Earnings Call: Q1 2019

May 3, 2019

Good morning. My name is Jessa and I will be your conference operator today. At this time, I would like to welcome everyone to the Chemours Company First Quarter 2019 Earnings Conference Call. Call. Thank you. Mr. Jonathan Locke, Vice President, Corporate Development And Investor Relations you may begin your conference. Good morning. Welcome to the Chemours Company's 1st Quarter 2019 Earnings Conference Call. I'm joined today by Mark Vergnano, President and Chief Executive Officer and Mark Newman, 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 those 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 the future events that may not be realized. Actual results may differ and Kmoore's undertakes no duty to update any forward looking statements as a result 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 gap terms and adjustments are included in our release and at the end of this presentation. I will now turn the call over to Mark Vergnano, who will review the highlights from the quarter. Mark? Thanks, Jonathan. Good morning everyone and thank you for joining us today. Our results in the first quarter of 2019 were consistent with our anticipated softer start to the year. Unfortunately, expected weak TiO2 demand was compounded by a number of one off operating issues, primarily in our Fluoro Products segment, which negatively impacted our performance. Our year over year financial results declined from a record Q1 In the quarter, we celebrated the global launch of our Flex portal, a completely reimagined internet based buying experience for Ti Pure pigment. We are now live in 100 countries in 9 different languages and we believe that our Flex channel now provides customers with an easy way to buy from Chemours and gives them supply chain options to complement our ADA contracts. Opteon volume remains strong overall led by continued growth in mobile air conditioning applications primarily due to continued growth of legacy refrigerants circumventing EUF gas rules and slowing down adoption of opteon blends in European stationery applications. We continue to see results come through our Fluoropolymers application development pipeline and look forward to sharing including unplanned downtime at our Louisville facility due to an operating error and startup issues related to Corpus Christie in the first quarter. At Chemours, we have prided ourselves on our operational execution, which makes these issues disappointing for us. I'll speak more to During the first quarter, executed our recently increased share repurchase authorization. Since the beginning of our share repurchase program in 2017, Kamors has repurchased over $1,000,000,000 worth of shares, representing 13% of shares outstanding since spin. Looking ahead to the full year, We continue to monitor trade and economic macros, but having spent significant time recently with our customers I have seen green shoots across the globe. We continue to believe that 2019 will be a tale of 2 halves. As our market share returns in titanium technologies on the strength of tighter markets for chloride TiO2 and we put our operating issues behind us in Fluoroproducts. Each and every day, our teams are diligently executing against our strategies to deliver TBS hand in hand with our Ti Pure customers continuing to grow Opteon on the back of its unique market position and drive application development for our world class fluoropolymers. Together these strategies are designed to maximize the value of our class leading chemicals franchises and when combined with a disciplined approach to capital allocation, increase the value of Chemours overall. With that, I'll now turn the call over to Mark Newman to cover our first quarter financial results in more detail. I'll be back to discuss our segment results prior to opening the call As Mark mentioned, our results in the first quarter reflect some expected and unexpected challenges across our business. Sales declined 20% from the prior year period, reflecting the significant impact of lower volumes of Ti Pure TiO2 pigment. GAAP net income declined to $94,000,000 in Q1 of 2019 with adjusted net income of $109,000,000. GAAP EPS of $0.55 per share and adjusted EPS of $0.63 per share reflected lower earnings offset by a reduced share count. Adjusted EBITDA of $262,000,000 reflects the impact of lower fixed cost absorption across titanium technologies given lower type pure pigment volume, and costs related to operating and startup issues at 2 of our floral products plants. Our adjusted EBITDA margin in the first quarter was 19%. Free cash flow was negative in the quarter, driven by weak Q1 Ti Pure pigment sales. Our pre tax ROIC was opportunities across the portfolio, including our investment in TBS, which we believe will generate long term excess returns. Turning to the next slide we delivered $262,000,000 of adjusted EBITDA in the quarter versus $468,000,000 in the prior year quarter. Stable to higher global average selling prices across all businesses in the first quarter resulted in a modest gain versus the prior year period lower type pure pigment volumes and lower refrigerant sales, which we believe are attributable to illegal EU imports of legacy refrigerants, resulted in $184,000,000 decrease in adjusted EBITDA in the quarter. Currency was a modest headwind. We expect currency to be a sustained headwind for the business throughout the balance of 20.19 as we lap a strong year for the U. S. Dollar. Finally, we experienced operating issues in our Fluoro Products segment which increased costs by approximately $33,000,000. These were partially offset by quota sales reflected in other income in the quarter. The majority of the operating at our Louisville facility, which is a key monomer supply source for our Fluoropolymer circuit. Moving to the adjusted EPS bridge on