Earnings Call: Q1 2020

May 6, 2020

Ladies and gentlemen, thank you for standing by. And welcome to the Chemours Company First Quarter Earnings Call. At this time, all participants' lines are in a listen only mode. After the speakers presentation, there will be a question and answer session. I would now like to hand the conference over to your speaker today, Johns and Locke, Vice President of Corporate Development And Investor Relations. Good morning, and welcome to the Chemours Company's first quarter 2020 earnings conference call. I'm joined virtually 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 supplemental information provided in our presentation and on our website contains forward looking statements that involve risks and uncertainties, including the impact 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 Kmoore 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 Rudnano, who will review the highlights from the first quarter. Mark? Thank you, Jonathan, and thank you, everyone, for joining us today. I'd like to start this call with a Our first responders and medical personnel have gone bravely to help those in need and to control the spread of this terrible disease. Those in food service, grocery, sanitation, fuel delivery, and energy put themselves at risk to help ensure that we have the things we need to run our business and support So on behalf of the nearly 7000 global employees of Chemours and their families. Thank you. COVID-nineteen has been a game changer. As a global business, we have been adapting to the dynamics created by this pandemic, since the beginning of the year, starting first in Asia, protecting the health and well-being of our employees, while supporting our customers continues to be our top priority. Our internal strong social distancing and control measures across all our laboratory and manufacturing facilities. This includes limiting access to our sites, and restricting movement between areas on our sites. We've also implemented temperature health checks, increased mask use and provided additional quarter, we scaled our remote IT infrastructure ahead of government shelter in place rules. This gave our office based teams and outsourced providers the ability to work from home very early with minimal disruption and cost. This disciplined execution of our business continuity plan has enabled us to continue to serve our customers safely and reliably. Today, all our plants are up and running evidence that our early interventions are working. We can and will continue operating in this manner until public health officials and our health and safety teams Judge it is safe to return to normal operations. Putting our people and our customers first is a formula, which we believe will see us through this difficult period and enable us to thrive when it's over. I would like to compliment our Chief Operating Officer, Mark Newman and our leadership in Crisis Team's work to help safeguard the safety health and well-being of teams, their families and our communities worldwide. Moving now to the financials. We continued to carry some momentum out of 2019 into the first quarter of 2020 and delivered results which were for the most part aligned with our expectations. We saw weakness across certain end markets including auto electronics and mining, much of which was related to COVID-nineteen. At the same time, we was $257,000,000 with margins improving sequentially in both Titanium Technologies and Plur products. Samir and Mark will cover the details around first quarter financial performance later in the call. As a result of COVID-nineteen 18, we are moving into a period of greater uncertainty. Sitting here today, we are beginning to see the impact COVID-nineteen is having on consumption and consumer demand. Hospitality and transportation. We expect this will ripple through the entire industrial value chain. However, at this point, it is too early we believe it's logical and prudent to withdraw our 2020 full year guidance. Despite this near term demand driven uncertainty, We remain confident in dollars of cash on the balance sheet, including $386,000,000 of cash in the United States. We further fortified our U. S. Cash position with an additional $300,000,000 drawn from our revolving credit facility during the first half of April. This additional balance sheet cash improves our domestic cash position and will enable us to respond more quickly to any change in market conditions over the next few quarters. In total, we currently have approximately $1,000,000,000 of cash on hand with the majority of that in the U S. Sameer will cover the details when he discusses our liquidity. Finally, we are acting quickly to improve both cash generation Let's turn to the next cost management program across Chemours to reduce full year 2020 costs by $160,000,000 through a combination of structural changes freezing non critical hiring and delaying external spending wherever possible. We have also reduced structural plant fixed costs to improve the efficiency of our production units, something that was already in flight at the end of 2019. In addition, we are implementing temporary senior leadership salary reductions across the company including a 40% salary reduction for me and a 30% reduction for my senior leadership team. We are taking these aggressive temporary salary measures well ahead of any further potential downturn in demand as a way to preserve jobs and to avoid layoffs. Layoffs for us are a last resort and we will do everything we can to preserve necessary jobs and healthcare benefits for our employees. I personally believe that this is important for us as a company, and as an economy as we move through this temporary dislocation. It will speed our recovery and ensure our competitiveness on the other side. We'll update our progress on these savings as the year moves ahead. 