The Chemours Company (CC) Q3 2017 Earnings Report, Transcript and Summary

Good morning. My name is Sheryl and I will be your conference operator today. At this time, I would like to welcome everyone to The Chemours Company Third Quarter Earnings Call. [Operator Instructions] Ms. Alisha Bellezza, Treasurer and Director of Investor Relations, you may begin your conference.

Thank you and good morning everyone. Welcome to The Chemours Company 2017 third quarter earnings conference call. I am joined today by Mark Vergnano, President and Chief Executive Officer, who will begin the call with the highlights of our third quarter; and Mark Newman, Senior Vice President and Chief Financial Officer, who will review our financial performance and liquidity positions. Mark Vergnano will then review our business result and conclude the call with our 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, including those described in the documents Chemours has filed with the SEC. These forward-looking statements are not guarantees of future performance and are based on certain assumptions and expectations of future events that may not be realized. Actual results may differ and 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. I will now turn the call over to Mark Vergnano.

Thanks, Alisha, good morning and thank you for joining us today. As you saw on our release last night, we had another great quarter. Our strong third quarter performance reflects higher price and solid demand for many of our products, benefits from transformation initiatives, and favorable market trends. Each of our businesses contributed to the positive and meaningful year-over-year improvements across our financial metrics. In titanium technologies, global average price rose 18% year-over-year and 6% sequentially. We continue to work closely with our customers to meet their increased demand. And fluoro products or Opteon refrigerant sales grew nearly 50% versus the prior year quarter. We also saw higher demand and stable prices for our fluoropolymers, we now believe fluoropolymers pricing hit an inflection point in the third quarter and chemical solutions reported year-over-year growth in adjusted EBITDA. Overall, our businesses delivered improved sales, profitability, and cash generation versus the strong quarter a year ago. We are pleased with our results and the advances we've made so far this year. Based on our continued progress, we are reaffirming our full year adjusted EBITDA outlook of $1.3 billion to $1.4 billion and we now expect positive free cash flow for the year. I'll now turn the call over to Mark Newman to review the financial results.

Thanks, Mark. Let's cover the numbers on Slide 3. We generated approximately $1.6 billion of revenue in the third quarter; this was an increase of 13% from the previous year quarter, more impressive growth when you take into account the lost revenue from divestitures of our sulfur and clean and disinfect businesses. GAAP net income of $207 million improved $3 million versus the third quarter of 2016. Remember however, last year we recorded a $169 million gain from the sale of the clean and disinfect business in the chemical solutions segment. If we exclude that gain, GAAP net income would have increased over $170 million year-over-year. Similarly on an adjusted basis net income was $214 million for the quarter, an approximate $100 million increase year-over-year. Adjusted EBITDA was up 40% to $381 million versus last year's third quarter, our best quarter since been. This drove adjusted EBITDA margin up an approximate 500 basis points over last year's quarter to 24%. As Mark mentioned, all of three businesses contributed to the improved performance with all realizing margining expansions on a year-over-year basis. As expected, we saw the usual start of the seasonal online in working capital with a release of $114 million after excluding the $320 million PFOA MDL settlement payment that was made during the quarter. As a result of the working capital release, stronger business operations and after funding our