Good day and welcome to the Second Quarter 2017 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.

Good morning, welcome to our second quarter 2017 earnings conference call. For today's call, Chief Executive Officer, Doug Dietrich, will provide an overview of our results and our strategies to drive growth, and Chief Financial Officer, Matt Garth, will follow with a more detailed review of our financial performance. I'd like to remind you that beginning on Page 13 of our 2016 10-K, we list the various risk factors and conditions that may affect our future results. And I will also point out the Safe Harbor disclaimer on Slide 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 Rick. Good morning everyone. First off I want to start by announcing that this will be Rick's last call with us. After one or two attempts which we successfully floated he is officially retiring in the next few weeks. I want to say that all of us here at MTI are enormously grateful for his contributions to the development of the company over the past 25 years. Amazing this is his 93rd earnings call of MTI. We are certainly going to miss his voice kicking things off each quarter and having him with us when we're out visiting with each of you. Rick, thank you. Okay. Let's move on by hitting some of the highlights of the second quarter and review the operating performance of our minerals and services businesses. And I'm going to give you an update on innovation in MTI. The progress we're making with new product development and the potential that it provides for our future growth. And finally, I'll turn it over to Matt Garth for a more detailed review of our second quarter financial results. We recorded solid financial performance for the second quarter posting earnings of a $1.23 per share, a 3% improvement over last year, and a record second quarter EPS for the company. Our sales levels were similar to last year as the growth we saw across the majority of our mineral product lines was offset by lower sales in environmental products, refractories, and North American Paper PCC. Yet we drove operating margins to match the highest in the company's history at 16.8%. Our minerals businesses performed well with the majority of our minerals product lines growing this quarter over last year. We continue to execute on the opportunities for growth in China with overall sales there of 17% which was…

Thanks Doug and hello everyone. I review our second quarter results and performance of our four segments and also provide you with our outlook for the third quarter. We delivered solid financial results in the second quarter with earnings per share of $1.23 which was 3% higher than 2Q last year and a record for our second quarter. Our reported earnings were $1.21 per share. In the second quarter we achieved strong growth in many core product lines, metalcasting sales increased 11% due to a 48% increase in China and a 4% improvement in the U.S. Basic minerals and building materials sales were each up 3% and process mineral sales increased 2%. We also experienced growth in our drilling product sales up 39%, while pet care was up 2%, and personal care products grew 3%. However the growth in these product lines was more than offset by the year-over-year decreases in North American paper, environmental products, and refractories. Operating income decreased 1% to $69.5 million. However on a constant currency basis, operating income was slightly higher than last year. Operating margins improved 2% to 16.8% which as Doug highlighted equals the highest in the company's history. This result was driven by increased sales in several key product lines improved profitability we drove in Energy Services and Refractories and a 4% increase in productivity across the company. Our effective tax rate in the quarter excluding special items was 23.8% and we expect that our full-year effective tax rate will be approximately 25%. Cash flow for the quarter was strong at $61.7 million bringing cash flow for the first half to $77.6 million. As Doug noted, we paid down $33 million in debt in the second quarter and our net leverage ratio is now under 2.5 times. As highlighted in the operating…

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

Good morning. This is actually Robert Majek filling in for Dan this morning.

Hi, Rob.

PCC volumes remain under pressure, when do you talk tough comps from last year's capacity declines in North America and kind of when do you expect to turn the corner deposit overall?

I'll take that, so those shutdowns that occurred last year Robert are largely ended in about in the May, June of last year. So we've just eclipsed that, I think in Matt’s comments he shows that those will improve in the second quarter. To give you a little idea our growth in Asia completely offset -- our growth in Asia this quarter completely offset the declines in North America in the quarter. So volumes this quarter were flat but that 16% volume growth offset those shutdowns from last year. And what we see is going through the remainder of this year that growth coming back so in Q3, Q4, and then certainly into 2018, as we put in 165,000 tons of capacity in Asia. On top of that, I’ll let you know we have a pretty strong pipeline it's an activity going on in our Asia region for some potential new satellites and we're working on those as we do all the time and we're hopeful that we'll get some more satellites to build next year as well. So that sets up 2018 as a good strong growth year for paper PCC volumes and we'll see some growth in second half of this year.

