expectation would be that demand gains are more gradual. But it feels to us like the destocking is over. And obviously, as we go into Q4, which is typically a weaker quarter for TT, our expectation is that volumes will be flat to slightly down.
Going into 2025.
As we have looked at.
The addressable market I think their estimates now running.
Through 2030 that suggests this is a two to 3 billion addressable market.
Jonathan Lock: I'll ask Jonathan to comment on more volume details here. Yeah, Mark, thanks. Just building on your comments, as you said, we are starting to see some green shoots here in AP while demand around the rest of the world is fairly muted.
John as you know I mean every day you hear another headline on on AI.
All that is happening in quantum computing that is really driving a significant growth in data centers.
Jonathan Lock: But part of the transformation plan, part of the TT transformation plan that we started with the Qanian shutdown was to control what we can control. So that plan is going to deliver $15 million of cost savings in the fourth quarter and $50 to $100 over the course of next year. We plan on showing $100 million improvement in our TT earnings profile into 2024. And that's really what the team is focused on driving for the remainder of the year and on into next year.
<unk>.
The energy reduction.
For cooling servers.
Is an estimated 90% is certainly high eight is based on the math that I've seen so it's a significant reduction in energy and also a significant reduction in essentially eliminates water usage for cooling data centers, where today you are calling <unk>.
Several months of air.
Both in terms of the climate impact and obviously the opportunity is significant.
John Mcnulty: So, John, we're really excited about the transformation in TT that's underway and ensuring that we can be, you know, the most cost-impative, the lowest cost and the best year to produce during the war. So, got it. Okay. Fair enough.
We're in the process right now.
Going through their project product registration process and as we've said earlier, we plan to start commercializing that product.
John Mcnulty: And then maybe we can just shift on our second question just over to the TSS business and the data center opportunity that you that you highlighted in the prepared remarks. I mean, you're talking about some some pretty significant cuts in terms of how data centers can cut down their energy. I guess can you help us in some way to frame the market potential for a product like this. As you kind of ramp it up in late 25 and into into 26 and 27.
In 2025, and obviously would have a significant ramp from there as we as we look at the addressable market that I talked about by 2030.
Got it thanks very much for the color.
Your next question comes from the line of Josh Spector from UBS.
Your line is open.
Yes, hi, thanks for taking my question.
So I wanted to follow up on TSS, a bit and just when you talk about your cut to guidance for the year you framed it more in terms of tiki expectations change within TSS I guess would you say your expectations since changed much for this year.
John Mcnulty: Yeah, so so first of all, the immersion cooling market represents a whole new ad to our TSS franchise beyond, you know, the strong option platform. So we're we're hugely excited about the potential of of of almost another business on top of what we already have. Going into 2025. As we have looked at the the addressable market, you know, I think they're estimates now running, you know, out through 2030 that suggests this is a two to three billion dollar addressable market.
And kind of related to that when you think about the rollout for next year, you said youre going to grow but prior step down we're kind of coincident with a lot of the changes on the auto OEM side, where there is more complete conversion.
How does that take place over this next year, where it's more HVAC related and Oems don't have to change their equipment until the year. After next.
Has any sell through around their change so really whats changed around your expectation of the next year.
John Mcnulty: But John, as you know, I mean, every day you hear another headline on on AI and all that is happening in quantum computing that is really driving a significant growth in data centers. You know, the the the energy reduction for cooling servers, you know, is is an estimated 90% in a certainly high 80s based on the method I've seen. So it's a significant reduction in energy and also a significant reduction essentially eliminates water usage for cooling data centers where today you're cooling massive amounts of air.
Yes. There is there is any equipment transition happening through next year to be ready for 2025, So our expectation based on our interaction with the Oems is that there will be growth next year.
On TSS.
Josh will cover 2024 guidance when we get there.
As we think of our guide for this year, obviously the two the main challenge that we're having this year is TT volumes.
And as I said in my opening remarks, we are also seeing some weakness on the.
Advanced materials franchise.
John Mcnulty: So, you know, both in terms of the climate impact and obviously the the opportunity, it's significant. We're in the process right now of, you know, going through the project product registration process. And as we've said earlier, you know, we've planned to start commercializing that product in 2025. And obviously, you know, we'd have a significant ramp from there as we as we look at the addressable market that I talked about by 2030.
