Q3 2024 The Chemours Co Earnings Call
Good morning, My name is Daniel and I will be your conference operator today.
I'd like to welcome everyone to the divorce company third quarter 2024 results conference call.
All participants are in listen only mode.
A question and answer session will follow the conclusion of the prepared remarks.
I'd like to remind everyone that this conference call is being recorded.
I'd now like to hand, the conference call over to Brendan Entrees, Vice President of Investor Relations.
You may begin your conference.
Brendan Entrees: Good morning, everybody welcome to the <unk> company's third quarter 2024 earnings conference call.
Brendan Entrees: I'm joined today by taking them, whereas president and Chief Executive Officer.
Brendan Entrees: Our Chief Financial Officer, Shane who center.
Brendan Entrees: Before we start I would like to remind you that comments made on this call as well as in the supplemental information provided on our website contain forward looking statements involve risks and uncertainties as described or SEC.
Brendan Entrees: SEC filings these.
Brendan Entrees: 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.
Brendan Entrees: Actual results may differ.
Brendan Entrees: It takes no duty to update any forward looking statements as a result of future developments or new information.
Brendan Entrees: During the course of this call we will refer to certain non-GAAP financial measures that we believe are useful to investors evaluating the company's performance.
Brendan Entrees: A reconciliation of non-GAAP terms and adjustments is included in our press release issued this morning.
Brendan Entrees: Also we have posted our earnings presentation to our website earlier today.
Brendan Entrees: With that I will turn the call over to Denise signal.
Thank you Brandon and thank you everyone for joining us.
Denise Signal: In addition to releasing our quarter three results earlier this morning.
Brendan Entrees: Outlined our refreshed corporate strategy for March.
This strategy as a result, a lot of hard work over the last several months and we are excited to share with you.
Brendan Entrees: We have strong businesses.
Brendan Entrees: Good momentum across the company and our path to value creation.
Brendan Entrees: Shannon I will start with our strong third quarter performance provide our outlook for the fourth quarter and share some key considerations as we head into 2025.
Brendan Entrees: We will then review our refreshed strategy and take your questions.
Brendan Entrees: Starting with the quarter there were two key factors that contributed to our strong performance.
Brendan Entrees: Our teams demonstrated consistent and effective operational execution across the business.
We continue to put many of the one off events and disruptions from earlier this year behind us.
Brendan Entrees: We are pleased to see stability in the macro environment around our target markets and with strong continued execution. We are confident that we will be well positioned to meet customer demand.
Brendan Entrees: Our efforts are reflected in year over year volume increases across all of our businesses and stronger than anticipated results in our T. S at GTT business.
Our TSS business hit a sales record for the third quarter with a robust 21% year over year increase in ASEAN refrigerants.
Brendan Entrees: This reflects nearly 60% of our total TSS refrigerant sales for the quarter.
50% in the prior year.
Brendan Entrees: These results are in line with our previous expectation of double digit growth and up down refrigerants and affirm our continued transition to <unk> as we move deeper into stationary air conditioning Dutch.
We saw the same execution in our <unk> business with volumes stronger than we anticipated even with some of the lagging constraints from the Alps Merit route but impacted our capacity early in the third quarter.
Our underlying CIO to circuit has operated well and with these impacts behind US we are well positioned to meet customer demand as markets improve.
Brendan Entrees: The <unk> team continued to make strong progress against our transformation plan, achieving an incremental $30 million in savings during the quarter and bringing total savings to approximately $130 million in 2024.
This year to date achievements exceeds the targeted $125 million in year over year savings driving an.
Brendan Entrees: <unk> and our adjusted EBITDA margins to 13%.
Brendan Entrees: These results are inclusive of $18 million million in altamira drought related cost reflected during the third quarter.
Brendan Entrees: While they have exceeded our year over year annual savings call. Our continued focus on cost leadership under this program will continue with an additional $10 million to $15 million in savings anticipated in the fourth quarter plus additional savings later on in 2025, which will address later in more detail.
Brendan Entrees: Turning to APM.
Brendan Entrees: While advanced materials results were weaker than anticipated due to pricing conditions and softer market environment. We did experience sequential volume growth across both parts of the APM portfolio as well as a 9% year over year net sales increase in performance solutions underscoring the continued demand for our high value.
Brendan Entrees: For our polymer applications.
Brendan Entrees: In early September we ramped up production on our second high grade tap on PSA resin production line, which is a critical material our semiconductor manufacturing.
Brendan Entrees: This expansion will be a meaningful contributor to our performance solutions portfolio as we move into the fourth quarter and periods ahead.
Brendan Entrees: Before moving on to an overview of our refreshed corporate strategy I'll turn it over to Shane to walk through our financial results Shane.
Shane: Thank you Denise and good morning, everyone.
Shane: Let's take a closer look at our financial results.
Shane: Our consolidated net sales for the third quarter were approximately $1 5 billion up 1% compared to the prior year quarter.
Brendan Entrees: This increase was driven by a 5% increase in volume, partially offset by a 3% decline in pricing with currency a slight 1% headwind.
Brendan Entrees: Turning to adjusted EBITDA, we saw a slight decrease from $211 million last year to $208 million this quarter.
Brendan Entrees: This decline was largely attributable to lower pricing with smaller impacts from currency fluctuations and portfolio changes. However, these declines were partially offset by increased volumes as well as cost reductions.
Brendan Entrees: As a point of reference in last year's fourth quarter, we revised our prior year non-GAAP adjusted EBITDA, including the third quarter to eliminate adjustments for raw material write offs and also to correct. The understatement of accrued liabilities related to contract litigation following the decommissioning of our Taiwan facility.