capital projects, free cash flow excluding the PFOA payment increased approximately $190 million over the prior year period; this provided the basis for our upward revision of our full year free cash outlook. Our pretax ROIC performance in the quarter was exceptional expanding to 32% compared to 12% in the third quarter of 2016 reflecting our continued earnings expansion and our disciplined focus on working capital and capital investments. The bridge on Slide 4 provides further insight into adjusted EBITDA which was up $113 million year-over-year. Increased overall pricing drove the majority of our improvement adding $135 million. Higher average selling price with Ti-Pure TiO2 product, an increased Base refrigerant pricing were modestly offset by contractual reductions in OEM pricing for Opteon. As you may remember, last year's third quarter was the beginning of the Opteon adoption ramp up in Europe to meet the January 1, 2017 deadline of conversion. Today's pricing reflects contractual productivity targets which are built into all long-term automotive contracts. In addition to the improved pricing, we saw an increase of $59 million in adjusted EBITDA from higher overall volume. The improvement was broad-based including strong demand for Opteon refrigerants, Ti-Pure titanium dioxide, fluoropolymers and chemical solutions products. In the quarter we incurred approximately $90 million of higher costs versus the prior year. These were comprised primarily of rising input costs in the areas of energy, chlorine, coke and ore. In addition, we had a number of charges in the quarter that I'd like to highlight. First, we had about $16 million of higher environmental liability expense of which approximately $8 million was for the former USS led superfund site which is assigned to us in separation. Second, we spent about $7 million to resolve some distribution challenges in our TiO2 businesses to better sure supply to our customers. And third, we had some adverse impacts from Hurricane Harvey, most of which will flow through inventory later this year. We also saw higher expenses related to capital projects, primarily driven by our Corpus Christi investment. Even with these headwinds adjusted EBITDA was up over 40% year-over-year. We remain vigilant on cost containment as we meet higher market demands. Turning to Slide 5, let's review our liquidity position. We ended the quarter with a cash balance of $1.5 billion, essentially unchanged from the second quarter even after completing our portion of the PFOA MDL settlement in August. Including revolver availability of approximately $750 million, our total liquidity at September 30 remained strong at $2.2 billion. Net operating cash flow was $112 million with approximately $1.08 million used to support capital expenditures. Excluding the PFOA payment made during the quarter, free cash flow of $324 million improved nearly $200 million over the same period last year, driven in part by the seasonal working capital unwind of $140 million. Year-to-date capital expenditures were $246 million with construction underway at both, our Corpus Christi and Mexico sites. We expect to spend between $400 million and $450 million in CapEx this year. We are committed to continuously evaluating our core businesses and investing in them as needed to deliver higher returns. Our net debt at the end of the quarter stood at $2.6 billion, translating into a net leverage ratio of approximately two times on a trailing 12 month basis. We are very pleased with the continued improvement in our credit profile as recently recognized in the ratings upgrade from Moody's. As you may have seen, we announced that we're hosting our first Investor Day in December. The significant progress we've made over the last couple of years to improve our cash generation and strengthen our balance sheet now affords us greatest financial and strategic flexibility. We along with our Board are determining an appropriate capital allocation strategy which we look forward to sharing with you in December. I'll now turn the call back to Mark.