<unk> of our APM business and in that business.
We're focused on on growth mainly in our PFA business that goes into semicon and in Gnathion.
It services the the rapidly growing hydrogen market today, we're sold out of both <unk> and PFA.
We are we're actively working on expansion at our Washington works plan in West, Virginia, We're having some permitting delays, which in fact impacted.
John Mcnulty: God, thanks very much for the color.
Our Q3 growth in performance solutions.
Josh Spector: Your next question comes from a line of Josh Spector from you. You'll be fine as open. Yeah, hi, they stick in my question. So I wanted to follow up on TSS a bit and just, you know, when you talk about your cut to guide us for the year, you framed it more in terms of TTS expectations change. You know, within TSS, I guess what you say your expectations change much for this year and kind of related to that when you think about the rollout for next year, you said you're going to grow, but prior step down.
But the team believes we're close to having a permit there and of course that will be reflected as we ramp that plant up in early 2024, and our 24 results. So again.
Very excited about the secular growth in both TSS and APM.
M.
Growth is never linear and in APM I think it has a lot to do with permitting on the.
PFA perspective, it's also related to how quickly you can debottleneck and obviously every quarter doesn't yield the same results.
Josh Spector: We're kind of coincident with a lot of the changes on the auto OEM side, where there is more complete conversion. How does that take place over this next year, where it's more HVAC related and OEM don't have to change their equipment until the year after. You know, it's the same thing, and then he fell through around their change. So it's really what's changed around your expectations the next year. Yeah, there's there's an equipment transition happening through next year to be ready for 2025. So our expectation, you know, based on, you know, our interaction with the OEMs is that there will be growth next year on TSS. You know, Josh, we'll we'll cover.
As we debottleneck or Gnathion production, but again long term secular growth intact.
Okay.
Thanks, Mark appreciate that and just I guess coming back to TSS.
There's been I think some changes within the equipment side.
About whats going to be allowed heritage wise or otherwise into next year.
Honestly don't really know if some of the changes have been positive or negative for adoption for you guys can you comment on any of that.
Yes, I understand there is the industry is still working through the recent regulation change with the EPA.
Mark Newman: We're 2024 guidance when we get there. As we think of our guide for this year, obviously, the two, the main challenge that we're having this year is TT volumes. And as I said in my opening remarks, we're also seeing some weakness on the advanced materials franchise of our APM business. And in that business, you know, we are focused on on growth mainly in our PFA business that goes into semi-con and in Nathan, you know, which services the rapidly growing hydrogen market.
It could have some some near term impact favoring hfcs, but listen.
Think they.
The focus on.
The complete changeover by early 2025, and all Thats needed to meet that date is going to drive good good opt in on traction in 2024. The other thing I would say is.
We've continued to see very strong auto bills and I think as we look into next year.
I think the current expectation is that will continue which is also good real are also remember is as there's more EV adoption, that's larger charge so listen.
Mark Newman: Today, we're sold out of both Nathan and PFA. We are we're actively working on expansion at our Washington works plan in West Virginia. We're having some permitting delays, which in fact impacted, you know, our Q3 growth in performance solutions. But the team believes we're close to having a permit there. And of course, that will be reflected as we ramp that plan up in early 2024 in our 24 results. So again, very excited about the secular growth in both TSS and APM.
As we will talk more about 24% in February.
When we complete the year here.
But again very excited about the growth that we see coming in both TSS in APM.
Okay. Thank you.
Your next question comes from the line of Hassan Ahmed from Alembic Global Advisors. Your line is open.
Good morning Hawken Jonathan.
A question on the PT side of things.
Mark Newman: Growth is never linear. And in APM, I think it's a lot to do with permitting on the, you know, PFA perspective. It's also related to, you know, how quickly you can debattle neck and obviously every quarter doesn't yield the same results as we debattle neck or Nathan production. But again, long term secular growth intact.
As it relates to cost curves look.
Mark Newman: Thanks, Mark, appreciate that.
Obviously your margins have compressed a fair bit I mean latest quarter, 10% EBITDA margins.
And you're obviously one of the lowest cost producers out there. So I'm just trying to understand where the marginal producer economics are right now and how sustainable I mean.
