Earnings Call: Q1 2018

May 4, 2018

Good morning. My name is Emily, and I will be your conference operator today. At this time, I would like to welcome everyone to the Kumar's company First Quarter 2018 Earnings Call. All lines have been placed on mute to prevent any background noise After the speakers' remarks, there will be a question and answer session. Thank you, Alicia Beliza. You may begin your conference. Thank you, and good morning, everyone. Welcome to the Kamoris Company's first quarter 2018 earnings conference call. I'm joined today by Mark Carfano, President and Chief Executive Officer, who will begin the call with a discussion of the quarter's highlights. And Mark Newman, Senior Vice President And Chief Financial Officer, who will review our financial performance and liquidity positions. Mark Fernandez will then review our quarterly business results and conclude the call with our outlook. Before we begin, I'd like to remind you that comments on this call as well as of 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 that Comorts has filed with the SEC. These forward looking statements are not guarantees of future performance, are based on certain assumptions and expectations of future events that may not be realized. Actual results may differ and Kamorth 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 Verdano. Thanks, Alicia. Good morning and thank you for joining us today. Before we begin today's call, let me take a minute to walk through some of the personnel changes we announced this morning within our finance function. Alicia Bellaza, who you all know well as our current treasurer and vice president of investor relations, is transitioning to the role of Vice President, Commercial Operations And Supply Chain for the Titanium Technologies segment. So although she'll no longer be the face of our investor relations, you can be sure that her talents are being put to great use in driving our future results. I'd like to personally thank Alicia for standing up the IR function in Chemours and being our chief navigator with investors through our transformation. With Alisha's move to our Titanium Technology segment, Samir Rahhan, our current Vice President of Business Finance, will also assume the role of treasure. Sameer has also been a key player in the execution of our 5 Point transformation plan. And he is also no stranger to the treasurer responsibilities, previously holding the position prior to Alicia. In his dual role, Sameer will continue to oversee our global business finance and corporate finance functions. I also want to welcome and introduce Jonathan Locke, who is joining Kamours as Vice President, Corporate Development And Investor Relations. Jonathan brings with him a wealth of knowledge surrounding corporate strategy and investor activity, joining us from SunCoke Energy. In his new position, Jonathan will help to drive the Chemours growth journey, while also being the key source of communication for our investors. So with that, let's move to our first quarter results. We began 2018 at full speed energized by execution of our workforce and the continued momentum from our all key financial metrics. Notably, our net income and EPS double on both a GAAP and adjusted basis, driven by the strength of our businesses In addition to our outstanding organic performance, We continued to execute on our capital allocation strategy. Since announcing our authorization in December, We have repurchased approximately $400,000,000 worth of shares of our common stock through today. In April, we enhanced our current refrigerant portfolio with the addition of Ichor International to our Fluorochemicals business. We want to welcome our new Icore international employees to the Chemours team. Kamours first quarter performance is a great step on our shift to being a growth oriented company. We are well on we previously provided. I'll now turn the call over to Mark Newman to cover our first quarter financial details. Thanks, Mark. Let me begin on Slide 4. Our changing focus from transformation to growth is clearly evident in our first quarter 2018 results. We exhibited significant increases on a year over year basis in several of our key metrics. Net sales rose 20 percent or nearly $300,000,000 over last year's first quarter, a result of increased sales across all segments. Net income on both a GAAP and adjusted basis roughly doubled when compared to our first quarter of 2017. Adjusted EBITDA of $468,000,000 increased 64% a demonstration of our growing profitability, while our adjusted EBITDA margin expanded approximately 700 basis points year over year to 27%. Even though we experienced our normal seasonal working capital use of cash during the quarter, We generated almost $100,000,000 in free cash flow, driven by a strong operating performance. Our pretax ROIC rose to 40%, significantly above the 30% level, reset as our 3 year target. Even while we ramp up investment in our businesses. We remain focused on the profitability of our existing assets, While investing in high ROIC projects, like the 10% capacity unlocked, we expect from our Titanium's technology circuit over the coming years. Further, we are demonstrating our ability to grow inorganically through the recent targeted acquisition of Icore International. Turning to the next slide. Let's review the drivers of our adjusted EBITDA