Minerals Technologies Inc.

Good morning everyone and welcome to our second quarter 2024 earnings conference call. Today's call will be led by Chairman and Chief Executive Officer Doug Ditcher and Chief Financial Officer Eric Alda. Following Doug and Eric's prepared remarks, we'll open it up to questions. As a reminder, some of the statements made during this call may constitute forward-looking statements within the meaning of the federal securities laws. Please note the cautionary language about forward-looking statements contained in our earnings release and on this slide. Our SEC filings disclose certain risks and uncertainties, which may cause our actual results to differ materially from these forward-looking statements. Please also note that some of our comments today refer to non-GAAP financial measures. Reconciliation to GAF financial measures can be found in our earnings release in an appendix of this presentation, which are posted on our website. Now I'll open it up to Doug. Doug?

Thanks, Lydia. Good morning, everyone, and thanks for joining today. Okay, let's go over a quick outline for today's call. I'll begin today's presentation by reviewing some highlights from our second quarter. I also want to take a few minutes to highlight the transformation that's been happening at MTI and how this is leading to our higher levels of performance. I'll then give you an update on what we're currently seeing in our end markets and conditions for the remainder of the year. Eric will then take you through detailed financials and provide an outlook for the third quarter. And I'll finish up with a small advertisement for our 16th sustainability report, which we published earlier this week and mentioned a few highlights. We'll then open the meeting to questions. With that, let's get started. We delivered another record quarter. and our portfolio of businesses continues to show its strength. This quarter was also an example of strong operational execution by our team and how we're leveraging the power of our new organization. Let me take you through some of the specific highlights. Sales this quarter were $541 million. The consumer and specialty segment grew 3% over last year on an underlying basis, driven by strong growth in both our consumer specialty and specialty additives businesses. Sales in engineered solutions were slightly lower than last year as growth in high-temperature technologies was more than offset by lower sales in environmental and infrastructure due to the continued weakness we are seeing in the commercial construction market. Operating income was $85 million, a record level for the company and up 20% over last year. Margins continue to expand, reaching 15.7% in the quarter ahead of our interim target for this year. We saw a favorable mix of our higher margin products, captured synergies from the reorganization, and our teams continue to execute on our pricing strategies and capture input cost savings. Each business is performing well operationally, focusing on safety, variable cost control, and productivity improvements. Earnings per share were $1.65, a 26% increase over last year. Operating cash flow also remained strong, increasing 10% over last year. I also want to give you an update on our status with the BMI bankruptcy. As you likely saw in our press release, we agreed to establish a $30 million credit facility for BMI in order to support continued progress with the bankruptcy and mediation process. We see this as a constructive step to keep the process moving forward as expeditiously as possible to a fair and final resolution for all parties. Eric will go into more details on this in his update in a few minutes. So, overall, I'm pleased with the quarter. the track the company is on, and our performance so far this year. We're delivering solid results quarter after quarter, despite facing a few market challenges. We have momentum across our businesses and across the organization, and we see even higher levels of performance to demonstrate going forward. I want to take a few minutes to review the progress we're making against our strategic objectives and use our first half results as a backdrop to highlight the strength of our business model and of the portfolio of the businesses we've built. Let me begin by saying that our strategy to position ourselves in higher growth and more profitable markets and to invest in new technologies is truly transforming MTI. We've built a resilient portfolio of businesses across both consumer and industrial sectors that provide stable growth platforms to balance instances of industrial market volatility like we are seeing today. We've outlined that our long-term potential is supported by our leading positions in these markets and geographies, by our core technologies, and by our unique mineral reserves. Our first half financial performance is a good example of the type of results this transformation can drive. I want to highlight for you some of the significant changes we've made in each business, the new positions we've created, and why we are confident we can not only sustain but strengthen our performance going forward. Let's start with the consumer side of the company. We've invested in and assembled a portfolio of consumer-based products designed to deliver stable long-term growth. It includes a leading pet litter business with a vertically integrated global footprint. We continue to leverage the value of this footprint to expand in North America and Europe and in Asia to satisfy demand from growing pet ownership trends. This private label business is positioned to grow steadily and outpace the broader market rate. We've made tremendous progress integrating the acquired parts and optimizing it into a global business platform. And over the next couple of months, we'll be launching a new global brand for this business to reflect this integration and provide a unified reference for our customers. We've expanded our consumer specialty businesses into higher margin growth markets like animal health, personal care, and oil purification, and invested in new natural ingredient technologies that are aligned with macro consumer trends. In specialty additives, our new recycling technologies like NewYield for the paper and packaging industry are gaining significant traction and have become the standard and leading value generator for industry customers who require sustainable solutions. On the industrial side of the company, we've positioned our high temperature technologies business as the leader in growing foundry markets around the world. and we are transitioning our refractories business with new, advanced formulations and through automated equipment and data collection systems like our MINSCAN LSC. We're