Good day, everyone, and welcome to the Second Quarter 2019 Minerals Technologies Earnings Call. Today's call is being recorded. At this time, I would like to turn the call over to Cindi Buckwalter, Head of Investor Relations for Minerals Technologies. Please go ahead Ms. Buckwalter.

Thank you, Anna. Good morning, everyone, and welcome to our second quarter 2019 earnings conference call. Today's call will be led by Chief Executive Officer, Doug Dietrich; and Chief Financial Officer, Matt Garth. Following Doug and Matt's prepared remarks, we will open it up for questions. I would like to remind you that beginning on page 14 of our 2018 10-K, we listed various risk factors and conditions that may affect our future results. And I'll also point out the Safe Harbor disclaimer on the 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, Cindi. Good morning, everyone, and welcome to our second quarter earnings call. I'll begin today by covering the highlights from our second quarter and I'll discuss what we're currently seeing in our end markets. And then I want to take some time to walk you through the traction we're making across our growth strategies and a broad range of opportunities we have for continued investments. Matt will review our financials in more detail and I'll wrap it up with some concluding remarks before the Q&A session. Second quarter was a challenging one for MTI, given the changing conditions we faced in a few of our end markets and geographies. It was also a quarter where we delivered robust growth in several product lines, generated strong cash flow and took decisive measures to adjust to the market environment and improve margins. From a financial perspective, total sales for the quarter were $464 million, up 3% on a constant currency basis. We generated $61 million of operating income, with double-digit margins across all segments and earnings per share of $1.11, which was at the top end of the adjusted range we gave in June. Throughout the quarter, we tightly managed our expenses, drove productivity improvements, and implemented appropriate pricing actions as we continue to pass through the inflationary pressures we faced over the past 18 months. Cash from operations and free cash flow have been strong for the first half of the year, up 23% and 65% respectively. We also continued with our debt repayments and share repurchases in the quarter. Let me touch on some of the highlights of the quarter. In Performance Materials, our pet care Environmental Products and Building Materials product lines, all delivered healthy sales growth. In particular, pet care sales were up driven by robust private…

Thanks, Doug, and hello, everyone. I'll review our second quarter results, the performance of our four segments and also provide you with our outlook for the fourth -- third quarter, pardon me. As Doug mentioned, the second quarter was a volatile one for MTI. We entered the quarter with relative strength across most markets. However, in May and June, conditions deteriorated quickly. Metalcasting had the largest impact, and we saw overall weakness in several of our markets outside the United States. These market conditions had the largest impact on our second quarter outlook and results. We managed through the flooding-related rail infrastructure issues in the Western United States and mitigated the financial impact to approximately $1 million. Now turning to our reported results, sales were $463.8 million in the second quarter flat versus the prior year. As you can see in the sales bridge, we had $14.4 million of unfavorable foreign exchange and $4.1 million of weaker volumes and mix. These impacts were offset by higher pricing and an additional month of Sivomatic sales. Operating income for the quarter was $61.2 million. The operating income bridge shows that the lower volumes and an unfavorable product mix had the largest impact versus the prior year. Our pricing actions more than offset the raw materials, ore costs and freight and energy increases in the quarter. Note that so far in 2019, we have seen inflation in energy and magnesium oxide slow while ore mining, other raw materials and logistics costs continue to rise. For some perspective, over the last 18 months, we have incurred roughly $68 million of cost increases and have increased pricing by $55 million. In the quarter, we continued to tightly manage expenses with SG&A as a percent of sales down slightly from the prior year. Earnings per share…

Thanks Matt. I'd like to take a moment to summarize our call today. The guidance Matt just gave you for the third quarter reflects the weakening market conditions we're seeing in some of our end markets. And we've taken the necessary actions to correct to these conditions. At this point we do not see further weakening into the fourth quarter but if we do we'll make additional adjustments. The underlying fundamentals of our business model remain strong and our market positions and value propositions are intact. While we manage through this period, we remain focused on executing on our opportunities I laid out for you that support our long-term growth strategies. With that, let's open it up to questions.

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

Good morning, Doug, Matt. That’s for the color and taking the questions. I wanted to start with Metalcasting. I guess maybe just talk about the cadence a little bit. Q2 obviously things slow down. Specifically, first in the U.S., can you break it down a little further between auto ag heavy truck where you're seeing the greatest amount of softness? And obviously in your prepared remarks still seeing it in Q3 but just wondering at the margin any difference in second derivative or momentum in -- out of those markets.

