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Edited Transcript of CC earnings conference call or presentation 2-May-17 12:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 Chemours Co Earnings Call

Wilmington May 3, 2017 (Thomson StreetEvents) -- Edited Transcript of Chemours Co earnings conference call or presentation Tuesday, May 2, 2017 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Alisha Bellezza

The Chemours Company - Director of IR and Treasurer

* Mark E. Newman

The Chemours Company - CFO and SVP

* Mark P. Vergnano

The Chemours Company - CEO, President and Director

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Conference Call Participants

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* Christopher Mark Evans

Goldman Sachs Group Inc., Research Division - Research Analyst

* Donald Carson

Susquehanna Financial Group, LLLP, Research Division - Senior Analyst

* Eric B Petrie

Citigroup Inc, Research Division - Senior Associate

* Jeffrey J. Zekauskas

JP Morgan Chase & Co, Research Division - Senior Analyst

* John Ezekiel E. Roberts

UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst, Chemicals

* Laurence Alexander

Jefferies LLC, Research Division - VP and Equity Research Analyst

* Patrick Duffy Fischer

Barclays PLC, Research Division - Director and Senior Chemical Analyst

* Robert Andrew Koort

Goldman Sachs Group Inc., Research Division - MD

* Roger Neil Spitz

BofA Merrill Lynch, Research Division - Director and High Yield Research Analyst

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Presentation

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Operator [1]

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Good morning. My name is Dan, and I will be your conference operator today. At this time, I would like to welcome everyone to The Chemours Company First Quarter Earnings Call. (Operator Instructions) Thank you. I would now like to turn the call over to Ms. Alisha Bellezza. Please go ahead.

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Alisha Bellezza, The Chemours Company - Director of IR and Treasurer [2]

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Thank you, and good morning, everyone. Welcome to The Chemours Company 2017 First Quarter Earnings Conference Call. I'm joined today by Mark Vergnano, President and Chief Executive Officer, who will begin the call with the highlights of our first quarter; and Mark Newman, Senior Vice President and Chief Financial Officer, who will review our financial performance and liquidity position. Mark Vergnano will then review our business results and conclude the call with our updated outlook.

Before we begin, let me remind you that comments 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, included 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 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 the presentation that accompanies our remarks.

I'll now turn the call over to Mark Vergnano.

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Mark P. Vergnano, The Chemours Company - CEO, President and Director [3]

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Thanks, Alisha, and good morning, everyone. Thank you for joining us today. As you saw in our release yesterday, 2017 is off to a great start, with all segments reporting increased profitability from 1 year ago. In fact, year-over-year, we reported meaningful improvements in all key financial metrics: sales, net income, adjusted EBITDA, EPS and free cash flow. These results would not be possible without the diligence of our workforce. Our employees are the backbone of our company, and their commitment to the execution of our transformation plan has made a huge impact on our businesses.

Over the last year, our Titanium Technologies team has worked with our customers to implement announced price increases towards levels that we believe will be more sustainable, resulting in improved year-over-year pricing in the quarter. The segment also benefited from earlier-than-anticipated demand for Ti-Pure titanium dioxide.

In core products, European and North American adoption of lower global warming products is driving demand for our Opteon refrigerants. We are encouraged by the growth in the quarter and expect to see it continue as adoption picks up in other geographies. Our base refrigerant business also performed well in the quarter on improved pricing and earlier-than-normal demand. Additionally, our fluoropolymer business appears to be stabilizing, with less price degradation than in previous quarters.

Lastly, I am pleased to announce that we've achieved our target net leverage of at or below 3x, a key commitment we made in announcing the transformation plan in August of 2015. Our trailing 12-month net leverage now stands at approximately 2.7x as of March 31.

I will now turn the call over to our CFO, Mark Newman.

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Mark E. Newman, The Chemours Company - CFO and SVP [4]

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Thanks, Mark. Turning to Slide 3, we generated over $1.4 billion of revenue, an 11% year-over-year increase. We reported GAAP net income of $150 million and adjusted net income of $142 million or $0.75 per diluted share. Adjusted EBITDA in the first quarter was $285 million, up $157 million from the prior year quarter, transmitting to a doubling of our adjusted EBITDA margin to 20%. These results were primarily from demand growth in our Titanium Technologies and Fluoroproducts segments, as well as price increases in the Titanium Technologies segment.

We experienced the normal seasonal use of cash for working capital during the quarter, although more muted than in previous years, given our secular reduction in working capital to date. As a result, free cash flow was a use of $28 million, which was about $25 million better than the prior year quarter. However, excluding the benefit of the DuPont prepayment from last year's first quarter, free cash flow improved over $190 million.

