Good day and welcome to the Third Quarter 2017 Minerals Technologies' Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Cindi Buckwalter, Vice President Investor Relations and Corporate Communications for Minerals Technologies. Please go ahead Ms. Buckwalter.

Thank you, Chad. Good morning, everyone, and welcome to our third quarter 2017 earnings conference call. Again, I'm Cindi Buckwalter. I recently joined MTI and I'm thrilled to be part of the company and working with its great team. Well, I've already met some of you. I look forward to meeting everyone and working with all of you. On today' call, our Chief Executive Officer, Doug Dietrich will provide an overview of our results, key drivers and strategy; and our Chief Financial Officer, Matt Garth will follow with a more detailed review at MTI's financial performance. I'd like to remind you that beginning on page 13 of our 2016 10-K, we list the various risk factors and conditions that may affect our future results. And I will also point out the Safe Harbor disclaimer on slide two here. 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 Cindi. Good morning everyone. I'll start-off today by covering some of the highlights from the third quarter and then I'll give you an overview of the operating performance of our minerals and service businesses. Then I'll turn it over to Matt Garth for a more detailed review of our results. Before I begin, I want to highlight the Minerals Technologies celebrated its 25th anniversary on October 23rd. A notable milestone for the company and one we took a moment to celebrate. It was good time to look back at our achievements over a quarter of a century and reflect on those who helped build the company and contributed to where we are today. There were a tremendous employee base here at MTI. We're committed to the company's success. This commitment along with our strong set of values is the core of how we've come this far and what will continue to drive our success for the next 25 years. Let's move onto our results. It was a solid quarter for MTI with earnings per share of $1.19. Total sales increased 6% with both our minerals and service businesses each up 6%. Operating income rose to $68 million and operating margin remained strong at 16%. We expect that operating income to be a bit stronger, however, we faced several one-time costs in the quarter that we'll outline for you during the call. Our minerals business has performed, with the majority of the product lines growing over last year. Asia continues to be a strong growth region for us with overall sales there up 16%, driven by both Paper PCC and metalcasting. A recent highlight as the announcement earlier this week that we signed a new contract for an 80,000 satellite with Asia Pulp & Paper in Indonesia. Our service businesses…

Thanks Doug and hello everyone. I’ll review our third quarter results, the performance of our four segments, and also provide you with our outlook for the fourth quarter. We delivered solid financial results in the quarter with earnings per share of $1.19, which was 2% higher than the third quarter of last year. Our reported earnings were $1.17 per share. In the third quarter, we achieved overall revenue growth of 6% with strong performances across many product lines. Metalcasting increased 17%, Basic Minerals was up 40%, and Building Materials increased 18%. Household, Personal Care, and Specialty Products were up 1% and Paper PCC also increased 1%. As highlighted in the operating income bridge, our Performance Materials and Refractories businesses grew income on a year-over-year basis. Our Specialty Minerals and Energy Services segments decreased. In total, operating income grew 1% to $67.7 million. We experienced a negative impact in the quarter related to the hurricane in the Gulf of Mexico. This affected revenue and cost in several areas of our business. The primary impact was in Energy Services as many offshore rigs demobilized and delayed project work. We also experienced transportation cost increases and delays due to logistics disruptions in our Minerals businesses. Operating margin was good at 16%, which was lower than last year due to higher sales of lower margin for chromite. Lower sales of higher margin Environmental Products and Talc and the one-time storm-related costs I just mentioned. We generated strong cash flow in the quarter of $73 million, paid down $30 million in debt, and reduced our net leverage ratio to 2.3 times. Let's now review our segments, beginning with our largest segment, Performance Materials. Revenue in Performance Materials increased 12% compared to last year. Metalcasting was up 17%, driven by higher blended bond system sales to…

Operator, could you please queue up some questions?

Yes. [Operator Instructions] And we will take our first question from Daniel Moore with CJS Securities.

Good morning. Thanks for taking the questions.

Hi Dan.