slide 6, consistent with the lower earnings from the previous chart adjusted EPS declined to $0.63 per share in the first quarter of 2019, from $1.41 per share in the first quarter of 2018. This decline was driven by lower adjusted net income of $0.83 per share offset by lower share count driven by our share repurchase program. Our adjusted effective tax rate in the quarter was 19% versus 23% for last year's first quarter, reflecting our geographic mix of earnings. The impact share repurchase activity. Turning to the next chart where we discuss liquidity, with a strong balance sheet heading into 2019, we were able to opportunistically execute on our share repurchase program. Fund the working capital needs of the business and execute strategic investments despite the slow start in our TiO2 and refrigerants business. Our cash at the end of the first quarter was approximately $700,000,000. This includes the use of $44,000,000 for operating purposes and $133,000,000 of CapEx investment across the portfolio. We returned $297,000,000 to shareholders in the form of share purchases and dividends in the quarter. This included a regular cash dividend of $0.25 per common share and $255,000,000 of cash used to repurchase shares. As a reminder, of $261,000,000 as some share repurchases late in the quarter settled in the subsequent quarter. In addition, after the close of the quarter through May 1, we have repurchased an additional $53,000,000 of shares. Resulted in a total year to date repurchase amount of $314,000,000 and leaving approximately $435,000,000 under first quarter stood at approximately $3,300,000,000, which translates into a net leverage ratio of approximately 2.1 times on a trailing 12 month basis. After the close of the first quarter we executed a $75,000,000 draw on our 800,000,000 revolving credit facility for general corporate purposes. In total, we feel comfortable with our liquidity position and our overall capital structure. Before turning things over to Mark, I'd like to briefly recap our share repurchase activity to date. A track record as CFO, which I am proud of. In total, including April, we have repurchased approximately 25,000,000 shares since spin. Representing a 14% reduction in shares originally issued shares issued on the stock based compensation programs. We remain fully committed to returning the majority and believe that a prudent capital allocation strategy is the best means of creating long term shareholder value. I will now turn things over to Mark Turning to our Fluoroproducts segment on the next slide, we generated $687,000,000 of sales in the quarter down 6% year over year. Pricing across the segment was flat with a 2% headwind from currency. Lower volumes in the quarter were driven primarily by illegal imports of legacy refrigerants into the EU. Impacting Opteon stationary refrigerant sales. We also experienced lower base refrigerant sales in North America in the first quarter on weak market conditions. We are working with public and private parties in Europe to address enforcement of the quota system. We are also actively coordinating country specific activities to curtail illegal imports and deter future illicit trade in refrigerants. Our first quarter adjusted EBITDA decreased by $47,000,000 when compared to last year. We experienced increased costs related to operating issues, including the startup of our new Opteon refrigerants facility in Corpus Christi. While startup issues are not uncommon for a large and complex chemical plant such as this, we are pushing ourselves hard to find solutions and get the plan on the right ramp up trajectory we had an unplanned outage at our Louisville, Kentucky facility in March, which was caused by an We corrected the issue, took I'm relieved to report of Opteon refrigerants for mobile applications continues to be a bright spot in Fluor products. U. S. Adoption drove year over year growth despite the slowdown in global auto builds. Form conversions in the 2021. We are starting to see some adoption in Asia as well and expect this to become more pronounced as we move ahead. As we look ahead to the rest of 2019, we expect results to improve in the second half as we lead behind the slow start of the year. We expect to see continued adoption of Opteon refrigerants in both mobile and stationary applications, fluoropolymers growth driven by application development and the end to but believe that secular tailwinds such as 5g, alternative energy and global demand for low GWP and refrigerants provide the right conditions Sales in the first quarter were $134,000,000. Volumes were lower year over year, driven by reduced contractual sales in Performance Chemicals And Intermediates, slightly offset by higher sales in Mining Solutions. The segment generated $15,000,000 of adjusted EBITDA in the quarter, up 36% from the first quarter of 2018, reflecting the impact of previously communicated price increases. We anticipate 2019 as our customers continue to see tremendous value in our product offerings. Our current mining solutions facility remains sold out. With tight market conditions in the Americas. At our Laguna Mining Solutions Facility will be restarted in time to produce commercially ready product in 2019. We will of course provide an update when our outlook for the Laguna facility changes. Long term, we are confident that our Chemical Solutions segment can continue to be a source of growth and value for Chemours as we optimize Sales of $555,000,000 were below last year's record first quarter performance. Pricing was stable on both a year over year and a sequential basis. Pricing stability was more than offset by lower volume, seasonably weak demand, particularly in Europe, which served to amplify the share loss, which we had spoken to on our last earnings call. We expect the trend of lower volumes will persist through the