Earnings Call: Q4 2018

Feb 15, 2019

Good morning. My name is Kim, and I will be your conference operator today. To welcome everyone to the Chemours Company 4th Quarter 2018 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. Thank you. Jonathan Locke, Vice President of Corporate Development And Investor Relations, you may begin your conference. Good morning. Welcome to the Chemours Company's 4th quarter and full year 2018 earnings conference call. I'm joined today by Mark Vergnano, President and Chief Executive and Mark Newman, Senior Vice President And Chief Financial Officer. Before we start, I'd like to remind you 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 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 Mark Vergnano who will review the highlights from the year. Mark? Well, thank you, Jonathan, and good morning, everyone. Thank you all for joining us today, and I hope you all remember Valentine's Day. So I'm proud to report our results for the fourth quarter of 2018. Our best full year since becoming Chemours. For the full year, we generated over $6,600,000,000 in revenue and over $1,700,000,000 in adjusted EBITDA. This represents an improvement of 7% on the top line driven by sales growth in and created a flow conversion was strong and the company delivered free cash flow of over $640,000,000 in 2018, a 14% increase from 2017. Looking beyond the financials, as I reflect on 2018, I see significant progress against the ambitious goals we we wanted to create a new kind of chemistry company for long term profitable growth and are investing in the resources, infrastructure and talent, which will make that great future possible. 2018 was the year we released our 1st corporate responsibility commitment report. I am proud of the ambitious goals we have defined because they will keep Chemours on the path to sustainable, profitable growth for years to come. Our corporate responsibility commitments truly embody the spirit of what makes us a different kind of chemistry company. It is a foundational element of our strategy and will be incorporated in everything we do going forward. We achieved a number of important strategic goals across our segments, in 2018. Bold steps, which were designed to help Chemours generate more stable, predictable earnings and cash flow growth over time. In our Titanium Technology segment, we initiated the implementation of our Ti Pure Value Stabilization strategy, and unveiled our assured value agreements and Ti Pure Flex frameworks. In our Fluor Products segment, we achieved mechanical completion of our new low cost Corpus Christi facility toward the end of 2018. And we recently announced the start up of this facility which will ramp up over the coming who are in the process of designing next generation stationery equipment that is expected to use our opteon refrigerant blends. Most recently, Carrier has selected our Opteon XL41 Blend as the primary lower GWP refrigerant to replace our 410A inducted residential and light commercial package products. These products are expected to the This is an important step for Chemours as the commercial and residential markets for stationary air conditioning represent the next wave of growth for Opteon. It's a much larger market globally than the mobile air conditioning market and one where Chemours is positioned to be a leader. 2018 was not without its challenges, most notably a sharper than anticipated reduction in demand in our Titanium Technologies segment. We continue we believe is the best long term solution for both Chemours and our customers. The strength of our balance sheet affords us the ability to invest in our company, while continuing to return significant cash to shareholders through our share repurchase authorization We returned nearly $800,000,000 in 20.18 alone. Since the year started, we have repurchased an additional $150,000,000 worth of shares, bringing our total repurchases to $400,000,000 under our $750,000,000 authorization. Our Board of Directors has strengthened our shareholder with the recent approval 1,000,000 We've come a long way since spin and created significant shareholder value over that time. The path has not always been straight or easy It certainly had its twists and turns. But through it all, we've grown more capable as a team and will continue to apply 100% of our collective talent to the long term success of Chemours. The future of this company is bright and I am personally excited for what lies ahead. With that, I'll now turn the call over to Mark Newman to cover our full year and 4th quarter financial results in more detail. I'll be back to discuss our segment results and outlook Thanks, Mark. I'll begin my comments on slide 4. As Mark mentioned, 2018 was a record year with broad based growth across all of our businesses and solid improvement in all our key financial metrics I'm proud $1,000,000,000 improved 7%, a result of mid to high single digit revenue growth from each of our segments. GAAP and adjusted net income rose to approximately $1,000,000,000, a year over year increase of 33% and 42%, respectively. These translated into GAAP EPS growth of 39% and adjusted EPS growth Adjusted EBITDA of $1,700,000,000 increased over $300,000,000 versus the previous year. A 22% improvement. This resulted in margin expansion of 320 basis points to over 26%. Free cash flow generation of $642,000,000 was up nearly $80,000,000 when compared to 2017. Let's go to Slide 5 to review our Q4 results. While 2018 