Yes. So let me frame it for you this way Dan. And I'm going to pass it over to Jon Hastings to give you a little more color on kind of our conversations that we've been having continue to have obviously with our customers around the world. In the United States we try to show you how things changed through the second quarter. And we had a relatively strong April - March and April in our Metalcasting business here in the United States with relatively strong foundry customer demand. That changed quickly in May and June. And I think what we're reflecting right now is kind of a full quarter of where we sit right now in these June rates. And so we're kind of losing in April and you're going to see three quarters at this lower rate. Right now we don't see that -- your second derivative comment we don't see that continuing to accelerate south through the fourth. We think we're down 8% in the second half of the year and we think that kind of the third and the fourth are similar at this point. China the same thing we started off weak in the first quarter picked up a little bit but then it's remained weak. We thought in the first quarter call that we'd start to see some stimulus in China. It would help auto production rates et cetera. That did not happen. And so our current conversations are that -- with our customers they see that this current rate in China is going to continue to extend throughout the year. So I don't think you see it worsening but I do think that our third quarter guidance Matt gave you is a reflection of a bit weaker than that second quarter. Jon, I want you to fill kind of conversations we always have with our customers and how far out you can see right now.

Sure. I appreciate the question, Dan. Good morning. A couple of things to comment. First North America. Like Doug said we did have a fairly strong robust Q1. And then very quickly in Q2 we saw some changes. And that was predicated on the conversations that we were having with our customers. It did span across automotive ag industrial and municipal. Heavy truck actually has stayed fairly decent for us fairly steady. So a little bit of a differentiation there. But like I said it changed pretty quickly here in Q2. Originally in Q1 all the foundries were telling us favorable outlook, looking like growth for the year et cetera et cetera. And then in Q2 it ramped down pretty quickly. Of course our business model is supplying the needs for those customers on a pretty much real-time basis. It's almost just in time. We blend. We put it in a truck. We send it over to customers. And so any demand fluctuations at the foundries will impact us pretty quickly. And so our visibility in our order book is usually a week to two weeks out. Conversations with our customers, we do try to predict the trends for a couple of months. Like Doug said, right now we've got some customers in North America that are saying things are pretty stable and demand is going to continue as it did in Q2. There are others that have some uncertainty and they say there might be some continued sluggishness through Q3. So all in together if you look at North America we're predicting pretty steady rates compared to where we ended the quarter. If I -- if you want me to comment regarding China as well, China is a little bit different story in that Q1 we were fairly sluggish mainly because of the Chinese New Year so we had a weak early quarter. But then by the end of Q1 and early into Q2, we saw some rebound and that was probably some pent-up demand. Again fairly early in the quarter we started seeing the demand trends change. And as we were talking with our customers, they've got a little bit longer-term view than North America and we did see some sluggishness coming to Q2 and we expect to continue into Q3. It is worth noting though in China. We've got our value proposition with our high-value blended products. Demand for those products has continued to be very strong. So, we're favorably inclined at least with our strategy towards those blended products. Now, all this precipitated into our response. We've made adjustments pretty quickly. We're continuing to drive innovation we retail our products to our customers. But we're also driving continuous improvement throughout all of what we do. We're focused on our mining costs, our processing costs, and our blending costs, and making sure that those are in line with where we see the demands in the market go. Does that help you?

Yes, it does. In China, would the -- with the slowdown impact the rate at which you are able to increase penetration flat -- I mean good bad or neutral?

No. I think it's -- I think as Jon just mentioned and as I mentioned in my comments I think it's kind of a testament to that value proposition. It says even -- and I think we mentioned this in the first quarter. Even in the down market, we still think we can drive this penetration. And that's because the demand of higher-value products in China is changing. The quality of castings is improving in terms of the cost to the end customers they serve and also our blended foundry project products save cost. And so I think both of those elements of our value proposition play out and you can see that they're still playing out through rather challenging Chinese market for metal-casting right now. So, yes, I think we can continue to drive in that. Those fundamentals I said these are attractive fundamentals not just in China, but also in India for the continued penetration and investment in that growth for many years.

Also let me just add to that. Keep in mind that there has been a lot of investment in China and India in some of the more modern new casting lines. So, as that capacity came on they are installing technology that is very equivalent to what you see in North America and Europe. That new technology actually requires the high-end blended products in order to produce the finishes that are in demand across all the different industries that they serve. The reason I mentioned that is those foundries are also the more efficient foundries. And so in a downturn a lot of the demand will transition to the more efficient foundries which happen to be the new foundries which use our blended products.

Very good. And if I can sneak one more. Just switching over to PCC. Can you break out maybe the revenue declines in North America versus Europe -- or volume declines rather? And given the timing of capacity closures here in North America prior to satellites ramping up, I assume modest declines for the back half of the year is still likely. If you said that in your prepared remarks and I missed that I apologize.