Brendan Entrees: These revisions should help clarify last year's third quarter results for comparison purposes under U S. GAAP.
Brendan Entrees: For the third quarter <unk> reported a net loss of $27 million or <unk> 18 per diluted share compared to net income of $12 million or <unk> <unk> per share in the prior year.
Brendan Entrees: The current quarter net loss includes a $56 million noncash impairment charge.
Brendan Entrees: Aligning with our capital focus we reviewed assumptions for all strategic projects in the third quarter to ensure spend was prudent and appropriate for their respective returns.
Brendan Entrees: This analysis included new industry projections for hydrogen.
Brendan Entrees: Indicating slower growth and reduced near term demand.
Brendan Entrees: In response, we adjusted certain strategic spend specifically delaying investments in our hydrogen venture, which triggered a review of the APM segment.
Brendan Entrees: <unk> and a full impairment of the segment's goodwill.
Brendan Entrees: Excluding our impairment charge our consolidated adjusted net income came in at 61 million this quarter or <unk> 40 per diluted share, which was down from $65 million of adjusted net income last year or <unk> 43 per diluted share.
Brendan Entrees: Largely due to the lower overall pricing I previously mentioned.
Brendan Entrees: Now, let's turn to our business segment performance starting with TSS.
Brendan Entrees: In the third quarter TSS achieved record net sales of approximately $460 million, a 6% increase from the prior year.
Brendan Entrees: This growth was primarily driven by an 8% rise in volume, which was partially offset by a 2% decline in pricing with currency impacts remaining relatively flat.
Brendan Entrees: We continue to see pricing pressures, primarily due to softer freon refrigerant prices linked to elevated HFC inventory levels in the United States.
Brendan Entrees: However, this trend was partially offset by stronger pricing in the ASEAN refrigerants.
Brendan Entrees: On the volume side, we experienced robust growth fueled by heightened demand for <unk> refrigerants, driven by ongoing adoption in stationary and auto end markets. We also saw strong performance across our phone propellant and other portfolio.
Brendan Entrees: However, ts versus adjusted EBITDA did fall, 13% year over year to 141 million, resulting in an adjusted EBITDA margin of 31%.
This decline was largely due to decreased freon refrigerant pricing higher costs associated with securing near term quota allowances as well as rising raw material costs.
Brendan Entrees: These declines were partially offset by increased volumes in RPM refrigerants, driven by the continued adoption of low GW pre products, particularly in stationary and auto end markets.
Brendan Entrees: Sequentially Tss's net sales declined 10%, reflecting typical seasonal trends across our refrigerants portfolios and the aforementioned price declines and freon refrigerants.
Brendan Entrees: This was partially mitigated by increased volumes in ASEAN refrigerants within stationery and markets.
Brendan Entrees: Now, let's move to our TT.
Brendan Entrees: In the third quarter <unk> net sales fell 2% year over year to $679 million, primarily due to a 2% reduction in price.
Brendan Entrees: Volumes also provided a 1% increase while unfavorable currency movements presented less than a 1% compared to the prior year.
Brendan Entrees: Adjusted EBITDA increased 23% to $85 million compared to the prior year with adjusted EBIT margin, improving three percentage points to 13%.
Brendan Entrees: This boost in earnings was driven by cost savings realized through the TT transformation plan, partially offset by declining pricing and $18 million in costs related to the unplanned altamira downtime.
Brendan Entrees: Sequentially <unk> net sales increased by 1% driven by price.
Brendan Entrees: Turning to Aps in.
Brendan Entrees: In the third quarter of 2020 for the APM segment reported net sales of $348 million or a 1% increase compared to the prior year.
Brendan Entrees: This growth was largely driven by a 9% Verizon volume, partially offset by a 7% decline in pricing.
Brendan Entrees: Product mix with currency fluctuations also creating a slight 1% headwind.
Brendan Entrees: Notably this volume growth was strong across both advanced materials and performance solutions with.
Brendan Entrees: With performance solutions, achieving a 9% year over year growth.
Brendan Entrees: The pricing decline stemmed from softer market conditions, and our macro economically sensitive end markets as well as shifts in products.
Brendan Entrees: For the APM segment, adjusted EBITDA decreased 43% to $39 million at Apm's, adjusted EBITDA margin fell nine percentage points to 11%.
Brendan Entrees: This decline was primarily driven by cost mix combined with lower absorption.
Sequentially net sales rose by 3% fueled by increased volumes, primarily within performance solutions.
Brendan Entrees: Separately, our other segment recorded net sales and adjusted EBITDA of $14 million and $3 million, respectively. The current quarter.
Brendan Entrees: Corporate expenses as an offset to adjusted EBITDA totaled $57 million in the third quarter, a $3 million increase from the same period last year, which aligned with our expectations.
Brendan Entrees: Shifting our focus to our balance sheet and liquidity.
Brendan Entrees: As of September 32020 for our consolidated gross debt stood at $4 1 billion with approximately $1 2 billion in liquidity.
Brendan Entrees: This includes $596 million in unrestricted cash and cash equivalents of almost $652 million available under our revolving credit facility.
Brendan Entrees: Additionally, the company retained $70 million in restricted cash and cash equivalents, primarily related to escrow under the terms of the Mou related to potential future legacy liabilities.
Brendan Entrees: Our cash provided by operating activities in the third quarter was $139 million, which.
Brendan Entrees: Which increased 6% from $131 million in the same quarter last year.
Brendan Entrees: Capital expenditures for this quarter totaled $76 million compared to $86 million in the prior year as the company continues to focus spending on strategic priorities.
Brendan Entrees: Additionally, the company paid 38 million in dividends to shareholders during the current quarter.
