Minerals Technologies Inc.

Good day, everyone, and welcome to the second quarter 2021 Minerals Technologies earnings call. Today's call is being recorded. At this time, I would like to turn the call over to Erik Aldag, Head of Investor Relations for Minerals Technologies. Please go ahead, Mr. Aldag.

Thanks, Lauren. Good morning, everyone, and welcome to our second quarter 2021 earnings conference call. Today's call will be led by Chairman and CEO Doug Dietrich, and Chief Financial Officer Matt Garth. Following Doug and Matt's prepared remarks, we'll open it up to questions. I'd like to remind you that beginning on page 15 of our 2020 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. Now I'll turn the call over to Doug.

Thanks for the introduction, Erik, and good morning, everyone. I do appreciate you joining our call. Got a lot to cover today. I want to take you through the highlights of a very strong quarter and discuss our acquisition of Normerica. Matt will then review our financial results in more detail and our expectations for the third quarter. And after that, I'll finish the prepared remarks with some commentary on our 13th sustainability report, which we published this week. Let me start with a recap of the quarter. Building on the momentum generated over the past few quarters, we delivered a strong second quarter with several financial and operational highlights that I'll take you through. First and foremost, this was a record quarter for our company with earnings per share of $1.29. This milestone reflects robust demand across our markets, strong operating performance by our team, and continued execution on our growth projects. For perspective, many of our product lines have now reached or exceeded pre-COVID sales levels, but others still have room to improve. Let me give you a feel for how the demand trends, our performance and strategic initiatives across each of our segments led to these results. In performance materials, our metal casting business continues to perform very well with strong foundry demand globally, and our broad portfolio of consumer-focused businesses and household personal care and specialty remained on their steady growth track. Specifically, sales in our personal care business nearly doubled as we introduced new private label skin care formulations and expanded partnerships with major retail brands. Another large contributor to this segment's sales growth in the quarter was the rebound in project activity in both environmental products and building materials. Within our specialty minerals segment, we delivered another quarter of sales growth across all product lines. Paper demand continues to improve in all regions, and we're benefiting from the ramp up of our new satellites. Paper mill operating rates in North America have reached nearly 95%. And to underscore the current supply and demand situation, one of our customers in North America recently announced plans to restart a mill to meet the increased demand. In addition, our specialty PCC, GCC, and telc businesses benefited from a robust activity in consumer, automotive, and residential construction markets. Our refractory segment also had an impressive quarter marked by steel utilization rates, which are now above 80%. We've also secured several new contracts, which will drive growth in the second half of this year and into next for both our refractory and metallurgical wire product lines. The combination of these positive trends and business development actions in our segments yielded sales of $456 million with growth in every segment and geography. We drove these higher sales into operating income of $64 million, up 53% compared to 2020, and margins expanded to above 14% as we expected. Our teams disciplined operational execution through pricing actions, Productivity improvements and strong cost control enabled MTI to deliver these results. We also navigated challenges related to increased input and logistics costs that accelerated during the quarter. Our global teams have done a great job maneuvering through a more dynamic supply chain environment, which includes navigating logistics challenges and energy and raw material inflation. We're well positioned to offset these costs with pricing actions that we've been effectively implementing across our portfolio. And Matt will discuss this more in his comments. Generating strong cash flow, further strengthening our balance sheet, and maintaining flexibility with how we deploy our capital to the highest return opportunities are priorities for us. Through the first half of the year, cash from operations and free cash flow were both up 25% over last year. We've been using our cash flow to pay down debt and bolster our liquidity. We finished the quarter with our lowest net leverage ratio in the past six years. In addition, we've continued with our returns to shareholders through our $75 million buyback program and anticipate fully completing the program under the authorized timeframe. Financial strength also provides us the capability to pursue acquisitions as we have demonstrated with the purchase of Normerica. We advanced our growth initiatives this quarter, focused on new product development and geographic expansion. Let me highlight a few specific areas. On previous calls, we mentioned several positive trials and interest with our Florazorb product that addresses PFAS contamination in groundwater. And I'm pleased to share that during the quarter, we were awarded our first major sale for a large-scale project at a North American Department of Defense location. The project has been going very well as Florisorb's efficacy has been demonstrated commercially. We have several other