Joseph Muscari - Chairman and Chief Executive Officer Doug Dietrich - Senior Vice President and Chief Financial Officer Patrick Carpenter - Vice President and Managing Director of Construction Technologies Jonathan Hastings - Senior Vice President and Chief Operating Officer Gary Castagna - Senior Vice President and Managing Director of Performance Materials Rand Mendez - Senior Vice President and Managing Director of Paper PCC.

Silke Kueck - JPMorgan. Rosemarie Morbelli - Gabelli & Co Daniel Moore - CJS Securities Ivan Marcuse - KeyBanc Capital Markets.

Good morning and welcome to our second quarter 2016 earnings conference call.

For today's call we will follow the usual format with Chairman and Chief Executive Officer, Joe Muscari providing an overview our results, key drivers and strategies, followed by a more detailed update on our financial performance and condition from our chief financial officer, Doug Dietrich.

Before we begin, I need to remind you that beginning on Page 13 of our 2015 10-K, we list the various factors and conditions that may affect future results. And I’ll also point out the Safe Harbor disclaimer on Slide2, here.

Statements related to future performance by members of our management are subject to these limitations, cautionary remarks and conditions. Now I'll turn the call over to Joe Muscari.

Joe?.

Thanks [Paul] (Ph). Good morning everyone. We again had a solid results for the second quarter giving us an excellence first half earnings per share of $2.22 and our EPS for the quarter of $1.20 represents the best second quarter performance in the history of the company.

We achieved an operating margin of 16.4% as the MTI business system combined with our operational excellence initiatives and a very high level of employee involvement have enabled us to achieve high productivity improvement in the quarter. Lower material and energy prices also provided some lift to us.

Safety performance also continues to be excellent for the first half of 2016. We were better than what we consider to be world-class performance levels for recordable injuries and our loss workday rate was down from 2015’s by more than 50%.

Our minerals base businesses were again the primary drivers of our results, posting and operating margin of over 18% for the quarter with the specialty minerals segment, which includes our PCC, GCC and talc product lines generating record Q2 operating income of $27.6 million.

Our focus on the opportunities for growth in China continues to bear fruit, as overall China sales were up 5%, while PCC sales were up 17%. For the half, China sales were actually up 9% over last year and as we have discussed in the past, we continue to see considerable room for further growth and development of our mineral-based businesses in China.

We recently also formed a China lead team for the company to ensure that we execute on all of the opportunities available to us. And this multi disciplinary team will coordinates upward across all MTI operations and growth initiatives in China.

Also during the quarter, we took further significant action to adjust our energy services segment to current market conditions, and going forward the business will focus only on filtration and well testing, areas where we expect to be able to grow profitably overall. Doug we will provide some further details around our restructure shortly.

In addition in consistent with our previous communications around priorities for our cash, we utilized our strong operating cash flow to repay a further $50 million of our term loan during the quarter.

This slide shows a quarterly earnings trend and as you can see this quarter's EPS is the $1.20 per share represents one of our strongest result ever, in spite of the significant challenges that we have been facing in energy services and the softness in the global steel industry, which has obviously affected our refractory's business.

Here's a simple snapshot of the breakdown of sales and operating income by business segment, which highlights the significant contribution from our two largest minerals based segments, specialty minerals and performance materials. Together they are driving almost 75% of our productivity.

And as we look at our minerals businesses overall operating margins improved again during the quarter as they contributed $61 million in operating income on slightly lower sales. Increased sales of our higher margin specialty GCL products such as Resistex drove a stronger result in construction technology.

While lower energy cost and productivity gains led to an improved margin in performance minerals.

It's also worth highlighting for the first half that our Paper PCC Asia sales were up 7% and our operating income there was up 20% while productivity was also up 7% and the minerals business achieved a 10% return on capital and they have on an annualized basis.

Further, in China, overall, mineral sales were up almost 12% with an 11% operating income increase and Doug will go into the details of each of the segments shortly with you.

Continuing weak market conditions in the oil field services sector globally as well as our exit from several energy service lines drove a 25% decrease in sales for the services based segment. However, stronger equipment sales in our refractory segment along with improving conditions in the U.S.

steel sector enabled that business to generate a strong profit margin for the quarter, helping to offset the operating loss we sustained in energy services.

As I mentioned we expect that with this restructuring of energy services we have positioned the business for profitability going forward and significant growth when more favorable market conditions return. It's been a year since we held our Analyst Day and presented our 2020 growth initiatives and targets.

So I thought we would take a few minutes to update you on our progress. While we certainly have faced some challenges recently due to the adverse conditions in oil, gas and steel, as well as the strength of the U.S. dollar.

