The Chemours Company (CC) Q2 2019 Earnings Report, Transcript and Summary

Good morning. My name is Melisa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Chemours Company’s Second Quarter 2019 Earnings Conference Call. [Operator Instructions] Thank you. Jonathan Lock, Vice President of Corporate Development and Investor Relations, you may begin your conference.

Good morning. Welcome to The Chemours Company's Second Quarter 2019 Earnings Conference Call. I'm joined today by Mark Vergnano, President and Chief Executive Officer; and Mark Newman, Senior Vice President and Chief Operating Officer and Sameer Ralhan, Senior Vice President and Chief Financial Officer. Before we start, I would like to remind you that comments made on this call as well as the supplemental information provided in our presentation and on our website contain Forward-Looking Statements that involve risks and uncertainties, including those described in the documents Chemours has filed with the SEC. These forward-looking statements are not guarantees of future performance and are based on certain assumptions and expectations of future events that may not be realized. Actual results may differ, and 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 who will review the highlights from the quarter. Mark.

Thanks, Jonathan. Good morning everyone and thank you for joining us today. Before we jump in, I wanted to take a moment to discuss the recent leadership changes here at Chemours, starting with the promotion of Mark Newman to the newly created position of COO. As you all know, Mark has been CFO of Chemours since our spin from DuPont in 2015 and was instrumental in the transformation of the Company post spin. We have worked hand-in-hand through some difficult issues during those early years. In his new role Mark will assume direct responsibility for our business units, purchasing and capital projects and will continue to report directly to me. This will allow me to focus more on our growth strategy as well as external advocacy on behalf of Chemours with all of our stakeholders. Following on the heels of Mark's promotion. I'm proud to congratulate Sameer Ralhan on his elevation to the CFO position. Sameer has held a number of roles here at Chemours including strategy, M&A, finance and treasury and has been a key member of our management team since spin. Over the years he has worked closely with Mark Newman to make our finance function more efficient and has been a steady hand, as our treasurer. I'm proud to have such a capable team of leaders here at Chemours and I look forward to working together over the coming years as we unlock the full potential of this Company. So again Sameer and Mark my heartily congratulations. In addition to these promotions, we also recently announced the appointment of Erin Kane to our Board of Directors. Erin is the CEO of AdvanSix, a specialty chemicals company recently spun from Honeywell. Erin is a well respected leader in the chemical industry and I have had the pleasure of getting to know her through her involvement on the American Chemistry Council, which I will chair in 2020. I look forward to working with her closely as we shape the future strategy of Chemours. I speak on behalf of our Chairman Dick Brown and our entire Board and welcoming Erin to the Chemours Board of Directors. As a management team, we will benefit from a diverse points of view we all bring to the critical issues we face as a Company and we will continue to look for ways to reinforce our commitment to inclusion at all levels in the Company. Turning to the next page. As you know, we are currently engaged in a lawsuit with our former parent DuPont and to Chancery Court of the State of Delaware. While I believe that the complaint speaks for itself. I wanted to clear up a few misconceptions about the lawsuit, which we been hearing. As to the claims asserted DuPont continues to contend that it is entitled to unlimited indemnity from Chemours for many of its historic liabilities, including those which they recently passed to court [indiscernible]. The law suit request that the Chancery Court and a declaratory judgment limiting DuPont indemnification rights against Chemours to those actual high and maximum realistic exposures DuPont established for Chemours at spin or in the alternative return the approximately $4 billion dividends it extracted from Chemours premised upon those maximums. Some have implied that the lawsuit speaks to our insolvency. This could not be further from the truth. The allegations of the complaint were directed to the timing of the spin off, not the present. Nowhere in the complaint is it alleged that Chemours currently fears insolvency, because we do not. All of our accruals are taken in accordance with the appropriate accounting standards. Thanks to the tremendous efforts of our employees and difficult choices we were forced to make as a result of the financial condition DuPont left us in at the time of the spinoff, our Company is on solid financial footing as reflected in our filings. From our start as an independent Company, we have worked hard to build and maintain shareholder value while proactively addressing numerous issues we were handed environmental and otherwise. We remain committed to the communities we are part of. Our success is not come without some difficult choices, but we have made every decision with a view to a bright and successful future for this Company. This lawsuit is in-line with our effort to protect the rights of Chemours and all of our stakeholders. I hope that is helpful context, and I would ask that you please understand that we will not be commenting further on this call, given that this is ongoing litigation. Finally, on a different note moving to the next chart. I would like to briefly address the topic of Fire-Fighting Foams. Questions have arisen regarding Chemours connection to Fire-Fighting Foams. Let me be clear, PFOFs was the dominant chemistry in the firefighting foam industry for decades. Chemours and DuPont before it have never made or sold the PFOF period. Any PFOA contained in Chemours’ short-chain telomer surfactants would be at trace levels as an impurity. Chemours’ potential contributions to PFOA in the environment from our ingredients used in Fire-Fighting Foams is therefore negligible, if at all. We never manufactured or formulated Fire-Fighting Foams and will continue to vigorously defend our reputation. Moving to our 2Q results and highlights from the quarter on the next chart. Our results in the second quarter reflect global economic uncertainty of slower than expected start to the coating season in North America and the impact of legal imports of legacy refrigerants into Europe. Despite this difficult backdrop. I'm proud to report that Opteon continues to demonstrate positive momentum in the mobile sector as we head for full adoption in the U.S. market and we are underway in Asia with the start of HFO mobile adoption in Japan. We have also put our floor products operating issues behind us here in Q2 and are ramping production back to normalized levels. I recently attended the opening of our Corpus Christi Opteon facility in Texas and I'm proud of the great team we have running that plant. We remain fully committed to our Ti-Pure value stabilization strategy and I'm proud to report that we are on-track to the 50% target for ADA contract structure. With our Ti-Pure Flex now fully rolled out globally, we have started to see increased customer engagement and are working to ensure the platform is well understood and leveraged by our global customer base. We believe Flex represents a meaningful opportunity to better understand customer behavior and to engage with customers who are not currently on ADA contracts. In supported TDS and our TT business yesterday we announced the acquisition of Southern Ionics Minerals, an ore mine in Georgia. We will share more thoughts on the acquisition, when Mark Newman reviews the TT segment results, but I wanted to take this opportunity to publicly welcome the team from Southern Ionics minerals to the Chemours to family. Overall, our results in the second quarter are disappointing and I do not believe we see the second half recovery, which underpinned our original full-year outlook. I will speak to our revised outlook for the full-year later in the call. But the issues we face are temporary headwinds, which are affecting our near-term results. They do not cloud the long-term clarity with which I see our future, nor my conviction that we have the right strategies in place to create more value for our shareholders. We have three best-in-class franchises and are working to make each one even stronger. Our combined balance sheet continues to be a source of strength and gives us sustain power to overcome these headwinds. I believe that the investments we are making today will result in a more profitable higher growth and more stable Chemours. As I look back on the journey we started four years ago on July 1, 2015 a lot has changed. We have made significant progress from where we restarted after the separation from DuPont. Chemours is a leaner, more focused, action oriented organization, ready to face our challenges head-on. We have never backed down from any challenge in our first four years and we certainly don't plan to do that now. So with that, I will turn the call over to Sameer to review the quarter's results.