As we continue our transformation journey, we've seen notable improvements on our returns. In fact, from last year's first quarter to today, our pretax return on invested capital has increased from 7% to 21%. We will continue to focus on improving profitability of existing assets, while investing in high-return projects to enhance ROIC.

Turning to Slide 4. As I said, adjusted EBITDA improved $157 million on a year-over-year basis. We experienced minimal currency headwinds in the quarter, which were more than offset by meaningful price and volume improvement. Higher average selling prices in Titanium Technologies and prices of our base refrigerants increased adjusted EBITDA by over $80 million in the quarter. This was partially offset by a 3% price decline in prices in fluoropolymer products.

Adoption of Opteon refrigerants and demand for TiO2 was stronger and earlier than expected. This drove a more than $100 million increase to adjusted EBITDA.

Finally, this quarter, higher legal expenses, other elevated corporate costs and portfolio changes from last year were headwinds to adjusted EBITDA. These factors were somewhat mitigated by approximately $20 million of lower cost in our Titanium Technologies and Chemical Solutions businesses.

Our transformation plan cost reductions continue to be a driving force in our business. However, we now believe that it will take us into 2018 to realize the $150 million of cost reduction initially targeted for 2017. We're committed to achieving the full target with about half to be realized this year, in addition to the $300 million of cost reductions already achieved since we became a public company.

As we look forward, 2017 marks the first year of clean year-over-year comparison for Chemours. Beginning this quarter, we will primarily focus on year-over-year performance. While sequential performance comparisons were helpful to investors to see our early progress in spin, we now believe our year-over-year performance is the more relevant comparison going forward.

Let me now provide a brief liquidity update on Slide 5. Cash from operations was $41 million with $176 million of seasonal working capital usage. Capital expenditures in the quarter were $69 million, resulting in a free cash flow use of $28 million. Again, excluding the net $166 million benefit of the DuPont prepayment from the first quarter of 2016, free cash flow improved $191 million versus the same period last year.

Our gross consolidated debt as of March 31 was $3.6 billion. Net of cash, net debt was $2.7 billion.

As Mark mentioned, we have reached our goal of reducing our net leverage ratio to be at or below 3x on a trailing 12-month basis. We are proud of the progress we've made to reduce our net leverage, which you may recall was north of 6x at spin. We continue to take actions to enhance our liquidity and add flexibility to our business. In April, we repriced our existing Term Loan B, shifting a portion of the U.S. dollar loan into a new class of Euro Term Loan B and lowering our interest rate spreads. As a result, we expect to save approximately $8 million annually.

With the final agreement of the key terms and conditions in place between DuPont and the Ohio MDL plaintiffs, we now expect to pay out about $335 million, our portion of the settlement, toward the end of this quarter or early in third quarter. We see this as a conclusion to the uncertainty of a long-term contingent liability. Although we have been able to sustain strong cash position, about 2/3 of our global cash remains overseas. Given the long-term nature of the liability we're settling and our current U.S. cash position, we're evaluating options of funding this settlement with debt, depending on market conditions and other factors.

With the increase in our forecasted 2017 adjusted EBITDA outlook that Mark will cover later in the call, we expect to remain at or below 3x levered after funding our portion of the MDL settlement.

And now I'll turn the call back to Mark.

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Mark P. Vergnano, The Chemours Company - CEO, President and Director [5]

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Thanks, Mark. On Slide 6, you can see that we generated $646 million in revenue and $159 million in adjusted EBITDA from the Titanium Technologies segment in the first quarter, a considerable improvement versus last year. Both price and volume were up low double digits year-over-year. As you may recall, we announced several regional price increases over the last year, and versus a year ago, prices in every region improved. Our global average TiO2 price was up 12% and sequentially up 2%. We are working with our customers to reach a more sustainable price for Ti-Pure, especially in this period of increased demand. Coupled with the increased TiO2 prices, overall volume strength from last quarter has continued, which is somewhat atypical for the first quarter and resulted in a volume increase of 11% over the prior year. We believe this was related to customer-specific demand pull and tighter supply conditions. As a result of this continued volume strength, our lead order times remain extended. Customers view Chemours as a committed, high-quality TiO2 producer. We are seeing strong demand globally and are utilizing all our TiO2 plants at their full capability. We anticipate that longer lead times will remain with us throughout the first half.

