Good day, and welcome to the Q1 2016 Minerals Technologies Inc. Earnings Conference Call. Today's conference is being recorded. At this time I would like to turn the conference over to Rick Honey, please go ahead, sir.

Good morning. Welcome to our first quarter 2016 earnings conference call. Today, Chairman and Chief Executive Officer, Joe Muscari, will provide some insights into MTI’s performance and growth prospects, and we'll then turn the call over to our Chief Financial Officer, Doug Dietrich, who will give you a detailed report of our financial results for the quarter. Before we begin, I need to remind you that on page 13 of our 2015 10-K, we list the various factors and conditions that may affect future results, statements related to future performance by members of our management, are subject to these cautionary remarks and conditions . Now I'll turn the call over to Joe Muscari. Joe?

Thanks, Rick. Good morning, everyone. We had a good start to 2016, as our minerals-based businesses continued their strong performance, providing the foundation for $1.02 in earnings per share that we delivered this quarter. These business segments together, especially minerals, performance materials, and construction technologies, recorded an operating margin of 17% and an EBITDA margin of almost 24%. Moreover, the specialty minerals segment posted a record operating income for the first quarter in MTI's 23 year history. Overall, MTI's operating margin for the quarter was just under 15%, a significant accomplishment. Our efforts in China continue to gain traction as Company sales there increased 15% in the quarter, with the main contributors being a 45% rise in Paper PCC sales and a 110% increase in fabric care sales over last year. And earlier this week, we announced another commercial agreement with a prominent Chinese paper maker for adoption of our FulFill E325 high filler technology. This now brings our total to 25 FulFiller agreements with paper mills around the world. We also continue our strong focus on debt reduction as we paid off $40 million during the quarter. On the operations front our operational excellence lien initiatives continues to gain strong momentum with employees of the former AMCOL businesses. We delivered a 5.5% productivity improvement across the Company for the quarter, which equated to around $1 million in cost reductions. Overall, our safety performance also continued on a strong improvement track as our recordable injury rate is 20% lower than last year, and lost work day injuries are running around 40% lower. Foreign exchange continued to have a negative affect on our sales, as did the weak energy and steel markets. And Doug will give you more detail around these shortly. This earnings graph illustrates the continued significant benefit that…

Thanks, Joe. Good morning everyone. Now let's go through our first quarter consolidate the results. I'll cover for you performance in each of our five segments and I'll also provide you with our outlook for the second quarter. So solid quarter for us with earnings per share from continuing operations of $1.02, excluding special items, compared to $1.07 last year. Reported earnings this quarter were $0.97 per share, including special charges of $1.6 million, or about $0.05 per share related to additional restructuring in energy services and acquisition integration charges associated with IT systems integration. Our minerals businesses has had a strong quarter, led by the specialty minerals segment, which had a record first quarter. However, this performance was offset by lower operating income in energy services. Total sales for the quarter were $410 million, $43 million lower than last year. Weak market conditions in the oil and gas sector reduced energy services segment sales by $31 million, while foreign exchange accounted for an additional $17 million of the decline. Sales increased over last year in several product lines. Our combined business in China grew 15% over last year, including a 45% increase in Paper PCC, and a 10% increase in sales in performance materials, driven by fabric care sales, which increased 110%. We also saw strong growth in both talc and ground calcium carbonates which, combined, increased 11% over last year and in environmental products, where sales increased 18%. Operating income, excluding special items, was $60.1 million, compared to $63.3 million in the prior year. You can see from the chart on the top right, the $5.8 million income improvement in our minerals businesses, which was offset by a $5.5 million decline in our two services businesses, and by foreign exchange, which reduced operating profits by an additional $3.5…

We’ll go first Daniel Moore of CJS Securities.

Good morning. Thanks for taking the questions.

Hi, Dan.

Wanted to start out just talk a little bit about PCC. Given the ramp in several satellites and multiple FulFill contract signings, can you give us a sense how should we think about the cadence of growth in PCC as we look out over the next several quarters?

Well, as I mentioned, our next satellite to come online is 100,000-ton filler satellite with Sun Paper, probably around the beginning of the third quarter. So, I think if you look at it on an annualized basis, Dan, we should continue that trajectory. Last year we put in about 170,000 tons of capacity. This year it will probably be 100,000 tons, depending on where those final two satellites come in, late fourth quarter, probably into 2017. So I think you're probably going to continue to see the kind of 9% volume growth. It's not going to be exactly that by quarter. On an annualized basis, you should see that continue.