expanding our environmental and infrastructure portfolio to help solve global challenges with technologies like Florisorb for PFOS remediation and drilling products for geothermal heating and cooling systems. These leading positions and innovative solutions generate higher value for our customers and are generating higher margins for us. Our first half operating margin is just over 15%, and we've generated $162 million in operating income, up 21% over last year. An EPS of $3.15, which is up 28%. This profitability is driven by this newer mix of products and also by our culture of operational excellence, which continues to drive efficiencies, remove waste and processes, and helps us leverage our growth over disciplined overhead spending. I also think it's important to note that throughout this transformation, we've maintained our historically strong cash generation profile and our balanced approach to capital allocations. This year, we've generated $106 million in cash from operations, a 34% increase over last year, and are generating free cash flow at our target level of approximately 7% of sales. We returned $22 million to shareholders last year and expect to return approximately $75 million this year. And at the same time, we've strengthened our balance sheet leverage to 1.7 times EBITDA. This financial strength, the capability of our aligned and focused organization, and our strong operating culture is a solid foundation to continue to build upon. We understood when we established our five-year growth and financial objectives that the journey would not take a linear path. But our results thus far demonstrate that we've put ourselves on a solid trajectory to achieving them. Now let's review what's happening in our end markets and the trends for the remainder of the year. Also with household and personal care, we're seeing strong demand for our consumer-oriented products and continue to have a positive outlook for this product line. The summer months are the seasonally low demand point for our pet litter business. However, the market begins to enter its strong season late in the third quarter. And for our other consumer specialty products, we expect similar demand levels into the third quarter and sales for these products to remain on their strong growth path. In specialty additives, we expect generally stable market conditions in paper and packaging and in food and pharma to remain through the second half. Residential construction in the U.S. is also relatively stable for us, yet remain below the levels we saw over the past two years. In addition, we're ramping up three satellites in the second half of the year, which will add to volumes in 2025. And we continue to have a strong pipeline of paper and packaging opportunities, driven by demand for new yield and for other products targeting the packaging market. In high temperature technologies, we see similar market conditions the first half in all regions, except for a weaker agricultural equipment market in the U.S., which will have a small impact on our second half metal casting volumes. We're also keeping our eye on lower steel prices in the U.S., which could impact steel production levels. But we're benefiting from the MINSCAN installations we've completed over the past year and have several more scheduled in the second half. And overall, we're expecting another strong profit performance from this product line. Environmental infrastructure is where we see continued softer market conditions and the one product line with lower sales compared to last year. We expected to see some improvement in the commercial construction market in the second quarter, but given the interest rate sensitivity of this market, our order delivery dates began to slip from the second quarter to later in the year. Our current expectation is that any meaningful market inflection will likely be late this year or early next. Despite this, other parts of this product line, like wastewater remediation solutions and drilling products, remain solid. I'd like to note that in this product line, our Fluorazorb product continues to gain traction. We've completed a municipal water installation in Q2 and currently have over 100 pilot projects in various stages. We remain closely engaged with the U.S. Environmental Protection Agency and are gaining similar recognition and engagement with agencies in Europe. To sum up, we see a relatively positive market landscape ahead for us, albeit one with a few additional pockets of industrial market weakness. The second half demand picture for some of our industrial markets looks to be a bit less certain than it was in the first half, but it's one we feel we can navigate successfully to deliver another record year. Now I'll turn it over to Eric to review the financial details, segment highlights, and our financial outlook for the second quarter. Eric?

Thanks, Doug, and good morning, everyone. I'll begin by providing an overview of our second quarter results, followed by some details on the performance of our segments, and I'll wrap up with our outlook for the third quarter. Following my review, I'll turn the call back over to Doug for some highlights from our latest sustainability report. Now let's review our second quarter results. We delivered another strong quarter, with records for operating income, EBITDA, and EPS excluding special items. Sales in the second quarter were $541 million, up 1% on an underlying basis versus last year. Operating income increased 20% over last year to $85 million, a record for the company. And operating margin expanded 290 basis points to 15.7%. For the first half, our operating margin was 15.1%, well above the 14% interim margin target we set for 2024. You can see in the operating income bridge that volume and mix increased income by $3 million, which is net of the impact from the deconsolidation of BMI last year. The consumer and specialty segment contributed most of the favorable volume impact, while the favorable product mix came mostly from engineered solutions driven by higher sales of our newest automated refractory equipment within high-temperature technologies. Together, volume and mix contributed 80 basis points of margin improvement. Higher selling prices drove an additional $3 million of income, contributing 40 basis points to the improvement in operating margin. The remaining $8 million of income and 170 basis points of margin growth came from an improvement in our overall cost position. We are realizing the benefits of productivity and variable conversion cost savings. a generally stable input cost environment, and the full run rate impact of our $10 million cost savings program. We also benefited from favorable energy costs relative to our expectations heading into the quarter, as our supply chain team did a nice job taking advantage of lower rates. EBITDA was $108 million in the quarter, and EBITDA margin was 19.9%, up 310 basis points over the last year. Earnings per share was $1.65, excluding special items, up 26% from prior year. And cash flow remains strong, with cash from operations of $50 million, 10% higher than last year. Before we move on to our segments, let me take a minute to outline the special items in the second quarter. We recorded special charges of $34 million, primarily related to a $30 million provision for credit loss relating to the company's committed line of credit to BMI Old Co., which is the entity formerly known as BMI. MTI provided this line of credit to facilitate progress in BMI Old Co.' 