No, let me address it from a volume perspective Dan. I think when you take a look at the regions that we're serving in North America as we talked about volumes were down 10%-plus, largely driven by what we saw from the Port Hudson takeout. But converse to that we did see Asia up about 5% and Asia ex-China was up 16% as our volumes were coming online from our Indonesian facilities and we're continuing to make progress there. China as we've talked to in the first quarter had a relatively slow start to the year. I mentioned that there is a general slow pull from our customers as they are managing through that marketplace down about 5% on a year-to-year basis from a volume perspective. But again Latin America another region of good performance with sales up and volumes up. Volumes were up about 5%. So, overall, a fairly good picture there from where we're growing where we are located geographically and where we're seeing the sales. D.J. I don't know if you want to add a little more color maybe as what we're seeing from an overall perspective.

Well, yes, Dan just to comment regarding the new tons that will be coming online we've got quite a bit coming online. Some of it is in the second half most of it in early next year. But the good growth that Matt mentioned in India we've got some expansions that will coming online late in the third quarter. We've got -- we announced the new satellite in India that will be coming on towards the second half towards the end of the first half in 2020. Indonesia ramp-up went very well. So, that's contributing now. And then we've got the major 165,000 tons coming on in China in that second half as well. That is slower than what we had originally thought based on just some extended permitting issues that we've been dealing with but that looks healthy. And also we're seeing in anticipation of that conversion increased interest from other papermakers and PCC. They know they're going to have a tough time competing on a quality basis if they don't convert their pigments. So, these volumes are coming on albeit a little slower than what we had normally projected.

Great. And lastly the North America roughly what percentage of total PCC volume is North America now kind of post this latest leg down?

Right now it's about a third. We're pretty -- if you took North America and then you -- North America, Europe, and Latin America together is about a third and Asia is growing. It's actually become our second largest region. And after this expansion the expansion of the new satellite that D.J. just mentioned Asia in total will be our largest PCC region.

Perfect. Thank you.

We'll now take a question from Silke Kueck with JPMorgan.

Good morning. How are you?

Hi Silke.

Of the restructuring charges of $5.7 million that was -- that relates to severance is that paid out already? Or do you expect to pay that out throughout the year?

Yes. Silke as we talked about the restructuring program we are going to get most of the benefits spread out over the next couple of quarters. That's commensurate with the severance that will be paid out and among those individuals who are leaving the company. So, you're seeing a good piece of that taken out here in terms of actual actions in the third and fourth quarter. That cash will take place in Q4, Q1 and as we make our way into the rest of the program.

Okay. And can you discuss the $7.5 million impairment charge? And there's like $4 million of it that relates to Performance Materials -- Performance Products business. But like which businesses does it relate specifically? And do you expect your D&A going forward to go down?

Yes. Let me also qualify on the severance piece there. The cash-out is what I was talking about in terms of payments for the individuals who are exiting. However, the savings as I talked about in my prepared notes we're going to start to see pick up here at the end of the third quarter. From the asset impairment side within Performance Materials, I think we mentioned to you over the past couple of quarters the actions we've been taking to strengthen the Environmental Products and Building Materials manufacturing footprint. The impairments in Performance Materials are largely related to the consolidation of some of the facilities that we've made in those two businesses. Now from a D&A perspective as you look at where we've been running, I think, in the last couple of years you've seen us in that $23 million to $25 million range and this quarter was about $24 million. That reflects some of the asset impairment that we've taken here in the second quarter as far as the charge. But going forward, you're getting that push-pull from the projects and growth projects that Doug and D.J. just highlighted ramping up. So it should keep us -- as the asset impairment DNA comes down should keep us in that $24 million range I think is pretty good to use going forward.

Okay. That's helpful. Secondly, how much environmental -- do you expect to move from the third quarter into the fourth quarter? And similarly what amount of equipment sales in Refractories might be moving from the third quarter to the fourth quarter?

So let me just make sure we're clear on -- we have in the Environmental Products piece first. As you know most of these projects are rather sizable. Some of them can be $0.5 million and some of them are multimillion-dollar projects. We have a nice pipeline of that range. What we're seeing is that those will commence in the third quarter. But exactly which week and they could move a few weeks whether they fully get completed in the third quarter so I guess what we were saying. So there is a bit of uncertainty as to whether all that revenue and profit will be in the third or part of it will be in the third and part of it in the fourth. And that's kind of what we're doing. And these are really very sizable projects. And some of them in environmental remediation it really depends on when that site is prepared for it. So that's a bit of the movement but still a very healthy pipeline in Environmental. The Refractories business Matt's comments mentioned that we're going to have another healthy year of equipment sales. Right now, the profile of that looks to be more of the third it's not a slip. It just kind of generally moves. Why don't I let Brett take us through kind of where we were Brett Argirakis and where we are in this year in our equipment business.

