Earnings Call: Q2 2021

Jul 30, 2021

Good day and thank you for standing by. Welcome to the Keymorrows Company Second Quarter Earnings Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. I would now like to hand the conference over to your speaker today, John Locke, VP, Corporate Development and Investor Relations. Good morning, and welcome to The Chemours Company's 2nd Quarter 2021 Earnings Conference Call. I'm joined today by Mark Newman, President and Chief Officer and Sameer Ralham, 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 contains forward looking statements that involve risks and uncertainties, Including the impact of COVID-nineteen on our business and operations and the other risks and uncertainties described in the documents Chemours has filed with the 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 Actual results may differ and Chemours undertakes no duty to update any forward looking statements as a result of future developments or new information. During the course of this call, management will refer to certain non GAAP financial measures that we believe are useful to investors evaluating the company's performance. A reconciliation of non GAAP terms and adjustments are included in our release and at the end of this presentation. With that, I'll turn the call over to our CEO, Mark Newman, who will review the highlights from the Q2. Mark? Thank you, Jonathan, and thank you to everyone on the call for joining us today. I'm excited to be speaking to you today on my first earnings call As CEO of the Chemours Company, it's a busy time here at Chemours, but the energy I feel from our people, From our customers, suppliers and investors is so incredible. This has been in part driven by the broader macroeconomic recovery From COVID-nineteen, but more importantly, I think it reflects the enthusiasm and passion of our teams and a deeply held belief that our chemistry has the power to change the world. To that end, I have charged the people of this company to drive even sharper focus on creating the best products for our customers and helping solve the world's biggest challenges from climate change to energy storage to high speed data. Our chemistry is fundamental to the future and through our innovation, we have the power to make a difference. There is a rich canvas of opportunity, which lays ahead of us and we are well positioned to drive long term growth For the benefit of all our stakeholders, in 2021, we are focused squarely on delivering on our plans and ensuring that we take full advantage of market opportunities, which we are uniquely positioned to capture. Turning now to the highlights from the Q2 on Chart 3. Demand momentum from the Q1 Continued into Q2 as the global recovery from COVID-nineteen continued at pace. We set a number of revenue and records across the portfolio in the 2nd quarter, including achieving the 3rd highest quarterly sales In Chemours history, net sales increased 51 percent to $1,700,000,000 while adjusted EBITDA of $366,000,000 increased $200,000,000 from the prior year quarter. Our Titanium Technologies results Demonstrate the benefits of our TVS strategy and the continued economic recovery, Driving our volumes to historic levels and supporting higher type curve pricing across all channels. We are delivering on the challenging supply chain and logistic conditions, which is becoming a real differentiator in customer choice. The execution of Telius improves our quality of earnings through the cycle by creating mutually beneficial Long term relationships with our customers and building a better book of business. In our Thermal and Specialized Solutions segment, We reported another strong quarter. Rebounding global markets are supporting improved volumes and higher pricing in base refrigerants. Operationally, we have recovered well from the weather impacted Q1, which helped to support our strong margin performance in the quarter. The global transition to HFO technology is underway with many years of growth ahead, Enabled by better enforcement of FCAS regulations in Europe and the coming implementation of AIM regulations in the U. S. We have shown incredible progress in our Advanced Performance Materials segment. Demand has recovered Across the majority of our end markets, leading to historic highs for quarterly sales and adjusted EBITDA this quarter. APM is transforming fast and prime to deliver. The business is delivering on proof points that Support our near term GDP plus growth ambition. Meanwhile, we are positioning ourselves to capture secular growth Over time as key trends take hold in semiconductor manufacturing, 5 gs communication and hydrogen generation. I'm especially proud of these results in the context of global supply chain disruptions, which have impacted everything From the raw materials we procure to shipping containers which we use to serve our customers, everyone at Chemours has stepped up Over the last several months to support stable operations, and I would like to take this opportunity Thank the entire team for their continued dedication to our customers. This week, we also announced the signing of a definitive agreement to divest our Mining Solutions business to Drazlovskovska for $520,000,000 or 10x 2020 fiscal year adjusted EBITDA. With this transaction, we are furthering our strategy to focus our portfolio and drive long term growth around our 3 core businesses. This was a great result for Chemours, the Mining Solutions team And for our