Brendan Entrees: So overall, we are very pleased with the quarter, having exceeded our performance expectations with continued market momentum and positive trends. Several key areas for instance, we saw year over year volume increases across all our businesses, notably volume trends in our PR continued to show strong adoption with high double digit year over year.
Growth through new stationary units.
Brendan Entrees: This trend is expected to continue as we transition to air conditioning Oems in the U S under the amax into 2025.
Brendan Entrees: Okay.
Brendan Entrees: For TT are stable CIO to volumes exceeded expectations. Despite lingering manufacturing strengths. While we also stay ahead of our TT transformation plan.
Brendan Entrees: And for APM.
<unk> and performance solutions were strong compared to the prior year with our Teflon PFA line up and running as planned which will contribute to our performance solutions portfolio. As we look ahead for the quarter.
Brendan Entrees: Lastly, we have also made substantial progress on the control issues stemming from earlier this year.
Brendan Entrees: Notably we have successfully remediated two of our four material weaknesses as of the third quarter and continued to progress. The other two remaining controls issues to appropriate remediation.
Brendan Entrees: With this third quarter perspective, I would like to now provide our expectations as we head into the fourth quarter and also as we frame our thinking for 2025.
Brendan Entrees: For the fourth quarter, TSS, well experienced normal refrigerant seasonality, which will drive a sequential decline in net sales in the low teens.
Brendan Entrees: We expect to see continued double digit year over year growth in refrigerants in the fourth quarter. However.
Brendan Entrees: However, tss's adjusted EBITDA is expected to decrease in the low 20% range sequentially due to seasonal trends.
Brendan Entrees: Also it is important to highlight that our Corpus Christi, Texas expansion remains on track with the expectation that this additional capacity of our ASEAN break will be available starting in the beginning of 2025.
This 40% expansion is critical to support the U S. As OEM regulatory transition, which requires newly manufactured residential and light commercial air conditioning systems to transition to low global warming potential refrigerant at the beginning of next year.
Brendan Entrees: We plan to have half of the capacity available at the beginning of 2025, and we believe our market leadership and our production network placed <unk> in a strong position to support this important regulatory transition.
Looking ahead, we anticipate the pattern of double digit net sales growth in ASEAN refrigerants to persist throughout 2025, driven by volume expansion in ASEAN refrigerant blends.
Brendan Entrees: The strength in net sales will be driven primarily through volume growth in the U S air conditioning market as demand transitions for many legacy HFC producers to available options for low GWB alternatives to each of those such as our <unk> 32.
Brendan Entrees: In 2025, we will continue to actively sell freon products, although they will increasingly represent a smaller portion of the TSS refrigerant portfolio as our markets continue transitioning to up.
We anticipate that U S free on pricing will remain at low levels into 2020.
Brendan Entrees: We also expect slight strict and phone propellant and other products as we move into 2020.
Brendan Entrees: These factors combined with additional cost reduction efforts support our expectation that adjusted EBITDA margins will remain around 30% or greater assuming that free on pricing remains stable.
Turning to our <unk> business in the fourth quarter, we expect a mid to high single digit sequential net sales decline with seasonality driving lower volumes combined with impacts from mix of regional sales.
Brendan Entrees: We also expect adjusted EBITDA to decrease between mid to high teens in line, but the sequentially lower volumes and mix trends.
This decline will continue to be supported by our continued cost out efforts under the TT transformation plan, which as highlighted has exceeded expectations and will continue into the fourth quarter.
Brendan Entrees: Looking ahead to 2025 for <unk>, we anticipate volume stabilization and opportunities for an improved demand environment driven by recent rate cuts in the U S and Europe.
We also will continue our cost out efforts under the <unk> transformation plan.
We believe that these continued cost out efforts combined with a continually improving demand environment will continue to produce enhanced earnings leverage as we move into the future.
For our APM business, we anticipate a low single digit net sales decline driven by macro weakness in our advanced materials end markets slightly offset by increases in performance solutions driven by positive contributions from our new Teflon PSA one.
Brendan Entrees: Adjusted EBITDA is anticipated to be broadly flat sequentially due to portfolio mix combined with continued cost reduction efforts across the business.
Brendan Entrees: Moving into 2025, while we anticipate continued macro recover.
<unk> recovery tends to be further back in the supply chain, which leads us to believe that this recovery won't meaningfully start to impact the business until earliest later in the year.
Brendan Entrees: We anticipate this persisting weakness could offset some of the positive topline strength on the new Teflon PFA line.
Brendan Entrees: That said this favorable product mix on top of additional cost reduction efforts should continue to drive improvements apm's margins as we head into next year.
Brendan Entrees: Our consolidated expectations for the fourth quarter or a mid to high single digit sequential decline in net sales with adjusted EBIT down in the high teens to the low 20% range compared with the third quarter.
Brendan Entrees: Also as a part of this change we anticipate that corporate expenses will be generally in line with the third quarter.
Brendan Entrees: Moving into 2025, we will continue to probe growth as well as driving out costs in our business and corporate functional expenses, which we will provide additional insight later in our strategy section of this call.
As we look ahead to our liquidity, we anticipate our overall cash balance in the fourth quarter or remained generally in line with the third quarter as we expect positive operating cash flow.
Brendan Entrees: We do also expect additional capex, primarily concentrated around planned major maintenance activities across our businesses and the referenced expansion underway at the PSS production site in Corpus Christi, which will increase our expected total capex in the fourth quarter to be in the range of approximately $100 million.
Brendan Entrees: As we move ahead, we do not anticipate any liquidity concerns or events that would impact liquidity related to clients' concerns with our banking covenants.
Speaker Change: With that I'll hand, it back over to Denise for more strategic discussions.
Denise Signal: Thank you Shane.