2nd, we are reducing our full year CapEx target by $125,000,000. For the full year, we expect CapEx to be approximately $275,000,000 versus the $400,000,000 we were originally targeting. The reductions will be focused on delaying or canceling growth projects in 2020. When combined with the solid liquidity position we built heading into 2020, We believe these actions give us significant ballast and financial flexibility going forward. The cash generation potential of this company can and will see us through this period of uncertainty. Finally, before I turn things over to Sameer, I want to say a few words about the character of Chemours. If there's one word I could choose to describe this company, it is resilient. In our short history, we to make the tough through this COVID-nineteen pandemic have been and will be no different. We are resilient and we will overcome this crisis with the same grit and determination, which you've seen us display over the last 5 years. With that, I'll hand things over to Sameer. Thanks, Mark. I'll begin my comments on Slide 5. 1st quarter revenues of $1,300,000,000 were down slightly from last year, primarily due to volume and price headwinds in Fluor products and reduced sales in chemical solutions. These headwinds in Fluoroproducts And Chemical Solutions were largely offset by stronger year over year sales in Titanium Technologies. Which were up 10% up 6% from the first quarter of 2019. Up 8% from the first quarter of 2019. This drove an 11% increase in GAAP earnings per share to $0.61 per share. And 13% increase in adjusted earnings per share to $0.71 per share. Free cash per use was $62,000,000, an improvement of $115,000,000 from 2019 levels. As a reminder, our heaviest use of working capital is typically in the first quarter. During the quarter, we amended our accounts receivable securitization facility. Which resulted in a reduction of our debt level by $110,000,000 with a similar benefit to cash flow from operations. Finally, as a reminder, our Board of Directors approved a Q2 dividend of $0.25 per share. This is unchanged from the prior quarter and will be payable to shareholders of record as of May 15. Moving to the next chart. 1st quarter 2020 adjusted EBITDA of $257,000,000 represented a sequential improvement of 13% and was almost flat relative to the prior year's first quarter. Looking at the bridge, results were driven by lower average prices across all three segments. And 19% higher volumes in Titanium Technologies, partially offset by lower volumes in fluoroproducts And Chemical Solutions. Higher volumes were a $14,000,000 tailwind in the quarter. Finally, we delivered a $61,000,000 improvement in cost and other. This improvement was driven by better operational performance in floor products, cost benefits of the new Corpus Christi Opteon plant, and cost reductions across all businesses. These gains were partially offset Let's turn to the next chart where I'll cover liquidity. The morse continues to maintain a strong balance sheet and liquidity. Giving us ample financial flexibility. As I said on the prior quarters call, we have put a greater focus on cash generation and management of working capital. Cash at the end of the first quarter was $714,000,000. Down from $943,000,000 in fourth quarter. This cash decline is primarily due to seasonal working capital cash consumption. Our global cash balance of $714,000,000 included $386,000,000 of US cash. We chose to supplement our U. S. Cash position with an additional $300,000,000 drawn from our revolving credit facility after the close of the first quarter. This cautionary draw, representing just under half of our revolver balance, reflects the desire to provide additional cash flexibility in the US. Where majority of our operations are located. It also provides near term flexibility to respond quickly to any dislocations in the market. Turning to the next chart, here we have a more holistic picture of our current balance sheet, liquidity, and leverage position. This illustrates why we are confident in our ability to weather the current conditions. For the prior page, we exited Q1 in a strong global cash position, and have added to our domestic cash reserves via our revolving credit facility. We have approximately $1,400,000,000 of liquidity. This liquidity is comprised of approximately $1,000,000,000 of global cash, including the $300,000,000 revolver draw and roughly $400,000,000 of remaining revolver capacity. In regards to covenants, our maintenance covenant limit of 2 times senior secured net leverage affords us significant cushion. As I said on the fourth quarter call, we have well balanced and space maturities across our entire debt structure. We have no near term maturities of senior debt. Our nearest maturity is not until 2023 followed by another set of maturities in 2025. Again, a very well balanced and space set of maturity towers with no near term implications for our liquidity. I'll now turn the call over to Mark Newman, cover our segment results. Thanks Sameer, and good morning, everyone. Before I cover the businesses, I would like to take a moment to thank every Kenmore's leader and team member for rising to the challenges we face since the COVID 19 pandemic started. I'm proud of the fact that we have not missed a beat serving our customers and for the contributions our people have made locally. We have donated thousands of masks, gloves, protective suits, and laptops to first responders in the communities where we operate. It is a true demonstration of the spirit of Chemours and proof that we are indeed all in this together. As it relates to our businesses, let's start with floral products on Chart 9. Among our segments, Fluora products was the most impacted by COVID 19 in the quarter. 