Like to think there is a large chunk of the industry. That's in the Red right now and how sustainable is that sort of environment really is and how that plays into how youre thinking about 2004 and beyond.
Josh Spector: And just I guess we're coming back to TSS. There's been I think some changes within the equipment side about, you know, what's going to be allowed heritage wise or otherwise into next year. I honestly don't really know if some of the changes have been positive or negative for adoption for you guys.
That's a great question and obviously when you look at our results this year.
In a pretty significant volume hit to the franchise.
Mark Newman: Can you comment on any of that? Yeah, I understand there is the industry is still working through the recent regulation change with the EPA. You know, it could have some near term impact favoring HFCs, but listen, I think the focus on the complete change over by early 2025 and all that's needed to meet that base. It's going to drive good, good opt in traction in 2024. The other thing I would say is, you know, we've, we've continued to see very strong auto bills.
We had higher input cost as we started the year is quite a bit of inflation on the input side.
<unk> into the beginning of this year and Honda Denise is leadership team has done a lot of work.
To drive both variable costs and fixed costs down.
Clearly.
With lower volume and lower fixed cost absorption.
That's that's not reflecting those improvements are not reflecting.
In our in our EBITDA margin today, but certainly as we look into next year, we would expect those margins to expand and to come back to where we would expect them to be longer term.
Mark Newman: And I think as we look into next year, you know, I think the current expectation is, is that will continue, which is also good. We also remember as there's, you know, more EV adoption, that's large a charge size.
The point I'll ask Jonathan to make a comment but I would just say there is clearly there's a lot of product that I think is in the market today.
Mark Newman: So listen, you know, as we will talk more about 24 in February when we complete the year here. But again, very excited about the growth that we see coming in both TSS and APM. Okay, thank you.
That kind of a marginal cost.
Pricing, reflecting marginal cost not forecast and thats not sustainable over the long term.
And what we're focused on is.
Absolutely being at the low end of the cost curve.
And.
The work that the team is doing with the TT transformation plan gives us the confidence to commit to $100 million for next year.
Hassan Ahmed: You are next question. Come some a line of Hassan Ahmed from Alimbeck Global Advisors. Your line is open.
And as we said in the script.
We're not stopping there Dennis and the team are really focused on.
Ensuring that our franchise is the global winning franchise.
In high high high purity are high quality.
Chloride pigment.
Jonathan Yes, the only thing I'd add there is hassan we've kind of seen that coming right and the actions as Mark said that Denise took early in the year, while painful we think are absolutely necessary in order to drive out in order to drive our cost of manufacturing down. So we're going to see again $15 million of that.
Mark Newman: I would like to think there's a lot chunk of the industry that's in the red right now. And how sustainable that sort of environment really is and how that plays into how you're thinking about 24 and beyond. Hassan, that's a great question. And obviously, when you look at our results this year, you know, pretty significant volume hit to the franchise, you know, we had higher input costs as we started the year, you know, was quite a bit of inflation on the input side.
Benefits show up here in the fourth quarter as a result of the <unk> closure and a $400 million show up next year through the through the <unk> transformation plan.
And as we go through the next couple of quarters. We will continue to update you on the progress against that 100 million as well as initial additional initiatives that we're launching as we think about it to go to optimize the entire.
Mark Newman: You know, going into the beginning of this year and, you know, on the Denise's leadership, the teams done a lot of work to drive both variable costs and fixed costs down. Clearly, you know, with low volume and low fixed cost absorption, you know, that's not reflecting those improvements are not reflecting, you know, in our in our EBITDA margin today. But certainly as we look into next year, we would expect those margins to, you know, to expand and to come back to where we would expect them to be longer term.
Manufacturing chain right from our mines to our pigment plants.
All of the associated overhead we've got our eyes firmly fixed on getting to getting to lowest cost. So we'll continue to update you on.
The path to that first $100 million and incremental savings as they become visible to us.
Fantastic.
I could dig a little deeper into those incremental savings that you mentioned, Jonathan obviously, the transformation plan of $100 million over there, but as I sort of sit there and think through.
