Earnings Call: Q2 2020

Jul 31, 2020

Ladies and gentlemen, thank you for standing by, and welcome to the Comoires Company Second Quarter Earnings Call. At this time, all participants are in a listen only mode. After the speakers presentation, there will be a question and answer session. Plus the star number 1 on your touch tone phone. Thank you. I would now like to hand the conference over to your speaker today, Jonathan Locke, Vice President of Corporate Development And Investor Relations. Please go ahead. Good morning, and welcome to the Chemours Company's 2nd quarter 2020 earnings conference call. I'm joined today by Mark Vergnano, President and Chief Executive Officer Mark Newman, Senior Vice President And Chief Operating Officer and Sameer Rahhan, 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 operations, 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. I will now turn the call over to our CEO, Mark Vergnano, who will review the highlights from the second quarter. Mark? Thank you, Jonathan, and thank you everyone for joining us today. We are living in unprecedented times. And the last three months have been some of the most challenging I can remember. It started with COVID-nineteen, first in Asia, then in Europe and the Americas. We have witnessed the incredible resilience In late May, we saw social justice take center stage and a societal awakening of tremendous proportion. I am extremely proud of this company's response to both of these dramatic events in the first half of twenty twenty. We have acted quickly on a global scale to face these challenges head on and will emerge stronger and more united as a result. Regarding COVID-nineteen, as I said in our first quarter call, our response was swift and strong. Early safety measures implemented across all our sites have proven effective and we have maintained operational continuity across all our global footprint. We continue to manage through the current surge of cases in the United States with our internal health and epidemiology team fully engaged. As a leadership team, we have had to make many timely yet tough decisions as the pandemic has worn on. Through it all, we've maintained our true north of putting our people and customers first. As a company, we remain committed to coming out of this pandemic stronger and more competitive. Turning to social justice. The murder of George Floyd on May 25th set off a Firestone of protests and civil unrest not seen in a generation. His unfortunate death put into focus many of the deep seated issues our society has and has caused all of us including this leadership team to rethink and reframe our behavioral norms and practices. We have taken the opportunity to reflect and strengthen a number of our own internal practices in regards to inclusion and diversity of the company. This includes a 0 tolerance policy towards any type of discrimination, including racism. And expansion of our safety obsession value to include the holistic elements of emotional and psychological safety and expanded training and education programs across the entire company. These types of actions are not new to Chemours Day along with our 10 by 30 corporate responsibility commitments form the basis of why we think of Chemours as a new kind of chemistry company. A company that is working I would like to invite those interested in learning more about Moving on to the results. The COVID-nineteen driven weakness, which started in the first quarter, extended well into the second and impacted nearly every end market which we serve. While the global macro was severely impacted by COVID19, Our second quarter cash flow proved resilient, reflecting the solid execution of our COVID-nineteen response plan. COVID-nineteen related headwinds resulted in a sharp drop in 2nd quarter revenue with adjusted EBITDA of $166,000,000. Margins were impacted by low production rates as we managed working capital by idling several facilities across the company. As I said on the first quarter call, we are focused on maximizing cash generation through this demand trough. In the second quarter, our team jumped into action with swift cost cutting and cash conservation actions and helped offset some of the headwinds This was an improvement of $167,000,000 versus the second quarter of 2019. We still have significant work ahead of us as we turn our focus to revenue growth but I'd like to applaud each of our team members around the world for their contribution $400,000,000. At the end of the second quarter, we maintained a cautionary $300,000,000 draw on our revolving credit facility. Looking ahead, we remain limited in our ability to forecast beyond the coming weeks. And while we're hopeful of an ongoing recovery, the view from we believe the global economy bottomed in mid May. Since then, order patterns have begun to stabilize with improvements each week in June and into July. While a positive sign, we do not yet have enough data to project the shape and trajectory of the recovery. As a result and consistent with our first quarter practice, we do not believe it is prudent to provide quantitative guidance for the second half. Before I turn things over to Sameer to review the financial results in detail, I'd like to quickly cover the commitments we made last quarter and our proactive response to COVID 19. We covered some of these items earlier, but I wanted to use this chart to reinforce to all our investors that we have acted quickly and with purpose to create significant financial and strategic flexibility for the company. It starts with putting our employees and our customers first. We have not backed down on our PPE and health requirements at our sites and continue to use procedures, social distancing, and masks to help limit We have been fortunate to be in a position to help our customers and supply chain partners with advice, PPE, and other supplies during this pandemic and we'll continue to to bolster our balance sheet by eliminating discretionary spending, temporarily reducing salaries and scaling down CapEx to conserve active, mindful of the need to invest into the recovery and maintain momentum in key markets. Finally, on our first quarter call, I spoke about the resilience of Chemours, the grit and determination which has defined our short history. That resilience was on full display here in the second quarter, and I have no doubt we are well prepared for whatever else comes our way. I want to recognize the entire Chemours team for their effort this past quarter. The shared sacrifice, long hours, and late nights. I know we will Thanks, Mark. I'll begin my comments on Slide 5. 