Sure. Hi, Silke. The timing really depends on the customer demand and capital availability. As Doug said the last two years we've recorded really strong sales for equipment for Minteq and it really is largely due to the value and the performance of our laser measurement systems. This year we do anticipate another strong year at least as good as last year. But again more in line with historical back-end weighted sales. So we will have a strong second half and anticipate that happening in the third but also even more heavily in the fourth quarter.

I think if you remember Silke, two years ago we had a really weak fourth quarter in equipment sales and then last year you saw a bunch of them come through in the second quarter kind of like a pent-up. And then this year it's back to more of the traditional fourth quarter-type profile.

And that's been sort of, like $1 million to $2 million of business? Or is it something that's smaller than that?

No. Well usually, I don't break that up but it's more that.

But can you call it a shift?

Yes.

Yes. Okay okay.

Yes. These are -- some of these can be sizable projects but the majority again I'd say probably maybe 25% of our projects are going to land in the fourth quarter of this year. More than -- I'm sorry, more than 25% about 30% of our projects should land in the fourth quarter.

Okay. Thank you. And lastly I was wondering whether you can remind me like how large the metalcasting business is in the U.S. versus China? And how large the greensand's product sales are now in terms of size? Thank you.

John, you want take that one?

Sure. So metalcasting in North America versus Asia. You'll be -- I mentioned this in one of our calls the volume is actually fairly similar between North America and China. However, what you see is higher prices being paid in North America. So you'll see about 45% of our business is in North America. You've got -- the rest being distributed in China and Asia and the rest of the countries worldwide.

Yes. And that growing quite a bit Silke from the past couple of years I would say 70% of our metalcasting business four years ago was North America based. The growth that we've seen in China alone over the past four years has been almost at a compound annual rate of about 12%. And that business has grown from under $50 million to well over $80 million, $85 million where we are today over that period. So from what like Jon said from a volume standpoint we've got a nice balance between kind of Asia total and the U.S. but from a sales standpoint given that we're selling 90%, 100% kind of blended greensand bonds here in North America that average price is much higher per ton. We're still selling the base clay for our foundry customers in China and India and we're penetrating that higher margin that higher price point blended product in those two regions. That said that higher margin product for us is also higher margins for our customers. It saves them money and it enables a much higher casting quality for a growing more sophisticated automotive heavy industry base in those regions.

Thanks very much. I’ll get back in the queue.

We'll now take our next question from Rosemarie Morbelli with G. Research.

Good morning, everyone.

Hi, Rosemarie.

I was just wondering if you could talk about in the different category to different businesses the level of the inventories both at your customers locations and at Minerals Technologies?

Let me start that one. I guess it's very different by each business. Our -- I'd say our inventory levels in the Paper PCC business are probably the lowest that's because we operate on-site. We probably have an average of D.J. two days to a week that -- a few days of inventory because we're constantly replenishing that inventory in those tanks on-site. The opposite end of the spectrum in our Performance Materials business due to our mining activity and the volumes that we move throughout North America and around the world we have sizable amounts of mining activity, we have some air drying of the most effective way sometimes to dry that clay is to do it in the open and we will stir and move those piles because it's cheaper to do than to put it through gas-fed dryers. So in that case we hold quite a bit more inventory as we move it through our processing centers. As Jon mentioned earlier, the other side of that kind of value equation in Performance Materials like metalcasting it's more like Paper PCC. We're blending real-time for our customers. And so we'll hold a few days of inventory at the site actually more than that we'll hold a few weeks of inventory at the site, we hold a lot of inventory in transit but we're blending on a real-time basis and adding that value on a real time. Recently, we've been increasing that inventory in that business. We've been adding strategic locations. We've been adding safety stocks to make sure that we can deal with issues like we saw this past month and that's a reflection. Our ability to keep customers supplied given a three-day outage of the main arteries is a reflection of that investment in more inventory frankly. So it really varies by business. I think the other business of Mintech and our Performance Minerals business are on the average in terms of raw materials and stock for sales. Does that help?

Yes it does. I guess, I was really wondering if there is a slowdown, which you seem not to be expecting in any categories. It is more -- if I heard there it was incorrectly, it is more the weak level of the second quarter as opposed to another drop. So I was wondering if there is some additional decline then you are going to be stuck with inventories as your customers will deplete their own. So do you have a feel for customer’s inventories, and therefore, the potential negative impact on your operations if there is further slowdown?

Yes. No we keep very close tabs on that and we'll look at demand. We manage our inventories very closely. When things slowdown we can pull back very quickly on those production volumes. We're moving again having to move hours out of our plants and out of our mining sites to make sure that we don't get anywhere ahead of those inventories. What tends to happen in a company when you see through a slowdown is that inventory tends to reduce and working capital in total reduces and you start to see the cash generation for the company. So we keep very close tabs on that Rosemarie and we will pullback on inventories very quickly. Our customers -- our balance we have some customers that stock and then as part of our value proposition as I mentioned, we will take some inventory for customer and deliver real time. We're very cognizant of kind of forward volume demand and we pullback very quickly if needed.

