Chemours : Transcript(opens in new window)

Corrected Transcript

12-Feb-2021

The Chemours Co. (CC)

Q4 2020 Earnings Call

	Total Pages: 20
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The Chemours Co. (CC)	Corrected Transcript
Q4 2020 Earnings Call	12-Feb-2021

CORPORATE PARTICIPANTS

Jonathan S. Lock	Sameer Ralhan
Vice President, Corporate Development and Investor Relations, The	Senior Vice President and Chief Financial Officer, The Chemours Co.
Chemours Co.	Mark E. Newman
Mark P. Vergnano
Chief Operating Officer, The Chemours Co.
President, Chief Executive Officer & Director, The Chemours Co.

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OTHER PARTICIPANTS

John P. McNulty	Arun Viswanathan
Analyst, BMO Capital Markets Corp.	Analyst, RBC Capital Markets LLC
Hassan I. Ahmed	Duffy Fischer
Analyst, Alembic Global Advisors LLC	Analyst, Barclays Capital, Inc.
Robert Koort	Vincent Stephen Andrews
Analyst, Goldman Sachs & Co. LLC	Analyst, Morgan Stanley & Co. LLC

Joshua Spector

Analyst, UBS Securities LLC

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MANAGEMENT DISCUSSION SECTION

Operator: Ladies and gentlemen, thank you for standing by, and welcome to The Chemours Company Fourth Quarter and Full Year 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]

I would now like to hand the conference over to your first speaker today, Jonathan Lock, Vice President, Corporate Development and Investor Relations. Please go ahead, Mr. Lock.

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Jonathan S. Lock

Vice President, Corporate Development and Investor Relations, The Chemours Co.

Good morning, and welcome to The Chemours Company's fourth quarter and full year 2020 earnings conference call. I'm joined today by Mark Vergnano, President and Chief Executive Officer; Mark Newman, Senior Vice President and Chief Operating Officer; and Sameer Ralhan, Senior Vice President and Chief Financial Officer.

Before we start, I'd like to remind you that comments made on this call as well as supplemental information provided in our presentation and on our website contain forward-looking statements that involve risks and uncertainties, including the impact of COVID-19 on our business and operations and the other risks and uncertainties 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. The actual results may differ and Chemours undertakes no duty to update any forward-looking statements as a result of future developments or new information.

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The Chemours Co. (CC)	Corrected Transcript
Q4 2020 Earnings Call	12-Feb-2021

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 term and adjustments are included in our release and at the end of this presentation.

With that, I'll turn the call over to our CEO, Mark Vergnano, who will review the highlights from the fourth quarter and full year 2020. Mark?

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Mark P. Vergnano

President, Chief Executive Officer & Director, The Chemours Co.

Thank you, Jonathan, and thank you, everyone, for joining us this morning. I'll begin my remarks on chart 3. The resilience of Chemours was put on full display in 2020 as we rose to meet each challenge the year threw at us. I was reminded time and time again of just how strong and determined the people of this company are. From COVID-19 to social justice to political polarization, 2020 was full of events that tore at the very fabric of society. Through it all, this team stayed focused on our true north, the safety of our people and their families, our customers and the communities in which we operate. In the end, we delivered another year of solid results reflective of that unity of purpose.

I'd like to take a moment to thank the entire Chemours team for their commitment over the last year with the reminder that our efforts must continue. We forge ahead in 2021 with the same resolve, determination and energy we have taken at every challenge as team Chemours. Looking back on 2020, our COVID-19 response set the early tone for the company. As you've heard me say on the last few calls, we focused on three key areas: one, putting our employees, customers and communities first; two, maintaining a strong balance sheet and liquidity position; and three, focusing on cash generation in 2020. The team executed exceptionally here and I can certainly say the urgency and speed with which we acted paid dividend throughout the year.

From a commercial perspective, we continue to build on the success of our Ti-Pure Value Stabilization strategy with new AVA contracts and expansion of our Ti-Pure Flex portal. We also expanded our Opteon portfolio with entry into the mobile aftermarket, which we believe will be a significant source of value. Chemours continues to deliver innovative chemistry and business models, which create long-term value for our customers.

After bottoming in Q2, the momentum we saw in Q3 continued to build into Q4. Our full year financial results reflect the strength of our recovery, most notably the $540 million of free cash flow we delivered. Our free cash flow for the full year 2020 was $371 million higher than in 2019. This included executing actions to reduce cost by $160 million and our CapEx by $125 million in response to the pandemic.

We also took advantage of favorable conditions in the debt capital markets to refinance some of our debt, extending our maturities and further strengthening our balance sheet. We continue to maintain strong liquidity and financial flexibility. More recently, on January 22 of this year, we announced the resolution of our legal dispute with DuPont and Corteva and the establishment of a cost-sharing arrangement and an escrow account to be used to support and manage potential future legacy PFAS liabilities.

At the same time, we announced the settlement of the Ohio PFOA MDL litigation, ex the Abbott case which remains on appeal, with $29 million of that $83 million settlement contributed by Chemours. The press release and 8-K from January 22 contain the details including the binding MOU. As I said at that time, we view this agreement as providing significant protection and a risk reduction for Chemours' shareholders.

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The Chemours Co. (CC)	Corrected Transcript
Q4 2020 Earnings Call	12-Feb-2021

Finally, we have announced the fourth quarter split of our Fluoroproducts segment into two new reportable segments, Thermal & Specialized Solutions or TSS and Advanced Performance Materials or APM. Mark Newman is going to cover the details behind the resegmentation when he covers the business results. Before that, though, I'd like to share with you some leadership transitions and why we are so excited about the future here at Chemours.