So, maybe just -- I think Doug, you mentioned this in your prepared remarks, but the new satellite with Asia Pulp & Paper. When do you expect that to ramp. Do you expect any meaningful volume contribution in 2018 in the back half first. Should we think about that more coming in really on line in 2019?

Yes, the new satellite, Dan the 80,000 ton I just mentioned that we announced this week, that's most likely to come on late in the fourth quarter. Usually takes around a year to build these. So, that will come on late in the fourth quarter. The one previous to that is probably the expansion that will come on first, that's the 40,000 ton would be late second, early third. And then the new satellite which is the larger one, 125,000 ton satellite probably late in the third. So, I think you'll start to see this 250,000 tons kind of being built and come on line second half of next year. The big contribution will probably be late in year, into 2019.

Helpful. And maybe just talk more generally about your confidence in the tenor of your conversations in signing additional deals over the coming months and quarters, both outside of the mainland as well as in China specifically?

Yes, I mentioned we still have a really healthy pipeline of opportunities across technologies both filler and our new technologies and new yield, but also in packaging. That's been a strategy to move, in particularly, in Asia, but not just Asia, around the world, more into the packaging markets. And we've got a nice pipeline of that and I think you're starting to see us drive movement in that. Why don't I let D.J. Monagle give you a little bit more color on kind of some of the activity that's happening.

Yes, Dan, just to build on that a little bit. So, first one, let me just talk about some of the implied capabilities that these satellites exhibit. The team that we've built and the talent that we've developed in China is a big part of getting this satellite over the finish line and they will be doing the building of the satellite. So, the whole project execution, equipment procurement, and selling aspect is -- and technical aspect is supported by the team that we've been building in China, which is a huge leap forward for us and really sets us up for further growth. We go on that and when Doug mentions that a robust pipeline, a majority of that is in Asia. It's a combination of India and China and it's -- if you would look at, say a dozen or so active pursuits, I'd say about half of them are in that region. A combination of standard solar satellites and some of the newer technologies like new yield that we're pursuing as well as trying to penetrate packaging with some improved coating products. And then we expand that to some other regions where our emphasis on packaging continues. So, we've got a pretty good pursuit going.

Dan if I can add one thing to that. I guess the D.J. mentioned something and I mentioned in my remarks when we looked at investing in some growth, this is one of those areas, it's putting talent and capability in the region. So, not only from the technical capabilities, the contract capability and to negotiate, but also the execution, the engineering, and the manufacturing, the sourcing, everything in region. So, it's not done. It's all done locally. That speeds things up and that gives us a capability to react much faster. That's kind of an example of where we've been investing in our growth and investing in speed.

Helpful. And maybe switching gears, Doug. Environmental Products, an area that has been of little light over the last quarter or two, talk about pipeline of opportunities there and your expectations for resumption of growth in 2018?

Yes, this has been -- we've mentioned that this has been one where we've been moving away from some of the commodity that's still important to the business. The landfill liners that we've been working to develop higher, more sophisticated products like Resistex. I can tell you that it's not just landfill liners. We put some new leadership in that business and we've been developing some new technologies and actually applying some of our existing technologies that we've had for many years, bentonite-based technologies into different areas of water, wastewater, riverbed, et cetera. We've got a number of opportunities. We're still in some trials periods. Maybe I'll let Gary talk a little bit about what's going on in that business from the pipeline of things that we're doing in Environmental Products. Gary?

Okay. Yes, Dan, excuse me. Focusing a lot on more emerging applications again long ago, most of this business was about traditional landfill waste containment. Still we have a significant share and still that continues on. We've evolved a lot of that know-how that we've dealt over the 25 years we've been in that business to expand the capability now into much more of tailored solutions that are involved and more significant areas of industrial waste containment. Examples are a coal-fired power plants that have ash and residual streams that need to be contained, MEET regulatory requirements. So, that's obviously a global capability that that we're developing. And then there are other areas in terms of remediation of water bodies, projects that are well known here in the U.S. where contaminants streams have been in place that we are involved with taking those particular streams and neither containing them or at least treating them in a manner that they can be disposed of. So, all of these really line-up like Doug said into the -- very much in our wheelhouse in terms of technology. And in terms of dollars, hard to necessarily just say what's exactly in the stream today. But any of these types of projects that you're talking about are multimillion dollar type of projects given the types of streams that you're talking about. So, we've got a ways to go to -- to kind of fit our capabilities there, but plenty of opportunity in the stream right now and remediation and industrial waste containment.

