Good morning. My name is Julie, and I will be your conference operator today. At this time, I would like to welcome everyone to The Chemours Company Third Quarter Earnings 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. [Operator Instructions] Thank you. Mr. Jonathan Lock, VP, Corporate Development and Investor Relations, you may begin your conference.

Good morning, and welcome to The Chemours Company's third quarter 2021 earnings conference call. I'm joined today by Mark Newman, President and Chief Executive Officer; and Sameer Ralhan, Senior Vice President and Chief Financial Officer. Before we start, I'd like to remind you that comments made on this call, as well as the supplemental information provided in our presentation and on our website, contain forward-looking statements that involve risks and uncertainties, including the impact of COVID-19 on our business and operation and the other risks and uncertainties described in the documents Chemours has filed with the SEC. These forward-looking statements are not guarantees of future performance and are based on certain assumptions and expectations of future events that may not be realized. Actual results may differ and Chemours undertakes no duty to update any forward-looking statements as a result of future developments or new information. During the course of this call, management will refer to certain non-GAAP financial measures that we believe are useful to investors evaluating the company's performance. A reconciliation of non-GAAP terms and adjustments are included in our release and at the end of this presentation. With that, I'll turn the call over to our CEO, Mark Newman, who will review the highlights from the third quarter. Mark?

Thank you, Jonathan, and thank you for joining us this morning. I'll begin my remarks on Chart 3. On behalf of the Chemours team, let me say how excited I am to be reporting our third quarter results. This year, we have been laser-focused on serving our customers, putting them at the center of everything we do, and helping to ensure that our world-class products contribute to their success. For the third quarter, we continue to see the payoff from those efforts we have delivered for our customers and they have delivered for us. I would like to open our prepared remarks by taking a moment to recognize the entire Chemours team for their drive, dedication, and collective entrepreneurship in building the good momentum we now have in all our businesses. Now to the highlights from the third quarter. We maintained our momentum from our strong second quarter into the third quarter, and have now achieved our fifth consecutive quarter of sequential sales growth. We achieved these results despite the difficult operating environment and supply chain challenges across the business. I am so proud of our team for overcoming these headwinds and delivering an outstanding quarter. Profitability continues to be strong across the portfolio. Our 22% adjusted EBITDA margins in the quarter reflect the ability of our pricing actions to keep pace with inflation, and the value Chemours chemistry provides in the market. Sameer will take you through the details during his portion of the presentation. As we continue to grow earnings and improve the underlying quality of earnings of the business, we also continue to execute against our balanced approach to capital allocation. We are investing in sustainable growth and remain steady in our commitment to returning cash to shareholders, reducing our gross leverage and funding our escrow commitments.…

Thanks, Mark. Turning to Chart 5. Results in the third quarter reflect a solid demand environment, which has markedly improved since the later stages of 2020. Q3 net sales of $1.7 billion were up 36% year-over-year and up 2% on a sequential basis. Volume growth driven by the global economic recovery and robust operations led our strong year-over-year performance. Improving price momentum was evident again this quarter, which led the sequential net sales growth. GAAP and adjusted EPS both amounted to $1.27 per share. Adjusted EPS results exclude the $20 million loss on debt extinguishment related to our bond refinancing and $12 million benefit of qualified spend recovery for the MOU with Dupont and Corteva. The third quarter represents the first time you can recognize the recovery as part of the cost-sharing agreement signed in January 2021. As this is the first time disclosing this new item, we have included a brief description of the adjusted EBITDA treatment in the appendix of our earnings charts. Adjusted EBITDA increased by $162 million to $372 million in the third quarter, driven by high volumes and pricing, with currency providing a slight tailwind. Adjusted EBITDA margins rose to 22% on a company-wide basis, up from 17% in the prior year. Free cash flow in the quarter was $244 million. Our cash performance in the quarter reflects our continued commitment to improving the overall quality of earnings for the company and converting earnings to cash. On October 27, our Board of Directors approved the fourth quarter 2021 dividend of $0.25 per share. This amount is unchanged from the prior quarter and will be payable to shareholders of record as of November 15, 2021. Turning to Chart 6. Let's review the adjusted EBITDA bridge from the third quarter. Third quarter 2021 adjusted EBITDA was $372…