Moving to chart 4, first off, Bryan Snell, the President of our Titanium Technologies segment, will be retiring after 40-plus years with the company. Bryan has led our Titanium Technologies segment since spin, and under his leadership, we have transformed our TiO2 business significantly. We added world-class capacity at our Altamira, Mexico facility; improved our cost position globally; further developed our mining capabilities; and implemented a unique go-to-market model and Ti-Pure Value Stabilization, or TVS. I'm proud to have call Bryan a colleague and friend over the past 30 years in both DuPont and Chemours. His legacy will live on within Chemours for years to come.

Ed Sparks, who currently leads our Fluoroproducts and Chemical Solutions segment, will be taking over leadership responsibilities for Titanium Technologies, while retaining responsibilities for Chemical Solutions. Ed is a seasoned leader with deep operating technical and commercial experience, primarily in our Titanium Technologies segment, where he started his career and where he spent most of his time with the company. Ed is a great leader and a great thinker. I look forward to working with him and the entire TT team to take our Ti-Pure franchise to new heights.

Turning now to chart 5. As you all saw in the press release in the fourth quarter, we divided our Fluoroproducts business into two new reportable segments. Fluorochemicals becomes Thermal & Specialized Solutions, while Fluoropolymers becomes Advanced Performance Materials. We've got two great women lined up to lead these segments.

Alisha Bellezza will lead our TSS business. Alisha has been leading this business within Fluoroproducts over the last year and has had a variety of roles in her career with Chemours, including VP of Global Sales, Commercial Operations and Supply Chain for our TT segment; Corporate Treasurer and our leader of the Investor Relations function. Alisha is an excellent leader and will be driving our growth in Opteon, Freon and the rest of the TSS portfolio.

Denise Dignam will lead the APM business. Denise has deep experience in the chemical industry with over 30 years of commercial operations and supply chain experience. Most recently, Denise was VP of Operations for Fluoroproducts and led a significant transformation effort to improve our manufacturing processes and reliability. I look forward to working with Denise as she continues to improve the performance of the APM segment and develops new pathways for growth. We are very fortunate to have the bench strength to promote these three talented leaders from within Chemours to their new positions. Congratulations to you all.

With that, I'd like to turn things over to Sameer to go over the financial results from last quarter and the full year. Sameer?

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Sameer Ralhan

Senior Vice President and Chief Financial Officer, The Chemours Co.

Thanks, Mark. Turning to chart 6, we delivered solid full year 2020 results. The performance weighted to a relatively strong second half, in line with the global macroeconomic recovery. Full year net sales were $5 billion, as COVID-19 impacted demand across all segments and end-markets. GAAP EPS and adjusted EPS were $1.32 per share and $1.98 per share, respectively.

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The Chemours Co. (CC)	Corrected Transcript
Q4 2020 Earnings Call	12-Feb-2021

Despite the drop in demand, adjusted EBITDA was $879 million with margins holding flat at 18% on a year-over- year basis. This was the result of our $160 million cost savings initiative launched in early 2020, which was partially offset by expenses incurred late in the fourth quarter related to legacy litigation work and remediation activities at our Fayetteville site.

Looking ahead, we anticipate this cost program to continue to benefit the business in 2021 and beyond. We expect to convert roughly 20% of the 2020 cost savings to structural savings that will benefit us on ongoing basis. CapEx declined from $481 million in 2019 to $267 million in 2020, largely due to deferrals of growth projects.

As Mark mentioned on the previous chart, free cash flow was strong at $540 million, up $371 million from the prior year despite lower underlying earnings. We continue to focus the business on cash generation throughout the year.

Turning now to the results in the quarter, which I'll cover in chart 7. Fourth quarter revenue of $1.3 billion was essentially flat to last year's fourth quarter, reflecting strength in the recovery and demand momentum from the third quarter. Sequential volumes improved by 9% with pricing holding up, an atypical result for this time of the year given the seasonality of our businesses.

Both net income and EPS improved on a year-over-year basis, and adjusted EBITDA rose $19 million to $246 million for the quarter. Margins rose slightly on a year-over-year basis to 18% and held steady from the prior quarter on a sequential basis. Free cash flow was $300 million. This is the third best free cash flow quarter since spin-off. The combination of cost controls, working capital discipline, and lower CapEx were key drivers in achieving this great result. In total, Q4 was a solid quarter to close the year on and demonstrated momentum in the businesses as we move into the first part of 2021.

As a final note, our board of directors approved the first quarter 2021 dividend of $0.25 per share. This is unchanged from the prior quarter and will be payable to shareholders of record as of February 26, 2021. Chemours continues to deliver consistent and stable dividends to shareholders even through the worst portions of the COVID-19 pandemic, a testament to the strength of our businesses, balance sheet, and cash generation potential.

Turning to chart 8, let's review the EBITDA bridge for the fourth quarter. Fourth quarter 2020 adjusted EBITDA was $246 million, up from $227 million in the prior-year period. Price was a headwind across all segments on a year-over-year basis, partially offset by improved volumes in Titanium Technologies and increased HFO adoption in our blends business, currently with a small benefit in fourth quarter with stronger euro versus US dollar being the primary driver. Lower cost across all our four segments were partially offset by higher corporate costs related to environmental remediation at Fayetteville Works and higher legacy legal costs.

In total, cost and other contributed $31 million to adjusted EBITDA on a year-over-year basis. Overall, fourth quarter was a strong result for Chemours, and I would like to thank the team for the extra effort to close the year strong.

Let's turn to chart 9 where I'll cover liquidity. As I've said on the last few calls, liquidity and the balance sheet remain strong. Our cash balance at the end of 2020 was just over $1.1 billion, an increase of $149 million from Q3 2020. Operating cash flow was $353 million, while CapEx was $53 million. Dividends for shareholders were $41 million.

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