2nd quarter revenue was $1,100,000,000, as COVID-nineteen impacted demand across most global end markets. Lower volumes and high production costs across our 2 principal segments. Total Products And Titanium Technologies resulted in lower margins versus 2019. GAAP net income was $24,000,000 while adjusted net income was $30,000,000. GAAP earnings per share came in at $0.15 per share, while adjusted earnings per share was $0.18 per share. Free cash flow was $50,000,000, an improvement of $167,000,000 from the same quarter in 2019. Strong cash flow from operations driven by working capital management combined with lower CapEx in the quarter contributed to the strong free cash flow result. Finally, our Board of Directors approved a Q3 dividend of $0.25 per share. This is unchanged from the prior quarter and will be payable to shareholders of record as of August 17. Turning to Chart 6. 2nd quarter 2020 adjusted EBITDA was $166,000,000. Down from $283,000,000 in second quarter 2019. Lower volumes due to COVID19 impacted all three of our segments. We also experienced lower average selling prices due to customer and product mix, as well as the timing and cost reduction efforts across the company more than offset idle production charges and lower FCAS quota sales in floor products, and high unit costs in titanium technologies due to lower operating rates. In total, costs in other words of $43,000,000 improvement versus the same period a year ago. Moving to Our cash balance at the end of the second quarter was approximately $1,000,000,000, including $642,000,000 of U. S. Cash. In the quarter, we spent $61,000,000 on CapEx and returned $41,000,000 to shareholders in the form of dividends. As Mark mentioned earlier, we maintained a cautionary $300,000,000 draw on our revolving credit facility. The strong execution of our COVID-nineteen response plan provides a significant financial flexibility to respond quickly to any market disruption. Turning to the next chart. You will recall we used this chart on our Q1 calls to help lay out our current balance sheet, liquidity, and leverage position. We continue to believe our balance sheet is a source of strength and we have ample liquidity considering current market conditions. In total, we have approximately $1,400,000,000 of liquidity with just over $1,000,000,000 of global cash, including $300,000,000 revolver drop. We maintain approximately $400,000,000 of remaining revolver capacity. Our current senior secured net leverage ratio of approximately 1 times, it'll well below the 2 times maintenance covenant level. Our maturity towers are well balanced and spaced with our nearest maturity in 2023. Of course, we will always look for new is to improve our financial flexibility, but today, I believe we are well positioned given the conservative actions we took earlier in the year. I'll now turn the call over to Mark Newman to cover our segment results. Thanks, Sameer. Before I cover our segments, let me just score some of Mark's earlier comments. The Chemours team sprung into action around COVID 19, and we kept our people safe our plants running and met our customer needs all while cutting costs and preserving cash. We also stepped up our efforts on inclusion and diversity, all part of our commitment of being a new kind of chemistry company. Our focus from this point is on profitable revenue growth in an uneven and potential gradual recovery. The team is fully engaged, and we are not daunted by the challenges ahead of us. With that, let's move to the results in the second quarter, beginning with Fluoro Products on Chart 9. 2nd quarter Fluoro Products sales reflect lower volumes across a number of Fluorochemical and Fluoropolymer product lines as COVID 19 impacted end market demand. Auto demand was particularly weak in the quarter with most plants in Europe and North America shut down for extended periods of time. As a tier 1 supplier of OPT and HFO refrigerants to auto OEMs, We felt this demand impact almost immediately in our Fluorochemicals business. Demand in Fluoropolymers was less severely impact by reduced demand for automotive components and from industrial end markets in the second quarter. However, given where we sit in the automotive and other value chains on polymers, we expect demand weakness in Price was a 3% headwind in the quarter impacted by a product and customer mix as legacy refrigerant pricing bottomed in the first half. In total, adjusted EBITDA for the 2nd quarter came in at $97,000,000 with margins of 19%. Our adjusted EBITDA in the quarter reflects limited F gas quota sales and the impact of shutdowns and production line idling, primarily on the Fluorochemicals side of the business. These factors more than offset improved productivity and cost efficiency efforts across our sites. Going forward, the demand outlook remains While there has been some recovery in auto OEM volumes starting here in July, we have yet to see a sustained cross industry recovery in demand. We believe that volumes likely bottomed in May, and we are on a path to recovery over the coming quarters. As we move more fully into