was a great year for Chemours, we finished with a softer Q4 than in 2017. This slide contains our fourth quarter financial summary compared to last year's historically strong 4th quarter. Quarterly results were primarily driven by lower sales volumes of Thai pure titanium dioxide in comparison to a record volume quarter last year. 4th quarter GAAP net income of $142,000,000 and adjusted net income of $185,000,000 resulted in GAAP and adjusted EPS of adjusted EBITDA of cent for the 4th quarter with corresponding free cash flow of $105,000,000. Our pre tax ROIC of 39 percent, up from 36% a year ago, highlights our continued commitment to invest in our higher global average selling prices of type pure titanium dioxide, along with increased price for our fluoropolymers and mining solution products delivered nearly $65,000,000 of adjusted EBITDA growth year over year. Lower volume in Titanium Technologies more than offset growth in Opteon refrigerants and Fluoropolymer's products. This resulted in an approximately $80,000,000 unfavorable impact to adjusted EBITDA. Currency was a modest $13,000,000 headwind in comparison to the fourth quarter last year. As we've seen through 2018, We continue to incur higher variable costs in comparison to the prior year, including raw material costs. This impact was somewhat offset resulting in a $23,000,000 decrease in adjusted EBITDA. Overall 4th quarter adjusted EBITDA declined approximately $53,000,000 year over year to again, versus an exceptional 2017 fourth quarter. Moving to the adjusted EPS bridge on Slide 7. 4th quarter 2018 adjusted EPS was $1.05 per share in comparison to the prior year quarter of $1.19 per share on a fully diluted basis. Operating earnings reflecting the impact of lower volume in Titanium Technologies declined $0.23 per share. Our share repurchase plan continues to provide a meaningful benefit to quarterly adjusted EPS on a year over year Our cash balance at the end in the quarter was $259,000,000, along with capital expenditures of $154,000,000 This resulted in free cash came in just on the $500,000,000. We repurchased over 3,000,000 shares during the fourth quarter for nearly $125,000,000. Along with our dividend, we returned $166,000,000 to shareholders in Q4. Our commitment to our capital allocation strategy returned nearly $800,000,000 to shareholders in 2018. Since the authorization of our $750,000,000 for approximately $250,000,000 through December. In Q1 twenty nineteen, we repurchased an additional $50,000,000 of shares. As Mark mentioned at the outset of the call, our board has elected to increase the existing share repurchase authorization $50,000,000 of repurchase capacity. In total, we have approximately $600,000,000 remaining on the expanded program. Our total liquidity stands at approximately $2,000,000,000 as of December 31, taking into account our $800,000,000 senior secured revolving credit facility. Our net debt of approximately $2,800,000,000 translates into a net leverage ratio of approximately 1.6 times on a trailing 12 month basis. We believe that our derisked balance sheet gives us the ability to execute our strategy through any potential economic And now I'll turn the call back to Mark to review our segment results. Thanks, Mark. Turning to Fluor products on the next slide. We continue to be pleased with the progress of this segment. 2018 results built on the long term secular growth trends for this business which we would expect to nearly two $900,000,000 with solid volume and price increases year over year. Adoption of our low GWP refrigerant Opteon continues despite the slowdown in global auto builds as we entered the 4th quarter. We remain committed during this time of transition. As expected, volume for base refrigerants declined year over year reflecting the regulatory environment. This was mostly offset by Our Fluoropolymers products saw solid demand improvement in 2018, even with the supply constraints we mentioned last quarter. We continue to make We also implemented price increases For the full year segment adjusted EBITDA increased to over $780,000,000, a 17% increase versus 2017. Our 4th quarter revenue of nearly $650,000,000 reflected the strength in our Fluoropolymers business and positive revenue growth 20 seventeen's fourth quarter was the beginning of the strong price increases for base refrigerants as the EU prepared for a quota step down in 2018. As prices came off the highs from earlier this year, we experienced a bit of a headwind fourth quarter 2017. In total, our quarterly adjusted EBITDA improved 3% to $164,000,000 when compared to last year. Looking ahead, as I mentioned earlier, we are actively working with stationary OEMs as they develop next generation stationery refrigeration equipment, which we expect to drive long term growth for our opteon blends. To help supply this emerging market, we are in the process of ramping up our new Corpus Christi Opteon facility. When fully operational, this plant will triple our Opteon capacity ensuring our ability to meet future demand from right here in the USA. We also expect sustained demand contributing to the anticipated year over year commercial wins later in 2019. Overall, we anticipate Fluoroproducts segment top line growth of 1 to 2 times global GDP consistent with our long term view for this business. Turning to our Chemical Solutions segment on the next slide. Full year net sales increased 5% to over $600,000,000, driven by broad based growth across most businesses. 