1st quarter Fluora products sales reflect lower volume across a number of Fluorochemical and Fluoropolymer product lines. Auto and other end market demand weakened significantly late in the quarter, reducing demand for both refrigerants and fluoropolymers, which they're used in the fabrication of many components. On the stationary refrigerants front, We continue to work with regulators in Europe on measures to control the amount of illegal imports into Europe. But at least through the first quarter have yet to see significant progress. Pricing in the segment was a 4% headwind driven by HFC illegal imports into the EU and a slight decline in global refrigerant prices. Adjusted EBITDA for the first quarter came in at $140,000,000, down $19,000,000 from the same period in 2019. This result also reflects the impact of lower F gas quota sales in the quarter. However, these headwinds were partially offset by improved operating performance across all our manufacturing facilities. And the ramp up of our Corpus Christi facility. Given the current status We anticipate continued weakness during reduced unit volume across North America, Europe, and Asia. This will have an outsized impact on Opteon volumes specifically one of our highest margin and highest growth product lines. We also expect there to be some impact to our Fluoropolymer volumes Going into applications such as electronics, industrial goods, oil and gas, and aerospace. We will be demand. Finally, I wanted to mention some of the good work we have underway to support fight against COVID 19. Our Fluoropolymers have some very unique properties, which make them ideally suited for emerging medical applications. We have been working on helping our customers fast track new and expanded applications including the use of our floral polymers in testing kits, barrier coatings on non woven fabrics to protect healthcare workers, and membrane technology used to ensure cleanliness and material for gaskets that increase the durability of life saving ventilators. I'm proud of the work that our teams are doing to help support new material development and novel applications in this arena. We look forward 10, let's cover results from our Chemical Solutions segment. We exited 2019 with some momentum here across our mining solutions, and PC and I product lines. However, as the first quarter progressed, mine closures across the Americas driven in part by COVID 19 have impacted volumes and spot pricing. North America demand for many of our C and I products declined in the second half of the first quarter as well. 1st quarter revenue was $92,000,000, reflecting lower revenue from the MAP business, which we sold at the end of 2019 and weaker market conditions I just mentioned. However, better operating performance and cost saving measures enacted in the quarter enabled the business to hold adjusted EBITDA flat on a year over year We remain very well positioned with our mining solutions business in North America, but are facing some uncertainty with mine closures and overall demand pattern shifts occurring as a result of COVID 19 and in spite of gold prices being up significantly year to date. Our focus for the balance minimizing costs and ensuring solid operational performance. Moving to Chart 11, I'll cover our Titanium Technologies segment. Sales of $613,000,000 were up 10% compared to last year's performance. 19% higher volumes in the quarter were driven by steady demand across all regions and additional share regain mainly in plastics and laminates markets. On a year over year basis, price was down 8%. Overall revenue was higher on a sequential basis as volume gains offset a modest 2% decline in price. In the first quarter, adjusted EBITDA of $138,000,000 translated into an adjusted EBITDA margin of 23%. Margins improved sequentially from 19% to 23%, reflecting the benefit of better fixed cost absorption across the circuit due to higher production. As we look ahead, it is increasingly difficult to forecast Tier 2 demand over the next two quarters, normally our peak volume period in the year. Coding's demand will likely be supported by the DIY and residential repaint markets in the early part of the spring, with real estate transactions and new build activity slowing due to COVID 19. Automobile and capital goods will likely lag as well given pressure on consumers disposable income and credit strain. We are actively monitoring our customer demand needs and our own supply chain to adjust to any demand changes as we move through portfolio and type your value stabilization offer. All value propositions which will appeal to different market segments and especially in these challenging times. Our AVA contracts offer benefits from enhanced working capital management alongside supply reliability, once market demand recovery begins with predictable prices. Flex gives our customers web based access to lock in predictable pricing over the next 6 months. And distribution continues to be our preferred method of reaching customers with small volumes or in geographies not available through AVA or Flex. These unique channels are all backed by our world class plant operations, flexible supply chain and the highest quality chloride pigment on the market today. With that, Turning to the last chart, As I said at the start of the call, we have a very simple form to spread of COVID 19 throughout the company by enacting strong safety protocols across all our offices, laboratories and manufacturing facilities. Our employees' health has by and large not been impacted by COVID-nineteen and we will continue to be proactive to ensure the health safety and well-being of our people. The health and safety of our workforce enables us to provide supply continuity to our customers supply chain enables us to manage through any near term disruption. Chemours is operating well and we will stand by our customers throughout this crisis. We believe this we believe in the strength of we believe that we've taken prudent measures to preserve financial flexibility. With $1,400,000,000 of liquidity, including $1,000,000,000 of cash on hand, we are well