recovery, we expect for our chemicals demand and margin to rebound more quickly given our auto OEM exposure as a tier 1 supplier. On the other hand, we expect Florida polymers to lag given that we're further back in the supply chain and the unevenness in recovery of other polymer markets. Longer term, we continue to have confidence in growth potential of our polymers, which will be essentially in areas such as next generation 5 g networks, fuel cells and hydrogen infrastructure. Let's turn to our Chemical Solutions segment on the next chart. Sales in the 2nd quarter were $82,000,000, down 37%, reflecting the lower revenue from the sale of our MAP business, and customer mine shutdowns across the Americas, which impacted mining solutions. Adjusted EBITDA in the quarter rose nearly 20% to $19,000,000 from $16,000,000 in the second quarter of 2019. Adjusted EBITDA margin was 23% reflecting an 1100 basis point improvement in margins from 12% in the prior year. This improvement reflects timing of cost reduction efforts and portfolio management actions. For the balance of the year, we expect demand to normalize as customer minds return to full operation. We continue to focus on our full year cost reduction actions, cash generation, and operational readiness. Finally, as part of our efforts to continuously improve our operating efficiencies and manage our portfolio We made the decision to shut down our Analyn business effective at the end of the year. Let's move ahead to our Titanium Technology segment on Chart 11. Our sales in the quarter of $488,000,000 were down 14% compared to last year. The decline was driven primarily by lower volumes due to soft demand in Europe, Latin America, and Asia Pacific. North America has been relatively stable as the DIY trend has helped bolster end market demand. Overall, volumes were down 20% on a sequential basis, consistent with the low end of our expectations headed into the quarter. Despite this decline, price was flat on a sequential basis and down 5% on a year over year basis a testament to the resilience of our TBS strategy, the benefits of our Flex E Commerce channel, and the value its significant demand headwinds related to COVID 19, we experienced a modest recovery as we exited June, with weekly sales trending more favorably than the 1st 2 months of the quarter. In the second quarter, we continued to add AVA contract customers as TiO2 buyers were attracted to the value of supply certainty and market share based contracting offered through TBS. Adjusted EBITDA of $94,000,000 was down 26% from the second quarter of 2019. Margins of 19% reflect the impact of lower fixed cost absorption due to our low production levels. Looking ahead, we believe we're in the early stages of our market recovery with regional differences emerging based on patterns of disease around the world. Downstream, architectural coatings, plastics, and laminates demand will follow the path of their regional end markets. Ahead of a more coordinated global recovery. With our broad portfolio of AVA contracts, Thai PureFlex, and distribution customers. We will continue to help our customers meet their pigment needs through this incredibly dynamic period. I'll now turn with a few observations on what we've seen early Our order book patterns and conversations with customers indicate that Q2 mark the bottom of the pandemic related demand downturn. We have yet to see a synchronized global recovery, but are hopeful that the regional and sector specific recoveries we are experiencing continue to gain strength over the barring a major second wave of closures across major segments of the economy. One critical area will be the impact of stimulus in particular, infrastructure stimulus, which we believe will play a meaningful role in restoring growth. The recent stimulus announcements in Europe and prospects for additional measures in the U S are welcome news in many of the markets in which we participate. Until then, we will continue to run the business to maximize cash flow while doing everything we can to support our people and our customers. This strategy will allow us With that, questions. Thank you. Your first question comes from John McNulty from BMO Capital Markets. Your line is open. Yes, thanks for taking my question. So I guess the first one would be on the AVA contract. It sounds like you had a decent uptick in, in signings this past quarter. I guess when you think about the tone of the discussions around those signings, would you say it's more about the of your ability to consistently deliver on the supply side? Or do you think it's more about concerns on price hikes coming as we look to 2021 and as the market maybe gets to a more stable footing, how would you characterize all that? Hey, good morning, John. I would say, we continue to see steady increase in our ABA contract But you got to remember, ADA contracts play extremely well in a period like this. We're we we don't require, commitments to volume. We require commitments to market share. And so that allows this flex to occur when you have an economy like we're seeing right now. So I think that's the biggest draw here. Is, 1, you get the price stability, 2, you get the surety of supply to your point. But you also aren't asking somebody to commit to volumes when when things turn down in an economy, because it's it's a relationship, to how we do the market share calculation. So I think it all plays in a positive way to our customers, whether it's price, whether it's shortage, supply or whether it's the way we framing the contracts from a from a a volume standpoint. Got it. Now that's helpful. Okay. If I could just add here a bit, you know, having the flex and the AVA channels are very complimentary. So we we build a relationship in the flex channel And from that, people, as Mark said, moved to ABA. So we're we're adding a you know, a few