Okay, great. And I was wondering you have just signed a commercial deployment for Envirofil. Could you give us a feel for the potential of that the particular contract? And the potential for Envirofil if we look at the next couple of years?

Sure. D.J. why don't you take that?

Certainly. So Rosemarie this particular customer that we had was at an existing satellite. So we worked with them to validate the concept and so this particular application is a slight increase in overall consumption, but improved profitability for both us and the customers. We're going forward, let me just remind you that Envirofil is where we take deinked sludge basically from the process. So it requires a well-developed recycling program and infrastructure. So the primary target is Europe, although there may be some other applications. As we look around the world we've had some recent inquiries in North America. But we've got something a little under 10 active discussions right now and you're looking at a market opportunity that's in the tens of millions of dollars as we look at that market. So it's a nice augmentation to our strategy primarily emphasized in Europe and it's creating conversations with folks that typically would not be looking at PCC.

Okay. So in other words you may get some additional PCC customers just as a result of this particular Envirofil offering? Am I reading that correctly?

You are and that is part of our strategic trust. So as we're going into these conversations around the world, we continue to highlight our ability to offer the world's premier PCC and a portfolio of additives and products that increase filler levels. But we're also going in with basically a portfolio of things that address increasing environmental issues whether it's dealing with some personal problems that we tend to deal with NewYield or addressing some deink problems that we address with Envirofil. We've built a capability that we think is going to be increasingly valuable to the industry.

Yes. It's really twofold Rosemarie. Not only do technologies like this enable new conversations with new customers as you pointed out, but it also enables us to expand our presence and relationships with existing customers. So we are -- we sit on almost 60 different paper mills around the world and they have different challenges. China is different in terms of issues that they're having than Latin America than Europe this one happens to be more Europe, but allows us to expand that relationship. And while we're sitting on these sites in partnership with our customers for an average of now 20 years each of these, we can do more for them. And so these technologies are geared to those issues specifically in those regions but also they help us with selling the base volume the base PCC in the first place. And we think that that's a -- that's the investment thesis that cash flow return to the base business plus the higher margins that we can do as we solve problems over there over the span of our relationship together.

All right. And then lastly if I may, what is behind the slowdown in China on the Paper PCC side?

I think, it's general economic activity. We've seen -- we've had some pullback I think from inventories that may have gotten higher last year. I think that also we've seen a pickup in Indonesia there's some dynamics that go along with that. And I think some of the packaging volume that we have in China has also been a little bit slower. D.J., I don't know if there's anymore color on that. But I think it's general economic some site specific I think.

It is then -- as we look at it Rosemarie, it tends to be just associated with the general slowdown in China. And I think the Chinese market is also dealing with the fact that the Indian marketplace and the Indonesian marketplace are getting more competitive at exports and India is getting more competitive by just keeping imports up. So -- and of course China has been less competitive to the U.S. as well. So it's a combination of items. We still think -- I just want to highlight though that slowdown is affecting our existing customers and that will come back over time. But it's not hurting at all our value proposition for the growth. So Doug had mentioned some 20 opportunities that are in our growth pipeline and that quite half of those are in China. So, we still have a very compelling value equation despite this industry interruption because we're able to do is very local -- very localized and so it's -- the slowdown has been impacting that ability to penetrate.

Okay, great. Thank you.

We'll now take our next question from Steve Schwartz from First Analysis.

Hey good morning, everyone.

Hi, Steve.

Hi, Steve.

If I could just continue that discussion around the general outlook, when I look at your slide five and we see the down red arrows in metalcasting in Basic Minerals and just to hear you talk about some of the drivers behind that. It's just -- it's difficult for me to not expect that some of your other businesses with those yellow, orange sideways arrows will inevitably be affected. And certainly, more people are talking about the potential of a recession. As you guys sit in strategy and outlook meetings, how are you assessing that these days looking out six and 12 months? And where is the potential biggest weakness?