Dan, we've been adding -- kind of building a portfolio of environmental remediation solutions. So, Resistex is one of them, but some -- I mentioned some water technologies. It's really been kind of the front of that portfolio what we've been marketing in China. And so we mentioned a lot of our activities there in terms of the eco-partnership that we developed and signed in 2016 with some university and customer partnerships. We're starting to see some traction there as well. And I think we'll play out longer term, probably into 2018 and 2019. Maybe Jon Hastings who's been heading that up for us give you a flavor of what's going on with Environmental Products and some of the trials in China?

Hey Dan, let me just explain a little bit about the eco-partnership and then I can say more about the portfolio broadly, but the eco-partnership as we formed with Sun Paper and Tsinghua, we wanted to demonstrate the new yield technology. I want to say that we've been very successful on that. We've recently started a new independent assessment with Tsinghua University. We wanted to -- basically if you remember, we wanted to repurpose 100% of the lime mud waste stream and I can say we've successfully demonstrated that with our full scale manufacturing capability at Sun Paper. What we've done is we've leveraged that experience and we've had conferences, we've participated with the Paper Association, we've participate with government officials, the EPB, which is the China equivalent of the EPA. And as we've done that, what we've learned is that there's a huge demand for Environmental Solutions that really kind of span our portfolio. So, as Doug had indicated, our new yield product for the Paper industry, especially GCLs for river remediation and capping landfills, and lining retention ponds. And so now what we're doing is we're working with government bodies, both national, provincial, and also local, in stimulating interest in all of our portfolio and right now, we're in the process of securing pilots and making sure that we can demonstrate those technologies as a lead into the future sales and demand.

Perfect. Greatly appreciated. And lastly, just to put a little a little bow on the guide. It sounds like obviously operating income down slightly, given the tax rate ticking higher, I assume, EPS probably a little bit lower than the $1.08 that we did last year, is that fair to say?

I think the right way to look at it, Dan, and what I was speaking to was if you look at the tax rate last year, it was 21.6% that included a number of discrete tax items. This year we're looking for more something between the 23% and 24% level that is having a bottom -- below the line impact, obviously, on net income and EPS and that's what we're guiding to with the similar EPS performance to what we saw last year. Overall, from an operating income perspective, again, good growth on a year-over-year basis is what we're looking for in the fourth quarter.

Got it. Appreciate the color. Thank you.

Thanks Dan.

And we'll move to our next question from Rosemarie Morbelli with Gabelli & Company.

Good morning everyone.

Hi Rosemarie.

I was wondering if you -- if I could follow-up on the last question regarding Environmental Project. When do you think -- based on all of the steps you are taking, when do you think we are going to see an impact on topline and bottom-line? And if we look at two years out, where could that particular -- those businesses -- your businesses amount to?

Yes, I think you're going to see some of that growth next year, Rosemarie. We're into -- obviously, the fourth quarter, a number of these remediation projects just given where they are and the whether it starts to slow down, so in the fourth and first. But I think next year, with some of the opportunities that we've been setting up that new --- the leadership in that business has been setting up, you should see some revenue impact next year. All told, kind of to mention what we see, the projects and the products and the regions that we're pursuing with these technologies we just mentioned are probably around $35 million. So, for an $80 million, $90 million business, $80 million business, it's a substantial growth rate as we get them. Now, that's not all going to come next year, I just caution you, but we're going to start to be building out that portfolio. It's going to develop in China in terms of the trial Jon just mentioned here in the United States and other regions. And so we're getting some really good traction. Got a good portfolio. I think you'll see some of that revenue and earnings growth next year.

Okay. That is helpful. Thanks. And then I was wondering if you could talk about the progress regarding the PCC penetration in Paper, both in China and India, and are we still looking at potentially needing -- the industry needing more than doubling off the capacity?

