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

Thank you, Ruth. Good morning, everyone, and welcome to our fourth quarter 2017 earnings conference call. On today's call, Chief Executive Officer, Doug Dietrich will provide an overview of our results, key drivers and 2018 perspective; and Chief Financial Officer, Matt Garth will provide 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 this 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. I will start off today by covering some of the highlights from the fourth quarter and then I will go into the full year. I will turn it over to Matt Garth for a more detailed review of our fourth quarter results and then I will come back to finish it up with some perspectives on 2018. Before I begin, I would like to thank all of our employees for their many contributions to MTI in 2017. We are in a leadership position today because of the hard work and commitment to operational excellence and continuous improvement by our employees around the world. Let's move on to our results. We had a solid fourth quarter with earnings per share of $1.10. Total sales increased 8%, continuing the trend from our third quarter. Notably, each business segment and each major product line within the segments showed growth this quarter. Asia and specifically China, continues to be a strong sales region for us. The growth there driven by both metalcasting and paper PCC. Notably, this is our 12th consecutive quarter of year-over-year growth in China. Our minerals businesses grew significantly, up 9%, driven by increases across most of the product lines. And of particular note, strong growth in metalcasting, household, personal care, as well as building materials. Our services businesses also had a solid quarter with sales growth of 5%, driven by increases in both energy services and refractories. Total MTI operating income rose to $63 million, 4% higher than last year with operating margins of 14.5%. We continued our strong operating performance from an efficiency standpoint. We improved productivity by 6% in the quarter. Paper PCC had a particularly strong quarter with a 10% productivity improvement over last year. Cash flow was $57 million in the…

Thanks, Doug and hello, everyone. I will review our fourth quarter results, the performance of our four segments and also provide you with our outlook for the first quarter of 2018. We delivered strong sales growth of 8% in the fourth quarter, driven by increases in every segment of the company. As you can see from the operating income bridge on the right, specialty minerals, refractories and energy services, all grew income on a year-over-year basis. Performance materials also had a strong quarter but was impacted by a lower bulk chromite pricing which reduced operating income by approximately $5 million relative to last year. Despite this negative impact, total fourth quarter operating income grew 4% to $62.5 million, reflecting the strength of our core businesses. Earnings per share excluding special items was $1.10, up 2% year-over-year and reported earnings were $2.12 per share. Our higher operating income was slightly offset by below the operating line impacts of lower foreign exchange gains and higher tax rate. So now let's review the reconciliation of adjustments to reported EPS. Reported earnings for the fourth quarter were $2.12 per share and earnings excluding special items were $1.10 per share. The recent U.S. tax law change resulted in a $47 million benefit which was comprised of two items. A gain on the re-measurement of our deferred tax liability using the new 21% statutory rate, which totaled $82 million, and a $35 million charge from the repatriation tax on accumulated foreign earnings. This tax will be paid over the next eight years. And let me note here that we expect two key benefits from the tax law change. First, we currently estimate our full year effective tax rate going forward to be approximately 2 percentage points lower than our rate in 2017 due to the domestic…

Thanks, Matt. Before we open it to Q&A, let me provide you with some perspectives on what we see in 2018 and show our enthusiasm for what lies ahead. We ended 2017 on a strong growth trajectory with revenue rising 7% in the last six months and we see this trend continuing. The year ahead, however, will not be without challenges. We are seeing increases in raw material prices, a very tight transportation and logistics market and pressure from higher energy costs. We need to manage all of this but my view is we are beginning 2018 on solid footing across all of our businesses. In performance materials, metalcasting continues to be a growth engine for us, particularly in Asia while North America remains a solid market. We are adding capacity to support strong demand at our facilities in China, India and Thailand. Demand is healthy in our pet care business for both our packaged and bulk products and we anticipate continued growth in 2018 for our pet care products in Asia and North America. In fabric care, as I mentioned earlier, we are scaling up the key additive for dry laundry detergent at our U.K. fabric care facility, our customer is beginning to roll out their product to target markets worldwide, so we expect to see demand continue to increase in 2018. As I mentioned earlier, we established new commercial teams in building materials and environmental product this past year and they have built stronger sales pipelines driven by demand for our new higher value product. Specialty minerals, we are adding 245,000 tons of PCC capacity in Asia by the end of 2018. This is a 5% increase in our global installed capacity and will contribute to overall PCC volume growth this year and into 2019. In addition, our…

[Operator Instructions] We will go first to Silke Kueck with JP Morgan.

