Earnings name: MTI proclaims document Q2 outcomes, optimistic outlook By Investing.com

MTI has reported one other document quarter in its second quarter of 2024, with gross sales reaching $541 million, marking a 3% progress within the Shopper & Specialties phase. The corporate’s working earnings rose to $85 million, a 20% enhance from the earlier yr, with margins hitting 15.7%. This efficiency surpasses their interim goal. Regardless of market challenges, MTI stays assured in its strategic targets, which embrace specializing in greater progress markets and new applied sciences. They anticipate secure market situations and keep a constructive outlook for the long run.

Key Takeaways

• MTI’s second-quarter gross sales have been $541 million, a slight 1% enhance on an underlying foundation year-over-year.
• Working earnings grew by 20% to $85 million, with working margin increasing to fifteen.7%.
• The Shopper & Specialties phase noticed a positive quantity influence, contributing to the robust quarter.
• MTI expects comparable gross sales and stable working efficiency within the third quarter, with document revenue ranges.
• Robust money movement was reported, with $50 million from operations and $69 million in free money movement within the first half of the yr.
• A dedication of $30 million to assist the BMI chapter and mediation course of was introduced.
• The corporate is optimistic about progress within the Excessive-Temperature Tech sector and its new world pet care model.

Firm Outlook

• MTI predicts secure market situations for the second half of the yr.
• They anticipate sustaining robust gross sales ranges and working efficiency within the third quarter.
• The corporate is launching a brand new world model for its pet care enterprise, concentrating on over $500 million in income within the coming years.

Bearish Highlights

• The corporate is managing a product changeover within the pet care enterprise.
• Engineered Options is anticipated to see decrease working margin steerage for Q3 on account of a product combine shift and better vitality prices.

Bullish Highlights

• Robust demand for non-discretionary consumer-oriented merchandise in Family & Private Care.
• Development anticipated within the electrical arc furnace market with a number of installations deliberate.
• Elevated curiosity and exercise for FLUORO-SORB product following EPA rules.

Misses

• No particular misses have been reported from the earnings name.

Q&A Highlights

• Doug Dietrich addressed the changeover with a bigger buyer, noting that it was forecasted and commonplace.
• The corporate is engaged on integrating its 4 totally different firms into one world entity.
• Investments in infrastructure and automation will assist world buyer wants.

MTI’s robust efficiency within the latest quarter displays its capacity to leverage mounted prices with elevated quantity and keep pricing energy. Income progress within the Specialty Components phase is attributed to new satellites, product modifications, and a robust pipeline within the paper and packaging trade. Adjusted pricing mechanisms in contracts have allowed the corporate to return to regular pass-through cadence, with expectations of regular margins within the paper PCC enterprise. MTI has additionally seen progress within the paper and packaging satellites, with Lucerne Valley performing nicely and a robust pipeline indicating potential for future progress. The corporate concluded the decision by thanking individuals and addressing any technical points, guaranteeing {that a} clear replay could be accessible on their web site.

InvestingPro Insights

MTI has demonstrated resilience and progress potential in its latest earnings report, and the InvestingPro information displays an organization with stable fundamentals. With a market cap of $2.6 billion and a P/E ratio that has adjusted to a extra enticing 14.39 within the final twelve months as of Q1 2024, the corporate’s valuation is price noting. Moreover, the gross revenue margin stands at a wholesome 24.2%, indicating environment friendly value administration and a robust capacity to transform gross sales into income.

InvestingPro Ideas counsel that MTI is anticipated to see web earnings progress this yr, which aligns with the corporate’s constructive efficiency and outlook. Moreover, the inventory’s low worth volatility signifies stability, which can attraction to traders looking for a extra predictable funding in unsure markets. MTI’s dedication to dividend funds, with a observe document of 32 consecutive years, speaks to its monetary well being and dedication to shareholder returns.

For traders in search of extra detailed evaluation and extra InvestingPro Ideas, there are 5 extra suggestions accessible on InvestingPro, which might be accessed with a particular supply. Use the coupon code PRONEWS24 to rise up to 10% off a yearly Professional and a yearly or biyearly Professional+ subscription, enhancing your funding analysis with invaluable insights.