performance. Higher global average selling price of Ti Pure Pigments on a year over year basis drove the $140,000,000 favorable price variance. Overall, prices for our Fluoroproducts and Chemical Solutions products were consistent with the previous year's quarter. We saw broad based volume growth in the quarter, resulting in $47,000,000 of year over year improvement. Within Fluoroproducts, the conversion to Optane Refrigerants was accompanied by increased demand for fluoropolymer products. In Titanium Technologies, continued preference for our Ti Pure Titanium dioxide also contributed favorably, while Chemical Solutions increased demand was modestly positive to overall results. Currency provided a nice tailwind when compared to last year's first quarter, resulting in a $43,000,000 benefit primarily related to the appreciation of the euro. Higher variable costs including distribution and water treatment costs or a headwind on a year over year basis. We, however, remain vigilant on our fixed cost structure. Overall, we recorded a $183,000,000 improvement to adjusted EBITDA for the first quarter 2018. An excellent start to the year. Given our focus on growing EPS, we've added a new chart on Slide 6, This quarter's adjusted EPS of $1.41 more than doubled when compared to the last year's first quarter. This is even more impressive when considering the negative effect on tax on year over year performance. Our business results translated into a $7 improvement, driven by the contributions from each of our segments that I covered in the previous slide. These strong results were somewhat offset by the change in the effective along with the impact of discrete items. Our tax rate in the quarter was 22% versus 13% for last year's first quarter. The impact in this quarter of our share repurchases was negligible due to timing however, we were more we were able to more than offset the dilutive effect of equity compensation, and we anticipate the benefit of share is to become more meaningful in future quarters. Our operating results have also translated into additional cash generation with a solid balance sheet position which I'll cover on the next slide. As you can see, the strength of our balance sheet provides us ample flexibility which we put to good use during the quarter. Our 3 primary uses of cash were working capital, in line with seasonal demands increased capital investments to fund organic growth and additional share repurchases completed in the quarter along with the higher dividend level we announced at Investor Day, we ended the first quarter with a cash balance of approximately $1,400,000,000, in comparison to $1,600,000,000 $6,000,000 was primarily putting our use of $192,000,000 to support working capital. Free cash flow was nearly $95,000,000, a $122,000,000 improvement versus last year's first quarter, even with increased capital expenditures versus last year. We continue to execute our capital allocation strategy, repurchasing approximately $240,000,000 of shares in the quarter. Since quarter end We have purchased an additional $40,000,000, leaving approximately a $100,000,000 remaining on our existing $500,000,000 authorization. Additionally, we're enhancing our liquidity while adding flexibility to our company's balance sheet. In April, we amended and restated our credit agreement and entered into a new 7 year term loan B, while also reducing principal by approximately $75,000,000. As part of this transaction, we also entered into a new 5 year $800,000,000 senior secured revolving credit facility, including the new revolver, our total liquidity on a pro form a basis stood at approximately $2,200,000,000 at quarterend. Our net debt of approximately $2,700,000,000 transmitted into net leverage ratio of approximately 1.7 times on a trailing 12 month basis. We are pleased with the flexibility has given us the ability to consider targeted, inorganic prospects, such as the Ichor International acquisition that closed in April, while continuing our return of cash to shareholders and investing in our core businesses. And now I'll turn the call back to Mark. Thanks, Mark. Beginning with a review of our Fluoroproduct segment on the next slide, we generated over $730,000,000 sales in the quarter. The 12% year over year increase was driven by strong demand for both our Opteon refrigerants and Fluoropolymer Products. Price came in line with last year's first quarter as a result of mix across the segment, which I'll review a bit later. Adjusted EBITDA improved 33 percent to $206,000,000. This translated into an adjusted EBITDA margin expansion of nearly 450 basis points to approximately 28%, exemplifying the capability of this segment. Opteon refrigerants continue to see increased adoption, primarily within Europe and the United States, driving the year over year volume increases. In Europe, the increase was and continues to be from demand for stationary HFO blends in response to the 2018 F gas quota reductions. In the United States, the mobile market is moving toward the full conversion to low GWP technology. Encouraged by Cafe Carbon Credits. As a reminder, we anticipate the current Cafe standards that are in place to drive the US mobile market to full conversion by the end of 2021. Bates refrigerant volume was flat comparison to last year's first quarter. As we were able to completely offset the impact of quota