Welcome to the Q1 2017 Minerals Technologies Inc Earnings Conference. Today's call is being recorded. At this time I would like to turn the conference over to Mr. Matthew Garth, Chief Financial Officer of Mineral Technologies. Please go ahead, sir.

Thank you and good morning everyone and welcome to our first quarter 2017 earnings conference call. Again I am Matt Garth and I am extremely excited to serve as MTI CFO and be a part of the highly energized and capable team we have at the company. For today's call Chief Executive Officer, Doug Dietrich will provide an overview of our results, key drivers, and strategies and I will follow with a more detailed update on our financial performance. I need 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 2 here. Statements related to future performance by members of our team are subject to these limitations, cautionary remarks and conditions. Now I will turn the call over to Doug.

Thanks Matt, good morning everyone. Now let's start today hitting some of the highlights for the first quarter and then go through the operating performance of our minerals and services businesses. I will then take you through some of the organizational changes I recently made, targeted at increasing MTI's growth trajectory. We had a solid first quarter, posting earnings of $1.07 per share which was a 5% improvement over last year. Sales were similar to last year. However, with two fewer days in the quarter, our underlying sales were up 1% driven by the performance materials segment where sales grew by 6%. Our growth in China continues on a strong pace with sales up 22% over last year; and as we announced earlier this week, we continued with our PCC expansion in Asia by signing a contract with Asia Pulp and Paper to add 165,000 tons of PCC capacity at their Perawang, Indonesia location. The agreement encompasses building a new 125,000 ton satellite as well as expanding our current satellite located there since 1997 by an additional 40,000 tons. This is our fifth satellite with APP and we look forward to extending our relationship with them even further in the future. We did have a challenging start to the year with weather conditions affecting sales and operating costs at many of our plants in the U.S. and Europe. However, a strong sales and operating performance in March led each of the business segments to double-digit operating margins for the quarter. We generated $64 million in operating income, a record for the first quarter and our consolidated operating margin improved to 15.7%, which is a 7% improvement over last year and the highest margin percentage for our first quarter in the company's history. We overcame the challenges at the beginning of…

Thanks Doug. This morning I will review our first quarter results, the performance of our four segments, and also provide you with our outlook for the second quarter. We delivered solid financial results in the first quarter with the earnings per share of $1.07 which was 5% higher than last year. Our reported earnings were $0.97 per share due to approximately $6 million of charges associated with refinancing our floating rate debt and integration costs. Note that roughly half of these charges were non-cash. Consolidated sales were $405 million which was 1% lower than the prior year. However, foreign exchange lowered sales by $1.7 million and there were two fewer days in the first quarter as compared to last year. Excluding these factors, underlying sales were 1% higher. Operating income increased 6% over last year to $63.5 million with operating margins improving 7% to 15.7% which as Doug highlighted is a record for the first quarter. This result was driven primarily by reduced operating expenses, lower SG&A, and an 8% increase in productivity across the business. Our effective tax rate in the quarter excluding special items was 24%. We expect that our full year effective tax rate will be around 25% barring any changes made by the U.S. government to the domestic tax structure. Cash flow for the quarter was $16 million. As a reminder the first quarter is typically the lowest cash flow quarter of the year due to a number of onetime cash outflows such as tax and compensation payments. This year we were also impacted by the debt modification cost mentioned earlier and the timing of receivables which when collected in the second quarter should significantly improve cash flow. In addition we expect 2017 to be another year of strong cash generation. As highlighted on the operating…

[Operator Instructions]. And our first question will come from Daniel Moore with CJS Securities. Please go ahead, sir.

Good morning Doug, good morning Matt and a quick hello to [indiscernible]. Wanted to talk about PCC first, obviously nice to see the new satellite and the expansion, just talk about your confidence around pipeline and the potential for signing additional new contracts between now and yearend, and China specifically it has been some time you know talk about the challenges and the opportunities there a little bit?

Sure, thanks Dan. Yeah we have, let's talk about the opportunity in China in particular. That opportunity hasn’t changed. We see penetration, potential PCC penetration in that market evolving similar to how it has in North America and Europe. That opportunity, the opportunity there for MTI to double its PCC production from our current rate. So it has been a while in China. Some challenges but as we mentioned on the last call, we've got a lot of increasing activity not just in satellites and PCC filler but across our technologies, FulFill, NewYield, and some packaging. So, got a lot of activities, our confidence is high that this is not the first satellite this year that we will be signing up, last satellite that we will be signing this year.

Very helpful and then in terms of environmental products, talk about maybe your outlook there specifically for that end market for Q2 and the rest of the year?