capitalized heading into the remainder of 2020. We have no near term maturities and have sufficient covenant headroom. Finally, we are acting prudently to reinforce the financial strength of Chemours. Including immediate actions that will reduce costs by $160,000,000 and CapEx by $125,000,000 in 2020. COVID19 will present a rapidly changing economic environment dictated by health challenges, go out to those affected by this virus. Chemours and our nearly 7000 employees stand ready to serve our customers render aid in our communities around the world and assist in the fight against COVID-nineteen. With that, please open up the line for questions. The first response is from John McNulty from BMO Capital Markets. Please go ahead. Hey, good morning guys. This is Colton Bean on for John. Good morning. On the 2% sequential decline in TiO2 pricing, can you talk a little bit on how much of that was product or selling platform mix versus how much of it was actual apples to apples price cuts? Yes, that was almost entirely mix. For us in terms of when you look at our most likely channel mix as well as a little bit of regional mix, but it was fundamentally all mix. Okay, great. Great. That's helpful. And second, I'd love to hear a little bit just on what you're seeing on the feedstock side and kind of what your core outlook is going forward. Yes. So right now, we're not seeing a whole lot of change in feedstocks as you all know, high grade ore got a little bit tight in the fourth quarter of last year continuing into this year. Obviously, it's going to be dependent on demand going forward, but we're not seeing a significant change from an or cost perspective at this point. And Again, as we've said to everyone before, we're really set in our inventory in terms of what we need to buy and what we need to sell. So from that standpoint, we feel very confident that we're not going to see any kind of perturbation from an or cost standpoint to us. But I would guess if I had to put a guess in and maybe if Mark Newman wants to to add to this, he can, but I would say we don't anticipate much fluctuation in the ore pricing market. Agree, Mark. We're well well situated, you know, with our Orbi for this year. We had good inventory levels coming into the year. So I I think we're we're not seeing a lot of or inflation here in this environment. All right. All right. Thanks guys. Thank you. Thank you. Your next response is from Bob Koort of Goldman Sachs. Please go ahead. Thank you. Mark, I wanted to ask on the litigation front, you guys had a couple of cases tried in the first quarter. And I guess the good news you had one that wasn't awarded and the bad is another that was, but maybe at a level a lot higher than we saw a few years back. So Can you sort of talk us through the decision tree in the path forward there? And I guess the next round has been deferred until August, but what kind of projects might we expect on some resolution there? Yes, Bob. I guess first of all, as you said, we had 2 cases that were, tribe, 1, which was, basically a hung journey journey and the other one, which was an amount given to us or in DuPont. Number one is we're going through the process of appeal on that. We think we have very strong appeal points. First, we have to go to the judge and then we go to the to the circuit for the appeals side of that. And again, we have tremendous appeal points there. And as you said, the next set of trials won't be up until August 1st. They were originally scheduled for June and those got moved to August. So we'll continue to work through that process. As we always have. I know some folks have talked about potential settlement. These things always have potential settlement. So we'll continue to go down that path. But right now, we are very focused on the appeal points and getting ready for the next set of trials. All right. On the ABA contracts, I'm just curious, how those held in light of where you initially established those with your biggest customers a couple of years back now. And should we still expect pricing for that kind of volume to be indexed to PPI or some other sort of macro inflation? Yes, that's the way they're set up. Bob, these contracts have really worked as we always said. They worked best. It seemed our coating customers. And they have worked extremely well, especially when you get into a situation like we're in now with COVID-nineteen, because people know what their price point is. They don't have to buy beyond what their needs are because we hold that inventory and they also bind based on their share. So if the demand goes down like we're seeing right now with the world demand going down on everything, because no one's buying anything from a consumer standpoint, you know, they don't have to meet some kind of a level of, an arbitrary level of volume. They meet a share value that was based on what they're selling. So we think that actually the AVA contracts work we extremely well for our customers right now. And I know they felt the same way so far. But to your specific question, yes, they will adjust off of the PPI values that we had set before twice a year. Great. Appreciate it. Thank you. Your next response is from Josh Spector from UBS. Please go ahead. Hey guys, thanks for taking my question. Just wondering within Fluoroproducts within the portfolio, can you provide any color on perhaps the volume difference between chemicals and polymers in terms of what you saw last quarter and maybe if there are any differences between early in the quarter late in the quarter? Yes, let me get started, Josh, and then Mark can give you a little bit more color. I'd say that when you look at Fluoroproduct and as you said, you think of the Fchem side, the Fluorochemical side, primarily refrigerants. And right now, Opteon being the driver there is going in automotive. Automotive really slowed down toward the end of the first quarter. As you saw