Thanks, Mark. Let's move to Chart Number 7. As Mark mentioned, our second quarter results came in softer than expected as global economic uncertainty created softer demand condition across our core markets. Sales came in at $1.4 billion for the second quarter, of a record high of $1.8 billion for the second quarter of 2018. The decline was primarily driven by lower volumes of Ti-Pure pigment and weaker demand for stationary blends due to illegal imports of HFC refrigerants into Europe. GAAP net income was $96 million with adjusted net income of $120 million. GAAP EPS of $0.57 per share and adjusted EPS of $0.72 per share reflect lower earnings, partially offset by reduced share count. Adjusted EBITDA of $283 million was a results of weaker results across both Titanium Technologies and Fluoroproducts. This includes approximately $15 million of costs related to operating issues we experience in our Fluoroproducts segment in the first quarter. The $15 million represent the additional cost we carried over into the second quarter. Our overall adjusted EBITDA margin was just over 20%. Free cash flow was negative in the quarter which is not typical for the start of coding season the cooling season. Negative free cash flow was a result of higher inventory and working capital mainly driven by lower than anticipated demand for our products in the quarter. Q2 capital expenditures totaled $124 million, on a more positive note, we did generate positive free cash flow in the last month of the quarter and we expect Q3 and Q4 to return more normal patterns of free cash flow positive quarter. Moving to the next chart, adjusted EBITDA was $283 million in the second quarter of 2019. Price was a slightly headwind in the quarter driven by lower refrigerant prices mainly due to illegal imports of HHC refrigerants into Europe. Ti-Pure prices were stable year-over-year despite some mixed shift across the portfolio. As you can see the real story in the second quarter was lower volumes. In the quarter, we experienced a combined impact of lower Ti-Pure pigment volumes and lower refrigerants sales. The former driven by lower demand for Ti-Pure pigment and latter by illegal imports of HHC refrigerants from China into Europe. Mark will speak more to the details when he covers our segment results. Moving to Chart 9, lower earnings drove adjusted EPS of $0.72 in the quarter, down from $1.71 in the second quarter of 2018. Our adjusted effective tax rate in the quarter was 22% versus 17% for the last year’s second quarter reflecting a geographic mix of earnings. Our lower share count contributed approximately $0.07 per share reflecting the benefits of our capital allocation program. Moving to the next chart, our liquidity positioning remains strong despite lower earnings in the quarter. Our cash balance at the end of the second quarter was $630 million. In the quarter, we spent $124 million on CapEx and returned 108 million to shareholders in the form of dividends and share buybacks. We borrowed $150 million on our revolving credit facility in the quarter, this was primarily to help manage global cash needs. I do note that subsequent to the end of the second quarter, we repaid the entire $150 million outstanding on the revolver. Currently we have full availability of our revolver. At net debt at the end of second quarter stood at approximately $3.6 billion which translates into a net leverage ratio of approximately 2.7 times on trailing 12 month basis. Taken together, we feel comfortable with the strength of our balance sheet, total liquidity position and capital structure. We will continue to operate with a clear view to maintaining net leverage at or below three times and remain committed to returning a majority of our free cash flow back to shareholders. I will now turn things over to Mark Newman our Chief Operating Officer, to discuss our segment results in more detail.