2018 adjusted EBITDA of $64,000,000 rose 12%. Sales in the 4th quarter improved 11% to $149,000,000, driven by revenue growth in our Mining Solutions business. 4th quarter adjusted EBITDA was $14,000,000 in comparison to $20,000,000 last year. As you may recall, last year's 4th quarter included approximately $7,000,000 of licensing income that we did not expect to repeat. We remain sold out at our Memphis mining solutions facility, reflecting the sustained demand for mining solutions products in the Americas. I want to take a minute to just reflect on the impressive progress This is a segment that since spin has divested roughly half of its revenue yet more than doubled its adjusted EBITDA. When compared to full year 2015, Chemical Solutions 2018 margins have expanded 800 basis points. Despite our current supply constraints, we expect to see driven by our recently communicated price Moving to slide 11 to review our Titanium Technology segment. 2018 segment revenue rose to nearly $3,200,000,000, a 7% increase from 2017, driven by our previously communicated price increases for type pure titanium dioxide. Lower volume for the full year was driven by a combination of customer inventory destocking and reduced demand of Across quarter 3 quarter 4. For the full year, segment adjusted EBITDA improved to over $1,000,000,000 a 22% increase from the prior year. Full year adjusted EBITDA margins were 33%. 4th quarter results were lower than our record 4th quarter 2017 due to lower volumes sold in the period. The lower volume was partially offset by higher type pure global average price, reflecting previously communicated price increases. 4th quarter global average price for our Ti Pure pigment held steady when compared to the third quarter of 2018. Consistent with our type pure value stabilization strategy. 4th quarter adjusted EBITDA of approximately $200,000,000 translated into an adjusted EBITDA margin on our Ti Pure Value Stabilization strategy and we'll work with our customer base to meet their Ti Pure pigment needs. We believe that the lower volumes leading to lower year over year results for this segment. Will be weaker than the fourth quarter of 2018, reflecting as customers adapt to our Ti Pure Value stabilization strategy. We believe that this share loss will materialize principally in the Platts end market and would expect it to reverse as the demand environment improves. 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. We will provide more to our Ti Pure Value Stabilization strategy and continue to engage with customers on long term AVA contracts and our recently launched Ti Pure Flex channel. We believe that this strategy is the best way for us to support our customers and their growth over Kamore's benefits from more stable margins and earnings over time. It is a true win win with tremendous value creation potential, value which we will pursue despite any near term challenges. On the next slide, Looking ahead to 2019, we believe Chemours will continue to generate strong earnings and cash flow. We expect continued growth across and the implementation of our application development strategy in polymers. We anticipate year over year double digit growth and our Chemical Solutions segment. In our Titanium Technology segment, we expect demand weakness seen in the second half 2018 to persist in 2019. Set anticipated growth in the other two segments. In total, we expect 2019 adjusted EBITDA between 1.35 and $1,600,000,000. This translates into EPS of between $4 $5.05 per share based on our current share count. Even with the lower earnings expectation for 2019, we anticipate strong free cash flow generation 2019 will be a year in which we continue to invest Capital expenditures are expected to share repurchases opportunistically under our now expanded $1,000,000,000 share repurchase authorization. Turning to the next slide, we mentioned last year that we continue to find attractive high return opportunities to invest in our portfolio $500,000,000 in 20.19, with the CapEx split across 3 areas. 1st, approximately $200,000,000 of run and maintain capital across all our sites and facilities second, approximately $100,000,000 invested in high return growth projects, primarily capacity expansions related to certain sold outlines of fluoropolymers, ongoing debottlenecking in titanium technologies, and investment in our captive ore mining operations. Finally, 2 important projects. 1st, approximately $100,000,000 of sustainability investment related to our Fluoropolymers facilities, primarily Fayetteville And Door Direct Works. As a reminder, we spent approximately $35,000,000 in 2018 to capture and remove wastewater from our Fayetteville facility. This project seeks to reduce and eventually eliminate that drag in our profitability. 2nd, approximately $100,000,000 of CapEx related to the build out of our lease with DuPont in 2020. Our investment in R&D is critical to driving future ways of growth in Fluorochemicals, Fluoropolymers, and titanium technologies in the years to come, and we are excited about our partnership with the University of Delaware to bring this facility online. 