Denise Signal: Since becoming CEO in March I focus my time on stabilizing the company.
Denise Signal: Adding a new leadership partner in Spain, and spending a lot of time with our stakeholders to help develop our path forward.
Denise Signal: As I shared in the prior quarter. This effort reflected a new set of core values safety integrity partnership ownership and respect.
Abiding the foundation for a new vision to deliver trusted chemistry, making people's lives better and helping our communities to thrive.
Denise Signal: Our refreshed strategy, which we are calling pathway describe capitalizes on the fundamental strengths of our businesses are incredible talent and competitive differentiators.
Denise Signal: It provides a clear framework and actionable steps to create short and long term value centered around our four pillars operational.
Brendan Entrees: Excellent.
Brendan Entrees: Enabling growth.
Brendan Entrees: <unk> management and strengthening the long term.
We have set a number of key targets over the next three years and are confident that solid execution across the business will drive differentiated value creation for shareholders.
I'd like to now provide some additional detail around each of these four pillars.
Brendan Entrees: Starting with operational excellence, we can achieve incremental run rate cost savings of greater than $250 million across the company starting next year through 2027.
Brendan Entrees: This overall cost savings plan comprises an additional $100 million cost savings program under our TT transformation plan and $150 million in targeted savings evenly across the other businesses and corporate costs.
We have developed the programmatic approach for achieving these cost savings, including the use of efficiency trading technology across the company.
Brendan Entrees: Given the cyclicality of our industry cost management must be part of our DNA.
Brendan Entrees: It's a continuous exercise for us and while we have addressed much of the low hanging fruit, we continue to be disciplined and committed to operating as it should.
Brendan Entrees: And effectively as possible.
Speaker Change: A top priority when I became CEO with getting these cost efforts underway as a result, we expect to realize approximately 50% as a run rate of these savings by the end of 2025.
Speaker Change: Our second pillar is enabling growth.
<unk> is committed to strategically investing in high return low risk initiatives across our portfolio.
Speaker Change: We are targeting a greater than 5% revenue CAGR from 2024 through 2027, assuming no significant macro events for that time.
Speaker Change: We will prioritize expanding and rapidly growing end market concentrating on data Center point next generation refrigerant and semiconductor fabrication.
Our recently completed Teflon PFA line investment is a great example of this commitment our high purity, rather and serve as a key component and semiconductor fab.
Speaker Change: We also remain strongly committed to moving into data center cooling through the continued development of our specialty toothpaste American point product and <unk>.
Speaker Change: As we target our investments in these higher growth businesses. We will also pull back on certain slower growth investments to prioritize our capital focus.
Speaker Change: We are placing our APM gnathion expansion at <unk> called Fran Anhalt.
During the near term weakness in the hydrogen market we.
We are leaders in this space and continue to believe in the long term potential, but we believe for now we can satisfy demand with our existing assets.
Speaker Change: Additionally, we are working through our plan to reduce our investment in our previously communicated AUM expansion in TSS to align with our strategic priorities, while still addressing the market at a much lower investment thresholds.
Speaker Change: Going forward, our investments must be guided by disciplined capital allocation program and we'll prioritize high growth areas such as data center cooling next generation refrigerant and semiconductor fabrication.
Speaker Change: We expect these investment activity to be funded by organic cash flow generation and achieved cost savings across all of our businesses.
We believe prioritizing these compelling growth opportunities for <unk> on the best path to enhance our competitive positioning and capture significant share and an evolving landscape.
Our third strategic pillar portfolio management is reflective of our ongoing commitment to strategically optimizing our existing businesses and assets.
Speaker Change: We must continue to shift our focus from products to applications in higher growth higher margin markets.
We believe that this approach paired with regularly revisiting the returns of our asset base with an emphasis on the specialty components of our business will enhance shareholder value.
Speaker Change: Our executive team will continue to monitor and evaluate Morris positioning and portfolio to effectively navigate and respond to market changes.
We also will take a hard look at our existing asset footprint, particularly in APM to ensure we have the optimal asset base for our future needs.
Speaker Change: Lastly, our fourth pillar strengthening our long term reflects our prioritization of resolving legacy litigation matters.
Brendan Entrees: Our commitment to responsible manufacturing and our advocacy efforts that create awareness and inform regulations and policies globally that recognize the criticality of our chemistries.
Brendan Entrees: As it relates to our legacy liabilities I would like to take a moment to provide a framework on how they consider our litigation efforts.
Brendan Entrees: I'll start with a very high view of the foremost compensate the claimant and claims.
Brendan Entrees: The first type relate to water system claims and Bob costs to abate or meet regulatory requirements.
Brendan Entrees: Through our participation as a part of the U S water district settlement finalized earlier in 2024.
Brendan Entrees: We're able to resolve a substantial amount of claims in this area related to water providers.
Brendan Entrees: The second type of claims or government related including regulatory agencies and state attorney General that may arise through the regulatory process worked through litigation proceedings.
Brendan Entrees: The third type of claims or personal injury, which have largely been consolidated are grouped by park.
Brendan Entrees: The last type of claims are property related primarily involving lots of value.
Brendan Entrees: What's important to understand about these legacy liabilities and related resolution efforts.
Brendan Entrees: These clean often involved parties that accurately regulate that.
Brendan Entrees: Working to resolve these outstanding matters productively, not only addresses legacy liabilities, but it also can help our ability to obtain permits that allow us to profitably grow business lines and achieve our short and long term strategies.
Our continued engagement and a meaningful dialogue with regulators is important in our advocacy for trusted chemistry.
Brendan Entrees: Recent example is the permanent Washington works for the New PFA line, two expansion, which would not have happened without great efforts from our team in a productive dialogue with our regulators and government officials at the state and federal level.
