Good day, everyone, and welcome to the Third Quarter 2021 Minerals Technologies Earnings Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to Erik Aldag, Head of Investor Relations for Minerals Technologies. Please go ahead, Mr. Aldag..

Thanks, Cody. Good morning, everyone, and welcome to our third quarter 2021 earnings conference call. Today's call will be led by Chairman and Chief Executive Officer, Doug Dietrich; and Chief Financial Officer, Matt Garth. Following Doug and Matt's prepared remarks, we'll open it up to questions.

I'd like to remind you that beginning on Page 15 of our 2020 10-K, we list the various Risk Factors and conditions that may affect our future results. And I'll 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, Erik. Good morning, everyone. I appreciate you joining today's call. I'll go through our third quarter results at a high-level, including our sales performance and how we managed through a variety of challenging dynamics.

I will then take some time to describe the progress we're making with our growth initiatives and our team's solid execution on several fronts. I'll then turn it over to Matt to discuss our financial results in more detail, and expectations for the fourth quarter, and then we'll open the call to questions. Let me start with a recap of the quarter.

First and foremost, market demand has remained robust across all of our product lines and geographies. We delivered strong results marked by another record quarter of earnings per share of $1.30. Performance was achieved, while managing through a challenging operating landscape and supply chain and inflationary pressures across our businesses.

Sales for the quarter were $473 million or 17% higher on an organic basis, and up 22%, including sales from the recent Normerica acquisition. We saw sales increases in every segment and across every geography.

From our perspective on our organic growth, projects we've initiated, and I've discussed with you over the past year, contributed approximately 5% to our organic growth in the quarter.

Said another way, about 5% of our growth was delivered from new projects and technologies initiated over the past year, 12% from market growth and 5% from the acquisition of Normerica.

The strength of our operating capabilities is reflected in how we successfully managed through the external conditions we faced this quarter, which enabled us to generate $63 million of operating income, a 23% increase over last year.

Performance was achieved within the context of a myriad of external issues including rising costs, truck, rail and shipping logistics challenges, difficulties finding talented people to support expanding production, significant energy cost increases that became more pronounced during the quarter, and continued challenges presented from the COVID pandemic.

Despite these issues, we kept our inventory and supply positions or key raw materials and commodities in good shape. We acted quickly to solidify our pricing leadership across our product portfolio, and to address the inflationary cost pressures that accelerated over the past few months.

And we tightly controlled expenses and continued to drive productivity improvements. Not to be forgotten, we navigated everything, while also seamlessly integrating Normerica into our company. Cash flow remains strong and through the first nine months of the year, cash from operations is up 10% compared to 2020.

Completed our share repurchase authorization, last week we initiated a new one-year $75 million program. Strong cash flow and solid balance sheet gives us the flexibility to continue to allocate capital to shareholders, while also investing in attractive organic and inorganic growth opportunities.

Overall, we had a very strong quarter in terms of financial and operational performance. Needless to say there was a high-level of activity this quarter. Our execution speaks to the capabilities of our team. We did a great job operating the company safely and efficiently, while remaining focused on delivering for our customers.

Now let me take you through some of the year-to-date sales highlights, outline the contribution from our recent growth projects, and describe the initiatives that will further advance our sales trajectory. We discussed with you the initiatives we've executed over the last year, which have been key contributors to our growth in 2021.

We've also advanced several new projects this quarter that will support further sales growth going forward. Very encouraged with our continued progress on our growth strategy, which is focused on geographic expansion, new product development, and acquisitions.

Demand trends are favorable across our markets with sales growth demonstrated in our businesses has been further bolstered by our new projects aimed toward higher growth markets, also from investments we've made to strengthen our portfolio of value-added products.

Let me provide some perspective on what we've realized through the third quarter from these projects and then detail our new initiatives, new technologies, and recent acquisitions that will accelerate growth.

I'll start with our Household & Personal Care & Specialty Product line where our broad portfolio of consumer-oriented businesses continues to perform very well, resulting in organic sales growth of 13% year-to-date, and 20% including the recent addition of Normerica.

This growth is a result of our leading position in structurally growing and stable markets. But it's been enhanced through our investments in new products, capacity expansions, and by extending the geographical reach of each of these businesses.

Our global pet care business is an example of this with its portfolio of premium products, new online sales channels, and broad global presence, which has led to above market growth rates, while also realizing significant sales increases in other consumer specialty applications, such as edible oil purification and personal care.

These are businesses where we've made targeted investments to enhance our technology portfolio and expand our manufacturing capabilities to reach a broader customer base in Europe and Asia.

Global Metalcasting business remains on its consistent growth track, with sales up 30% year-to-date, driven by strong demand from both North America and Asia foundries, serving a diverse customer base in automotive, heavy truck and agricultural markets.

Specifically, penetration of our blended products continues to expand in Asia as sales increased 30% compared to last year, with 29% growth in China alone. While much of our growth is driven by our penetration in China, we continue to demonstrate our value proposition in other countries with attractive long-term growth fundamentals.

India, which is the second largest grey and ductile iron casting market globally, sales of our blended products are up 50% over 2020. PCC business has been delivering strong performance this year. Sales are up 17% year-to-date as uncoated freesheet paper demand continues to improve in all regions.

We have also benefited from the ramp up of 200,000 tons of new capacity that we've brought online over the past year, which includes a 150,000 ton facility in China, and another 50,000 ton satellite in India. Production at our 40,000 ton expansion for a packaging application in Europe was also just commissioned in the third quarter.

In perspective, sales realized from these latest satellites were responsible for 5% of the 17% PCC growth so far this year. Our fourth quarter PCC volumes are currently projected to be above where they were in 2019, more than absorbing the volume loss from our four paper machine shutdowns that occurred since then.

Moving forward, we have several other new satellite projects under construction that set this business up for continued sales growth next year. In addition to the capacity that I just mentioned, another 40,000 ton satellite in India will startup this quarter.