production facilities, auto production facilities in Europe and in the U. S. Really slow down. Or stop, in some cases, they've really shut down auto manufacturing in Japan and in U. S. And in Europe. So by the end of the quarter, you saw it drop significantly on our Opteon volume. I'd say the opposite on our fluoropolymer side. Fluoropolymers which the 2 primary places, floor polymers go is going to be into either automotive or into electronics. Automotive was semi week to start with and it slowed down toward the end of the quarter. Electronics was weak early primarily because a lot of our customers are in Asia. And Asia was in the midst of the COVID-nineteen epidemic. So from that standpoint, that was really slow, but that started to pick up toward the end of the quarter. So you sort of saw 2 crossing curves, if you will, across those. Mark, I don't know if you want to add any more color to that. So so, Mark, I I just to build on what you said, I'd say the overall volume impact was was somewhat similar between the two. But the shape in the quarter was quite different. You know, we started to see the impact of COVID 19 in Asia. Which I think had a more pronounced impact on polymers. But towards the end of the quarter, we saw a recovery. We start we started to see stronger order book pickup as Asia started to, come back on, especially in semicon. As you pointed out, on the refrigerant business, especially Opteon YF, we really started see the shutdown of assembly plants in Europe and then North America in the second half of March. And, you know, that that'll, you know, carry on into 2nd quarter. So I'd say going forward the impact on on, on refrigerants is going to be higher in second quarter. But in Q1, they were quite the same, but with very different shape in the quarter. Thanks. That's helpful. And then maybe just stick on volume, but on the TiO2 side, I mean, I know there's a lot of uncertainty. Some of your competitors have talked about 2Q volumes down maybe 15%, 20% yours are kind of tougher to estimate given the share gain being a factor. Can you provide any kind of range or thoughts about how you're thinking about volumes next quarter? Yes. So as we think of, I think it's probably more helpful to think of volume on a sequential basis, you know, relative to, you know, where we came out in in Q1. You know, obviously, we see very strong or resilient activity in DIY in plastics. But, you know, the construction it is is has been impacted here as we go into Q2. So my expectation is, you know, visavisqone we would see our volumes being down slightly on a sequential basis. Yes, Josh, I think just to add to Mark's point, I think it's important to note that, the architectural coating producers who had really good access to DIY. I think really performed well. And so you saw that in the first quarter. Hopefully, we'll continue to see that in the 2nd quarter. And on the plastics side, that seems to be an area as Mark said of strength, but if you look at, I think TZMI just came out with some new data that says they think that the total volume is going to be down in the 10% to 15% for the year, we're anticipating a little bit, as Mark said, a little bit weaker second quarter going forward. Great. Thanks. Thank you. Your next response is from Duffy Fischer of Barclays. Please go ahead. Yes, good morning. Question on the Fluoro segment. Could you help walk us through just what you've seen in volumes on the polymer and the gasses side there, is there a lot of people going into autos? I mean, some people are talking volumes down 40 or percent in May, April and May. So what have you kind of seen quarter to date there And when do you see an inflection as you're talking with your customers? Do you think things start to get better in June? Yeah, Duffy, if you think about these in separate pieces, because, you got to think about refrigerants very separately. Because opteon with the issues that we're still working through in Europe with stationary, opteon going into stationary applications with the illegal imports, the bulk of Opteon sales is in automotive. And so until you see these automotive production facilities restart in Japan and in US and in Europe, it's going to be weak. You know, I think that the numbers that are out there are somewhere between 40% 50% reduction in automotive volumes that people are seeing. And I would say that's right in line with what we're seeing from a standpoint of the refrigerant side going into, going into automotive. The refrigerants normally you would see a second quarter pickup because that's when you see restocking outside of automotive just restocking getting ready for summer in the northern hemisphere. That seems to be slower. Right now than what we normally would see from that standpoint. And then when you shift over to the polymer side, again, still seeing weakness on the automotive side for all the reasons we just said on Opteon, but we are seeing some pickup on the semicon portion, especially in Asia. Where that's been very big positive as Asia has sort of come out of this pandemic and restarted a lot of the semiconductor facilities where we are a big supplier as you guys probably know from the equipment side of that. So I can't give you a date when I think that's going to turn around. I think the thing to watch is going to be when auto manufacturers restart. I think that's going to be the big delta that's going to change things going forward. Okay. And then once we kind of put our guesstimate on where volumes end up, how should we think about decremental margins on the two floral halves whether volumes are down 10% or 15% or 20%. What's the decremental pattern and does decrement or do decrementals get worse as volume draw further? Yes. So Duffy, it's Mark Newman. The way I think about it is we're going to approach We're gonna run the business as we go through q 2 with a strong focus on cash generation. So obviously, you