Minerals Technologies Inc.

Good day, everyone, and welcome to the first quarter 2022 Minerals Technologies Earnings Call. Today's call is being recorded. At this time, I'd like to turn the conference over to Eric Aldag, Head of Investor Relations for Mineral Technologies. Please go ahead, Mr. Aldag.

Thanks, Jennifer. Good morning, everyone, and welcome to our first quarter 2022 Earnings Conference Call. Today's call will be led by Chairman and Chief Executive Officer 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 2021 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. Now I'll turn the call over to Doug.

Doug? Thanks, Eric. Good morning, everyone. Welcome to today's call. I'll start by walking you through our results for the first quarter and provide an overview of market dynamics, as well as some strategic highlights. I'll also provide some context to put our first quarter results into perspective and explain what's driving our strong performance. Matt will then review our financial results in more detail, and we'll also share our second quarter outlook. The first quarter was a record financial performance for MTI, and these results reflect the team's successful execution on a number of fronts. Sales of $519 million were up 15% versus the prior year and up 19% on a constant currency basis. From a market perspective, demand remains robust across our segments. Our consumer-oriented products, which make up approximately 30% of our sales, continue to benefit from favorable secular market trends. We've seen steady growth across pet care, personal care, edible oil purification, food and pharma applications. We also continue to see strong demand from our industrial product lines with robust sales to the foundry steel and construction customers. Our results this quarter are also a function of our strategic growth initiatives. driven by multi-year advancements in new product development and geographic penetration, as well as additional growth from acquisitions. I'll take you through this in more detail in a few moments. Operating income of $68 million was 15% higher than last year, and a record for our first quarter. And earnings per share of $1.36 was a record for any quarter. Performance is also driven by the agility of our team, delivering solid execution across operations, pricing actions, and cost control. The historic pace of inflationary cost increases continued in the first quarter, including significant spikes in energy costs across the world, and Europe in particular. Despite the continued rapid inflation, our pricing actions more than offset the higher costs on a dollar basis in the first quarter. We're the price leader in most of our markets and our ability to pass through pricing is based on the significant value our products provide our customers every day. In addition, our supply chain team has been incredibly proactive in managing and mitigating our cost increases through this inflationary period. We expect margins to expand further over the coming quarters as additional pricing actions as well as contractual pricing mechanisms take effect in the second and third quarters. As always, we remain disciplined around cost control and operational efficiency. Our operational excellence culture drives countless incremental improvements every day from employee suggestions and structured problem-solving events. These improvements increase our productivity, reduce our operational costs, and remove wasteful activities in general at a period when these efficiencies are critical to meet these levels of demand. All in all, it was a very strong quarter, and its performance is a result of the actions we've taken to position the company for this type of profitable growth. Our strategy is to grow the company through new product development, growing in under-penetrated regions, and also through acquisitions of mineral-based companies with technological differentiation. These three elements of our strategy have been aimed at repositioning our portfolio of businesses, to generate higher and more sustainable growth rates. Specifically, this repositioning has involved the expansion of our consumer-oriented business portfolio to create more balance with the industrial side of the company. Our household and personal care product line, which includes many of these consumer-oriented businesses, grew 30% in the first quarter versus the prior year. And over the last five years, this product line has grown at a 14% compound annual growth rate. This has been driven by both organic and inorganic investments, including the acquisitions of Sivamatic in 2018 and Normerica in 2021, and sustained market-driven growth across these product lines. This consumer-oriented set of businesses have structurally higher and more stable growth fundamentals, and combined with our leading industrial positions, create a more stable top-line growth profile for the company. New product development is truly accelerating across the portfolio, and it's becoming a much more significant level of growth. Let me give you some examples of how innovation is driving new product sales and also enabling expansion into new and growing markets. For the past five years, we've commercialized new products twice as fast as we used to. In the first quarter alone, sales from new products increased 