And we've begun building another 50,000 ton satellite in China, which should be operational in the first half of next year. Also just reached an agreement and expect to sign a contract over the next couple of weeks with a new customer in India for another 22,000 ton satellite.

It will be our ninth satellite in India after entering the market with our PCC technology 10 years ago. In total, with the satellites just commissioned and ramping up, combined with these three new satellites, we see the 5% growth rate from new satellites continuing through next year. Pipeline of new satellite projects remains robust.

We're expanding our addressable market opportunities with new products and technologies for the packaging market, which I'll describe in a moment. I'll finish up the year-to-date growth highlights with our Refractory segment.

It's been a very impressive year for this segment with growth of 22% marked by steel utilisation rates noticeably improving over last year. Growth also reflects this team's success in capturing new business.

Over the past six months, we've secured seven contracts worth $100 million over the next five years, two of which were signed during the third quarter.

We've been able to secure these new contracts in the electric arc furnace market through the deployment of our new portfolio of differentiated refractory products and high performance laser measurement solutions, which reduced costs and improved furnace safety for our customers.

I've discussed how we're investing in several new technologies, and I want to share with you how they're beginning to payoff. Specifically, a few areas where we've broadened our product offering to enter adjacent growing markets. I'll highlight two significant areas.

First, our Paper PCC business has been developing new technologies, processes and products to accelerate our growth beyond high-value filler for uncoated freesheet paper and into the adjacent packaging market. We've made significant progress over the past two years deploying PCC into white top liner board.

More recently, we've been developing new products for other packaging applications, including Ground Calcium Carbonate for white carton board, and alternate mineral products for brown packaging. These are attractive in growing packaging markets, and we're developing a more comprehensive product portfolio to reach this broader customer base.

Currently, we're working to finalize a long-term contract with a premier white carton board customer in China that would represent a significant step for us into this adjacent market. Also recently concluded customer trials with our alternative mineral products for brown packaging here in the U.S.

with an expanding product portfolio and a pipeline of potential customers we believe the packaging market represents a real avenue for new long-term growth. Give me a second. Another project in our technology pipeline that we're very encouraged with is FLUORO-SORB which addresses PFAS contamination in groundwater.

Last call, I shared with you details about our first major commercialization for a large scale project at a North American Department of Defence location. This project went well, and its success has helped to advance our other opportunities.

In fact, we're currently working to secure several other large projects in the drinking water and soil stabilization markets. As this sector continues to develop and regulatory bodies focus on implementing changes, we're well-positioned to capture new opportunities with our patented technology.

Finish up the discussion on our growth for the future I'll take you through how we strengthen our business through recent acquisitions. First, we completed the Normerica acquisition during the quarter, and the integration is progressing well.

The team has been in place working on a variety of activities with our new colleagues to integrate all facets of the business and deploy our culture of safety and operational excellence. Everyone has done a tremendous job making this a seamless transition.

We're still in the early stages with the knowledge we've gained over the past three months has only further validated our thesis when we acquired Normerica.

We've identified significant opportunities in the North American cat litter market, where our broader portfolio of private label products and we see a clear pathway to drive higher growth rates and profits in our Pet Care business. In addition, yesterday, we acquired the Specialty PCC assets from Mississippi Lime Company.

This bolt-on transaction helps expand our manufacturing reach into the Midwest United States, and gives us a strategic logistics footprint at a key point along the Mississippi River. Strategy is to leverage our latest technologies, such as rheology modifiers, for sealant applications throughout our Specialty PCC plant system in the U.S.

Let me leave you with a few takeaways. We continue to build MTI into a stronger company on all fronts, take actions to balance our portfolio to generate higher, more sustainable growth. Sales mix has evolved over the past few years, with 30% of our revenue now coming from stable and growing consumer-oriented markets.

Projects I described to you demonstrate how we're leveraging our newest technologies to drive growth in our current markets, and enter attractive adjacent markets. They also underscore how we continue to drive penetration of our core product lines in growing geographies. Our recent acquisitions further supplement this momentum.

And all taken together, we have meaningfully shifted our sales trajectory going forward. Specifically, for next year, we see our sales growth moving north of 10%. This sales trajectory, along with our strong operating capabilities, provides a powerful combination for significant long-term value generation.

With that, let's turn it over to Matt to go through our quarter performance in more detail.

Matt?.

Thanks, Doug. I will review our third quarter results and performance of our segments as well as our outlook for the fourth quarter. And now let's review the third quarter results. Sales in the third quarter were 22% higher than the prior year and 4% higher sequentially.

Organic growth for the company was 17% versus the prior year, and the acquisition of Normerica contributed the remainder of the growth in the quarter. Operating Income excluding special items was $63.2 million, up 23% versus the prior year, and was relatively flat versus the second quarter. Operating margin was 13.4%.

Worth noting that excluding Normerica, operating margin was 13.8% for the quarter. As we have stated previously, Normerica acquisition will become income accretive beginning in the fourth quarter as integration activities progress.

The year-over-year operating income bridge on the top right of this slide shows volume and mix contributed $14.9 million, driven by our strategic growth initiatives and the broad-based volume growth we've seen across our end markets.

You can also see the significant inflationary costs we experienced, $18.4 million in the third quarter alone, driven by energy, freight and raw materials, such as mine and packaging.

To give you some perspective, we saw energy pricing go up by anywhere from 50% to 400% depending on the location and power source, the most dramatic increases in the UK and Europe.

We offset $10.7 million of these inflationary costs with continued price increases, including contractual pass-through mechanisms in Paper PCC, negotiated price actions in the rest of the business.

The sequential bridge on the bottom right shows how inflation accelerated from the second quarter to the third quarter by $10 million, more than half the total year-over-year impact. However, this bridge also shows how quickly we acted to implement pricing, offsetting nearly 70% of the sequential increase.

In fact, we've implemented a variety of pricing mechanisms in several of our businesses to recoup the higher costs that we had to absorb in the third quarter due to the rapid nature of the increases, particularly on energy.