[Technical difficulty] full year to reflect the momentum we feel across our businesses. We now believe that our full year 2021 adjusted EBITDA will be between $1.3 billion and $1.34 billion versus our prior guidance. Our revised guidance is now up 50% from 2020 levels at the midpoint of our new range of $1.32 billion. We are reducing our CapEx guidance by $25 million to approximately $325 million based on the timing of projects. Our free cash flow is now anticipated to be greater than [technical difficulty]. We're looking forward to finishing the year with great momentum, and are confident in our ability to drive sustained growth in earnings across our businesses with high free cash flow conversion. With that, operator, please open the line for questions.

Thank you. [Operator Instructions] And your first question comes from John McNulty from BMO Capital Markets. Please go ahead.

Yes. Thanks for taking my question, and congratulations on a really strong quarter. When we look at the Titanium Technologies business, clearly pricing kind of hit an inflection at least relative to the prior quarters where things were strong before, but they kind of really kicked up now, I guess. Can we unpack that a little bit? Like how should we think about what the pricing was, say, for the AVA contracts versus kind of the more portal-based or almost spot-type contracts? What were kind of the big drivers of the -- of this big incremental price kick up, if you can help us to understand that?

Yesh. Hi, good morning, John, and thanks for the question. Listen, we really take a lot of comfort in our go-to-market strategy with TVS. We believe it's working effectively and we believe it's resonating with our customers. Clearly, our price activity in the quarter is a combination of all of our three channels: distribution, flex and contractual customers, some of which are driven by PPI indicators, which remain strong. So, it's really a combination of very high spot prices based on availability today, which are reflected in both our flex and distribution channels, as well as robust signals that allowed us to take price on our contractual book of business.

Okay, fair enough. And then speaking to the ore, I guess, supply issues that were mentioned in the prepared remarks. Can you give us a little bit of color as to what's driving that? Is it nearly a freight issue? Is it access to some of the mines where they were a little bit down over the last quarter or two? I guess, how should we be thinking about that? And how does it get remedied? I know it sounded like you have some confidence that, won't be an issue in 2022, but what gives you that confidence?

Yes. So, as you will have read, there are several major force majeures in the mining space this year, and those are well publicized that are impacting ore availability as we close out the year. Our expectation based on all of our current intelligence is that, that is being resolved, but probably won't be fully resolved until the end of the first half of next year. So, this is something that we're watching closely. But it will impact in our volumes, as we indicated, in Q4, and at the beginning of next year.

Got it. That's helpful. And maybe if I can sneak one last one in. Just around the pricing that you saw, in particular, in the TSS segment, it was really strong. And I guess, is it all just you pushing through price to offset raw materials? I guess, we had heard there might have been some price spikes because of the dual control issues in China around F-Gases. And I guess, I'm curious if that's having any impact on some of the European business, maybe if you can just give us a little color there. And thanks a lot for the help.

Yes. So, I want to complement our TSS team. It was a challenging quarter from a volume perspective with all that's happening on semicon in auto. We expect semicon to resolve itself again in 2022. But the team did a very nice job on our stationary market portfolio and took advantage of some of the shortages in the marketplace, in particular, you mentioned, availability of product from China with our local manufacturing here in the U.S. So, yes, I think the team was very focused on our North America book of business, which remains very robust and supply constrained, given some of the factors you just mentioned.

Great. Thanks very much for the color.

Thank you.

Your next question comes from Hassan Ahmed from Alembic. Please go ahead.

Good morning, Mark.

Hi, Hassan.

My question, beginning with the raw material side of things. Obviously, we've seen significant sort of escalation in natural gas prices globally and in U.S -- in the U.S, in particular. Chlorine supply seems to be a bit of an issue as well. So, within the U.S., what are you guys seeing in terms of your own chlorine sourcing? And in the rest of the globe, how are you seeing the cost curves being impacted by this natural gas price escalation, and obviously, the impact that it has on the chlorine side of things?