Yes. Thanks, Steve. Look where we -- that slide was intended to give you kind of what we see through the next two quarters. It was -- right now, it's a little bit hard to predict where we're going to go next year. We have some new trade tensions that are out there that we're currently digesting then we'll see how that impacts kind of both economies. But right now I would say that we still see based on consumer -- let's start with our consumer type elements and those are the household and personal care and we see that's continuing to be strong. It's not a 10% type growth per year business. This is kind of a very steady 3% to 4% and it's really driven around the economics of kind of more GDP growth where we're positioned in terms of a pet ownership and in particular cat ownership that's driving that. That's relatively steady and it's not -- I won't say it's recession proof, but it is not cyclical in the nature of some of our other businesses. In the Environmental Products business, we're still very positive on that also, because it addresses markets that are not necessarily recession oriented. These are projects that are need to be completed from an environmental remediation standpoint. They are projects that have to be done for any type of activity and type of aluminum production or coal-fired power plants or other challenging kind of riverbed remediation activities. So that's not certainly something where we think. We have a nice portfolio that we feel will continue to drive that. We talked about metalcasting in Basic Minerals. So it's really kind of automotive general industrial foundry production and drilling activity in North America. Paper PCC, we talk about that a lot kind of…

Okay. Well, thank you. Yes. Oh, certainly yes. Thank you for going through that. And with you in the sense that you do have a market share and a value proposition opportunity that can offset macro situation. But just wanted to go through that with you.

And I think that's -- no I appreciate that. And I'm glad you brought that up, because I think that's where we find the strength. We're investing our money -- that's where our capital is in those activities that we see sustainable, sustainable those long-term opportunities to drive value and I've outlined those in my comments where we see those highest cash flow returns long-term returns.

And Steve at the same time to put it perspective from how that's impacting our daily discussions and what we're doing, we've done the restructuring which is reflective of where we see the markets in the second half. You heard Doug talk about how this is looking through the second half including the fourth quarter and we are maintaining the discussion around how we are going to act if there are additional changes. So the best of what we've seen today is what we're showing, but as Doug had already said in his prepared remarks, we're staying nimble and agile in how we're going to address variable costs should you see volumes come down.

And that actually leads me to my next two and final questions. And this builds on some questions that Silke brought up. On slide 9, can you -- number one can you talk a little bit about technically what the severance and impairment is? So who in the organization is behind the severance matters? And what assets in particular are being impaired? So that's the first question if I could. And then the run rate of savings, the $12 million. When I look at your guidance for the operating income for the third quarter, it looks like your operating income just in that quarter alone is going to be down $11 million. So when I look at where you were down in the second quarter year-on-year, now third quarter guidance year-on-year, can you frame up what's going to happen over the next couple quarters in the context of this $12 million savings?

Yes. Steve, let me take that one. So when you look at that impairment slide, the severance-related costs associated with north of 100 people salaried individuals in the company. The way we looked at that is we found -- when we make adjustments, we look for inefficiencies and opportunities to tighten ourselves even further both in kind of our back office functions, but also in our plant structures, right? So -- and some of that is tied to the impairment of assets. We see a more efficient manufacturing base to tighten ourselves up further and lower cost and still maintain the service quality to our customers and primarily in our building and environmental. So there's some severance associated with just putting ourselves a little tighter in cost and capturing some efficiencies where we see that and there's some severance cost associated with those asset impairments associated with facilities that we feel we can remove and still service at a high level and lower cost for our customers. And those are -- and the majority of those impairment costs are in the Performance Materials business and severance is in those -- is in the Performance Materials. That $12 million full run rate savings should start in the first quarter and that is the first half, we'll be there. Right now, we're working through those severance issues right now in the company in the third quarter. There'll probably be still some in the fourth quarter as we move through it, but we're trying to move through this as quickly as possible for the organization and we think some of those savings -- those savings will be in the fourth quarter, but will be at that full run rate we know by kind of the first part of the year.

Sorry. Steve one thing to add. Just as you're looking on that year-over-year perspective that delta from 68 – if you do some math on where we projected the third quarter, really, really the – what we've talked to you about this entire call has been the change from that April run rate to the May and June run rate in Performance Materials. And so those market volumes combined with what you have on a PCC basis and we've outlined on the slide that that was $1.2 million for PCC shutdowns on a year-over-year basis that will impact you again. And then Energy Services, we outlined at being too. So just to bridge from a market perspective that's by and large the largest driver those volumes that are continuing at the rates that we've been seeing in the last two months of the quarter on a sequential basis so again obviously year-over-year comparison, but the dynamic that we have today is continuing.

So, Steve we see this third quarter being a weak one as we continue to absorb and move through these costs we need to move these costs through okay. But however, we do feel positive on many projects that are going to come in the fourth quarter and we don't see a general market deterioration continuing into the fourth quarter at this point. If we do we got some other levers that we can pull in terms of making sure that we adjust our cost base even further.

Okay. So from – and understand you don't normally get into – going out more than one quarter on the forecast. But as we model out think about seasonality third quarter to fourth quarter, it could be atypical from how it usually goes, if I'm hearing it, correctly?

I think the seasonality will be typical. But right now we're not saying that there's any acceleration in the decline of our markets. We think from the third quarter levels, they're going to remain that way in the fourth quarter. That said, go back to our discussion, we continue to watch this, so technically the delta from the third to the third and the fourth to the fourth should be the same only because of seasonality.