first half of the year Given the softer demand experience in the quarter, we reduced production and finished product inventory. We remain focused on the inventory management to align production with customer demand. Translated into an adjusted EBITDA margin we celebrated a totally reimagined internet based buying experience for our TT customers. On Ti PureFlex, customers can fill their Ti Pure TiO2 needs up to 6 months in advance with locked in prices. The Ti Pure Flex portal is now live in Despite the slower start to the year as we look to the second half of twenty nineteen, we anticipate demand for Ti Pure Pigment to return to more normalized levels based on improving underlying market conditions. Confident that we will see improved structure and become familiar with our Ti Pure Flex portal. We believe that our recent share loss will begin to reverse as the supply demand balance tightens over the coming quarters. We remain committed to installing our Ti Pure Value stabilization framework across our entire customer base. We believe that this strategy is the best way for us support our our drive and determination to deliver superior profitability over the next three quarters and to finish the year on a stronger note. We have made significant progress We firmly believe that In Fluor products, we will continue to drive Opteon Adoption and convert more of our Fluoropolymer application development pipeline into high return sales dollars. We will fix the operating issues which have impacted profitability here in the first quarter to ensure the full ramp up of our Opteon facility in Corpus Christi, Texas and to ensure the availability of high value fluoropolymers. In titanium Technologies, we will continue to bring customers into our ADA contract structure and those customers will benefit from supply certainty and stable pricing as the market tightens. Ti PureFlex will enable us to serve additional customers and give us new insight into customer our productivity, both in our operations and across all our functions. We can and will do all we can to maximize the profitability first quarter believe that we will still be within the range outlined by the end of the year. Our financial results in the first quarter certainly do not reflect our full potential. But through the year, I believe that they will. As we have demonstrated over the last 3 years, this leadership team is fully engaged on the critical items within our control and is With that, operator, please Your first question comes from the line of Duffy Fischer from Barclays. Please go ahead. Yeah, good morning guys. Question just on the, F Gas quota and the legal imports. There was a report by the EIA. I don't know if you guys participated in that, but have you guys had a chance to look at it? Their statement was thought about 20% of the product going into Europe under quota was the illegal product. Is that a fair number And if it is, will that eventually lead to price down if you can't force it out from legal avenues quickly? Yeah, Duffy, that's probably in the ballpark. It's hard for us to assess exactly how much is coming in. And in fact, if you look at in the U. S. Because they sort of connect to each other. So as Chinese HFCs come into Europe, it obviously brings the price down in Europe number 1. Number 2, it keeps people from driving to adoption over to stationary opteon use faster. And at the same time, the volume that would have been in Europe by Western Producers under a normal scenario starts flowing over to the U. S. And brings price and volume down there. So it's a connected issue here. So from that standpoint, I think we've put a full court press on this. We are very, very focused on getting these illegal imports to stop. We're working with the EU We're working with the individual countries. We're not alone. We have, you know, obviously there's other producers who also have quota in Europe who are just as diligent as we are on this. So we're working together around this, working with trade bodies and industry groups working with the regulators. And I think the I think we've got the awareness very high in the EU and I think they're trying to work toward enforcement as quickly as they can. So I think this is a significant issue, but I also believe that the commission and the individual states now believe a significant issue. And now it's about really trying to drive it out of the, of the EU and also the effect that it's having on the U. S. Okay. And then maybe just 2 quick ones around TiO2. 1, we got your sales volume numbers down 35 roughly how would that compare to your production numbers in Q1? And then, the second one, in your losing, market share, is it that customers are basically cutting how much they're buying from you or is it that you're actually losing full customers that may be harder to get back eventually? Yes. So, in terms of the share, I think where we're if you look at our volume drop, I think it's most significant in Europe and China. So that's where we're seeing it the most. It's it's a little bit hard for us to parse share versus market weakness right now to be very blunt about it. But I would say where we can see share from customer change. It's less coming from the customer than they're not buying anything at all. So I'd say it's a percentage down versus they are dropping us altogether. And then to your first question, which was around the volumes down, it's about the same percentage of in terms of our production. So we're trying to match our production down with what our volumes are. We're trying to work through as you heard, from Mark trying to get the inventories right as well. The finished inventory is correct. And obviously you do that based on production. So I would say they're in the same ballpark production down versus production down. Your next question comes from the line of John McNulty