Prepared remarks
Good morning. My name is Therese, and I will be your conference operator today. I would like to welcome everyone to The Chemours Company's Second Quarter 2026 Results Conference Call. (Operator provided instructions for participants.) I would like to remind everyone that this conference call is being recorded. I would now like to hand the conference call over to Brandon Ontjes, Vice President and Head of Strategy and Investor Relations for Chemours. You may begin.
Good morning, everybody. Welcome to the Chemours Company's Second Quarter 2026 Earnings Conference Call. I'm joined today by Denise Dignam, Chemours' President and Chief Executive Officer; and our Senior Vice President and Chief Financial Officer, Shane Hostetter. Before we start, I would like to remind you that comments made on this call as well as in the supplemental information provided on our website contain forward-looking statements that involve risks and uncertainties as described in Chemours' SEC filings. 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 this call, we'll 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 is included in our press release issued yesterday evening. Additionally, we posted our earnings presentation on our website yesterday evening as well. With that, I will turn the call over to Denise.
Thank you, Brandon, and thank you, everyone, for joining us this morning. On today's call, I'll start with highlights from our recent performance, then turn it over to Shane to walk through our outlook for the third quarter and the balance of 2026. After that, I'd like to share my reflections as we've reached our halfway point under Pathway to Thrive and discuss the opportunities ahead before we open the line for your questions. For the second quarter, our results reflect disciplined commercial execution, continued pricing actions and progress against our priorities across all 3 businesses. Net sales were slightly below expectations, primarily due to softer residential stationary AC demand in Thermal and Specialized Solutions. However, pricing improved across all our businesses, including continued execution in Titanium Technologies. Adjusted EBITDA exceeded expectations, supported by stronger operational performance and an improved product mix in Advanced Performance Materials, lower corporate costs and the referenced pricing strength in TT. Importantly, we continue to see tangible evidence that the actions we are taking under Pathway to Thrive are strengthening the business. In TT, we announced an additional global TiO2 price increase effective June 1, building on prior pricing actions and supporting local price increases of approximately 5% year-to-date. Separately, in APM's Performance Solutions portfolio, net sales grew 8% year-over-year, underscoring the momentum we are building in the high-value specialty applications for data center and semiconductor end markets as we fulfill a backlog of existing orders. More recently, we also recorded nominal sales of 2-phase liquid cooling products for sampling across 2-phase applications with several customers. These early sales support continued progress through product trials, which have increased 70% year-over-year while reinforcing the relevance of our innovation pipeline in attractive growth markets. As an indication of the momentum in this space, recent research from the Uptime Institute, an industry-leading authority on data center infrastructure and operations, identified a growing share of operators evaluating 2-phase systems for future deployments as AI-driven compute demand accelerates the shift towards liquid cooling. Additionally, we continue to strengthen Chemours' financial position through strong cash generation and disciplined capital allocation, enabling further debt reduction and enhancing our financial flexibility. We also made notable progress resolving legacy litigation as demonstrated by our recent settlements with the U.S. EPA and the West Virginia Department of Environmental Protection. Collectively, these actions represent important steps to derisk the balance sheet, improve leverage and cash positioning while enabling Chemours to invest with discipline in opportunities that support long-term value creation. Now let me expand on the quarter's business activities. Our TSS business delivered solid second quarter results. Net sales were slightly down versus the prior year quarter, driven by lower volumes from reduced aftermarket sales of Opteon blend in North America, while Opteon OEM volumes saw growth year-over-year in addition to continued growth into data center end markets. In the second quarter, that volume pressure was partially offset by higher pricing supported by strength in Freon refrigerants, primarily in automotive applications. It's important to note that the prior year quarter benefited from advanced demand tied to the initial aftermarket channel fill associated with the stationary AC transition under the