The price adjustments we are making in the fourth quarter will help us to fully catch-up on the cost we have absorbed by the first quarter of 2022. Meanwhile, we continue to control overhead expenses with SG&A as a percent of sales at 10.6%, 150 basis points below the prior year, 70 basis points lower sequentially.

Earnings per share excluding special items was $1.30, the second consecutive record quarter for the company and represented 41% growth versus the prior year. And now let's review the segments in more detail starting with Performance Materials.

Third quarter sales for Performance Materials were $250.4 million, 23% higher than the prior year, and 5% higher sequentially. The acquisition of Normerica contributed 10% growth versus the prior year and organic sales contributed an additional 13%.

Household Personal Care & Speciality product sales with 30% above the prior year, driven by Normerica and continued strong demand for consumer-oriented products. Sales were 19% higher sequentially, primarily driven by the acquisition.

Metalcasting sales were 10% higher than the prior year, driven by stronger demand globally, and continued penetration of greensand bond technologies in Asia. The impact of lower automotive production has been limited on our sales as foundry customer demand has remained strong across a broad set of other industrial markets.

Sales were 9% lower sequentially, primarily due to typical seasonal foundry maintenance outages. Environmental product sales grew 32% versus the prior year on improved demand for environmental lining systems, remediation and wastewater treatment.

Building materials sales grew 18% versus the prior-year, and 3% sequentially on higher levels of project activity. Operating income for the segment was $32.6 million and operating margin was 13% of sales.

Margin was temporarily impacted by unfavorable product mix, the timing of pricing actions relative to cost increases, as well as the incremental sales from Normerica. Operating margin excluding Normerica was 13.9%.

We're in the early stages of the integration process with Normerica and I am pleased to report that the back office and financial process integration is progressing well. Now looking to the fourth quarter, we see continued strong demand for Household and Personal Care.

And we expect Metalcasting volumes to improve sequentially as foundry demand remains strong in both North America and Asia. I'd like to remind you that we typically experience higher mining and energy costs in the quarter months. And this could have a temporary impact on our margins.

In addition, acceleration of input costs that we saw in the third quarter is resulting in a lag of inflation versus pricing that we expect to continue in the fourth quarter. As I mentioned, we have pricing actions in place to catch-up on these increases in the first quarter of 2022.

Overall, we expect operating income for this segment to be slightly lower sequentially, as higher operating costs have temporarily offset continued strength across our end markets. There are also some uncertainty with respect to power outages in China, which could also temporarily impact our volumes in the fourth quarter.

And now let's move Specialty Minerals. Specialty Minerals sales were $146.9 million in the third quarter 17% higher than the prior year and 3% higher sequentially.

The PCC sales grew 17% versus the prior year, and 3% sequentially on recovering Paper PCC demand and continued ramp-up with three new satellite plants and higher SPCC demand from automotive construction and consumer end markets.

Processed Minerals sales grew 18% versus the prior year, and 2% sequentially on continued strength in residential construction and consumer end markets. Processed Minerals sales, as I just spoke about, did grow to 18% and segment operating income was $18.4 million and operating margin was 12.5% of sales.

Margin was temporarily impacted by the timing of contractual and negotiated price increases relative to cost increases. This segment has seen the most acute impact from energy and raw material cost increases with inflationary cost increases of $9 million, partially offset by $5 million pricing in the third quarter alone.

We have implemented price adjustments to cover these cost increases and we should be caught-up in the first quarter. And as we have demonstrated, we will continue to adjust pricing as necessary to keep pace with additional cost increases. Now moving to the fourth quarter, we expect modestly higher PCC volume sequentially.

As the ramp-up of our new satellite in India, we partially offset by the paper machine shut down in Jackson, Alabama. We see continued strength in Specialty PCC and Processed Minerals, in what is typically a seasonally weaker period for our residential construction end markets.

In addition, we'll have a timing lag as our price doesn't catch-up to the cost increases we have absorbed. We see margins rebounding to more normal levels as pricing actions take hold. And overall for the segment, we expect fourth quarter operating income to be similar to the third quarter. And now let's turn to the review of the Refactories segment.

Refactories segment sales were $75.9 million in the third quarter, 28% higher than the prior year and 2% higher sequentially. And demand remained strong for refractory and metallurgical products. We also had modestly higher laser measurement equipment sales in the quarter.

However, we continue to experience delays in being able to perform on-site installations and maintenance in this product line. Segment operating income was $13.2 million, a quarterly record and 81% higher than the prior year and 13% higher sequentially. Operating margin was strong at 17.4% of sales and was also a record performance.

Looking to the fourth quarter, we expect another strong performance from this segment. However, we expect slightly lower sales and operating income to be down approximately $2 million. Now let's take a look at our cash flow and liquidity highlights.

Cash flow from operations was $163.1 million year-to-date compared to $148.4 million in the prior year up 10%. Capital expenditures were $63 million year-to-date versus $45.8 million in the prior year, as we continue to invest in high return projects.

Company used a portion of free cash flow to repurchase $63 million of shares year-to-date, and the share repurchase authorization from the prior year was completed in October. The board of directors authorized a new $75 million one-year share repurchase program on October 20, 2021.

As of the end of the third quarter, total liquidity was over $500 million and our net leverage ratio was 2.2x EBITDA. Our balance sheet is in a very strong position which provides us with the flexibility we need to continue to invest in high-value, high return growth opportunities.

We expect strong cash flow generation to continue in the fourth quarter, the free cash flow in the $150 million range for the full-year. Now let me summarize our outlook for the fourth quarter. Overall, we see robust end market demand across our segments with typical construction end market seasonality.

We expect demand for our growing portfolio of consumer-oriented products to remain strong. Inflationary cost pressures have persisted into the fourth quarter and we have pricing actions in place to mitigate these increases in the quarter and fully catch-up by the first quarter of 2022.

While still early in the integration process for Normerica, it's progressing well, and we will begin to realize accretion from this acquisition in the fourth quarter. And overall for the company, we expect another strong performance with the operating income around $60 million.