We remain committed to achieving these targets, which we believe can take MTI to as much as $3 billion to $4 billion in revenue over the course of the next five-years or so.

Two of the three key financial targets that we set for 2020, operating margin and EBITDA margin have already been hit and we will be striving to improve them further and achieve even higher levels by 2020. And I should note that our 12% return on capital target remains a realistic goal for us as well.

In each business, we are driving forward with multiple initiatives that generate sales and of course higher profitability with commensurate improvement return on capital. And clearly as you can see from this chart, our minerals businesses will be main engine for achieving our sales target along with acquisitions.

In Paper PCC the opportunities for new satellites in China remains strong, in spite of China's slower growth and our new yield for fulfill innovations continue to gain traction.

We are specially bullish about new yields prospects in China where it's increasingly being recognized as an attractive solution for paper makers that need an answer to their process waste disposal issues. Packaging opportunities in China also remain a key focus us going forward.

We expect performance - minerals and performance materials to continue to participate in the favorable trends affecting automotive, constructing consumer products and agriculture, these include urbanization, economic growth and our customers’ increasing focus on yield and quality and their production processes as well as supply chain.

Grain field expansions are also in the carts for us.

Performance materials continues to penetrate China through its substitution strategy is conversions of foundry customers to our pre-mix green sand bond continues and house hold and personal care products have been particularly strong this year with increased demand and some new and rolling customers.

Similarly, our construction technology business is very well positioned with its ability to supply, it's innovative geosynthetic clay liners from multiple production facilities around the world.

Product such as Resistex are becoming more widely recognized as the most cost effective solution to environmental remediation challenges faced by government, electric utilities, and aluminum companies. Recent orders from several major aluminum and power companies such as Alcoa and Duke Energy are in indication of this growing preference.

Obviously our service businesses, particularly energy services, have developed a deep hole since we originally set these targets. Nevertheless and nonetheless, we continue to strive to make you some of this ground as quickly as possible.

Energy services of course is a much smaller and more focus business at this point, but we do feel it has planning of upside going forwards as its reputation for innovative water filtration solutions has been firmly established in basin around the world.

The last line of this table indicates our continuing focus on acquisitions as an important facet of our growth strategy and I’ll comment further on this is a couple of slides. Now let me just spend a few minutes on our recent business development activities in China.

Earlier in the quarter, we announced the selection of our partnership with Sun Paper and Tsinghua University, as one of six new Ecopartnerships form during the annual U.S., China Strategic & Economic Dialog. The Ecopartnerships program is jointly sponsored by China's National Development and Reform Commission and its better known as the NDRC and U.S.

State Department. And it brings together experts and innovators from U.S. and Chinese cities, companies, universities and NGOs to work together, exchange best practices and find solutions to check the challenges related to environmental protection like in energy and climate change.

And our partnership, MTI and Sun Paper are going to work together with Tsinghua University to pilot our new yield technology.

Innovate ways to localize this technology to China, evaluate the results of the technology deployment, as well as recommend policy and regulatory actions and then move to assessing the steps necessary to drive change throughout the Chinese pulp and paper industry and Tsinghua by the way is one of China's leading universities.

We are already seeing more interest in new yield and MTI broadly as a consequence of partnering with two of China's leading institutions and the involvement here of the NDRC, which arguably is China's most important agency overseeing it's economic development and providing the framework and initiatives for the country's five-year plan.

Concurrent with the Ecopartnership announcement we are also able to participate in the U.S.-China Climate Leader's Summit where a number of other products that address environmental challenges were introduced to a much wider audience.

Again, that this was all under the hospices of the NDRC and we are now experiencing strong interest in our offerings from regional officials and company management teams who are looking for environmental solutions that has basically passed muster with China's national government.

Let's now just flip back for a moment to the subject of acquisitions and acquisitions as you know are a significant part of our growth strategy and we are currently actively engaged on a number of fronts.

Our focus continues to be on minerals based companies where we can leverage our expertise in crystal engineering, fine particle technology and polymers. And the end markets that we are focused on are environmental, consumer products, agriculture and construction, all within the context of our existing minerals businesses as well as in other minerals.

As you know, we have a very strong capability to identify, evaluate and integrate companies and we plan to leverage this capability as we go forward.

So summary, let me just say we have had a solid first half in spite of some significant challenge and I'm confident that we will continue to perform well going forward and it should also be mentioned here that we of course were keeping an eye on the situation in Turkey as well as the potential repercussions of Brexit.

But so far, these events have not affected our operations or otherwise had any impact on us. With that let me turn it over to Doug..

Thanks, Joe. Good morning everyone. Now let's go onto our second quarter results and I'll cover performance in each of our five segments. I'll review the restructuring and special charges in the quarter. I'll give you an update on our debt repayment and leverage targets and then I'll give you an outlook for the third quarter.