25% on an annualized basis over last year. Many of these new products are advancing sustainability initiatives in partnership with our customers. In pet care, we're advancing eco-friendly packaging and increased recyclability. We've commercialized multiple online-only products to support our e-commerce growth strategy. We're also developing new product offerings in Asia, where pet care sales grew 36% in the first quarter versus last year. Sales of our bleaching earth products are up 32% in the first quarter. These products enable customers to achieve higher purity edible oils, and we're expanding our reach by demonstrating the significant advantage our product has in high-growth biodiesel filtration applications. Sales of our personal care products grew 15% over last year, as our health and beauty solutions business has expanded capability in the manufacturing of retinol delivery technologies and the private label packaging of skin care formulations. We also continue to see high growth rates and new opportunities for our clay-based rheology modifiers for cosmetic applications. We're also seeing increased interest in our Fluorazorb solution for PFAS remediation, including the use of Fluorazorb as a highly effective media in the treatment of industrial and drinking water. We continue to develop and expand this product line with the introduction of our patented Fluorazorb Flex, which targets short-chain PFAS compounds in a unique and innovative way. Our product development efforts are also contributing to growth in our industrial product lines. Let me give you some examples. Our latest specialty drilling products are performing well in a number of horizontal directional drilling applications for the installation of underground utility and broadband fiber optic cables. Our new geothermal grout products are well positioned to take advantage of the trend toward net zero emission buildings. The use of geothermal heating systems is a growing area, as building designers look to partially or fully replace fossil fuel heating systems. In this application, our product not only assists in the drilling process, but also enables more efficient heat conduction from the earth to the recirculating fluid in the heat loop. In building materials, our new Vintegra product is a dual-purpose waterproofing and vapor barrier offering. This product offers our customers a one-step, dual-purpose, cost-effective application in the below-grade waterproofing market. Our growth is also supported by the expansion of our core product lines in growing and under-penetrated regions. Global Greensand bond sales have grown at a 5% compound annual growth rate over the past five years. Our high-performance pre-blended formulations and technical service capabilities help foundry customers improve their efficiency while reducing defects, costs, and emissions. For years, we've worked collaboratively with our customers to bring them innovative formulations to improve their foundry systems. This type of collaboration is also supporting the penetration of our engineered solutions in the Asia foundry market, where sales have been growing at a 10% annual rate for the last five years. As we speak about often, our PCC business has been growing in the under-penetrated Asia region for the last several years. We've secured three new satellites there in the last year, including our first deployment of GCC technology for use in coated whiteboard packaging. Lastly, our refractory segment is realizing strong growth driven by our complementary portfolio of innovative products, unparalleled steel mill services, and high-tech laser measurement equipment. It's this combination that's enabled us to grow with our customers in the newest steel installations in the U.S. Our growth has also been supported through acquisitions. I'd like to announce that we closed on another acquisition of a small bolt-on pet care company called Concept Pet. This acquisition comes with a complementary operational footprint to support the expansion of our European pet care business, as well as additional mineral reserves. The bolt-on of this company will add approximately $20 million in incremental sales on an annualized basis through their customer positions in Western and Central Europe. We welcome our newest employees from Concept Pet to MTI, and we look forward to working with them to grow our European pet care business. M&A is an important part of our strategy, and we've completed four acquisitions over the past four years, totaling nearly $300 million in sales, all while prudently maintaining a strong balance sheet and solid liquidity position. Let me summarize my comments for today. We're executing on all facets of our strategy to build a higher growth, higher profit, higher return company. MTI has a winning combination of unique mineral reserves, world-class operating capabilities, leading technology platforms, and applications expertise, all of which results in leading positions across our end markets. Supported by our team of 4,000 dedicated and engaged employees around the world, we see a strong future for the company. What it all means for us in 2022 is that we're on track to deliver another record year. With that, I'll hand it over to Matt to discuss the financial results and our outlook for the second quarter. Matt?