from BMO Capital Markets. Please go ahead. Yeah, good morning. Thanks for taking my question. So with your production levels down in TiO2 about 35%, I mean, it kind of implies you took down single handedly global operating rates down by 3 to 5 percentage points in total. So I guess with that as kind of the math behind it, like how should we think about where the inventory is in terms of the destock and the progression towards getting back to more normal levels for the whole industry? Yeah. So from that, I think what the way we're looking at it, John, is one it's hard for us to say that this is purely a destocking event. Obviously, it's a weaker market at the same time. So What we believe is that, that's why we said we truly believe the second half is going to be a lot stronger than the first half because I think you're going to start seeing this recovery coming out of the second quarter into the second half for those exact reasons. We don't believe that there's enough volume out there that's going to be able to fulfill the needs and the demand that we are predicating into the second half. So we think that's why we have confidence that the second half is going to be stronger for us, than our first half was. Fair enough. And then on the on the refrigerant side, so we've been hearing on the HFC side, the pricing at least in the U. S. In the last month has almost doubled or roughly doubled. Can you kind of speak to what's driving that? And how we should be thinking about how that may impact your earnings as we progress through the year? Yeah, I'll tell you, John, I don't think we're seeing that. So as I mentioned, what we've been seeing is a lot of, price down in Europe and it's sort of flowing over to the U. S. As well. So we have not seen much higher prices in the U. S. So that's a disconnect from what we're seeing right now. Got it. Okay. And then just with regard to the cost impact, that you had in terms of the operating issues, how much of that was tied to exclusively tied to Louisville issues so that we, you know, because sounds like that's pretty much behind us. The Corpus stuff may still drag into 2Q. Maybe give you a little bit more color around that. As you all of you probably know, our our supply chain is is all linked together, right? So we start from the very beginning with fluorspar and you make HF and you make R22 and then that goes to to different places, whether they're on their chemical side or a polymer side. So an aberration somewhere inside of that supply chain can affect other pieces. The Louisville piece primarily was an issue that was going to feed into our polymer side. So The best way to say it is between Louisville and a bit of the corpus issue is about as Mark said $33,000,000 of impact. We're probably going to see a little bit more of that impact in the second quarter as it flows through inventory. So I would assume about $20,000,000 of impact into the second quarter and then we have flushed it through. We sorted out the Louisville issue. The problem is when we have Louisville down for that period of time, We also had to buy materials, to be able to fuel our fluoropolymer side. So that's part of that $33,000,000 that was that was in there. The Corpus side is a little bit different. These are I would call these very typical startup issues. You have failure pumps. You have issues that you're working through. We've worked through most of those. And I'd say we're feeling more confident around that. Think of that as just your typical normal ramp up issues that you sort of get through. And I believe that those will be behind us as our team keeps working those through. But the Louisville issue was the one that probably gave us the consternation around supplying our Fluoropolymers business and having to buy other materials. So $33,000,000 in the first quarter $20,000,000 impact is going to be in the 2nd quarter. It. Thanks very much for the color. Sure. Your next question comes from the line of Laurence Alexander from Jefferies. Please go ahead. Hi, there. 2 quick ones. First, in terms of the, the turn that you or the green shoots, can you sort of be a little bit clearer in terms of are you actually seeing a turn in order momentum already or is it more that you are seeing just an end to the destock? And secondly, on the refrigerant side, is there a change in enforcement practices already happening in Europe that you can point to? Or is it more that there needs to be a change in the policy regime? Yes. On the first one, Lawrence, I think what we're seeing is Europe was really bottomed. And I think we're starting to see more positive activity on the European side on the TiO2. Piece of it. So that's the piece we're seeing. We're hopeful that the stimulus going into China is going to be helpful from the Chinese side. I can't tell you we've seen a lot there yet, but I believe with all that stimulus that's starting to go in, we're going to see that coming up in the second half, but we are seeing some positive signs, including on our order book, from the European piece. On the refrigerant side, we have been working, as I mentioned, hand in hand with the EU We are seeing more enforcement issues. In fact, they cracked down on in Poland. There was specific article about how they have been able to stop some of that leakage in Poland. I believe this as we talk to the EU, this is almost a country by country, state by state issue, you have to work through. So I think the enforcement is going in. I think we've got the right attention at the right place. We continue to do it privately as well of investigating ourselves of trying to be able to find where this is coming in. And then pointing the authorities there as well. So I would say this is all encompassed. We have this very high in our radar screen. And we brought it to the front of the line with the EU as well. So I believe