Thanks Sameer. Let's turn to Slide 11. Before addressing the Fluoroproducts segment, I wanted to start with a few words on illegal imports. Despite our ongoing efforts, illegal imports continues to weigh on the results and outlook for Fluoroproducts. We firmly believe that the F-Gas regulation is an excellent mechanism to help control the effects of man-made comment change by replacing legacy HFC with advanced HFO technology. However, the illegal importation of older HFC refrigerants from China into the EU threatens the credibility of this program and hurts the environment. Furthermore, this illegal trade on demand innovation hurts local business and deprives the EU of significant tax revenue, which accompanies legal and fair trade. We will continue to campaign aggressively against this flat market activity and to work with our industry partners and Government authorities to control the flow of illegal refrigerants into Europe. We are hopeful that the EU will uphold the aims of the European F-Gas regulation and stamp out illegal imports. So now to the results. Net sales in the quarter totaled $711 million, pricing and currency were each 2% headwinds in the quarter. As Sameer said, lower volumes were the primary issue in the quarter, as illegal imports took their toll on Opten stationary blend adoption in Europe and also contributed to weaker base, refrigerants pricing in volume in North America. Fluoropolymer volumes were impacted by lower industrial demand, including softness in the global auto industry. Adjusted EBITDA in the quarter was $180 million reflecting the drag of the operating issues we experienced in the first quarter, partially offset by some productivity gains in our manufacturing circuit. The operating issues we experience in Q1 are the [Fowlerville] (Ph) and Corpus Christi facilities are now behind us and we continue to ramp Corpus up to its full potential. The quarter saw a solid global adoption of Opten HFO refrigerants in mobile applications. Growth in the U.S. in Asia continue driven by new platform convergence, which is helping to offset the global slowdown in weaker production. We are on-track for the U.S. to be fully converted to HFO for new builds by 2021 and in Japan by 2023. On the stationary side, we continue to add new equipment partners will help accelerate the adoption of next generation Opten refrigerants which go beyond retrofit replacements. In the second quarter, we are proud to have announced partnership with [indiscernible] and Mitsubishi Electric Company. We look forward to supporting the next generation of HVACs and cooling equipment design specifically for HFO technology together with our partners. Let's turn to our chemical solution segment on the next slide. Sales in the second quarter were $130 million. Volumes were lower year-over-year driven by softer demand in some market served by our performance chemicals and intermediate products and operating issues at a key customer mine impacted the mining solutions segment. This volume weakness were partially offset by higher prices in mining solutions, [indiscernible] products. Despite the weaker top-line, the segment generated $16 million of adjusted EBITDA in the quarter up 4% from the second quarter of 2018. This improvement reflects the impact of previously communicated price increases and other income from licensing agreement executed in the second quarter. For the balance of the year, we expect demand in mining solutions to remain strong globally and in our core markets in America and we are well positioned to support our customers as they look to responsively develop and operate their mines. As we move through the year, we will continue to optimize the performance chemical and intermediate business and we are confident that our chemical solution segment will be a consistent source of profit growth and value creation for Chemours going forward. Let me now cover our Titanium Technology segment on Slide 13. Our sales in the quarter of $567 million were lower than in Q2 of 2018. The revenue decline was driven primarily by lower volumes and share loss in certain segments, most notably past plastics and laminates. Price was stable on a year-over-year as well as sequentially. Adjusted EBITDA of $127 million reflects higher fix cost absorption due to lower volumes. In the quarter, we completed the global rollout of a new Ti-Pure Flex portal and now have hundreds of active users on this site. The team is actively working with customers to help familiarize them with this new channel. As a reminder, the flex portal represents a totally new buying experience for our customers with prices offered by Chemours for specific loss in grades and with specific delivery time horizons. The Flex portion is constantly evolving to adapt new customers needs and generate new insight about buying behavior. It’s a perfect complement to our Assured Value Agreement or AVA contract. While we are a long way from becoming the [indiscernible], this is the first step in what we envision for the new digital Chemours. In the quarter, we also announced the acquisition of Southern Ionics Minerals a minor of mineral sands with operations in Georgia. Southern Ionics minerals represent a strategic acquisition of Chemours enabling new options to further expand our internally sourced or capabilities. We are especially proud of the great track record of environmental stewardship which Southern Ionics Minerals brings to Chemours and I would like to add my personal welcome to the 130 new Chemourians who joined the Company on August 1. I look forward to working with all of you to help reinforce this trend of our world-class supply chain. Looking forward, we now expect a lower demand environment to persist to the back half of the year given the uncertain macro economic backdrop. We continue to remain stead fast in our commitment to our TDS strategy, this include signing of new long-term AVA agreement with an emphasis on plastics and laminates customers and fully leveraging the Flex channel to reach new customers. We know that this strategy is the best way for us to support our customers and their growth over the long-term and - remain committed to this vision. I will now turn things back over to Mark.