A couple of questions. The start up of the 245,000 tons of PCC capacity, when do you expect that to come on? Is that something that will happen in the fourth quarter of '18 or sooner than that.

Well, the first one to come up, we have an expansion at the one mill at our Perawang facility. So we have an expansion that’s coming on line probably in the second quarter. We have 100,000 ton new satellite at that same location probably in the late third quarter and then we are working on the other 100,000 ton facility probably late fourth quarter. Right now, we are working through the engineering. It could be the beginning of '19 but probably late fourth quarter this year.

That’s helpful. Secondly, I was wondering whether, when you look at your sales growth this year, I was wondering whether you could quantify, for the year and for the quarter, what the benefits were from currencies. And my memory is that in the fourth quarter of '16 there was sort of like a $20 million headwind from fewer days in the year. Is that something that was a benefit this quarter or it really wasn’t?

Silke, the way currency impacted us for both the quarter and for 2017, the impact was pretty minimal on both a top line and operating income basis. So not a big mover here in the quarter.

I think in the fourth quarter as a percent on sales, I think the full year was zero on sales, Silke. The way the calendar for us is following, I think we have the same days. There is no difference in days. So we are not calling that out in this first quarter.

Okay. It's helpful. And then lastly, I was wondering whether you could tell us what your cash tax rate was in 2017 and is your cash tax rate in '18 going up or down and to like what extent.

So the right way to look at tax is if you look at overall in 2017, the effective tax rate was about 23%. In the quarter, fourth quarter, it was 22%. What I spoke to in the prepared part of the discussion was that we are expecting a 2 percentage point reduction. The reason we did that is to give you a sense of what we look like across the quarters but for the years and you can take that approximately 2% and deduct it from what we saw in 2017 and that would get you in the range of 21% to 22%. From a cash...

I understand that but...

I think from a cash perspective, the right way to look at this, Silke, is the tax rate reduction in the U.S. is going to be deliver about $7 million to $8 million cash benefit to us going forward. That’s going to be offset over the next few years by the toll tax. And if you remember, $35 million is going to be paid over 8 years on the government schedule of 8% through the first years and then escalating to 15%, 20% and 25% in the last three years. So there is a pretty sizable cash benefit to us on a net basis between those two elements.

So the net cash benefit is probably about $8 million positive per year.

We will go next to Daniel Moore with CJS.

I wanted to drill down a little on the, you mentioned a $5 million impact year-over-year from lower bulk chromite prices. What was the contribution for the full year of '17 and what are your expectations for, it sounds like you are winding down. Are you winding gown entirely? Just trying to get a sense of the year-over-year impact as we think about '18.

Sure, Dan. Look, a couple years ago, this is a business that we acquired with AMCOL. We have never looked at this as a core business for the company. We have largely held it for sales since we bought it. When we bought the business we had inventories on hand and when we announced a partnership with Glencore, where we are buying chromite from them, they were also taking some of our excess stocks of raw materials and some of the low cost ore we had available. We took advantage of that through some of '16 and '17 when prices were high. In the fourth quarter the contribution was positive but the delta we are calling out I think is the prices last fourth quarter were probably in the 300s, I think in chromite, and then we are down to the 150, 160s which is a more normal level of price in the 160 range. Right now we are in a position in that mine in that facility where it requires reinvestments and so we are not going to do that. It's non-core business. And so we are going to be ramping down sales of what we have on hand and ceasing operations at that facility. Now the impact of that, Matt highlighted about $2 million to $3 million in the first quarter. The total net of that will probably be about $9 million for the full year. However, we see we will fully offset that with the growth that we have been seeing through the other businesses throughout 2016 or throughout 2018. Does that help?

It certainly does. Thank you. And then you mentioned in the prepared remarks, the 81 new products, I don’t know if new products is the right terminology, but at a run rate being potential of $300 million of revenue. Where would that run rate look like today?

Let me give you to Jon Hastings -- let me clarify what that is. So we look at things over, what are we generating over the past five years from new products developed. And so those 81 we think going forward at full run rate of $300 million. We probably are at about 130 of that right now in terms of those products deployed more recently. Is that right, Jon?

Correct. So then, like Doug said, we have introduced 81 products. The contribution in 2017 was roughly $130 million worth of sales. Overtime that will ramp up. Some of those products will move off because they will time out on the five year metric that we use. But we have got a pipeline, for example, we have got another 40 projects that we are looking to introduce this year. If they all hit, then that will contribute another run rate of about $170 million. So, again, so you will see this evolve over time but the impact, like we have said in 2017 was around 130.