As Joe mentioned, it's the strong quarter for us with earnings per share from continuing operations of $1.20 excluding special items, compared to $1.18 last year. Reported earnings this quarter was $0.60 per share including the special charges associated with additional restructuring of energy services, which I'll provide more details on in a moment.

Total sales for the quarter were $427 million, $36 million lower than last year. This was primarily due to $29 million of lower energy service segment sales and negative foreign exchange which should accounted for additional $6.5 million of the decline.

So the increase over last year in several product line and global fabric, pet care products increased 25%, healthcare grew 7% and environmental products increased 20% and GCC sales grew 6%. In addition sales are up for our combined businesses in China grew 5% this quarter over the last year, driven by a 7% increase on our minerals business.

For the first half, our sales in China grew 9% over the last year, with a 12% increase in our minerals businesses. Our progress in China was also highlighted this quarter by the Ecopartnership we formed which show just outline for you. Operating income and excluding special items was $70 million compared to $72 million in the prior year.

On a constant currency basis our minerals businesses improved by $2 million, or offset by a decline of $3 million in our two services businesses and further by a $1.4 million negative impact from exchange. Company operating margins improve 5% to 16.4% of sales, despite the continued weakness in energy services.

Our minerals businesses had a strong quarter with operating income of $61 million, representing 18.3% of sales. Specialty minerals had record operating income for the quarter.

Construction technology profits more than double from the first quarter with operating margins of over 17% and performance materials operating margins were close to 19% of sales.

Productivity was a highlight this quarter with each of our segments improving over last year, and we continue to control expenses directly our spending to areas that lead to increased sales and growth. Cash flow for the first half was $102 million, and free cash flow increased to $71 million from $66 million in the first half of last year.

We made debt principal payments of $50 million in the second quarter, totaling $90 million for the first half, which is right on the target we led out at the beginning of the year.

Before we move on, let me outline special charges we recorded in the quarter and bridge our earnings of the $1.20 per share to our reported earnings of $0.60 per share, given the weakness in the oil field services market and our expectations that will remain like this for some time.

We initiated the comprehensive assessment of the energy services business structure and each of its remaining service line. The goal of this assessment was the following. First, to develop a structure for the business that could be profitable in the current market conditions.

Second, to focus it on the differentiated and competitively advantage services globally. And third, position it for increased profitability when the energy markets recover. To achieve these objectives, we decided to exit our remaining domestic onshore service lines including nitrogen, pipeline and well testing.

And focus the business on offshore filtration and offshore well testing services globally, which are more profitable and competitively differentiated service lines. We also significantly streamlined the overhead structure and operating footprint to lower cost.

To give you some prospective on how these changes affect the revenue profile of the business, going forward, over 90% of the sales for the business will be generated from offshore service activities compared to 50% when we acquired the business in 2014. Similarly, 40% of sales will be generated internationally compared to 20% two years ago.

As a result of these changes, the company incurred pretax restructuring charges including impairment of assets, lease termination and other exit costs of $28.8 million. We expect to realize $11.5 million in annualized savings in connection with this program.

Now let's go through the minerals businesses and I'll start with the specialty minerals segment. Segment sales were $151 million and decreased 3% on a constant-currency basis from last year. PCC volumes have grown, each of the past four quarters.

However, over this quarter volumes were down 3% due to the final ramp down on several paper machines in the U.S. Verso Domtar, Ashdown, and Madison Paper in May.

As we outlined on the last call, we see the growth trend of our PCC volumes continuing over the next several years, so there may be a down quarter here and there along the way depending on the timing of new plant start ups combined with possible future paper machine closures.

For the first half of the year however, global PCC volumes were up 3% over last year. Supporting its growth our PCC sales in China grew 17% over last year driven by higher volumes in coating PCC and new yield at our two Sun Paper facilities. Also in July, we commissioned another 1,000 Sun PCC filler plant with Sun Paper.

This new satellite will be ramping up over the remainder of the year and contribute to the continued growth of our PCC volumes. Further out, we are constructing two new satellites in China that will add an additional 1,000 tons of capacity in the first half of 2017 helping to maintain our growth trajectory.

One of these new satellites will produce coding PCC for packaging applications. We also continue to make progress with our E325 high filler technology and announced our 25th and 26th commercial agreements in the quarter with paper makers in China and South America.

Our processed minerals business had a very strong quarter with sales 3% higher than last year driven by 6% growth in ground calcium carbonates primarily due to strong market conditions in the Northeast. Operating income for this segment was $27.6 million, a record quarter for this segment and grew 2% over last year.