Thanks, Mark. Turning to the next chart. We are revising our guidance for the full-year 2019 to reflect the second quarter results and our view that a second half recovery is less likely. We are reducing our adjusted EBITDA guidance to a range of $1 billion to $1.15 billion, EPS to $2.37 to $3.08 per share and free cash flow to approximately $100 million. In total, midpoint estimate of adjusted EBITDA changes by $400 million. $200 million comes from lower earnings in our Titanium Technology segment due to weak market demand and share loss as we install our TDS strategy. Our new outlook calls for a slow recovery of share in the second half of 2019 with a return to more normalized demand sometime in 2020. Anticipated weaker results in Fluoroproducts accounts for the other $200 million change, roughly $125 million of this figure is related to a legal imports of HFC refrigerants into European Union, mainly from China. The remaining $75 million is related to the operating issues we encountered in Q1 and a softer demand outlook and Fluoropolymer partially offset by cost productivity across the Fluoroproducts circuit. I speak for the entire management team here at Chemours when I say we are focused on delivering better results for all our stakeholders in the near and medium and long-term. While we cannot control global politics or the broader economic cycle, we can and will continue to manage the things under our control. As I said at the start of the call, I believe that the headwinds we face are temporary, not permanent. The things that each of the 7000 members of his team are working on everyday will make us a stronger Company and set us up for long-term success. We will continue to work with customers on the AVA and optimize Flex to support their long-term tighter needs. We drive the adoption of Opteon globally and pushed back against the legal HFC imports using all available means. We will continue to innovate across our Fluoropolymer lines to ensure that our products are at the heart of next generation technologies including 5G, which are poised to change the world. Finally, we will work diligently on managing cost and driving productivity across the Company. That is what the second half will be all about. I take immense pride in leading this Company. I believe in our collective strength. I know that we will push through the challenges we face, big and small and emerge on the other side a stronger and more vibrant Company. Operator, can you please open up the lines for questions.

Certainly. Thank you. [Operator instructions] Your first question comes from the line of John McNulty from BMO Capital Markets. Your line is now open.

Yes, good morning. Thanks for taking my question. So with regard to the Ti2 business, the level of volume weakness and how its continuing, I guess given that it looks like a lot of the destocking is over at this point is a bit surprising. So, I guess can you help us to better understand kind of the pressures that you are seeing in that business and I guess tied to that do you feel that there is any risk that some of this price stabilization approach that you are taking is actually getting customers to shift away from say chloride to more of a sulfate based solution or mix going - and so how should we be thinking about that?