shareholders, we executed quickly having just launched the process in Q1 and anticipate the transaction will close Before turning things over to Sameer, I wanted to cover one more topic. The most recent publication of our 2020 Corporate Responsibility Commitment Report released a few days ago. The annual publication of our CRC report has become a tradition at Chemours, which I look forward to. 4 years into our sustainability journey, we continue to make significant progress against an ambitious set of 2,030 goals. I'll discuss the content of the report in more detail here on Chart 4. In 2018, We set out to chart a new course for Chemours and the chemical industry more broadly. We introduced a comprehensive set goals designed to push ourselves to a higher standard and we have been relentless in our pursuit of these goals over the last several years. As a reminder, these goals cover our shared planet, inspired people and an evolved Portfolio. When we set these goals, we weren't entirely sure how we would achieve them by 2,030, But we have attacked them with the same result we took to the spin, our transformation and reshaping our portfolio. As you can see on Chart 5, even in a year marked by COVID-nineteen, our teams have rallied around this common cause To deliver significant progress across the board. This is so important and exciting to me because we know that priorities Become clear on the times of duress. In 2020, we kept our focus on our North Star, keeping our people safe and serving our customers, but also saw to it that we continue to make progress against our CRC goals. On the shared planet, we have reduced our fluorinated organic compound emissions and our greenhouse gas emissions by 48% and 29% respectively from our 2018 baselines. We are on track to hit both Our 99% reduction target for fluorinated compound emissions and our 60 Absolute reduction in greenhouse gas emissions by 2,030. We are targeting net 0 greenhouse gas emissions By 2,050, in our inspired people pillar, I would like to highlight the increase in female representation On the senior executive team, up to 44% as of July 1st From 13% only a few years ago. There's still work to be done to ensure our overall workforce Gets to 50% women by 2,030, but I am proud of the success we have had at the leadership level thus far. With respect to the ethnic diversity of our U. S. Workforce, we are nearing our goal of 20%, Again, with significant representation on our senior executive team. Finally, in EVOLVE portfolio, Over 1 third of our products by revenue make a specific contribution to the UN Sustainable Development Goals. As we move closer to our goal of ensuring 50% or more of our revenue comes from offerings that make Specific contribution to the UN Sustainable Development Goals. The headlines are Opteon and Nathion, but Chemours is making a difference much more broadly across the portfolio. For all the details, Please have a look at our CRC report posted on our Investor Relations website. With that, I'll turn things over Samir to review the financial results for the quarter. I'll be back to talk about our revised guidance before turning to Q and A. Samir? Thanks, Mark. Turning to Chart 6. Results in the 2nd quarter continued the trend from Q1 with demand improving across the portfolio. Q2 net sales of $1,700,000,000 were up 51% year over year and 15% on a sequential basis. The global recovery continued to pick up steam across most of our end markets. GAAP EPS was $0.39 per share With adjusted EPS of $1.20 per share, adjusted EPS reflects add back of 2 key charges, $169,000,000 related to remediation of on-site water at our faithful site to address legacy liabilities And $25,000,000 associated with the Delaware settlement, which we announced several weeks ago. I'll cover these in more detail on the next chart. Adjusted EBITDA increased by $200,000,000 to $366,000,000 in the 2nd quarter, driven by higher volumes and pricing With currency providing a slight tailwind. Margins rose to 22% on a company wide basis. Free cash flow in the quarter was $189,000,000 Our cash performance in the quarter reflects our continued commitment to improving the overall quality of earnings for the company and more importantly, converting earnings to cash. On July 28, our Board of Directors approved a Q3 2021 dividend of $0.25 per share. This amount is unchanged from the prior quarter and will be payable to shareholders of record as of August 16, 2021. Turning to Chart 7. Let's take a closer look at the composition of the 2 key charges we took in the quarter, including the potential cash flow impact over time. As previously announced, we entered into a settlement with the State of Delaware in the 2nd quarter, of which Camorra will bear 50% of the cost $25,000,000 This amount is expected to be paid in the Q3 this year. 2nd chart is a $169,000,000 add back to adjusted EBITDA related to legacy remediation at Faithful Works. As you will recall, Our consent order with the State of North Carolina has 4 key elements. 1st, emissions to air, which we addressed with a thermal oxidizer that became operational in December 2019. 2nd, discharges of processed water, which we are addressing with off-site treatment. 