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 Chemours Company Third Quarter 2023 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Brandon Ontjes, Vice President of FP&A and Investor Relations. You may begin your conference.

Hi. Thanks, Rob. Good morning, everybody. Welcome to The Chemours 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 Chemours’ 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 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 our presentation. As a reminder, our prepared remarks, a full transcript, plus our earnings deck have been posted to the Investor Relations section of our website along our earnings release. This morning’s call will focus purely on Q&A. With that, I’ll turn the call over to our CEO, Mark Newman. Mark?

Thanks, Brandon, and good morning, everyone. Thanks for joining us. You know, 2023 has been a challenging year with a weaker second-half than we expected. But The Chemours team remains focused on driving long-term shareholder value and improvements in our three industry-leading businesses. Most of our year-over-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. 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 Opteon adoption and beyond ‘24 [Technical Difficulty] of immersion cooling in 2025. So again, we're excited about the work that's on the way here at the company. And despite the challenging environment we see ourself 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.

[Operator Instructions] And your first question today comes from the line of Duffy Fischer from Goldman Sachs. Your line is open.

Yes, good morning guys. 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 the HFC volume at the distributor level earlier this year? And that's why there's not kind of a price bump and a run for the door here late? And the how do you see that playing out next year? It seems like there is distribution inventory, when next year do you see that push that the step down, you know, kind of, really starts to accelerate the volumes for HFO?

Yes, so definitely a great question. And as you said, we have always indicated that 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 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 increasing interest in HFCs ahead of the quarter step down. 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 ratably, you know, we'll wait to see. 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. 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 U.S.? 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 U.S.?

Yes, well, first of all, we did a lot of work as an industry with the EPA in implementing the AMAC to take every precaution to make sure that didn't happen here. Clearly, there's fewer borders as it relates to the U.S., Canada, and Mexico than there is in the EU with 28 member countries. But listen, I think the industry, not just us, but 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 U.S. and certainly we're not seeing any meaningful indication of that risk today.

Great. Thank you guys.

Your next question comes from a 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 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. 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 de-stocking and kind of a normalization, even if 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?

Yes. So, John, it's a great question. And 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 months to 18 months. And clearly, you know, when we look at volume demand deterioration starting in late Q3 last year, you know, we're at the 12-month market here. And as I said, we're seeing real deceleration in the demand reduction. And in fact, I would say, as 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, you know, volumes will be flat to slightly down. I'll ask Jonathan to comment on sort of more volume details here.

Yes, Mark, thanks. Just building on your comments, you know, as you said, we are starting to see some green shoots here in AP, while demand, you know, around the rest of the world is fairly muted. But part of the transformation plan, part of the TT transformation plan that we started with the Kuan Yin shutdown was to control what we can control, right? So that plan is going to deliver $15 million of cost savings in the fourth quarter and $50 million to $100 million over the course of next year, right? So 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. So John, we're really excited about the transformation in TT that's underway and ensuring that we can be the most cost competitive, the lowest cost, and the best TiO2 producer in the world.

Got it. Okay, fair enough. And then maybe we can just shift on our second question just over to the TSS business and the data center opportunity that you highlighted in the prepared remarks. I mean, you're talking about 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 ‘26 and ‘27?

Yes. So first of all, the immersion cooling market represents a whole new ad to our TSS franchise, beyond the strong Opteon platform. So we're hugely excited about the potential of almost another business on top of what we already have going into 2025. As we have looked at the addressable market, you know, I think there are estimates now running, you know, out through 2030 that suggest this is a $2 billion to $3 billion addressable market. But John, as you know, I mean, every day you hear another headline on AI, and all that is happening in quantum computing that is really driving a significant growth in data centers. You know, the energy reduction for a cooling servers, you know, is an estimated 90%. You know, it's certainly high-80s based on the math I've seen. So it's a significant reduction in energy, and also a significant reduction, it essentially eliminates water usage for cooling data centers where today you're cooling massive amounts of air. So both in terms of the climate impact and obviously the opportunity, it's significant. We're in the process right now of going through the product registration process. And as we've said earlier, we plan to start commercializing that product in 2025 and obviously would have a significant ramp from there as we look at the addressable market that I talked about by 2030.

Got it. Thanks very much for the call.

Your next question comes from a 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, you know, when you’ve talk about your cut to guidance for the year, you framed it more in terms of TT expectations change. Now within TSS, I guess would 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, we're kind of coincident with a lot of the changes on the auto OEM side where there was 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? And has any sell-through around their change? So really what's changed around your expectations in next year?

Yes, 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 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're also seeing some weakness on the advanced materials franchise of our APM business. And in that business, we are focused on growth mainly in our PFA business that goes into semicon and in Nafion, which services the rapidly growing hydrogen market. Today, we're sold out of both Nafion and PFA. We're actively working on expansion at our Washington Works Plan in West Virginia. We're having some permitting delays, which in fact impacted 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. 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 de-bottleneck, and obviously every quarter doesn't yield the same results as we de-bottleneck our Nafion production. But again, long-term secular growth intact.