Mark Newman: The point I'll ask Jonathan to make a comment, but I just say there's, you know, clearly there's a lot of products that I think is in the market today. At kind of a marginal cost, you know, pricing, reflecting marginal cost, not full cost. And that's not sustainable over the long term. And what we're focused on is, you know, absolutely being at the low end of the cost curve. And, you know, the work that the team is doing with the TT transformation plan gives us the confidence to commit to $100 million for next year. And as we said in the script, you know, we're not stopping there. Denise and the team are really focused on ensuring that our franchise is the global winning franchise in high, high purity or high quality.
<unk> sort of goings on as it relates to your input costs right, I mean or cost had been high but I'd like to imagine that in this is weak volume environment.
All costs are beginning to look a little shaky and I'd also like to thank chlorine costs are looking a little shaky, so above and beyond the $100 million that you guys are talking about for 2024.
As it relates to the transformation plan I mean, how do you think.
The input cost side of things good sort of play out next year.
He has signed you are breaking up there a little bit, but let me just say yes.
A number of the input costs.
Have come down this year.
And obviously as we look into next year, we're driving.
Jonathan Lock: Glory pigment. Jonathan? Yeah, you know, the only thing I'd add there is, you know, Hassan, we've kind of seen that coming, right. And the actions, as Mark said, that Denise took early in the year while painful, we think our net's absolutely necessary in order to drive out, in order to drive our cost of manufacturing down. So we're going to see, again, $15 million of that benefits show up here in the fourth quarter as a result of the Cuanian closure.
Further reductions.
Through our procurement team across a number of inputs.
A lot of the cost focus so far has been on.
Rarely are fixed costs with the coin in closure.
Other efficiency gains in our plants and other focuses on on yield improvements.
Jonathan Lock: And a full 100 million show up next year through the TT transformation plan. And as we go through the next couple of quarters, we'll continue to update you on the progress against that 100 million. As well as additional initiatives that we're launching as we think about it to go to optimize the entire manufacturing chain, right, from our minds to our pigment plants. And all of the associated overhead, we've got our eyes firmly fixed on getting to getting to lowest cost. So we'll continue to update you on the path to that first 100 million and incremental savings as they become visible to us.
Within our pigment plants in other mines so listen.
Hassan Ahmed: Fantastic.
Sure.
As I said, we're committed to the $100 million, but.
You should take from my comments that we're not stopping there. We're we're focused on driving all forms of cost reduction in TT.
Both on the fixed and the variable side.
Given the current market dynamics.
Super helpful. Thank you so much Martin Johnson.
Your next question comes from the line of Laurence Alexander from Jefferies. Your line is open.
Good morning, just two quick questions one on the TT productivity program can you sort of how you think about changing your incremental margins when volumes recover.
Hassan Ahmed: And, you know, if I could dig a little deeper into those incremental savings that you mentioned, Jonathan. Obviously, you know, the transformation plan, a hundred million over there. But, you know, as I sort of sit there and think through the, through going on as they relate to your input costs, right? I mean, over costs had been high, but I'd like to imagine that, you know, in this weak sort of volume environment, you know, over costs are beginning to look a little shaky.
Hassan Ahmed: And I'd also like to think chlorine costs are looking a little shaky. So, above and beyond the hundred million that you guys are talking about for 2024, as it relates to the transformation plan, I mean, how do you think, you know, the input cost side of things could sort of play out next year? Hey, Hassan, you were breaking up there a little bit, but let me just say, yes, you know, a number of the input costs have come down this year.
And then secondly on the data center.
Cooling initial.
Initiative.
You see as the Capex required to support the growth.
Through 2030.
Yeah, Hey, Laurence this is Jonathan here.
Obviously as we look at the kind of controllable NTT, we're taking the cost out today and as we as the market recovers hopefully starting here in 2024.
Those cost savings will accrete to the bottom line more rapidly as we can spread the cost over.
Larger tonnage base today, we're not manufacturing, we're not operating our plants at anywhere near the optimal levels in order to get the right amount of fixed cost absorption. So the gains from market recovery are going to come.
Hassan Ahmed: And obviously, as we look into next year, we're driving, you know, further reductions, you know, through our procurement team across a number of input. A lot of the cost focus so far has been on really our fixed costs with the Coignan closure, other efficiency gains in our plants and other focuses on yield improvements both in our pigment plants and at our mind. So listen, we're, we're, as I said, you know, we're committed to the hundred million, but you should take from my comments that, you know, we're not stopping there. We're focused on driving all forms of cost reduction in TT, both on the fixed and the variable side, you know, given the current market dynamics.