As we have demonstrated throughout the year, we have navigated uncertainty and a number of obstacles to deliver a strong financial performance. And we expect to continue to execute well as we closeout 2021. We have solid growth momentum across our segments and with the growth initiatives outlined earlier in the call we're setup well for strong 2022.

With that, let's turn to Q&A..

Thank you. [Operator Instructions]. We'll take our first question from Silke Kueck with JPMorgan..

Hi, good morning.

How are you?.

Good.

Silke, how are you?.

Good. A couple of questions. My first is I was wondering whether you can talk about what you have offshore/onshore -- sorry, offshore and domestic splitters in Paper PCC at the end of the year. And how many tons you think you'd sell this year in total versus next year given the progression of the startup? That's my first question..

So your offshore/onshore volumes. That was --.

What your split is like in tonnage terms, like and how much you sell onshore/offshore by the end of the year.

And what are the total tons that you think you'll sell this year? And how many tons you think you'd sell next year?.

So the split, if we look on a -- in the quarter Silke it was about 30%. And when you say onshore, you're talking about North America..

Yes..

So the rest would have been international or offshore. When you look at it on a year-to-date basis, it would be the same. As Doug said, we're growing volumes and that that contributed to the 5% growth that you saw on Paper PCC. And that's coming from mostly international, so that makes us going to grow more internationally as we move forward..

Okay..

Does that answers?.

It does. Typically like your tons and PCC are like somewhere on like the roughly making up 3 million tons.

And so I was like wondering what you like targeting for the next year?.

Yes, so as you saw, I mean you can see the volumes here in Q3 were about 700,000 tons. With that ramp up that's taking place and as we've told you before, we'll be closer to the 3 million ton mark here for the full-year. And then I don't know if you want to talk D.J. any further about anything that's taking place into 2022.

But Doug outlined for you that you're going to see another 5% in Paper PCC into next year..

So good, it is D.J. And so just to augment that, Doug had mentioned the two satellites that are just coming online. So those are, one in Europe, we'll continue to grow that's in the packaging sector, and then another one in India, that we will continue to ramp up, China will continue to ramp up over time.

And then those -- that capacity is coming online is another 50,000 tons in China and then Doug mentioned, we get very strong level of confidence that we'll also be growing India further with another 20 some thousand tons. So majority of that will be growing offshore.

And then we did -- we have mentioned that will there's a restart, that'll be happening in the U.S. at Domtar, which will be changing to paper excellence over time. But that restart is in the neighborhood of 30,000 tons. So still majority is going to be going offshore.

I would tell you also that as I look at the business development pipeline, that is ahead of us I would say 70% of those opportunities are offshore opportunities. So that's the split that we're seeing..

Okay, that's helpful. Thank you. And then you mentioned that you've signed several contracts in -- on the Refractory side. And I was wondering whether you could also quantify that what you think the contribution from those will be for like next year, or maybe it did has to be looked at over like a longer period of time.

I was just wondering whether you can quantify that in any way.

And then the second question was Refractories businesses, I was wondering whether you affected in any way, purchasing dead burnt magnesia, like it's little hard to tell, what the supply/demand issues are and I was just like wondering how you're situated?.

Sure, let me start and then I'll hand it over to Brett to give you more, Argirakis to give you more detail on the contracts. So the contracts that we've signed and I mentioned are about $100 million over the next five years. And they're pretty equally spaced; I think some of them will start to accrue to us early in the year.

So if you can think about it Silke, this is kind of a $20 million per year over the next five year kind of pace. Business is about $300 million right now. So it's a significant kind of built-in growth right there. The contracts are in more toward the electric arc furnace, and they've been really promoting our new technologies.

And so before I answer the MGO question, maybe Brett can do it. Let me pass it over and he will give you a little bit more detail on these contracts and kind of how we've approached them with these new technologies.

Brett?.

Yes, thanks. Thanks, Silke. The Refractory business, we continue to transform this business into a safer more high-tech company. We've focused our efforts in developing the automated refractory and wire injection equipment to be safer and move people away from really high temperature heat.

As Doug mentioned, we did sign seven contracts this year, over $100 million over the next five years. The new equipment that we utilize has our laser technology tied to it.

So we're able to measure the electric furnaces or steel ladles, the lining thickness, it feeds the information to our robotic ScanPro equipment and then it applies our refractory products to the appropriate areas. The application, the key to this is being able to do it remotely keeping the operators out of that way away from very high temperatures.

Then in addition, the R&D team has done a great job in expanding our product portfolio. So we're now able to apply product in all areas of the furnace rather than specific areas prior to the new developments. And then really lastly is the continuation of our steel mills service group, our customers really have a lot of confidence in these guys.

And they're able to support their refractory programs and maintain our equipment as these programs continue to develop. From an MGO standpoint, we are in a pretty good position, we've prepared ourselves. We buy MGO from both China and Turkey. So we've positioned ourselves well and really preparing ahead of schedule for the China Olympics.

So we're in pretty good shape there..

That helps, Silke?.

Yes..

Of course good start from our inventory positions. And I take that from certainly for the Refractories business, and how we've diversified our supply base, made sure that those inventories are in good shape to support the customers. But I'd say that also across the company, and other businesses..

Last I was wondering if you can talk about where that -- where the pricing benefits were flowing for like and all this like $5 million in specially minerals.

But I think overall, you got like $11 million, where did the rest of the pricing come in?.

It's across the business, I'd say give you a quick example of the dynamics that's gone on this year. A typical year, take our Specialty Minerals business, two pieces, the Paper PCC and kind of the performance process minerals piece, on the Paper PCC side, scheduled price increases, right.

So every six months, once a year prices move up and those are contractual. And that continues and we have those protections in those contracts. So that'll be taken care of on its normal timing. On the Process Mineral side, you see once a year setting the pricing up, I will tell you this year, we changed our prices four times.