phase downs in Europe, with higher demand for our base refrigerants in developing countries. Quota phase downs in Europe as well as tightening global supply drove a favorable price increase in our base refrigerants, mostly offsetting the Opteon contractual pricing commitments. In April, we completed the acquisition of Ichor International, a supplier of ozone safe refrigerants and related products for heating, ventilation, air conditioning, and refrigeration applications in North America. This acquisition enhances our ability to meet our customer needs expanding our US market channel access. In Fluoropolymers, volume growth rates for our products were above global GDP for the second quarter in a row. We continue to see increased demand from favorable market trends paired with environmental regulation enforcement in China which adds constricted global supply. Fluoropolymer price also improved year over year, a result of the increases implemented during 2017. We expect the additional price increase announced earlier this year will lead to further price toward Opteon refrigerants. We anticipate Opteon top line to grow over 20% in 2018 compared to last year. Driven by further continued adoption of low GWP stationary blends and mobile refrigerants. We remain committed to supporting our customers' requirements, both on the base refrigerant side as they move toward adopting Opteon Technology. As such, we are managing our quotas given the regulatory environment and expect base refrigerant demand to be relatively flat for the year. We anticipate prices for our base refrigerants to modestly increase in comparison to last year, driven by the tightening global supply of those base refrigerants. At the same time, the favorable market trends in combination with our application development work in automotive, energy storage, and electronics are leading to higher demand for poor polymers. We expect this momentum will continue through 2018 and beyond. As we look over the course of the year, we have planned maintenance outages at certain fluoropolymer facilities in the second And Third quarters. We are working closely with our customers to ensure that their supply needs are met during this time. Moving to our Chemical Solutions segment on the next slide. Sales in the quarter rose 4% to $144,000,000 on higher year over year demand across the segment. The segment generated $11,000,000 of adjusted EBITDA in quarter, reflecting lower technology licensing income, along with higher increased variable costs. This also included higher distribution expense and costs related to the construction of the new mining solutions facility in Mexico. Mining Solutions demand is anticipated to remain strong throughout 2018, while Performance Chemicals And Intermediates is expected to improve modestly. We mentioned in our release that the construction of our new facility in Laguna, Mexico has been delayed as the result of a complaint filed against several local and federal authorities involved in the permitting process of our facility. They may have regarding our operations. We are committed to working with all stakeholders and believe that our investment in Laguna not only benefits the local community, but also serves the growing market need for our products in Mexico. We have previously stated that our current mining solutions facility is sold out and we expect it will remain so due to sustained strength in demand in the Americas. Turning to Slide 10 to review our Titanium Technology segment. Sales increased over $200,000,000 to $854,000,000 versus last year's first quarter. The improvement was primarily driven by higher global average prices for Ti Pure Titanium dioxide, up 22% year over year. We also communicated price increases to certain customers in The most recent communications were effective April 1st. These communications aligned with our value stabilization strategy while also taking into account our expectation of higher raw material costs for the remainder of the year. As you may recall, last year's first quarter saw very strong demand. Even against that tough comparison, Continued preference for our products resulted in 5% volume growth year over year. We saw increased Ti Pure TiO2 demand from the plastics, coatings, and laminate end markets. Adjusted EBITDA improved $135,000,000, to $294,000,000, an 85% increase compared to last year's first quarter. This translated into approximately 900 basis points of margin expansion. As anticipated, higher global average prices were partially offset by increased raw material costs. Looking to the remainder of the year and consistent with our value stabilization strategy, we expect volume growth be modestly higher than normal GDP in 2018. Our team continues to work with customers to implement previously communicated price increases, Based on this, we expect to realize further margin expansion throughout the remainder of 2018. Turning to Slide 11 to review our outlook. As we reflect on our strong first quarter performance and look forward through year end, we have great confidence in our previously disclosed 2018 outlook. We expect to deliver adjusted EBITDA at the top end of our previously communicated range, supported by the continued positive momentum of all our businesses. We also in anticipated adjusted EPS to be above our original range taking into account the impact from the share