Hopefully starting in 'twenty four we're not counting on that as we kind of look at the cost opportunities, but as they come that will just compound on top of the $100 million cost savings that we're putting into place today.
Mark Newman: Super helpful. Thank you so much, Mark and Jonathan.
With respect to the Capex, we haven't guided to 2000 and for Capex or even 25, capex, but just to give you an idea of how the emerging cooling plan would rollout we'd start with a smaller pilot plant.
That's not a significant capital outlay.
At some point here pre commercialization and then <unk>.
Pending on what we think the volume needs are.
Four.
A larger facility to bring it more fulsome to market probably sometime in 'twenty six 'twenty seven timeframe, but those are plans yet to come we're really excited about getting the product commercialized in the first instance, and also finding the hyperscale the right set of Hyperscale or partners to really make them.
In terms of.
Data centers are built in the amount of energy and water that get consumed.
Lawrence Alexander: Your next question comes from a line of Lawrence Alexander from Jeffries. Your line is open. Good morning. Just two quick questions. One on the TT productivity program. Can you flesh out how you think about it changing your incremental margins when volumes you recover? And then secondly, on the data center cooling initiative, what you see as the capex required to support the growth out through 2030? Hey, Lawrence. This is Jonathan here. You know, obviously, as we look at the kind of controllables in TT, we're taking the cost out today.
Hey, I just wanted to Lawrence I, just wanted to add to jonathan's comment a minute here.
Clearly with the closure on the TT question, clearly with the closure of coin in.
We're now down to three large plants to service all our customer needs and what we typically see is we probably have more fixed cost leverage and some of our other competitors given how large our plants are.
Obviously.
As we look at a more gradual recovery, we will see how that translates into.
Margin recovery, but again.
Remain very focused on both fixed and variable cost.
Lawrence Alexander: And as we, you know, as the market recovers, hopefully, you know, starting here in 2024, those cost savings will accrue to the bottom line more rapidly as we can spread the cost over, you know, a larger tonnage base. Today, we're not manufacturing. We're not operating our plants at anywhere near the optimal levels in order to get the right amount of fixed cost absorption. So the gains from, you know, market recovery are going to come.
And then.
On the immersion on the immersion cooling side again, we're very focused on how we commercialize that in a very thoughtful way and then the last point I would make is.
We are very disciplined around capital allocation and we will allocate capital against if you think about our five strategic priorities.
We are allocating capital to improve how we improve our TT earnings and margins were allocating capital to grow TSS, we're allocating capital to grow APM in the in the high value markets of advanced electronics.
Lawrence Alexander: Hopefully, starting in 24, we're not counting on that as we kind of look at the cost opportunities. But as they come, that will just compound on top of the $100 million cost savings that we're putting into place today. With respect to the capex, you know, we haven't guided to 24 capex or even 25 capex. But just to give you an idea, you know, of how the immersion cooling plan would roll out, we'd start with a smaller pilot plant.
And hydrogen and then finally, we.
We continue to make.
Make real progress on resolving legacy liabilities with the Mou arrangement, we have with Dupont on curtailment. So if you look at how we're deploying capital is all in a way that over time will really will drive meaningful.
Lawrence Alexander: You know, that's not a significant capital outlay. At some point here, you know, pre-commercialization. And then, you know, depending on what we think the volume needs are, we do for, you know, a larger facility to bring it more fulsome to market, probably, you know, sometime 26, 27 timeframe. But those are plans yet to come. We're really excited about getting the product commercialized in the first instance. And also finding the hypers, you know, the right set of hyperscaler partners to really make a mark in terms of how data centers are built in the amount of energy and water that get consumed.
Meaningful returns to our shareholders.
Okay.
Just.
Put a bow on it.
If you do get the immersion salute.
Solution to $1 billion business can you give a sense for what the incremental capex that would require I mean, regardless of the timing.
And then your return on capital on that probably presumably be above.
Jonathan Lock: Hey, I just wanted to, Laurence, I just wanted to add to Jonathan's comment a minute here, clearly, you know, with the closure on the TT question, clearly with the closure of Guanyin, you know, we're now down to three large plants to service all our customer needs, and what we typically see is we probably have more fixed cost leveraged than some of our other competitors given how large our plants are. Obviously, you know, you know, as we look at a more gradual recovery, you know, we'll see how that translates into, you know, margin recovery, but again, remain very focused on both fixed and variable cost.