Brendan Entrees: We are committed to making continued progress on resolving PFS liability each claim is different and bearing in stages. However, we are encouraged by the progress we've made in each grouping that said.
Brendan Entrees: These efforts are not something that can be rushed and will take time to thoughtfully and responsibly resolved.
Brendan Entrees: We believe meaningful resolutions can be achieved over time and that we can materially progressed resolution of legacy litigation matters and related exposures over the next several years.
Brendan Entrees: We will continue to provide updates on our resolution efforts going forward.
These pillars of our strategy are key to driving near and long term returns across our top three franchises.
Brendan Entrees: It's with these pillars and the synergies that connect us as one business. We continue to be excited by the value. We can return to our shareholders is the best owners and operators of this company.
Brendan Entrees: Our business mix has driven the company's ability to navigate down cycles and sustained ample liquidity, while consistently returning cash to shareholders.
Brendan Entrees: So more scale in particular by cash generation from our TT segment has provided and continues to provide available capital to support the targeted and focused growth of our TSS and APM businesses, while prudently resolving legacy litigation matters in the best interest of our stakeholders.
In closing we are confident in our refreshed corporate strategy and the pillars serve as an important framework for how we will operate going forward and communicate our progress.
We have set aggressive targets, but I am confident that they are achievable and will lead to continued benefits for our customers and communities as we drive enhanced value creation for shareholders.
Brendan Entrees: This is a strategy that takes everyone at <unk> and I am grateful for the contributions that our employees make every day to live our core values and deliver trusted chemistry.
Brendan Entrees: I look forward to speaking with you further and keeping you updated on our operational and financial progress.
Brendan Entrees: And now we will open it up for your questions.
To ask a question. Please press star one on your telephone and wait for your name to be announced.
Speaker Change: To withdraw your question. Please press star one again.
In the interest of time, we ask that you. Please limit yourself to one question and one follow up please.
Speaker Change: Please standby, while we compile the Q&A roster.
Speaker Change: And our first question comes from.
Arun Viswanathan with RBC capital markets. Your line is open.
Arun Viswanathan: Great. Thanks for taking my questions.
Arun Viswanathan: Congrats on the results.
You can see the new strategy rolled out as well.
Speaker Change: So just.
Speaker Change: Maybe I'll have a question.
Speaker Change: TSS as well as.
T T. So in TSS.
How long do you think we waiting through these higher levels of inventories of hfcs, and what kind of price.
Speaker Change: And Greg you expect as you move into 'twenty five from from that thank you.
Yeah Arun Thanks for the question as I think about the inventory levels, we haven't given guidance will natural levels of them side, but Denise to talk about this on the script of thinking through the pricing related to hfcs at the current price is going to last at these levels into 25, given just the dynamics of the inventory.
Speaker Change: Supplier, yes.
Speaker Change: Yes, maybe I'll just add on.
Speaker Change: Our strategy is to lead in the transformation of the transition to <unk> technology, and our <unk> product line and we continue to have double digit growth in this area over time, the freon portfolio is going to become less and less relevant as quota declines and going into 2005, we believe that.
Speaker Change: That these levels will remain kind of where they are our job is to maximize value and in this conversion and really to really this up beyond <unk>.
<unk> our potential in this next step down in light commercial and residential.
Okay. Thanks, and then on <unk> I'm, just wondering how you're seeing your utilization rates evolving as you move into 'twenty five.
Speaker Change: Have you seen any noticeable.
Speaker Change: The improvement in demand levels.
Speaker Change: We've been hearing obviously, mostly sluggish although.
Speaker Change: The rate cuts approaching do you have any optimism that maybe we could see some.
Speaker Change: Some increase in demand as we move into the maybe in the back half of 'twenty five.
Speaker Change: Sure Hey, thanks. Thanks for the question. So first of all I, just really want to congratulate the team on such a great strong third quarter, our plants are running well and our team is executing excellently.
Brendan Entrees: Excellently.
Speaker Change: Our position actually in for Tio too has been consistent I would say for the year, we don't see market any kind of momentum changing there theres not really a sign of a market recovery, but we're very excited about the interest rate reductions in the U S. We'll see what happens this week with the fed and also some reductions in.
Brendan Entrees: Europe.
Brendan Entrees: We have seen some small share gains going in Europe, nothing to write home about but definitely there is something there with Chinese producers picking up some share in Europe.
Brendan Entrees: We've done a tremendous job executing on the transformation plan. We are ahead of plan going into 'twenty.
Brendan Entrees: We feel confident and we're going to be ready.
Brendan Entrees: To take advantage of any market opportunity that comes our way.
Brendan Entrees: Thanks.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Josh Spector with UBS. Your line is open.
Yes, hi, good morning, I wanted to follow up on <unk> comments on TSS margins looking at 2025, I think Shane you said greater than 30% if prices stay where they are.
Josh Spector: Your guidance reflects around 31% this year and our view was that corpus will come on at a higher margin and helped the segment into 2025. So what are some of the other moving pieces that you think about and is there anything negative I guess, we need to be baking in about why margins would be down year over year or is your frame.
Speaker Change: We're just conservative at this point thanks.
Speaker Change: Yeah. Thanks, Josh.
Speaker Change: Yes, youre right with the greater than 30% in that side as I think about other perspectives to thinking about within that margin guidance.
We put a slide in the deck to kind of look at the balance between price and volume, but theres also a bucket around cost and other.
Speaker Change: With that HFC pricing, we do anticipate quota.
Speaker Change: That side to be purchased.
Raw materials.
Speaker Change: With the mix between.
Speaker Change: Stationery and that coming onboard into next year, we will have an impact as well and then.