3rd, treatment of legacy off-site drinking water supplies, which we are addressing in the surrounding community. And last one, remediation of legacy on-site ground and surface water contamination. The charge of $169,000,000 That we have taken in this quarter is primarily related to our current estimate to address this last item. As you can see at the bottom of the chart, It's primarily composed of estimated cost to build a barrier wall and the long term operations monitoring and maintenance costs. We anticipate regulatory approval from North Carolina on the design of the barrier wall during the second half of twenty twenty one and expect construction to take place throughout all of 2022 Q1 2023. The bars on the right hand side of the page illustrate The free cash flow impact of the entire faithful accrual of $355,000,000 over 20 years. Over the next 3 years, Commercial spend roughly $80,000,000 on construction and start up. Maintenance and operating costs are to be approximately $5,000,000 of cash spent per year. Both of these figures assume a benefit of cost sharing under the MOU with DuPont and Corteva until the year 2040. We are proud of the work our teams are doing to ensure we live up to our consent order and enhance the sustainable manufacturing practices of the fatal work site, which we expect to continue to be a key employer in the region and will play a key role in the growth of our APM business, serving markets such as 5 gs and the hydrogen economy. We continue to work cooperatively with the State of North Carolina to put the final pieces of the project in place. I hope that this chart is helpful to our investors to understand not just its impact on our free cash flow, but also a clear demonstration of what we're doing to honor our commitments. Turning to Chart 8, let's review the adjusted EBITDA bridge for the Q2. In Q2 2021, adjusted EBITDA was $366,000,000 up $200,000,000 from the same period in 2020. Higher pricing in TT and APM More than offset contractual price downs in TSS. Volume was a big story in Q2 on a year over year basis. We delivered significantly higher volumes across all of our operating segments, led by TT and TSS. I'll cover the segment specific drivers and provide a bit more color in a few charts. Higher costs in the quarter were attributable to Operating costs due to production ramp up and supply chain issues, raw material input inflation, increased costs related to environmental and legacy costs And higher performance based compensation. We continue to operate well despite global logistics and supply chain issues. Turning now to Chart 9, where I'll cover liquidity. Our cash position, liquidity and balance sheet remains strong as we move into the second half of the year. Our cash balance at the end of second quarter was $1,100,000,000 up from $1,000,000,000 in the prior quarter. We generated 2.50 $1,000,000 in operating cash flow in the 2nd quarter, while CapEx was $67,000,000 We returned $42,000,000 to shareholders In the form of dividends, repurchased $13,000,000 of stock and reduced the U. S. Dollar term loan by $23,000,000 We will continue to have a balanced approach to capital allocation. Net leverage improved to 2.6 times on a trailing 12 month basis, Down from 3.4 times in the prior quarter. Total liquidity is solid at $1,800,000,000 including revolver availability of $689,000,000 We continue to be well positioned and have balancing flexibility to support our operations And supply chain to meet increasing customer demand. On Chart 10, I'll cover the results and outlook of our Titanium Technologies segment. Accelerating economic activity and normalizing CECL consumption led to strong demand for TiClare pigment in the 2nd quarter. Demand has steadily improved across all end markets, product categories and geographies. Strong sequential volume growth reflected Typical seasonal gains and progress towards our share recovery target. Our ability to meet robust customer demand was achieved Despite supply chain and logistics issues around the world, our flexible manufacturing circuit and the dedicated work of our operations, Procurement and supply chain themes led to record operating performance. Turning to the numbers. 2nd quarter net sales rose 76% to $859,000,000 Volume increased 66% versus the prior year and 15% sequentially. Price was up 5% year over year and improved 3% sequentially, driven by gains across all selling channels. In the quarter, we began to see the benefit of price actions taken over the preceding 2 quarters of Flex. Pricing in our contracted AVA channel also improved, driven by both contractual and negotiated mechanisms, reflecting an inflationary global environment. Adjusted EBITDA for the segment rose 133 percent to $219,000,000 driven higher by the volume led sales recovery. Adjusted EBITDA margin increased by 600 basis points to 25%. Embedded in our improved results were higher plant fixed to support volume growth, modestly higher raws and expenses associated with supply chain disruptions. Multi year supply contracts insulate us from Short term movements in price, but like much of the industry, we were dealing with lingering raw material shortages that forced us to operate the manufacturing circuit sub optimally to meet higher customer demand. As we look ahead, we expect continued strong performance in the second half with demand reflecting typical seasonal patterns. Our teams are 100% focused on supporting customers' increasing demand and driving adjusted EBITDA margin expansion. Normalization of supply chain challenges will be a key component in achieving this goal. Moving to Chart 11, Thermal and Specialized Solutions delivered a strong year over year Q2 with contributions across all regions and markets driven by the economic