's bankruptcy proceeding and ongoing mediation process. Thus far, MTI has loaned $5 million of this $30 million commitment, However, a provision for the full amount was necessary since the funds will likely be consumed in the process and or credited toward the ultimate creation of a 524G trust. Now let's review the segments beginning with consumer specialties. Second quarter sales were $284 million, 3% higher on an underlying basis. Sales in the household and personal care product line were 1% higher year over year. Cat litter sales were temporarily lower this quarter due to the timing of product changeovers at a few retailers in the U.S. Meanwhile, we saw higher sales in several high-margin consumer applications, such as personal care, fabric care, and animal health. In specialty additives, sales were 4% higher on an underlying basis. We had solid volume growth in paper and packaging, driven by improved market conditions in North America and Europe. and the ramp up of our newest satellites in Asia. In addition, we've seen relatively stable demand for our products serving the residential construction market. Segment operating income was $44 million in the second quarter, 29% higher than last year, driven by higher volume, improved product mix, favorable input costs, and higher pricing. And our operations teams delivered a strong productivity performance. In short, the business is performing well. And as a result, operating margin has improved significantly, up 370 basis points from prior year to 15.4% of sales. Looking ahead to the third quarter, we expect year-over-year growth for household and personal care in the mid-single-digit range. In specialty avenues, we expect underlying sales growth to remain similar to what we saw in the second quarter. Overall for the segment, we expect underlying sales growth versus last year in the low to mid single digit range and operating margin remaining strong around 15%. Now let's turn to the engineered solutions segment. Second quarter sales were $257 million, 2% below last year. In the high temperature technologies product line, sales grew 1%. In North America, foundry and steel markets have been stable, with the exception of softening ag equipment demand for some of our foundry customers. In Europe, steel markets have remained sluggish through the first half. Meanwhile, we saw continued growth in foundry volumes in Asia, driven by market penetration of our differentiated green sand bond systems and technical services. In the environmental and infrastructure product line, sales were lower by 8%, driven by weakness in commercial construction and large environmental projects. When we talked to you last quarter, we expected more projects to move forward in the second quarter. However, we've seen a continued shift in the timing of projects for this business. Segment operating income was $45 million, up 16% over last year, driven by higher volumes and a favorable product mix in high temperature technologies, as well as disciplined pricing and cost control. Operating margin was 17.4% of sales, up 270 basis points from prior year. Looking ahead to the third quarter, we expect market conditions to remain similar, with sales for the segment slightly lower than last year, and that's driven primarily by the market conditions in environmental and infrastructure, as well as softer conditions in the North American ag equipment market. And we expect operating margin of approximately 16%, in line with our target level for this segment, although lower than the second quarter due to a more normalized product mix. Now let's turn to our balance sheet and cash flow highlights. Our cash flow performance has been strong. Cash from operations for the first six months of the year totaled $106 million, up 34%. And we delivered free cash flow of $69 million, more than double the first half of last year. For the full year, we expect free cash flow in the $150 million range. We deployed $37 million toward CapEx in the first half, and we expect between $90 and $100 million of capex for the full year. The rate of capital spend will increase in the second half as we invest in several new paper and packaging satellites, including those equipped with our new yield recycling technology, and as we complete several units of our high-tech refractory equipment for delivery and installation at customer sites. In the second quarter, we also repaid $10 million in debt and returned $23 million to shareholders through share repurchases and dividends. To date, we have repurchased $49 million of shares under our one-year $75 million authorization. Our balance sheet remains very strong, with over $500 million of liquidity and net leverage at 1.7 times EBITDA. Now I'll summarize our outlook for the third quarter. we expect a similar level of sales and a solid operating performance in the third quarter. In consumer and specialties, we expect underlying sales growth in the low to mid single-digit range versus last year, driven by higher sales of cat litter and other consumer-oriented products. In engineered solutions, we expect sales to be slightly lower than last year, similar to what we saw in the second quarter. In summary for MTI, We expect sales between $535 and $545 million, continuing the same underlying sales growth trend we saw in the first two quarters. With a more normalized product mix, as well as some seasonally higher energy costs, we're expecting operating income between $77 and $80 million, and operating margin remaining strong at close to 15%. And we expect EPS between $1.50 and $1.55. Where we land in this range depends on how demand plays out, especially in the few industrial markets where we've noted some softness. Regardless, delivering this guidance would represent a record profit level for a third quarter and would position us well to deliver a record performance for 2024. With that, I'll turn the call back over to Doug to share some highlights from our latest sustainability report.