Thanks, Mark. Moving the Slide 6, our titanium technology segment generated approximately $800 million in revenue and approximately $250 million in adjusted EBITDA, an increase of over $100 million from the previous year. This improvement was primarily a result of higher global average prices, up high teens percent compared to last year. We sent letters to customers in September and October communicating additional price increases. Based on implementing these and our previous letters, we anticipate average price to increase sequentially in the fourth quarter. We continue to be on-track with our plans for Ti-Pure pricing, and are working closely with our customers to manage the impact of their portion of the value chain. We believe there is an opportunity to change The Chemours experience for Ti-Pure titanium dioxide from one of large cycles to a more stable earnings performance over time. We anticipate this being the foundation of our future growth and we look forward to discussing it further at our December Investor Day. During the third quarter demand for our Ti-Pure titanium dioxide remained healthy across all regions and applications and led to an 8% increase versus last year's third quarter, a result of customer preference for our Ti-Pure products along with global supply tightness. As we have mentioned before we expect full year volume to be up high single digits. Our facilities are currently highly utilized and we would anticipate running that way for the remainder of the year. This strong financial performance was partially offset by the input in distribution costs that were previously mentioned. As Mark reviewed in our adjusted EBITDA bridge, input costs such as coke, energy and chlorine were up modestly in the quarter while ore spot prices also traded at higher prices in comparison to last year. At this point we would expect this trend to continue into 2018. As a reminder, increased production does require some greater use of higher grade ore in our process. We see these costs as manageable and our pricing anticipates raw material movements. During the quarter we made modifications to our Mississippi distribution center alleviating some of the challenges and costs that we incurred in the quarter. Overall, our titanium technology business continue to strengthen and grow profitably. Our adjusted EBITDA margin for the third quarter of 2017 improved 800 basis points to 31%. As we look towards the end of the year, we would expect further adjusted EBITDA margin expansion. Turning to our fluoro products business on Slide 7. We generated $637 million in revenue and $158 million in adjusted EBITDA in the third quarter. We saw higher prices in base refrigerants compared to the prior year quarter, mostly a result of tightness in EMEA due to F-gas regulations. While it seems strong prices all year in comparison to 2016, we saw a peak in pricing for our base refrigerants last quarter, in line with seasonal demands. Volume of our base refrigerants was lower year-over-year due to quarter reductions in Europe, as well as the transition to HFO refrigerants. Given regulatory phase downs for some of our base refrigerants over the next decade and beyond, we anticipate being able to maximize the profitability of our products through the changing environment. Also connected to F-gas regulations, we saw notable adoption of our Opteon stationary blends in Europe as the regulations begin to shift customer demand toward our Opteon HFO technology. We are benefiting from a favorable European auto market this year and U.S. cap base standards which continue to incentivize auto manufacturers supplying the United States to convert to Opteon refrigerants. As a result, revenue from Opteon refrigerants grew nearly 50% year-over-year. Looking forward, we anticipate stationary HFO blends to contribute more meaningfully to results as they are gradually adopted over the next decade. We also saw a solid increase in our fluoropolymers volume. Demand was primarily driven by products sold into the automotive, semiconductor and oil and gas end markets. The strong fluoropolymer demand was coupled with steadily improving pricing over the course of this year. We believe we have reached an inflection point in the third quarter and could see some additional pricing benefits as we close out the year. As an example, we announced a targeted price increase for certain fluoropolymers in Asia effective July 1, 2017. We anticipate realizing price increases depending on the product or application of upto 5%. Our fluoro products results were partially offset by costs associated with the construction of our Opteon Corpus Christi facility, some increased input in distribution costs, and the impact of Hurricane Harvey. We do expect to see some additional costs associated with Hurricane Harvey and the ongoing water disposal at our fatal [ph] North Carolina site going forward. These costs are fully contemplated in our year-end guidance. Even including these offsets margin still improved a 100 basis points year-over-year to 24.8%. As we look to the end of the year, we continue to expect Opteon to deliver full year revenue growth of over 60% and we anticipate our fluoropolymers business to see further price momentum, as well as deliver year-over-year volume growth. We have mentioned in the past that our team has been working to realize the full value potential of our fluoropolymers portfolio through our commitment to our core markets while also focusing on high value applications. We plan to have an update on these efforts at our December Investor Day. Moving to Chemical Solutions segment on Slide 8; sales for the quarter were $148 million in comparison to $182 million in last year's third quarter. This reduction was primarily related to portfolio impacts from our divestitures and the closure of our Niagara site in 2016. Volume improved 5% in the quarter with contributions from both, our mining solutions and certain performance chemicals and intermediate products. Price was in line with last year's third quarter, an improvement in performance chemicals and intermediates price, primarily due to raw material pass-through's was offset by lower price in mining solutions. Adjusted EBITDA doubled year-over-year to $18 million, a result of lower fixed cost and strength in our retained businesses. Our mining solutions business has been and is expected to remain sold out until year end. In the fourth quarter we anticipate taking a planned maintenance outage in our Memphis facility which could reduce volumes available for sale. We continue to look for opportunities for cost improvements and efficiencies across this segment. Turning the Slide 9 to review our 2017 outlook. Our businesses continue to deliver strong year-over-year improvements and we are pleased with our progress so far this year. Performance has been driven by strength in preference for our Ti-Pure products, robust sales of Opteon refrigerants, maximize profitability of base refrigerants, improved pricing and solid demand for our fluoropolymers products and enhanced profitability in chemicals solutions. We are very proud of our performance and reiterate our expectation of delivering well above our original transformation goal. We anticipate 2017 adjusted EBITDA outlook to be within a range of $1.3 billion to $1.4 billion, supported by our year-to-date progress. Reinforced with our increased profitability, we now believe that we will generate positive free cash flow for 2017. Our team is one of our greatest assets, and their commitment to Chemours supports our ability to realize these strong results. I want to thank them all for their continued dedication. We'll now open the call for your questions.