We're on our fifth increase; we're using different mechanisms to make sure that we're covered. So it's been a very dynamic pricing year. And I think you're probably hearing about that a lot out there in the market.

So the majority of that is that, the inflation that we talked about was coming into this business, a lot of that in the third quarter was energy acted very quickly to get our pricing and mechanisms in place to have all of that covered.

There is about a month lag between some of that absorption and the pricing change just because it takes some time to move some things through. And that's why fully through the fourth quarter and into -- it'll take a month into the first quarter have that covered. However, we expect pricing costs are going to continue to change.

And so we'll continue to make those adjustments as necessary to make sure that we keep ourselves covered. So I'd say the majority of that pricing to your question is going into the SMI business. That's not to say that we have another 50% of it, or 40% of it is probably in the Process Mineral or in the Performance Materials segment..

Thank you. We'll take our next question from Daniel Moore with CJS Securities. Please go ahead..

Thank you. Good morning. Thanks for taking the questions. Doug, you got my ears burning in those prepared remarks, you said next year sales trajectory goes north of 10% and I was typing really fast.

So is that across the board and walk us through that maybe by segment product end market kind of, where to see the biggest drivers there?.

That's a number that we're looking for MTI in total. I think we'll give you more details on how that breaks down by segment as we go-forward, Dan but at a high-level what's behind that is a couple of things.

And I think in the beginning of my comments, I tried to break out for you the organic growth that's occurring today in this quarter, 5%, so we grew organically 17% this quarter.

But if you take away the market aspects, right, that was 12% of our growth, 5% came alone from the organic projects, right, so 5% new satellites, new technologies, the market positioning, and the growth in those geographies moving into these adjacencies, the growth of our consumer-oriented products, which is, I think it grew 13%, the consumer growth was 13% year-over-year.

So you have a 30% of the company growing at that kind of 11%, 12%, 13% range, you've got the new satellites in the Paper PCC business growing at 5%. It's all told the ins and outs; we grew just in the third quarter organically without market 5%. You then take the Normerica acquisition, another 5%.

And that says the market plains over next year; let's say it just stays flat. We think that 10% is delivered both organically and inorganically next year. And honestly, I think we can add to that with some projects that we might pull in between now and in the next six months, right.

So we've got a level of confidence that says we can deliver that next year and then further out.

My remarks, we're trying to show you the things that we're investing in and how we're positioning ourselves even as we plan over from Normerica next third quarter, the projects that we have in hand and the momentum we have in our businesses, we think we can keep that going.

Now, I've always said this business can grow in mid-single-digits, if not higher, supplemented by acquisitions. And I think next year, you're going to see that thesis come up..

All right, very helpful. Normerica, I guess it should turn accretive by Q4.

When does that accretive to operating income margins are neutral doing we kind of see that flipping given potential synergies?.

So I will tell you that Normerica right now is not accretive, we showed you that charts in Performance Materials as it sits today, it's not accretive to those Performance Materials margins.

That was part of where we saw value in the business being able to operate it differently, capture synergies through that business, and its combination in the vertical integration with our minds.

And so it'll take a little bit of time, I think we said last quarter, we'll probably by the second, third quarter of next year, we feel we'll have that fully integrated. And then we feel those margins will be up there at that average if not maybe higher in total for the company. So it will be accretive. But it's not currently.

And we need to make sure we move through methodically move through the continuous integration and capture those savings that we saw when we went into it. That's what I mentioned. I think it's not only our thesis, when we bought it is intact. But also that will come from leveraging that position that we have in the packaged calculator business.

And we see those sales opportunities out there. So we're working on making sure we get the operation straight, safe, integrate employees, bring them into our culture. And then we think we've got a really nice platform to grow from. So we'll get there, Dan, it's not going to be in the next quarter or two though..

That's perfect. Shifting gears, obviously, you've done a really much better and remarkable job in terms of pricing in a very dynamic environment.

That said, if we just focus on sort of logistics, transportation input costs, what's the cadence been over the past few months of direction of that inflation, supply chain challenges and logistics challenges? It's starting to plateau or ease a bit in certain areas.

What can you say about that, do we need to continue to play catch-up, that's my question?.

Yes and Dan, when you take a look, as we move from the second quarter to the third quarter, right, what we showed you on a quarter-over-quarter basis was about $10 million in inflationary factors moving higher. The biggest component of that delta change was the change in energy.

So you had that repetitive move take place, logistics, raw materials, we've seen a steady uptrend in and what we talked about was the fact that that was going to continue into the fourth quarter. And so you're now looking at a fourth quarter that from a cost inflation perspective looks a lot like your third quarter.

That being said, the pricing component we're narrowing on and the mechanisms that we have in place, we're catching up on, so that we have by the first quarter, as Doug said, we're moving to be net neutral against those inflationary costs.

So you are seeing that take place raw materials have been about two-thirds of what we're going to see this year in terms of the higher costs. Energy is going to make up the largest component of the rest. So call it 60%, raw materials, 30% energy and 10% logistics.

With that logistics condition improving slightly, some of those raw material components improving slightly, but continuing, like I said, to have a fourth quarter that looks just on an inflationary cost year-over-year a lot like the third quarter..

Really helps, Matt. Metalcasting continue to grow despite the well documented auto and chip shortages, supply chain shortages. So, looking out to next year is that the expectation even it's our kind of stays down, you see that opportunity to continue to grow at the levels that you described..

Yes, we do. We see -- I'll pass to Jon to give even more color, but the foundry markets that we serve are not just automotive focused and I think you're seeing that.

And I think there probably has been -- there has been some impact from auto on those foundry customers and that's been far outpaced by the growth, both geographically where we're positioning ourselves and in the other markets that those foundries serve, agriculture, outside of automotive, heavy equipment. So those have done very well.

And I think we're going to continue to see that penetration rate. And especially as I tried to mention -- as I mentioned today, we're starting to see smaller markets that we've been seeding and developing like India or a smaller market -- smaller markets for us, very large market opportunities start to grow.