2018 was an excellent year for Chemours. While demand for Ti Pure Titanium dioxide began to soften in the second half, the team delivered strong results and we continue to execute on our Ti Pure Value Stabilization strategy with both confidence and resolve. We believe that the implementation resulting in a more predictable Ti Pure pigment pricing and supply chain certainty to support our customers growth. The best kept secret in specialty chemicals is our Fluoroproducts business. The combination of Opteon and Fluoropolymers application development will deliver growth well into and the arrival of 5G are just 2 of the many secular growth trends, which are expected to drive significant upside for Chemours. To our customers, thank you for your trust in us. That we have built together. To all of our global employees across our facilities and sites, thank you for delivering a great year. We will succeed as Finally, to our investors. Thank you for your support and your continued investment in Chemours. We are committed to increasing shareholder value over time and believe that we have the right portfolio strategies and people in place to do so. With that, we'll Your first question comes from John McNulty from BMO Capital Markets. Your line is open. Yes, thanks for taking my question. I guess with regard to the TiO2 platform, how are you thinking about pricing as you look through 2019? And then I guess also with regard to some of the inflation that you had spoken about in the business, I guess, early on and in the release, how should we be thinking about, how you manage through that inflation as we look through 2019? Yeah, thanks, John. We're we're looking at pricing being fairly stable through the year. That's part of the work we've done with our ADA contract. Obviously in our Ti PureFlex portal, we have more flexibility on price. If we want that, our AVA contracts will always be advantaged on price. But the flex pricing allows us to move that up if we see things differently. We're right now, our raw material look is fairly flat from a pricing point of view. And again, our contracts will reset as we've talked about in the 6 month increments based on produce price index. So if there are other things there that will really take into account that kind of pricing. But I think as you sort of look at us for 2019, think of it as fairly flat pricing. Great. And then maybe just a follow-up. With regard to your commentary around, it looks like some of the share that you may lose with regard to some of the plastics demand. I guess, what percent of your business do you think is in jeopardy in terms of the volumes there until the demand starts to kind of stabilize itself? Yeah, I don't know if we, really lay out a percentage. I would say as we, as we sort of set the guidance, yes, we were conservative, but prudent in our mind because we looked at this from a standpoint of our range was based on a lot of sophisticated models we have. And I would say the low end of that range was based on very low demand. In that, we've also looked at what kind of share could we lose in the early going. And as I said in the commentary, we really think that's primarily focused on, the plastics space because there that's a little bit under pressure right now as all of you who follow plastics know. From that standpoint. We think that's going to change in the second half of the year. So I would say that for the 1st 2 quarters, is really where we are probably the most conservative, but we do believe things are going to improve significantly in the second half, primarily because as demand comes back, there's no new supply. So from that standpoint, we think this is going to be a positive story as the year progresses. Great. Thanks very much for the color. Sure, John. Your next question comes from Duffy Fischer from Barclays. Your line is open. Yes. Good morning, Fellas. I just wanted to get a sense. You already talked about, you think price will be flat, raw mats will be flat this year. If you think about the high end and the low end of your guidance, roughly what's the delta in volumes for TiO2? So at the 135, you know, you know, how much down would volume be this year? And then at the 1.6% level, what would volume do this year? Yes. So you hit, you really hit our guidance on the head Duffy as you normally would. The delta is in demand. Right? So as we do our modeling, we're looking at the extremes of demand. We're not going to share the volume that we specifically have. But but it is purely around volume and that volume is really around demand. And I think the best way to think about it from our point of view is the 1 normally in these kind of situations where you're in a destocking area or when you're in a lower demand type of space. You have 2 big variables, right? Price and volume. We only have one variable here, which is volume. And that's what we're working off of. So that's the extreme that you're seeing in our guidance. It's almost entirely around TiO2 volume. Okay. And then if we could jump on the Opteon plant, how should we think about that impacting, earnings this year and into next year as that starts to ramp? Will there be lumpy costs in 1 quarter? Will we start to see margin improvement towards the back end of the year because of the better costs. Just how does that feather in throughout the year as far as margins go? Yes. So in the beginning, as you noted, as we start up, obviously, there's more cost. The cost benefit we see from that facility, which is the lowest cost HFO facility in the world, will really manifest itself toward the end of this year, but mostly toward the beginning of next year. However, we are getting more volume out of that than what we have currently. So because of that, our revenue will go up at the same time. So the cost benefit is primarily going to be