Operating margins were 18.3%, 100 basis points higher than last year bolstered by a 6% improvement in productivity, combined with lower energy costs. Looking forward to the third quarter, we expect operating income for the segment to be around $1 million lower than the second quarter.

Paper PCC operating income will be similar to the second quarter with higher volumes from the new Sun Paper satellite partially offset by the associated start up costs for the facility. Performance minerals we expect operating income to be slightly lower than the second quarter.

The third quarter is still a seasonally strong period for this business; however, sales typically begin to slow in September. Now let me take you through the performance material segment. Sales this quarter were $129 million, 3% higher than last year on a constant-currency basis. Sales in metal casting were lower by 5% due to lower U.S.

Greensand Bond sales to the agricultural heavy equipment casting market and the lower clay export sales from the U.S. In the household and personal care, product line global fabric care sales rose 25% over last year driven by higher sales in China and Thailand which were up 42% and 30% respectively.

Sales of pet care products were 7% higher than last year with strong growth in Asia and higher volumes in the U.S. due to in-store promotional sales programs by a number of our customers. Basic mineral sales increased 5% over last year due to higher bulk shipments of crow might in South Africa.

Operating income for the segment was $24 million and represented 18.7% of sales compared with 19.8% last year. The decrease in operating margin was due to product mix and lower higher margin export sales.

Let me drive your attention for a moment to the chart at the bottom right hand side of the slide, where you can the significant improvement in profitability in this segment. For perspective, average margins for the business in the free acquisition timeframe shown in the yellow shaded region were around 11% of sales.

Today operating margins average around 19% with EBITDA margins of 25%. Moving to the third quarter, we expect segment operating income to be approximately same as the second quarter to the similar performance from each of the segment product line.

Now take a look at the results in the construction technology segment, sales for this segment were approximately $54 million, 5% higher than last year on a constant currency basis and 33% higher than the first quarter which illustrates the significant seasonal nature of this business.

Environmental product sales were up by 20% driven primarily by $4 million of incremental Resistex shipments to both coal ash and red mud applications in the quarter. building materials and drilling product sales were down 9% due primarily to few large construction water proofing projects in the Western region of the U.S. compared to last year.

Operating income was up 12% over last year to $9.3 million and more than double from the first quarter. Operating margins are very strong at 17.3% of sales this quarter, compared with 15.9% last year. The improvement was due to increase sales of higher margin Resistex products and the productivity gains of almost 8% over last year.

Looking to the third quarter, we expect segment operating income to remain strong and be at similar levels of the second quarter with continued momentum of Resistex sales and some improvements in building product sales. Now let's turn to our services businesses and I’ll start with the energy services segment.

This business had second quarter sales of $20 million, which was 59% lower than last year and 22% lower than the first quarter. The decrease was primarily due to the shutdown of our U.S. onshore service lines in the second quarter, combined with the shutdown of coal tubing in August last year.

We incurred an operating loss for the segment of $700,000 excluding special items and our operating at breakeven levels for the first half of the year. As I mentioned earlier the business is now properly sized to be profitable at current sales levels and market conditions.

It has strong positions in offshore filtration and well testing globally which will provide a base for future growth in sales and profits as the oil and gas markets recover.

As we move to the third quarter, we expect operating profit levels to be $1 million to $2 million higher than the second quarter, as we realize the full saving from the restructuring programs. Now let's go through the refractory segment. Sales for the second quarter were $74 million, 3% lower than last year on a constant-currency basis.

Our North American refractories business has improved over the last two quarters with sales in the second quarter up 4% over last year driven by stability in the North American steel market.

However our combined Europe, Middle East and India refractories businesses have been weaker with sales 14% lower than last year driven by a 6% reduction in crude steel production in the EU27. Metallurgical wire sales were 11% lower than last year again driven primarily by lower sales in Europe.

Equipment sales were unusually high for the second quarter with a number of fixed installed lasers being commissioned in the quarter, boosting profits over what we had expected in the last quarter. One of these lasers were the Torpedo card scanner using our latest high temperature laser technology.

Operating income for this segment increased 23% to $10.3 million compared to $8.4 million last year. This was due a 65% improvement in profits in North America along with the higher equipment sales I just mentioned.

Conversely, segment profits in Europe were 40% lower than last year and despite the weakness in Europe segment operating margins were strong this quarter at 13.9% of sales compared to 11% last year. Looking to the third quarter, and we expect profits to be down about $2 million to $3 million from second quarter levels.

We anticipate continued weakness in Europe, Middle East and India's steel markets and we will not see the same level of equipment sales repeat next quarter. However, we do expect increased equipment sales again in the fourth quarter as a number of additional installations are scheduled to be completed by year-end.