Yes, thanks John. First of all to your last point, absolutely not, we are not seeing any shift from chloride to sulfate. I would say that the difference for us is, for sure through the destocking side, we are just seeing some fundamental market weakness. At this point in time and as we had talked in the beginning of the year, we really thought we would see a second half pull on demand, we are not seeing that pull on demand market wide. So number one, I think that is the big issue that we are really facing. But on top of that, one, we are fully committed to TDS, but as we look at this you know, majority of our contracts are now in the AVA contract side, majority of our volume is on AVA contracts. They are primarily on the coating side, we are now working with our plastics and laminate customers to work with them to try to make this fit for them as well. But what were encouraged about is now that we have the Flex channel up in running and people are starting to understand how to use it, we are seeing significant volume now flowing into the Flex channel. So it’s not just the contracts, we are seeing things now flowing out of that Flex channel, which is giving us a lot of encouragement and we are able to convert some of those Flex customers over the AVA contract. So that is why we believe the second quarter was definitely the bottom and we are starting to pick up as we are going forward.

Great very helpful. And then I guess when you think about some of the volume pressures and maybe how extreme they been. How are you thinking about it from the cost side in terms of your ability to flex down capacity facilities and flex them backup when they are needed and how much costs relief can that give you?

Yes. Well obviously we are running our facilities on the lower end of their capabilities that requires - the beauty of this business and the beauty of our technology is we have the ability to do that. Right so you could use ore blends as much as you can we are probably using it at the maximum level to be honest with you right now. So as we turn up in volume that cost-sharing really helps a lot. So you will see a significant difference on the cost side, because we are covering all this cost on a much lower volume base. As we add volume to as we anticipate in the second half of the year and especially as we go into next year, you will see a much different cost profile exactly to your point, right, because we are able to spread that over a higher volume, but these operations run a lot better at higher utilization.

Great. Thanks very much for the color.

Your next question comes from the line of Duffy Fischer from Barclays. Your line is now open.

Good morning. Question around the flow in Europe, volumetrically how much is legal product do you think on an annualized basis is flowing into Europe and what has that actually done to price at the lower level if you go below HFO and kind of everything else. How much has price come down from the peak in Europe.

Yes. So Duffy let me start and Mark might be able to add to this. We are seeing about 20% to 30% of the total quota in Europe, being offset by a legal imports and how it affects us is sort of in three buckets right. So number one, it affects our volume of HFCs, that volume actually is a negative in Europe obviously, but it also has a flow-through side over the volume in the U.S. because a lot of European producers now aim there volume over to the U.S. side. So we are seeing volume on both Europe and the U.S. been affected. Its price of the HFCs so that has come down significantly, as well as quota sales have got the - the amount you pay for CO2 equivalent in quota sales are down significantly that obviously the quota side is in Europe, but the price on HFCs is a negative both in Europe and the U.S. And then finally, the way it affects us and flows through us is it slows down the adoption of our Opteon blend in stationary, because people can use HFC refrigerants a little bit longer, because there is available to them. So it really hit us in three ways from that standpoint and I would say think about the volume as the 20% to 30% that is coming against the quota, but the price has been in that kind of a neighborhood as well in terms of the drop in price. I thought it would be helpful maybe if Mark can talk you little bit about so what are we doing about that, because we are just standing still here, but what we are being very, very aggressive around it.

Yes, thanks Mark. So Duffy I think we are really working hard with other responsible industry participants in Europe to focus on o would say three primary areas. Advocacy on enforcement with the view to really focusing on tax evasion angle as a way to get at more interest from member states in really taking a more active role here on the reinforcement side. We continue to our really work on public awareness to really create a better understanding of the environmental impact. This is the equivalent of 20 million to 30 million tons of CO2, think of five million to six million extra [indiscernible] been on the road. So it’s a meaningful environmental impact. And then the final area is funding more detailed investigation of the sources of illegal imports and so we can share that information with Enforcement Authorities. So this is a full-fledged effort really on a number of proms to get at this.

Great. Thank you.