recovery, With sequential upside driven further by strong seasonal refrigerant trends. Opteon adoption drove improvement across stationary and markets despite constrained automotive production from the ongoing semiconductor chip shortages. Our customers continue to select Opteon as the refrigerant solution of the future and seek a mortgage as a partner of choice. Earlier this quarter, we announced that Johnson Controls has selected Opteon XL41 to replace R410A in North America and HEVC products And Air Cooled Scroll Chillers. We also announced our support of the Beijing 2022 Olympic Winter Games with Opteon low GWP refrigerants at a number of facilities. These are great wins for the Comoros Option franchise and for the planet. Looking more closely at the results, Q2 net sales increased by 47% year over year to $340,000,000 and increased 12% sequentially. Volume growth led to a year over year recovery. Price was a 3% headwind on a year over year basis, driven by contractual price downs in certain product categories, That rose 5% on a sequential basis. Pricing reflected improved demand conditions, including stronger enforcement of FCAS in Europe and healthier demand in the Americas. Segment adjusted EBITDA increased 113% year over year to $117,000,000 in the quarter. Adjusted EBITDA margins increased 1,000 basis points to 34% versus the prior year quarter. Higher sales volumes, mix and improved client operating rates more than offset modest headwinds from lower segment prices and higher costs needed to support higher demand. Looking ahead, we expect a continued market recovery along normal seasonal patterns. Adjusted EBITDA margins are anticipated to continue in the low 30% for the remainder of 2021. We are well positioned to support customers' transition from legacy HFCs to next generation global warming potential solutions As U. S. AIM regulation accelerates Opteon adoption, EPA is working to codify standards for HFC transitions under the USAIM Act, which is expected to go into effect January 1, 2022. Turning to Chartwell, I'll cover our Advanced Performance Materials segment. I would like to start by highlighting the strong performance for the segment We've just delivered its highest quarterly net sales and adjusted EBITDA in Comoros' history. The segment continues to benefit from strong demand With strength in our electronics, communications, industrial and transportation markets, logistics and raw material availability Challenge our ability to meet demand in this quarter. It's a testament to our employees and the collaboration of our suppliers and customers That enabled us to achieve the results we shared today. We continue to drive pricing actions at the customer and product level, which can sometimes be muted by mix effects across our diversified product portfolio, as was the case this quarter. Given the specialty nature and high performance characteristics of APM products, we work with our customers to ensure that our pricing is reflective of the value they provide. Net sales improved 24% year over year to $362,000,000 driven primarily by 19% volume growth. Segment adjusted EBITDA was $74,000,000 a 76% increase over last year's 2nd quarter of $42,000,000 and a notable 45% improvement sequentially. The sequential EBITDA growth demonstrates the operating leverage of this business and highlight the long term potential of our top line growth journey. Adjusted EBITDA margins of 20% improved 600 basis points versus the prior year quarter, exceeding our initial expectations and previous guidance for high teens margins, Despite being weighed down by costs related to supply chain disruptions and higher performance based compensation. Looking ahead to the rest of the year, we anticipate strong customer demand to continue to drive growth on a year over year basis. We believe full year adjusted EBITDA margins will be in the high teens percent range and we remain committed to achieving the low 20 percent in 2022. Moving ahead to our Chemical Solutions segment on Chart 13. 2nd quarter net sales were $94,000,000 An increase of 15% year over year, inclusive of a 17% portfolio impact from the shutdown of our Anilent business last year. 26% year over year volume growth was driven by a continuation of a robust demand in sodium cyanide and glycolic acid products. We expect momentum to continue in Mining Solutions with steady improvement in the gold mining environment and the demand for glycolic acid is expected to remain strong as well. Adjusted EBITDA was $19,000,000 for the Q2 of 2021 with modest cost headwinds from logistics and supply chain considerations offsetting a better sales performance. With that, I'll turn things back over to our CEO, Mark Newman. Mark? Thanks, Sameer. We are updating our guidance for the full year To reflect the momentum we feel across the business, we now believe that our full year 2021 adjusted EBITDA and adjusted EPS We'll be in the upper end of the previously communicated range. Recall that we had raised both of these figures during our Q1 earnings announcement. We are leaving our free cash flow guidance unchanged at greater than $450,000,000 To reflect the impact of one time cash payments in the year, including our Ohio MDL payment earlier in the year And a recent settlement with the State of Delaware, which Sameer took us through. Operating cash flow continues to be strong. This outlook, of course, excludes the impact of the mining solutions divestiture that we just announced. We believe We