U.S. AIM Act. Given our advantaged position in the market, Chemours moved quickly to help ensure distributors and technicians were well supplied to support the new equipment installations. As a result of the initial channel fill, aftermarket customers built additional inventory, creating an oversupplied channel heading into 2026. Today, while we continue to see strength in the OEM market, the aftermarket is working through elevated inventory levels. At the same time, residential demand is being pressured by higher interest rates, affordability challenges and a slower housing market. Together, these factors weighed on second quarter order activity and may continue to drive destocking as we move through the year. Looking ahead, we would expect the aftermarket to begin normalizing as inventory levels are reduced and seasonal restocking begins ahead of next year's cooling season. Adjusted EBITDA for TSS increased year-over-year with margins also expanding. This improvement was driven by higher pricing and benefited from the timing of certain costs in the quarter. Overall, TSS continues to demonstrate the value of disciplined commercial execution and strong margin performance even while facing some near-term weakness in the stationary aftermarket. In Titanium Technologies, the team continued to execute well in a challenging and inflationary market environment. Second quarter net sales increased slightly versus the prior year quarter, driven primarily by global pricing strength. Pricing increased across all regions, reflecting the discipline and consistency of our commercial pricing approach in light of the dynamic demand environment. Volumes were lower across key end markets with the exception of Asian markets, excluding China and Latin America, where demand remained more resilient in connection with recent antidumping duties in Brazil. Adjusted EBITDA for TT also improved year-over-year, while adjusted EBITDA margin was flat. The increase was primarily driven by the global pricing strength noted earlier, partially offset by higher costs from inflation. Importantly, our performance shows that even as inflation continues to pressure the cost structure, the business is responding with strong commercial execution and disciplined cost management, outpacing any inflationary headwinds. We have now announced 3 TiO2 price increases since December 2025, including our most recent global increase effective June 1. Together, these actions have contributed to an approximately 5% year-to-date price increase relative to where we started the year. As we look ahead, our team remains agile and responsive with an optimized manufacturing circuit that enhances efficiency and flexibility, enabling us to adjust production levels to meet demand while continuing to deliver outstanding service and quality for our customers. This combination of disciplined pricing, operational flexibility and customer focus positions TT to manage through a dynamic environment and capture value as opportunities emerge. In APM, second quarter net sales were down versus the prior year quarter, primarily driven by lower volumes associated with the SPS Capstone line closure completed in the third quarter of 2025. This was partially offset by higher pricing in the business. Adjusted EBITDA declined year-over-year, reflecting the lower sales volumes from the line closure as well as higher costs tied to the now resolved Washington Works outage. Notably, we continue to see strong momentum in the Performance Solutions portfolio, where net sales increased 8% year-over-year. Order book strength is driven by long-term sustainable demand tailwinds in data center and semiconductor end markets, where our specialty products play an important role in supporting complex and high-performance applications. Performance Solutions is becoming a larger part of APM's portfolio, reinforcing our focus on higher-value markets with stronger growth and margin potential. As a point of emphasis, our exposure to high-growth markets is expanding across Chemours. Sales into data center, semiconductor, AI and advanced electronics end markets now represent a high single-digit percentage of total sales across APM and TSS, supported by strong demand for differentiated solutions in both businesses. Within Performance Solutions, more than 40% of sales are focused on these targeted markets, where we see durable demand trends and robust growth potential in the years ahead. Importantly, this does not include the investments we are making in liquid cooling and next-generation refrigerants, which we believe will further expand our participation in these attractive growth platforms. Collectively, these dynamics position Chemours to participate more meaningfully in high-value applications that we believe can become a meaningful driver of overall earnings over time. With that, I'll turn it over to Shane to walk through our third quarter guide and our updated outlook for the full year 2026. Shane?