Very good. And then lastly, you mentioned the pipeline remains robust. Obviously, we are bringing on 245,000 tons. Just talk about any update on discussion in your confidence about putting additional new satellites in the backlog or new agreements as we look out for the rest of '18.

Sure. D.J, you want to take that?

Sure. Dan, we have got over a dozen active discussions. I think what is different right now for us is that we have got some discussions going on in with some packaging manufacturers as well as some traditional printing and writing grade manufacturers. So we feel pretty confident that we will see in addition to the 245 associated with the two new satellites that are going in Indonesia. We are pretty confident we will be able to put a few more new satellite contracts in this year that’s upcoming. If I were to guide it to regions, it's probably in Asia but we do have some interest in North America and south America as well.

Dan, I think, let me add to that a little bit. I think it's worth highlighting a little bit of the new products in the paper PCC business and where they are geographically. So D.J. mentions traditional filler, those opportunities are primarily in Asia. China, India, southeast Asia. And that’s where that pipeline that he mentions is going. New yield primarily an Asia phenomenon and so we have got a nice pipeline that’s probably six, seven targets for that new yield. When you look at packaging, however, we do have some activities, new products and some trials going on in packaging. Kind of across all packaging types. We have got the coating products for that white, high-end end container, or boxboard for cosmetics, small plants. We have got some technologies into brown bag and brown box. And I can give you those trials and activities are targeted not just Asia, that’s North America, it's Latin America and it's also Asia. So we have got a number of different things in new technologies that are working across packaging, coating and our traditional filler, kind of around the globe. So there is a pipeline of those new products and our traditional fillers satellites that’s kind of behind 2018 activity.

Perfect. Last one and I will jump out. Anyway to quantify in the quarter kind of the impact of the U.K. facility? Whether that was, say, a detriment to operating income and how should we think about that ramping in the next couple of quarters.

Right. The highlight here is the decline in margins in performance materials. Obviously it's right out there. So we are trying to highlight for you that chromite price was significant and that’s going to be ramping down but that was probably half of the margin decline through chromite. The other half are some of the activities that we think we will move through. That is some of the startup costs that we have in our U.K. fabric facility. It was ramping up in the fourth quarter. It's probably just now at its full run rate so we will getting to that in the first quarter. And with that came lower margins from those sales as we worked through some of the startup. We also have a startup going on in Turkey for some specialty products. That should be coming on line in the second quarter and so we are now absorbing some of those costs. So I think you know as we get through kind of the first two quarters of this year, you are going to see margins and margin improvement in the performance materials business. We think we have a solid year ahead with lot of the new products. The fabric care, the new specialties at our growth in metalcasting throughout the year. We will be back to kind of our historical above 16% kind of rate. One other thing, and I might let Gary give you some color here, some of the growth in Asia, I think we have to give you some perspective on how that is impacting margin and the potential of it going forward. Gary, why don’t you give us some color on China in metalcasting?

Yes. On top of -- get back to finishing up on the original question, but in Asia, you saw the 22% increase in metalcasting sales in China. And we have been at this for quite a while over there in terms of ramping up and winning share. We are in obviously a big winning share in growth stage. That does come with capturing share with our lower end product lines and then as we move in with those particular key foundries at our customers, we move them on to a higher value product line and so we will be into a sequencing mode there of improving margins as we move customers more towards the higher value products. More aligned with what we realize here in the U.S. So in the metalcasting market, we are as long as established there, got a pathway to really see margin accretion as the year progresses. In the personal care product lines. They are principally pet care and fabric care in Asia. These are product lines that are in emerging stage, particularly pet care. And again, we are in early stage of production, productivity. Improvement in scale comes along as we gain volume and fortunately the pathway for the growth in both of those product areas are looking pretty positive as long as we can keep up with the productivity elements, which we have really in good shape now. So the growth in Asia, both in metalcasting and personal care, and pet care are going to be also benefits down the road. And then finally back to your question on the major product line that we have been watching and scaling. That as we speak, if you look at just moving from the fourth quarter to the first quarter of this year, our productivity levels have been increasing in significant levels. 20%, 30% type productivity improvements and getting scale in that product line with the customers. The fortunate part, most important fortunate part is, is that the traction of the product in the market seems positive at this point. So the indicators we have given you in terms of the sales ramp up over the course here looks quite positive. So in combination, all those areas look quite promising to recapture margins.