In more recent news, some of you may be aware that we declared a force majeure in April in the Europe and Middle East Africa region. This was due to shipping delays resulting from severe weather in the Atlantic and a labor disruption at the Port of Antwerp. While the strike is over, we are navigating through a backlog of approximately 3 weeks from the date of force majeure declaration and working closely with affected customers to manage supply to them with minimal disruption. As of now, we do not expect these delays to have any material impact on our full year results.

On the operational side, our Altamira asset is making great progress, and we continue to be ahead of our ramp-up plan. When we first contemplated the additional line at Altamira, we intended to produce only 2 product grades. However, we've been able to add more products to the line, providing tremendous flexibility to our overall circuit. While this affects the specific tons of output produced from Altamira, it will not affect our global nameplate capacity. We remain focused on optimizing our manufacturing capabilities to drive our low-cost position while meeting our customer needs around the world.

With some of the recent TiO2 supply disruptions, we now expect Titanium Technologies full year volume growth to be slightly above GDP. We are positioned to meet our customer supply needs, and our teams are engaged with our customers to implement previously announced price increases. Given that, we expect to realize further benefits as the year progresses.

Moving to Slide 7. In the first quarter, our Fluoroproducts segment generated $652 million of revenue and $155 million of adjusted EBITDA, with margins improving considerably year-over-year. Higher-than-anticipated volume of our Opteon refrigerants was the main driver for our growth. We continue to see strong adoption in both the EU and the U.S. as this new low global warming refrigerant becomes the standard in the automotive air-conditioning space. In fact, Opteon sales grew over 175% year-over-year. We also saw increased demand for our base refrigerants earlier than in previous years.

We were pleased to see the recent anti-dumping ruling. During the quarter, the U.S. International Trade Commission finalized an import tariff ranging from 149% to 167% on China-based imported refrigerants. This determination could lead to more favorable pricing for our base refrigerants in the coming quarters.

Fluoropolymer products also contributed to the significant volume improvement in the quarter. This is in part related to our increased participation in industrial applications that began in the second half of last year. We also believe that certain environmental actions in China have resulted in the closure or restriction of the capacity from some competitors, which seems to have tightened supply conditions.

While we did continue to experience low -- lower year-over-year prices, we're starting to see the trend abate, particularly in the U.S. and in the Latin American markets. In February, we announced price increases for our fluoropolymers products effective March 1. We have implemented these increases in several of our product lines, and we continue to work with our customers as contracts allow.

With our strong first quarter and earlier-than-expected seasonal demand of base refrigerants, we now expect first half results in this segment to be stronger than the second half. Opteon sales are expected to remain the biggest growth driver of the segment while we continue our efforts in fluoropolymers.

Let me now review the Chemical Solutions segment on Slide 8. We are seeing the benefits of actions taken last year to streamline this portfolio. Despite the loss of revenue related to the divestitures and the site closures that took place during 2016, we realized an adjusted EBITDA improvement of $2 million.

We mentioned last quarter that our Belle, West Virginia facility had reached a break-even position. We now expect the performance chemicals and intermediate product lines to be modestly positive to Chem Solutions results for the year, in addition to the contributions of Mining Solutions.

Let me provide a quick update on our new Mining Solutions facility. We have completed a siting process in Mexico and have successfully advanced the permitting process with a very receptive government and engaged community. Our new plant site will be located in the Laguna region in the state of Durango, Mexico. We expect to obtain all necessary permits in the month of May. Once we have those in hand, we expect to be ready to break ground by the end of this quarter.

The location of this new site, which is near many of our gold-mining customers, will greatly enhance our sodium cyanide manufacturing capability, increasing our capacity by 50% with advanced process technology. We expect the facility to be complete by the end of next year, positioning us to meet the growing market needs by early 2019 and beyond.

Turning to Slide 9. As we consider our strong first quarter performance and look forward to year end, we have increased our 2017 outlook. For the full year, we now expect to deliver adjusted EBITDA within a range of $1.15 billion to $1.25 billion and generate positive free cash flow, excluding the expected payments for the PFOA MDL settlement.

We've seen earlier-than-anticipated demand for some of our products, and as a result, expect first half and second half earnings to be more balanced than we saw in 2016.

Our updated outlook for the remainder of 2017 implies adjusted EBITDA improvement of approximately 40% to 50% versus the prior year.

The Five-Point Transformation Plan continues to be our road map, guiding us to further profitability and strengthening us as a total company. We are very proud of the progress demonstrated so far, and although it will take us into 2018 to complete our cost reductions, we remain absolutely committed to delivering the full benefits from the plan.

With that, we'll now open the call for your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And your first question comes from the line of Duffy Fischer with Barclays.