Thanks, Mark. Appreciate that. And just, I guess, 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. Can you comment on any of that?

Yes, I understand there is the industry 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 changeover by early 2025 and all that's needed to meet that date is going to drive good Opteon 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 we'll continue, which is also good. We also remember as there's more EV adoption that's larger charge size. So listen, we we'll 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.

Your next question comes from a line of Hassan Ahmed from Alembic Global Advisors. Your line is open.

Good morning, Mark and Jonathan. You know, a question on the TT side of things as it relates to cost curves. Look, 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, I'd like to think there's a large 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, a pretty significant volume hit to the franchise. You know, we had higher input cost as we started the year. You know, it was quite a bit of inflation on the input side, you know, going into the beginning of this year. And under Denise's leadership, the team's done a lot of work to drive both variable costs and fixed cost down. Clearly, with lower volume and lower fixed cost absorption, that's not reflecting. Those improvements are not reflecting 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. The point I'll ask Jonathan to make a comment, but I just say there's, you know, clearly there's a lot of product that I think is in the market today at kind of a marginal cost, you know, pricing reflecting marginal costs 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 the work that the team's 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, we're not stopping there. Denise and the team are really focused on ensuring that our franchise is the global winning franchise in high purity or 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 benefit show up here in the fourth quarter as a result of the Kuan Yin closure 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 mines to our pigment plants and all of the associated overhead, we've got our eyes firmly fixed on 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. And if I could dig a little deeper into those incremental savings that you mentioned, Jonathan, obviously the transformation plan, $100 million over there. But as I, sort of, sit there and think through the, sort of, goings on as they relate to your input cost, right? I mean ore costs had been high, but I'd like to imagine that in this weak, sort of, volume environment, ore costs are beginning to look a little shaky. And I'd also like to think 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 could play out next year?

Hey, Hassan, you were 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, 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 Kuan Yin closure. Other efficiency gains in our plants, and other focuses on yield improvements, both in our pigment plants and at our mines. So listen, we're -- as I said, you know, we're committed to the $100 million, but you should take from my comments that 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.

Super helpful. Thank you so much, Mark and Jonathan.

Your next question comes from a line of Laurence Alexander from Jefferies. Your line is open.

Good morning. Just two quick questions. One, on the TT productivity program, can you flesh out how you think about changing your incremental margins when volumes recover? And then secondly, on the data center cooling initiative, what you see is 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. And as we, you know, as the market recovers, hopefully, you know, starting here in 2024, those cost savings will accrete to the bottom line more rapidly as we can spread the cost over 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 market recovery are going to come hopefully starting in 2024. 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, we haven't guided to ‘24 CapEx or even ‘25 CapEx. But just to give you an idea of how the immersion cooling plan would roll out, we'd start with a smaller pilot plant. That's not a significant capital outlay. At some point here, pre-commercialization. And then depending on what we think the volume needs are, we'd [Technical Difficulty] for, you know, a larger facility to bring it more fulsome to market, probably 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 right set of hyperscaler partners to really make a mark in terms of how data centers are built and the amount of energy and water that get consumed.

Hey, I just wanted to -- Lawrence, I just wanted to echo Jonathan's comment a minute here. Clearly with the closure on the TT question, clearly with the closure of Kuan Yin, 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 costs leveraged than some of our other competitors, given how large our plants are. Obviously, as we look at a more gradual recovery, we'll see how that translates into margin recovery, but again, we remain very focused on both fixed and variable cost. And then 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, we're allocating capital to improve how we improve our TT earnings and margins. 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 DuPont and Corteva. So if you look at how we're deploying capital, it is all in a way that over time will drive meaningful returns to our shareholders.

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?

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 we're really talking about capital in a really 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, high margin growth, because this is really driving significant value to data centers. Oh, by the way, data centers today account for 1% of the global carbon footprint and a meaningful consumption of water. So we see a real value to our customers and the planet here in this product and we're keen to bring it to market.

Thank you.

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 TiO2 markets. Specifically, I was wondering what you're saying 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?

Yes, I mean, thanks for the question. It's Jonathan here. You know, as we look at it, right, in terms of the de-stocking, the de-stocking in TiO2 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. And, you know, even as we feel like we've gotten, you know, we can kind of see the bottom here and the demand de-stocking is the -- has decelerated 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. 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 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 perspective on the ‘24 recovery.

Awesome. Appreciate the color. Do 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 that the facility closure may be $50 million to $100 million of savings. If I heard you right, is there a range for that $100 million 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?

Yes, so the cost savings that we're committing to for next year is $100 million on a run rate basis, $50 million of that is driven by the Kuan Yin facility closure that we announced on our last call. So we are planning on delivering a $100 million 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 as we go through the next couple of quarters.

Okay, thank you.

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 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.

This concludes today's conference call. Thank you for your participation. You may now disconnect.