way at the back end of 2019 and toward the beginning of 2020 is when you'll start seeing that. Sure. Your next question comes from Robert Crude from Goldman Sachs. Your line is open. Thanks. Good morning. Hey, Mr. Crew. Mark, you talked about the resi opportunity in for Opteon. Wondering if you could give a little more clarity on the patent challenges. I think you guys have said in 2023, you're gonna start to see some HFO expirations in 'twenty six opteon. So, should we start to think the size of that resi market is enormous, but maybe the competition can build or gives you some confidence that you'll continue to stake out your fair share of that that business once those patents start to roll off? Yes, Bob, we it's we do have a lot of patent protection for a period of time. We think on the stationary blends, which are unique we have a lot of patent protection into the 2030s. So from that standpoint, when you start doing blends, you have some uniqueness in terms of how you do the blends, what you blend it with, and a proprietary position usually with your customer base. So that actually is going to extend longer than just the pure HFO patents that are out there. So from that standpoint, we feel very confident in why we say we see this growth happening over the next decade because of that. And then I think you specified the plastics customer base maybe is having a little harder time. Would you throw in that 10% or 15% of volume you sell into the paper industry similarly or is there something unique to your plastic customers that doesn't replicate it at the paper or the coatings customers? Yes, I would say plastics because of all the dynamics, you know, but the laminate side is under pressure primarily from their demand side. So yeah, I would say the laminate customers are in that same boat. Got it. Thank you. Your next question comes from Laurence Alexander guess, first of all, on Titan Technologies, can you characterize on the Flex Channel, how much volume is going through that? Give some sense for the spread between that and the regular pricing. But I guess also can you help explain the volume calculation in the deck. Back of the envelope, it looks like your volumes were down about 50,000,000. But the EBITDA hit was 81. But can you explain how that works? And if that kind of leverage continues, how does that affect your the way you think about the type of your strategy? Yes. So, on the first piece, Lawrence, we just kicked off Ti Pure Flex actually just in the UK and Brazil in February, it'll go global March 1. Over time, we expect pretty good balance between what's on Flex and what's in our contracts most likely. But we'll play that out as we go forward. Because I think we'll get a good sense of that as we come into the March, April, May timeframe as people who haven't entered into our ABA contracts will be primarily purchasing off the Flex platform. In terms of the volume question that you have, I would say that first of all, think of it in a different way, I can't validate your number, that probably was a little bit more volume there than, than you had mentioned. But You got to remember as our volume comes down, as we've always said, we're very willing to let volume come down versus price. That is the whole basis for the value stabilization strategy. But and we have the flexibility of how we operate our assets but you do have fixed cost absorption issues when you have lower volume. And I think that's what you're seeing when we get to a certain level of volume. Is more fixed cost getting absorbed by less pounds. And that's really what the hit is on the bottom line. That is all contemplated. We understand that and I don't want anyone to think that is going to be a reason to see us turn away from our strategy. We are absolutely committed to it because if you think of the alternative to that, the alternative to that would have been volume down and price down we think that would have been actually a worse outcome. So we still think this is the best outcome for us overall. And I guess just to follow-up, are you seeing out side, the plastics and laminates, how much volume swing did you see in the sort of softer environment that we've seen in the last call 3, 4 months. I mean, I know you were expecting like sort of to take more of the flex in channel, was it really just those two areas or did you see it more broadly? Yes, I'd say it's more regional, right. So Asia, down, Europe sort of flattish. North America continues to be strong. And I'd say when you look at it from a segment point of view, the segment sort of flow that way, we've seen pretty good strength on the coating side. As well as the North America side from that standpoint. So I would say when you look at the volume piece, it's probably more regionally based than it is by question comes from Don Carson from Susquehanna. Volumes and particularly your 19% Q4 decline. So how much of that was share loss? How much of it was a tough comp for the year? Before? And what's your sense of what customers are doing in terms of destocking? So is there a major difference here between your shipments and end market demand? Yes, Don, I would say that was primarily pure demand and destocking versus share loss. And we also had a big comparison to the year before, pretty strong comp in the fourth quarter of the year before. So think of it as comp with a very strong year prior quarter and also think of it primarily as true demand, not market share loss. So that would be the I guess