repurchases we have already completed. Our Fluorochemicals business continues to successfully optimize its product portfolio, supporting customers on both sides of the technology transition as they move toward low global warming potential refrigerants. Solid demand for our full polymers products, along with steady price improvement, is expected to carry through the remainder of this year and beyond. And within Titanium Technologies, the implementation of previously communicated price increases for Ti Pure TiO2 are expected to result in sequentially higher average prices in the coming quarters. We continue to to $525,000,000 for 2018, even with the delay of construction in Mexico. Not only do we have other high return projects to the fund, but we are also committed to reducing the environmental impact of our products, and continuously improving our manufacturing operations. Going to the strength of the first quarter and our expectations, for healthy results for the balance of the year. Let us take another look at our 3 year targets on the next slide. Based on our anticipated results for the full year 2018, we have full confidence in the longer term goals we previously described. We continue to anticipate revenue across the company to grow above global GDP rates with expanding margins translating to even higher profits on the bottom line. Adjusted EPS is expected to grow at a compounded annual growth rate of at least 15% to 20%. Free cash flow is expected to remain The new mining solutions facility construction delay is not expected to impact 2018 operating results. We expect We are energized by our first quarter performance and expect With that, we'll now open the call for Our first question comes from the line of John McNulty from BMO Capital Markets. Your line is open. Thanks for taking my question. So I guess a couple of questions. First one would be on, earlier you would, you talked about trying to lock up customers in terms of longer term contracts that facilitated you working with them a little bit more effectively. I guess, can you give us an update as to where you are in that, in that in that push. Sure, John. And thanks for opening your coverage with us as well, John. I would say that we're very happy with where we are with our value stabilization work, with our customers, You know, I've been out to see many of them and, it's going along extremely well. I think it's a it's a value proposition for them as well as us. And I think they recognize that. And as we've always said, we don't want all of our volume to be in value stabilization contracts. We want to have a significant portion of it in that. And I think we're on our path, exactly the right path. We wanna be on it. Great. And then maybe just a a follow-up to that. I know there's there's some discussion about how the ores and the raw materials are starting to starting to look relatively tight as well. And I know you're advantaged on that side, but I guess when you think about the potential for ore prices to move for your platform. I guess, how insulated are you from that? And when you think about longer duration contracts with your customers, how does that balance out with with the longer term relationships or the need for them, with your or suppliers? Yes. So, John, 1st of all, as we have this quarter and as we look to the year, you know, or is sort of in the range of what we thought it would be So we have contemplated that in terms of how we've thought about the year and how we've planned for the year. But to your point, you know, we have multi year contracts on our on our ore buys. They're laddered contracts and all of that is contemplated as we work with our customers on the value stabilization contract. So these are all intertwined and thought through extremely well from our standpoint. Great. Thanks very much for the color. Our next question comes from the line of Duffy Fischer from Barclays. Hey, guys. This is Mike Leithead on for Duffy this morning. Mark, the first quarter is typically not your seasonally strongest quarter for your business. Is there any reason why that is not the case this year? Because if I just annualize this quarter's earnings, I already get above the high end of your EBITDA range without even plussing up for seasonal strength in 2Q, 3Q or further TiO2 price flow through. So just trying to get a sense of how conservative the guide is for this year? Yes. So, 1st of all, and as we've said, we, we're, we feel very confident about the top of our range. You know, and as the year progresses, we'll revisit that if we feel that the additional guidance should be given. But but to your point, Mike, I think that you know, the seasonality of this business is changing a little bit, because, you know, with Opteon, so heavily on the mobile side, you don't see the as much of a spike in the floor of chemical side as you used to see, in the past. And I would say that, on the TiO2 side, you still have a bit of seasonality in the second quarter for the North America coating season, but I would say it's a little bit less of a of a seasonality. I will say toward the end of the year, both businesses are a little bit lighter than they are in the beginning of the year. But, I think your read on this is is fairly well, fairly good that we don't have the the massive seasonality that we used to have. Great. And then on the buyback, I