similar type projects in our sales pipeline, as well as for municipal wastewater treatment sites, and we have the manufacturing capacity and technical capabilities to pursue them and further grow sales. On the paper PCC front, we are ramping up production at our new Satellites in Asia, which came online at the end of 2020. and represent 200,000 tons of new capacity on an annualized basis. We have another approximately 130,000 tons of capacity coming online now through the middle of next year, including our 40,000 ton expansion for a packaging application in Europe, where we will begin realizing the volume benefit in the third quarter. We're finalizing the construction of our 40,000 ton satellite in India, which will start up late next quarter. and we have also begun construction on a new 50,000-ton satellite in China, which should be operational in the first half of 2022. And finally, we announced the acquisition of Noramerica this week, which we'll go through in a moment. To sum up the quarter, it was a very productive one with many positive highlights. We navigated through challenges over the past 18-plus months and created opportunities for ourselves on all fronts. just put our company in an advantageous position to continue to drive profitable growth going forward. As I mentioned on the previous slide, the exciting news this week is our acquisition of Normerica. And I wanted to spend time discussing who they are, why we pursued the transaction, and how Normerica fits into our global pet care business. Acquisitions are an important component of how we plan to grow and move MTI to a higher return, more balanced portfolio and we've discussed our pipeline of opportunities that align with our strategic initiatives. Noramerica was one of those opportunities as it continues to shift to a more balanced sales portfolio and aligns extremely well with our overall growth strategy in pet care. For background on Noramerica, the company was founded in 1992, headquartered in Toronto, Canada and is a leading supplier of branded and private label pet care products in North America. Normerica has a long history as a well-run company with an impressive track record of innovation, customer service, and profitable growth. Product portfolio consists primarily of bentonite-based cat litter products, which are manufactured in facilities in Canada and the United States. Normerica has about 320 employees and in 2020 generated revenue of approximately $140 million. Let me give you some more details on the transaction and its rationale. The combination is highly complementary from a geographic product portfolio, customer, and operating perspective. Noramerica's portfolio of branded and private label bentonite-based cat litter products fits well within our North America business. In addition, Noramerica's strategically located footprint throughout the U.S. and Canada, combined with our vertically integrated mine-to-market model, gives us a unique position in the pet litter market. We are now one of the largest vertically integrated private label pet litter providers globally with a strengthened position in North America. We see further benefits as we can provide enhanced value in terms of consistency and quality and are positioned to serve a broader customer base more efficiently. The purchase price for the transaction was $185 million on pre-synergy EBITDA of approximately $20 million. We will realize synergies from the transaction by leveraging our combined operational footprint and vertically integrated model, and through the deployment of our business processes. On a post-synergy basis, we expect the transaction to be about seven and a half times EBITDA, similar to the SEVAmatic transaction, and earnings accretion to begin in the fourth quarter of this year. We expect to fully integrate the business, employees, systems, and processes over the next few quarters, and Accretion will ramp up to 5% to 7% on a full year basis in 2022. Let me step back and describe our existing pet care business. We've been profitably growing this business since the acquisition of Amcol in 2014. Our acquisition of Sivomatic in 2018 gave us a differentiated mine-to-market private label presence in Europe and Normerica is an extension of that private label growth strategy. The pet care sector provides stable growth rates and attractive dynamics as domesticated cat ownership continues to rise globally. We are uniquely positioned to serve this market and have invested in expanding our vertically integrated capabilities and product portfolio globally. In addition, the strength and resiliency of our pet care business was demonstrated during the past year when demand was at an all-time high during a period when our businesses serving industrial markets were impacted. On the lower left of the page, you can see how our pet care sales have grown organically and inorganically since 2017. With the addition of Normerica and Sivomatic, our pet care business has grown from $78 million to $350 million, and our household and personal care business is now the largest product line at MTI. This represents a significant shift in our portfolio toward non-cyclical consumer-oriented markets, positioning our company to drive growth rates above our historical averages, and we see opportunities to further balance our portfolio. In sum, New America is a great strategic fit with our company, and this transaction provides many compelling opportunities for growth and value creation. We welcome our newest employees to MTI and look forward to working with them on a seamless integration. With that, let's turn it over to Matt to go through our quarter performance in more detail. Matt? Thanks, Doug.