Full transcript – Minerals Applied sciences Inc (NYSE:) Q2 2024:

Lydia Kopylova: Good morning, everybody, and welcome to our Second Quarter 2024 Earnings Convention Name. In the present day’s name might be led by Chairman and Chief Government Officer, Doug Dietrich; and Chief Monetary Officer, Erik Aldag. Following Doug and Erik’s ready remarks, we’ll open it as much as questions. As a reminder, among the statements made throughout this name could represent forward-looking statements inside the that means of the federal securities legal guidelines. Please observe the cautionary language about forward-looking statements contained in our earnings launch and on the slides. Our SEC filings disclose sure dangers and uncertainties, which can trigger our precise outcomes to vary materially from these forward-looking statements. Please additionally observe that a few of our feedback as we speak consult with non-GAAP monetary measures. A reconciliation to GAAP monetary measures might be present in our earnings launch and in appendix of this presentation, that are posted on our web site. Now I will open it as much as Doug. Doug?

Doug Dietrich: Thanks, Lydia. Good morning, everybody, and thanks for becoming a member of as we speak. Okay. Let’s go over a fast define for as we speak’s name. I will start as we speak’s presentation by reviewing some highlights from our second quarter, and I additionally need to take a couple of minutes to spotlight the transformation that is been taking place at MTI, and the way that is resulting in our greater ranges of efficiency. I will then provide you with an replace on what we’re presently seeing in our finish markets and situations for the rest of the yr. Erik will then take you thru detailed financials and supply an outlook for the third quarter. And I will end up with a small commercial for our sixteenth Sustainability Report, which we printed earlier this week, and point out just a few highlights. We’ll then open the assembly to questions. With that, let’s get began. We delivered one other document quarter, and our portfolio of companies continues to point out its energy. This quarter was additionally an instance of robust operational execution by our crew and the way we’re leveraging the facility of our new group. Let me take you thru among the particular highlights. Gross sales this quarter have been $541 million. The Shopper & Specialties phase grew 3% over final yr on an underlying foundation, pushed by robust progress in each our Shopper Specialty and Specialty Components companies. Gross sales in Engineered Options have been barely decrease than final yr as progress in Excessive-Temperature Applied sciences was greater than offset by decrease gross sales in Environmental & Infrastructure, because of the continued weak point we’re seeing within the business building market. Working earnings was $85 million, a document degree for the corporate and up 20% over final yr. Margins continued to develop, reaching 15.7% within the quarter, forward of our interim goal for this yr. We noticed a positive mixture of our higher-margin merchandise, captured synergies from the reorganization, and our groups proceed to execute on our pricing methods, and seize enter value financial savings. Every enterprise is performing nicely operationally, specializing in security, variable value management and productiveness enhancements. Earnings per share have been $1.65, a 26% enhance over final yr. Working money movement additionally remained robust, rising 10% over final yr. I additionally need to provide you with an replace on our standing with the BMI chapter. As you possible noticed in our press launch, we agreed to ascertain a $30 million credit score facility for BMI to be able to assist continued progress with the chapter and mediation course of. We see this as a constructive step, to maintain the method shifting ahead as expeditiously as attainable, to a good and remaining decision for all events. Erik will go into extra particulars on this in his replace in a couple of minutes. So general, I am happy with the quarter, the observe the corporate is on, and our efficiency to this point this yr. We’re delivering stable outcomes quarter-after-quarter, regardless of going through just a few market challenges. We’ve got momentum throughout our companies and throughout the group, and we see even greater ranges of efficiency to show going ahead. I need to take a couple of minutes to evaluate the progress we’re making towards our strategic targets, and use our first half outcomes as a backdrop to spotlight the energy of our enterprise mannequin, and of the portfolio of the companies we have constructed. Let me start by saying that our technique to place ourselves in greater progress, and extra worthwhile markets and to put money into new applied sciences is really remodeling MTI. We have constructed a resilient portfolio of companies, throughout each client and industrial sectors that present secure progress platforms, to stability cases of commercial market volatility like we’re seeing as we speak. We have outlined that our long-term potential is supported by our main positions in these markets and geographies by our core applied sciences and by our distinctive mineral reserves. Our first half monetary efficiency is an efficient instance of the kind of outcomes, this transformation can drive. I need to spotlight for you among the vital modifications we have made in every enterprise, the brand new positions we have created, and why we’re assured we will, not solely maintain, however strengthen our efficiency going ahead. Let’s begin with the patron facet of the corporate. We have invested in and assembled a portfolio of consumer-based merchandise designed to ship secure long-term progress. It