they are now engaging with enforcement. And then given how sharply volumes came down, how much of your business is on value in TiO2 is on value stabilization contracts and how much is through the FlexPer site? Yes. So, from our standpoint, we are, I've always said we want the majority of our volume to be on AVA contracts. We're very close to that. So we're approaching those targets that we set for ABA. And I believe by the end of the year, we'll be there. Flex is just kicking in. And I think it's a new distribution channel for our customers. They're learning about it. They're trying to understand it a little bit better. We see that being picked up every day. And so we have confidence that that is going to start flowing in, but it is a new we have to understand. It is a new experience for our customers that we're trying to walk them through that and make sure they understand it. So if other than a small amount of our product that flows through distribution, if you don't have an ABA contract, the way you have to buy is through flex. There's no other choice, and they're just learning how to do that. And I think getting more comfortable each day around it. Thank you. Your next question comes from the line of Arun Viswanathan from RBC Capital Markets. Please go ahead. Thanks. Good morning. Just trying to understand a little bit of the bridge, I guess, over the next couple of quarters. When you think about, TiO2, obviously, you've been going through destocking for a couple of quarters. Maybe there's been some share loss. Are you guys kind of expecting, you know, price increases to start sticking? And if so, how much you know, do you think that could add? And then similarly on the volume side, do you expect kind of full recovery of the volumes that you've lost over the last three quarters or so? Or And what is that going to depend on? Thanks. Yes. Well, our price is fairly well stable. So in our AVA contracts, we have a price stability inside of that. So really where we have the ability to move price outside of that is going to be in our Flex portal. And we're going to evaluate the market that's the beauty of this portal. We can evaluate the market and decide what we need to do from that standpoint. We have we believe we've lost some share. We had anticipated some of that as we went into this. I don't think we will regain 100 percent of our share by the end of the year, but over the next 18 months, we are very confident that we're going to be able to regain that share. Your next question comes from the line of Vincent Andrews from Morgan Stanley. Please go ahead. Thanks. Could you just talk a little bit about fluoro, it sounds like you're not expecting maybe a little bit of improvement in enforcement in the second quarter, but maybe more in the back half. So what's really baked into, your expectations there as we think about our models for the, for floral for the rest of the year? Yes, I think the way you need to think about fluoro is, so let's start just with the first quarter to give you a sense. In our expectations, we had a very, very strong first quarter last year. So we anticipated, at least from an EBITDA standpoint, we were going to have about equal quarter. Quarter 1 of this year was going to be about equal to quarter 1 of last year in terms of EBITDA. So if you look at the gap that we created in our first quarter versus that, a little bit more than $30,000,000 was from the cost perspective. And I'd say the rest probably was, from the HFC side, whether it's because of the illegal imports or just where the price was from that standpoint. But on everything else, Opteon volume is up in the quarter. Our Fluoropolymers revenue is up in the quarter despite a weaker automotive industry. We're still being able to well offset that with our new adoptions from our pipeline of new applications. So we feel confident about the year in Fluoroproducts going forward And what we now have to offset is because we got these operating issues behind us, we're going to have a little bit of a tail on that in the second quarter. We've got to offset anything to do with these illegal imports within the business and that's what we're focused on doing is we're offsetting that. So Hopefully, that will subside as these enforcements go into play, but we're not just waiting for that. We're trying to find ways to offset that at the same time. Okay. And then just a follow-up on TiO2 in the second quarter. Again, sort of, it sounds like you're expecting some sequential improvement really more coming out of the back half the year. So should we be assuming a volume decline in 2Q, maybe not as bad as 1Q, but still pretty substantial, you know, 25% plus or how should Can you maybe frame in the range of outcomes for us? Yes. I think you said it exactly right. I think we're going to see a volume decline year on year. And the second quarter, probably not as steep as you saw in the first quarter and our recovery is going to be more than the second half. Okay. Thank you very much. Your next question comes from the line of Robert Koort from Goldman Sachs. Please go ahead. Mark, I was wondering, on the AVA approach, do you worry maybe from a game theory standpoint that It's really more beneficial from your competitors as you sort of take down production levels and inventories to keep the markets reasonably balanced and And then maybe when things tighten, they get some of the upside as they raise price. Or how do you worry about maybe benefiting your competitors in the short run more than yourself? Yes, Bob. I would say that this is, as we've said before, we really are focused on how this really helps our customers from that standpoint. To your point, in a short term Yes, it can benefit our competitors. In the long term, we think the benefit flows to us and our customers from that standpoint. But I think if you just looked