Okay we -- I'd say the penetration is probably around -- we started a few years back at probably 7% penetration and what we mean by penetration is the tons of PCC consumed in the marketplace for paper tonnes produced. China years ago started at about 7% and India was 0%. I think we've moved India up into that 15% range and China is probably in the 10% range. Western regions, North America, Europe; that penetration equation is about 20%. So, there's still a ways to go in terms of opportunity in China, India, Asia for PCC. Some of this in Indonesia that paper has consumed throughout Asia will affect that penetration in the Asia region. I can't give you the exact numbers, how much will it have an impact, but that is part of that penetration growth. We still have a lot of opportunities slower in some regions than others, but that opportunity set that we described to you before of a potential couple -- 2 million tons is still there. And that's that pipeline that we've been talking about, the healthy pipeline that's going to drive that -- or create that, we just need to drive it. And that's what we've been investing in and move along faster directly in the region.

And looking at the paper market in the U.S., are we still -- I mean U.S., I believe, was down 4%, are we still seeing a decline, do you still expect mills to be shut down?

Yes, volumes were down and paper market was down about 4%. We -- our volumes this quarter were down I think about 4%, but that was largely still remaining in coated paper, coated and groundwood. This is the Jay Mill, we announced the closure. There's been some curtailments and continued lower -- it's not in our filler business, but it is in that coated product, which is in a much faster decline here in North America. So, that's the volume that you're seeing in a year-over-year basis in North America. The only thing right now -- right now, operating rates in North America are around 90%. They were low 80s -- I think they are low 90s right now, so that's a pretty healthy place. We don't see anything in 2018, that's the large filler mill. In terms of closure, the only thing we know is International Paper has announced something in 2019, which is in their mill, their Champion Paper Mill in Alabama. That's something that could impact us right now. We don't know enough about where those paper tons will be moved within their system. High likelihood that we're going to absorb them somewhere else in our system, but that still remains to be seen. D.J., you got any other thoughts on the North America market?

Just to provide a little more color Rosemarie. So, we see uncoated freesheet is operating pretty -- in a pretty healthy range, like Doug was emphasizing in that 90% operating rate. We do see this continued pressure on the coated grades and the groundwood grades, but they're not a major part of our of our portfolio. And then what Doug was talking about what is public that's out there right now, is that the [Indiscernible] organization in Jay, Maine is rationalizing some assets. So, that's part of what we saw as part of this decline and that's thing that's going on in 2019 is that the International Paper Organization is going to shift one of their uncoated freesheet mills to a packaging grade. Now, we know that that will affect us, but we want to highlight is that it's early on, but that grade that will go in there as a white top grade, so we will participate in that new machine. I just don't know exactly how that will look. And also we've got -- we've been developing for a while some new products targeting those packaging grades and we would hope to have an opportunity to work with our partner and work with them on that transition.

Thank you. And then lastly if I may. Could you talk about the -- what is behind the increase in lime cost, is that electricity, what is it?

We -- usually it's energy. There's other costs in our contracts with lime customers. We there's some pass-through of energy and other items that will absorb. Past couple of years that have been in decline and so we've -- we have lower lime cost, but then we also pass-through those savings contractually to our paper customers. As energy has started to move around and cost have changed, lime prices have shifted up in the fourth quarter. Our contracts allow us to pass those through, we'll do so contractually in the first. So, I think Matt was just highlighting that something will absorb on a temporary basis next quarter. Nothing out of the normal.

Okay. Thanks.

[Operator Instructions] And we'll move to our next question from Mike Sison with Keybanc.

Hey guys, nice quarter.

Hi Mike.

In terms of acquisitions, the environment out there is pretty active. What are your thoughts in terms of adding some growth there? And just curious if there anything on the bigger side that could be of interest to you? And I know you can't be specific, but just in general.