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Patrick Duffy Fischer, Barclays PLC, Research Division - Director and Senior Chemical Analyst [2]

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Question first on the fluoro segment. There may be 2 questions. One, the anti-dumping ruling that you got, roughly, how impactful do you think that will be to your business?

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Mark P. Vergnano, The Chemours Company - CEO, President and Director [3]

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So there is an impact on it, Duffy. I mean, obviously, as that part of our business phases down, it's probably not as big as it would have been in the past with the quota system, but I would say it's going to be -- it'll be meaningful.

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Patrick Duffy Fischer, Barclays PLC, Research Division - Director and Senior Chemical Analyst [4]

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Okay. And then on the PFOA settlement, do you get a tax benefit from the $335 million you have to pay? And then is that settlement fully agreed? Or do we have to get kind of the sign off of certain levels of judges and stuff like that before that will take effect?

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Mark E. Newman, The Chemours Company - CFO and SVP [5]

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Yes. So question number one, the settlement will be tax deductible, and it will be structured that way. As you recall, we're indemnifying DuPont, so that payment will be tax deductible against our U.S. taxes. On the second, DuPont has reached an agreement with the plaintiffs as of the end of March. We're still going through a process to gain acceptance of the settlement with the actual plaintiffs. Once that process is run, there'll be a period after which the payment will need to be made. Just based on where we stand today, Duffy, our expectation is that we'll take us into late Q2 or early Q3.

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Operator [6]

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Your next question comes from the line of Robert Koort with Goldman Sachs.

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Robert Andrew Koort, Goldman Sachs Group Inc., Research Division - MD [7]

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Couple of quick ones, if I could. First, the pull forward of the heavier order activity in the first half, is that a function of customers getting ahead of pricing? Or why wouldn't that flow through the second half? And then could you talk a little bit about what's going on in the feedstock side? I guess we had thought maybe it'll be a little bigger margin bump with the pricing in the first quarter in TiO2. So is there some of period expenses there that have been increasing as well?

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Mark E. Newman, The Chemours Company - CFO and SVP [8]

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So Bob, I assume the first part of your questions was on TiO2 as well. I'd say our volume is a little bit surprisingly strong, so we saw strong volume from most of our customers across the board. I'd say in regions of the world, Asia was the strongest for us from a volume perspective. Again, some of that anticipated, some of that just demand pull that we're seeing just stronger demand in those areas. We're not seeing a whole bunch of change on the feedstock side. I'd say it's fairly flat from our perspective, at least on the chloride side of things. And as you look at our margin, I would say that if you remember, we had our price increases, a lot of our price increases go into effect the beginning of March, so you'll see a lot of that flow into the second quarter. You didn't see the full impact in the first quarter because of that. Probably, the biggest impact to margin.

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Operator [9]

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Your next question comes from the line of Don Carson with Susquehanna Financial.

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Donald Carson, Susquehanna Financial Group, LLLP, Research Division - Senior Analyst [10]

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Yes, I wanted to follow up on 2 things. One on the prebuy, you said customers are pre-buying. Some people out there are thinking that maybe there is inventory accumulation by customers that could affect second half demand, just want to get your feeling for that. And then secondly, you talked about Chinese environmental impact on fluoropolymers. Are you seeing that continue on the TiO2 side as well, specifically restrictions on sulfide pigment production over there?

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Mark P. Vergnano, The Chemours Company - CEO, President and Director [11]

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Yes, so Don, we're really not seeing significant prebuy. So if I alluded to that, it was a mistake by me. We're not seeing significant prebuy, we are seeing a tiny bit. But I would say, for the most part, there's not a lot of inventory in the system, whether that's at the pigment producer side or at our customers, so we don't believe there's significant prebuy going on. We really think it's pure demand that's driving things. In terms of the -- what we're seeing in China, I would say on the fluoro side, we are seeing some restrictions coming out of a lot of our competitors. I'd say these are mostly the smaller to midsized competitors that are being halted or shut down for environmental purposes. We continue to see some of that on the TiO2 side as well. Maybe not as much as we saw earlier last or the end of last year, but we think that's still continuing from that standpoint as well. So there is definitely more regulation policing, if you will, from an environmental standpoint in China, and we're seeing it in both of our business segments.

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Operator [12]

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Your next question comes from the line of Laurence Alexander with Jefferies.

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Laurence Alexander, Jefferies LLC, Research Division - VP and Equity Research Analyst [13]

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Just a few odds and ends. Can you -- given the settlement, can you update your thinking around where your tax rates will settle over the next, call it, 3, 4 years? Secondly, on the TiO2 comments about volumes being slightly above GDP, given how strong Q1 is, do you think your volumes will actually be negative year-over-year in the back half? And third, can you speak a little bit to -- to the -- your current thinking on working capital and your ability to shave days over the next couple of years?