mean, Mark, you previously said that you like buying your shares in under 50 they've stayed in that range and it looks like you're on pace to finish your current authorization actually here in 2018. I was hoping you could talk about your willingness to go to the board for another authorization? And if so, how soon we should expect those conversations to happen? Yes. So I think we've been very, transparent about what we want to do with cash. Growth capital is on the top of our list. How do we use our capital to to grow the company, cash return to our shareholders and then targeted acquisitions. And our eye core acquisition, I think fits into that category of targeted acquisitions, the kind of things that we're looking to add to the to the company. So You're right. I thought, Mark and I, talk all the time about the fact that we, we believe that the this company is undervalued. And at that point in time, we felt like this was a great opportunity and a great return to buy our stock. You know, we'll continue to do that as long as we feel that, it makes sense for us and our shareholders. And, we anticipate going back to our board mid year and talking to them about additional share buyback opportunities. Obviously, it's a board decision. But we will engage with them midyear. Great. Thank you. Our next question comes from the line of Vincent Andrews from Morgan Stanley. Your line is open. Thank you, and good morning, everyone. Just a question on foreign exchange. If I look at Slide 5, you had a $43,000,000 currency benefit. So it looks like you have a very strong pass through from a margin perspective. So you just remind us sort of where you have transactional benefits from FX? And then what are your assumptions for FX benefit for this year? And then how's that changed versus the beginning of your if call? Yeah. Hi, Vincent. It's Mark Newman. I would say most of our currency benefit comes from the euro U. S. Dollar currency fair, and it manifests itself probably more so in our TiO2 business than in all the segments, although we saw currency as a benefit in in all three segments. And so I think sitting here today, you know, our view on currency is contemplated in our guidance. You know, there's been a lot of talk recently of, you know, US dollar strengthening with Fed Tightening. So I think some of the currency that we see in this quarter may not necessarily be ratable throughout the year, but clearly, it's a benefit in the quarter, and it's something that we've factored into our thinking for the rest of the year. Okay. And just as a follow-up on slide 12, the headline now says that you expect to meet or exceed the 3 year target. So I'm just wondering, can you kind of drill that down to? Is it, do you mean these sort of line items there or do you mean in all segments or how should we be thinking about where you see the upside? Yes. And, Vincent, we didn't mean to be cute with the meter exceed, but it's like you picked up on it. There's in there that we feel very confident that we can exceed, especially with the strength we have in 2018. And as you look over the 3 year period and some of those may be more on a meat standpoint. So obviously the EPS side of things, cash return to shareholders, we think probably fit in those exceed buckets. We'll most likely up this toward the end of the year for everybody, but you're reading it well. With a good start to this year and what we see for the rest of this year we think at least in some of those metrics, we are very confident on the infeed. Our next question comes from the line of P. J. Juvekar from Citigroup. Your line is open. Yes. Hi. Good morning. Hi, TJ. So, Opteon, you've been adjusting Opteon prices to to auto OEM customers for a while. I want your base refrigerant prices keep going up. Mean, that's opposite of what you would think. You would think that new product prices go up and oil prices decline. So can you talk a little bit about the dynamic and how do you see that going forward? Yes. So you got to think of this p j, I think, is 3 buckets. Number 1 is opteon for mobile air conditioning with OEMs. Right? And as we've been very, open with everybody, as you put multi year contracts in with an automotive OEM, you have productivity, each year that you have to deliver to that OEM, which, you know, our job on our it it manifests itself in lower price to the OEM and our side is to try to, come up with, productivity opportunities to offset that. So that's one area that price fundamentally goes down. 2nd is, on the stationary refrigerant side where we've had a nice uptick, specifically because of FCAP regulations in Europe. That's been strong in price for us. And then the 3rd leg is your base refrigerant, and you're absolutely right that you would think new products go up and old products go down in terms of price. But Remember, the quota system, for base refrigerants actually drives, volume down. And because of that demand doesn't come down subsequent or equal to that, your price is gonna pop up. So you have a stronger price position at least in the areas where the quota plays. So when you put those 3 together, That's why the composite on our Fluor Chemical business price is what it is. Thank you for that. And then I have a second question on TiO2. You mentioned chloride feedstocks are going up. So given your flexibility in your system, you can low grade your ores and and