Minerals Technologies Inc.

Hey, everyone, and welcome to the third quarter 2022 Minerals Technologies earnings call. Today's call is being recorded. At this time, I would like to turn the call over to Eric Aldag, Head of Investor Relations for Mineral Technologies. Please go ahead, sir.

Thank you, Jenny. Good morning, everyone, and welcome to our third 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 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. Doug?

Thanks, Eric. Good morning, everyone, and thank you for joining our call. Got quite a bit to go over today, so let's get started. First, I want to quickly mention that MTI celebrated its 30th anniversary this week. We debuted as a public company in 1992 with revenue of $400 million. For the past 30 years, the company has grown and transformed into a global specialty minerals leader with operations in 38 countries and revenues of over $2 billion. I want to congratulate all employees of MTI, past and current, for their dedication and contributions to this journey. Now a quick outline for today's call. I'll begin by walking you through our financial results for the third quarter and provide some context to put our results into perspective. I also want to walk you through the execution of our growth strategy and give some examples of how we're positioned to continue to drive higher levels of growth and performance. Finally, I'll share some perspectives on what's happening around our end markets and our near-term outlook. Then Matt will share details of our financial results and our outlook for the fourth quarter. Let's start with a recap of the quarter. Our track record of growth continued in the third quarter, with sales up 22% on a constant currency basis to $542 million. Each of our segments realized double-digit sales growth, reflective of our efforts to position the company on a higher growth trajectory. In general, this was one of the more challenging quarters from a market and cost perspective, and the risks to our guidance that we highlighted during our second quarter call came to pass. We saw softer-than-expected demand in Europe, higher energy costs, and a sluggish rebound in China. Foreign exchange rates were also a more significant drag on sales and earnings. Going into the quarter, we expected some moderation of inflationary pressures, but we ended up experiencing the highest inflationary period of the year. Despite these challenges, the majority of our product lines performed well. Our pricing actions more than offset the higher inflation, and our acquisitions delivered, all of which offset the market weakness we experienced and resulted in operating income of $67 million, 6% higher than last year. I'll also note that we recorded special items in the quarter. One was a reserve established to cover ongoing telc-related litigation. Given the current environment of telc product litigation, we felt it was prudent at this point to reserve for potential additional costs. Matt will outline this and the other charges in more detail later. Excluding these items, earnings per share was $1.35, continuing our trend of year-over-year earnings growth. We also moved quickly in the quarter and took steps to strengthen and enhance the flexibility of our balance sheet by refinancing our debt and extending maturities out through 2027. Overall, this is a strong quarter for MTI, although it played out a bit differently than we expected when we last spoke to you. The team continues to take advantage of the opportunities presented to us, as well as navigate the challenges we face around the globe. Focus, discipline, and agility are the characteristics that describe our team. Same characteristics are what make MTI well-positioned to continue on our strong track. Now let's move to the next slide, where I'll take you through the sources of the broad-based growth we realized in the third quarter. MTI's growth strategy focuses on three key areas. Positioning our businesses in faster-growing markets and geographies, accelerating the development of new products and technologies, and the acquisition of companies that help advance these efforts. Through the execution of this strategy over the past several years, we've built a portfolio of businesses which is more resilient, with a greater mix of sales to non-cyclical and growing markets that is positioned for continued growth. Once again, in this quarter, we saw the impact of this strategy. Sales increased 22% over last year, with broad base growth driven by the three pillars of this strategy. Let me take you through each in more detail. Our success in market positioning is highlighted by the build-out of our consumer-oriented product lines and the positioning of our more industrial businesses in faster-growing regions. Sales from base volumes and mix improved by 6% this quarter, Our less cyclical consumer-oriented markets led the way, with our household and personal care product line growing 16% over last year, driven by growth in pet care and our edible oil purification business. We continue to position our industrial product lines in faster-growing geographies and utilize our applications expertise to drive the penetration of our core technologies in these markets. We've steadily grown sales in the Asia foundry and paper and packaging market. And sales there this quarter, excluding China, increased by 7%, driven by a 13% growth in India. As our PCC and metal casting business continue to strengthen positions in their respective markets. We maintain our focus on offsetting the inflation we're experiencing. Pricing actions added 13% to our overall sales this quarter. Our ability to price, is derived from the value we provide to customers every day. Our base technologies, applications expertise, and pricing structure work in tandem to ensure we continue to deliver sustainable value for our customers. The second pillar of our strategy, which is delivering results, is accelerating the development of new products and technologies. Innovation is alive and well at MTI, creating new solutions for our customers, solutions that save them money, enhance the performance of their products, reduce their environmental footprint, and eliminate or recycle waste streams. Our newest products continue to contribute more meaningfully to our top line, adding three percentage points to our organic growth in the third quarter. In fact, sales of new products are up 48% year-to-date versus last year, and now make up 14% of MTI's total sales, up from 11% last year. Our newest innovations address a variety of needs in markets that touch millions of lives every day. A few examples include, in fabric care, our newest hewing particle additive is the application of a technology that makes whites whiter and colors brighter in dry laundry detergent. Our pet care business has developed new, low-dusting cat litter, which keeps households cleaner. And we recently introduced new cat litter box fragrance boosters. Specialties product line has commercialized more efficient bleaching earth products that further extend the shelf life of edible oil. We also have several new innovations for our industrial markets. In metal casting, we've secured new sales for our low emission green sand bond blend, which reduce emissions in the casting process. We've deployed new high durability refractory materials in Europe and are currently commissioning our first scan troll automated refractory application and laser measurement system here in the United States. We commercialized two new coated ultrafine specialty PCCs, which are specialty additives that provide critical viscosity control to our customers' products. These are just a few examples of the breadth of new product