Thank you, Denise, and good morning, everyone. As shared in the earnings materials available on our investor website, I would now like to discuss our expectations for the third quarter and the remainder of the year as we look ahead. Beginning with TSS. For the third quarter, we expect TSS' net sales to decline sequentially from the mid-teens to 20%. While we continue to see stability in overall OEM sales, we anticipate softer residential and light commercial aftermarket demand for our Opteon blends during the third quarter in connection with destocking trends in the aftermarket and broader macroeconomic uncertainty. Also, consistent with our end market concentration, we expect seasonality as we progress through the Northern Hemisphere's cooling season. For the third quarter, we expect TSS' adjusted EBITDA to be between $125 million and $140 million, which considers seasonality as well as a less favorable mix from lower Opteon aftermarket sales. Longer term, as seasonal restocking occurs in the aftermarket and the installed OEM base in residential and light commercial systems continues to expand in North America, we expect the business to return to GDP plus growth. That growth should also be supported by continued heat pump adoption in Europe as well as rising global demand for data center chiller applications. Overall, despite the softer near-term demand backdrop, we remain confident in the long-term fundamentals of this business, supported by our advantaged market position with OEMs and aftermarket distributors, regulatory tailwinds and disciplined commercial execution. Going forward, we anticipate the stationary aftermarket to grow annually in the mid- to high single-digit percentage range. This, combined with continued advancements in liquid cooling and our next-generation refrigerants will act as growth catalysts for the future in TSS. For our TT business, in the third quarter, we expect TT's net sales to increase sequentially in the low to mid-single-digit percentage range, driven by continued execution of recent pricing announcements on modest year-over-year volume increases. Also, we expect TT's adjusted EBITDA to range between $70 million and $80 million. This expected improvement reflects the momentum we are seeing from our commercial excellence efforts, which have led to realized pricing gains across the business. Importantly, this pricing momentum is more than offsetting the cost and inflationary headwinds the business continues to face. It also demonstrates the value of our commercial discipline, customer focus and ability to move quickly as market conditions change. While we anticipate some volume-driven seasonality as we exit the year, additionally, we anticipate volumes to be up year-over-year in the second half across all end markets outside of China. Also, we expect continued cost productivity from operational improvements and broader cost reduction efforts to help keep earnings stable. Longer term, we remain focused on controlling what we can control. We continue to operate with commercial and operational agility, managing production to demand, optimizing the use of higher cost inventory on hand, which will drive notable earnings and cash flow productivity and staying disciplined on price to protect value in a dynamic global TiO2 environment. Turning now to our APM business. For the third quarter, we expect APM's net sales to increase sequentially in the mid- to high single-digit percentage range. This top line improvement is expected to be driven by a return to normal operating levels at Washington Works, along with continued strength in the Performance Solutions order book. We expect APM's adjusted EBITDA to be between $20 million and $30 million for the third quarter, which reflects approximately $5 million in performance that was pulled forward into the second quarter given sales timing. Within Performance Solutions, as Denise highlighted, we continue to see strong order book momentum for specialty products that address critical needs across the AI infrastructure ecosystem, including data center and semiconductor applications, which we anticipate will exceed 40% of these sales. These end markets are supported by durable demand trends and remain areas where Chemours is well positioned to deliver differentiated material solutions. While broader industrial demand remains mixed, the strength in Performance Solutions reinforces our confidence in APM's path toward higher-value growth. As we move through the balance of the year, we expect operational improvements and continued order book fulfillment in Performance Solutions, which will support anticipated earnings growth beyond the third quarter. Longer term, we remain focused on shifting our portfolio mix to Performance Solutions, where we see continued order book strength in high-value data center and semiconductor end markets. Our ability to continue to drive operational improvements and sharpen our portfolio will increase our earnings opportunities and drive us past our expected $30 million to $40 million adjusted EBITDA range. Looking to our consolidated outlook. We expect third quarter net sales to range from a decrease of 5% to flat sequentially. This reflects the referenced weaker demand in TSS' stationary aftermarket for Opteon blends, partially offset by continued pricing momentum in TT and sequential sales and cost improvements in APM. Our consolidated adjusted EBITDA is expected to range between $175 million and $205 million for the third quarter. Corporate expenses are expected to be approximately $40 million to $45 million. We also anticipate capital expenditure to be in the range of $65 million with free cash flow of at least $50 million, reflecting the timing of payments for plant turnaround activities commencing later in the third quarter. Turning to the full year. We expect 2026 net sales to grow between 1% and 5% over 2025, with adjusted EBITDA growing to be between $775 million and $825 million. This outlook is supported by pricing momentum and ongoing cost improvements across each of our businesses. As highlighted for the third quarter, continued destocking of our Opteon blends in the aftermarket will impact TSS, but this headwind is expected to be partially offset by strength in TT from pricing and cost improvements as well as APM's operational resilience and demand strength in higher-value end markets as the year progresses. Capital expenditures are expected to be between $250 million and $280 million for the full year, with free cash flow conversion above 25%, reflecting higher earnings and improvements in working capital throughout the year. We also continue to anticipate achieving a net leverage ratio around 3.8x adjusted EBITDA by the end of 2026, further positioning us towards our longer-term goal of being sustainably below 3x net leverage. As Denise mentioned, we have continued to prioritize debt repayment using both organic cash flow as well as the proceeds received to date from the Kuan Yin land sale. In the second quarter, we repaid close to $270 million of our 2028 euro term loan, which represents an additional $103 million beyond what was communicated on our first quarter call. We intend to continue to prioritize debt reduction as a key element of our capital allocation strategy in order to enhance the overall strength of Chemours' balance sheet. This work is fundamental to executing against the 4 pillars of our Pathway to Thrive strategy and allows us flexibility for the longer term. With that, I'll turn the call back over to Denise for her closing remarks.