So, Hassan, I'm going to start with this and Sameer, who also has responsibility for procurement to add some additional color. But let me start by answering your question and thanking our procurement and supply chain teams for just an outstanding job in managing our sourcing and supply to our operations. Let me also add that our operations are primarily domiciled here in the U.S. So, while we are seeing energy inflation globally, on a relative basis, where we remain very cost advantage with our U.S manufacturing. So I’l ask Sameer to add some additional color, but clearly, we are staying on top of sourcing, maybe just on chlorine before I ask Sameer to comment. We’re well supplied by several strategics in North America, I would say, all of the main strategic suppliers. And that diversification of supply remains a strength for us as we move through the cycle. Sameer?

Thanks, Mark. Hassan, as we kind of talked earlier as well, right, we tend to source chlorine geographically in the same region as well as you can imagine, so that helps us diversify quite a bit. Altamira plant in Mexico, which is one of our largest plants, we tend to secure chlorine regionally over there and also in Kuan Yin, in Taiwan as well. So, as you're going to look at the mix, we are pretty geographically diversified, as well as company-wide of the supply perspective as well. And lastly, if you recall, in New Johnsonville, we have a co-located plant as well, which tends to supply pretty much all the needs of our plant over there. So, we're in a pretty good place.

Perfect. And as a follow-up, in terms of, obviously, the cash flow in the quarter was great. Cash flow guidance for Q4 looks solid as well. And you obviously did the buybacks that you did in Q3 and in October as well. So how should we think about the pace of buybacks, or how you guys are thinking about the strategy associated with buying back shares and shareholder returns, and renumeration.

So, Hassan, we are very committed to returning the majority of our free cash flow to our shareholders. Our Board is supportive of this capital allocation strategy. And we believe the value that we create for shareholders longer-term is benefited by that strategy, along with deleveraging the company and funding the escrow against legacy liability against the MOU commitment. So, we think those three aspects of capital allocation, so-called balanced capital allocation, are most prudent. But within that framework, we will be returning the majority of free cash flow to our investors through the dividend and through buybacks, which as you see, accelerated significantly in Q3.

Very helpful. Thank you so much.

Thank you.

And your next question comes from the line of Bob Koort with Goldman Sachs. Please go ahead.

Thanks very much.

Good morning, Bob.

Mark, you mentioned on TVS, you had some negotiated mechanisms. I guess, I was under the impression most of those contracts have long duration. So, give us a sense of how you're able to have negotiated pricing within the TVS framework?

Yes. So, we have a -- quite frankly, most of our contracts in our AVA portfolio or our contracted book of business remain tied to PPI. But we also have contractual arrangements which have market mechanism [technical difficulty] as well. So, it's a combination of both, but the majority today I think are tied to as we have shared with you a PPI mechanism going forward.

And is there anything about the blueprint from Europe? You could give us some insight onto what you expect in TSS in the U.S as the AIM Act is enforced in terms of maybe you get some cannibalization of older products that have to fade away, but you [technical difficulty] that you've experienced in Europe? And should that be the blueprint in North America?

So clearly, Bob, the quarter was North America, but we are continuing to see with the robust marketplace that we have in refrigerants, higher pricing. We are also working with the OEMs on the changeover of hardware. And so, when we look at this business with the AIM Act now here in the U.S., the F-Gas Regulations working [technical difficulty] all the three other was [technical difficulty]. What we tend to see, as you know, is the first year of a step down, the lift is not as significant. But as you move through time, and with the next step down under the Aim Act intended for 2024, we [technical difficulty].

Got it. Thanks very much.

Thank you.

And the next question comes from Josh Spector from UBS. Please go ahead.

Yes, hi, guys. Thanks for taking my question. I guess, maybe just follow-up on the -- when you guys look at how that was allocated, was there anything interesting to you guys better or worse than expected and impacts your view into next year or perhaps longer term on [technical difficulty] based on that initial allocation?

So, just really want to compliment the administration for the focus on climate and focus on regulation. And that's going to work to drive low global warming in refrigerant adoption.

[Technical difficulty] in early 2022. I mean, you noted strength in certain markets. Is that enough to offset some weaker OEM demand or perhaps some softening in other markets that you'd expect continued growth, or you expect perhaps a more lag impact to have an impact on both into early '22?