are well set up for a great 2021 and we'll continue to focus on executing our differentiated business strategies throughout the year. We remain fully committed to generating significant earnings and free cash flow Through the cycle, improving our quality of earnings over time and maximizing the value of Chemours over the long term. In July, we celebrated our 6th birthday as a company. It's hard to believe how quickly the time has flown. We have achieved a lot in the last 6 years and our bright future is built upon the strong foundation We have laid as a team. It all starts with our people, the 6,500 employees of Chemours, Who I am so proud to lead. I look forward to continuing our great work together. As CEO, I promise to lead with an eye toward helping each of you succeed and enjoy a rewarding career at Chemours. Together, we must continue to move fast and with the entrepreneurial spirit that has served us so well since then. As I think about the future, it is impossible to ignore the macro trends and the context in which we operate. As a chemical company with a long and proud heritage, we are the foundation for innovation around the world. Improvements in the performance, environmental footprint and cost of our products has a multiplier effect Well beyond Chemours, Opteon and Nafion are just two examples of how Chemours chemistry can change the world. We will continue to deliver market leading improvements in our industry to help power the future. I look forward to engaging with you, our investors, over the coming months to help you see the full potential of this company Through our eyes, I believe the future is bright here at Chemours, and I appreciate your support in helping us achieve All that we are capable of. With that, operator, please open the line for questions. Your first question is from John Mignosi with BMO Capital Markets. Yes, good morning. Thanks for taking my question. Maybe Quick or relatively easy one to start out. On the TiO2 business, you commented in the release that you saw pricing across all channels. Can you maybe unpack that a little bit for us and speak to the pricing trends that you were able to capture in the TVS side of the business, the contract side of the business, Track side of the business as well as and then maybe give us a little bit of color as to what you were seeing in the portal and distributor side? Yes. Hi, good morning, John. And really a great interest in supply from our Ti Pure throughout the quarter. As we've said, we adjust pricing regularly On our Flex portal and through our distributor channel and as well there are mechanisms to pass on price increases contractually through our ABA contract. So we're seeing clearly with our strong production In the quarter, an ability to supply more product through our Flex and AVA channels, but we're also seeing an ability to take price Based on our contractual arrangement and where PPI is coming in this year, maybe on PPI, I think the view is We'll see mid to high single digits this year. These are through published indices. But again, that's the primary mechanism And we continue to take advantage of that contract release. Got it. That's some helpful color. And then thinking about the TSS segment, it sounds like the AIM Act is going to be certainly a Sizable contributor to growth. Can you help us to quantify how additive that will be as you look to 2022 when it first So we expect so first of all, we're very excited about the The AMAC and the enforcement of the EPA regulations that are being designed and should be finalized later this year, And we believe that will provide a significant leg of growth in the stationary market for Opteon especially. And our expectation is the initial step down from a quarter perspective is approximately 10% From the baseline, that jumps up to 40% from the baseline by 20 24. So our Expectation is we'll start to see some impact in 2022, but that impact will become more significant as People migrate to HFO Technology. Clearly, as you heard in the call, we have OEM manufacturers who are already switching their product line. So that along with the quarter mechanism on the team will really drive demand. Great. Thanks very much for the color. Your next question is from Bob Koort with Goldman Sachs. Thank you very much. Good morning. Mark, I was wondering you guys talked about sort of flexing your circuit in TT in order to meet customer demand. I presume that to mean higher grade, more costly ores. I'm wondering if you could help quantify what the penalty on margins was Or maybe as you look forward, how much more margin uplift you might expect in TT? Yes. I'll ask Sameer to make some additional comments here. But as we look at the year, clearly there is operating leverage In our TT business, which you see with the margin expansion going from Q1 to Q2, we are having to give up Some expansion in margin, really to focus on meeting strong customer needs And addressing all of the supply chain disruption. So as we said early in the year, we've really not been able to optimize the circuit Given the strong demand and our desire to meet customer needs first, but as we work through the year, I think We continue to look for opportunities to optimize. Sameer? Yes. Thanks, Mark. Bob, one of the additional comment I would make is As the core markets have normalized, there will be an opportunity for us to optimize the circuit and drive the margins up. But given how the supply chain is lined up Got it. And then in APM, you