Thank you, Shane. As we close, it's worth taking a step back and recognizing where we are on our journey. We are now roughly halfway through our Pathway to Thrive strategy, which makes it a good moment to reflect on what we've accomplished and just as importantly, where we're headed. Looking back, Pathway to Thrive was never simply a cost, productivity, or restructuring program. We undertook it to strengthen the foundation of Chemours, improve the resilience of the company and create strategic portfolio options that can maximize value for our shareholders. As evidenced by our results, we've made significant progress taking decisive actions to strengthen and derisk our balance sheet while advancing our portfolio transformation. At the same time, we've continued to establish a stronger operating model through the application of lean principles driving the discipline, capabilities and culture that will support long-term performance. The progress is real and it's undeniable, but there is still work ahead. As we move past this halfway point, we will continue to execute with urgency and pursue opportunities that enhance our strategic and portfolio optionality, including transformational partnerships and actions to reshape our existing portfolio. The work we have done has created a stronger foundation and greater flexibility to act. We will build on that momentum by expanding our strategic choices, strengthening our portfolio and positioning Chemours to deliver greater long-term value for shareholders. I want to be clear; no portfolio action is off the table where we see an opportunity to unlock a step change in value creation for our shareholders. Moving forward, what gives me confidence is the trajectory we're creating for Chemours. We have 3 market-leading businesses, differentiated solutions and solid positions in attractive end markets. Combined with the progress under Pathway to Thrive, these strengths are creating a stronger foundation and expanding the opportunities ahead of us. Across Chemours, our talented people are embracing new ways of working, building a culture of continuous improvement and bringing a passion to win every day. Together, we are creating a company that is stronger, more resilient and increasingly positioned to have greater strategic optionality. I'm excited about what the future holds. We have more to accomplish, more value to unlock and more opportunities ahead of us than behind us. The choices available to Chemours today are meaningfully different than they were when we launched Pathway to Thrive, and I believe the actions we take on our priorities can create substantial value for our shareholders. We look forward to sharing that progress with you as we continue to execute our strategy and realize the full potential of Chemours. In closing, from our core businesses, we are confident that steadfast execution of our strategy can deliver a business with at least $1 billion of annual adjusted EBITDA, free cash flow conversion exceeding 40%, while progressively derisking the balance sheet. These efforts are already driving results today and will create greater financial and strategic flexibility. With that, I'd like to open the line for your questions.
(Operator provided instructions for the question-and-answer session.) Our first question today is from Pete Osterland with Truist Securities.
Questions and answers
So I just wanted to start with the margins implied in the third quarter TSS guide. So the midpoints imply a high 20s margin for third quarter below the 30% that you've talked about historically. I guess could you rank order what the drivers are here between mix and input costs, overall cost absorption? And I guess more broadly, do you expect this margin level to be a 1 quarter occurrence with a snapback? Or is it more likely resetting the baseline here with gradual improvement thereafter?