Now let me give you a quick update on our progress with debt repayment. This chart shows our debt principle payments and associated net leverage ratio for the past eight quarters. Over this period we have made a total of $380 million in debt principle payments and have reduced our net leverage from 4.5 times EBITDA to 2.7 times currently.

We expect to continue this phase of debt repayments this year and are still projecting to be below 2.5 times net leverage by the end of the year. Also it's worth mentioning that during the second quarter, Standard & Poor's global ratings upgraded the company's corporate credit rating to DD from DD minus.

Our second quarter earnings of $1.20 per share reflect a solid performance for the company. We improved our earnings over last year and maintain strong cash generation despite the lower profits from energy services. Let me summarize what we are currently seeing for the third quarter.

We expect total company sales to be similar to the second quarter and approximately 5% lower than last year driven by the lower sales in energy services and refractories. In specialty minerals, we expect the third quarter operating income to be around $1 million lower than the second quarter.

We will see improved PCC volumes from the new Sun Paper PCC facility. However, profits in performance minerals will begin to seasonally in September. In performance materials, we expect third quarter operating income to be approximately the same as the second quarter with a similar performance in each of the product lines.

In construction technology, we expect segment operating income to remain strong. It'll also be at similar levels to the second quarter. For energy services, we expect operating profits to be $1 million to $2 million higher than the second quarter, as we realize the full savings from the restructuring program.

And finally, for refractory, we expect profits to be down about $2 million to $3 million due to lower equipment sales and the weakness in Europe, Middle East and India refractory markets. In total, we expect our earnings for the third quarter to be in line with time consensuses estimates reflect earnings growth of about 5% to 10% over last year.

Now let's open it for questions..

[Operator Instruction] And we will move to our first caller from Silke Kueck with JPMorgan. Please go ahead..

I was wondering whether you can quantify the raw material and energy saving for the company as a whole, and how may it affected the performance materials business specifically?.

Silke most of our energy savings are in the performance minerals business would be in the specialty mineral segment. And so far this year we have probably for the first half of about $3 million to $4 million of energy savings.

This year raw material savings are primarily in the refractory business, we have had some line savings, but as you know those gets faster in pricing, our magnesium oxide savings have been around $4 million, $5 million this year, but some of that could pass through the customers in this market conditions, sometimes pricing gets reflected with the lower magnesium oxide cost..

Helpful.

And secondly, do the energy business run at a profit level of $11 million to $12 million next when the savings are realized?.

Yes, I would say its indicated, we are expecting in the coming to be $1 million, $1.5 million to $2 million higher.

But the trajectory we have for that business is it has to be in the $1 million to $2 million a quarter range as we go forward with a targeting of 10% operating income, which we would foresee $100 million plus next year, which would get us in that $10 million to $12 million range..

[indiscernible] second question, is the growth in the fabric care and the pet care end market, is that due to end market demand or is it due to your own product initiatives and share gains?.

You can ask Gary, who is here with us today to answer that. Gary..

Hi, Silke. In type care it would be more in the line of share gain, domestic as well maturity bit also they continued want to be likely capital business align. And then fabric care which is principally in Asia that has been more technology adoption and involve with certain key accounts in the region..

And if I can add Silke, as relates to the light weight cat leader, it's important to keep in mind that since our last call that China has probably added 2 million to 3 million cats to its cat population, so that certainly must be storing some of the growth.

Right Gary?.

Yes, it's certainly we are getting ahead of that end market, yes..

And my last question is I wondering how lumpy the environmental products is in general and with sort of like the longer term targets on, like I remember the business maybe you are running excess like $90 million in sales.

Is it something that achievable and how long is this?.

I guess the lumpiness, the nature of the business because it's driven by some of the larger products and it's true as it was this quarter in building products as well. Some of the projects are small construction or small landfill type projects and then some of them can be very large.

I think this early 2015 we had a large project Redmond project with Alcoa, in Saudi Arabia I don’t know if you remember. That was on the tail end of that project, but that was almost $20 million project somewhat.

So if you have a $5 million project one quarter and that project doesn't show up exactly in the next, you can have some lumpy kind of comparison sales year-over-year, and that's both environmental and building. As far growth there's a tremendous amount of growth for us in this business.

Construction technologies, our 2020 targets were to grow that business about $150 million and that's true innovation, geographic expansion and also new products like Resistex here in the United States and abroad.

So China as Joe mentioned with the Ecopartnership and what is happening with this current five year plan opens up a lot of environmental opportunities for us to growth that business in China.

Did that help?.

Yes. Thanks very much..

And we will move next to Rosemarie Morbelli with Gabelli and Company..