the best way I would characterize it. I'm sorry Don. The second half of your question what customers are doing in terms of their destocking. So, you know, are are your shipments lagging end market demand? Because customers are drawing down inventories or you think that drawdown is coming to a close as prices stabilize in markets like North America? Yes, we saw a pretty sharp decline that I would attribute to destocking, you know, second half of that last year and the beginning of this year. I think going forward as you look at probably the middle of second quarter on for the rest of the year, it's going to be really about demand. So I think you could say through this quarter being the 1st quarter, you'll probably be done with all the destocking. Now it's going to be true demand. And what's the market really pulling for from a demand standpoint. Your next question comes from Arun Vishenessen from RBC Capital Markets. Your line is open. Good morning. Thanks for taking my question. I'm just curious how we should think about titanium dioxide, volumes through the year. So I understand there's gonna be destocking that continues, maybe and should should wrap up in Q1. But I I guess, are you hearing from your customers that, they're expecting weaker demand in in 19? Is that what you're also trying to communicate, or is it just certain sectors like plastics and laminates. Thanks. Yes, I would say overall, we're not hearing weaker demand, for the year. I think you're going to see a distinct difference in the 2 halves of the year, the first half and the second half of the year. From our standpoint, we've signaled that we're going to probably have a fairly weak first quarter, that I think will be demand based and a bit market share based which we believe will recover toward the second half of the year. So, overall, I think demand, if you look at it year on year, should be fairly good, and it's just going to be a matter of timing in terms of the year, versus second half being much stronger than the first half. Okay. Thanks. And just as a follow-up on fluoro, maybe you can just describe, what you're seeing in in the mobile markets there. Is there any impact from any slowdown in global auto production? Thanks. Yes. When you look at global auto production, Probably China is the weakest, but we don't sell HFO in China. So that's why that doesn't have a big impact on us. Slightly down in Europe, flattish to slightly down maybe in the U. S. So, but you got to remember. So think about Europe per second, slight flat to slightly down U. S, even if it's down a little bit, we're gaining share there. So only about 50% penetrated in the U. S, we're going to go to 100% penetrated by 2021. So the ramp up actually more than offsets any downturn you see in production. So net net, you're still going to see an increase for automotive for us. Your next question comes from Matthew Dio from Vertical Research. A question for you on your inventory balance. Why is it up so much over the past 2 years? Looks like something like 50% since year end 2016 and should the slowdown be an opportunity to harvest a lot of this through working capital? So it's Mark Newman here. I think when I look at inventory, we did have some increase in finished goods, but the majority of our increase actually was in our raw materials, as we had indicated on our Q3 conference call, with with the lower demand that we saw in TiO2, we had elected, to make some strategic ore purchases throughout the year. So we ended the year with I would say slightly higher inventory, but it's primarily focused in raws and it's primarily focused within that in our TiO2 ore base. Okay. Presumably then, that would be an opportunity in 2019 to move lower. But you know, there's a follow-up and maybe not to beat a dead horse here, but I'm gonna try my best to do it. On the volume side for TiO2, just trying to frame the, like, the macro backdrop on these scenarios. So the low end, I mean, does that imply just destocking throughout the whole year and no back half pickup? Or is the 4 or 505 all still reflective of some form of back half brand? Just how bad would the bad scenario be? Yeah. So we I will have to say our TiO2 team probably has some of the most sophisticated statistical models of all our businesses based on past experience, market conditions, macro factors. So, our bottom end of our range, and I guess the best way to say when we give our range for 2019 the biggest swing in that is our TiO2 volume for the whole so as you look at a range and the bottom half of our range is really low demand As I mentioned before, it's probably a little conservative, but we think that's prudent. We've had a very strong record of delivering against our targets so we're going to do that. So it is a low demand case. I'm not saying it's a high probability case, but it's a low demand case. The higher end of our range is predicated on something that we would consider to be a good recovery in the second half. Solid recovery in the second half. So in no cases are we saying, Hey, we're looking at a recessionary period here. We don't believe that's the case. But there is a big swing in our low end case in our high end case based on volume of TiO2 and that volume is really based on demand. So yes, it is a conservative, but we think prudent case on the bottom side. Yeah. Because just looking, I mean, volumes were down 7% in 'eighteen and TiO2. And even if you throw like a 50% decremental, you're low end is something like down 