Peter, thank you. Yes, so I appreciate the perspective there. I don't look at the margin sequentially from Q2 to Q3. I kind of look at it compared to prior year. Certainly, we'd be guiding to lower margins. And really, this goes hand-in-hand with the discussions we had on the script whereby we're seeing really slower business in the aftermarket, specifically in residential, light commercial in TSS. And that's really a mixed attribute. That's really the predominant driver there. As I look ahead, going to your latter point and the question of where this is going, seasonally, Q4 margins tend to be a little bit on the downside, just given the mix of seasonality of refrigerants versus FPL. But we still stand behind that this business is a 30-plus margin business. And as we look ahead into '27, we will see some restocking of that aftermarket, which will help mix happen that side. But I think more importantly is we're very excited about the market of the aftermarket in this side. You see the potential impact they have on the actual margins themselves and really see it as a growth business going forward.
Very helpful. And I guess just a follow-up on that point on mix. Could you size what proportion of your Opteon sales are made up by the stationary aftermarket business? And how much are you assuming that business will be down year-over-year in your third quarter guidance?
Thanks. We haven't really talked a lot about the actual sizing of the aftermarket from this perspective. As we think about quantifying how much it's down, last year, you might recall, we had a really sizable sales into the aftermarket given the transition under the AIM Act. We believe from the Q2 and Q3 perspective, there's probably about $65 million of aftermarket sales that realistically, you think about like-for-like probably should have been allocated to more of this year. It was just more prebuy given some of the overall inventory constraints in the market that we took advantage of in supply. So like-for-like, I think if you look at Q2, Q3 comparatively year-over-year, there's probably about a $65 million balance.
Our next question is from Duffy Fischer with Goldman Sachs.
Another question on TSS. With last year's presales, does that mean you will be anniversarying the lower sales in this aftermarket stationary business through the first quarter of next year? Or how long until that corrects and you return to normal sell-through?
Thanks for the question. Yes, I think that's a good way to look at it. You should view this as the transition of the technology over 2025 and 2026, and then really picking back up next season toward the end of the first quarter of 2027.
Okay. And then if we jump to TT, surprisingly, the Chinese exports, given their sulfur costs and stuff like that, have remained quite high year-to-date. And when you look at collectively, I think the numbers that you guys put up, Kronos and Tronox will put up plus the Chinese, year-over-year, that supply to the world is running much faster than what the end markets, paint and some other construction stuff seems to be growing. Where is that product going? Was there a low inventory, so people are rebuilding inventory? Or how is the production and sales volume of TiO2 kind of running ahead of end consumption in your view?
Yes. Thanks for the question. As we talked about, we're focused on the fair-trade markets where our customers value what we bring to the table. We're not seeing major changes; obviously, there were disruptions with the war, and our customers really count on reliability. In those fair-trade markets we see a pretty balanced market and our ability to maintain our share.
Our next question is from Drew Clowder with Mizuho Securities.
Let me just check. This is John Roberts. Can you hear me?
Yes, we can.
Good. Okay. The refrigerant aftermarket is very fragmented, a lot of small service providers. How much visibility do you actually have into the inventory of those small customers?
Thanks for the question, John. I guess what I want to say is that we are market leaders here. We have the majority of the share and we feel we have good visibility into this market. Clearly, as you think about last year, there were mixed signals from the channel about what demand would be this year. A couple of things have happened: as we've gotten into the year, we had a colder spring in the Northeast, which definitely impacts demand, and then the macro environment with the war and affordability concerns for consumers has led distributors to hold back. So, at a high level, we think we have good visibility into the market because of our leadership position.
And then what's causing the price strength in Freon? Is it something related to the emission allowances, or something related to costs?
John, yes, you might remember that in Q1 we talked a little bit about an overall mix shift. This has been into more of the automotive aftermarket and the strength there that we've been able to take. That continued into Q2 on that side. So it's just an overall mix shift in terms of where the pricing opportunity has gone.
Okay. So it's mixed. It's not raising like-for-like prices.
We feel like it's a mix to higher-priced products that we've taken advantage.
Our next question is from Hassan Ahmed with Alembic Global Advisors.
I have a question about your full-year guidance. If I take the midpoint of the Q3 guidance, it appears you're forecasting about $190 million for Q3. And you're guiding to a range of roughly $170 million to $220 million for Q4. So, in what is normally a seasonally weak quarter, what gives you confidence in that sequential increase from Q3 to Q4 EBITDA?