Kind of your historical targets I mean, given the market that youre selling into and the.
Savings, you're providing is that fair.
That's fair and listen.
As Jonathan said.
We'll have we usually have a much smaller investment near term.
As we do proof of commercial concept and then more later, so we're really talking about capital.
Rarely out year period here to get to.
The Tam that we talked about in 2030, so we'll have more to say about that later, but listen this would be very high return.
Jonathan Lock: And then, you know, on the immersion, on the immersion cooling side, again, we're very focused on how we commercialize that in a very thoughtful way. And then the last point I would make is, you know, we are very disciplined around capital allocation, and you know, we will allocate capital against, if you think about our five strategic priorities, you know, we're allocating capital to improve how we improve our TT earnings and margins.
High margin growth because this is really driving significant value.
Two data centers.
Oh by the way data centers.
Today account for 1% of the global carbon footprint.
A meaningful consumption of water, so we see a real value to our customers and the planet here in <unk>.
In this product and we're keen to bring it to market.
Thank you.
Your next question comes from the line of Vincent Andrews from Morgan Stanley. Your line is open.
Jonathan Lock: We're allocating capital to grow TSS, we're allocating capital to grow APM in the high value markets of advanced electronics and hydrogen. And then finally, you know, we continue to make real progress on resolving legacy liabilities with the MOU arrangement we have with Dupan and Kertava. So, if you look at how we're deploying capital, it is all in a way that, you know, over time will really will drive, you know, meaningful returns to our shareholders.
Hi, I was wondering if you all could provide some additional details on trends and the outlook for Tio two markets. Specifically I was wondering what youre seeing on imports and exports across the different regions. If you could provide a little color on the set up for 2024 and if there are any notable trends, but then inventory levels.
On the channel.
Yes, I mean, thanks for the question, it's Jonathan here.
As we look at it right in terms of the Destocking the destocking.
<unk> started in the third quarter of last year. So as Mark said earlier in the call. It's been with US now for quite a long time right, we're going on 12 months.
Jonathan Lock: Just to put a bow on it, the, if you do get the data immersion solution to a billion dollar business, can you give a sense for what the incremental capex that would require? I mean, regardless of the timing, and then your return on capital on that would probably presumably be above kind of your historical targets. I mean, given the market that you're selling into and the savings you're providing, is that fair?
And.
Even as we feel like we've gotten we can kind of see the bottom here and the demand destocking as the as the.
Celebrated.
Here in the third quarter going into the fourth quarter.
We're not seeing outside of Asia Pacific, we're not yet seeing the green shoots of a turn rate.
But we believe that in terms of the actions that we've taken we are well positioned for that market turn but to answer the question kind of directly.
Jonathan Lock: That's fair. And listen, you know, we're talking, as Jonathan said, you know, we'll have, we usually have a much smaller investment near term. As we do proof of commercial concept, and then more later. So, you know, we're really talking about capital, you know, in a, you know, a really out year period here to get to, you know, the, the, the time that we talked about in 2030. So we'll have more to say about that later, but listen, this would be very high return, high margin growth because this is really driving significant value to, to data centers.
We are seeing some green shoots here in Asia Pacific inventory levels as a result of kind of prolonged destocking down the chain do not appear to be high.
And with the cost transformation that we started in this year, we believe we're well positioned to take advantage of the cyclical turn when it happens so.
I think that obviously as we move into the into February and we put we closed the books on 'twenty three and we give our guidance for 'twenty four we will have a much better sense for whether or not 24 coating season will develop in the way that we hope it does so stay tuned and we'll continue to update you both on the transformation plan as well as our <unk>.
Jonathan Lock: Oh, by the way, data centers, you know, today account for 1% of the global carbon footprint and a meaningful consumption of water. So we, we see a real value to our customers and the planet here in, in this product, and we're keen to bring it to market.
<unk> on the 24 recovery.
Mark Newman: Thank you.
Okay.
Awesome I appreciate the color do you mind also providing some additional detail on the $1 million run rate cost savings expected for next year, you mentioned earlier during the call that the facility closure may be $50 million to $100 million of savings if I heard you right.