20% and plastics is only 26% of your TiO2 business, I think. So Yeah. Okay. We could follow-up more offline. Thank you. Sure. Your next question comes from P. J. Juvekar. Your line is open. Hi, P. J. So Mark, you had 2 quarters of negative volume growth in TiO2. I think volumes were down 10% in 3Q. And 19% in 4Q. And you just mentioned that you did not build inventory. So I'm assuming that you totaled your plants back, to adjust for demand decline. So can you talk about what your utilization rates are? And where are your inventories related to past year ends? Thank you. Yeah. As Mark said, P. J, most of that inventory is in order. We do have some pigment inventory because as you said, we slowed down fairly fast in the second half. So yes, we have some pigment inventory as well, but the majority of it is ore inventory and other raw material inventory. As we're looking at the first quarter, we are at lower utilization rates than what we would normally operate at. We think that will move up pretty quickly in the second quarter. So I would say we have 1 quarter in that we're in right now which will be low utilization rates compared to the rest of the year. Rest of the year will be ramping up to normal type utilization going forward. And that's the way we've decided to operate with the TBS strategy. Thank you. And then second question on your Opteon and refrigerants. Can you talk about Opteon pricing versus base refrigerant pricing? And how much of your business now is in HSFOs versus the base refrigerants? Thank you. So, from a pricing standpoint, in the automotive side, we've told everyone you definitely have, pricing down when you're with the big OEMs year on year that part of the productivity. Our job is to keep our margins flat by driving productivity to sort of offset that. But on the stationary blends, you have pricing opportunities depending on the blends. Remember, as I mentioned to Bob, these are proprietary blends. They're very unique to each of your manufacturers based on the equipment they have. So you have solid pricing opportunities there. I think there's solid value opportunities for our customers as well from that standpoint. Obviously, HFOs will be larger than our base over time. We really don't disclose the split between the two PJ, but Over time, HFOs will be much larger than the base refrigerants. That's our whole goal and reason for for being in the refrigerant business, to be honest with you. Outside of Europe and the U S, the rest of the world is primarily a base refrigerant user. So those will continue over time until the regulation sort of shifts them over to the HFO side. I'm sorry. Mark, did you say that base refrigerants are flat, or how is the pricing shaping there? Thank you. The price, the volumes obviously will come down in time on base refrigerants. On pricing, it's really I would say it's a supply demand situation P. J. That we have. They peaked for us in Europe in the middle of last year. They came down toward the end of the year. Over time, they will go up because as quotas sort of come into play, you're just going to naturally see those base refrigerant prices go up. But but they do fluctuate fairly, quickly. And we saw peak in the middle of the year came down toward the end of the year. And I would say as we walk through 2019 toward the next quota drop, you'll see them again, prices go up again at the next quota drop. Great. Thank you. Your next question comes from Jeff Zekauskas from JP Morgan. Your line is open. Thanks very much. Did Apteon volumes grow about 30% in 2018? And do you expect them to grow about 20% in 2019? They were, Jeff, they were slightly under 30% in 2018. They were probably in the mid-twenty And I would say that they'll definitely be double digit as we're going into 2019, going forward. So still very, very, very solid growth across the whole platform. Can you remind me, Mark, where you make Up Dion now? And is the goal to consolidate all of the manufacturer into Corpus Christi over the next 18 months. And I guess by double digit growth, you mean somewhere between 10 20. Is that right? Yes. You understand our code, Jeff, you're so good. Yes, between 10 to 20, I think is where we'll be around APTeon. Today, we manufacture in China. We will move that all over to our, mostly all over to our facility in Corpus because it's a lower cost facility and be able to utilize the facility we have in China for our for very unique blends or unique opportunities that we have, including our foam business as well. Your next question comes from Vincent Andrews from Morgan Stanley. Thank you and good morning. I guess I'd just like to play devil's advocate for a moment on the idea that you can lose the share and then get it back And I guess what I'm trying to get at is, I think about 'seventeen as a significant, stock up year 'eighteen, in the second half into the first half of 'nineteen is a is a destock year. So I'm struggling to to really have confidence in what the new base level of volume is that we're gonna grow off of. And so I I can't help wondering that, when all this inventory settles out and prices are flat and customer inventory management adjust that, you know, maybe there will be a little extra capacity around and maybe maybe there's risk that you don't get the share back. So maybe you could help me by quantifying some of that to, to help us have confidence that there really won't be, supply, once demand normalizes. Sure. So, Vincent, two things. One thing, demand really grows at GDP rates over time, for this industry. I mean, it's very, very you can see the correlation. So from that standpoint, I think it's a very steady demand growth over time. Supply, there's no new supply on the horizon over the next couple of years that we see. We keep a pretty good eye on this from that standpoint So really the way for us to regain our share is twofold. 