at this in a 3, 4 quarter period, you can make the argument that there is a benefit to the competitive set to us. But I think overall, this will be a benefit to Chemours and our customer base. And can you give us any help on what share of customers you've converted to sort of assess what the risk is, finishing those conversions? And then mean, it sounds like you're playing the long game here. How long do you think it will take until the value of those contracts is fully appreciated by your customer base and your market share goes back to maybe what's rightfully yours? Yes. I would say that we're close to being at our target of the majority of the of the volume going in these ADA contracts. I'd say that it is for sure a value proposition that is more acceptable to our coating customers. It seems to fit there them a little bit better. And now we're working through with the other segments to make it work for them as well. But I'd say in the coding segment, it's very much a, very understood and it actually fits the way they think about things. So I would say as we get toward the end of the year, we'll be in that majority side. And I think that it's going to probably take us through the middle of next year before we're fully through all this and feel confident that, that we have the the share coming back and the volumes that we want within ADA contracts. Perfect. Thanks very much. Sure. Next question comes from the line of Jim Sheehan from SunTrust. Please go ahead. Thank you. Good morning. Given the headwinds that you've seen, in fluoro, do you expect that business or that segment to grow earnings in 2019? Yes, that is our expectation. That's how we had laid it out from the beginning of the year. And that continues to be our expectation for the year. As I mentioned, We're working on things to offset some of these things that hit us in the first quarter, but absolutely our expectation. Okay, great. And in terms of what you're seeing in China, there's been some safety inspections ramping up because of the accident in Jiangsu. And there's been some reductions in VAT taxes on pigment. How do you see the market shaping up in China? Is it getting stronger or weaker at the moment? Yeah, I was over there about 10 days ago. I spent the week there and I would say that the economy is not robust. I think that the government is trying to put some incentives into to restart that. But your point is a very good one. You know, we saw a lot what has not slowed down and feels like it's sort of ramped up is the environmental drive that's going on in the country. The inspections that are going on In fact, we've been pulled in by the government to try to help in certain areas where we have some expertise from that standpoint. So we feel that that is going on. And as demand starts to pull up within the country, we think we're in a fairly good position to be able to participate in that demand. But that's really going to be the key here is we'll demand start to move up inside the country because I think on the supply side, you hit it right on the head. These environmental crackdowns continue. And then I think are actually accelerating, especially when you a significant safety issue that occurred in the country. Thank you. And on Fluoroproducts again, how much of a step up do you think you get in 2020 from the lapping of the Corpus Christi startup costs as well as new F gas implementation? Yes. Well, what we've said is we anticipate to get our benefit of the lower costs out of Corpus Christi in 2020. That's when you're going to start seeing it. So absolutely, we believe we'll have the benefit there that should help us with margins. And I'm sorry, the second you asked me the second piece of that and I just left my brain? F gas regulatory implementation? Yes. The next step down is 2021. So we anticipate 2020 to be another year of positive as people get ready for that. So I'm we're not happy, obviously, about these illegal imports. But we and it's really the biggest issue for us is it slowed down some of the conversion into Opteon in the stationary piece, but that conversion can't be avoided because you have this step down that's going to happen in 2021. So people have to get on board with that and we anticipate that as we get through this enforcement piece in 2019, but also in 2020, you're going to see more adoption of Opteon. This is Mark Newman. If I could just add a couple of points First of all, we've dealt with gray market issues before on transitions from HFCs. So I think this is something that we have some organizational capability around. In our prior experience, it did take a little while to get it done, but our view is this is something we will get done. Additionally, we see quite a bit of cost headwind in the current quarter, but what you should remember is that corpus is a low cost Opteon facility. And as that ramps up, what is a headwind in the quarter from startup issues actually becomes a tailwind on the cost side. So our view is this is a long game as it relates to Corpus, but it's certainly one that we think will be really profitable as it starts to chip in. Very helpful. Thanks a lot. Your next question comes from the line of P. J. Juvekar from Citi. Please go ahead. Hi, good morning. It's Eric Petrie on for P. J. Hey, Eric. Mark, what do you estimate underlying TiO2 demand was in first quarter? Are you expecting restocking in second half, or are your customers operating at a new lower level of inventory given supply security from their longer term contracts? Yeah. No, it's a good question. I would for sure, we absolutely believe that demand was lower, as well as destocking occurring, right? So you sort of had 2, a double phenomenon going on there. We believe that there is going to have to be some level of replenishment of inventory in the second half. But our one of our value propositions