Vincent Andrews: Your next question comes from a line of, Vincent Andrews from Morgan Stanley. Your line is open. Hi, I was wondering if you all could provide some additional details on trends and the outlook for a TIO 2 market. Specifically, I was wondering what you're seeing on imports and exports across the different regions, if you could provide a little color on the setup for 2024 and if there are any notable trends within inventory levels in the channel.
Is there a range for that 100 million $100 million of cost savings that you're expecting next year and I mean is there.
Some upside to that depending on what other actions you're taking.
Yes, so the cost savings that we're committing to for next year is 100 $100 million on a run rate basis $50 million of that is driven by the <unk> facility closure that we announced on our last call. So we are we are planning on delivering $100 million of run rate savings here next year and as I said a couple of question.
Vincent Andrews: Yeah, I mean, thanks for the question. It's Jonathan here. You know, as we look at it, right, in terms of the destocking, the destocking in TIO 2 started in the third quarter of last year. So it's marked that earlier in the call. It's been with us now for quite a long time. Right, we're going on 12 months. And, you know, even as we feel like we've gotten, you know, we can kind of see the bottom here and the demand destocking has decelerated.
As ago, we're going to continue to build on that number and we look forward to giving updates as we get more line of sight to incremental run rate savings beyond the $100 million as we go through the next couple of quarters.
Okay. Thank you.
Vincent Andrews: Here in the third quarter, going into the fourth quarter, you know, we're not seeing, you know, outside of Asia Pacific, we're not yet seeing the green shoots of a turn, right. But we believe that in terms of the actions that we've taken, we're well positioned for that market turn. But to answer the question, kind of directly, you know, we are seeing, you know, some green shoots here in Asia Pacific. Inventory levels as a result of kind of prolonged destocking down the chain do not appear to be high. And with the cost transformation that we've started in this year, we believe we're well positioned to take advantage of the cyclical turn when it happens.
And we have reached the end of our question and answer session. Mr. Mark Newman I turn the call back over to you for some final closing remarks.
Thanks, everyone for joining us today look the year has been a challenging year.
And that the <unk> team.
As really responded well and focusing on the things, we control and driving cost reduction NTT and in being focused on how we service the growth in TSS in APM as we go into next year and we will continue to.
Look forward to staying in touch with you and to continuing to drive real value for our shareholders. As we go forward. Thank you.
Jonathan Lock: So, you know, I think that obviously as we move into the, you know, into February and we put, you know, we close the books on 23 and we give our guidance for 24. We'll have a much better sense for whether or not 24 coding season will develop in the way that we hope it does. So stay tuned and we'll continue to update you both on the transformation plan as well as our perspective on, you know, the 24 recovery. Awesome. Appreciate the color.
This concludes today's conference call. Thank you for your participation you may now disconnect.
Okay.
Jonathan Lock: You mind also providing some additional detail on the $1 million of run rate cost savings expected for next year. You mentioned earlier during the call with the facility closure, maybe 50 to 100 million of savings. If I heard you're right. Is there a range for that 100 million 100 million dollars of cost savings that you're expecting next year and I mean, is there, you know, some upside to that, depending on what other actions you're taking.
Jonathan Lock: Yeah, so the cost savings that we're committing to for next year is 100 100 million dollars on a run rate basis. 50 million of that is driven by the Coignan facility closure that we announced on our last call. So we are, we are planning on delivering 100 million dollars of run rate savings here next year. And as I said, a couple of questions ago, you know, we're going to continue to build on that number and we look forward to giving updates as we get more line of sight to incremental run rate savings beyond the 100 million dollars as we go through the next couple of quarters. Okay, thank you.
Mark Newman: And we have reached the end of our question and answer session.
Mark Newman: Mr. Mark Newman, I turn the call back over to you for some final calls. Thanks everyone for joining us today. Look, the year has been a challenging year and the Chemours team has really responded well in focusing on the things we control in driving cost reduction in TT and in being focused on how we service the growth in TSS and APM as we go into next year and we'll continue to look forward to staying in touch with you and to continue to drive real value for our shareholders as we go forward. Thank you.
Rob: This concludes today's conference call. Thank you for your participation. You may now just...