contracts in that way. I I think what's also very important is, you know, a number of folks had you know, cynically predicted that in a stress market, you know, we we would we would see people, you know, walking away from AVA contracts. And and I'd say just the opposite. This is this is what, our AVA contracts were designed to allow our customer to modulate volumes in these markets. So I think the wisdom of our TBS strategy is is is playing out, and the proof is here. And folks are are seeing the the benefit of both the flexibility of our Flex portal where they can begin a relationship with Kimors as well as as as the the wisdom and the AVA contract design. So, I think we're very encouraged by what we saw in the quarter. Got it. That absolutely makes sense. And then I guess on the second question, just you indicated you had a number plants idled throughout the quarter. I guess can you quantify somewhat what that financial impact was in 2Q? And then can you give us an update as to proportionally, have you brought many of those plants back on? Like how should we be thinking about how that headwind around the cost side may be dipping as we look to the 3rd quarter? Yes, John. I think when we, assumed what second quarter was going to look like or play like. What we said was that we were going to probably have some idling of facilities. And the thought was it would be across the whole network floral. It turns out it was mostly the floral chem side because refrigerants were way down primarily because of the automotive downturn. So that's why you probably saw the margins a little bit higher than what we had anticipated in fluoro. I would say as we go into the third quarter, you're going to continue to see those margins about the same level because we're now going to be shifting to probably idling some of our fluoropolymer assets versus our refrigerant assets. And really because of Mark's comments from before, we have a lag in our fluoropolymer chain to our customers where we're probably 3 months out in terms of seeing the effect of the upturn that we've seen in automotive that is immediate because of tier 1 supplier and refrigerants, it's going to be a lag in the slower polymer side. So you'll probably see some of our idle production in floral polymers. Today, we haven't had much more idle production anywhere else. Got it. Thanks very much for the color. Sure. Your next question comes from Duffy Fischer from Barclays. Three questions just on the floral side. First, did I hear you right that you said that HFC pricing in Europe has turned up? And if so, you know, kind of how much and what's driving them. In Europe over the last or impacted HFO pricing at all as you would look at it? Yeah, Duffy, we haven't seen any relationship with HFC and HFO pricing from that standpoint. Again, most of the HFO sales are contractual and they're contractual with the automotive industry. And then the blends, which really are going into the stationary side, we haven't seen an effect from a pricing perspective. I wouldn't say we've seen HFC prices turned up, I would say I think we've seen it bottom. And when I think we've seen less imports from China at the end of the quarter, from that standpoint. So we haven't seen a significant uptick in HFC pricing, but we have felt that we probably seen the bottom of that pricing. Okay. And then, could you dig in a little deeper? I just, I wasn't quite clear what you were trying to communicate around auto, ramp and what that's going to do for volumes in your fluoropolymers versus volumes in your Fluorochemes. The lead lag there, is that inventory that needs to be worked down as they start to ramp back up? Could you just flesh out how we should think about your volumes ramping back up in both those parts of floral, vis a vis, an auto ramp? Sure. So first of all, on the floral chem side, we're a tier 1 supplier. So you see that immediate impact as facilities start coming up. On the Fluoropolymer side, probably roughly 20% of our volume is in automotive. So you're in automotive, you're in industrial, wiring cable, electronics. There's a bunch of areas that we're in. In the automotive side of our fluoropolymer side, it's primarily we're just way back in the chain. So yes, there's probably inventory in there that has to flush through 1, but 2, that as that order pattern starts to get stronger, as production starts to happen, we usually see that delay. But think of it as primarily inventory that's already in the channel that has to work its way through. Terrific. Thank you guys. Sure. Your next question comes from Bob Koort from Goldman Sachs. Your line is open. Thank you very much. Good morning guys. Hey, Bob. Hey, Mark. One question I sometimes get from clients when they think about investment in Chemours is whether the price stabilization strategy might take away some of the upside relative to playing other cyclical company. So can you talk a little bit about how you see the trajectory of incremental margins as you start to regain volume? And then we'll kind of price response you might expect in the future if the world does start to tighten up again for you relative to maybe what the market would do. Sure. Let me start there and maybe Mark Newman can add in a second. But I'd say as we look at the 3rd quarter, right now, we're seeing volumes start to increase. I'd say low to mid teen volume increase. We're seeing price stability from that standpoint. That's going to help margins just because we're now going to have more utilization on our assets. So we're at a place where you want to have some more utilization on your assets to really get your margins up independent of price from that standpoint. As we move forward, obviously our ADA contract customers, which is the majority, but still not somewhere in the 50% to 60% range today, maybe goes up to 70% at the very max. We'll have price