adjust or you can use that as an excuse to go out and raise TiO2 prices. So how do you think about that optionality that you have that is unique to you And what connections would you take? Yes. So I would say that's something that, you know, Bryanstone and the team worked on every month right, in terms of, they look at the the, the options they have in front of them. You're exactly right. We have the ability to to operate those ores, or blends differently. Now you have to understand you can't turn necessarily on a dime on that. You have to plan that out. So you'd stage the ores in front of your facilities in the right time frame. But we think about that all the time, and that's part of the logic for us on value stabilization is working with our customers so they can get a dependable supply of of TiO2. We get a dependable demand signal from them. And they can plan out their year, or subsequent years in terms of knowing what they're gonna be paying for that so they can run their business more efficiently and we can run ours more efficiently. So you're right. We have that flexibility all the time, but it is contemplated inside of the whole strategy. Of value stabilization. Our next question comes from the line of Laurence Alexander from Jefferies. Your line is open. Good morning. I guess a couple of questions. First can you quantify how much outages should hit your EBITDA line year over year? And Then can you also, for the TiO2 market, could you maybe compare and contrast the current environment with environment right before the last, peak in the cycle, in terms of what you're seeing in terms of order trends the breadth of order strength around the world, inventory levels, raw materials. I mean, just if you can sort of just give feel for where you think we are and how it's different? Yes. So let me hit the first one, first for you, Lawrence. So outages, you know, obviously, we take, like any company, take, a normal maintenance outages on your facilities all the time. This year, because of the work and actually excellent work that our team has done on really when we take these outages, we've been able to spread these out a little bit longer, than normal. And and because of that, there's a cost benefit for us. There's also capacity benefit for us on that. We just happen to be in a year where we have some fluoropolymer outages well planned for, teams have been working on this for probably 18 months, to be honest, to get ready for these. So I think we'll execute these extremely well. But at the same time, you know, we build the inventory upfront to be able to handle our customer's needs. These are all contemplated as as we're going forward with it. So We don't quantify that. It obviously is all part of our guidance. We don't quantify those Lawrence, but I will tell you that this is probably a year where we have a little bit more than less around that, but all planned for, and I feel very confident that the team's gonna execute off of that well. Your second question around, TiO2, I this is very different from from when, from the time frame you talked about before. I don't think we're seeing at least from our standpoint, we see very good steady demand across the industry. We see clear signals from our customers, from a demand standpoint. We monitor inventories across and we don't see any spike in inventory or holding or hoarding. So I would say this is an extremely different situation than what we've seen in the past. Very manageable. And again, what we've said all along is I think the industry is at a very high utilization rate and, we don't see that being disrupted over the next several years. Our next question comes from the line of Jeff Zekauskas. Please state your company name. Your line is open. JPMorgan. Mark, I was wondering what you thought of the March, Chinese titanium dioxide export numbers, and that it seemed to have represented departure from previous levels. And what's your expectation of, I don't know, monthly exports from China for the remainder of the year? And do you think that that disrupts the titanium dioxide supply demand balances? Yeah. So you're you're right, Jeff. The the exports out of China were a little bit higher and, going into different parts of the world primarily, Europe and Asia Pacific, and the Middle East. I I'd say they continue so first of all, they don't intercept us They are still going at the lower end of the market. And I also think that they are actually fulfilling demand. So what's happening here is I think you're seeing demand continue to be pulled, around the world, and this supply is actually fulfilling demand versus off setting supply that's already there. So that's a very different dynamic. And if you looked at that data, the price point was higher. Coming out, from the last period. So you're having a higher price coming in. So planning not to planning anyone else's supply really fulfilling demand, and that demand is at the lower end, of the quality curve. So At this point in time, I think it's just very normal and natural, if you will, for global supply to be able to seek where it needs to go and I do not see that as being disruptive, nor do I see that being disruptive for sure for us. And then for my follow-up, I have a a question from Mark Newman. In your slides, I think you talked about $47,000,000 of inflationary costs. But there was no discussion of any