I was wondering if you had any surprises during the quarter and then linked to that because it result into that question. Q3 is usually strong seasonally and a lot stronger than the second quarter and based on what Doug gave us it looks as though it will be more or less flat sequentially.

I did all of the puts and take correctly, so could you I guess help us understand what was a more positive thing you anticipated in Q2 and what could be slightly lower not due to what you are doing but due to the different markets in the third quarter?.

Yes, let me start, one of the surprises I think that's, first surprise in our refractories business, I think we had a number of lasers that we have been working on, that were kind of in the pipeline for deployment and installation.

Those one are very well and we received a notification from customers that they accepted them all in the quarter and that was a positive surprise for us and I noted that. So I think that was one of the surprises in the quarter.

But from your question in terms of kind of Q3 being stronger than Q2, generally they are very similar, I would say certainly Q2 and Q3 are stronger than the first and the fourth, but they are usually pretty similar.

The two businesses that really drove that performance minerals, as it comes out of the winter, Q2 is usually the strongest month or strongest quarter, Q3 a little bit weaker; and construction technologies and I showed the seasonality of that business but we see Q2 and Q3 being about the same in CT.

So the third quarter is not always stronger, it's similar in many cases and its depending on some of the projects we have in CT..

And I was wondering if you could give us an update on the replacement with already mixed win sense in China which I believe is really the source of growth for that particular business?.

Gary, why don't you answer Rosemarie please? Gary is going to give you some more, some color around that Rosemarie..

Hi Rosemarie. The business again in China especially now with the moderation, let's say in the general economy is our strategy of the substitution through a higher value added prices is much more of our emphasis.

So that growth is really based upon existing cost customers, existing markets and migrating those customers to higher value products as Joe mentioned that they pre-blended and formulated products that we supply in those markets, which we have in the U.S. forever.

So that’s really the source of our particular growth and the strategy that we have going toward our 2020 objectives..

So have you made progress in the past six months for example, in terms of substituting your product lines to whatever they do currently?.

Yes, because really what it is taking what is a sort of a basic level of product and moving it then as I said to the more formulated product.

And we have had several accounts that where we migrated now to this newer, let's call it more advanced technology and it represents more significant portion of our sales probably closer to a quarter of our sales in China, metal casting now are the more formulated products indeed that a higher level than where we were a year ago at this time..

And that would translate into higher margin, correct?.

Margin as well as it's driving sales, because the price point of the formulated product will be higher than the basic level product. So that’s the general approach to the strategy..

Thanks. And then on the paper side, are you expecting more or have they have been any announcement for more machine shutdown in the U.S.

and in Europe? And then if you could touch on the acceptance of new yield also in the U.S., Europe and Latin America based on your comments, it's sounds as though China is mostly the one adopting it or looking at it more seriously?.

As of right now, there are no additional or new announcements that have been made with regard to any shutdown. It appears that North American market has stabilized somewhat the higher import tariffs that have been imposed on the various paper makers from around the world who were accused of dumping and resulted in the higher tariff rates.

The utilization rate is good in North American paper, so we are 90% right now, which is a nice level. And with regards to new yield, new yield actually was design for the China market, it was design to solve Chinese paper makers problems that revolved around effluence that we were being discharged from their paper making process.

And they primarily were land filling the product. The government changed the regulations that force them to discontinue the land filling at some point in time and burn it. So they have to make capital investment. So we translated that three, four years ago into an opportunity for a new products that resulted in new yield.

It came out of basically spending time which Chinese paper customers better understating the major problems that they had and that’s one of the product solutions that came out of - that early awards that that was done there.

So the primary demand that we have for new yield will be China for at some point, right now we must have 10 to 12 potential customers that have an interest in that product.

One of the things it also helped us to do is with that product it - and what I touched on during my remarks, it's building our reputation as an innovator in China and innovator in environmental products.

So that's been the key part of our government marketing and this Ecopartnership is actually designed to have the Chinese government if we are successful, and we expect to be successful, actually promote this product within the Chinese Paper companies and that's what in large part government marketing in China is all about.

So new yield has become a bit of a springboard for us that let us also surface and promote products such as Enersol or Resistex products are some of our building materials products and so that one innovation has actually sprung many tentacles that came about through simply better understanding with some of the Chinese customer issues were.

I'm going to ask Rand if he has, if he would like to add any color to that from the new yield standpoint..

Yes, I will add. I think you mentioned that we have 10 to 12 very active targets with our current new yield product but we are also in development of a second new yield product to address a different type of a waste stream that is going to open up for us an even equal size opportunity to the existing new yield products.

So that's just another ongoing growth of a product line actually that's been developed with China..

And that second product line is still targeting the paper mills, I mean the paper production in China and so that is the question and then can you export that into India which I'm assuming they are having similar environmental issues?.