And those growth rates are starting to get to the point where they're making a difference. And we think that's going to further supplement the growth.

So going into next year, Jon, do you want to talk a little bit about what we're seeing and what we're hearing in the marketplace around the foundry?.

Certainly. Hi, Dan. A couple things to point out.

First of all, some of the companies that we serve, the foundries, who supply the auto industry, are relaying to us that the automakers are sending them signals that starting Q1, Q2, they're going to be producing in excess of what they had produced in 2019, so very strong positive outlook, starting in Q1 of next year.

As Doug has said, we're pretty well diversified. We're positioned extremely well across the globe. We participate in the markets that have really good, strong casting growth rates. Think about North America, China, India, our penetration strategy continues to work extremely well.

We're working with customers who are demanding qualities that are equivalent to Western technologies, especially in India and China. And as a result, they're looking for our high-value blended products. And so, that's one of the key initiatives and key drivers of our growth. Doug mentioned that we are positioning ourselves.

We took advantage as a COVID downturn and also some of the outages with chips and the labor shortages that have occurred, but we're positioning ourselves with the new customers. So we're growing our share and our positions in each of these regions. We're introducing the technologies, the high value technologies. We're supplying those new customers.

And we're positioning ourselves, so that when the markets are fully functioning, we're going to be very well positioned for future growth and we will see that in 2022..

Super, lastly, real quick on the capital allocation side, the new share repurchase authorization given it's got kind of one year on it is the expectation that you would execute the full amount in that timeframe.

And secondly, does that have any implication for the M&A pipeline or simply that your balance sheet and free cash flow gives you the flexibility to kind of pursue both avenues? Thanks, again..

I think you hit it right on the head there, Dan. I think, yes, we fully intend to execute it within the timeline as we did this past one.

But I do also think, yes, that it speaks to the flexibility that the strong cash flow generation and the expectations that's going to continue the balance sheet, and being able to both -- the options of being able to both return to shareholders and pursue bolt-on acquisitions. We also have a leverage position that if something other or larger.

We think we can handle that as well. So, I think, it speaks to both that the flexibility that we have with our cash flow and balance sheet to be able to do both..

And as we look out, Dan, just to add one component to that. As you remember, we did have about $100 million that we took on a revolver for the acquisition of Normerica, begin paying that down in the fourth quarter and should have that over the next 12 months taken care of..

Thank you. We'll hear next from David Silver with CL King..

Yes. A lot of good questions before that puts me in a bind, just kidding. But I would like to ask maybe a bigger picture question about kind of your -- the energy costs environment that you're operating in.

And, I mean, we -- there was just some good commentary on the foundry side, but what I'm thinking with paper and steel, I mean, those are both very energy intensive industries that you're serving and the price of crude oil is certainly rising.

But the regional price for, let's say, natural gas has escalated pretty sharply and there has been headlines about some production cutbacks here and there. So I was just wondering, maybe we could just hone in on your PCC business and maybe the steel making side of things.

I mean what is -- from your perspective, what is the risk that maybe elevated energy costs or some difficulty and availability maybe in China or elsewhere, energy availability, kind of will negatively impact your operating plans over the next couple quarters? Thank you..

So, David, I think, over the next couple of quarters, the risks are in that inflationary environment. So -- and then I'll try to address the longer term, I guess, question you're asking in terms of the energy intensity of these things, which I also think we'll be dealt with an inflationary environment.

That's a different set of challenges, countries and industries will have over the long-term, but in the short-term and how we're looking at it, we have absolutely seen a rapidly changing energy market. I think you're probably hearing that around. We're starting in the third quarter different by geography.

In North America and in the West Coast, it's been a little bit more electricity driven, in terms of cost increases, some natural gas, given the changes of pricing here in the United States. I'd say in Europe, much more acute.

In terms of natural gas pricing, Matt gave me a number that we saw in some areas in Europe a 400% increase kind of instantaneously through the third quarter. We're having to deal with volatility like that, and staying on top of it and making sure that we have our energy. It's not about necessarily in our regions the availability of the amount.

It's what -- it's the changing -- rapidly changing pricing to get quoted. In China, a little bit different. We're starting to see curtailments. We saw some of them in the third quarter. We weren't impacted significantly. Matt mentioned, there is an uncertainty going into the fourth quarter that we could see further curtailments.

But we have seen some easing of coal prices in China and electricity has been a little bit more stable. So I think we've put all of that into what we're giving you in our forecast in the fourth quarter. We've got our pricing mechanisms and our inventories in a position -- in good position.

So we are covered in the short-term, and we have mechanisms in place that is as those energy costs change over the next year, we'll be in a position to make sure that we were on top of that.

Longer-term though energy is going to be an issue and I don't know if we want to get into this call in terms of our conversion from fossil fuels to more greener sources, but that will be something as a company we're dealing with that as we move to greener energy sources.

We're sourcing 40% of our electricity from green sources out in our Wyoming facilities and we just changed to that. So we're taking steps as a company to convert our business from coal to natural gas to cleaner sources to electricity, and that electricity we're purchasing from greener sources already today.

You can see what we've been doing over the past year in our sustainability report, but -- hopefully that answers some of what the company is doing over the longer term and how we're dealing with it in the short-term..

Yes, very, very helpful. I'd like to ask one more question maybe to go back to the M&A and balance sheet questions. So, you have concluded a couple of transactions in just the past few months including I think your largest acquisitions since Amcol in terms of purchase price. And I was just wondering if you could maybe comment on a couple of aspects.

I mean, first, regarding the M&A funnel or project pipeline, Doug, how would you characterize -- following these two deals, I mean, how would you characterize your project pipeline or potential target pipeline right now, let's say relative to a year or two ago? And then secondly, maybe, Matt, if you could just remind me, but you have shown interest in projects of various sizes including some larger ones.

And, is there a way for us to think what -- how high the company might go, let's say, above today's -- I think it's 2.1 times net debt to trailing 12 month EBITDA.