protection and PPI will be driving that, from a standpoint of what price happens. But we have the Flex channel. Right? And the flex channel allows us to move price wherever it needs to be based on what the market conditions are. So we can participate in a price move up. At that time. But we also part of our value proposition to our customers is to give them those who are on the APA contracts to give them some level of price stability. But But don't forget the effect of utilization on our assets in terms of margin. I'd say in the mid term that probably has as much impact as anything from a margin perspective. Mark, I don't know if you have anything else you want to add on that. Yeah, Mark, I would just re echo the points that, you know, the big the obviously, we have a lot of room to grow to meet future demand, you know, based on our utilization today. And, you know, that has significant operating leverage. We continue to have, you know, or the, you know, the a significant or advantage you know, as we run our plants, you know, across the circuit. And, you know, with both flex and, attribution channels, we can take, you know, price as as it becomes available in the market. So you know, Bob, I I I like our options here from this point as we move forward and, you know, believe that you know, we have significant volume and, the ability to take price in in several of our channels Obviously, you know, there is real merit to our customers in the AVA agreements and those provide, you know, real stability, to both us and our customers. Thanks for that. Mark, you mentioned ore costs and others a little skirmish as one of your suppliers. Can you tell us what you've done in this downturn in terms of the mix of your ore supply. I guess traditionally, we would you to go to lower grade cheaper ores when demand wasn't as high, but you've also done some acquisitions to bolster your own supply. Can you just give us a sense of how that has changed that ore slate over the last year and then in an upturn if it would change some more? Go ahead, Mark. Go ahead, Mark. No, go ahead, Mark. Sorry. I was going to say, Bob, you know, obviously chlorate ilmenite is our advantage. And we try to utilize that advantage all the time from that standpoint. So we're going to utilize as much chloride ilmenite in our network as we can. We can operate at much lower, or levels than others can. So we want to be able to do that all the time, especially in a time like this. So that, that for sure is a key strategy for us. Is how do you take advantage of process that basically beneficiates in process from that standpoint. So we're always going to be looking at ways to be able to do that. Yes, we're having an issue with one of our suppliers right now, but we feel that that's a contractual issue that is very straightforward. From our standpoint, something that the contract allows us to do. So, there's nothing, don't read anything into that except just normal way of how we operate our business day to day. And Mark, the only thing I would add is, we made a great investment in in Southern IONICS down in in Georgia. That continues to go very well and, you know, has the potential to increase our internal supply, you know, with with further investment up to about 20% of our requirements. Your next question comes from Josh Spector from UBS. Hey, everyone. Good morning. Thanks for taking my question. Just back on fluoro, I was wondering if it's possible to get quantitative in terms of the volume declines in the quarter by chemicals versus polymers, just so we can kind of frame the sequential improvement in those segments as well? Mark, did you wanna talk better? I didn't hear the first part of the question. I'm sorry. Sorry. Just asking about if you could break down what the volume declines were year over year by Fluorochemicals and fluoro polymers. Yeah. So, you know, overall, you know, year over year, you know, our our volumes are are down you know, closer to 23%. I'd say the way you should think about that is you know, we talked about, you know, auto being down really significantly, you know, think 40 to 50% auto volumes being down again, the impact directly, as a tier 1 supplier. And then, you know, polymers being down more in line with industrial demand being down year over year, you know, kind of in that 10 to 15% range or 10 to 20% range depending on the product line you're in. So, you know, think of this as a a tale of of 2 very different businesses. Auto is down, you know, both in North American and Europe significantly 40 to 50% based on the outages we saw in q 2. That snapback in July. And in fact, we see auto being revised upward, you know, as we come into this quarter. Polymers on the other hand is down in line with industrial, you know, kind of mid teens. We expect, you know, as Mark said earlier, the the recovery in polymers to to to demonstrate a 1 quarter lag we'll we'll actually see some decline in in polymers as we go into Q3. Overall, our our floral business you know, will be up slightly in Q3, but it'll be a very different mix of of businesses. And then our our expectation will be you know, with continued economic recovery, we would see polymers starting to show, you know, strength or recovery starting in Q4. So it's kind of just a 1 quarter lag on the polymer situation. Okay, thanks. That's helpful. And just on chemical solutions, I mean, obviously pretty good performance in this quarter. Just wondering as mining demand improves, do you see margins holding where they were, or was there anything unique in this quarter, be it licensing income or anything else that would have drove margins significantly higher this quarter? Yeah. I think the way you should think of chemical solutions is, you know, we've guided to this being, you know, a roughly 20 percent EBITDA business. We're obviously, you know, better in this quarter I