Yeah, we are still working on projects. We've highlighted a couple of calls ago our Resistex product line. We've been moving this product line into higher margin, higher tech products that address coal ash and red mud landfills. We've got a number of projects around the world, but a lot of the highlight has been what I mentioned in my comments in terms of some of the work we're doing in China around the government relations and marketing with partners explaining the technology and really taking hold. Actually, I am going to let Jon Hastings, who had some recent activity, he can give you an update on some of the activities that we've recently had in China around our environmental portfolio. Jon?

Thanks Doug. A couple of comments, I'll start with the GCLs, you know, we've made some pretty strong progress in working with a variety of groups. Just two weeks ago, I was in China and we attended the China U.S. Investment Cooperation Conference, it was held in Guangdong and during that conference we signed an MOU with one of China's leading environmental remediation companies, and we plan to work together on pilot projects designed to prove out the utility of the technology. In several applications riverbed remediation works we're exploring what we can do with both red mud and also coal ash. And during that conference, there was a great opportunity to meet with individually with some of the senior national and provincial government officials, and we were garnering their support not only for the projects but also working together with the government bodies to craft industry standards and regulations that all continue promoting some of the top end technologies of which we are one of the major providers. We also have been working with our teams to continue developing relationships in the industries both for red mud and also coal ash, and you'll see more of that come to fruition as we continue to proceed.

Daniel, the other thing I'll add is that I know you're probably referring to the first quarter, we had a couple of projects delayed due to wet weather but our outlook for this longer-term as John just mentioned is very positive. One of the changes that I highlighted that I made in combining the segments is we've put a general manager with direct profit and loss responsibility over environmental products, that's new. We had something over building, construction, and drilling before. Now, we have three general managers with P&L direct responsibility and that's going to drive a lot more speed, product development, and customer contact. The other thing we've done is we've made some changes in China with these same products, more local leadership on top of environmental and building products in China. That tied with some of our government marketing, those things making decisions more closely to our customers in China is going to speed things up significantly. So we have a very positive outlook for environmental products going forward.

Got it, very helpful and maybe one more if I could Doug. You mentioned a number of events and suggestions are up, and I know this is more sort of qualitative but any changes that you've instituted since you took over, is it more just a function of the MTI culture sort of permeating AMCOL over a longer period of time?

No, I think it's not even as much about permeating AMCOL. I think that integration is complete, we have just tremendous engagement from all employees across the company. As a matter of fact, I think the number of suggestions per employee, the highest number of suggestions per employee comes from our Performance Materials Group which is our former AMCOL business. So that engagement is at a very high level. To your first question, I mentioned that MTI is not changing its knitting. We're the same company, we focus on discipline, focus on operating, but I am making a few tweaks. I am making a few tweaks to take some of that energy and some of that the way we do business operationally and steer that toward higher performance in terms of revenue growth. Those are the tweaks that I'm making. So we're not changing the company from that standpoint.

Very helpful, appreciate it.

Our next question will come from Rosemarie Morbelli with Gabelli & Company. Please go ahead.

Thank you, good morning everyone and congratulations. Hey Doug, following up on the tweaking that you are doing at the moment looking at the next three years, I am seeing top line growth between let's say 2.5% and 3%. So, how much of an improvement on top line do you see going forward and how long before you get -- we can see -- start seeing the results of what you are doing now?

Well, I think we have a number of opportunities. I'll say it and I think I've said it before that MTI is not opportunity challenged. We've got a number of new products, our new product pipeline, we have about $800 million worth of potential revenue in that pipeline, we've got opportunities to grow in markets around the world, we just talked about environmental products. Our portfolio of products has tremendous opportunity of growth in Asia and China particularly and we're working on that. So we have a number of opportunities, the tweaks I'm making are to speed that along to begin to be able to make decisions and engage with customers in a much deeper level in those regions and not provide so much support from the United States in terms of making those decisions, we can go faster. I think the changes that I've made I think that you'll see some of that fruit bearing this year. I think though some of these things are a bit longer term in terms of production, operating capabilities, manufacturing capabilities those things will take time as we pull those products out of our pipeline and get them through manufacturing. So I think you'll see some changes this year but I think this is more things that will happen next year. Also ii want to mention so you don't forget that I mentioned in my comments that another growth avenue for the company is acquisitions and so there's a great opportunity set for us in terms of acquisitions and then there's I just mentioned the organic opportunities. So I'd like to get the growth moved into the high single-digits but I think it's going to take a little bit of time to get us there with some of the changes I just made.

And funneling up on your comment regarding M&A, what is the likelihood of us seeing an acquisition between now and the end of 2017, are you comfortable with that something could happen?