Yes and then Duffy just to follow-up with Mark, because I think is important for everyone on the call. Obviously we are taking this extremely seriously, because Opteon is our crown jewel, Opteon is the lowest GWP player out there, this is not just a financial issue for us, this is also an environmental issue for the world right. So these are legal imports as Mark said are keeping reductions of CO2 happening. So we think this is important for both the EU and for ourselves. I can't tell you if this is a three month or six month or nine month solutions here, but what I can tell you is, we are putting all our effort and I know a lot of our industry peers are putting their effort in this as well, not just for our economic well-being, but it’s good for the world.

Great and then just two quick ones on financial. So one why did free cash flow guide come down so much more than the EBITDA guide. And two if we hit the lower end of the EBITDA guide billion dollars we are basically at 3.6 times leverage then, what does that do to the buyback program if that is where we are trending.

Hey Duffy this is Sameer. So let me first address on the free cash flow side. The free cash flow guide came down primarily in-line with the lower earnings and also from the working capital point of view, because if you look at the details and you have lot more detail in the 10Q. We have been seeing some headwinds on the working capital side as the volume decline. So it's a combination of the two, its lower earnings and the working capital that we have. And then on the capital allocation and what it will do to the share buyback, essentially really nothing changes about our capital allocation policy. As you know, we already said our first call on cash is around what we want to invest in the plants, we want to make sure we have safe and reliable operations, and then we look at opportunistic acquisitions in our core business and after that maximum cash flow is - majority of that is going to go back with the shareholders. So nothing really changes around that and we want to do that in the context of making sure our balance sheet is flexible and our leverage is less than three times.

And if you look - you know we always said majority of our cash is going to go back to our shareholders. This year hasn’t played out exactly the way we would like to have because of the headwinds we talked about. But be we have returned significant amount of cash still to our shareholders if you look at where we are year-to-date. So I think our shareholders should understand the drive for the majority cash going back to the shareholder is still and will continue to be our focus on our drive.

Great. Thank you.

Your next question comes from the line of Bob Koort from Goldman Sachs. Your line is now open.

Good morning this is [Don Campbell] (Ph) on for Bob. Quick follow-up on that free cash flow conversation. You maintain the CapEx of $500, how much of that is maintenance and I guess kind of how much Flex do you guys have on a CapEx front?

Don, to give you a couple things around that, one is, as we had laid out to everyone before, we usually are in the ballpark of $250 million of maintenance capital that is really dependant on the kind of [Tars] (Ph) that we have during the year. But we have two large projects this year that are essential to get done that sort of limits our flexibility. One is, we will be spending about $100 million as we have talked about as we complete our new lab. We don't have a choice around this, our labs were with the DuPont, we are required to exit those labs by the end of the year. So we have to build and move our facilities again not optional for us, we will have that completed in October and that will be behind us. And the other is with our consent to Korea and North Carolina, the facilities that we are putting in there are about a $100 million of capital that has to be completed by the end of the year as well and we are on-track there. So when you when you take that together, you know we are in the 450 range just on those areas and then rest is really on specific growth capital that we have been using. So we don’t have a whole lot of dial down capabilities beyond the 500 that is why stayed in that range.

Got it, that is helpful and on the Flex portal when you think about pricing, how do you expect that the trends, they are more aligned to kind of your contract, value stabilization contracts are closer to maybe spot pricing?

We really continue to experiment Flex in terms of product offering price and other various aspects of customer requirements to really see what works best for our customer needs, so we continue to look at Flex as a way that we can experiment outside of the majority of our volume being on AVA contracts.

To add to Marks point, our customers on AVA contracts will always be advantages in totality. Io mean that is the promise we made upfront and we are staying with that promise to our customers. So in totality when you look at the full offering, AVA contract holders are always going to be advantaged.

Got it. Thank you.

Your next question comes from the line of Arun Viswanathan from RBC. Your line is now open.

Great, thanks. Good morning. I just want to go back to Fluoroproducts, although you are lowering your outlook and you continue to see some pressure on the imports. I guess would you characterize the operations in the quarter as you know equivalent to your expectations or slightly better or slightly worse and similarly going forward you expect any father kind of startup issues or anything at Corpus?

Yes. We are really happy with where our operations are right now and you know we had a tough first quarter, not just at Corpus, but one of our other facilities. Those are all behind us, Corpus is running extremely well. As I said in the comments when I opened, I was just down there a couple of weeks ago, that is operating extremely well. So from that point we don't anticipate any operational issues going forward and I feel very confident in terms of how that team is operating. I will say that as you look at Fluoro in general outside of the legal imports. We have some macro issues that I think everyone is dealing with in the semiconductor and auto industry from the Palmer side, but our application development engine is continuing to ramp up, we are really excited about the level of application development we have, particularly in the electronics and semiconductor side. Although automotive is continuing to grow as well. And I will also say Opteon still will be despite this issue we are having on the stationary side when you look at the mobile side, our volume will still be double-digit volumes growth this year. So just want to reminder everyone, Opteon is still our growth engine, our application development work on polymers continues to move ahead and I believe we have all our operation issues all behind us.