So, I'd say [technical difficulty] and as we indicated in the call, just a lot of factors, whether you're looking at consumer electronics, I mean, these are all markets that are growing well above GDP, these are high single-digit growth markets at least. And so, we [technical difficulty] done this. We have the ability to accelerate that if need be. But it's always going to be in the context of returning the majority of free cash flow to our investors as we move through the cycle. We will continue to assess with our Board our priorities for capital as we move through time. But that's going to be our framework that we use. Sameer, I don’t know if you have any other comments you want to share?

No, I think, Mark you laid out. When we said the $3.5 billion target, we said it's going to be over 3 years, including this year. So, we made a nice progress this year in reducing the debt. And at the same time, we've been allocating cash back to the shareholders as well. So given the strength of the cash generation of this company, we see ourselves achieving these goals on an annual basis. So, I think we are in a pretty good place from a capital allocation point of view.

I guess, the follow-up to that, how big will you let the cash balance get? I mean, it's not -- you can see a couple of quarters out, close to $500 million of the mining solution sale, you can get up to $2 billion. Do you want to stay at $1 billion of cash, I guess that -- like how -- what's the capacity for you guys to return capital to shareholders?

Again, we will continue to assess with input from investors and our Board, how we allocate cash going forward. And probably we will say a little bit more about that as we go into next year with the mining solutions divestiture behind us.

Okay, got it. Thanks for that. And then just on the Titanium side. You mentioned the ore constraint in production. Are you running your facilities as much as demand allows or you actually running below capacity? Just wanted to get a sense as to how you guys are running right now?

Yes, our plants continue to run very well. And maybe just on that point, the focus on keeping our employees safe and running reliable operations has served us well through COVID. It's also served our customers well. So, this ore constraint we think is temporal. As I said, it will affect -- it's part of our guide for Q4 down -- being down sequentially. And we expect this to resolve itself in the first half of next year based on all of our indicators today.

Great. Thanks, guys.

Thank you.

Your next question comes from Matthew DeYoe with Bank of America. Please go ahead.

Thank you.

Matt?

Yes, sorry. I thought that I was on mute for a second. Sorry, I was just pulling up my notes, the APM business and the pricing that you saw on the quarter, I mean, how much of this can we kind of draw from tightness of the market? And is there some function that is perhaps tied to logistical constraints and shipping availability, and perhaps that slowing the flow of illegal refrigerants down into Europe? I'm just trying to judge because price is really strong right now. And within that is the lower comps to autos on Opteon. And so, looking at where demand is.

So, Matt, I just want to make sure we're talking about the Thermal & Specialized Solutions segment, right.

I was talking about TSS, my fault, sorry.

Yes, yes. Okay. Just clarify. So clearly the quarter -- yes, the volume in the quarter was impacted by the year-over-year comps, mainly on our auto OEM business. You will recall last year, Q3 was a very vibrant recovery from auto plants being down earlier in the year when -- with COVID. And then, this quarter being obviously impacted by a lot of announcements from auto OEMs on curtailing production for semicon shortage. So, you should look at this volume impact as being driven primarily by auto OEM, and somewhat offset by the work the team did in the stationary blends market with a strong North American market, which is also reflected in the price?

Okay. But this isn't much as it relates to -- I mean, because I know price pressure and legacy refrigerants in Europe has been kind of a consistent issue with the illegal trade flow. So, I was just kind of wondering.

We continue to see continued improvement. Clearly, Europe is not as vibrant as the North America market. You have seen some notable seizures. So, we think enforcement is improving. And then clearly, the supplier of China for those people who are depending on China supply, has been impacted by some of the factors there as well. Sameer, I don't know, if you have any more to add.

Yes, Mark. The only other -- one other point that I would add is, as we're going to look at the pricing, the North America stationary market remains very strong. So that is a very nice driver from the pricing perspective as well.

Okay. And I know you mentioned that the U.S have taken steps to kind of eliminate some of the illegal trade flow. So, I was just …

Clearly as we look into next year, we would expect at some point during the year to see improving availability of semiconductors to auto. We're seeing improved enforcement of F-Gas rules. And we'll be in the first year of the AIM Act step down, 10% step down here in the U.S. So, all of the indicators are pointing in the right direction. And we think over time, we will continue to drive the secular growth in that business.