think that relates both to the actions we took on, you know, our MAP business, from a portfolio perspective. As well as the timing of some cost actions we took in the quarter. You know, last year when we announced the closure of our methylamines business, we did get some second half sales that that were helpful that we won't get this year. But I would say the the offsetting impact as we think of the second half this year is we expect, you know, mining solutions to, you know, to start to recover. I would say when you sort of net everything out, you should think of this as, you know, being somewhat close to a 20% EBITDA margin business. And, you know, we'll have quarters where we're slightly above and quarters where we're slightly below. Okay. Your next question comes from Lawrence Alexander from Jefferies. Your line is open. Good morning. Can you put in context the tow total met headwinds you've had from the illegal refrigerants, to give us a sense for if there were effective regulation, what the step up in that business area would be? Hey, hey, Lawrence. Last year, I think we were very clear that it was probably about $125,000,000 EBITDA headwind for the year. So I think that's a good gauge for you to see what that really is that negative would be from that standpoint. That's probably the best way I can explain it. So obviously, there's an uptick and an uplift for us going forward. And when volumes start to recover in TiO2 for the industry, how much of the industry volume growth does Krumors expect to capture, given the way the stabilization strategy has played out in a way that customers have navigated this? Well, we've been very clear and open that we want to gain back our at least to get to our rightful market share. So we believe we will gain a lion's share of that growth. So maybe a little bit more than what the industry grows at. We also recognize that as things were looking like in the second quarter, we weren't going to be driving that market share recovery during a period where we would create instability. So, now that we see our volume growth is is coming back. As I said in the third quarter, we're anticipating somewhere in the range of low to mid teen kind of volume increase. With price stability. I think coming from that, we should start to be able to gain market share again as we end the year. So we will continue to go down our path to smartly and, targetly go after market share at the same time. And then lastly, is there a charge associated with shutting down the Annalena facility? There is. Samir can give you the number. It's fairly small. Just to put it in context for those who have been with us for a while. If you remember back in 2016, we basically sold the Inulin business to Dow. This was the last asset that couldn't be part of that sale for complicated reasons of the spin. So it's a very small charge. Sameer, I think it's in the range of $7,000,000, but you can answer that better. Yes. Lawrence, it's roughly $12,000,000 of charge that's tied to past the goulash shutdown, majority of that is essentially tied to the asset and SFPs and the couple of million tied to severance. Perfect. Thank you. Your next question comes from Arun Viswanathan from RBC Capital Markets. Your line is open. Wondering about the inventory situation in TiO2. Maybe could you comment on what you're seeing, I guess, across geographies? As well as maybe the export situation out of China. Yeah, maybe you can just help us on those two items. Thanks. Yeah, one might kick it off and Mark, add to anything you want to add to here. When I I would say that if you sort of walk through the regions around the TiO2 business for us. North America continues to hold up fairly well. That's been driven primarily by the coating side and DIY. But now we're starting to see a shift over to contract type of painting. So, I think that's starting to resume. Asia is improving. We've seen Europe and Latin America improving. Latin America may be a little surprising that that's improving. So coatings overall seems to be on an improving trend across. Plastics has been slower in recovery. We play in the Packaging play on Polyolefin Master batch as well as PVC. Packaging has held up PVC and construction has lagged. So hopefully that will Art that infrastructure and any stimulus driving infrastructure could help that. LambINETs has been probably the most sluggish segment of the 3. So as you think about that, from a segment and a region point of view, China obviously is starting to get the most positive region from an economic direction. Remember, China is the largest user of Ti2 at the same time. So I think a lot of excess capacity that was coming out of China from exports is now starting to get consumed in country. So I think you're going to see less China exports because of that. That's our at least our thoughts. So I would say we don't see a big inventory build occurring anywhere in our channels and with our customer channels. And as things improve, we think that's why we're seeing some improvement in our third quarter volumes, I think you're going to see that immediately start passing through. Mark, anything you want to add there? Yes, Mark. I'd say some comparisons have been made, you know, to the global financial crisis. And I'd say the difference one of the principal differences is last year, you know, we had a lot of destocking in the industry. So, you know, we are coming into this with, I think, you know, different inventory levels than we're experiencing in the global financial crisis. As we look at markets globally, you know, I I think, you know, North America and China, are are showing, you know, resilience or strength. APX China was quite weak, but, again, starting to show strength in places I know, like India. And, you know, Latin America continues to be weak, but it's a relatively small market for us. So We're very