Thank you. And then switching gears, can you point anything causing the declines year-over-year in fabric care, household and personal care products do that softness might be temporary and has there been any change on the competitive landscape there, any color would be appreciated?

Sure. We've mentioned this on our fourth quarter call, I believe it was we had a surfactant granule to major customer they were changing technologies. So that technology change was about six months and so we've moved through that in the first half that's the largest decline in that one product to that customer. Offsetting that through the remainder of this year is a new technology that I'll let Gary talk a little bit about that, that new technology is ramping up as we speak and should provide some good growth throughout the remainder of this year and into next. Gary, why don't you give us an idea of what that technology is?

Yes, good morning. We will be -- we actually are already in the process of shipping a optical brightening agent to a major multinational and dry laundry detergent and that was in the plan as Doug said, we had a sunset of one technology and bring another separate type of technology and the optical brightening agent we're pretty excited about not only for this initial phase for the current business but to take advantage of that technology to other applications in the emerging market areas especially where dry laundry detergents are still on the increase. So we expect to see the down slope we saw on the first half of the year made up in the second half of the year and beyond.

And Robert further to that, we've got a surge in that technology pipeline, there are other fabric care technologies in there that we're working through and we're going to continue to that's going to be a core area for the household and personal care product lines. So in that product lines is pet care, pet litter but that fabric care business is going to show some growth throughout this year and certainly into next.

Thank you. That's helpful. And lastly from me Doug you made some changes briefly to your line the leadership and kind of changes in incentives to try and improve organic growth, can you just update us on the progress thus far and are there any tangible benefits you can point to and when would you like to see meaningful change in the area of growth?

Yes a couple of things have changed so far this year, you remember we combined two segments the former construction technologies and put them into one segment called Performance Materials. With that came some significant organizational change, part of that was in China where we have a very strong leader in that region that's taken over those all of those product lines and that's really the focus the decisions in the region locally with customers. So we can move a lot faster with trial activity, with customer needs and concerns understanding issues and moving a lot faster with developing sales. And developing sales both in metalcasting, developing sales in our new pet care products, those are all of them combined and in particular Resistex and our environmental solution and I mentioned in my comments that we're seeing a healthy pipe -- uptick in the pipeline of opportunities for that Resistex for coal ash red mud and more recently riverbed remediation. So that was one area that you put together. Behind that though, I will give you the manufacturing organizations of the two businesses have been combined and the reason we did that is there's a lot of synergies in terms of the plants, similar plants where these products are produced, where the bentonite clay is mined and refined and processed they're going into these product lines. And to really unify and strengthen that manufacturing organization across that whole segment, where some of the synergies that I saw capable and that though it's not over a word of sales, it's really in support of cost structures and being much more competitive with cost structures to get those products to markets faster. That's in that one segment. We made some other changes we've had a couple of new leaders joining the team Kevin Porterfield taking over performance minerals business probably before me but Brett Argirakis is running our Refractories business made a couple other changes in specialty minerals recently. One of our -- the Head of our Paper PCC business has left the company and we've D.J. Monagle who is running that business directly right now. And we've got a really strong team behind him and that's what I mentioned we have a lot of potential in our pipeline. So, a number of changes both at the top levels I mentioned in my comments I've been selectively putting in sales and even more so, technical sales in regions that I think will help get that closer connection to customers. So, I gave you a lot there but it's both from manufacturing, support structures, direct sales, and leadership changes in the company.

And we will take our next question from Rosemarie Morbelli with Gabelli & Company.

Good morning everyone. Great. Welcome back even for a short time, glad to hear your voice. And Doug following up on the previous question regarding growth based on the changes that you have just made what type of top-line growth do you see in terms of improvements or past performances just based on the changes not based on your product.

Well, it's hard to quantify and give you, okay, what I think those particular changes will deliver. Rosemarie I've always believe that the -- the inherent growth rate of this business is in the high-single-digits and I was commenting this morning and we also diversified we see, a really strong business, a really strong growth in our Metalcasting business. One of the larger product portfolios grew to 11% so far this year. And then you had temporarily with some -- some declines in Refractories and some energy service work that shift around. So, we do have some diversity of product line but I do believe that with the environmental products and the opportunities we have around the world with paper, with the refractories and new product development with what's behind that technology portfolio, the structure that I've put in place will accelerate those to market and I think getting a lot closer to the customer bring that sales and I think getting closer and pushing driving closer to that, what I think that inherent growth rate of this business is organic growth rate of this business.