Thanks. I will handle back.

Thank you.

Your next question comes from Duffy Fischer from Barclays. Please go ahead.

Yes. Good morning, guys.

Hi, Duffy.

First question just on TT. If we use Q3 as a baseline, your production in Q3, was that close to kind of the max production for you guys? And then notwithstanding maybe Q4 and Q1 where you have some ore issues, how much more volumetrically can we grow TT as we get in toward the back half of next year and then even into 2023?

Yes. So, our plants ran very well in Q2 and continued to run very well in Q3. So, lots of credit to our ops team. And as we said, we were running as best we could to supply the markets in a way that we thought was prudent. Clearly, Duffy, as we've said, we are working on debottlenecking across our entire fleet, and we would expect a lot of those projects to start to bring additional capacity to bear as we end 2022 and come into 2023 is our current forecast. So, the team is doing a nice job of debottlenecking our plants. But yes, we ran pretty well flat out in Q2 and Q3. Starting in Q4, the volumes reflect -- will reflect ore availability. And we're very focused, having improved our book of business with TVS to grow with our customers. We have more inbound requests from customers wanting to sign up on a contractual basis than we can on it today. And the team has done a nice job of using the current market tightness to improve the quality of our contractual book and really sign up really strategic customers that we are interested in growing with long-term. So, we're going to be very focused on how we grow with our strategic customers who see the value proposition of TVS and the reliability of supply that you can expect from Chemours.

Great. And then with Mining and Chemicals, when that goes in the fourth quarter, what happens with that segment, kind of what's left behind, and will you basically shut that down and roll that into other segments and kind of just stranded cost, things like that?

Listen, Mining Solutions is the largest piece of what is in that business today. We have been left with our Performance Chemicals business. But I will ask Sameer to comment on kind of his thinking here.

Yes. Thanks, Mark. Duffy, the remaining business is primarily going to be glycolic acid business. It's a great business. As we kind of think about the impact that COVID has had on the disinfection market. It's a great only North American producer in the marketplace. So, it's a great business. And from our perspective, the intention is to keep it separate from a financial disclosures point of view, not to blend it in any of the remaining three segments. But as we kind of file our 10-K, we'll lay out the details.

Great. Thank you, guys.

Thanks, Duffy.

Your next question comes from Vincent Andrews from Morgan Stanley. Please go ahead.

Hi, guys. This is Will on for Vincent. Just one quick question. So, coatings customers have noted that they're having availability issues with other raw materials. Have you guys seen any changes in customer buying patterns as a result of this? And how would you characterize the risk to TiO2 volumes with the other including raw material issues [technical difficulty]?

Yes, you're absolutely right that there's been a number of supply chain issues into coatings, excluding TiO2, I would say, in terms of our customers. It has had some impact on their ability to produce in the quarter, but still demand remains very strong. The one thing I will tell you is as we start next year, we start with a lot of momentum from a demand perspective. But even as that normalizes over time, we expect a significant restocking of the supply chain from here all the way through retail, which will provide a nice steady lift for volumes going forward.

Got it. Thank you.

Thank you.

Your next question comes from Arun Viswanathan from RBC Capital Markets. Please go ahead.

Great. Thanks for taking my question. I guess I wanted to ask about '22. Would you expect growth in EBITDA, I guess, in TT as well as TSS and ATM, across the board? Or would you expect maybe TT to be constrained by the ore availability and be more flat as you look into '22?

Yes, Arun, we'll have a lot more to say about 2022 early next year when we close out 2021. But we certainly like the momentum that we see in our -- all of our businesses as we close out the year. Clearly ore availability with respect to TT and semicon availability with respect to order demand and TSS demand are factors that will impact our outlook for 2022. So, we're continuing to assess these things. But we certainly like the demand momentum that we see in all three businesses. And we think our go-to-market strategy, our cost position and our ability to run our plants reliably are all contributing to our outlook as we go into 2022.