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Mark E. Newman, The Chemours Company - CFO and SVP [14]

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So Laurence, I'll start first on the tax question. Our guidance for this year is cash taxes in the mid- to high-teens. Our expectation is we will be around that level for a couple of years at least. Obviously, we're going to benefit from the deduction related to the PFOA settlement, as I had mentioned earlier. But I would say, today, our expectation is if we kept rolling the clock forward, we'd probably get ourselves to the mid-20s over time. But -- so below U.S. statutory tax rates. So we're starting today in the mid-teens, mid- to high-teens. And then I would say, we'll evolve over time to the low 20s. On the working capital, I think as we said early in the year, we think there is slightly more to be had here. Obviously, if you look at our first quarter performance going back over the last 3 years, while we had a slight use of cash this quarter, significant improvement in the last 2 years in terms of the Q1 cash usage. So I'd say, our expectation as we go through the year is that we will have a small working capital benefit. Obviously, that will be affected by seasonal demand patterns as we move through the year.

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Mark P. Vergnano, The Chemours Company - CEO, President and Director [15]

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And Laurence, to your point about the volumes on TiO2, for sure we had a very strong first quarter on TiO2 volume. As we look at the whole year, we still think we'll be slightly above GDP rates for the whole year, so the second half will still be positive, we don't think it'll be negative to GDP. But we do think that you're going to see a difference in the year for us that normally we have a -- you see the difference quarter-to-quarter significantly. We think you're going to see more of a balance first and second half when all said and done for the whole company. And then TiO2 will sort of play into that as well. But just to maybe connect your question with something Bob asked before, one of the things we continue to work hard at and we are committed to is working through on the TiO2 side, working very closely with our customers for announced and any future price increases, just to ensure with them that they can get these price increases through that. That is something we have been working very hard at. I think it's something that our customers have respected from how we've been dealing with them, and it's very important for us to have this go very smoothly. So again, we think volumes overall for us will be above GDP by the end of the year.

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Laurence Alexander, Jefferies LLC, Research Division - VP and Equity Research Analyst [16]

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And then just to clarify, when you say that each of that -- the quarters will be a positive to GDP, you mean that each quarter the volume will be above GDP, not just the full year?

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Mark P. Vergnano, The Chemours Company - CEO, President and Director [17]

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I would say for the half, for sure, right? So if we look at the second half, absolutely.

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Operator [18]

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Your next question comes from the line of P.J. Juvekar with Citi.

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Eric B Petrie, Citigroup Inc, Research Division - Senior Associate [19]

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This is Eric Petrie on for P.J. Mark, what are your expectations on the mix of Opteon and base refrigerants? And does that mean the EBITDA margins are sustainable kind of in this mid-20% range?

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Mark P. Vergnano, The Chemours Company - CEO, President and Director [20]

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Yes, definitely, Eric, we see that Opteon is the driver for growth for sure on the fluorochemicals side, no question about that. We do see some uplift on margins on the base refrigerants, primarily in North America based on the -- one, based on the antidumping ruling, but also as you see phaseouts occur, you'll see that. But yes, I think we're talking about sustainable 20% level margins, primarily driven by Opteon.

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Eric B Petrie, Citigroup Inc, Research Division - Senior Associate [21]

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Okay. And then you noted earlier that volume growth was attributed to a stronger Asia export. So I'm guessing that's due to China aluminide prices and TiO2 pigment prices increasing. If iron ore production increases and you see a decline on feedstocks and TiO2 prices decline, would you expect demand to also follow suit?

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Mark P. Vergnano, The Chemours Company - CEO, President and Director [22]

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No. I guess the comment I made was our TiO2 business seems to be stronger in Asia. I would say that, that's -- again remember that primarily driven by the quality products that are being made there at the time. So both China and Asia-Pacific, in general, we've seen an increasing quality of the products being produced there, which sort of pull our products through, our pigment through from that standpoint. So I would say it's more of that happening, you're seeing some recovery in those markets. But you're also seeing a move to higher quality in those markets through our segmentation work that we've done. We are one of the largest players in China from a multinational point of view. And so as China grows, we are just benefiting from that at the same time.

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Operator [23]

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Your next question comes from the line of Jeff Zekauskas with JPMorgan.

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Jeffrey J. Zekauskas, JP Morgan Chase & Co, Research Division - Senior Analyst [24]

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I see that your cost of goods sold was $1,079 million in the quarter and last year, it was $1,095 million, so you were down, I don't know, $16 million and your revenues are up, I don't know, $140 million. So how did you do that? How did cost of goods sold go down and revenues go up so much and your volumes were stronger?