had a very respectable improvement in margins, obviously a lot of volume recovery and fixed cost leverage coming through. Kind of surprised with that kind of volume cadence, there was no pricing. So can you talk about the competitive dynamic there? I would Suspected that maybe broadly pricing across that franchise would have improved. Thanks. Yes. These are high value in use polymers and they are priced for the most part based on value in use. There is a bit of a mix impact, but you have a strong economic recovery like we're seeing towards So there's a more commoditized end of the spectrum. So I would say there's a mix impact there as well. And then finally, we're taking price through the quarter, but you'll see the impact As we move forward through time of that showing up more in our results. Great. Thanks for the help. Thank you. Your next question is from Josh Spector with UBS. Yes. Hey, guys. Thanks for taking my question. I guess when you talk about in TiO2 normal seasonal trends in second half, Can you just give us some more color on if that's a function of demand or more supply constraints? And within that outlook, where do you think your Your inventories on the year at this point? So we continue to see strong 2nd half demand across all of our businesses, including in TiO2. And Clearly, as we've stated, we're taking actions to be able to supply our customer needs. As we look at inventories across, Especially in TiO2, our sense in talking to our customers is inventory has remained low And below where folks would like to see them in the entire supply chain. As we look into 2022, clearly, we see the impact of potential impact of the stimulus coming. That's usually a high correlation to strong PI2 demand. So looking out today, we certainly see very strong second half demand. Some of it is primary Some of it is really a preference for Ti Pure and the TV news strategy and us taking Sure. And then as we look beyond 2021, clearly, we could see the impact of the stimulus and rebuilding inventory. Okay. Thanks. I appreciate that. And in your slide on your outlook, you talk about the majority of free cash flow being returned to shareholders, which Isn't a change from what I talked about previously, but you have a podcast that you said now, you have more cash from mining solutions. So how quickly do you return that cash to shareholders? And what's the right level of cash So you think we should be holding on a normalized basis? So maybe I'll ask Samir to comment on the right level of cash. But Clearly, as we said in the call, we view our capital allocations as being balanced. There's a certain level of deleveraging, which we think is prudent from our learnings coming through the depth of the COVID-nineteen pandemic. And then we continue to return cash to shareholders through dividends and stock repurchases, which we started in the quarter. So we're going to have this balanced view going forward while we continue to reinvest prudently in the business. Sameer, I'll ask you to Nick, if you can comment. Yes. Thanks, Mark. I think, George, the way you should be thinking about us from a challenging perspective is, as we said earlier, right, we do want to reduce our gross debt by Roughly $500,000,000 over the next 3 years. So you're going to see us using our cash in a balanced form and we want to make sure our net leverage is less than 3 times. With respect to the Mining Solutions point that you made, I think the way you should be thinking about is the proceeds of Mining Solutions, of course, give us more degrees of freedom. The proceeds of mining solutions combined with a strong operating cash flow will be used in mind with our capital allocation policy and debt agreements. So you'll see us doing In a balanced form and that is composed of debt reductions, investments and share buybacks. Okay. Thank you. Your next question is from Matthew Beo with Bank of America. Hi. So it looks like price declines in TSS just starting to moderate a bit. Is there any real tangible evidence that illegal refrigerant trade into Europe is slowing? Or is that more a function of Just perhaps the shipping constraints we're seeing more broadly. And if it is the former, how do you how can you expect pricing to develop In that segment. And when theoretically, if it's possible, would we see that royalty income flow back to the company? Is that still kind of out of the question? So, Matt, we remain very positive on our For the TSS business, it's a multi year secular growth trend with both F GaN and AIM. To your question on pricing, we have cost downs in some of our large OEM contracts, Mandy, on the automotive side, but across the rest of the portfolio, it's really driven by market As we said earlier this year, we see improving market dynamics in both North America and in Europe. In Europe, if you read the polling post, you'll see that there's been some higher pace of significant seizures And as we said earlier this year, it's a combination of economic recovery, High and base refrigerant prices and enforcement that really is driving a bit of margin tone. So The overall pricing performance in the quarter is a function of better fundamentals in North America and Europe, Along with our cost downs that we have in some of our large OEM contracts. This is Mark. Just one more point, if I could add is, Matt, your point on the royalty sales. I mean, to me, you mean quota sales. I think the way you should think about this thing is, Alicia and team, this is what's