Got it. And then turning to refractories capacity utilizations up a little, steel prices improving. You've got the new agreement with Big River Steel. Has the outlook for the back half of 2016 improved relative to where you saw the world maybe three months ago?

No, I don't think we're taking that view right now. I think, we saw some improvement from the fourth quarter, but the fourth quarter was a very weak quarter for both U.S. steel market and globally. Saw some stability in North America. We think that stability will continue. We'll see imports in the U.S. are down almost 30% over last year. So that's creating some stability for us. But Europe it's a different story. We saw some weakness that continued in Europe, in the Middle East. And also India operations. You know we think we can continue at this pace, strong margins at 10%. I don't think we see the back half any better than the first.

Got it. And one and I'll jump back in the queue. Seeing nice pick up in talc and GCC, just your outlook for, you know, expectations of that strength to continue as we look out to the back half of the year and what are some of the key products and drivers there.

Yes, we see that strength continuing. You know, we have strong automotive markets, talc goes into a lot of plastic applications in automotive, GCC in the construction market, you know both were up almost 11% total. We're hitting our seasonal strong period in the second and third. You know, that will start to slow down in the fourth. But on year-over-year basis, we see continued strength in both of those product lines.

Okay. Last one, I promise. You normally give a guidance range for EPS just to save any confusion. Can you give a sense of where you're seeing the current consensus?

Yes. Current consensus right now is about $1.16 for the second quarter. The reason I gave in a range of consensus, you know, we're seeing somewhere in the $1.14 to $1.18 range. I think, you know, the reason I'm giving a rough consensus in that kind of range, Dan, you know, energy services I gave – we think we're similar, given the adjustments we're making right now, to keep the business profitable. But there's a little bit of uncertainty in the energy services segment.

Very helpful. Thank you.

We’ll go to next Al Kaschalk with Wedbush Securities. Q – Al Kaschalk: Good morning, guys.

Hi, Al. Q – Al Kaschalk: I guess on that consensus comment there, there's one analyst that's a bit outside the ballpark there.

I don't think that was included in Doug's comments.

Yes. I took that one out, Al. Q – Al Kaschalk: In all seriousness is that fair to say that $1.14, 1 $1 8 is what you're thinking. I think that helps in terms of the prior question. So, to that point, I guess the areas that I wanted to focus on, where you're getting – whether it's seasonal strength, but for – since under your portfolio of ownership, the construction technologies there, they – you gave it 2 X. But how about the margin cadence in that business, given what has been I guess some strong opportunities? And then if you could tie that as well to the – I think it's specialty minerals, where you have more building product and markets or commercial end markets, which we're seeing very strong demand for product there.

Sure. So let's start with construction technologies. I think, you know, we showed some charts before, which give you kind of a pro forma margin for that business, prior to the acquisition 2014 and 2015. You know, if I recall correctly, I think, fully loaded margins the way we're looking at it today, we're almost 2% to 3% back in 2013. I think they improved to around 8% in 2014 and we're running at almost 11% now. So we've continued to drive profitability through productivity and cost savings in that business. I think there's more room to grow those margins as we start to sell more of a higher margin GCL products like Resistex. Those are going to drive margins, continue to grow margins. So I think that's going to take some time. Joe mentioned that we see, probably, four times the Resistex products, still, you know relatively $12 million is not an enormous portion of the segment. But as those grow and as we grow that business with some of these specialty products into Asia, which is some of our targets, we think we think we can grow margins closer to, you know, the 50% range. Q – Al Kaschalk: Okay. So in terms of, you know, the order or the bid work that's generally highly – high element or component of this business, have you been awarded some larger contracts or are you progressing? I know it's a high churn, high annual bid market. But give us a little bit of color on what activities you're seeing that would maybe even support the calendar year margins and let alone the recovery into 2017.

Yes, Al, this Joe. I'll start and then I'll turn it over to Patrick Carpenter who can give you more color and granularity around it. I would reinforce my opening comments. We really are beginning to get very good traction with utilities. And so where these aren't mega projects, they are decent size projects. So we're starting to see those. The red mud area, again beginning to see some penetration with companies like Alcoa, that, again, they're a pretty decent size project. And when you think of those two areas, coal ash, red mud, we're talking about facilities around the world that these are going to become very, very large markets to us. And we're at the very early stages of beginning to penetrate with products designed specifically for the applications and needs of those two areas. Patrick, do you want to add to that?

