Minerals Technologies Inc.

Good day, everyone, and welcome to the third quarter 2020 Minerals Technologies Earnings Call. Today's call is being recorded, and at this time, I'd like to turn the call over to Erik Aldag, Head of Investor Relations of Minerals Technologies. Please go ahead, Mr. Aldag.

Thanks, Ciara. Good morning, everyone, and welcome to our third quarter 2020 Earnings Conference Call. Today's call will be led by Chief Executive Officer Doug Dietrich and Chief Financial Officer Matt Garth. Following our prepared remarks, we will open it up to questions. I'd like to remind you that beginning on page 14 of our 2019 10K, we list the various risk factors and conditions that may affect our future results. And I'll also point out the safe harbor disclaimer on this slide. Statements related to future performance by members of our team are subject to these limitations, cautionary remarks, and conditions. I'll now turn the call over to Doug. Doug?

Thanks for the introduction, Erik, and good morning, everyone. We appreciate you taking the time to join today's call, and I hope you are all staying safe and healthy. Let me outline a brief agenda for the call. I'll begin by taking you through our third quarter highlights, including improving trends in our sales results, our strengthened operational and financial profile, and progress made on the business development front. I'll then turn it over to Matt to provide a more detailed look at our third quarter performance by business segment. I'll conclude our prepared remarks by discussing trends in our end markets and highlighting new business that will contribute to our volume growth next year. First, I want to comment on the 8K we filed this week related to a ransomware attack we recently experienced, which impacted access to some of our company's IT systems. We have procedures and protocols in place for situations like this. And immediately after detecting the incident, we implemented our comprehensive cybersecurity response plan, including taking steps to isolate, then carefully restore our network to resume normal operations as quickly as possible. We've notified law enforcement and have been working with industry-leading cybersecurity experts to conduct a thorough investigation. Throughout this situation, we operated our facilities safely and met our customer commitments. Before going through the third quarter review, I'd like to note that I'm very pleased with how our global team and businesses have performed in what continues to be a complex and challenging environment. We remain focused on managing our company with an unwavering commitment to keeping our employees safe, operating our plants efficiently, and serving our customers with value-added products. Dedication, engagement and resilience of our employees has been nothing sort of exemplary during these times, and I want to thank them for the perseverance they've shown over the past several months. Let me take you through how our third quarter unfolded. As we previewed in July, we anticipated that demand conditions in our end markets would improve, with the second quarter having the most acute impacts from COVID-19. and that's largely how the quarter played out as we were prepared to respond to the volume recovery which led to sequential sales growth in nearly all of our product lines. Overall, we had a solid quarter from an operational and commercial standpoint. These results reflect our team's disciplined execution related to cost control, pricing and productivity which resulted in higher sequential and year-over-year operating margins. We also demonstrate how our strong product portfolio and End Market Mix has enabled us to capture opportunities with existing and new customers. From a financial perspective, total sales in the quarter were $388 million, an increase of about 9% sequentially, but still at lower levels compared to last year. As we indicated on our last call, our July sales were trending upwards and demand conditions in several markets continued to strengthen throughout the rest of the quarter. We generated $52 million of operating income, and earnings per share were 92 cents. In addition, we delivered $54 million in cash from operations, continuing our solid cash generation profile. After experiencing volatile conditions in our businesses that serve industrial-related end markets through the second quarter, we saw considerable demand improvements in the third quarter, along with continued strength in our consumer-oriented product lines. Let me touch on some of the highlights. Metal casting business continued to rebound as our foundry customers in North America ramped up production to meet the demand increase in the automotive sector. By the end of the third quarter, our metal casting facilities were operating at about 95% of last year's levels, noticeable improvement from the reduced levels seen earlier. In addition, penetration of our pre-blended products remains on a strong growth trajectory in China as sales increased 20% over last year, and this momentum should continue moving forward. Sales in our portfolio of consumer products, which includes pet care, personal care, and edible oil purification, remained resilient, led by an 11% year-over-year growth in pet care. We continue to strengthen our robust private label pet care portfolio in North America and Europe, and have expanded our presence through partnerships with several new customers. Another area to highlight is our global PCC business, which benefited from satellite restarts in India and North America, combined with an improved demand environment from the low levels in the second quarter. As we indicated on our last call, July volumes were trending approximately 15% higher compared to June, and these dynamics continued through the third quarter. Of note, paper PCC sales in China continued to deliver a solid performance with 18% growth over last year. In addition, specialty PCC sales increased sequentially as automotive and construction demand strengthened through the quarter and food and pharmaceutical applications remained at strong levels. Other pockets of strength came in our talc and GCC business as demand improved for our products used in residential and commercial construction as well as automotive applications. And in our refractories business, where steel utilization rates increased in the U.S. from a low of 50% in the second quarter to 65% at the end of September. While many of our businesses return to a positive trajectory, we've had some challenges in our project-oriented businesses, such as environmental products, building materials, and energy services, which are still experiencing volatility in order patterns and timing delays. Energy services was further impacted by several hurricanes that occurred in the Gulf of Mexico during the quarter. As our volumes began to trend upward through the quarter, we were able to leverage these sales into income, resulting in overall operating and EBITDA margin improvement on both a sequential and year-over-year basis. We've maintained our focus on operational efficiency, including variable cost adjustments and structural overhead savings, as well as on continued pricing increases, capturing favorable raw material costs, and increasing sales of higher value products. As markets continue to recover, we are well positioned to expand margins further on increased volumes. Our focus on strengthening our financial position also remains a priority, with an emphasis on tightly controlling our cash generation cycle and creating more flexibility around our capital structure. We delivered another quarter of strong cash flow generation, the majority of which was used to pay down debt. While navigating through the current environment, We've remained focused on advancing our growth initiatives and made further progress this quarter on several fronts. Let me go through some of these highlights in more detail. The commissioning of two new PCC satellites scheduled for the fourth quarter continue to move ahead. Currently ramping up production at our 45,000 ton facility in India. The 150,000 ton satellite in China should be operational by December. We will also be resuming production in November at our previously closed satellite in Wycliffe, Kentucky to support Phoenix Paper's restart of that mill. During the quarter, we made a small acquisition of a hauling and mining company to further strengthen our vertically integrated position at our Bentonite mines in Wyoming. This transaction improves our cost position and enhances our flexibility with our mining and ore transportation in the region. In our refractories business, we signed two new five-year contracts to supply our refractory and metallurgical wire products in the US. These contracts total approximately $50 million, or about $10 million of incremental revenue on an annual basis. Our new product development efforts are progressing well, as we look to accelerate the pace of commercialization and drive new revenue opportunities. We've commercialized 36 value-added products so far in 2020, and many more. All in all, there are a number of positives about our performance in the quarter, especially how we've executed as a company while navigating through difficult conditions. There are still some challenges ahead. We have strong momentum across many of our businesses, and with an enhanced cost profile, we expect to continue to deliver improved profitability as volumes recover. With that, I'll turn it over to Matt to discuss our results in more detail. Matt? Thanks, Doug.