I guess I'm going to shy away from giving you a prediction for this year Rosemarie. These are the tough to predict in terms of timing. You know what I can tell you is that we've got a lot of engagement and we've got a nice healthy pipeline of potential opportunities. One thing that the AMCOL acquisition did bring us is a much broader set of opportunities than we were with the legacy and shared businesses. So, I mention we're still looking at minerals companies where we can leverage our technology. But we like opportunities where we have a lot of exposure today in consumer products, in the agriculture, in environmental markets and I think those provide us nice platforms to grow the company. So I have a lot of confidence but I just shy away from giving a prediction for the year.

And then lastly if I may, you leverage essentially for the AMCOL acquisition and obviously you have been very successful in deleveraging, could we see the net leverage going back up to 4.5 time over a few years?

It depends on the acquisition, I think AMCOL was unique. I think the company has shown that it's able to lever up and manage that type of debt load but it really would depend on what we saw with the acquisition. We felt that the MTI and AMCOL combination was highly synergistic. We had a good confidence around being able to attain those synergies and so therefore we were comfortable being able to manage that type of cash, that type of debt level. So, we have the capability of managing it. I think the type of targets that are in our pipeline right now are probably more in the 50 million to 400 million than the $1 billion type. So we wouldn't need to go to that type of leverage. But certainly we have the capability of dealing with it.

Thank you and good luck and Rick we miss you, if you are on the call.

Appreciate that Rosemarie.

[Operator Instructions]. And we will take our next question from Silke Kueck with JP Morgan. Please go ahead.

Hi, good morning. It is Silke [ph]. Hi, I was wondering whether you can explain these accounts receivable issues in the quarter, start with latest to higher portion of the sales coming -- from offshore now coming to China, and I was wondering whether you had a free cash flow target either for the second quarter or for the year?

Silke for settlement we given explanation and that comments on AR. It really is, I think what we are highlighting is it's more of a timing issue. We had a very strong March in terms of sales and those receivables will come through in the second quarter. So the build is temporary but it did impact at least some of the cash in the first quarter. So the first quarter is a typically a low quarter. We have a lot of onetime payments that come out but kind of exacerbating this quarter was the debt refinancing and the really strong March we saw. What we do see is that cash flow rebounding significantly so that will see the first half being on average the same if not better than last year. And then for the full year we look at another very strong cash flow year. Right now CAPEX we are anticipating to be maybe a little bit higher than last year given where we are with new satellite build, so probably around $70 million to $75 million and that should put us in a very strong free cash flow similar to last year position.

What do you think the D&A will be this year and what was it in the quarter?

D&A in the quarter was 12 million -- I am sorry, $22 million, sort of probably be around 90 million, below $90 million this year.

What is the pressure on the Refractory business, is this that I think you had very good sales in the fourth as well, is that a sign that you are like winning new business or -- and where is it coming from, where is this new equipment being installed?

We do typically we have a higher fourth quarter, we take a lot of orders and build the units through the year and we sell them in the fourth. Actually last year our second quarter was a really strong quarter. I think it's coming from a bit of pent up demand that's been absent from the previous couple of years but let me let Brett Argirakis, he is running that business give you a little more color on what he sees in the equipment.

Hi Silke, as Doug pointed out usually our sales for equipment are pretty heavily loaded in the fourth quarter. This year we're pretty successful in Q1. Q2 also looks healthy. And those sales are coming from more so our fixed installed laser units. These units are used in both the steel making vessel and the steel ladles and we're also pretty heavy on its global sales but Japan has been quite strong in Q4 and this year. But it is spread out quite a bit and we are winning a lot of these bids throughout the world. So it's been a pretty successful business for us.

Yes, that is helpful. Thank you. And my last question is on your raw material costs, there are energy costs, magnesium cost, limestone cost, so I was wondering what your raw material cost -- what do you see in the quarter and how do things look like going forward?

In general raw materials have increased slightly. Let me give you two categories; one would be energy. It's starting to trend up in terms of year-over-year cost, unit cost specifically in the quarter with a lot of wet weather and drying clay and unplugging shoots and things that happen in our Western processing plants. We're using a lot of -- we use a lot of energy so it was an impact specifically from a consumption standpoint in the quarter but unit costs are starting to rise a bit in terms of natural gas and some oil and propane. The other area that's been benefited over the past couple of years in magnesium oxide which we used to make our refractory products, you probably read a little bit about what's going on in China, where the government is shutting down a number of kilns that actually make that, burn magnesia and that's taking a lot of capacity out in China and so there's been some pressure on upward movement in our magnesium oxide costs. That said as you know we've developed a pretty diverse base of NGO [ph] suppliers around the world and you know we leverage that to manage that cost. But those are two areas that I'm seeing. Clay costs and our ore costs are largely internal. And we manage those costs and actually we've had some significant improvements in our claim mining and [indiscernible] and ground calcium carbonate mining over the past several years. That's a lot of where this productivity that we're showing you is coming from, a large portion of it. So those are two areas I can give you, the raw materials are probably inching upward.