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Mark E. Newman, The Chemours Company - CFO and SVP [25]

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You're right. So Jeff, it's Mark Newman. There's a combination here of factors. The first obviously is the significant portion of the fixed cost reduction that we've achieved since spin, the $300 million or so, is coming through plant fixed costs. So that's our biggest single source of cost other than corporate overhead or SG&A cost. So significant piece of the year-over-year cost reduction is coming through those initiatives. As part of our transformation plan, we're also focused on the variable cost side of the equation. So as you know, when we brought Altamira on, that really helped to drive a rationalization of our ore blend as opposed to producing higher volume. And then obviously, we have variable cost initiatives in place across the board on a whole range of issues, including logistics. So I'd say it's a combination of significant plant fixed cost as well as other initiatives around our variable spend as well.

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Jeffrey J. Zekauskas, JP Morgan Chase & Co, Research Division - Senior Analyst [26]

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So it's not that exactly that your raw materials went down, it's that your sort of the kind of raw materials you bought went down?

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Mark E. Newman, The Chemours Company - CFO and SVP [27]

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Correct.

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Mark P. Vergnano, The Chemours Company - CEO, President and Director [28]

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And don't underestimate, Jeff, the work we've done on our plant fixed cost because that was significant. As Mark said, that was a key part of our transformation plan. We want to be the low-cost player. And to do that, we've got to work hard at all our sites to make sure that we're the most efficient possible. So for sure, the fixed cost side of things, I would say, were significant in that reduction of -- that you're seeing in terms of cost of goods sold.

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Jeffrey J. Zekauskas, JP Morgan Chase & Co, Research Division - Senior Analyst [29]

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And in Opteon, you obviously sold the tremendous amount of product versus last year. Can you produce any more than you're producing now? Or I guess this is the maximum you can ship in a quarter? Or what's your utilization rate in Opteon? Sort of where do we stand in terms of how much you're actually able to produce and sell?

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Mark P. Vergnano, The Chemours Company - CEO, President and Director [30]

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Yes, so we have more capability and more capacity than what we've shipped. One of the beauties, I'll put it that way, one of the beauties of working with large OEMs is very clear forecasting that we get from them. So we can plan out extremely well when you're working with these folks by plant, by location, by timing. That's a challenge on one side because you have to be exact when you're working with large car OEMs, but on the other side, it helps you on your planning perspective. So from that standpoint, we can plan our capacity extremely well. We know when we have to inventory a little bit more in advance to be able to meet those peaks when they happen. So we feel very confident that we have the capacity as this product line grows. And as you've seen, obviously, significantly in Europe, but also in the U.S. And we're also seeing a mix of vehicles change this a little bit as well. So that's something that is putting our forecasting as well. Obviously, larger vehicles are going to be using more refrigerant. And so as that mix changes, we try to keep very, very close with our OEM customers to ensure that we have the right capacity but, really, the right inventory and volumes to be able to meet their needs. So long way of saying that, we have more capacity available to us, Jeff, and we've worked very closely with our customers to make sure they get what they need.

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Jeffrey J. Zekauskas, JP Morgan Chase & Co, Research Division - Senior Analyst [31]

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Okay, 25% more capacity? Or 30% more capacity? Can you ball park it?

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Mark P. Vergnano, The Chemours Company - CEO, President and Director [32]

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Yes, so we really aren't going to ball park it for you, but I will say that we have more capacity, we have enough capacity that we foresee in the next year to be able to handle everything that we think is coming at us.

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Operator [33]

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Your next question comes from the line of John Roberts with UBS.

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John Ezekiel E. Roberts, UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst, Chemicals [34]

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In fluoroproducts, I assume that you had significant mix change effects between Opteon, the older refrigerants and fluoroproducts -- fluoropolymers. I'm surprised price only moved a little, I think mix would have been a bigger effect here, so could you talk about the relative price levels between those 3 areas? Are they all about the same so that we don't get much mix effect on price?

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Mark E. Newman, The Chemours Company - CFO and SVP [35]

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Yes, if you look at a purely as a fluorochemical versus fluoropolymer side, you'd see more of the mix effect on the fluorochemical side. Fluoropolymers pulled that down a bit, so what you're seeing in the total price piece is that you're still seeing a little bit of a drag from the fluoropolymer side in the total mix. We've talked about it being -- the drop being abated. We are seeing less of that drop than we have seen in the previous 4 quarters. A lot of that has to do with the work the team has done, one. Two, we're seeing some demand pull in some of our higher-end polymers. And three, the team has gone out with price increases effective March 1 that they're implementing segment-by-segment. So I think you're going to see that improve from a pricing perspective as we go over the next couple of quarters. But all in all, the polymer side in the mix scenario is what's affecting that price. If you looked at purely on fluorochemicals, you'd see Opteon pulling that up.