Thanks, Hassan. I agree — we do expect a strong Q4 driven by strength in TT and APM compared with prior quarters, even with seasonality still affecting TSS, which will have lower volumes, and with slightly lower volumes in TT. TT's strength reflects pricing tailwinds we're seeing in the market and clear line of sight to meaningful cost improvements in TT that should come through in Q4, both on input costs and operational efficiencies. For APM, you’ve seen lighter EBITDA in the first three quarters than we’d like, largely due to downtime at our Washington Works facility and related impacts. Looking to Q4, the order book in APM is strong, end markets are excellent, and the product mix is favorable. The first three quarters were also affected by higher costs that were sitting in inventory and absorbed because of Washington Works; we do not expect that to recur in Q4. So the outlook reflects a combination of a strong APM portfolio, improved costs, and favorable tailwinds in TT.
Very helpful. And as a follow-up on TT, I mean, can you guys talk a bit about what you guys are seeing on the cost curves? Obviously, we keep hearing about elevated sulfuric acid prices, availability of sulfuric acid being obviously a concern as well. So what role is that playing in sort of facilitating some of the price hikes that you guys are implementing? And part and parcel with that, are you guys seeing potential rationalizations or accelerated rationalizations in China on the back of where the cost curves are?
Thanks for the question, Hassan. Yes, relative to cost curves, there's no doubt that rising sulfur input costs are increasing the cost of sulfate-produced TiO2. That trend was already underway before the war and has only been exacerbated. We expect it to continue. Do we see fundamental rationalization? Not really, though it is certainly helpful from a pricing standpoint. As I mentioned before, our focus is on fair trade markets where our customers value what we provide, and there is less competition from a Chinese perspective.
Our next question is from Josh Spector with UBS.
I wanted to follow up on TSS again. I mean, at a high level, it seems like initially you thought TSS would grow EBITDA by about $50 million, but now your guidance for the year is essentially flat to down. Following up on prior comments about aftermarket visibility and your position, it appears expectations changed materially over the last quarter. What surprised you to drive that change? A year ago we might have expected to have known this, but now we're baking it in. It seems like something more changed under the hood than your earlier answer implied.
Thanks for the question, Josh. First of all, I want to be clear this is a significant change in the market size for this year. When we compare aftermarket volume last year to this year, we see about a 25% drop. So the question is, what's changed? As I said earlier, we were getting signals from the channel about demand for this year. As we got into the year and saw what was happening with the colder spring, we signaled that we were starting to see a slower start to the season, mainly at the end of the first quarter. As we saw that slowdown with the cool weather and the war, it really comes down to consumer discretion and their choices about whether to install a new system or repair. Distributors also are not taking risk on premium products. This has evolved over the second quarter, and we've adjusted our forecast.
Yes. And I would just tag on to that, Josh. As I think about where we believe we were going into this year, the TT business has really outperformed where we expected coming into the year. And we thought the balance of the portfolio would help itself, seeing a little bit of a delay in that aftermarket start, but also seeing really price strength in TT maybe offsetting some of that delay, so.
Yes. I mean, the fundamentals are there for this market. Basically, you had a whole market turnover with a technology transition where you've gone from many suppliers to just two. I think you need to look at 2025 and 2026; that's really a transition. It's hard to read those tea leaves when a technology changes in that way. We feel extremely positive about this business. We have said that it's a GDP-plus growth business. When you look at the aftermarket, there's a huge growth platform with high single-digit growth in the coming years.
Yes. I guess maybe if you could help a little bit. It's just the tone is different between you and your larger competitor that talked about gains in the aftermarket mix up in the second half. I mean this seems more like share shift between one player versus another, maybe in addition to destocking. I mean, can you comment on that? Is there a view about why your mix would be pretty materially different here?
Yes. I mean, first of all, I'm not going to talk about what competitors say and what they do. But all I know is that last year we had significant share, and we were able to supply the market when others weren't. There's a huge difference in the comparatives. If you look at some of the comments that were made, the aftermarket for stationary is viewed as an upside in the second half. That's not something that has occurred to date. So I think there's a different comp between the two companies.
Our next question is from Arun Viswanathan from RBC Capital Markets.