Got it. Okay. That's all very helpful. Thank you for taking the time.

We'll now take our next question from David Silver with CL King.

Yeah. Hi. Thanks very much. I had a couple of questions on PCC and then I actually had a working capital question. So on PCC, I think you've kind of discussed this, but I just want to make sure – I would like to clarify that from your perspective we – it won't be until the first quarter of 2020 that might be the nearest time, when we should expect to see positive year-over-year comparisons in revenues from PCG. That would be one question? Then, I'll just ask the next one, but I was hoping you could maybe add a little color to your – mention of the project funnel for new PCC plants? And in particular, I think you used the number 20. And I guess I'm just kind of scratching my head but I'm assuming you have a very high success rate. And I look in the past few years, when you've had maybe one and half maybe or so announcements per year of project wins. So when you say that the project – new project funnel is 20 deep, I mean, should we be expecting a meaningful pickup in the announcements of new PCC contracts? Thank you.

Okay. Let me start with the first one David. Right now, we're projecting that new volumes and we have two main projects and a few expansions that are in the works right now is – they're going to come on late – probably in the second quarter – late in the second quarter of next year. So we have a sizable amount of volume coming on in the next 12 to 15 months about 250,000 tons over next 12 to 15 months will be put in place. Again, it takes some time for those to ramp up and so it's hard to predict exactly right now when that volume will come on line specifically. But should be through the second – third quarter of next year. You'll see that sizable amount of opportunity come in. Balance that against Matt mentioned, we're seeing 5% to 7% declines in China. And I can tell you right now or put myself out as to when that will start to pickup there's a number of factors that we mentioned earlier that's also pulling down some of those volumes. The pipeline of opportunities and I'll let D.J. talk a little bit more about this. We maintain a pipeline and some come in and some come out, and we're always looking for – but as expense based on new products we develop and it shrinks, because some of those new products are not going to be successful at certain customers. But we've always maintained a 20% to 25% kind of target list of real opportunities around the world for both base PCC volume and a filler, PCC volume that goes into packaging applications and opportunities for our new technology that's kind of the way we're talking about our technology pipeline. How about D.J. is going to take a moment to give a little bit more feel of how that moves and timing of some of these they move forward and backwards over time?

Yeah. Glad to. So for starters in terms of success rate in hitting things we've got – to the extent that a person or a organization makes the decision to change, we have a very high success rate. So that's what has contributed to a market leadership position. The other part that, Doug mentioned that I would like to go into further which is kind of new for us is this penetration into packaging. So as I look at those 20 opportunities, we are working very hard to increase our presence in packaging and probably a-third of those opportunities are packaging related and that's where an awful lot of traction has come. And that – those packaging opportunities are in all of the regions and the ones that are furthest along are in our most evolved regions of North America and Europe. So more to come with regard to how we're able to convert those, but that is relatively new dynamic in this. One of the things that we have seen in terms of the decision time line is that that has taken longer for us. And I had mentioned it earlier, this major satellite that's coming on with Chenming, we were expecting that much earlier than the middle of 2020. But the dynamics in China around environmental rules regulations and permitting have slowed us down all of it. So the speed with which we can convert a contract into revenue and volume slowed down in China everywhere else it's pretty much call it a nine-month to a year contract to conversion. So hopefully that gives you some color David.

Yeah. David I want to make sure we're answering your question. You also said do we expect to see an acceleration? Well, I'd tell you I'd say five contracts and three expansions over the past few years has been an acceleration from where we're prior to that. I think we can go even faster. I think we've got a nice pipeline and the reason I think we can go faster is because we've got an even broader pipeline of opportunities to chase. We've got new technologies that weren't developed four years ago such as ENVIROFIL. We've got a new FulFill product, that's starting to enhance some of our other older FulFill projects there's some replacement there. We've got variations of NewYield that we had a single product now we have variations on that product. So you've got multiple fronts to go after. So yes, I would expect that we have more fronts to go after and accelerate kind of new contracts. That said, we have -- each one of these takes a different amount of time. We've chased satellite contracts for several years before signing. On the other hand, we've had contracts that have come up, and said let's go, and we can do that in six months. It's a little bit hard to predict exactly the situations. But we work at these and we move them and I think our strategy of broadening that portfolio enables us to be able to hit on more fronts and start to -- and be even more competitive while we were to having those discussions vis-à-vis competitors.

Thank you for the color. I'm kind of new with this. So thanks for all the detail.