Speaker Change: As we think about the balance between corporate production and those that we source outside of the U S that.
Speaker Change: That probably will be a little bit less in that bucket as you pointed out as corpus comes along.
Speaker Change: Okay. Thanks, and then if I could just ask quickly on the cost savings.
Speaker Change: How much are you expecting to achieve in 'twenty four from that greater than $250 million number you talked about in 2005.
Speaker Change: So maybe just.
Speaker Change: Talk about that they are 24.
Speaker Change: We are expecting <unk> already exceeded the plan for the TT transformation, so far we're expecting additional value going into the fourth quarter.
Speaker Change: As part of operational excellence, we really laid out a really robust plan cost savings really across the company incremental savings on top of the TT transformation plan through 2024, maybe I'll, let <unk> talk a little bit more about the details. Thanks.
Speaker Change: Yes, I think the point that it's incremental so as we think about 2020 $526 27, we anticipate $250 million out and those are the years with about 50% of that $250 million being run rated at the end of 'twenty five that said with the intricacies around the cost out program, we do anticipate.
Speaker Change: Some of the value that we've talked about the earnings.
Speaker Change: Run rate being towards the back half of 'twenty five.
Brendan Entrees: Yes.
Speaker Change: Okay. Thanks.
Speaker Change: Thank you and our next question comes from Mike <unk> with Barclays. Your line is open.
Mike: Great. Thanks, Good morning, Tim.
Mike: First two related to the APM goodwill impairment burst I, usually think of goodwill assessment being a year end process. So what prompted the timing of it now was it the investment deferral related to hydrogen if I heard you right.
Speaker Change: I think you've previously talked about this segment over the medium term growing GDP plus with low 20% EBITDA margins, what is sort of the new financial algorithm for this business.
Speaker Change: Yes, Thanks, Mike I'll take the impairment item first in this side.
Speaker Change: Coming into the quarter I really wanted to make sure. We looked at just overall investments with a strategic lens of how much capital outlay, there is versus related returns.
Speaker Change: As we looked at the hydrogen investments still very important to us however, the market shifted on us really the future cash flows associated with us, we're a little bit delayed and so with that it made the choice to put on hold investments in this area until we really have more clarity on the market development and as you mentioned right goodwill impairment.
Speaker Change: An annual test for us will be in the fourth quarter. However, this decision did trigger an assessment of the fair value of the segment and therefore really drove the impairment in the quarter.
Speaker Change: Yes, and I'll just comment relative to what our expectations are around the margin monthly premiums of previously said, so I would say an APM for sure we have work to do.
Brendan Entrees: All the pillars, a pathway to thrive applied for APM, so reducing cost with operational excellence focusing growth on high return low risk investments in making the decision that as we did with hydrogen when we need to make them also shifting our portfolio to the high value applications and then looking at <unk>.
Brendan Entrees: Streamlining our product and asset footprint, so work to do but we have a plan. We're very confident in our performance solutions portfolio and we believe we will get to the to the projections that we've previously talked about.
Speaker Change: Great That's super helpful and then second.
I wanted to ask as you're working through the refreshed corporate strategy outlines helpful too as it relates to the TT business. One is there any change to your go to market strategy. There obviously a lot in the world's changed since you. Initially took this approach a few years ago has that changed at all and then second how is the role of the TT business in the ports.
Speaker Change: Palio changed at all and what I mean by that is you are highlighting a shift towards higher value growth markets I would say <unk>, probably doesn't really grow greater than 5% annually like you had time for the company. So when you thought through everything does TCE in the long term belong in the <unk> portfolio.
Speaker Change: Sure maybe I'll take the second.
Speaker Change: Question first first of all.
Speaker Change: As we develop the pathway to drive we've done significant work to understand how these how these roles of each business and we believe that there are substantial benefit to our shareholders for these businesses to stay together, we have a strong combined.
And especially in the in the coming years and I just want to highlight three three key points first as these are complex businesses with with large manufacturing assets and scale helps.
Speaker Change: Lots of synergies that we can leverage it, particularly when you think about running.
<unk> operations.
Speaker Change: So the cash generation.
Speaker Change: At the <unk> business is important for growth in in TSS, and APM, especially as we're looking at the.
Speaker Change: The market cycle.
Speaker Change: And also the product lifecycle right now.
And PFS as an APM, it's really important and then third thing is just around our legacy legal liabilities.
Speaker Change: Complex and in many cases, our claimants are the people who regulate us so we need to maintain purposeful relationship. So that we can resolve these matters and enabling our growth so with all of those things we're confident that this structure and these pillars actually.
Speaker Change: Over the most value for our shareholders.
Speaker Change: Great. Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Vincent Andrews with Morgan Stanley. Your line is open.
Speaker Change: Thank you and good morning, everyone.
Vincent Andrews: Wondering if I could just ask around.
Vincent Andrews: Around <unk> I think Shane your comments were sort of assumed that prices stayed where they are what's the latest in terms of where inventories are.
Vincent Andrews: And where demand is and as we think into 'twenty five and some of the moving parts that could it could move around demand whether it's interest rates housing auto is whatever.
Speaker Change: What do you think the range of outcomes is on pricing for next year.
Brendan Entrees: Okay.
Brendan Entrees: Yes, as I think about the free on pricing, we talked about the inventory levels a little earlier, there is certainly still levels from an HFC perspective in the market and that is really keeping overall free on prices down.
They are at and we've talked about really the anticipation of those levels staying in 'twenty five.
As we think about just overall demand for <unk> right in this side, we're really happy with the stationary market.
Brendan Entrees: <unk> commitment to residential as well as commercial into the next year.
Brendan Entrees: I think obviously with interest rates and other areas from an economic perspective, and what that might provide we're excited that hopefully as we think about next year it might be a little bit more in the back half.