[Operator Instructions] And our first question comes from Robert Koort of Goldman Sachs. Your line is open.

Good morning, this is Chris Evans on for Bob. I guess in the fluoro products segment; you guys cited 50% growth of Opteon, strong sales in the base refrigerants but only put up 5% volume growth. I was wondering if you could just maybe give some specific contributions from -- maybe all the sub-different product lines in there to how you get to that 5% number?

Sure. If you look at fluoro in the quarter; second quarter usually is the strongest quarter for our base refrigerants because you're in the front-end of the cooling season, so that's really where you're going to have a little bit more strength. So some of what you're seeing between polymers and Opteon and base refrigerants was a little bit of a mix issue. Real strong on the polymer side, Opteon continues its ramp up, probably not at the same levels as it was the past couple of quarters because now we're getting to the place and at least in Europe where you're now coming up on a year where you're sort of lapped the year, right. And then the base refrigerant side was really -- probably a little bit lower volume than you saw in the second quarter because of the seasonality side of things. So one of things I just want to make sure you and everyone understand around the pricing side of Opteon and I hopefully didn't spook you guys when we talked about it; you know, it's just when you have OEM contracts and anyone who deals with OEM should understand that annual contracts with OEMs have a productivity kicker each year, and that's somewhere in the range of 3% to 4%. It's our job to come up with that productivity, so even though you will see that top line be affected, it shouldn't -- if you do your job right, it shouldn't affect your bottom line and that's really what's going on on the automotive OEM side of Opteon. So that's maybe to give you just a sense of quarter-to-quarter, Chris, if that helps.

Yes, thanks for that. And then maybe just sticking with fluoro, you've decided a bunch of maybe transitory charges and costs in the segment; can you size a specific impact or the number of charges you took in the quarter and what margins might have looked like when excluding some of those expenses?

Chris, it's Mark. The way I think about our cost in the quarter, vis-à-vis the $90 million; about half of the costs in the quarter relate to either increased raw's in both TiO2 and fluoro, as well as some of the distribution items we mentioned. The remaining cost in the quarter -- really we've pointed to the $16 million of environmental most of which is tied to USS lead. And then we had a bunch of other stuff, for example, Hurricane Harvey, we would estimate somewhere between $5 million and $10 million, some in this quarter and some will flow through inventory in subsequent quarters. And then finally as we indicated, we had a number of items around our investments, both in Corpus Christi and Mexico on the camp solutions new products where we had higher project expense related to those investments. So a pretty wide range of items but I'd say about half relate to increased raw's and distribution costs in the quarter.

Chris, I think you were going after fluoro specifically, the $5 million to $10 million of Hurricane Harvey was specific to fluoro. And then there was a little bit of -- as Mark said, the increased cost because of the project we're running down in Opteon of somewhere -- close to $5 million as well.

Great, thanks for that guys.

Thank you. Our next question comes from P.J. Juvekar from Citi. Your line is open.

Good morning. Can you quantify raw material impact in TiO2? Look, I was out yesterday talking about a price increase of $70 to $100 per ton, and I know that you can process different ores but can you talk about what you're seeing and what you're trying to do to mitigate that?

Sure. For us we had mentioned that coke and chlorine modestly went up, and we talk about spot or being slightly up. Now you got to remember most of our ore is under contract, right; so from that standpoint it doesn't massively affect us. Spot ore prices will affect us primarily in rutile [ph] when we're trying to change grades if you will. So to get more capacity we go maybe a little bit higher rutile [ph] than we do with limonite [ph], that's where spot will play out. We contemplate all of that P.J. within our pricing. So our pricing targets all mitigate the increase in our raw materials.

Okay. And secondly, and I want to go back to this pricing issue on the fluoro product side. I mean shouldn't you be seeing better pricing given that Opteon grew 50% and Opteon is much higher priced than the base refrigerants. So the mix should get you better pricing.

True. If you look at it purely from Opteon but you got to remember, the base refrigerants right now are in a situation where we're in the phase downs, and in the phase downs you have solid pricing on base refrigerants, we had more volume in second quarter than we did third quarter; so that part of the mix issue that you're seeing there as well. Pure Opteon, you're right because Opteon is growing faster, so that's adding to it but you've got to take the base refrigerants into play as well and that is a positive contributor to price right now based on where we are with the F-gas regulations in Europe.

I guess one quickly, it would help if you can give us like how big is Opteon as a percent of total refrigerants? Thank you.

We're going to talk a little bit more about that in our Investor Day P.J. and as you'll see, as we -- as Paul lays that out in Investor Day, we've got a great 10-year ramp here with Opteon. That is really our growth -- it became the significant part of our growth engine going forward. Now it's not going to be at the same ramp that we just had over the last year and a half, right, because we just brought in all this OEM business in Europe but it's going to be a solid ramp going forward.

Okay, thank you.

Thank you. Our next question comes from Duffy Fischer from Barclays. Your line is open.

Yes, good morning. Just you had made a comment about the Investor Day, can you highlight maybe the three or four points that you guys want to bring out in Investor Day again without getting into all the details but basically what should investors walk away from this upcoming Investor Day with?