Sure. Thank you. Good morning, Al. To go back a little bit on identifying opportunities we've seen an increase of nearly two-fold in the amount of opportunities we've had identified to date versus a year ago. And 40% of those opportunities came as identified in the first quarter. So if we look all the way back into the landfill lining evolution into this technology of GCLs, this energy business has that same feel, where you've got electric power utilities seeing this as an alternate to three-foot of clay and the opportunities to have that same speed and same opportunity in much larger and typical size of the facilities. So the opportunities are gaining pace well over all of 2015. Q – Al Kaschalk: And if I understand correctly, Patrick, those are generally side-by-side or company specific and the parameters are being laid out by the states, as opposed to the EPA or what's on the coal ash side in particular?

Al, they're being driven by the enforcement that came to really fruition October of last year. So it's a U.S. EPA guideline that has been enforced since October that these utilities need to have this multiple-layer system for protection. So this is really similar to the original business of landfill lining. It's U.S. EPA enforced. And it's federal. Q – Al Kaschalk: Okay. Joe, I want to switch to a slide. I'm sure you don't really care to talk too much about, but it is reality. On Slide 18 on the energy side. And if I look – if I'm reading it right, the sales, since you acquired this business, has been nothing but down. And you're back down to my count to sort of a period where AMCOL had the business at about $100 million run rate. So I guess what I'm trying to appreciate and I'm sure you are as well, the core business that's there or left on waste – on the water treatment and the filtration side is, I think, seeing some pressure from a competitive market standpoint. Yet the visibility for growth in here and why you want to keep this business in the portfolio, I guess. I'm just going to continue to question that and see where you stand. So again appreciate that I'm not trying to pick here, but appreciate what you see in a business that seems to have some structural longer term challenges.

Yes. I'd say, Al, as I touched on in the last call when you asked a similar question, that the challenge right now is to keep the whole energy services team focused on achieving, what I call, the high ground. Right. The high ground is the filtration business and the wastewater business. We still are able to differentiate, vis-a-vis the competition. We've seen the least amount of price impact downward in that area, as opposed to the more traditional commodity areas of the energy services business. But the challenge right now is to – because things are not stable, we haven't reached stability yet. And we need to get to a place. There's some additional things we're looking at right now in terms of changes that we're going to have to make, that Andy Jones and his team are focused on. And I think once we get to a more stable place, now you could say, and we see some of this, that oil prices seem to be stabilizing. If that continues, then we'll be in a much better position to, going forward, figure out directionally what the best thing is to do with the business. But right now, I mean, it's, you know, in terms of selling any business at a low, is normally not a very good thing to do, we're not actively marketing the business. We're really focused on trying to keep it as a viable business. And keep it profitable. And I think so far, you'd have to say we’ve been able to do that. Andy and the team are going to continue and we expect, like I said in my remarks to keep it profitable. As a, you know, a company that is very much shareholder-value-focused constantly, we'll end up for the longer term doing the right thing in terms of what will deliver to shareholders the most value. Q – Al Kaschalk: Thank you. And good luck.

Thanks.

We’ll go next to Rosemarie Morbelli of Gabelli & Co.

Well, thank you. Good morning, everyone.

Hi, Rosemarie.

I was wondering. Environmental was up 18% and I understand that you have new product lines that you are offering, but is that business kind of a lumpy type of business and, therefore, you know, this quarter it was up 18%. But for all we know it may not go anywhere next quarter. Could you touch on the backlog going forward?

[indiscernible] what I might say. You are absolutely right. It is a lumpy business. It's lumpy within its seasonality. Right. It's lumpy within a quarter, it can be. However, we didn't say this during the call, but I will tell you if we continue to see success in coal ash and red mud, we could actually take out some of the lumpiness, because we're focused on, right now, globally in these two market areas are continuous stream of business. That will allow us to, not only raise the revenue level, but start to smooth out from period to period. It may take us a little while to get there, because we're fundamentally developing the market, in part, by responding to a current need, but also we're setting the standard for what is needed in this – in both industries for the long-term. Patrick, you want to add to that?

Thank you. Good morning, Rosemarie. You know, in addition to what Joe had said, the four times in growth, the other pieces are still very strong, in addition to coal ash and red mud. We look at, in the environmental shipping projects in mining, that seems to have moreover growth in previous years. In addition, two industrial landfills are coming in. So not necessarily specific to coal ash, but to other industrial sites that need lining or specialty products. Building materials is also very strong market. The market growth for overall commercial construction is at the 2007, 2008 levels as we see 2016. So the support for this business and growth comes from really all aspects, the environmental products, the building materials staying strong, and then the other drilling materials that go into civil and environmental, seem to be constant over last year. So overall supported by both sides of CT.