cost reduction or the effects of cost reduction? Is your cost reduction done or what do you expect to accomplish for 2018? And what did you accomplish here over here in the first quarter? Yes. I'd say we we you know, 1st of all, I think we've said before on our TiO two business, we had contemplated, you know, higher ore costs, which are reflected in the pricing actions that we took. So I think they're just showing up in that line. You know, we keep a very tight lid on our fixed cost structure. If you notice, Jeff, you know, while our revenues were up 20%, our COGS is up probably close to 10%. Our SG and A is down nominally year over year, and our SG as a percentage of sale is actually a single digit. So we've done a lot of work to really dial in the costs, the fixed costs out of the business and continue to do that. But really, you know, we continue to be focused on you know, growing our our our earnings and, you know, investing in areas of the business where it makes sense to do so versus the initial focus on the transformation plan, which was primarily cost focus. And, Jeff, just to add to Mark's point, I want to just reiterate, we have not and will not take our eye off the cost side of the equation. We're always looking for how to drive efficiency inside the company, how to do things better, So a lot of the costs that you saw was really raw material or distribution, or cost of good sold from a manufacturing standpoint. We continue to keep our eye very, very closely on the fixed cost side. Our next question comes from the line of Bob Court from Goldman Sachs. Your line is open. Yeah. Good morning, everyone. This is Chris Evans on for Bob. First, I just wanted to congratulate Alicia. It was a really fun, and I appreciate it all the time. You're helping us up on the story as we ramped in. So thanks and congrats. Next, a question on the floral margins. A nice uptick in the quarter. I just wanted to make sure in terms of how your quota was being, for the legacy refrigerant was being outlayed that there wasn't any sort of one time or any any special considerations that might have had that. Step up higher than you might see for the rest of the year. And then just I wanted your comments, Mark, on how that margin looks just sort of over over a longer period of time. You previously targeted the high 20s in your over a longer period of time, and you're already there. So I just wanna maybe some commentary on on what you think the ultimate profitability could be for the segment. Yes. And, Alicia, you made Alicia blush. So, thanks for doing that, Chris. I think There's nothing strange in the quarter. So there wasn't any one time opportunity in the quarter. I think this is what you should expect of the floor margins. Mid to mid to high twenties is what we've said, and and that's where we're living right now. And you're right. We got there a little bit quicker. I think Paul Kersian, the team have done an exceptional job of, getting the Fluoropolymer side. We always knew the Fluor Chemical side was was rock solid with Opteon. I think the F gas regulations in Europe have pulled a little bit harder on our stationary refrigerant side, but it's just accelerating volume, more than anything else. And then we've had, you know, benefit of the price increases on Fluoropolymers last year. We have a very targeted price increase going on this year, but the application development engine is really starting to work on the Fluoropolymer side. So maybe a little bit earlier, but I would say these are very sustainable margins. Great. And the S gas regulations were helpful this but the, Kigali amendment goes into force, I believe, January 1, of 'nineteen. And so you're already seeing some positive pricing or some strong, really strong positive pricing in the legacy HFC business. But I mean, do you imagine Kigali could be an additional incremental benefit going into next year? Yeah. For sure. Kugali is very important for these businesses for this business. And, you know, Paul and his team are very focused on that you're absolutely right. That's a huge benefit for us going forward because now you get the global impact that we've been seeing in Europe. Thank you. Our next question comes from the line of Don Carson from Susquehanna. Your line is open. Good morning. This is Emily Wagner on for Don. In the longer term TiO2 contracts, what downside protection do you get for not raising the contract prices in line with spot? Is there an absolute floor price or a certain percentage above the spot price during a down cycle? Thanks, Emily. Emily, we don't really talk specifics about the contract we think those are proprietary with each of our customers, but I can assure you that, the the cost of ore is contemplated inside of how we evaluate those contracts or at least our understanding where oil price costs will be So we protect both ourselves and our customers through that, but, we don't really talk specifics about that. Got it. And then in terms of the debottlenecks you referenced at your Investor Day, what capacity and production increases do you see in in 2018 through 2020? Yes. We said 10% is what we were, really trying to drive through now in 2021. From that standpoint. And those are on track. You know, we're really excited about getting the teams motivated to do that. Some of those are equipment. Some of those are process changes, and