know, that our refrigerant business is a high margin business. So I think you have a pretty good sense of the variable margins on refrigerants. The way I think the way you should think about the impact on an earnings perspective is if we're running the business for cash, you know, we're going to, we're going to be very thoughtful as to, you know, how much product we build into inventory. In the second quarter. And and so I just encourage you to think about the fact that, you know, you know, the earnings impact could be a little bit higher than the sort of pure decremental margin analysis. But we're going to be thinking of business for cash And then being ready, as Mark said, on the recovery, you know, as we go through the quarter, to to pick up where we left off in Q1, with very strong operating performance. I don't know if you noticed in the quarter, a very significant improvement in both operating and cost performance in our Fluoro business, which will be there for us as we come out of the recovery. So in a way we are thinking about it is Q2 fairly large dislocation in volume from automotive. We're going to deal with it. We're going to be thoughtful about preserving and running the business for cash. And then we're going to be ready with really strong ops to ramp up as our automotive customers ramp up globally? Yes, Duffy, to Mark's point, we've said last year that we had some significant operating problems floral side. And I give Mark Newman as well as Ed Sparks, a lot of credit. They worked hard with their teams, to really fix those. So we were operating extremely well coming out of 4th quarter. We operated extremely well in the first quarter. We've always said you should think of the floral business in the in the mid-20s from a margin perspective and we were in that range for the first quarter. But as Mark said, we're not going to build excess inventory. And until production facilities of automotive ramps up, we don't have there's no need for us to to build excess inventory. We'll have the right inventory for our customers. So we're ready for them when they need it, but we don't need extra inventory. So if we're taking idle mill costs, for instance, in the second quarter. We do that because we want to be in a better position for the rest of the year versus just having high priced inventory that's going to flow through the system all year long. Thank you. Your next response is from Don Carson of Susquehanna. Please go ahead. Thank you. It's Sandy Klugman on for Don. First question, what were your TiO2 operating rates in Q1? And what are the company's expectations for Q2? Yes. Go ahead, Mark. Yes. I just said, we saw, as we said in the in the materials we saw better operating results, operating rates in the quarter coming out of Q3. You'll see our EBITDA margin improved sequentially from 19% to 23%. So, you know, I think, you know, we're seeing better operating rates across our fleet. Obviously, you know, we still have the ability to produce more as, as you know, as demand increases and consistent with, you know, our our market share being more in line with our capacity share over time. Go ahead, Sandy. I'm sorry. No, no, no, no, continue. No, I was just going to say to Mark's point, we try to balance our production facilities in terms of the demand. So it's really going to be dependent on what we see as demand going forward. From that standpoint. As you guys know, we have some flexibility in our grade of how we operate those, but we'll do it smart and we'll try to maintain the right operating rates depending on what the demand picture is in the flexibility that we have in those assets. Okay. Thank you. I appreciate the insight. And then moving to the balance sheet, are there any key covenants that investors should be aware of? And it's difference does the company currently have? Yes. And this is Sameer. I'll take this one. Essentially, when you look at our the credit facility as we outlined on in our presentation, yes, we do have a maintenance covenant, but we have room that's available on the covenant. So, yeah, we feel pretty good about where we are from a covenant flexibility point of view. Okay. Thank you. And just final question. Have you seen a reduction of Chinese refrigerant exports into the EU, just given the region's shipping constraints? In Q1? Yes, it's been hard for us to gauge that perfectly. I would say that most likely that has been the case. But, as you know, everything in China was way down in the beginning of the year. Production as well as exports. You know, I think that, as China has started to ramp up, their consumption inside the country has been slower. So I'm sure that there's some level of exports that are continuing as well. But I think it's really too early right now to see that. We haven't seen the statistics that normally would come out because all that's been delayed with the pandemic as well. So my anticipation is probably lower, but we'll see. Thank you very much. Thank you. Your next response is from Lawrence Alexander from Jefferies. Please go ahead. Hi, this is Adam Yves on for Lawrence today. I was wondering in regard to a legal comport of 8 refrigerants, are you seeing like any impact from the coronavirus there or anything that would change your outlook? So as Mark said on the prior question, early in the quarter, we did see some issues with the supply chain coming out of China, across refrigerants. But sitting here today, you know, certainly it feels like China is coming back online. What I would say to you is overall we have not seen any further deterioration, in in the refrigerant business in Europe. Versus what we saw last year. Obviously, there's some practical limitations in terms of the field work curtailing illegal imports with a lockdown in COVID-nineteen. But overall, what I'd say is, we have not seen any any further, deterioration in our refrigerant business in Europe. I'd also point