So Dan hopefully that helps you know. A couple of [indiscernible] issuers here in the fourth quarter but some really good opportunities we see as we move through the first, second quarters to be moving these margins north.

You asked a better question than I did and answered it. So thank you.

I think it was on your mind.

We will go next to Rosemarie Morbelli with Gabelli & Company.

Congratulation on the strong of the year. I was wondering if you could give us a little more details on the large projects for the buildings material as well as environmental. And if you could link the environmental growth to the new regulations in Asia and what should we expect.

I will start off and then I will give it to Gary to give you a little bit more color. Yes, so there are a couple of things we did this year in building materials and environmental products. We kind of realigned and changed the sales organizations. Much higher performing group and organization structure bolstered by how we put together the operating groups to make sure that we were more effective in delivering these new products. One of them being Resistex but some other products in the building products group. So we are now moving things through and out into the market. Better cost structure, better efficiency and logistics etcetera. So introducing these new products. That’s helped us to build a pipeline. Those pipeline that we are building is really around some of these new products that we have. Again, Resistex, not so new, but Resistex for coal ash and red mud, but other new products in building materials. To your point in Asia and China in particular, yes, we are trialing some of our environmental products and pilots right now as we have moved into some river bed remediation opportunities. So they are pilots at this point. We are hoping that successful pilots lead to more trials, lead to more stabilized business. But, I guess to give a [layout] [ph] of the land, maybe we will give it to Gary to give you more on new products in the markets that we are working on in these two businesses.

Rosemarie, I am glad you brought it up because in environmental products, of both areas you saw in the quarter, important is is that we had a good sales turnaround. So both were in growth mode as we kind of really have seen the change in terms of the sales organization and leadership during the course of the year. The part now that comes up especially in the environmental products area is the focus then into the, I guess as you would refer to more as in these regulation driven end markets. That’s already established in North America by the way, areas in terms of coal ash, for instance, in power plants. That’s a well established area where there needs to be particular impounding of those waste streams and we have a very high end technology that is promising for those applications. And then we are taking that same model and porting it over to China. Now in China, if you recall, we have had with our government marketing outreach over the last few years, tie-ins with authorities in terms of looking at where those regulations are going and having our product lines into evaluation stage with the governmental authorities that really make those decisions in China. And Doug mentioned it, river beds and what not that have these contaminated sediments that need to be essentially impounded. And really educating the authorities there about our technologies and showing frankly that we have got a credible background in this area and being able to be specified in these big projects. So we are in way early stages there in China on these areas but promising in that we are able to take knowhow and technology we have applied here, which has high credibility with authorities in China and making decisions. So…

That is very helpful. Thank you. And to follow up is the question of, we cannot expect this kind of growth rate to be consistent quarter-over-quarter, for example, even year-over-year. It really is going to depend on the projects that you are winning. Am I right in looking at it that way?

Well, in performance materials and environmental products, historically we have always said, look it's kind of lumpy because you get a big project, these megaprojects come in and come out. The key to this has been really, and our strategy has been to obviously increase the size of the pipeline and doing that through new products, right. New higher value products. And so we have a broader reach and a broader base of portfolio to go out and compete. That pipeline, as Gary just mentioned to you, has increased significantly over last year. And so our probability of brining in projects and succeeding in winning these projects, we think will smooth out some of that lumpiness that we have had over the past couple of quarters. So we do see a more consistent growth rate in these two product lines and I think we have demonstrated in 2017.

Okay. Great. That is very helpful. Moving on to refractories. Is that 14.3% margins sustainable?

Well, you know it was a very solid year for that business. As we mentioned, the second highest. I think kind of an stable market, yes. I think that business is put through new products with higher value. We have got some strong sales of laser equipment and some of our metallurgical wire. The challenge we have this year Rosemarie is as you know, you have seen historically with raw material costs. We are not vertically integrated in magnesium oxide which is the core raw material for our refractory products. We have over the past several years diversified our procurement away from just China to multiple sources to help offset. We are seeing, to give you an idea and then I will pass it over to Brett, we are seeing some significant increases. Some of our grades have doubled in price and some higher than double. But let Brett give you kind of a feel for what's going on in the market for MGO and steel customers.

Sure. Hi, Rosemarie. Really the MGO cost increases, you know they were initiated in China mainly due to the environmental changes in regulations. Dependent on grade, we have seen increases go from 1 to 3 times the prior year low points. So we are going to have a challenge that with that said, we really have been working closely with our customers. To offset these increases, whether it be just by -- not just by price but really offering alternative solutions with our high durability products. As I think Matt pointed out earlier, we have a new product portfolio that we have rolled out and these products are fitting in well to offset some of these prices and give the customer an alternative to really to reduce their overall cost per ton of steel without just driving prices up.