Brendan Entrees: Demand on that perspective, alright, Denise if you want to add anything.
Denise Signal: Yes, I think you summed it up well.
Speaker Change: So maybe just a follow up on that to be a bit more specific we've seen the fed cut rates that we've seen the back end of the curve kind of work their way back up and mortgage rates are.
Brendan Entrees: And the <unk>, so to keep prices flat, where they are do you actually do need to see the back end of the curve come down to sort of allow for some pickup in demand on the whether it's new homes or existing homes or or things like that or even to get better better rates for automobile for new cars.
Speaker Change: We stay in a high end back end of the rate curve does that does that hurt pricing do you think or not.
Speaker Change: Yes, I mean, I think as we as.
Speaker Change: As we think about just overall pricing I think the curve coming down certainly could help on that side, but it really depends upon the inventories on the HFC level and how they actually play out here I think the other thing that did just to keep in mind is that this is a regulatory.
Speaker Change: Transition and quota will be reduced.
Speaker Change: So that in itself is a.
Speaker Change: <unk> is a driver that we have full confidence in in and the growth that we're going to see continued double digit growth in <unk>.
Speaker Change: Thank you very much.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Laurence Alexander with Jefferies. Your line is open.
Laurence Alexander: So good morning, two questions first can you give some perspective on how.
Laurence Alexander: The FERC ruling on nuclear power in the grid.
Speaker Change: Last week might affect the demand pull for your immersion solutions.
Speaker Change: Relative to some of the alternatives.
Secondly, can you give us an example of how we're looking at the assets on a return basis.
Has shifted.
Brendan Entrees: Yes.
Brendan Entrees: Compared to what was in place.
Brendan Entrees: Over the last three years.
Speaker Change: Sure. So I'll give some comments relative to announcements on that nuclear power on I guess first of all.
That's fantastic, it's going to take a lot of time.
Brendan Entrees: Yes, they are.
Brendan Entrees: Those kinds of transitions don't happen overnight I don't see it as well.
Brendan Entrees: I think it's a positive trend just in general in order to advance.
Brendan Entrees: Yes.
Brendan Entrees: Exceed.
Brendan Entrees: Advanced chips, but from.
Emerging calling perspective, it really doesn't change the change the picture.
Brendan Entrees: While the product has.
Sustainability benefits of reducing power consumption water footprint.
Brendan Entrees: Huge performance benefit right. So with this technology being able to get over 500 lots 600, 700, <unk>, it's not something that you can do with the current technology. So I don't see that I see them kind of maybe complementary in order to make the transition that we need to make.
Brendan Entrees: Okay.
Speaker Change: Take the second question, yes.
Speaker Change: Looking at our overall asset and capital outlay related to returns.
Speaker Change: I really wanted to make sure as we think about how we are investing given where our leverage is given where that side, we want to make sure. We're investing smartly with the appropriate returns and I think it has allowed us to make sure that we're balancing the investments on that side as well as our liquidity from a debt perspective, as well as settling with the litigation matters, while returning cash.
Speaker Change: To our shareholders. So I think it's just one more key element providing guidance for us to really execute on our capital priorities.
Brendan Entrees: Yes.
Thank you.
Speaker Change: Thank you. Our next question comes from John Roberts with Mizuho. Your line is open.
John Roberts: Thank you.
Three year growth target of 5% are you counting on any growth from titanium dioxide, you talk about asset footprint optimization and so forth I mean, how are you thinking about the three year growth there.
Brendan Entrees: Sure.
Speaker Change: In that projection, what we've dialed in as you know that there is cyclicality in some of the business in particular TT. So we have actually dialed in.
Speaker Change: Some downside cyclicality in in that what we have in.
Speaker Change: In that 5% CAGR is some market recovery as well as cyclicality. We also have our own efforts around commercial excellence and things that we're going to be doing as well as the.
Speaker Change: What's happening what's going to be happening with our ASEAN growth with the aim act and the step down and our PSA line to.
Seeing if theres anything else that you think we should yes.
Brendan Entrees: Just wanted to make sure we highlight Denise mentioned the cyclicality.
Brendan Entrees: As we think about the market from that perspective, we're anticipating that there is a bit of a return, but that's not true.
Brendan Entrees: Bulk of it the bulk of it is commercial as well as just executing what we execute and control control.
Speaker Change: And then remind me what originally created the goodwill in Aps that you are now writing down.
Sure Yeah that goodwill when we spun the company when the company was spun from Dupont that goodwill assigned to that segment based on just a fair value what they give it time.
Speaker Change: Got it thank you.
Speaker Change: Thank you.
Speaker Change: And our next question comes from Hassan Ahmed with Alembic Global Advisors. Your line is open.
Hassan Ahmed: Good morning, Denise and churn.
Hassan Ahmed: A question on OTT.
Speaker Change: You guys, obviously address some of the near and medium term issues.
Brendan Entrees: Opportunities.
Brendan Entrees: Could you talk a bit about the.
Brendan Entrees: <unk> sort of anti dumping measures that we're seeing out there obviously it started with the EU and now.
Spreading to other countries and regions, so what potentially could be the opportunity for you guys there be it.
Soon as 2025 and beyond.
Speaker Change: Thanks Hassan.
Speaker Change: There has been a lot of activity in this area, whether it's tariffs or are anti dumping duties and so there is definitely.
Speaker Change: There are signs there that would be helpful for us, but I wanted to go back to our pathway to thrive our job is to control what we can control and we've done.
Speaker Change: Really a great job building out our transformation plan the TT transformation plan and that really has to be key to our future.
Continuing to drive to continued low cost position and that's really what's going to be important in the long run.