I mean, how high might the company be willing to go for the right acquisition? And how important is maintaining your current credit ratings in the event that unusually attractive larger target was to present itself? Thank you..

Okay, let me start with the first one, David. In terms of the pipeline, I guess, I could answer quickly that it's two projects smaller than it was a couple months ago, but that's a bit of a joke. We have a good pipeline of projects that fit along those growth strategies that we have to support our businesses globally.

And as you've seen move -- we have some opportunities to grow our consumer oriented product lines. So though we've executed on two of those that were in our pipeline just recently, I do think that there is other opportunities that have moved in and things become more actionable.

So, we've maintained a similar sized pipeline and of things that were attracted to if they became actionable than we were earlier in the year, a year ago, so about the same. That said in that pipeline, there are things that are smaller.

And we've always said in the 10s of millions of dollars of revenue type numbers, and there are some that are bigger in the hundreds of millions of dollars of revenue type pipeline. How far would we go to get some of the bigger ones? I think I've always answered the question that says, it really depends on that target.

And it really depends on as we've looked at it over time, what we be willing to do -- what we feel we can do with it.

And so, if we feel from a risk standpoint and an understanding and fit with the culture of the company, the technologies that we have in the markets and how comfortable we are, we see some things that fit very well with our company and they're -- and if we know what we can get from a synergy standpoint, we always look at things going in and on a post energy basis.

And we look at that and make sure that they are going to be accretive to the value of the company after we know we're going to do with that. We take a lot of time to think about that. How high does that take us? Well, at Amcol that took us up to about 4.4 times.

And Charlie said that's -- I'm not going to say there's any limit to anything, but that's at the higher end of the range, right. I don't think the things that we have in our pipeline requires to go there, but if we find the right thing and we feel comfortable with it, we're willing to make sure that we pay the right amount for it. .

Yes.

And David, just to -- you heard Doug talk about how and it was demonstrated, I think, in these last two acquisitions, how we're managing the small and medium type bolt-on acquisitions, managing that with cash on hand, using the revolver, paying that down quickly based on the strong free cash flow that we have, and that we will continue to generate.

And that is the flexibility that we talked about and have demonstrated over the past couple of years. So that's the way we think about that. Transformationally, Doug just gave you some space there. Our conversations with credit rating agency is very robust. I think we have a very good metric result in terms of our rating.

And when you read their reports, they reflect that. They also reflect that there is optionality in our portfolio and that's why they rate us like I do -- rate us like they do. So there would be some of that deal structure built into their current rating..

Very good..

I just say we're very, very disciplined with that capital. I think, there's not a lot that you see, sometimes they're not public, but I'd say we will walk away from. There's more than we've walked away from because we're just not willing to pay that. We don't see the value in it. So, we keep to our knitting. We make sure we look at things very robustly.

And we're really disciplined about how we're going to put that capital out acquisition..

Thank you. We'll take our next question from Marisa Hernandez with Sidoti & Company..

So question on your commentary about implementing price increases during the fourth quarter that would allow you to catch up with cost inflation by the end of the year? What does that mean exactly? How do you think about it in terms of percentage margin? Where would you like to be at perhaps relative to prior quarter for the beginning of 2021?.

Just I want to make sure I understand the question. In terms of the margin we're targeting. Let me see if I can answer it. And you tell me if this is addressing it the right way. So we will absorb costs. There are many instance as where we will absorb costs.

And then there is a timing aspect to some of our business in terms contractually, when we get to pass that through. So there is some lag that -- when costs are going up. There's a lag, putting the pricing up, but then was cost retreat, there's a lag between where we take that price down, that's largely in our paper.

And there's some other contracts businesses we have. There's also a practical speed at which you can put prices up for your customers. And so we will absorb costs and the communication, the changes, the announcements, and we've been very quick to make those changes.

In the instance of our Specialty Minerals business, where prices especially in the third quarter on energy went up very quickly. There is maybe a month lag in terms of us ability to push that price -- change those prices and move that through.

And so therefore, as of giving an example, November 1, so the third quarter costs were absorbed in November 1 price has changed. That'll be the end of January. Before that tranche has been absorbed. Now, we'll continue to make those changes. So it's a dynamic type environment.

But that's why we said we'll be kept, we've got it in place to be able to capture those increases. That said, that brings our margins, as Matt mentioned in that business going back to that historical kind of average of where they've been. So we look at that.

Again with higher cost and higher pricing, you also have to recover your margins in that pricing. And so we target that as well. So it's both on an absolute basis, Marisa and on a margin basis to make sure we're protecting that. But there's a timing aspect that change..

And just Marisa, one clarification there. What we said not by the end of the year, but in the first quarter of 2022 is when we're going to see us catch up with the costs that we've absorbed so far this year in '21..

Got it. Okay, so you talk also about cost inflation persisting into the fourth quarter. Curious as to what the pace has been lately.

Have you seen any slowdown or pickup of inflation in generally speaking, and specifically in some pockets?.

So when you -- when we came into the second quarter, what we told you was that we had inflationary factors that were in about that $7 million range that accelerated to about $18 million on a year-over-year basis in the third quarter.

And what I said previously was that, you're looking at a fourth quarter that on a year-over-year basis is going to be in that $17 million to $18 million. Looks a lot like what we had seen in the third quarter. The buckets of inflation started out in the second and third quarter, really starting with energy that's now moved into raw materials.

Logistics has been a steady March, as we've gone through that inflationary period. And that is so your bucket of raw materials on a full-year basis has grown. And that's what I said before was about 60% of what we're anticipating for inflationary factors for the full-year. That being said, what we also showed you was that pricing was also accelerating.

And for the fourth quarter, you're going to see that gap narrow significantly, again on that $17 million, $18 million. We have pricing in place that's going to bring us closer to fully capturing that. And so when you look now into the first quarter, that's why we have a viewpoint that we can catch up on what we've absorbed so far this year..

That's very helpful. Thank you. And finally, on the sales growth for 2022, nor to 5%, 10%.