You mentioned mining, you're seeing more growth in mining. However, mining is kind of in the doldrums. Could you help me understand why you are seeing growth in mining at the moment?

A couple of those I would say we've got a total of six projects that really are talking about remediation also. So some that are building out, leach pads in the past have been part of that growth, but a lot of the work today is remediation within those sites.

And thank you. That is helpful. And I was wondering, one area you didn't talk about is mercury removal. And I know that you have a venture or an agreement with a company, the name of which I forget, in terms of technology, that may replace activated carbon.

Yes, actually the company that we supply to and have a small ownership position in, has gone bankrupt or is in bankruptcy at the moment. We continue to sell product to customers through that company. And at this stage, it's hard to say what is, you know, what is going to come out of the Bank, the bankruptcy itself the change in the regulations, right, the moderation, the delay has affected sales. I'll let Jon Hastings who has been right in the middle of that, comment further.

Hi, Rosemarie. A couple points. You know, demand has not materialized as quickly as expected ant that was really for two reasons. One was the regulatory uncertainty that Joe just mentioned. But also the power plants. Many of them have converted to alternative fuels, the lower natural gas price certainly has affected their choice of fuel. And, as a result, there had not been as much demand in that market for the Novinda's products and also other competitive products as well. As Joe said, we continue to, we're supplying about a $2 million annual rate. And we continue to work and support Novinda through their restructuring and we'll see what comes out the other side.

Okay. And, Joe, you mentioned that the increased competitiveness in the nitrogen business, is that one business that could go the same way as coil tubing? I mean, you just exited. You don't need to sell it or can you give me a feel for what you are planning in that particular side.

Yes, we haven't finalized anything, but potentially it could go in the same direction that coil tubing went.

Okay. And then one last, if I may. I did not catch the number of shares you bought during the quarter, Doug, do you mind giving it again.

49,000 shares, Rosemarie.

Thank you. I'll get back in queue.

We’ll go next Ivan Marcuse of KeyBanc Capital Markets.

Hi, guys. Nice quarter. Thanks for taking my questions. The first one that I have, assuming the energy business is sort of sales sort of stay at this level and once you get all of the cost cutting that you're looking at, what kind of profitability do you see this thing on a longer-term basis, et cetera. You did nice job on the refractory side. Do you think you'll be able to do the same in terms of the breakeven point?

Ivan, right now we're working on keeping the business profitable. $700,000, this quarter, I think similar in the second quarter. Joe mentioned we're going to be looking at, you know, further cost reductions, potentially looking at the nitrogen business as we go through. So it's a little bit difficult to outline for you what additional savings we see going forward. We definitely think we can improve profitability from these levels. However, that really depends on how these markets continue to evolve. The energy markets. I can’t tell you that our filtration business both domestically and internationally is still relatively strong and it is the most profitable and still relatively profitable piece, service line. So as we focus more on that product line and growing it internationally, I think we can improve – we can continue to improve profitability in the business. But how that occurs over the next couple of quarters, right now I can see one quarter and we think we are about the same as we were in the first.

Okay. Great. Doug, where do we stand on working capital efficiency, that you sort of laid out when you did the AMCOL deal and I know that you've been on track. How much do you think you'll be able to squeeze out of working capital this year?

We've been about halfway to our target, about $15 million of $100 million. I got to tell you we slipped a little bit in the first quarter. And largely due to some of the strain we're seeing on energy and steel. We've seen some pretty stiff demands from some of our customers to extend payment terms. So we made some improvements in some areas. We slipped in some receivables, because we've had to give some terms increases to some of our other customers in the services business. So we slipped a little bit. We still have our eye on that target. We think we can make some continued headway this year to get back on track. But we had a little bit of a slip in the first quarter.

Okay. And then if I did my math right, on a trailing basis, you're run $215 million or so in terms of free cash flow? Is there anything that won't repeat looking forward or should free cash flow sort of stay in this level of at least for as far as you could tell for the next 12 months as well?

Yes. We are seeing similar operating cash flow this year to last. And free cash flow could little bit higher, I think our CapEx might be slightly lower. But, you know, $5 million to $10 million. So we're looking about $80 million to $90 million in CapEx this year. Similar rate to last. So, again, we're targeting about the same operating cash flow over last year, same free cash flow and that continue same debt repayment.