encouraged by the signs that we see, you know, across both our channels, our product mix, and geographies. And, you know, that really drives the the volume increase that we talked about going into Q3. And, I guess, how do you think about pricing in those regions? I guess, given what you just said, I mean, is it possible that you see, increases potentially in North America, but not in Asia or Europe, or how should we think about them? What I would say is, certainly, you know, pricing fell pretty dramatically in China in the in in Q2, and we're seeing that start to reverse, you know, as as market demand picks up there. So we think that, you know, globally is is is a good phenomenon. As you saw in our q 2 results, you know, sequentially, our price was stable in the quarter, you know, and our outlook even with the volume increases that we're seeing, you know, going forward is is for prices to remain stable. You know, as demand picks up, could there be more pricing pressure? Sure. But I think as we sit here today, in our view is prices, you know, globally, remain stable other than the fact that in China that talked about where prices had fallen pretty dramatically in the quarter and are now, you know, starting to rebound. Okay, thanks. I'll turn it over. Your next question comes from P. J. Juvekar from Citi. Your line is open. You mentioned about demand for refrigerants in 5 g and hydrogen fuel cells. Can you take a minute in tell us exactly what the refrigerants are used maybe for heat management. What kind of discussions are you having with customers? Or and we actually seen any orders yet? Thank you. Yes. Again, so it's Fluoropolymers, not refrigerant. So remember, we have very high end melt polymers are primarily our PFA polymer line. That goes into the electronics industry and semicon. It goes into 2 big areas in semicon. 1 is it most of the tubing, most of the liners, most of the equipment when you make a a semicon fab uses our polymer to fabricate those because that's very, very important to reduced contamination. So when a new fab is built, we have those orders directly. So we've had that for years and we continue to have that. And the upsurgeons, potential upsurgeons in North America and the semicon industry is a huge positive for us. So we're looking forward to being able to work with our stores there from that standpoint. It also goes into materials as well. So as you go to 5G, and you have to have the high level of frequency that 5G requires. Traditional, polymers like liquid crystal polymers don't work. Right? So you have to use fluoropolymers. So that's the area of application development that we sell in today. And we think we'll have high growth potential in front of us. The hydrogen side is really about membranes. So think of our Nafion membranes that we have. Nathion is the membrane of choice for fuel cells and for hydrogen generation. So we sell today to many of our customers We think that's a huge growth area for us in the future. Thank you for that color. And just talking about Ohio MDL update and your lawsuit with DuPont. I guess my question is, is there a way to collaboratively work with DuPont? To come up with a solution. And if you've had any discussions regarding that, and can you just give us an update? P. J. Make sure I just collaborate on what part would you find? I just want to make sure I'm Well, collaboratively come up with a solution. Potentially a trust fund or something like that in the future to address these issues? Yes. We continue to work with them. And I'm convinced that we will come up with, with something that that makes sense for our shareholders and theirs. As I've always said, whether we go through arbitration or whether we go through litigation the endpoint is probably going to be a settlement between the two companies. We continue to talk. These are this is a hard It's hard to get to the right answer for both sets of shareholders, but I believe we will find a way to do that. Thank you. Your next question comes from Jim Sheehan from SunTrust. Your line is open. Thank you. Good morning. Could you talk about why you're confident that legacy refrigerant prices in Europe have bottomed. You say imports are down. Is that due to recession or is it due more to enforcement? Yeah. It's probably a combination of the 2. To be honest, we continue to work very, very closely with the the regulators in Europe and they are stepping in to try to help us because remember they had a step down in quota has to happen at the end of the year and probably the primary driver here. Again, we're just seeing prices have a slight uptick toward the end of the quarter. I wouldn't call victory yet. But it's slightly promising. Mark, if I would just add, obviously, during the height of COVID-nineteen, seen in Europe with many facilities shut down offices, you know, retail facilities. You know, there was quite a softness in the market. So, you know, both here in North America, you know, with the hot summer we're having as well as in Europe, you know, as as as facilities reopen and there's, you know, more things getting back to sort of a new normal, you know, we are we are seeing, you know, the bottoming of of of, you know, refrigerant prices. From an enforcement perspective, you know, we continue to work in Europe on this issue and, you know, expect that to continue to move in the right direction. In the second half. Obviously, you know, during the height of COVID 19, you know, the amount of work we could do on the ground or in the field from an investigator perspective was lessen, but those those efforts are are regaining strength as we move into the 2nd half. And then the 3rd point I'll just remind folks is when you look at our fluoro results year over year, you know, you're seeing the impact of of lower quota sales in the quarter, which we we we've called out, you know, approximately