Sure. Look acquisitions are part of our strategy growth. There certainly are things out there that are interesting to us. Give you a flavor of kind of the activity level that's going on, we meet once a week as a team. We spend probably three hours in a day just reviewing activities, that's just formally, but there's a lot of informal activity that goes on during the week. So, it's a pretty active process for us in the company. We've always said we have a portfolio out there, things we look at in the $1 billion to $1.5 billion revenue type range, all told. But there's a lot of smaller things, there's some medium-sized. I don't think there's anything out there that's of the size -- I can't tell you the size of our last acquisition of AMCOL. But things that are interesting to us that are bolt-ons -- geographically, bolt-ons that really would position us well in some of our core product lines, mostly minerals, I'll tell you that. Size is now in the $50 million range to $300 million range. That gives you an idea of what's out there now. Again, things can be very active, but M&A is hard to predict in terms of how things play out. And so we keep at it and we're very patient, we're very disciplined about how we look at things as well in terms of what we'll pay. So, a number of factors that go into actually concluding one.

Got it.

Does that help?

Yes. It does sound like you have momentum in the Specialty Minerals heading into 2018 and 2019, in North America might stay weak for PCC, but do you have enough new projects to generate some growth in operating income over the next couple of years?

Yes, I think we do. I think -- I've always said that I think with some of -- what we have in our new technology pipeline with what we have in terms of positions we've developed geographically in some of those core markets like Metalcasting, Fabric Care, Pet Care, PCC Specialty PCC, even our Talc business, I think we've got enough opportunity out there to go capture to keep us in this mid-single-digit type growth rate. You know us and I just highlighted how we operate and how we look at being as efficient as possible with any revenue dollar we get. We have invested in some of that growth early on, so put some expense dollars to work to develop the organization and the technology people out there to start to affect faster sales growth. But at the same time, that investment is also, like I said, putting people in the locations to speed things up. We have a number of opportunities in these growing regions to improve efficiencies as we build out our system of -- blending system in China, right now we're operating more hub and spoke. We're shipping from larger distances because it's efficient to do so. As we scale up in that business, we'll be adding more efficient type supply chain activities that will lower our costs and drive higher margins in some of these new revenue dollars. So, I think yes, there's a number of opportunities we have in front of us for revenue growth and we're always looking for on showing -- generating higher profits from those dollars.

Great. And then last question on Energy Services. I think you have a growth -- longer term growth goal in terms of sales and oil prices have started to kick-up a little bit here. So, what's the right way to look at the potential of the business on its own now and then what are the acquisition potential that you could add to further improve the portfolio?

Sure. I think we've -- when we restructured the business, year, year and a half ago, we moved it to what we thought was the sustainable revenue streams over the long-term and those were the offshore markets well testing and water -- the filtration produced water processes. We've scaled down the overheads there to make sure that it hit a targeted margins, our target is 10% at current revenue levels, but we also left the positions globally and the equipment globally to be able to scale that up to $200 million. So, there's an inherent capacity in that business. I guess we'd have to add some people in terms of project to be able to run the projects. But we have an inherent capacity to double the size of that business. We've already said though that that probably won't happen until we see oil prices sustainably over $60, $65 dollars for a period of time where you'll start to see offshore oil production ramp up. We're still not in that period. I don't see that happening for the next several quarters, but we have that potential in the business. And while we're there, there's opportunities in terms of technology. I wouldn't say that we're acquisitive in terms of companies, but I think we'd be looking at technologies that further our capability in our in our filtration business is where we probably look at those -- look at that.

All right. Thank you.

Yes. Thanks Mike.

[Operator Instructions] And we'll move to our next question from Silke Kueck with JP Morgan.

Hi, good morning. How are you?

Hi Silke, how are you?

Good. Did you quantify what the hurricane-related effect were in terms of like sales and how it affect the individual segments? And is there anything that you think may affect the fourth quarter?

Hi Silke. The way that we look at it and what we described was impacts that were really across the whole entire company. Right, so you can see in Energy Services, that's where the bulk of the impact was obviously with the activity that was taking place directly there in the Gulf and then also the transportation impacts across the rest of the company and moving product around the country. Overall, for the company, we estimate that it was about a $2 million sales impact with anywhere between $1.5 million and $1 million operating income impact. And so obviously the growth -- the majority of that sits in the Energy Services business. But as we look to the fourth quarter, the way that the impact is going to play out is largely in how the projects that were currently scheduled for the third quarter are moving out for the Energy Services business. I could probably -- give it over to Andy, to give you a little bit more on that about how those projects are trending.