You want me to give you a synopsis of Investor Day, Duff?

Sure.

So I -- here is the key point. First of all, I think that folks should walk away seeing that this is a great company to investing going forward, right. So from a TiO2 perspective, we're going to be driving to stabilize that business, Brian is going to be talking about that in terms of how we're trying to do. Paul Kirsch is going to be talking on the fluoro side about how the Opteon ramp up over the next 10 years is substantial, and what we're doing as well in fluoropolymers which I think people have overlooked the opportunity that we have to grow in fluoropolymers. Chris Siemer will talk on chem solutions, specifically around mining solutions and our investment in Mexico, and why we think that's going to add to the top and bottom line over the next several years while we're fixing the base of the rest of that business. And then Mark Newman is going to lay out -- we'll talk about our capital allocation plan going forward. And I think what everyone will recognize is these businesses will be generating a significant amount of cash, and so before that we want to talk to you about what we're going to do with that cash going forward. So in a nutshell that's what we're going to try to talk about on the Investor Day.

Okay. And then, one of the issues that -- at least in the news has not been quite as positive; the situation down in North Carolina, the GenX [ph] -- now granted there is a lot of noise out there but just headline wise what should investors kind of be prepared for over the next month? What's the status? Again, you are trying to get to the point where you weren't putting any event out of the plant -- you know, can you kind of just to wrap up where that stands? And again, from a headline perspective what should investors expect?

Sure. I would say that this is a very normal chemical operation, and we've been working very closely with the regulators, both in the state and at the federal level and we continue to be very transparent and open and working with them through this issue. But just to remind everyone, we stopped that affluent immediately, we were not asked to do that, we felt that was the right thing to do; we do not believe that there is health effects of this in the drinking water and we've stated that. But nonetheless, we stopped the affluent going forward and we thought that was a good faith effort for folks in the community, as well as a good faith with the regulators that we're dealing with. So we'll continue to have those conversations with the regulators and in a very open and transparent way.

Great, thank you.

Thank you. Our next question comes from Don Carson, Susquehanna Financial. Your line is open.

Thank you. Mark, you've got a very wide range of guidance for Q4, $100 million; does that reflect the uncertainty of fourth quarter TiO2 price increase which is quite rare? And then thinking longer term, if you go back to 2012 what really affected the cycle back then, it seemed that the numerous price increases drove some reformulation of all your customers and the price increases also encourage the ore manufacturers to try and sharing those chain economics; so how do you see this cycle unfolding differently than the last cycle?

Don, so let me get to the first part. I don't think you guys should read too much into the fact that we -- other than the fact we're reaffirming our guidance. We've said we don't give quarterly guidance, so we didn't want to move it, just to be very blunt and honest about it. So that's why that range stayed the same, we try to give annual guidance, we updated it midway through the year when we saw the year was being significantly better than what we had anticipated in the beginning but our goal is not to give guidance each quarter, so that's why you're seeing the range as it is. To your other point, we're being very thoughtful about how we're managing price through this period of time; and as I've said before, we know the mistakes that were made in 2010 and 2011 and I could tell you Chemours perspective, we're not going to repeat that. We're working very closely with our customers, that's why these price increases are happening on a regular basis but a moderate basis, and they are happening to allow our customers to be in front of those so that they could get those prices through to their customers. So very very thoughtful, very close collaboration with our customers; I think that's very different than what we saw in 2011 and we continue to have those dialogues openly with our customers around this and that's what they should be expecting going forward.

Thank you.

Thank you. Our next question comes from Jeff Zekauskas from JP Morgan. Your line is open.

Thanks very much. How are your Opteon volumes sequentially? How did they change?

Sequentially quarter-to-quarter?

Yes.

I mean, Jeff, I'm sorry.

It's all right.

Alisha is grabbing that number. They are up, I'm trying to think of the percentage wise, we'll give you an exact number here in a second. I'm guessing it's somewhere around 15% but they're going to give me the real number.

Okay. So while they are all maturing, if I can just ask another question. On how much of your Opteon volume right now is non-automotive?

About one-third is non-OEM, so we've got to take $2.30 OEM.

So I meant non, another word; so some goes to the replacement market I would imagine, I mean not from automotive applications at all.

The other third…

Yes, so what is that?

It's a mix between aftermarket which is very small right now, and stationary, and refrigeration. Don't think stationary and refrigeration being the biggest piece of that and the aftermarket being a little bit smaller.