And this is a follow-up on Ti2, what is your outlook here, I mean you mentioned kind of a slower start on coating and weaker demand there. I guess there has some been some fit inserts with price increase announcement over the last year, obviously you are going through your value stabilization strategy. So you may not necessarily be in that camp, but any thoughts on tightness of the market and potential for pricing in rest of the 2019 or maybe early 2020. Thanks.

Yes. I would say the macro would tell you that it's not a robust market. I think we are going to see significant improvement in the second half from where we were in the first half. But remember, we have this flexibility around as Mark sort of laid out to you, around our Flex portal. So our Flex portal allows us to really aim our pricing at what our customers' needs are from that standpoint. So maybe a different scenario than we were in the past and to be honest with our customers are still learning how to operate with us inside that portal, but the majority of our customers still are on that AVA side but we are seeing a lot of uptake now on the Flex portal as well. So I would tell you that I'm a bit wary just to be honest about what the market situation looks like not about where we fit in that market situation, but just in general, I still think that there is uneasiness in the macros around the world outside of the U.S. The trade issues with China don't help, I think we all understand that, because it creates a little bit of uncertainty, but where we are inside of that market I'm feeling better every day as the portal really picks up volume.

Thanks.

Your next question comes from the line of Vincent Andrews from Morgan Stanley. Your line is now open.

Hi guys. This is actually [indiscernible] for Vincent. Maybe just going back to the Ti2 outlook. Could you maybe talk broadly towards what normalized Ti2 demand kind of looks like in 2020 and what the catalyst is to you on the demand side to kind of bridge the gap from where we are now to get there. Thanks.

So I would say when we look at the long-term indicators, they are all pointing to a recovery in Ti2 demand. I would say to the point Mark raised earlier we are seeing a more gradual recovery that we would expect to start in the second half and versus some more robust recovery that we had predicted earlier in the year. So I would say our long-term outlook still remains for a more gradual recovery. And you know as we had talked to earlier, we have seen share loss with the implementation of TDS earlier this year, but our expectation is that we would make strides towards more of our capacities share as we approach 2020.

To sort of tie into that, we believe we are at the bottom of the cycle in the second quarter and as Mark said, when these cycles turn in the past, you see more of a sharp turn, we just think this turn is going to be a bit more gradual, but again, our goal is to aim at back to our capacity share in 2020, which will be a significant delta versus where we are today.

The other thing I would add is, we are not seeing any new supply come online in any meaningful form. So our view is, recovery will be more gradual and obviously, our expectation is that we would revert to share attainment more in-line with our capacity through 2020.

Okay. Thank you.

Your next question comes from the line of John Roberts from UBS. Your line is now open.

You know law suits - probably the dividend that DuPont have same prior to the similar, is there any legal precedence again among other spin off other than when we have had a [indiscernible].

John, we really don't want to talk too much. As I mentioned in the opening want to give that stated because we thought there was misconceptions about the law suit and that is where we want to clear up, but we really don't want to talk about anything that we are involved in a legal situation at this point or talk about you know our defense of that law suit. So I apologize, but we really can't answer that.

Okay. And I would have never guessed that the chemical solution segment would be there relative outperformer here. Does this get more capital going forward?

Yes. That segment is one that I think people don't get to see a whole lot, number one the mining solutions business inside of Chem Solutions is an extremely strong business, you know as we have said this is well beyond GDP. It's probably beyond 2X GDP growths that we are seeing in gold mining in Mexico, U.S and Canada. We are key supplier to that and we are one of the more advantaged suppliers from that standpoint. So that is sort of the ballast inside of that. But even on the other side of the segment there, the team has done a really good job of increasing our profitability. So if you remember, this segment lost money when we took it over from DuPont and now it is approaching the margins of the rest of the Company. So a great job by our segment team, but it also has some really good market pull if you will for the future. So we are very happy with that segment from that standpoint.

Thank you.

Your next question comes from the line of P.J. Juvekar from Citi. Your line is now open.