Yes, they have - both of those is yes, it is the same paper market that we are supporting with that and there are opportunities around the world including in India for a new yield and we actually have some targets around the world..

And lastly if I may the fact that the tariff rates has increased on the paper side, it is helping the U.S.

paper makers, is that's going to be high enough that it will affect the growth of the paper makers in China exporting into the U.S.?.

I think it contributes somewhat, what it's actually the way we think it begins to manifest itself is that the higher costs more producers are having a lot more trouble competing, as China has to focus more on the domestic market.

We haven't seen it affecting any of the major Chinese paper mills that we deal with in terms of signing of some of their projects yet. As we have talked about it in the past that could happen, we just haven't seen it yet. And China has moved paper that it was sending to the U.S. and to other parts of the world.

So we have those two things going on right now..

Thank you very much..

[Operator Instruction] And we will move next to Daniel Moore with CJS Securities. Please go ahead..

Touch on refractories, thanks for the colors. You mentioned that Q4 could see some a pick in equipment sales.

Do you see Q4 being potentially as good as Q2 or more likely somewhere in between?.

Well typically Dan.

Q4 is when we sell most of our lesser in a year, usually we take an orders then they are all commissioned that’s historically been the pattern, little bit different for second quarter as we have been working actually with our customers to kind of even this out, commission more and get them more level alluded to our peer and I think this is an example of the business unit ability to get these things closed out sooner.

We do have a number of them in the pipeline for completions; I think it could use similar type level a quarter for us. But that really is going to depend on how the refractory markets go as well. We have some real strength here in the North America refractory markets.

Pricing for steel here, as you know is really high, hopefully that continues to be stable, and stated that point that’s a good help for the steel makers that helped us. So we will be watching that. But as I mentioned in my comments Europe, India and the Middle East have been very weak.

Now there has been some tariffs put into Europe recently, we will see how that plays out, that could help production, but we will be looking. So I think long way of answering, yes it could be that type of quarter in the fourth, but it really is going to depend on the our refractory markets how they play out for rest of the year..

Got you, very helpful.

And just switching gears, in metal casting have been solid revenues tweaked down a little bit in the quarter maybe just talk about the outlook for Q3 and the remainder of the year there?.

There are two thing there, one was the agriculture market, the heavy equipments casting market still down, it's not projected to at least to the remainder of this year. It's a increase I think, the large kind of John Deere type machinery.

The other piece of that was our exports sales, we do export Wyoming clay out of the United States, we had little bit lower shipments of that play around the world. We think right now probably little bit more due to kind of some inventory corrections and less from demand.

So I do think that the outlook for the rest of the year pretty solid expect for that agriculture market in U.S..

Are not seeing any ship to lower quality clay, just more of the inventory issue as far as you go?.

No it's we are not seeing shift to different type of clay just in more, I think at least for the first two quarters, big, big shipments in the later part of last year and then just in working through that. So I think that it's correct in itself and going forward we will have better export shipments..

And lastly, smaller pieces but GCC continues to grow, maybe your outlook there in the near term as well as talc?.

Yes, both them we have certain positive outlook, talc and GCC types of construction markets, talc also the automotive, but we have seen some strong markets in the North East. So far, our GCC business this past quarter we see that continuing to the third and our talc sales as well, we have had a pretty strong year thus far until.

So we see that continue through the year..

And last one and I'll leave it, but in terms of capital allocation obviously you talked about Joe, M&A remains the priority, so you could get into those 2020 goals, but as the balance sheet continues to improve if you can't find other opportunities over the next six to 12-months.

Are you comfortable sort of building cash and continuing to pay down debt or consider other alternative uses?.

Well, as it was actually demonstrated in the test, but what the approach we will take is, first priority as we reinforce is to pay the debt down and then going forward we are looking very aggressively for good opportunities from an acquisition standpoint.

And to your question of, should we not let's say find the things that we think makes sense for the company, what all should we do? We have always taken a balanced approach when we are in that position and we are going to continue to do that.

But I would say our priorities are debt repayment and acquisitions right now, but even within that context it's supporting the green field that key part of the growth strategy within satellites, which is what is happening in China right now, so obviously that's going to be a priority for us to capital or fund those.

And there are some things we are looking at for some of the other businesses that are primarily green field that could use some of that capital, those are things in the hopper that we are not in a position to talk about right now for competitive reasons. But that we are looking at very closely..

Very helpful. thanks for the color..

And our final question will come from Ivan Marcuse with KeyBanc Capital Markets. Please go ahead..

Real quick, looking at your PCC business and you went over your 2020 goals, and still looking at $400 million to $500 million of growth, if you take the lower end of that still sort of doubling the business. So I wonder if sales really haven’t been growing in this business, they are actually been declining for past three-years.