like a full spectrum. This can be monetization of the CO2 equivalent. It can be through quota sales or product sales. So it doesn't have to necessarily come through the quota sales. We optimize it across the portfolio. Okay. And one more if I can. Does the TVA and Flex Mix, Flexportal mix in 2Q shift back to more normal levels? It seemed like 1Q was pretty contract heavy. And I guess with that 15% quarter over quarter increase in TiO2, like how much of that was the Flex volumes? So I think what we said on Q1 in our what we've said earlier is we've decided to take Our share of ABA contracts up towards 70%. We had previously been closer 60% and that really is part of our strategy by Ed Sparks and the team in really Making the business more sticky, filling a better quality book going forward with long term contracts And customers coming back to Kenmore and wanting us to supply it. So we've leveraged a very tight market To build out our EBA book. So that's really where we are today. Our expectation is we would Like to stay in that range of about 70%, because we don't really want we want We'll be able to supply all of our AVA customers. Most of these contracts, as you know, are Based on some share or share commitment, so we have to grow with our customers and be able to support them. We are We're dedicated to all three of our channels as part of our TVS strategy and we really view Flex and distribution as a way Okay, thanks. And your next question comes from the line of Hassan Ahmad with Alembic Global. Good morning, Mark. Mark, obviously, very strong volumes within titanium dioxide, great 15% sequential gains and the like. Now, we know obviously you guys had commented on regaining pretty much All your lost market share by year end. So I'm just trying to figure out where we stand with regards To sort of regaining that lost share, have you guys played catch up as yet? And I guess where I'm going with the conversation is, I would say, we based on our assessment and it is a market that we'll have to look at Where everyone reports in the quarter, but certainly based on our assessment today, our view is We continue to regain share. And in fact, I think it's very likely that we have recaptured all the share that we lost In implementing TBS. And with respect to the second half, I'd just say, We see strong demand in the second half. Our team is very focused on being able to supply that From both the supply chain and operations perspective going forward. Understood. Understood. And Now sticking to TiO2, more on the raw material side of things. Obviously, on the ore side, we've seen sort of supply issues, be it In South Africa, be it in Sierra Leone, and it seems some of these issues will linger on for a while. So how are you guys thinking, particularly as you look 2022 when contracts get reset and the like, how are you thinking about availability as well as pricing for ore? And part and parcel with that, it seems chlorine supply now is becoming a bigger issue as well and chlorine price So, obviously, marching up as well. So, what's the thought process over there and how do you feel about that market as well? We remain well positioned with respect to our supply of all of our inputs to meet our customers' needs For 2021 and continue to work on our book for 2022 based on our outlook today. So Clearly, as I mentioned earlier, some of the supply chain factors, whether it's Availability or other input is really having the impact that we can't optimize our circuit To optimize margin against such a high demand that we're seeing, our focus on supplying our customers. This is a huge part of our value proposition and it's a strengthening part of our franchise So this has been the focus. Our view is as things moderate going into the second half and into 2022, Some of these disruptions will be transitory and we'll be able to optimize our shuriken more fully. Samir, if you have any other comments? I think Mark addressed it well. Amit Hassan, the parts that are in all the raw materials that we secure, we secure it from diverse set of suppliers on long term contractual basis. We make every effort to ensure that these are staggered and that includes ore and chlorine. Very helpful. Thanks so much guys. Your next question is from Vincent Andrews with Morgan Stanley. Hi, this is Steve Hanes on for Vincent. Staying on TiO2, I was wondering if we could just talk a little bit about demand trends in China and Whether you're seeing any types of slowdown or if it's remaining strong and any additional commentary you might have on export outlook, that would be great. On our TiO2 demand, we are seeing strong demand across really all of our product lines and in every We continue to have a great franchise in China, which is growing. So with respect Exports from China and Chinese produce a market share, our assessment is it has actually declined this year Based on inability to supply the market Thank you. Your next question is from Arun Viswanathan with RBC. Great. Thanks for taking my question. I'm just curious, could you comment on the disruptions in supply chain issues for TT? Obviously, we've been on merchant pay issues, but the impact as that flows through for you guys, would Just given your flexibility to source from several areas? Thanks. Yes. As we We said earlier, we source all of our major inputs very strategically. We have long term contracts. We diversify our supply base. As Sameer said, we ensure that they're well layered, so we don't have too