And then if you look switching over to PCC business, you're doing, again, a nice job there in terms of growth. What sort of – is this acceleration in the chart you put on slide nine, is this trend sort of continue over multi-year period, like how to think it's lumpiness of these projects coming on. But sort of how are you looking at the growth of these, looking for the next four quarters or however you want to look at it, in terms of modeling it?

Well, you see if you look in the top right, there's three satellites that are under construction. Like I said the next one that comes online, is probably the beginning of the third quarter, that's 100,000-ton satellite. That's going to be similar to that where you see the UPM Changshu and the Sun Paper, those were both about a 100,000 tons satellite. It will ramp up, again it starts in the third and it will take three, four, five months to ramp it up. Next year, into 2017, we have another about 100,000 tons coming online there. And we have about 13 to 15 additional filler targets, you know, that we're going after that as we capture those – work to capture those contracts that will continue going forward. So I don't think, you know, look, like I answered Dan’s question, I don't know if you're going to see, you know, this constant slope. I think you might see a flatter quarter, then an up, then a flatter quarter and an up, as we lay these in per quarter. But overall I think you’re going to see the trend of that line continue as we bring these new satellites online.

Well, the UPM and the Sun Paper, there's nothing irregular in there, those are pretty good proxies of what sort of a ramp looks like as the plan comes on?

Yes. Like I said the spacing and timing on quarters may change. Those two came on…

Right. In general?

Yes. But in general you should see that trend – we expect that trend to continue. Again right now we don't see any closures in North America and Europe, which could affect it, as you've seen in prior periods. But that blue line we're continuing to work, we're keeping that trend. We think that trend can keep going over annual basis.

Great. Thanks for taking my questions.

We’ll go to next is Silke Kueck of JPMorgan.

Good morning. So I think the previous caller asked about a cost-savings target, you said you couldn't give it because of the energy services business. So is the way to think about it that excluding the energy services business, you know, that would be savings here or last year energy services grew, I don't know, $14 million in EBITDA maybe this year it's going to be $4 million. So, is that a way to think about it, excluding energy, there really would be like a $10 million – you know, it would be $10 million in cost savings that you would have otherwise or something like that?

Okay. So take energy services aside, we’ll go back to…

EBITDA. Right.

Let's go back to last quarter's call. You know, the Company achieved I think a 6% or 7% overall productivity improvement last year. And I think, I mentioned last quarter that was worth $5 million to $6 million in savings. We also have some energy savings at the Company. This quarter, I think it was the first quarter over first quarter almost $3 million. So you know I think we're going to continue on that pace of cost savings, excluding what we do in energy services to continue to remove overhead. So similar performance. Again we have to keep the productivity improvements going, but similar performance to last year, Silke, if that helps you?

Okay. That's helpful. And, you know, there's still $150 million share repurchase program outstanding. But there were very few shares repurchased at like $48. And so, you know, I assume now that the shares are at $60, the main target really is just debt reduction for this year. Right?

Yes, from a capital allocation, you know, we're going to continue this year to focus on debt repayment and putting capital toward that. You know, we do take, as we've always taken, a balanced approach to the use of capital. And as we see opportunities, we're going to continue to repurchase shares. You know, what we'd like to do, at the minimum is, you know, buy enough shares back to offset the dilution from our compensation programs. That's first target. And more if we see opportunities to do so. But again the primary focus is going to be on debt repayment this year.

Okay. Lastly, I was wondering whether you could comment about, you know, pricing trends, whether you think your incremental prices in Paper PCC and your larger areas, whether it's construction, performance materials, do you think pricing is generally flattish or it's [indiscernible] positive or negative?

Well, on a currency-adjusted basis, it's been negative. We've been impacted by our sales internationally. I think in real terms…

Excluding currency.

Excluding currency I think they're relatively flat. There is some mix effect. I think you're seeing net pricing as a company going up as we move – well, sorry, not as a company, say in performance of materials with pricing of some higher-margin products in pet litter and fabric care. I think, in specialty minerals is a bit of a mix as we see more higher margin talc and specialty PCC that will help. However, as we mentioned before, as we grow in China and in Asia, prices of PCC in China and Asia, in general, are lower than they are in North America and Europe. And that has, largely, to do with the input costs primarily lime. Lime costs are lower in China. And we price, as you know, our pricing model that gets passed through to customers. So our unit pricing in Paper PCC is lower in Asia, so you'll see some, you know, flattening of that line because as we grow in China.

That's helpful. Thanks very much.

At this time, we have no further questions.

That concludes our call today. And thank you very much for your interest in Minerals Technologies and have a great day.

Thank you.