Sure. I have this question, I'll apologize in advance for being kind of wonky. But I had a question about your net use of kind of working capital over time. So if I look at the 10-K there was -- and here I'm talking about the changes in operating assets and liabilities so kind of the working capital accounts at the bottom half of the first section of your cash flow statement. But in 2016 there was a use of working capital; 2017 there was a net use of working capital; 2018 there was a larger net use of working capital; and in the first quarter another I don't know $39 million or so of use of working capital. And when I think about your revenue base on that, I mean, I think 2015 was around $1.8 billion and you're kind of tracking at around that same $1.8 billion top line level this year. So I'm kind of scratching my head and I'm wondering if that kind of continuous use of a maybe 200 -- net $200 million of working capital over that time make sense? Or whether maybe there's an opportunity to release a significant portion of that increase in your net working capital requirements over the past three years or so? Thank you.

Go ahead, Matt?

Yeah, David. I think if you take a look over that timeframe with the growth that we have had in the mix of our revenues, it's been a tilt towards geographic. And what we've talked about over the past couple of years is how as we've been moving more into Asia, more into regions outside of North America, the terms have been extending on the accounts receivable side. At the same time as we've been managing the growth throughout the world on the Performance Materials side, you've been seeing us increase the level of safety stock in terms of clay moving between facilities clay to our customers and clay that we have available to be processed, and a lot of the reasons around that is to ensure that we keep our customers up and running and keep the overall performance stable. And over that timeframe, we've had a number of very hard winter, some very difficult shipping conditions, and those higher safety stocks have allowed us to keep everyone up and running. As you moved into 2018, in the second quarter, you saw an uptick as we acquired Sivomatic that was worth about $20 million in working capital, which -- it brought with it. And so we've now been at a place of running overall in that $400 million to $410 million total working capital level. And when you look at what we're saying today about managing through some continued difficult supply chain items, the logistics issue that we had in our Western mines that that higher level of safety stock helped us through those periods. And at the same time the geographic growth mix has been trending in that direction. Where your question is going is, okay, now that you have this level of working capital in place, what…

We'll now take a follow-up from Silke Kueck from JPMorgan.

Yeah. Thank you. Just a really small one, how big are your Fluoro-Sorb product now? And are any of them being used in clean up of the PFAS-related issues? Or do you see that increased use of that in the future? Thanks very much.

Yeah. So Silke that product, I'm going to turn over to Jon to give you a dimension. But we actually just launched that. That was one of the highlights of our second quarter. We had a formal launch. We've been working on that product for a number of years. That Fluoro-Sorb product is directed specifically toward PFAS water remediation. So it's yes, that's exactly, what it's designed for. We launched that just recently, with a number of companies, interested parties, some universities that have done the studies and we see some really good current demand. Sales of it are actually quite low right now. But we're looking at the portfolio of demand that we're seeing going forward. And that's part of that portfolio that I talk about that says we're very positive on these new technologies and the size of the opportunity for -- the PFAS opportunity for our Fluoro-Sorb. Jon, do you want give us a little more, other than that?

Sure. Absolutely, Silke and glad you asked about Fluoro-Sorb. We're pretty excited about it. As Doug mentioned, new technology entirely focused on PFAS remediation, probably has some end-users other than that. But right now it's too early to tell. Last time I think we reported that we have our NSF certification, which allows us to play in a variety of markets where that's required. We have a product portfolio right now of four products. And we just had a very successful launch now in Chicago, where we had I think it was four academics that came in. And talked about the applicability of our product versus others in the marketplace and the efficacy in treating the PFAS either in water predominantly in water but also in soil as well. At that same launch, we had a variety of customers and also we had some press. It was a very effective launch. And based on that, there's a lot of pent-up demand, as you know in these markets, a lot of people searching for solutions. We've got a lot of progress on customer trials. And we expect our first sales coming here in this quarter. And likely our fourth quarter as well. How big it's going to be? It's a little early to tell. We have visions that this is probably multiple tens of millions. But we don't know yet. And we'll come back with you with a more accurate read as we get further along in our product launch. And we get the demand from the customers.

And Silke let me just add. Let me give you a quick value proposition what this really is. It's -- there are other products out there that will take PFAS out of water. But what we have is a product that is low cost that is kind of a work horse. We can get you very far along the way of removing the contaminants, not all the way, but very far at a very low cost position. And then you can use other products to get it entirely. But they are looking for that type of heavy hitter horsepower that we can do high volumes of work. And I think that's something that -- that's kind of where we're targeting this new product. So, again a little early to tell how it goes. But right now from a testing standpoint, certification standpoint and customer standpoint it looks very positive.

Thank you.

At this time I'd like to turn the call back to Ms. Buckwalter for any closing remarks.

Thank you very much, Anna. Thank you all for joining us today. We look forward to speaking with you again very soon. Have a great day.

And once again, that does conclude today's conference. We thank you all for your participation. You may now disconnect.