Okay. Thank you. And lastly if I may...

Just to wrap it up -- I was just going to answer your question, actually. So with all that, that’s the environment that we are facing. To answer your question specifically, yes, I think these margins are sustainable but in 2018 it's going to be a challenge. I think we have got a lot of work ahead of us to make sure that providing the value and passing through what some of these raw material costs and pricing. That’s a challenge business has tasted before. So I do think this level is sustainable but we have got a challenge doing it in 2018.

Okay. Thank you. And as I said, just lastly, given the good balance sheet you currently have, any potential M&A in 2018? Are you making progress there?

Well, I certainly think the balance sheet now opens up, obviously, some capital deployment options. We had always stated for the past several years as Matt showed you the chart that free cash flow was going to be deployed towards debt reduction. We are down around our target level of leverage and so I think now we have broader options. Acquisitions are certainly one of them. We have a share purchase program for the next two years in authorization. So we have always taken a balanced approach as we see opportunities in acquisitions we will steer it there. I would give you, I guess if I gave you a priority for our free cash flow in '18, it's probably going to be to invest in ourselves. We are going to be putting capital into the company judiciously but where we see the growth opportunities and profitable growth opportunities. From there, acquisitions, we have a nice portfolio of opportunities, some small, some large. Nothing right now of the size of an AMCOL but some nice tuck-in things that could be in the $50 million, $100 million, $300 million type revenue. Should we see those, we have some interest in steering some capital that way and if those start to wane and we don’t see interest in those, we have the share repurchase options too. So this year is a little bit different than the past three. Stronger balance sheet with a lot more options to deploy capital.

We will go next to Curt Siegmeyer with KeyBanc Capital Markets.

I know you talked about some of the challenges that you are going to face in 2018 particularly to start the year. So you have this nice Slide in your deck that shows your long term earnings CAGR since 2010, sort of in that mid-teens range. So just wondering if you could elaborate what you think would need to happen to kind of get back to levels similar to that, would that require some significant M&A or do you think you could approach that organically or just maybe a little bit more color there.

Sure. Obviously, I want to highlight that there is two kind of phases to that chart. So it was certainly some organic earnings growth and acquisitions. So I throw it up there because I do think that this is what the capability of the company has over an 8 year period that says, look there is some organic growth but with the balance sheet and the cash flows we have to deploy towards capital, like share repurchase and acquisitions. Those are the things you can do, we can see in this company long-term. So I think it will take some acquisitions to boost where we are but I think given our growth trajectory that we are on now and I think some of the markets that we have, I think we have greater confidence that we can deliver more than 3% per year and then needing an acquisition to get there. I think, and I have always said that this company can grow in mid single digits on a revenue basis consistently and that can get down to that EPS line. So 5%, 6%, 7% EPS growth organically and then boosted by an acquisition with our balance sheet. That’s something I think is potential and I think it's something that’s potential this year.

Got it. Thank you. And then if I can just follow up on [indiscernible] I apologize if I missed it, but I know you talked about some of the pressures you are facing there. Can you talk about any specific pricing actions that you have taken or plan to take, maybe markets where you think pricing could offer a little bit more opportunity than some others.

Well, certainly a lot of this we are going to be working on just across these opportunities to offset some of this, certainly efficiencies to offset some of this, and how we use some of these raw materials that’s important. But there is no doubt we are going to have to pass this through to customers. I think primarily we are seeing the biggest increases, as I mentioned, in magnesium oxide. And Brett's working, and this team are working to, as we have historically, to move that pricing and value. We have to demonstrate the value through into refractories. I think the energy is coming through, it's in other, probably performance minerals and our performance materials businesses. We are seeing higher truck based fuel, we are seeing natural gas increases and those we are trying to pass through in a pretty competitive market in some of our products. So we are going to be pushing pricing through across the businesses. It is difficult in many instances because we are constantly fighting for share and defending our base. So there is opportunities, primarily in refractories but we are looking at it across the portfolio.

This does conclude the question-and-answer session. At this time I would like to turn the call back over to Ms. Buckwalter for any closing comments.

Great. Thank you so much, Ruth. That concludes today's conference call. Thank you all for joining us and we look forward to speaking with you again very soon.

This does conclude today's conference call. Thank you for your participation. You may now disconnect.