And then, if I could ask on TSS. If I compare TSS '21 versus '18, looks like you're going to be down about $125 million or so, which is pretty much in line with the amount that I think you guys have kind of forgone because of the import issue into Europe. Is that accurate? And I guess how do you expect to kind of recoup that? Or how does that recuperation kind of evolve over the next 3 years, is it ratably? Or what do you expect that will happen on the import front? Thanks.

Yes. Well, clearly, 2018 was the combination of good F-Gas enforcement and still higher volumes on base refrigerants at the time and quota sales related to F-Gas quotas. So, you had sort of all of those factors occurring at the same time. As we move forward in time and then obviously, the semicon impact on auto builds this year, clearly, as that alleviates itself, F-Gas gets better enforced and the AIM Act trips in here in the U.S., we would expect us to be able to grow revenue and earnings in our TSS business going forward. We tend not to forecast in our outlook quota sales. But in a more robust marketplace with appropriate enforcement on quotas, those tend to have value over time as well.

Thanks.

Thank you.

And your next question comes from Laurence Alexander from Jefferies. Please go ahead.

Hi, this is Maria Milina for Laurence today. Just have a couple of quick questions. First one on the China energy situation. Did you see any impact on your plan there and EPS, how do you see the winter shaping up?

We have a fairly minimal impact in our business as it relates to the dual control in China. As I said earlier in the call, we are very diversified in our supply and in our procurement. So, we are not seeing any significant direct impact in our business. Clearly, the availability of product out of China is affecting the overall market tone across several of our businesses, and we are seeing that impact. But I would say net-net, it's not a significant impact for Chemours today.

Thanks. And then, the second one about the Nafion business. I understand it's a little bit a long-term play. And -- but do you see right now sort of the -- if the growth and demand is on track according to your expectations?

We are very excited about our role in the hydrogen economy and the role of our products in reducing greenhouse gas and decarbonizing the global economy. We are seeing meaningful increases off of a relatively small base in terms of segment revenue today. But as we look out based on announced projects and projects that are yet to be announced, we see really meaningful growth in this segment. We had shared in an Investor Deep Dive that by 2030, we expect the membrane market for both fuel cells and electrolyzers to be in the $2 billion to $3 billion range, of which we would be a market participants. So, we're very excited about the long-term growth here and we're investing both from a product perspective and liberating capacity to be able to serve that market need. We have the largest installed monomer capacity related to this product in the world and probably the only such capacity here in the U.S. So, we're very excited about how we leverage that starting point to be a meaningful player in the hydrogen economy.

Thank you.

Thank you.

[Operator Instructions] And the next question comes from Bob Koort from Goldman Sachs. Please go ahead.

Okay, thanks. I just had a follow-up. I was curious, Mark, if I think about a question just asked on Nafion. Obviously, you got some electronics exposure and some pretty attractive margins there. Do you ever think about trying maybe to monetize that asset given the value we've seen in some other transactions in the space and the pretty wide gap toward your own equity trades? Is that ever a consideration sort of a best owner mindset where someone else might be willing to value it at a far higher multiple than the market?

So Bob, clearly, we are very excited about the future of our Fluorinated Chemistry businesses, both TSS and APM. And our decision earlier this year to create two segments was really to have the right strategy to grow those businesses and our ability to fund those businesses well. To your point, we believe, given the secular growth of our TSS and APM businesses and the improving earnings quality of our TiO2 business that we believe our stock remains quite undervalued. And so a key part of our capital allocation remains our repurchases of stock as we move forward. Clearly, over time, as we assess the portfolio, this is something that we'll continue to review with our Board. But there's no plans at this time to do what you are suggesting that we could look at, but that remains an option of our company that we will assess as we move forward.

Great. Thank you.

And there are no further questions at this time. I will turn the call back over to Mark Newman for closing remarks.

Thank you, Julian. Thanks all for joining today. We are really focused on delivering a great year at Chemours. We believe we have the right go-to-market strategy in our businesses. Our teams remain very focused on keeping our employees safe, running our plants well and being focused on meeting the needs of our customers, and that's serving us really well across our entire portfolio. I do want to thank all of our Chemours 6,500 employees for their focus through the pandemic, and we really look forward to finishing the year well and to keeping that momentum as we go into 2022. So, thank you.

This concludes today's conference call. You may now disconnect.