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John Ezekiel E. Roberts, UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst, Chemicals [36]

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And then your earlier comment about the March 1 implementation of TiO2 price increases, would you expect the 2% sequential improvement that we saw this quarter to accelerate because of the March 1 implementation period? Or do we decelerate because the comps become a little bit more challenging on price from a higher level? Or do we stay about the same?

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Mark P. Vergnano, The Chemours Company - CEO, President and Director [37]

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No, we should see an acceleration in the second quarter.

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Operator [38]

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Your next question comes from the line of Roger Spitz with Bank of America Merrill Lynch.

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Roger Neil Spitz, BofA Merrill Lynch, Research Division - Director and High Yield Research Analyst [39]

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I don't know if you'd want to do this, but would it be possible to bridge the fluoroproducts year-over-year EBITDA increase of $85 million, looking at price volume in clusters, clearly a lot of interest in how that all worked out?

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Mark E. Newman, The Chemours Company - CFO and SVP [40]

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Yes, we're not going to separately bridge it, but what I'd say is as we said on the call, most of the volume in the quarter is coming from fluoro. And I'd say, the great majority of the $100 million. And then as we said, most of the price is really coming from TiO2 in the quarter.

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Mark P. Vergnano, The Chemours Company - CEO, President and Director [41]

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But Roger, to your point, I would say that I think you're saying, do you want to -- do we want to drill down inside the fluoro, is that what you're asking?

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Roger Neil Spitz, BofA Merrill Lynch, Research Division - Director and High Yield Research Analyst [42]

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I was requesting it, yes.

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Mark P. Vergnano, The Chemours Company - CEO, President and Director [43]

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Yes. Again as Mark said, I think we're not going to get -- we're not probably going to bridge that deeply, but I will say that to Mark's point, Opteon is a big driver there and that's a good news for us. But it also is -- you will see the fluoropolymer side improving over time as the team is implementing their strategies on that piece. So right now, I think that it's a heavy Opteon story, and I think you're going to see it's going to be more actors in that story as we roll forward.

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Roger Neil Spitz, BofA Merrill Lynch, Research Division - Director and High Yield Research Analyst [44]

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And just on the fluoropolymers, the volumes were higher year-over-year, the prices were down 3%. But did you take prices down 3% to gain share? Or prices were down because other people were bringing prices down and now you're just trying to get prices back up?

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Mark E. Newman, The Chemours Company - CFO and SVP [45]

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That's correct. So as you may recall, last year, we made a strategic move to improve volumes through more industrial applications. We expect in this area some more competitive pressure, which we saw in the quarter. I think as we announced the price increase on March 1, our expectation is we will see improvements from this point. Net-net, revenues are up on fluoropolymers with higher volumes and slightly lower price. So we did see an improved revenue year-over-year. And so part of the fluoro story is higher volume and slightly lower price. As Mark said earlier, when you include the mix effect of fluoropolymers, that's what's driving slightly negative price for the segment overall.

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Mark P. Vergnano, The Chemours Company - CEO, President and Director [46]

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Yes, so Roger, we -- for sure there weren't drop in prices Mark said and just want to remind everyone, when we were driving more volume in that fluoropolymer segment, as Mark said, we went to the industrial side to pull that, that just inherently has low-price points, lower price points, than we were before. So it's not that we dropped price to go in there, that's just where the market is. The other thing you have to remember is a lot of our competition is European or Japanese-based. So from that standpoint, that puts a little bit of pressure on price as well.

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Operator [47]

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Your next question comes from the line of Laurence Alexander with Jefferies.

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Laurence Alexander, Jefferies LLC, Research Division - VP and Equity Research Analyst [48]

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Sorry, just one quick clarification, the $34 million of other income, can you provide some details to what that is? And how you see that line will be for the rest of the year?

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Mark P. Vergnano, The Chemours Company - CEO, President and Director [49]

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We're thinking through that, one moment. Sorry. I'm trying to figure out what the largest piece of that was.

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Mark E. Newman, The Chemours Company - CFO and SVP [50]

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So we had some licensing revenue in the quarter in Chem Solutions. And obviously, we have some joint venture income as well coming from our joint venture with MDF in the quarter. So I'd say those 2 probably speak to most of the delta. We also have an entity in China where we do have some other income as well associated with higher volumes that we saw there. But I'll work with Alisha to get you a better break out of that.