Maybe I could ask another question on TSS as well. And thanks for the slides on data center use cases, very interesting stuff here. So if you kind of think about TSS when you step back, I think you mentioned $1 billion of EBITDA longer term. Could you provide us maybe some bridge items to get from, say, $800 million in 2026 to that $1 billion level? Does that kind of include maybe a couple of hundred million from data center by the end of the decade? Or what kind of the longer-term opportunity as you see it, including the 2-phase immersion cooling products that you discussed on those slides as well?
Thanks, Arun. Yes. We're very excited about the $1 billion target with 40% free cash flow. You mentioned bridge items; Denise discussed this in her script. We're enthusiastic about different end markets for AI infrastructure, including data centers, semiconductors, and advanced electronics. Those markets currently represent about 9% of our total TSS and APM portfolio. We expect significant growth in those markets, and our advantaged positions there will be key contributors going forward. Other bridge items include continued execution on pricing across each of our businesses. We're also experiencing some cyclical weakness in certain businesses, where we will add considerable volume in the base business. Beyond that, we will continue to control costs and optimize performance. We're particularly excited about Chemours Business Systems and the application of lean principles, which should drive greater operational reliability and create opportunities to improve cost efficiency. I'm equally excited about the cash flow characteristics of this business. This quarter we were above 40% on free cash flow. We continue to pursue opportunities to improve that metric. As earnings grow, cash flow will grow as well, and we're also focused on the balance sheet and unlocking additional working capital opportunities, similar to the high-grade ore contracts in TT that we've discussed before.
And maybe to build on that, Arun, we talk about these high growth areas in AI infrastructure, but we also have to talk about one of the elements is liquid cooling. We put some things in the script that really give us a really good indication of the market traction that we're starting to see. And there are upsides. So liquid cooling as well as our work in next-generation refrigerants, NGR, are upsides to that $1 billion case.
Okay. And again, from a composition standpoint, would that $1 billion require maybe mid-cycle assumptions for TT, say an annualized run rate of $300 million to $400 million of EBITDA, and then maybe $160 million or so for APM and maybe $800 million for TSS offset by corporate? Or how are you thinking about that $1 billion composition from a segment basis? And then also, as I mentioned earlier, what's the target for that in terms of timing? Is that end of the decade, or is there a line of sight to when you'd achieve that level?
Thanks, Arun. Yes, I really appreciate you mapping that out. I'm not going to get into specifics regarding each number for the company. But I just reflect and think through: yes, I mean, I think there's a mid-cycle floor, call it, over 400 for TT. That's going to help get there. I think there are attributes to really build upon for APM. As we've talked about, exiting this year will really strengthen the order book and operational resilience. And TSS continues to be a really good growth-momentum business on that side. As it relates to timing, I won't get into that, but I do believe in the coming years you'll see us hit these targets.
And Arun, just to build on that, for TT, a thing to remember is that there are structural cost changes coming with ore and chlorine that are not yet visible in our earnings.
Our next question is from John McNulty with BMO Capital Markets.
This is Caleb on for John. So just a follow-up on Josh's question about what kind of changed since the start of the year. Some of your HVAC OEM customers have raised their unit outlook for the start of the year. So can you just kind of square how they're raising their outlook, but then you're talking about kind of like a slowdown happening just kind of like intuitively isn't really making a lot of sense.
Yes. Thanks, Caleb. You have to remember that our sales to OEMs are OEM sales, while our aftermarket sales happen once the distributors put the unit into operation. So could we see some upside in the fourth quarter? Potentially, but we think it is more likely to be next year because of the timing difference.
Got you. Okay. And then maybe just on the data center opportunity, is there a way to frame your content in either like a dollar basis or a kilogram basis for the same data center that would be using single-phase direct-to-chip, two-phase direct-to-chip and then two-phase immersion cooling?
Yes. To be clear, liquid cooling has taken off in data centers, but it's not two-phase; what you see today is single-phase. There is no two-phase share in the commercial market today, so that's all upside. What we've said is that as we think about AI infrastructure and the areas where we participate: today, in APM, about 40% of our Performance Solutions portfolio is focused on that end market. If you look at TSS and APM together, it's a high single-digit percentage of our total sales in the AI infrastructure space. Anything related to liquid-cooling data centers will be on top of that, and it's part of the robust growth we see.