we're executing all of those. Our next question comes from the line of Roger Spitz from Bank of America. Your line is open. Thank you and good morning. Can you tell us what the expected EBITDA impact if any of the, floral polymer plan turnarounds in q 218andq318? Those are all contemplated, Robert, inside of our guidance. So from that standpoint, we have always known of these, and we've always planned around them. So they are absolutely part of our guidance going forward. Sure. But I was just trying to see what the size might be so I can know how to shape the the, the EBITDA over the next Yeah. So so I would say the best way for you to think about this is, I know this is gonna sound a little goofy. Ignore it because with the way we plan the year and the way our costs flow. Because remember, uh-uh, when you do a shutdown of this nature, these are uh-uh, you know, these are these are large shutdowns that are actually ratable over a period of time. So all those costs don't flow into one period. And we still kept the revenue because we have the the product that we have in inventory going forward. So as you think about modeling, I would say ignore that from a standpoint because it's already contemplated in terms of how our cost and revenue are going to play. Okay. And my other question is, maybe it's asking a little bit different. Talking about your view of the shape of the TiO2 cycle from where we are over the next, year or so? Yes. We would, we would say that, we don't believe there is a cycle and we believe it's going to be fairly steady and flat from that standpoint. You know, that's part of the whole concept. And I know that everyone is brought into our value stable theory, but I could tell you, I am absolutely bought into it, based on how the team is executing off of it. And the interactions we're having with customers at the same time. So, I really believe that this is something that you're not gonna see any form of a cycle over the next couple of years. Our last question comes from the line of John Roberts from UBS. Your line is open. And back on the Chinese exports, the increase to Europe is most striking. And that's probably related to the poor outage, But do you think that business is profitable for the Chinese? Or do you think they're making a strategic investment to gain a foothold there and willing to lose money on those sales? Well, 1st of all, prices are pretty high there, John. So I don't think anyone's, doing that from a strategic purpose. I I think there is a a need for product because of Pori. I think that you're absolutely right, at least from our perspective. There's a market that served that isn't getting served, right now. And I think that's why you're seeing it go in there. But, you know, I would ask you guys, look at price going in there as well as the volume. And I think you'll see that, this is filling a need and it's filling a need at a pretty good price point. So from that standpoint, that's why we're not concerned about it. Our last question comes from the line of P. J. Juvekar from Citigroup. Mark, do you think the industry, the TiO2 industry over earned a little bit in 2017 with the 40 outage? In the Chinese shutting down capacity. And related to that, how much of the Chinese capacity do you think can restart back up? With some new investments in pollution control equipment? Thank you. Yes, P. J. I don't know if I'd call it overrun. From that standpoint. Did did it have a little bit of a did it have an effect on supply into the market for sure, right? And I but I don't think it was from an over earning standpoint. I would say that from our view, we're not seeing a whole lot of restart of all of everything that was shut down. I think that there might be some new capacity coming in in time. But I, you know, I've spent a lot of time, Mark Newman, and I went over to China about a month and a half ago. We spent a lot of time with our customers there and a lot of time inside the market. And we are absolutely convinced. And and I'm sure many of the folks you talked to would say the same thing that this environmental regulation enforcement in China is real. I think it not only is it real, but it's sustainable. I think the government is very serious about it, and I think it's become a KPI. Inside the country for a lot of the provincial, governments. And so from that standpoint, I don't see these things coming back unless a major investment is being made in their facilities, which will increase their costs or something significant changes from the standpoint of how they operate. So again, I think this is still going to play out over the next couple of years, and I don't see all that supply coming back. Okay. Thank you. That's okay. Thank you. There are no further questions at this time. I will turn it back over to Mark Verdnano for closing remarks. So thanks again. And, thanks everyone for for joining us. You know, our first quarter 2018 results really exemplify the commitment we've made to earning our way to growth. I wanna, again, say the efforts of all our employees are really paying dividends and are continuing to be really the cornerstone of us achieving our 2018 outlook. And as I said before, exceeding our 3 year targets. So again, thank you all for joining on the call, and thanks for your continued interest course. This concludes today's conference call. You may now disconnect.