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Mark P. Vergnano, The Chemours Company - CEO, President and Director [51]

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Yes, Laurence, to your point, I think we'll see a stronger first -- the first quarter was strong because of the licensing side of things. The royalty side plays out as the JV operates throughout the year. But the licensing piece was probably more front-end loaded than normal.

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Operator [52]

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Your next question comes from the line of Robert Koort with Goldman Sachs.

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Christopher Mark Evans, Goldman Sachs Group Inc., Research Division - Research Analyst [53]

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This is Chris Evans on for Bob. You guys hit your leverage targets and have a pretty strong cash balance in a weak, seasonally weak working capital quarter. Can you talk about strategically what you plan to do with your cash reserves that you have right now? And should we expect buybacks, bolt-ons? How should we expect you guys to deploy that cash in the future?

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Mark E. Newman, The Chemours Company - CFO and SVP [54]

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So I'd say today, Chris, our view is we want to stay -- we want to keep balance sheet flexibility, especially as we go through the next 2 years of fairly high elevated levels of CapEx. As we said it on the call, our U.S. cash, our total cash balance is around $900 million, but greater than 2/3 of that is overseas. And so I think our view today is we want to keep as much flexibility on our balance sheet as possible. And as we move through the year and certainly as we get through the transformation plan, we'll continue to work with the board on our capital allocation plan. I think as of today, there is really no plan to do more than what we are currently doing in terms of return of capital to shareholders, but that's certainly something that we've committed to once we get to our leverage target and once we get beyond funding or paying for the PFOA settlement. So I think this is something that we will work on with our board more diligently as we go into the second half and certainly as we get beyond the PFOA settlement.

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Mark P. Vergnano, The Chemours Company - CEO, President and Director [55]

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And Chris, to add to Mark's point, we do have a gating period here where we want to get through this PFOA payment, that's very important to us. So that's one. And so that we don't want to spook anyone out there at all around the fact that as we look at opportunities, they would have to be incredibly accretive, very strategic for us to think about bolt-on opportunities at this point. We don't put that as a no, we would just have -- we have a high bar in terms of what those would have to be for us.

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Christopher Mark Evans, Goldman Sachs Group Inc., Research Division - Research Analyst [56]

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Great. And just maybe remind me, I know you've talking about this a bit in the call, but I think I might have missed it. But again, your comment about the 1H strength for fluoroproducts versus the second half, could you just go through that again maybe a little bit in more detail what's actually driving that? I thought Opteon was going to contribute maybe around $100 million or so incremental year-over-year in '17. Just kind of want to know where we are as related to the first quarter here.

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Mark P. Vergnano, The Chemours Company - CEO, President and Director [57]

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Yes, so I would say, Opteon has been very strong. I would say it's a little bit stronger than our expectations in the first half primarily because we're seeing a different mix of vehicles, larger vehicles being sold versus what we had in the original plan, and that's just data coming right from our OEM customers. That -- so Opteon is a little bit stronger than what we had anticipated. The base refrigerants have been stronger in the first half. I'd say that's probably twofold. One is, and that's mostly North America driven. That's coming from we're having a warmer season, so you see that normally happen as you see a warmer season in the spring heading to the summer. And I think there are some folks who are getting in front of some of these anti-dumping rulings as well. So that's why I think we're seeing a little bit more push in the first half than in the second. Polymers is strong right now from a volume perspective. I'm not sure that's going to be that different first half to second half because the pull we're seeing there is primarily in the electronics industry where people really need these high-power dielectric properties that the fluoro -- our meth products really deliver. So I'd say it's primarily driven off of the fluorochemical side, strong Opteon because of vehicle mix and base refrigerants because of seasonality as well as the anti-dumping ruling.

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Operator [58]

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And we have no further questions in the queue. At this time, I would now like to turn the call back over to Mark Vergnano for closing remarks.

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Mark P. Vergnano, The Chemours Company - CEO, President and Director [59]

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Well, thanks, Dan. In closing, I just want to say we are very encouraged by the progress that we're making. Obviously, that's very evident in our first quarter results, and we expect 2017 to be a great year for Chemours. Our focus continues to be on our transformation plan initiatives to really drive our earnings growth, and that's what our team continually focuses on for the rest of this year.

So again thanks for your time this morning, and thank you for your continued interest in Chemours. Have a great day.

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Operator [60]

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Thank you to everyone. This will conclude today's conference call, and you may now disconnect.