Does that require additional acquisitions in 2022 or not necessarily?.

No, not necessarily. So we think that that's with current acquisitions from the back half of this year, plus our growth rates and the projects that we have in hand that we're executing on and as they ramp up in the new technologies. That's how that numbers derived..

Thank you. We'll now take our final question from Mike Harrison with Seaport Research Partners..

Hi, good morning.

I was wondering if you could give some details around the Specialty PCC assets? What kind of revenue or EBITDA contribution would you expect to see? And I guess, maybe give a little bit more detail on what made those assets attractive to Minerals Technology?.

Let me start, and then I'll put through to D.J., but look this is a small bolt-on acquisition, it's --we're not highlighting it, because it's significant in terms of our system of our platform of Specialty PCC production here in the United States.

It helps us from a logistic standpoint, and at the moment, relatively underutilized asset that we're going to upgrade to put in some technology. So, we're not necessary disclosing the revenue size of it and what we paid for it. But it will, it's a small bolt-on acquisition. And D.J.

do you want to give us a little more kind of what we're going to do with it?.

Sure, Mike. So a good way of thinking about it is as if it's a PCC plants that we've been deploying. So that's a good way of just thinking about the level of revenue contribution that it would do..

$10 million..

In the neighborhood of $10 million. But what we're excited about the most is, is that capacity that it gives us to what Doug was referring to that, that allows us to work with our team that's in Adams, Massachusetts. With this asset now in Missouri, we can introduce the new products.

We can seek some growth that we think we've got a unique access to versus the previous owner. And then we also feel that we can it gives us great flexibility to work with product mix, and really better serve the market. So we're very excited about that opportunity.

It's a nice augmentation to what we've built in Adams, Massachusetts, and it complements our position in both the construction and transportation markets, that's probably 75% or so of where those current tons go. And then a little bit of it goes into the publication grade.

So there's a little bit of paper business that's in there, and some business that goes into Inc's. But we're excited mostly about the overlap in the construction and transportation..

So Mike a small bolt-on. Again, not trying to over sell the small base of revenue today around $10 million. It's what we're going to do with it going forward. Given its capacity, we're going to put in new technology, debottlenecking. And then really leverage it in conjunction with our Adams facility.

And we think from a future growth standpoint, it could be bigger than that. So more to come as we as we -- this was yesterday. So more to come as we integrate it. I want to welcome our new employees. And we'll keep you up to-date on how we develop it over the next year..

Understood. Appreciate the color there. And then wanted to ask about the packaging opportunity. You talked about that as being kind of a key technology for your PCC business. Maybe just take a step back and help us understand how PCC that goes into packaging applications, is different from PCC used as a filler in uncoated freesheet.

And maybe help us understand that I guess for a similar size mill, is it the same amount of PCC in terms of volume per amount of paper? And what are the margins look like compared to a traditional PCC application?.

Yes, let me start and then D.J. can fill it in. So it's not our PCC. There is PCC in packaging. PCC is using white top liner board. As we mentioned some of our current packaging applications. There is PCC used as a high end coating in some packaging applications.

But these are different mineral types, mentioned ground calcium carbonate and other mineral types that are going to white and brown box.

The reason we highlight that today is we've been working on this for a while and we've had some really good results, and some -- now some pretty far long discussions in those packaging markets that put ourselves and our technologies. We like the base paper market.

But this puts us into other markets that our technology applies to that are growing and in the geographies where we currently sit. So D.J. know more technical aspects of how we've use those pigments and packages..

Sure. So Mike, let's start with the stuff that we're doing today. And then I'll walk you through this kind of a sequence chronologically of how you'll be seeing these technologies get exposed. Doug mentioned there is white top liner think of that as pizza box.

And there's new higher end stuff that's coming out that you'll see fully printed Amazon box for instance. The value equation for PCC there is that we provide a better coverage and a better sheet. So we're enabling this upgrade of that capability and upgrade of that product performance.

And the margins and things that you should see from there typical with what you see with our current PCC plan. Doug talked about a penetration in white board basically. And it's hardened board that we've got.

So what you'll recognize that in the marketplace on high end stuff, which is where our PCC goes, that's the high end would be stuff that you buy up a bottle of liquor in or you get a case of golf balls in. You go lower in that. And you've got things like ice cream board and those sorts of things.

And, and what we've introduced and what we're commercializing and working on these contracts on in China is a GCC. Now, what we've done here is combined our capabilities that we have at Adams and Lucerne Valley where we're very familiar with the mineral GCC.

Combined that with some new processing technology, and our operational excellence and satellite model. And so we'll be introducing satellite models in China. That's, that is what we're doing there. And much like the PCC business, these are discrete investments, that will yield an appropriate return.

Then the last thing that Doug had referred to is really towards the brown box. This is our first machine trial. We're very excited about it. It is not a carbonate based technology, it's an alternate mineral. And first trials were good.

We will probably have a better feeling for how quickly we can commercialize that in the first half of next year, it'll take this first trial. We're analyzing the data for, it was successful enough that we already have a second trial lined up. We'll get the full data and economic impact understood in that first quarter of next year.

And we'll be able to give you some more insight on that, but really pleased with how that paper group has pursued the strategic objective..

Okay, and you mentioned this as another mineral, not a carbonate based product.

Is it bentonite based?.

Mike, at this time, we're not -- for competitive reasons, we're not giving some details on that. And there are actually the one that I -- there are two technologies in this space. One that deals with recycling of minerals, and then one that is the one that was just trialed is what I was specifically referring to.

So we're holding back on that for some intellectual property advantages that we feel we have..

Thank you. And that does conclude today's question-and-answer session. I'd like to turn the conference back over to management for any additional or closing remarks..

Thank you very much for attending the call today. I do appreciate to take any extra time to stick with us and ask the questions. We'll get back to you in another three months. Thanks again..

Thank you. And that does conclude today's conference. Thank you for your participation. And you may now disconnect..