Thanks very much, I will get back in the queue.

[Operator Instructions]. And we will now take a follow-up from Daniel Moore with CJS Securities. Please go ahead.

Little housekeeping but Matt post the refi how should we think about the book level of interest expense including any amortization on a quarterly basis going forward?

So far in the quarter interest expense was about, got it right here, let's see, interest in the quarter was about $12 million. Going forward we would expect the savings from the 75 basis point production would benefit us a little bit but you have to keep in mind what happens to LIBOR rates. So just on the reduction alone with expected $6 million annual savings but LIBOR rates are going to eat into that especially as they've been rising. So a more equal go forward rate would probably be in the 10 to 11 range.

Got it, helpful, thanks again.

And we will also take a follow-up question from Rosemarie Morbelli with Gabelli & Company. Please go ahead.

Thank you. I was wondering if you could talk about what is behind the decline in part, is it a question of comparison or is it something else?

No, I think there is a -- bit of it has been some of the weather. We are impacted by some shipments and rail cars and difficulties in the quarter, that's a piece of it. We have had a little bit lower consumer product sales in the quarter. We sold talc into a number of different food and farm applications and those were lower in the quarter as well. But nothing significant. We've seen our sales strengthened through March and that's continued into April. So we see that rebounding in the second quarter.

Okay, and then lastly on the energy side, you were talking about 20 million quarterly not the ongoing rate into the oil and gas market big step, you are slightly lower, I was just wondering if it is just rounding error or there are some specific factors with first quarter to be below whatever your trend line is anticipated to be?

You know, when we restructured this business we restructured around a set of revenue that we thought sustainable globally and that revenue just to remind you is largely almost 100% offshore with the exception of our onshore business in Saudi Arabia. We modeled that at the time to be $100 million or thereabouts and so we wanted to make sure we generated a 10% margin. We set up the business to generate 10% margin annually over the sales. It has come down a little bit since then. There has been -- the offshore market has been a little bit -- has been behind the onshore market from a rebound standpoint. But I give you one statistic that we're not putting overly optimism out there but our well testing business put up its highest first quarter since 2014 in terms of sales. We were up 78% on a year-over-year basis. Now we're not -- that generally leads to some higher filtration business. We haven't seen that yet, so we're not predicting any type of major rebound in our offshore markets but that's a good sign. And so we think that we will be growing back up into that $100 million range. And as I mentioned, this business when we set it up we left the people, the locations, and the positions around the world, and capital equipment in place to generate another $100 million in revenue. So there's a headroom, another 100 million in this without having to add a lot of fixed cost. And the contributions of these product lines are pretty high. So when it happens and what happens this will generate some higher profitability, higher profits in Energy Services.

And the filtration usually follows the well testing by a quarter, six months gap, any idea?

Let me give it to Andrew Jones who is going to give you a little bit more color on how this works offshore.

Sure, Rosemarie, hi. Just to look at both well testing and filtration, filtration is tied directly to infrastructural projects meaning new platforms offshore. So very much tied to the price of oil, getting above $60 a barrel whereas our well testing work is very much tied to the rig count offshore. So in that case they are a little bit different but generally it is about a six month gap that we see between pull through from filtration and well testing services. So hope that helps to decouple for you the market there between the rig count and the infrastructural projects that today are not happening because of the price of oil. So we still see pressure on the filtration market.

Let me add one thing to that Rosemarie, it doesn't require well test to get filtration. Those are the -- they are coupled that's why we've kept these two together. We do have some new technologies, we have an expertise in kind of deciphering and understanding and helping customers with their produced water issues. We have some technologies that we're taking offshore and to some of our floating production vessels that can tackle some challenging water conditions and that's been -- that leads to both filtration service work but also capital sales work which is part of their filtration business. So they are -- they can be separate but one can lead to the other. But typically as you get well test activity as Andy mentioned, that will lead to higher filtration sales six months down the road.

Thank you, it was very helpful.

[Operator Instructions]. And it does appear we have no further telephone questions at this time. I'd like to turn the conference back over to Mr. Garth for any additional or closing remarks.

Thank you very much for joining our conference call and I will talk to you again next quarter. Thank you very much.

This concludes today's call. Thank you for your participation, you may now disconnect.