Our next question is from Vincent Andrews with Morgan Stanley.
Sticking with the liquid cooling. Denise, could you just talk about what your route or routes to market might be in liquid cooling, I'm just looking sort of at the broader industry structure, there seems to be a lot of consolidation and vertical integration going on there. So would you be a supplier to one of the big integrated folks? Or would you be selling directly to the data center customer? Or how would this work?
Thanks, Vincent. That's a good question. Yes. The way this works is, first of all, as you said, it's a complicated value chain with many different players. We really have to, I'd say, sell across the value chain. You saw our announcements about Samsung qualification. We're working with other hyperscalers. We first need to get scoped in or specified into the architecture for the data center design. We also work with the OEMs that are installing equipment, similar to what we do in our refrigeration market. So where will the sales be made? Ultimately, the specific sale will be to the OEM, but it will be pulled through specifications across the ecosystem.
As a follow-up for Shane, I have a two-part question on free cash flow. First, you were able to increase the free cash flow guidance for the year despite the reduction in EBITDA. It sounds like that's due to working capital and other timing issues. Will those reverse in 2027 and make comparisons on free cash flow more difficult? Second, regarding the long-term goal of 40 percent, is there something that limits 40 percent as the free cash flow conversion level? Are you baking in potential litigation payments over time or other contingencies? What would make 40 percent the ceiling on free cash flow conversion?
We're very excited about the free cash flow characteristics for the year. We continue to prioritize cash inflow, targeting above 45% in our guidance for this year. You asked whether anything is one-time in nature. Yes, we do have some large one-time cash items this year that will help overall free cash flow. At the same time, we're focused on next year and don't expect a sizable decline. We're focused on improving the free cash flow characteristics of the business. Regarding the 40 percent level you called the ceiling, I would say it's 40 percent plus, which is where we believe we can take this business. Notably, we have existing settlements paid over multiple periods; for example, New Jersey is spread over 25 years. We also have ongoing environmental and other legal costs that weigh on free cash flow. Other items that affect conversion include interest costs, taxes, and capital expenditures. We're mindful of all these factors and our job is to focus on improving them.
And our next question comes from Aaron Rosenthal with JPMorgan.
Are you willing to elaborate at all on the strategic portfolio comments mentioned just ahead of the Q&A session? Just curious if there was any unsolicited inbound from third party or if there's some sort of momentum on efforts driven by Chemours?
Aaron, thanks for the question. I want to take a step back and explain why we're even talking about this. We're halfway through Pathway to Thrive, and it felt like a good time to talk with our shareholders about why we developed this strategy. The Pathway to Thrive pillars were designed to solidify the company's foundation and create optionality for us. We've improved our balance sheet, derisked our liabilities, improved our cash flow, grown into high-value applications, and improved our operational and commercial performance. All of these things are helping us build a stronger balance sheet that provides optionality. I'm not going to speculate on any specific actions we are considering or would take, but I want to assure our shareholders that no portfolio action is off the table if it would create step-change value for the company. Pathway to Thrive gets us to the point where we can make those kinds of decisions. That could involve product lines or assets, or strategic partnerships. We've already announced some of those, but it's really about taking a step back and looking at why we are doing Pathway to Thrive and what it is intended to accomplish for us.
Okay. Totally fair. That was a question. And then maybe just one on APM. Are there any updates on the permitting front tied to the Washington Works site? And just curious if there's any lingering uncertainty on that front, maybe how that is baked into guidance from a utilization assumption perspective?
Yes. I mean we don't have any uncertainty relative to that. I mean I think it's telling that as we did the EPA settlement, it was commented by many parties of the importance of that site just for many different applications, critical applications for fluoropolymers when it comes to national security and defense. So we have strong support for operation of that site.
Okay. Just to verify, I think there was a permit expiry in July that was cited in the 10-Q. Has that been resolved?
Yes, it has.
Thank you. We have reached the end of our question-and-answer session. Thank you for joining the Chemours Second Quarter 2026 Results Conference Call. You may now disconnect.