of TBS is that our customers don't have to speculate on where pricing is going to go. So from that standpoint, they don't have to stock up for concerns about where the price is going to go. Their stocking will be because of what their demand picture looks That's our big value proposition to our customers. So I think what we're trying to get rid of is this giant cycle of stock destock that is speculative and get back so that our customers can now plan their business based on their demand signal and know that our supply is going to be there for them at the prices that they've contracted through the ADA contracts. Okay. Secondly, we've heard of the Chinese government approving or grandfathering in existing sulfate plan expansions in China, have you heard the same and how does that impact supply demand in the country? We don't think it affects the supply demand too much. I think what they're talking about is the these plants still have to meet some stringent environmental regulations. So they might be grandfathering the ability for these plants to operate but under the environmental conditions that they pose. So that means there's going to be cost in play there that they have to put in. That also means that there's some of these sites that aren't going to be able to meet those stringent regulations going forward. So we don't believe that's going to play significantly in the supply demand side. Helpful. Thank you. Your next question comes from the line of Don Carson from Susquehanna. Please go ahead. Yes. Mark, on your 202 margin decline, how much was volume driven versus what sort of changed did you see in unit variable costs? Specifically, what's, you know, you know, line of trend in ore costs, both in the quarter for the rest of the year and into 2020? Yeah. Don, by far, it was volume related and volume related in 2 aspects. One is obviously our demand volume was down. But also fixed cost coverage of our facilities, right? So yes, we could ramp down our facilities. Yes, we have ability to do it a little bit better than a lot of our competitors because of the way we operate with the ore blends we do, but you still have a fixed cost coverage of these sites operating. So by far, that was the biggest impact. Obviously, price wasn't an impact. Volume and fixed cost coverage of that volume was the biggest impact or costs are fairly stable for us. So we don't see that as an issue. There are some variable costs that were a little bit higher chlorine and coke were a little bit higher, but by far, this was a volume related margin squeeze. And then you reiterate your EBITDA guidance of 1 $35,000,000,000 to $1,600,000,000. I mean, that's a pretty wide range. At the low end, would that, mean no recovery in the second half or just a limited recovery in the second half and and what needs to happen to get to the high end of that guidance range? Yeah, what we had said from the beginning and we're still in the same place is the real significant part of that range was what would happen as we look at as we've talked before, when these recoveries happen in these cycles, they can happen very quickly. They can very happen very sharply. So that would be sort of lending itself to the top of that range and a weaker recovery in the second half would lend itself to the bottom range. And then finally, as you know, there are some green shoots out there, European, TiO2 prices seem to have rolled over in Q2. You think that stabilization could make customers more open to looking at value stabilization arrangements? Because presumably they didn't want to lock in prices when they saw price falling? Yes, absolutely done. We think that's exactly the way this will play for the rest of the year. Exactly. Your next question comes from the line of John Roberts from UBS. Please go ahead. Thank you. The EPA has some new studies coming for Pfas and water. Are they broad studies and include PFOA and other floral products, or is it narrow in longer term, would you expect any possible relief or additional costs depending on the outcome? Yes. John, what we do know is that the EPA came out with guidance in late April around PFAS, which is really where they targeted PFOA and PFOS. And those guidances were limits I think they brought up 70 parts per trillion. We had already been operating our facilities. Obviously, we don't make PFOA or we don't use PFOA anymore. But as we did any work on water, we've always been well below those limits. So those don't really affect us, if you will, from that standpoint. Beyond that, we continue to work with the EPA and work with government agencies in terms of giving sharing our expertise around that whole subject, but we haven't seen anything else at this point in time. That's any anything specific other than what we saw with the with PFOS and PFOA. And then I apologize if I missed it earlier, but you're global network expansion of 10% that you've had underway for some time now. Given the volume trends, have you maybe trimmed the endpoint of that and you don't finish all 10% or slowed it down in any way? No, not at all. In fact, we are convinced we're going to need that volume and that capacity, as this completes in 2021. So we haven't slowed it down one bit. We'll continue to work on it and we will get it done in the timeframe we talked about. Okay. Thank you. Your next question comes from the line of Jeff Zekauskas from JP Morgan. Please go ahead. Thanks very much. Mark, do you think Opteon volumes will grow at least 10% in 2019? And in 2020, do you plan to produce all of your Opteon at Corpus Christi? Yeah. So we do believe we're going to have double digit growth, Jeff, in 2019. So yeah, so we feel confident on the volume growth, double digit. So that is beyond 10%. So yes, and yes, we probably will have the majority of our volume coming out of Corpus. The only reason I'd say we wouldn't do it