Yes, hi god morning. I think you are thinking with AVAs that you might lose volumes initially, but as the market grows you would get those volumes back. I guess my question is what if customers formulate with somebody else and those volumes had gone permanently, and B, are you incentivizing other players to add capacities with your market share loss?

Yes. So number one, we don’t believe that, people are formulating away from us for a variety of reasons, one, we have great product line, two, as I said you are not seeing the shift from chloride to sulfate here. This is just shifting between the chloride producers which allow the formulation to come back to us. To your other point, we have the reinvestment economics than anybody out there. And so from that standpoint at this point in time and you will have to judge when you look at others results. I don't think you are going to be seeming that anyone else is going to be in a position to add that capacity. We will be at the right point in time, I will tell you that we feel very confident around the strategy that we put in place, I mean you could look at things like go back in second quarter of 2016 look at the Ti2 results from that standpoint verses this quarter and what you will see is we had much higher volume and lower earnings. So from the standpoint of where we are right now, we think we are in the right place and then as you grow from that, it's going to really substantially improve our earnings. So we feel really good about where we are. We feel really good about the reinvestment economics that we have versus our peers. We think we are in a very good position.

Okay and then quickly on HFC, the illegal imports into EU, what legal actions can you take because this is obviously not good for you and not good for the environment.

So the enforcement is really done at a member state level and so we are really working from an advocacy standpoint on driving further enforcement while we investigate sources of illegal imports coming into EU. As I said earlier, I think our focus after a lot of work with our industry participants is now around tax evasion and I think that is probably the interest of the enforcement agencies in the EU. So it really is a working progress with each of the member states to drive more rigid enforcement on this issue.

And P.J. the face that we have been working with our industry peers and have an outside investigation firm who is helping us sort of target exactly the violators and we bring those right to the member states and their enforcement agencies. So that they can then take the legal action that needs to be taken there. We also are working with the EU, to try to get the penalties similar across the member states, because they are difference between the member states and we are trying to get those to be high, enforceable and also equal and we had a lot of receptivity around that. So there is a lot of work here, but all of this are - we call it illegal import because that is what they are. They are illegal and we are bringing those to the enforcement officials, so that they can take the proper action, in some cases they find themselves, in some of our investigations through a third-party finds them and they go ahead and execute off of that.

Thank you. So many congratulations.

Thanks P.J.

Your last question comes from the line of Jim Sheehan from SunTrust Robinson. Your line is now open.

Good morning this is [indiscernible] on for Jim. In TiO2 your EBITDA margin was relatively flat, but still down a bit quarter-over-quarter, are you experiencing any margin pressure from rising ore costs and what is your outlook for ore cost through the end of the year?

We're not, we look at flat ore cost throughout the rest of the year. what you are seeing in the margin side is really our coverage of fixed cost, primarily, because as you can see prices are fairly flat. Our ore costs are fairly flat, it’s really about our utilization rates and fixed cost coverage. That is would put the margins under a little bit of pressure.

Alright, thanks and just related to the mining acquisition you announced. How much of your ore do you currently source internally and do you have a target for how much you would like to increase this to?

Yes. So today we have about 8%, just under 10% of ore internally. This will add to this, but the beauty of this and not that we will do it immediately, but the beauty of this is this can enable much higher percentage of our ore usage overtime. Now that will take additional investment to be able to do that, but from a standpoint of where we are. I just want to mention something and Mark might want to add to this, this is the same area of mining if you think of the vein from Florida up to Virginia this is the trail Ridge vein that we have been pulling off of in our start operation. We know this ore, it’s a perfect fit for our process. I mean you couldn't design an ore better for our processes. So we like it from the standpoint of the quality, we understand the cost to extract this because we do it today, from that standpoint. But it also opens the door for us to be able even bring up to a quarter of our ore needs to our own mines with the right investment overtime if we decide to be able to do that.

High quality eliminate source that is really advantage for us, allows us to gain additional synergies with our existing activity there and bring a very responsible environmentally friendly mining operation on board. So this really works for us and it’s a great investment.

Great. Thank you.

Thank you. Mark Vergnano, President and CEO I turn the call back over to your for any closing remarks.

Thanks, Melisa. And thank you all for joining the call today. As you can hear from us obviously the quarter wasn't exactly where we want to turn out, but we are very excited about the future of this Company. Our strategies are intact, our growth plans are intact and hopefully as investors you all are excited about the future that we can really bring here. So again, thank you very much for your time this morning and your continued interest in Chemours.

This concludes today’s conference call. You may now disconnect.