Yes, Silke, hi its Andy here. So, most of the impacts from the hurricane was absorbed within the Houston area in the planning stages of some of these projects. So that pushed some of those projects later in the fourth quarter and even into Q1 next year. We have a number of very large projects on the horizon which take quite a bit of planning and have a lot of infrastructural effects with them. Those now have been pushed generally towards the end of this quarter and Q1 next year. So, we haven't lost any of that work, but it's certainly move forward in relationship to what we thought earlier this quarter.

Okay, that's helpful. Within the segments, did you have pricing in any of your divisions, getting a pricing in any way -- on the Specialty Minerals side, the Performance Materials side, or was it all volume?

I'd say the majority is volume. There's definitely some pricing and there's a couple -- there's some more of a mix impact, I think, is what you're seeing. One area we didn't have good pricing, not something we control, is chromite. So, we had higher volumes of chromite sold this quarter over last year. Prices of chromite are about half maybe a little less than that, but about half of where they were last year. So, that's what I think Matt had described as some of the margin compression that we saw in the segment. We do have -- we mentioned we'll have some pricing in Paper PCC, that's contractual. We've seen some raw material increases and so have some of our competitors. And so that gives us some opportunity and we're going to have to be pushing up pricing going forward in our Minerals businesses. We're also seeing -- going forward I'll just kind of give you a caution. Now, we're seeing due to some of the environmental actions that are going on in China, it's been impacting us both positive and negatively. On the negative side, it's been curtailing some of the magnesium oxide production in China, which is driving up pricing. Now, we very diversified in terms of how we purchase our MGO, but it affects global pricing. So, we're starting to see increases in the fourth, primarily in Asia, but we're going to start to see increases in magnesium oxide. Though, we typically, as you know, are able to move those through in our pricing of our products to cover. So, we're going to -- I think we're starting to see a little bit of pricing pressure, which will move things up. But I think net-net to your question, in the third, pricing was maybe a little negative on us just because of that chromite.

What was the environmental regulations changing -- and China is some of the output [Indiscernible]. Is magnesium oxide the only thing that's affected by that in terms of raw materials that you purchased?

No, there's other things. We've navigated some other challenges in China. A number of our lime producers have faced inspections and permitting and some shut downs the lime kilns that support the Paper business. Again, we're very diversified in terms of our ability to buy lime in China. So, we've seen some impact there. We've navigated those. On the other hand, it's creating some opportunities for us. And we're getting a lot of demand and that's really driving some of what Jon Hastings mentioned in terms of trials of our water remediation technologies, riverbed remediation, and some clean-up areas that provinces are starting to pool on. I think our eco-partnership has put us in kind of a good position nationally to be recognized as someone that can help. And I think we're starting to see some of that pull-through. So, there are some positives and negatives to it, but it certainly created some challenges for us in the quarter and going forward on the minerals commodities side of things.

And lastly I was wondering whether you can divulge what your depreciation and amortization was in the quarter, like all-in [ph]?

Well, for the entire year, Silke, it's about $85 million to 90 million. In the third quarter, it was about $25 million. So, that's really where we're running. I think, schematically, if you're thinking about overall cash flow, let me give you two seconds on that. CapEx so far this year we've been about $55 million. Still on track for about $70 million to $75 million for the full year. And then looking at working capital, typically, what you do see is built across the year as we move through the seasonal peak periods. With the fourth quarter being seasonally lower, we do expect cash flow to benefit from working capital reductions in the fourth quarter.

Thanks very much. I'll get back in queue.

Thanks Silke.

[Operator Instructions]

Okay. Go ahead Cindi.

I'm sorry. Thanks to all of you for joining us this morning. We really look forward to talking to you again next quarter. And hope you have a great day. Thank you.

Thank you very much.