all, even though it's a lower cost is because there might be some logistic issues we want to operate with our production out of Asia that just makes sense to to keep it in Asia, but for the most part, it'll be out of Corpus. Okay. And then can you talk about what your TiO2 volume growth was in the U. S. This quarter? And in China, do you think that extra production out of billions was what led to some of your volume weakness, or do you think it came from a different source? Yeah, we don't think it came from Chinese produced product. If you look at where a lot of that product went to it. Probably over time, it came into, if you think about it, I know Pori was way back in time, but a lot of that volume went into the specialty products. So, which is a place we don't intercept anyway. So, no, we don't think it came there. We had volume drops all across the globe. So we didn't have volume increase anywhere, but much less in North America than it was in the rest of the geographies. I would say that the if we lost as if we can't exactly calculate, but we're assuming we had share loss And I would say that share loss probably occurred, via our Western competitors, not our Chinese competitors. So the USTI, the US paint and coatings market is, you know, is kind of flat to up. Why aren't your volumes kind of flat to up in the U. S? Well, I think because we lost a bit of share, right? From that standpoint, but I just saying that the volume loss there is much, much lower than the volume losses in the rest of the geography. So but I think we lost a little bit of share. Jeff, just to be very straight about it. Your next question comes from the line of Lawrence Alexander from Jefferies. Please go ahead. Hi there. Just a quick follow on. At current prices, do you believe that, competitors who are using the older technologies can build plants that would hit a standard whack, or would We don't think that there's a lot of reinvestment economics out there in think you're talking about TiO2, but Lawrence, we don't think there's a lot of reinvestment economics out there, around the TiO2 industry right now. And we can't obviously, we don't know intimately each of the players, financials, but I would say that, a very low percentage of people have any reinvestment economics right now is our at least our assumption. Your next question comes from the line of Roger Spitz from Bank of America. Please go ahead. Thank you very much. And I guess I'm a little harping on this, but Since you said you only lost some TiO2 share, does that mean the market, including customer destocking, was down only a bit less than 35% going into the paint season? Keith, I don't know how to answer that. I think you have for us, you have 3 things that sort of play here. And so it's not entirely it's not easy for us to sort of separate them all, but you have destocking think you have a little bit weaker demand. So I think you have a lower demand market at the same time. And we had share loss. So it's hard for us to parse that perfectly without knowing where everyone else is to just be very blunt about it. So I'm not sure I can give you a really good answer on that one. Okay. Regarding your revolver, I think you said you drew your revolver $75,000,000 since the quarter end. Your revolvers always been undrawn or it looks like it's always been undrawn at every quarter end. How typical is drawing your revolver here? And is this a change in the thinking that you might, more often have your revolver slightly drawn going forward here? Thank you. Yes, Roger, it's Mark Newman. I don't think this this is not normal for us to to draw on our revolver, although we have used it previously, probably within the quarter. And then what I'd say is, we really look at our global liquidity, including our U. S. Cash. So while today, we have $700,000,000 in cash globally, we have somewhat less here in the U. S. So this is really just managing near term liquidity. And as we plan for the full year, my expectation is we wouldn't have the revolver drawn as we move into the second half of the year. Thanks. And lastly, and I'm just putting this together or maybe you said it directly. In Fluoropolymer, polymers. The key monomer produced at Lewisville, I'm thinking that's R-twenty two, but did you is the higher class that you referred to fact that you had to buy monomer on the merchant market since, via the operating promise you weren't able to produce yourself, and that was the EBITDA headwind. It was a buy versus produce? Yeah, that was part of it. Yes. So we had obviously downtime there, but we also had to buy a monomer monomer on the open market absolutely and that's behind us from that standpoint. And the reason we had to do that is because we still have a very robust Fluoropolymer business. We've always talked about the 5G drive, the battery drive. You guys probably saw we invested in a flow battery company. In the quarter because we really believe in those areas and those are growing for us. So we have really good demand on our Fluoropolymer side and that's why we had to go in and buy in the merchant market, the monomer to be able to produce. Thank you very much. There are no further questions at this time. I turn the call back over to management closing remarks. Thanks, Jessa. So again, thanks, thanks for dialing in the call. Thanks for your trust in us. We had a first quarter that wasn't meeting our expectations and I know it wasn't meeting expectations of our investors, but I want to tell you we are absolutely focused on the year. We're focused on improving off of that and we will get it done. We have the right team. We have the right attitude and we have the right way to get this done. So again, Thanks for your time this morning and thank you for your continued interest in Chemours. Thank you this concludes today's conference call. You may now disconnect.