Speaker Change: Understood understood and again, if I could just sort of dig a bit deeper into the nearer term side of things.
Speaker Change: Sequentially in Q3, you guys with MTT.
Brendan Entrees: Flat volumes.
Brendan Entrees: You sort of talked about some market share gains there because obviously relative to your competitors. It seemed you outperformed sequentially in Q3 on the volume side of things.
Brendan Entrees: Now for Q4 for <unk> you guys are talking about mid to high single digit declines right.
Brendan Entrees: Which again surprises me a little bit or maybe it's just a function of the market that after this sort of massive destocking that we saw over the last couple of years.
Brendan Entrees: I would've thought that maybe seasonality would not be that acute.
Brendan Entrees: So if you could sort of explain the sequential move from Q2 to Q3 relatively flat volumes. There. The net Q4 guidance you are giving.
Brendan Entrees: And how we should think about what tends to be a seasonally strong first half.
Brendan Entrees: With the backdrop of all the Destocking and the like and again this anti dumping.
Brendan Entrees: <unk> of things could we actually potentially in a lower interest rate environment C.
Speaker Change: A nice solid uptick in volumes.
Speaker Change: Okay. Let me just there's a lot there.
Speaker Change: I apologize.
Speaker Change: Okay. So going from from Q2 to Q3, I mean, just trying to say that the team did a great job.
Speaker Change: Really just a commercial excellence at work there as well as great operational performance.
Going into Q4, I mean for sure there is there seasonality and if we look at in particular in North America, I don't think Thats a surprise.
Speaker Change: We're as I said able to pick up a little share in Europe. So we see some stability there.
Speaker Change: There is strong momentum.
Speaker Change: Interest rates continue to drop that theres anti dumping duties for sure lower interest rates are going to drive that the TT market. So yes.
Speaker Change: Yes, we do we see there could be a potential for upside in 2025.
Speaker Change: Very helpful. Thank you so much.
Speaker Change: Thank you and our next question comes from Caleb bottom line with BMO. Your line is open.
Speaker Change: Okay, Oh, please check your mute button.
Speaker Change: Yes, Hi, this is John Mcnulty on for Caleb.
John Mcnulty: Let me, let me start out with a question on the corporate strategy and the cost cutting.
Speaker Change: So of the $250 million of savings that you expect can.
Speaker Change: Can you help us to understand how much of that is just true cost outs and how much of it would be efficiency measures that are somewhat dependent on volumes recovering.
Speaker Change: Yes, Thanks, Sean.
Speaker Change: As I think about just the balance right. We have a programmatic item on that side that the majority of this is identified cost out savings whether it be through procurement.
Speaker Change: The operation's functional optimization or <unk>.
Speaker Change: That footprint on that side, so I would say, it's more your former net MSR.
Speaker Change: And then maybe just to add onto what what Shane has said you look at what we say is really critical for us to perform and to deliver this value is operational excellence.
Speaker Change: The low hanging fruit has been addressed this is really about that about approaching everything with diligence we know that.
Speaker Change: Transformation can never stop and productivity has to be top of mind, we've had great productivity in in TT and we're just going to extend that to all the other businesses and corporate following the theme.
Speaker Change: The same playbook.
Speaker Change: Got it Okay fair enough and then just a question on the data center opportunity I think you are still well I guess can you give us an update as to when you are on track to have that pilot.
Speaker Change: Facility up I think it was supposed to be middle of 'twenty six or second half of 2006. So maybe you can give us an update there and then have you seen or can you speak to the interest that youre seeing.
Speaker Change: Regarding the potential for contracts from either hyperscale or <unk> or even OEM partners that you might be might be looking to work with can you help us to think about that.
Speaker Change: Yes.
Speaker Change: Yes, so that for data centers, what we talked about was <unk> 26 to be able to have.
Speaker Change: So at commercial quantities available for sale. So we're still on track for that and we hope to in the short term to announce what our plans are for that.
Speaker Change: Relative to the interest we're seeing we are seeing a lot of interest. This is a really special technology with a lot of.
Speaker Change: Values that we're seeing we're seeing a lot of interest and as I can.
Speaker Change: <unk> talked about before this is this is a new technology. So it's going to take time for that adoption, but certainly.
Speaker Change: Sure.
Speaker Change: No.
Speaker Change: Nothing but positive signs.
Speaker Change: Okay got it actually if I can sneak one last one in just around the free on pricing or the freon.
Speaker Change: Pre owned.
Speaker Change: Sales that you have been reporting so if I think about.
What you've reported over the last few years in 'twenty, two and 'twenty three there was a sequential drop from <unk> to <unk> of somewhere in the neighborhood of 25% to 30%.
Speaker Change: This year it was less it was around 14% should we take that as a sign that some of this destocking, whether it's the pricing pressure tied to it or the volume pressure, we've kind of found that bottom and now. We're just stabilizing is that kind of the right takeaway or is there something else that might be driving that.
Speaker Change: Yes, so thanks, John as we think about just the dynamics right we've talked about hfcs.
Speaker Change: Trading on that side with <unk> adoption coming on that side, we're very happy and really seeing strong adoption.
Speaker Change: <unk> is on the outbound side, especially ahead of when the stationary market ahead of this from an APAC change now as we think about kind of just how these are going down we do think that the declines within freon are steadying great.
Speaker Change: We do foresee that continuing as <unk> adoption continues but it's certainly at a slower pace than what we've seen in the past.
Speaker Change: Got it thanks very much for the color.
Speaker Change: Thank you we have reached the end of our question and answer session.
Speaker Change: Thank you for joining the <unk> third quarter 2024 results Conference call you may now disconnect.
Speaker Change: Okay.
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