So you are expecting organic growth of 8% to 9% is that what we are talking about?

Those are high-single-digits, yes.

High-single-digits.

I think Rosemarie; I think you'll -- I actually think you could see in the third quarter, you can see a 5% growth now I'm going to tell you that that's probably off of a bad comp. So, I'm not going to say it's real. But I think you're starting to see some of what's going on with our drilling products at 39%, you've got our paper PCC business should return to growth and we've got a lot of capacity next year. Putting expansions into that Performance Minerals business which is growing at two and three right now but I think those expansions will drive it up to 4%, 5%. So, I think things that we're doing and I’m telling you it's coming, it's coming but in the third and the fourth quarter but certainly I see activities that we're doing today into 2018 pushing things up, above the two and three that were giving net of foreign exchange into the five-plus-percent.

That is very helpful. Thank you. And if we look at environmental, if I remember probably last quarter, there were two large projects which were delayed are those projects are still kind of lined up before being done or is it in the second half or are they pushed until 2018.

So let me give you a little bit of the ins and outs in the quarter and then maybe Gary Castagna again can give us a little bit more color on what's going on in environmental products. Last year we had a very large red mud project that was through the second and into the third quarter. We -- they don't occur all the time around the world. Right now, we're really focused on one or two major customers and the work that we're going to get closer to only the large non-Chinese aluminum producers and coal fired power plant electricity producers. When you're with a very narrow group of customers you're going to get lumpy sales. As we build out our capability and build out this technology and have it more recognized with broader customers that pipeline will fill out with more opportunities and we'll see a more regular flow of product work and I won't be here saying it's a lumpy environmental products up and down every quarter. Gary may be give us a little what's going on some of the resources we put into that business or what I'm talking about in terms of direct sales and technology.

Right. Rosemarie so, yes when we came out of the first quarter into second quarter, you do get into the seasonal change that does happen especially in environmental products that tends to be at a higher level at this point than other years and so there are some weather conditions that that impact. But in terms of where bringing further where Doug was at the technology portfolio that were coming along with these more advanced industrial waste containment areas and remediation areas, are now getting a bit more into the pipeline of these projects in these areas and we expect in the second half of this year that where last year we saw in the first half a couple of those projects. This year we will probably be more into the second half of this year as we begin to ship more of those and the goal again is to have those to be more on an ongoing regular basis, despite the seasonality. So, the key right now is to have more downstream coverage and that's where we have deployed more personnel at those decision makers at those key site owners to win those projects on a more consistent basis longer-term type contract arrangements and we're starting to see some of the fruit of that. So the environmental products will always have a better seasonality to it second and third quarter being peak. But at the same time we are now going to see more work in some of these advanced industrial waste areas that will even out the flow and not to mention the geographical expansion that we expect to see, especially in China and Asia where some of these same issues are front in environmental product technology. So, more work to be done but better as we see the year progressing in terms of where we will be shipping and where our backlog will be building.

Rosemarie, maybe if I can before we move on just let me get a little bit deeper into the strategy behind what we're doing here with environmental products. The business historically has been heavily sales dependent to find projects around the world to keep the pipeline full. And some of the product lines are becoming more commodity and not that they're not good business for us in some cases but they're very competitive in terms of some of the typical landfill market. The strategy of the business has been and what we're developing here is moving into these higher technology products that apply to very difficult remediation type situations the riverbeds and we mentioned a couple coal ash and red mud containment. But the difference in that type of market if you're able to provide that technology to major multinational aluminum and energy producers around the world, if you're able to be able to supply that are consistent and high quality basis these as aluminum is made and energy is produced this is a consistent type of landfill market that we can project out of years right. So, we can look at three, four, five years out what's going to be developed we can be testing that and we can start moving into an area of more consistent type sales and project coverage from one that's more project oriented if you get it, you get it which is why historically. So, we're developing that we're removing that and that's when I talk about Resistex becoming more widely recognized and as we enter into China in the long-term lot of remediation activity we're having some trial activity start out. So this is what's going to be providing that shift of strategy in that business for the long-term.

That was certainly helpful, Doug. How large do you think Resistex can be in a couple of years?