to the quarter you know, when you look at our our fluoro results, we're down 19,000,000 year over year. But that's with a delta of $21,000,000 in quota sales last year versus this year. So I'd say quota sales in terms of the in spite of that quarter sale headwind, you know, you know, our results are reflecting, I would say, pretty significant cost and operational improvement and the impact, as we said earlier, of some COVID-nineteen impact on both our polymer and our refrigerant business. So overall, we're quite happy with the results in the quarter based on cost and operating performance really offsetting the quota impact and the COVID-nineteen impact on our results. Okay. Thank you. That's very helpful. And then my second question, I was just wondering if you could provide a little bit more color on the 19% volume increase in TiO2. I was wondering how much of this is, gaining market share versus demand and where our volumes sequentially? Yes. So, maybe I'll start and Mark can give you the detail, a little bit better on that, Adam. But I'd say that when you look at it, we've gained we believe we'll see. We think we gained some share, again, primarily in the Platts and laminate area where we had lost the most of our share from that standpoint. And those are primarily driven off of Asia and Europe. You think about it from that standpoint. So if you look at where, year on year volume increases occurred, that would probably be where where we saw the biggest increase. So think about areas where we lost share a year ago is probably where we gained the most share this year from that standpoint. And then sequential volume, was a slight increase from fourth quarter to 1st quarter. As well. Mark, I don't know if you want to add anything to that. Yes. Sequential volume up about 2% And I'd say, just to echo, the comments Mark made is, we've been regaining share, starting in the second half of twenty nineteen, with a focus really on plastic and more recently on laminates. I'd also highlight that from a channel perspective, you know, been very, you know, leveraging our Flex E Commerce portfolio, which is a big value add to our consumers in terms of how they plan their purchases. And I'd say probably from a regional perspective, probably saw a little bit more strength in Asia. Again, we've been seeing strength in the plastics business globally. With a lot of packaging, related to, you know, somewhat related to COVID-nineteen. So I'd say you know, we're regaining share in areas where we'd lost it. We're leveraging our Flex channel, which is really helpful in terms of price discovery as well as understanding customers order patterns. And that's been really helpful for us. Thank you very much. Thank you. Your next response is from Vincent Andrews of Morgan Stanley. Please go ahead. It's actually Steve Haynes on for Vincent. Wanted to come back to TiO2 volumes and a comment you made, I think, in a response to an earlier question. About volume kind of being sequentially down slightly, in the second quarter. So I wanted to kind of help bridge that versus what some of your Coding's customers have been saying where they're pointing to, you know, pretty significant volume declines, for the second quarter. So I guess maybe if you could split apart like how April has been versus maybe May June, in terms applications for May June would be helpful for us to understand? Yes. So I would say that right now, we would say that it's going to be down versus the first quarter based on what we're seeing now. I'd say April was fairly anemic, if you will, where I think we've seen some strengthening that's happening. But it's we're now starting to see this is pure demand that's coming downstream, right? So remember, we're really reacting at this point from demand point of view. So I know we've talked a lot about market share gains from last year. And we've been on a steady path of trying to gain share getting back to what we believe is our capacity share goals We had said we'd try to do that by the end of 2020. But with the pandemic in place, we're not going to be pushing that beyond what it needs to be. So that might take us into 2021 before we can get to those right gains of market share. So I'd say the volume in the second quarter is going to be very much dependent on what demand is downstream. And right now, we're seeing a little bit weaker of a demand signal. So Is that in the low single digits? Is that in the low double digits? I think we'll see. It's just a little bit too early to tell. As I said, the quarter started off slow. We've seen it pick up a little bit. But I think May will May June are really going to be telling for for the quarter. And to be honest with you, Adam, I think June is going to tell us what this quarter is going to look like from a volume perspective on the TiO2 side. Yeah, Mark, the only thing I'd add is, is there's just a lot of uncertainty here as, you know, we go into the second part of the quarter. And we'll, you know, we'll have to just wait and see. Thank you. Your next response is from TJ Juvekar of Citi. Please go ahead. Hi, good morning, Mark. It's Eric Petrie. Hey, Eric. How do you view TiO2 fundamentals currently compared to prior down cycles? And do you think recovery is slower as pricing has been more stable preventing capacity reductions in the past cycles? Yeah. I'll give you my initial thoughts. Mark might have some additional color to add to it. But I would say, Eric, that very different from past cycles, you're coming out of a down cycle, right, as we went into this pandemic. So As you look at last year, I'd say we were we had bottomed out of the destocking period. And remember, this is probably one of the largest, I think the 2nd largest talking event that this industry had seen. So we were seeing the end of that. We were starting to come out of it in the 3rd fourth quarter and then we were feeling good going into the year and