a 12,000,000 delta year over year. So you know, I'd say setting the quota issue aside, you know, we don't really see this issue around illegals as being worse. And in fact, the efforts that we're taking as we move into the second half should continue to, you know, improve that result as we move forward. And just to make sure we're speaking clearly with you, we're seeing volume start to come back. Demand and volumes start to come back in our base refrigerant business Usually, prices will follow that. So you got to get the demand back first, which we're starting to see happen. Thank you. And then TiO2, could you give us a flavor for your July demand? How much is demand in July 2020 relative to July 2019? Yes, but for sure, June was stronger than May. July has been stronger than June and the order book in August is looking solid from that standpoint. So I would say that we feel we feel very good about where the volume trajectory is going right now from that standpoint. That's why We think that the quarter the sequential quarter is going to be positive 3rd quarter versus 2nd quarter by somewhere in that low to mid teens kind of an idea from that standpoint. I don't think I can give you a definitive yet about the month year on year, but but sequentially, we're seeing a nice improvement occurring. Your next question comes from Roger Spitz from Bank of America. I I I don't think you said you, other than your TiO2 plants, but it's not. It's probably operating in my lower rates. Can you comment on your average operating rates in Q2? Yes, we don't we don't talk openly about what those rates are. They are they are fairly low and they are different across the circuit, depending on customer demand, the products that are being requested in parts of the world. And as I had mentioned earlier, when we get our utilization right up is when you'll see a real positive effect on our margin from that standpoint. So it is very, as I mentioned in the past, it's very difficult to idle a TiO2 facility for a short period of time. So you really have to if you're going to idle a TiO2 facility, you usually decide to do that for a longer period of time because you have the ability to to move things around to other assets. So I'd say right now they are at a fairly low utilization versus normal But as we get our demand signals coming through and volume comes through, that's going to be additive as we move. So I would say steady progress on that. Got it. And you've mentioned that you're gaining back, you're making progress in gaining back some of the market share. You lost last year. Can you give us a sense of sort of where you are? Like, have you gained back 10%, 25%, 50% of the market share you lost, I recognize in Q2, it's very hard to regain a lot of market share. Yes, we probably stalled our if you go back 3rd quarter, 4th quarter and the 1st quarter, we talked about gaining share during those periods. 2nd quarter that was not an intent for us to try to gain share. We felt that it was not the right time to be able to do that. But we're working our way back to what we believe is the rightful capacity share that we should have. And I think that's the way you should think about it is what's the rightful capacity share that Gilmore should have versus the industry? That's what our goal is to get to that kind of a level. Thank you very much. And your last question comes from Vincent Andrews from Morgan Stanley. Your line is open. Thank you. Just a couple from me. First, normally we think of 4Q as being a seasonally weaker quarter than 3Q. Do you think that's going to happen this year or just because this is sort of a very peculiar year with COVID and customer inventory levels are already quite low that 4Q won't have that typical falloff? Or how are you thinking about it at this point? Yeah, that's the magic question. And really what keeps us from being able to give guidance is 4Q, because I think we're getting a fairly good picture now of 3Q. 4Q still is not a clear picture for us. As you said, normally that would be a weaker quarter, but we think that 2Q could be the weakest quarter of the year, depending on how the demand shapes up. So I would say all bets are off. I'm thinking about the normality of a fourth quarter right now because I think there's so much potential from a demand standpoint. And I go back to one of the earlier points we've made around stimulus. I think stimulus especially stimulus into infrastructure could change that dynamic, significantly. So very hard right now for us to call fourth quarter because I think there's a lot of dimensions there. You also have the other side of this, which is our people going to be trying to conserve cash for the year at the same time. So a lot of factors here. I think we'll learn more in the next few weeks, but right now something we can't call. All I would say is, I don't think you should think of it as a normal 4th quarter. Okay. And there's nothing very normal right now. Anywhere. So, I know. I know that was super helpful as well, but No worries. It is cloudy for us at this point. I believe me, I understand. Thank you for the comments. I appreciate it. Sure. There are no further questions. I'll turn the call back over to Mark Vergmano for closing remarks. Thanks. And thank you all for joining today. You know, the grit and the resilience of this team hopefully show through. We made some technical calls, but I think we had a positive result in our quarter because of the actions we took very early around this. And I think we're starting to see some demand coming back to us in the third quarter. And we are poised and ready to be able to respond to that as revenue comes our way. So again, thank you for your support of the company. And we appreciate all our investors support during this time. Please stay safe and stay well. Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.