We projected Resistex could be over $30 million, $40 million in sales under itself over the next couple of years and I certainly think that China provides an enormous opportunity I'm not going dimension that for you know now pretty early days but that's what we've been planning on for over the next two to three.

Thank you. And then lastly if I may what are the anticipated revenue levels that you're looking at in 2018 from your expansion in both PCC and GCC and talc?

I don't know some of the question [indiscernible] myself Rosemarie. I'm going to give you the all told in the expansions we're putting in place you've got -- you've probably got about $40 million to $50 million in revenue when it's fully loaded that's fully loaded revenue and capacity. Now again that's paper PCC takes time to ramp up but we're putting in some significant capacity expansions in the four, five that I mentioned.

And we'll take our next question from Silke Kueck with JP Morgan.

Hi, good morning. How are you?

Hi good, Silke. How are you?

Good. What happened to operating cash flow in the quarter? So I remember that I think you topic was to may be have operating cash flow that sort of like similar in the first half where you did last year in the first half. And can you explain like, what’s happened to receivables whether you expect that to get better in the third quarter and what your target is for operating cash flow.

Sure. As I said through the first half the year, operating cash flow was about $77.6 million a big driver of the working capital performance as you noted was accounts receivable which moved up. We do have a seasonal working capital build that we did see stronger this year and part of that is the mix of revenues that we get, the more we sell into Asia, terms in Asia are a bit longer than they are in the western part of the world. So, we are experiencing some of that. However you also saw good performance in us driving our AP levels higher to offset a bit of that. And again on the inventory line if you're looking there you'll see a bit of an increase and that is seasonal as well. As you look to the second half of the year, we do see for the full-year we're expecting total cash flow to be similar to what we delivered in 2016. So, the second half of the year will be stronger than the first half of the year and working capital will be a driver of that increase.

In your Performance Materials business so metalcasting, the largest component of metalcasting like U.S. and it's probably half of that and how much visibility do you have into that market and how close now are you tied to like U.S. auto build does it matter, does it not matter. And like what's sort of interesting specifically in the third quarter like the last two years it seems that profits in the second to third quarter always dipped a little bit. This year you expect it to be flat and so I was wondering how much visibility you have into the third quarter.

Gary, why don't you take that?

Okay, it's okay, that's the right answer in terms of the typical trend domestically and we see that that the -- there will be a dip because automotive again if you look at it all the way through the metalcasting sales of our total sales which are in the quarter were approximately $75 million give or take now that probably is about a third of that number is driven by automotive. Of that third though, call it maybe 20% now is U.S. automotive so, you'll have the two big automotive driver will be China now and the U.S. So within that portfolio that that's the single largest underlying component. However in the U.S. we have seen some cyclical upturn in some of the industries that have been a bit down namely farm equipment, in civil infrastructure, and even some things like oil and gas. Those ancillary markets make up approximately 60% of the U.S. iron casting output. Okay. So, we've seen a bit of a good run there and actually visibility to your question is pretty good those industries do they have to be agile there's no doubt about it they move quickly but up and down anymore is not nearly that great. So that's the U.S. component. But the other key underlying component is the 48% increase in the sales in China that is both in the automotive, which is market share and as Doug mentioned the advancement in our product offering there that's winning that and on top of that we're also -- we have a specialized product line that's used mainly in steel foundry production and our production of that -- our sales of that product line in China grew substantially in the quarter. So we've got a pretty broad portfolio, no doubt largest mover is the U.S. automotive if you look at it but not a dollar for dollar big, big swing component on the total metalcasting sales.

And I think the other thing I'd add to that Silke let's not forget India. India is now the second largest foundry market in the world just as the United States. We don't talk a lot about ourselves there because we're building it’s like we're building China. But it's grown substantially over last year it's not necessarily to the point where we're going to call it out as moving the needle but we are making some investments in expansions in India, we did last year so, this business is growing quite a bit you still at 11%. We do have visibility in North America, we're conscious of automotive and we're watching that but we have some strength in other markets as Gary mention and geographically that's really supporting it so, we're pretty bullish and positive on.

And lastly what's the state of PCC trends that were going to start off this year so this like the Xinhua paper mill that already come on and how far the Zhejiang paper plant?