then all of a sudden the pandemic hit. So I think you're in a very different situation in that at least to the start of this downturn from the pandemic or demand, think of it as a demand slowdown because of the pandemic. You probably were in a very different situation. You have prices which were fairly stable. And you also have the fact that there probably wasn't excess inventory, the destocking period had sort of run its course. Now what you're going to have on the back end of this is going to be some levels of stimulus. And this industry has responded extremely well to stimulus. It's a GDP driven industry and stimulus usually uplifts GDP if you will. And so especially in the construction sector. So I think what you're going to see is when things start turning around when demand starts coming back, when people are buying again, and when stimulus kicks in, I think that there's an upside to this that's going to happen at the at the back end and it's not coming off of the the peak and it's not coming off of a absolute trough. It's coming off of an area of a curve that's starting to turn up before you hit this whole pandemic side. Helpful. Thank you. And then on the Fluor Products business, you prior commented that you expected full op on conversion for the auto OEM by 2021 in the U. S. And Japan by 2023. Did those still hold or has that changed a bit given production cutbacks? Yes, our anticipation, those still hold. Thank you. Thank you. Your next response is from Jim Sheehan of SunTrust Robinson. Please go ahead. Good morning. This is Pete Osterland on for Jim. Just a question on TiO2. Given that volumes were up a bit sequentially in the first quarter, but then expected to be down in the 2nd quarter. Do you expect that margins next quarter will revert closer to what they in the fourth quarter, kind of at that under 20% level? Or is there anything you're doing on the operational front that could reduce the margin impact there? Yeah. We typically don't guide quarter by quarter in terms of margin. As we said earlier, we're going to be very thoughtful as to our market approach, to the point Mark made earlier, we've been gaining share here as we move forward in time. But in light of some of the demand impact in the quarter, we're going to be very thoughtful as to how we approach the marketplace. In terms of production, you know, we continue to, you know, look at ways to meet customer needs, you know, giving the flexibility of our operating fleet globally. And you know, that will be our primary driver in the quarter. Thank you. Thank you. Your last question comes from Arun Fitz Swappening. Please go ahead. Thanks for taking my question. I'm just curious what you discussed some of the order patterns. I'm just curious when you look out into Q3 and Q4, you had some price increases on the table. Do you still expect, any potential success there in TiO2, just given the recent situation? Thanks. Yeah. I would say, Arun, we don't have a real good picture of what's going on in the rest of the year. That's why we suspended our guidance from this point. I think it's a little bit foggy from a demand point of view. Obviously, our contract our AVA contracts are set. So we know what pricing is going to be on the TiO2 side from the AVA contract side. At least what was in the portal for us on our Flex portal had higher prices later in the year than earlier in the year. But we'll, the beauty of that portal is that you can adjust that as you see fit in terms of what we're trying to get done. So This, I think the best way to think about this industry, specifically the TiO2 industry right now, is going to be demand is going to drive a lot of things right now. So I don't think you're going to it's not about capacity coming on board. It's not about a bunch of supply. It's really going to be what demand looks like. And I think at this point in time, It's very hard for us to predict what demand is going to be in the second half of the year, which is why we withdrew guidance from that standpoint. Great. Thanks. And then I was just curious, when you look at supply demand, there was some inroads by some competitors in the last couple of years from China. And I guess would you expect that to continue And, I mean, meaning that, you know, maybe those those players are taking share or, in this environment, maybe given that there's somewhat be less financially flexible. Was there an opportunity for you guys to actually regain some of that share back? Thanks. Yes. Well, we're going to continue our path on regaining share. As I said, we're going to be smart about that, going forward. And If we're in a lower demand period, we're not going to, we're not going to cause any issues in the marketplace from that standpoint. Will drive the right behaviors that we need to do. But from a standpoint, there's a slight dislocation, I think, going on in China. Where you had very low demand in the first quarter of the year. And so that's why I think you saw the export numbers probably a little bit higher. As demand raises up in China, I think that'll stabilize. So I think that's more of a function of demand in China than suppliers trying to move product somewhere. So again, demand is going to drive this, this whole industry. And and the demand picture is going to be very very interesting to watch and something we're going to stay very close to. Thank you. At this time, there are no further questions. I would now like to turn the call back over to Mark Verganano, President and CEO of Kamore. Please go ahead. Thank you, Ditamara. And thanks everyone for joining. I don't think I ever imagined myself saying this. But I really miss seeing you guys. So I'm hopeful that we're going to be able to get together at some point. Until then, I hope you all stay safe I hope you all stay healthy and thank you as always for your support of the Chemours Company. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.