development occurring across the company. The third pillar of our strategy is acquisition. The addition of mineral-based companies with value-added technologies has been a key contributor to our success. Over the last four years, we've acquired four companies that support our strategy, representing nearly $300 million in sales. Three of them were aimed at building out our pet care business, which as a result, is now the largest product line in the company. We maintain a pipeline of attractive consumer and industrial-based opportunities that we feel fit our strategy, and we have the financial strength to execute on them if they become actionable. Before we move on, I want to point out the bottom of this slide, what is graphically and literally our foundation. The ability to innovate, develop leading technology platforms, and the expertise and know-how to apply our technologies in our customers' products and processes, the strength and longevity of our vertically integrated and unique mineral reserve positions around the world, and the engagement and support of our employees who support our values and culture of operational excellence. We build on this foundation every day to drive value for our customers and shareholders. Now I'll take you through some dynamics that are playing out across our end markets. As I mentioned earlier, the economic environment continues to evolve, and we saw several market shifts in the third quarter. I want to take a few minutes to share our current view of our end markets and the near-term outlook for our major product line. Like most, our company is not immune to macroeconomic factors. Decisions we've made over the past several years have placed our company in a stronger position than it's ever been to weather economic challenges and continue to deliver consistent growth and performance. This slide shows our market outlook by product line. Noted a couple of additional items on the slide. The blue section in each circle represents the amount of each segment sales that are consumer oriented and more directly driven by consumer behaviors. Also, next to each product line, we've listed the percentage of MTI sales that each product line represents. Let's start with our performance material segment. This is our largest segment, and you can see that approximately half of its sales are consumer oriented. Starting from the top, household and personal care, our largest product line, has a solidly positive market outlook. It continues to benefit from favorable consumer trends and strong sales from our newest products. This product line includes pet care, fabric care, health and beauty, and our oil purification products, along with other non-industrial specialties. In general, this product line serves end markets that are more closely tied to consumer staples, enabling it to better sustain sales levels through economic cycles. Furthermore, we're strongly positioned on the private label side of both the pet care and personal care markets. Private label brands are a growing category across the consumer packaged goods, They also tend to perform well when customers are looking for ways to save at the store shelf and make more economical choices. Demand for household items like pet litter, over-the-counter active skin care products, fabric care additives, and edible oils are poised to grow over the longer term, driven by increases in population and the general rise in global income. Next is metal casting. This business also has a solid market outlook through the fourth quarter. and is benefiting from strong automotive, heavy equipment, and infrastructure casting demand in North America. China foundry market has been much slower this year. However, we saw an increased demand late in the third quarter and expect this improvement to continue. Further out, we're well positioned to continue to penetrate foundry markets around the world with our leading technologies and see ample runway to continue our growth trajectory. Our environmental products business which has historically been driven by industrial landfill lining systems, has a growing focus on consumer drinking water and municipal cleanup efforts. We have a balanced view of this business into the fourth quarter. We see strong markets for our water remediation products like Florazorb, which targets PFAS contamination in ground and drinking water, and continued solid demand for our offshore water filtration and well testing. The other factor giving more balance to our outlook is that we will experience the typical seasonal reduction in the number of landfill lining projects as we move into colder months. Our building materials product line primarily serves commercial construction and infrastructure and markets. We have a cautious outlook here where we have seen a general slowdown in the European construction market that will likely extend into next year. Project pipeline for North America, however, remains relatively strong at least through the fourth quarter. Now let's move to specialty minerals. We have a balanced outlook for our paper PCC business. Volumes will continue to grow in India from our latest satellites, and North America volumes will remain strong, driven by high paper machine utilization rates. We also see a modest near-term recovery in China, which will likely extend into next year. While setting this, we see continued softer conditions in Europe due to generally weaker economic conditions and higher energy prices. Our specialty PCC and processed minerals product line serves construction, auto, and consumer markets. We see continued favorable trends in the consumer segment, solid demand for antacid, and food and beverage calcium fortification application. Additionally, both specialty PCC and processed minerals products continue to benefit from strengthening auto production, which should keep demand relatively solid through the fourth quarter and into next year. This, however, is balanced against a less favorable outlook for sales into residential construction materials. In refractories, we have a balanced but perhaps cautious outlook going into the fourth quarter. We did see some softening in this business in the third quarter, with North American steel utilization rates moving from 79% to around 76%, which is where we expect them to remain through the fourth quarter. The European steel market also slowed through the third quarter, and we could see further softening into the fourth. We've secured several contracts for our new ScanTroll devices, our latest innovation that is delivering higher value for our customers, which will add incremental sales and profits next year. These devices are representative of the innovation happening in this business that has fundamentally transformed it for higher levels of profitability. In summary, the business environment has certainly changed from where we began the year. Shifting economic and market conditions, persistent inflation, Supply chain and labor market challenges and foreign exchange movements have combined for, shall I say, an interesting business environment. Despite all of this, we have a positive or balanced outlook for 80% of the company's market through the fourth quarter, and we remain on track for another record year of earnings. We do recognize that the environment can change rapidly, but our focus, discipline, and agility are characteristics of our team that enable us to continue to successfully navigate what lies ahead. Our portfolio of businesses is much different today. It's more balanced, and it's structured to deliver consistent, solid relative growth and performance through economic cycles. With that, I'll pass it over to Matt to review the financials in more detail. Matt?