many contracts Expiring at any one time. And with that, we remain well supplied despite a lot of challenges from a supply chain The main impact it's having on our business is our inability to say optimize our circuit To drive production, let's say, from our lowest cost plant, to optimize ore blends, that sort of thing. I think you said in our view our transitory aspects we continue to evaluate and the team has just done an amazing job From procurement, supply chain, operations and customer service to ensure We continue to meet customer needs to the best of their listening. Okay. Thanks for that. And just similarly, Over on the mobile side for refrigerants, would you expect some extra catch up next year due to the civil chip shortage Over there. Thanks. Yes, that's probably that's a great question. That's one of the areas where we We've seen some noise in our Q2 results and expect to see some as we move through the rest of this Most of the auto OEMs are indicating to us that to the extent they can, they will try to catch up in the second half of CEVA inventories remain extremely low based on all the public data that we're reading. And so our expectation is The demand from an order perspective will go well into 2022 As OEMs try to refill dealer inventories and really respond to very strong customer demand for new Thanks. Your next question is from P. J. Juvekar with Citi. Hi, good morning. It's Eric Petrone for PJ. Hi, Eric. How did your Nasion iron exchange membranes The quarter is first half and are you seeing greater demand pull from electrolyzers or how you can fuel cells currently? We continue to see growth across all of our APM segments, Including the APM. As we highlighted in our APM deep dive In Q2, we see this business kind of in 3 phases. One, where we are today is a pretty significant turnaround as you saw with the expansion of margins in the quarter. The second is really a GDP plus growth through product development across the entire portfolio. And then thirdly, the focus on secular growth, as we move towards the middle of the decade Around hydrogen and 5 gs, so we're spending a lot of money today in that business on product development and working Within the ecosystem of the hydrogen economy to tie ourselves in very well with both the growth in membranes for electrolysis and fuel cells. So a lot of work going on there And we continue to see improvement in that business, but that really becomes the secular growth that starts, I'd say, towards the middle of the Okay, helpful. And just secondly, you announced, I think, groundbreaking of The new mining facility for titanium ores in Florida, will that increase your backward Gration into ores or is that to replace declining production at other sites? That's primarily Replaced the mines that are end of life in Florida. So our view is It continues to be approximately 10% integrated based on our Florida Georgia complex mining, but Great ore bodies and great supply given all the supply chain risks that we're seeing today. Thank you, Mark. Thank you. And your final question comes from Roger Spitz with Bank of America. Thank you. Good morning. First is Mining Solutions, would you be prepared to provide us OTM June 2021, sales and EBITDA recognizing that the business has materially improved Since 2020? I'm not sure I heard your question. Could you repeat it for me, please? Of course. Would you be able to provide Mining Solutions LTM June 2021 Sales and EBITDA. Yes, Raj, this is Sameer. Why don't I jump in? As you know, we don't disclose that, but overall, if you don't think about the Money Solutions business Based on the commentary in Q1 and Q2, yes, we have seen strength in the business on a year over year basis. But I would The increase is not such in the earnings that you would expect, but it will change in the multiple, that's where you're headed. So the multiple of the business and the proceeds that we got is 10 times rate, Got it. And secondly, you spoke about Normal seasonality in Q3 for TiO2, but would you be prepared to give any view of what that Year over year, Tier two volumes for you guys might look like? No, not Rich. I mean, what we've said is Normal seasonality, but very strong second half demand. Sumit, just one more point I would add to Roger, is At this point, the Ed and team are running the circuit flat out given the old business or sort of issues that we some people have raised already on the call. At this point, our circuit is running flat out. As we're going to get into Q4, we'll get an opportunity to optimize it further as Mark said earlier in the call. So At this point, it's all about meeting the customer needs that we have. Got it. Thank you very much. Thank you. I will now turn the call over to Mark Newman for closing remarks. Well, thanks everyone for being with us When I reflect on the quarter and where we are here today, I'm just very thankful to our 5 100 amazing employees for so many achievements responding to really strong demand, Meeting our customers' needs, going after secular growth, especially in our 2 floral businesses, Looking for opportunities to selectively resolve legacy liabilities and our progress on our corporate And we're doing this in an environment that's challenging. And we continue to delever the company. We continue to return cash to shareholders. So just really thankful for the focus, The execution and the accountability of the team and we remain, as I said earlier, focused on delivering Great, 2021. So thank you.