Well both of those we still have not -- we've not put in the investment I’ll give you little bit why. Couple of the -- two of the plants we signed those contracts couple years ago, Silke. The health of one of them has changed a bit and so we're watching to make sure that business is stable before we put that investment. The second one is a lot more interesting. We were ready to break ground and this is the Zhengda mill and the government has put a halt to that for the moment and the reason they've done that is because they're asking that mil to relocate. And so before we get into moving things around or before breaking ground or putting any investment in and we're not exactly sure when that will happen or if that will happen to be honest. We're waiting to see what the government is going to decide in terms of making that business that company that paper making company move their plant. So these are the, these are the challenges we sometimes face in China but those are two, those are two the latter one being the bigger I think of the two in terms of our timeframe. We don't have a timeframe for you on that right now.

Okay. So like growth in Asia in paper PCC is mostly from the Sun Paper mill.

It's the 250,000 tons we've put in that's ramped up so, the coding satellite, the filler satellite and the NewYield facility that we put there. And that continues to consume more as we refine the product and create more value.

[Operator Instructions]. And we’ll take our next question from Mike Sison with Keybanc.

When you think about Specialty Minerals in 3Q you talked about better volumes in paper PCC and some sequential Kaizen minerals. How does the momentum in paper PCC look heading into the fourth quarter given that China continues to do well and you've already lapped some of the North American closures.

I think it looks really good. Let me how about D.J. Monagle talk a little bit about what we see in paper and then give you a little bit more in performance as well.

Glad to. So, Matt has just addressed just the seasonal shift they you're seeing in Performance Minerals. But on the paper side as were increasing just the math that associated with the North America volumes, Doug had highlighted earlier we've got several outages that happened in North America at typically a low time they come on stronger in the third and fourth quarter. And then in China in particular our business with Sun as well as our progress with the other base that we've got in China particular but across Asia continues to our allow us to provide more product in all their -- across all of their grades so we continue to see growth there. We announced a 165,000 tons in Indonesia and they'll be coming on in 2018 so you're going to see incremental growth around the world in the third and fourth quarter probably a little bit more in China, in that fourth quarter, and then Asia starts kicking in more in the first and second quarter of 2018. And Doug highlighted earlier that the pipeline is pretty robust in Asia it crosses -- it those across a lot of the traditional products but it also touches base with that new product portfolio that Doug was highlighting. Its products that are addressing some environmental concerns, we have announced that is NewYield. It is further penetration that we're hoping into packaging as well and so you'll see that that robust pipeline that we're trying to deploy in Asia is our traditional filler products but it's also got some new technologies in there as well. It's just according to plan that we've been pursuing.

Okay, great. And I know it's a little bit early to think about 2018 but given the momentum do you think specialty minerals is potentially on track to generate some earnings growth next year?

I do, in total yes. A number of the expansions let’s say half but more the majority of the expansions I mentioned are in specialty minerals. Those are the more -- those are the significant ones, so I think that what we're putting in place and what we're installing in both performance minerals and paper is going to really be behind and we feel that growth. I think when you look at the performance materials business, we also have some expansions, talk about them today in Europe, we talk a lot about consumer products well when you look at the things that we're working on with our pet care, with fabric care, and also with some filtration. And when I say filtration, it's not oil and gas, we're talking about edible oil filtration and that's in a consumer product, we’re putting in some expansions there. So we’ve got a number, we're also putting in expansion to support our growth in China in the blended products and I mentioned India, so a lot going on. There's a lot going on in the company there's a lot going on in terms of what we're putting in place capital wise to support growth, real growth that's there. And I think even and we talk a lot about our minerals businesses but I’d want to put you, we’re are not doing that in Refractories and Energy Services, we've got some really good technologies that we're deploying and that's got a high durability product, that's really promising, that is starting to grow later this year. So I think the reason for kind of why I was highlighting some of this on the technology portfolio was trying to get a little bit deeper inside of all the stuff that's going on, I know there is some ups and downs but we are making headway on a lot of new technologies, they're going to -- they’re coming out now, they're going to be coming out next year and with the capacity expansions I can't give you a number right now, we’ll give you that little bit closer to ’18 might but, but I think 2018 setting up for a really nice growth year for the company.

[Operator Instructions]. And there are no further questions in the queue at this time.

All right, thank you very much and once again Rick, I want to say thank you for all the years of service to the company and we will make sure we keep in touch with you, right even if we don't hear voice in the call.

All right, thanks very much. Appreciate it.

Have a good day. Thank you.