So how big is the – how big is after-market demand in general for automotive refrigerants relative to OEM demand? And is aftermarket a significant source of growth for over the next several years and beyond?

In the 10-year period Don, it is. This is something that plays out overtime, so it ramps up probably, it's like year 4/5 is when you start getting substantial aftermarket; it's fairly light in the first couple of years but over the 10-year period it starts to move up.

But the after-market is much larger than the OEM market, is that right?

It is. So the after-market is larger, you just don't have full charges all the time. So obviously with an OEM we're telling you what you already know, sorry Jeff, but with an OEM it's full charge, right. With an after-market not every car gets a full charge, you get a full charge when you either have a crash where you have to have a replacement or when you have to top-off which is a partial charge. So from that standpoint that's why it's more cars but maybe not the same level of charge.

How is the adoption rate in the U.S. OEM market evolving? I know that there is a requirement that everybody adopted by I think 2020. Is that adoption curve continuing to grow very strongly or things leveling off either because current legislation or different perceptions about the importance of global warming?

Yes, it's north of 50% and it keeps ramping up. So we expect it to move toward 100% in that timeframe. So we continue to see a ramp up, both with domestic manufacturers in the U.S. and also anyone who is exporting into the U.S.

Thank you. Our next question comes from John Roberts, UBS. Your line is open.

Thank you. A related question to that; do you have to close older base refrigerant capacity at some point or does that stay stable for a long time in your view?

We have John -- we've worked really hard, I'd say over the past five years to make sure that we weren't going to have a gigantic overhang in our base refrigerants. So in some cases we moved to contract manufacturing for that, so that where we had to. Again, give us our flexibility to be able to do that. In the case of Corpus Christi for instance where we're putting our Opteon facility, we're able to utilize some of the equipment there to be able to -- as we put in the Opteon facilities, we've been very thoughtful and at this point-in-time based on what we foresee over the next five/six years, we don't anticipate having any big overhang with our base refrigerants.

Thank you. And then when two large tank firms merge and they look for raw material savings; do they move to larger volume desks or are they already at best price, typically the large paying companies? And can you serve larger customers at lower cost to give them bigger discounts?

I wouldn't say you have to go automatically to more volume lower price, right. Our products are really geared toward creating productivity for our customers, so we work very hard with our customer base to make sure that what we deliver them is what they need and give them the competitive advantages they need and sometimes those competitive advantages aren't about price; so I wouldn't automatically assume that if two players merge and there's a higher volume that we're serving that the price point is significantly lower than what that was to start with.

Thank you.

Thank you. Our next question comes from Roger Spitz, Bank of America Lynch. Your line is open.

Thank you, good morning. Regarding the growth in fluoropolymers, is this mainly driven by PPSE Or perhaps some of the specially floral polymers or fluoro isomers [ph] and is continuing to be driven by the closures in China for environmental reasons?

Well, for sure the closures in China are additive to what we're seeing. I'd say, our fluoropolymers business is actually growing across the board. If you think about we're in 7 different segments, different -- 7 different product lines around that. I'd say the markets that are the strongest are oil and gas, semiconductor, as well as automotive. And so Flora last dimmers fall into that, primarily on the automotive side but our melts business primarily in the semi-concede and the rest of everything else is sort of falling into whether it's electronics or the energy side. So good growth across but I'd say maybe a little bit tilted toward our high end melts and our fluoroastomers [ph].

Thank you. And is -- can you talk a little bit methylamines and aniline business, I know they are not terribly important but it is -- it sounds like the price environment up at least overall for that?

Yes, the methylene's business fairly small, it's fairly flat for us. The aniline business, we sold that to Dow earlier last year; so we're not really in the significant aniline business.

Didn't you retain a plant or maybe given the business…

Sorry, we have a small plant in Pascagoula [ph], I'm sorry, you're right; fairly small, it is actually up versus where it's been before. Sorry about that, that's part of the reason why we're seeing good results out of the chem solutions segment.

Thank you very much.

[Operator Instructions] Our next question comes from Christopher Perales [ph] from Bloomberg. Your line is open.

Good morning. Did you take any damage at the Corpus Christi site or was there any delay in the Opteon expansion because of the hurricane?

