Minerals Technologies Inc.

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

Thank you, Ciara. Good morning, everyone, and welcome to our fourth quarter 2020 Earnings Conference Call. Today's call will be led by Chief Executive Officer Doug Dietrich and Chief Financial Officer Matt Garth. Following Doug and Matt's prepared remarks, we will open it up to questions. I'd like to remind you that beginning on page 14 of our 2019 10-K, 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, Erik, and good morning, everyone. I appreciate you taking the time to join our call and I hope you're all staying safe and healthy. I'll start by providing my perspective on what we achieved in 2020 from a strategic and operational standpoint and the various dynamics we successfully managed through. I'll then discuss some of the highlights of our performance in the fourth quarter. Matt will provide a more detailed look at our financial results and I'll conclude the prepared remarks with insight into how we see 2021 shaping up touching on our key priorities, growth initiatives, and market trends. As you saw from the release last night, we finished 2020 with a strong fourth quarter. Before I go through the quarter, however, I want to take some time to provide my perspective on the full year, which will put this quarter into context. To characterize the year, managing through this pandemic has challenged us on every front, and I'm very proud of all of our employees for their unwavering commitment, agility and execution focus, all key qualities that define our culture and our company. Our performance reflected the strength of our diverse mix of businesses and high value product portfolio, which enabled us to expand our positions with existing customers and capture opportunities with new ones. Proactive operational measures to reduce costs, and increased pricing led to an improved margin profile. In addition, we successfully implemented virtual tools and evolved our processes to help improve efficiency and connectivity with our employees and customers. Protecting the health and safety of our employees is one of our core values. Since the onset of the pandemic, we put in place a robust series of protocols to protect our employees. while ensuring the safe and efficient operations of our facilities. While implementing these new work practices, our employees stayed focused on improving our safety performance, which resulted in 2020 having the lowest recordable injury rate in MTI's history. A testament to the strength of our people, capabilities, and processes, that we were able to swiftly adapt, retool, and embrace the change and drive our safety culture forward. Now let me take you through how the year unfolded from an operational and commercial perspective. Agility is the word that comes to mind as we manage through significant demand changes in our end markets, uncertain customer order patterns, and production curtailments. The global pandemic, which continues to affect demand in our industrial end markets, had the most notable impact in the second and third quarters. During this time, we focused on making several operational adjustments at our plants, including maintenance activities and manufacturing process improvements. And when markets recovered in the last four months of the year, we were well positioned to take advantage of the higher volumes. Our consumer-oriented businesses in both performance materials and specialty minerals remained consistently strong throughout 2020. Much of this performance was driven by our global pet care business, which grew by 7% but also through solid increases in personal care, edible oil purification, and other food and pharmaceutical applications. After experiencing large volume drops in our minerals businesses in the second quarter, many of our end markets including automotive, residential construction, and steel steadily improved throughout the back half of the year. In contrast, some of our other end markets such as paper and large environmental and building projects are still recovering. While the demand environment was volatile this past year, our team's disciplined execution and aggressive cost control put our company in a good position to leverage improving sales into income. These efforts resulted in higher overall operating and EBITDA margins compared to 2019. Taking measures to enhance our operational efficiency, including variable cost adjustments and structural overhead savings, as well as through continued price increases, productivity improvements, and higher sales of new products. Generating sustained cash flow and creating flexibility around our capital structure have been top priorities. During 2020, we delivered strong free cash flow of $175 million, slightly higher than last year. We used the cash generated to reduce net debt by $122 million and returned $48 million to our shareholders through share repurchases and dividends. I speak often about our culture of continuous improvement, but I wanted to describe how this deeply ingrained operating model is a key reason why we quickly adapted to a dynamic environment to deliver these results. Our people and their engagement in the company are what drive this mindset and is the unique recipe for MTI to be agile. We conducted 8,600 problem-solving Kaizen events and received nearly 65,000 suggestions from our employees throughout 2020, keeping at a similar pace to last year. To put this in context, each day, on average, nearly 24 Kaizen events are being held and we're receiving 178 suggestions from our employees across MTI on how to improve our daily processes. This is a significant level of involvement in our continuous improvement culture, especially as many of these activities occurred virtually this past year. There are countless examples of how we've transformed our processes and capabilities to drive efficiencies, improve collaboration, and further demonstrate our value proposition to our customers in a virtual existence. We've successfully implemented tools that allow us to remotely commission a new PCC satellite or that can support trialing and commercializing new products and applications. We can now perform specialized maintenance assessments remotely without our engineers having to be physically present at the plant. And we've developed a webinar series that allows our technical teams to virtually engage with a broader group of customers and more quickly provide them with our value-added solutions. These tools are becoming a significant competitive advantage to our company and will remain a permanent part of how we work in the future. We also advanced our strategic growth initiatives during the year. We remain the leader in green sand bond systems for the global foundry market. There are significant opportunities to leverage our deep technical expertise and value proposition with customers in large foundry markets such as China and India. This year, we both expanded our customer base and further extended our penetration into China as sales of our pre-blended products increased by 17%. We're the world's largest PCC producer with the most advanced portfolio of technologies including high filler, consumer packaging and paper waste recycling. Our objective is to increase PCC volumes globally through base filler contracts in under-penetrated regions by capitalizing on growing opportunities in adjacent markets where we can deploy these latest solutions. In 2020, we commissioned three new satellites which total over 200,000 tons of new capacity and our growth continued on a strong track in China where PCC sales increased by 13% over last year. We've invested in strengthening our capabilities, resources, and new technologies for our consumer-oriented products which is delivering results as these more resilient products comprise 25% of our total portfolio. While our pet care business has contributed to much of this strength as we grow our global portfolio of premium products and enter new channels such as e-commerce, we are also growing other specialty applications including edible oil purification, personal care, and fabric care. Our new product development efforts progressed well in 2020 as we continue to accelerate the pace of commercialization and drive new revenue prospects. We commercialized 44 value-added products and incorporated sustainability indicators as part of the new product development process to ensure we are meeting both our own environmental goals as well as our customers. The last pillar of our growth strategy is M&A, where we maintain an active pipeline of potential mine-to-market opportunities. We made a small acquisition of a hauling and mining company, which further strengthened our vertically integrated position at our Bentonite mines in Wyoming. And we pursued an acquisition of Elementus, who we feel is a strong strategic fit with our company. Through this process, we demonstrated our commitment to remaining disciplined in our approach to deploying capital for inorganic opportunities. The results we achieved in 2020 under challenging conditions underscore the power of our operating culture the resilience of our global market leading positions and the strength of our financial foundation. We finished with momentum across many of our businesses and we are exiting 2020 in a stronger position than when we entered it.