1 is the supply demand balance that's out there and we think the demand will outstrip supply at some point in time. And the other is our new products, our products that actually customers prefer versus other products. So Our job, one is to make sure we have enough supply out there and that's why we're doing the debottlenecking work at our facilities to sort of basically open up another line over the next 3 years and 2, continue to work hard at new product development in the in our titanium technologies business so that our customers can enjoy higher value products going forward. That's that's our really our game plan of how we get our share back. Okay. So when you do the math balance, The mass balance will show you over the next 18 months that, their demand and supply are going to be pretty close. Okay. So just to follow-up on that, is it fair to say then that if we're talking about GDP growth over time, we're talking about the next 18 months that there is risk to the back half of the year that you don't get as much volume as you back as you think or is that already contemplated in the low end of guidance? Oh, it's contemplated in our range. Yeah, that's why I think people have said the low end of the range or implying in this call, low end of the range is a bit conservative. That's implied in that range. Okay. That's very helpful. Thank you very much. Sure. Thanks. Your next question comes from John Roberts from UBS. Your line is open. Are you still going ahead with your 10% capacity expansion in TiO2 across your network? Are you going to pause for a year and rethink that in 2020 instead of 2019? No, John, we're continuing with that. That's a very cost effective way for us to add capacity. And we believe we will need that in 2020 2021. So we need to get that done now so that we're ready for when the demand is going to be there. Okay. And then how should we think about seasonality in the back end of the year? Normally, the 4th quarter volume, I think, would seasonally slow. The last 2 years haven't been very representative, I would say, because we're starting slow, do you think there's a reasonable chance that we're continuing to ramp as we get into the back end of the year besides just the second half, but maybe the 4th quarter versus 3rd quarter? Yes, John, I think that's possible based on the pickup that we that could happen with the economy in the second half. So you could have a little bit of a SKU versus the normal shape, if you will, of demand normally on the TiO2 side. You could see a little bit stronger second half than normal. And we have a question from Jim Sheehan from SunTrust. Your line is open. Good morning. In your free cash flow guidance, what do you assume for working capital? Yeah, we normally don't parse out our working capital assumptions. I think has been identified on the call. We did end the year you know, it's slightly higher inventory than than would be the norm. So, you know, my expectation is there could be some small opportunities here on working capital. Obviously, that to match that with what's been said before, we expect a week of 1st half versus the second half. So it'll take a little time, I would think, to work through any working capital improvement throughout the year. Thank you. And could you comment on efforts in Europe to label titanium dioxide or carcinogen and also comment if you would on the substitutability of TiO2 in cosmetic and food applications? Yeah, I know that was something that came up to the reach sub committee. That was deferred. So that decision was deferred. We've been very, very open about our position there. Again, this is around inhalant aspects of TiO2. So we're continuing to work with the regulators there and we think, that's just something that's going to be dealt with in the proper way, with the committee there. So again, that decision was deferred, going forward. In terms of the cosmetics side, that's something that we continue to work with with our customers to make sure. For the most part, this is about production issues. Than it is final product issues. So we, at this point in time, don't see an issue with that from a substitution point of view. I now turn the call back over to Mark Vergnano. Well, listen, I want to thank everyone. We didn't get many questions about our share repurchase, but I will say that that is an area that our board and ourselves are very aligned with. That's why they upped our there are authorization another $250,000,000, and that is an area that Mark and I are very committed on around making sure that we're giving our shareholders a great return on this company. We think it's undervalued and we will be opportunistically using that going forward because of that. So again, we thank you for all your time this morning. We really look forward to speaking with you both of Mark and I will be on the road in the first quarter with Jonathan. So if you have any questions, we didn't get to Please reach us when we're on the road or reach out to our investor relations team as well. So thanks again. This concludes today's conference call. You may now disconnect.