Yes. We -- definitely the hurricane came just about over the plant site, we were down about two weeks but I can't tell you that it was primarily because of what was damaged there. I think the facility was -- our team did an amazing job of preparation, we had minor damage that was fixed fairly quickly; the reason that we were down for two weeks was it took that long to get utilities up and running for the site. So we said, somewhere I think Mark mentioned $5 million to $10 million of cost that would be spread across this quarter and next quarter. But -- and a little tiny bit of delay that we think we can make up in the construction of our Opteon facility.

All right. And with the added expansion in Fayetteville [ph], how much is that running per quarter to deal with the affluent and any other additional environmental costs associated with that -- the issue with the GenX [ph]?

Yes, we haven't disclosed that. It is contemplated within our guidance that we've given and it's contemplated within the way the business is looking at their cost and how they have to price the products accordingly.

All right, thank you very much.

Thank you. Our next question comes from Robert Koort, Goldman Sachs. Your line is open.

So I was hoping you could talk a little bit about your cash deployment strategy. I mean $1.5 billion in cash in the balance even after settling the MDL. When would you start beginning to deploy that and can you update us on your priorities for that cash?

It's Mark. Obviously we continue to focus on completing the strengthening of our balance sheet and as we said in the call, we are in active discussions with our Board as how best to deploy that cash going forward. I think our view is, we continue to see significant opportunities to reinvest in our business, and so we want to deliver on that but beyond that I think our discussions with our Board which we can share with you at Investor Day is where we're headed now.

Great. And then in TiO2 you mentioned strong utilization rates for [indiscernible], I was wondering if you could give just a broader view of where the market is and maybe an update on the influence of the Chinese environmental shutdowns and any other factors that might influence your ability to continue your strong volume and pricing gains?

For sure we're still seeing some shutdowns in China. I think the environmental work is continuing within the country, I think everyone now realizes across the chemical industry this is real. I think the Chinese government is really taking this seriously and working through each industry and trying to upgrade their environmental performance. So we're seeing -- continuing to see facilities not online or taken offline. For us, we're operating full with all our capacity, for sure the industry appears to be somewhere at least from the multinational standpoint in the 90's of utilization; so I'd say it's high utilization across the industry and we're running full out. One other thing Chris, I just want to mention; we've mentioned inside of our TiO2 segment we had some distribution cost issues and I just wanted to make sure there wasn't confusion about that because that was about $7 million hit to us, that I would have liked to see go to the bottom line. But in our zest to be aggressive on taking cost out we had an issue with our distribution center down in Mississippi that we had to go in and fix, and we had to throw some cost at that to fix that, we feel very good about it, so we don't think that's a recurring cost, that was a one-time cost to get through and we're past that. So that was a little bit of a negative headwind for us in the quarter that we think will alleviate. But to your basic question, we think that the industry will stay at pretty high utilization rates going forward.

If I could squeeze a quick one and understand ore side; you mentioned spot prices are up a bit but when you kind of -- when you think about how contracts might trend and your ability to offset those, I guess can you speak about that dynamic going forward, whether you think your customers will be able to take additional price increases as you might see cost inflation?

Well, we've said in the past, we do -- we don't have any big cliffs on our contracts, we build these contracts overtime to allow us the flexibility -- allows us the negotiating ability with our suppliers and all our pricing is contemplated based on our raw material costs. So as we're thinking forward on pricing, rest assured our forward thinking includes what we believe the cost of war will be and we've been very open and transparent in that inter conversation with customers as well.

Thanks.

Thank you. Our next question comes from Jason Weinberg from Columbia Threadneedle. Your line is open.

You guys have had a net leverage target three times in the past but is that level [indiscernible] and how should we think about that compared to the -- around few times [ph]? Thank you.

So Jason that we had committed to be at three times in '17, obviously we got to the point earlier today, we're at two times. I think we will speak more to our overall capital allocation strategy at Investor Day but obviously, continue to have as a key focus, a strong balance sheet was recently recognized with the Moody's upgrade.

Great, thank you.

Thank you. That concludes the questions in the queue. I will turn the call back to the presenters.

Thanks, Sheryl. In closing, our strong portfolio combined with our valued customer relationships and really our unmatched employee talent will drive further improvement in our key metrics going forward. The successful implementation of our five point transformation plan has really laid the solid foundation for our company's future including a significantly improved balance sheet and cost structure. So we look forward to talking to many of you more in detail at our Investor Day in December, and thank you all for your continued interest rates in Chemours.

Thank you very much, ladies and gentlemen. This concludes today's conference, you may now disconnect.