So when do we start to see an acceleration of growth I guess mid to high teens cage or that you will need head to growth targets by 2020?.

So Ivan, we have got a number of facets in that $400 million to $500 million part of that is being geographic growth in China, in India, in other regions. But also a lot of innovation growth.

It's got a number of products Rand mentioned, we have got a number of new yield products coming through, we have got our first satellite in packaging starting up in the first half of next year that's another avenue for us to pursue, we have got a number of targets for coated packaging in Asia.

So I think what you are saying is yes, we are still in the - we have said this that this filler growth is going to be lumpy. We still see that positive trajectory going, again, average growth over the past four quarters is about 3% in volume. The first half was still 3% even though we had a down second quarter.

I think if you see the Sun Paper facility coming on this year, two more next year, the targets of new yield are starting to take hold through some other things we are working on with our Ecopartnership. And we have yet to really move into in a strong way in that packaging business and this first one will help us do so.

So I think it's the first year, I understand your question, but I think you will see some of that growth starting to come through as we get further on in our five to seven year plan..

And Ivan, the thing I would re-emphasize relative to the point that Doug made is that this is not linear and that as we look out, as we look at our position today versus a year ago, we have advanced our position those haven't totally manifest itself and the top-line yet.

But the fundamental thing that you need to do to generate to get new yield or base filler satellites or packaging, it's about the opportunities that are being formed in the company so to speak. All of those are very much tracking the way we envision that they need it track to hit that kind of a target..

Okay, so I guess I understand what you are saying. But at one point the sales are going to start to inflect, right. So we will start to see some pretty consistent year-over-year growth holding currency, where it is today, which is tougher function.

But is it the 2017 that we start to see sales inflect or is this more 2018, 2019 can be backend loaded type of….

Yes, for instance we have satellites coming on, we have new projects coming on in 2017. So you will see an uptake. And as we announced more satellites, right or more fulfilled contracts in China, then you will see those come on. But they are not going to necessarily be living there.

We will have just as we had a quarter where we dipped a little bit, following quarter we should start to see a come up again, because these are projects with 10 to 12-month lean times, right. So from the time, we get a contract that takes 12-months.

And they are not coming in one contract per month, they tend to come in as that’s the last set, we have three within I think in two month period. So these all to tend to come in that way which lends itself to the lumpiness that Doug talked about.

But to your point yes, at some point in time you will see the revenues should start to overwrite the lumping nature of things in North America and Europe detracting from those sort of thing. That’s really what you are dealing with. We have got three different pieces that go into making up that curve..

Ivan if I can really give you one more perspective and that is I know its seems vague that we are being when this timing will be, but there is one thing for sure we have the market opportunity to grow the best size.

The amounts of penetration remaining in paper in China from where we are today could double the volumes of our PCC as of that packaging PCC in the new yield and the market opportunity is absolutely there. The timing of it right now as we move forward, it's not going to be linear, but that market opportunity exist for the business..

Okay, thanks for the details.

The next question is in terms of the energy business, what is of it I understand it's all offshore, what would sales and profitability of - would they go forward business, what would they look like couple of years ago?.

Let me give you a perspective. So….

Kindly figure out what sort of the earnings power would be of what is remaining essentially?.

Okay, I’m going to answer a different way. We have removed about $45 million of fixed cost from this you and since the time we acquired, so that’s to give you an idea of how the business has changed, we are going forward.

The restructuring that we undertook was to really model and I think Joe mentioned as earlier was to model this business to be able to generate 10% operating income in the current market environment and that current market environment is of current sales are around $100 million.

So that's 10% of current market environment, the capacity in this business in terms of what we have in terms of capital installed is to double the business. We have the current capital and capacity to double the business to $200 million, which we think, then could take a profitable levels of the company, much higher.

I can't right now say back to where they were in 2014 because we have trimmed in terms of number of service lines but significant profit growth potentially on the business as the energy markets recover..

A couple of quickies.

CapEx what are you looking at for the year and then interest expense and tax rates?.

So, CapEx for the year, positive around $80 million, we are currently seeing it. Tax rates 24.5% to 25% in that range similar to the past quarters. Interest expense is around $14 million to $14.5 million. That's per quarter and that’s interest and so, that's short financing charge, it's all-in gross interest expense..

Okay. Great. Thank you..

And that does conclude today's question-and-answer session. I would like to turn the conference back over to today's presenters for additional or closing remarks..

Thanks for joining us. That's all the time we have for today. We look forward to speaking to you on next quarter. Thank you..

And this concludes today's call. Thank you for your participation. You may now disconnect..