features a main pet litter enterprise, with a vertically built-in world footprint. We proceed to leverage the worth of this footprint to develop in North America and Europe and in Asia to fulfill demand from rising pet possession traits. This non-public label enterprise is positioned to develop steadily and outpace the broader market price. We have made super progress integrating the acquired components and optimizing it into a worldwide enterprise platform, and over the following couple of months, we’ll be launching a brand new world model for this enterprise, to replicate this integration and supply a unified reference for our clients. We have expanded our Shopper & Specialties enterprise – client specialty companies into higher-margin progress markets like animal well being, private care and oil purification, and invested in new pure ingredient applied sciences which are aligned with macro client traits. In Specialty Components, our new recycling applied sciences like NewYield for the paper and packaging trade are gaining vital traction, and have change into the usual and main worth generator for trade clients who require sustainable options. On the commercial facet of the corporate, we have positioned our Excessive-Temperature Applied sciences enterprise, because the chief in rising foundry markets around the globe. And we’re transitioning our Refractories enterprise with new superior formulations and thru automated gear and information assortment techniques like our MINSCAN LSC. We’re increasing our environmental and infrastructure portfolio to assist resolve world challenges with applied sciences like FLUORO-SORB for PFAS remediation, and drilling merchandise, for geothermal heating and cooling techniques. These main positions and revolutionary options generate greater worth for our clients, and are producing greater margins for us. Our first half working margin is simply over 15%, and we have generated $162 million in working earnings, up 21% over final yr. An EPS of $3.15, which is up 28%. This profitability is pushed by this newer mixture of merchandise and in addition by our tradition of operational excellence, which continues to drive efficiencies, take away wastes in processes, and helps us leverage our progress over a disciplined overhead spending. I additionally suppose it is necessary to notice that all through this transformation, we have maintained our traditionally robust money technology profile, and our balanced strategy to capital allocation. This yr, we generated $106 million in money from operations, a 34% enhance over final yr, and are producing free money movement at our goal degree of roughly 7% of gross sales. We returned $22 million to shareholders final yr, and count on to return roughly $75 million this yr. And on the identical time, we have strengthened our stability sheet leverage to 1.7 instances EBITDA. This monetary energy, the potential of our aligned and targeted group, and our robust working tradition is a stable basis to proceed to construct upon. We understood after we established our five-year progress and monetary targets that the journey wouldn’t take a linear path. However our outcomes to this point show that we have put ourselves on a stable trajectory to attaining it. Now let’s evaluate what’s taking place in our finish markets, and the traits for the rest of the yr. Additionally within the Family & Private Care. We’re seeing robust demand for our consumer-oriented merchandise, and proceed to have a constructive outlook for this product line. The summer season months are the seasonally low demand level for our pet litter enterprise. Nonetheless, the market begins to enter its robust season late within the third quarter. And for our different client specialty merchandise, we count on comparable demand ranges into the third quarter and gross sales for these merchandise to stay on their robust progress path. In Specialty Components, we count on typically secure market situations in paper and packaging and in meals and pharma to stay by means of the second half. Residential building within the U.S. can also be comparatively secure for us, but remained under the degrees we noticed over the previous two years. As well as, we’re ramping up three satellites within the second half of the yr, which is able to add to volumes in 2025. And we proceed to have a robust pipeline of paper and packaging alternatives, pushed by demand for NewYield and for different – our merchandise concentrating on the packaging market. In Excessive Temperature Applied sciences, we see comparable market situations within the first half in all areas, apart from a weaker agricultural gear market within the U.S., which could have a small influence on our second half steel casting volumes. We’re additionally holding our eye on decrease metal costs within the U.S., which may influence metal manufacturing ranges. However we’re benefiting from the MINSCAN installations we have accomplished over the previous yr and have a number of extra scheduled within the second half. And general, we’re anticipating one other robust revenue efficiency from this product line. Environmental & Infrastructure is the place we see continued softer market situations and the one product line, with decrease gross sales in comparison with final yr. We anticipated to see some enchancment within the business building market within the second quarter. However given the rate of interest sensitivity of this market, our order supply dates started to slide from the second quarter to later within the yr. Our present expectation is that any significant market inflection, will possible be late this yr or early subsequent. Regardless of this, different components of this product line, like wastewater remediation options and drilling merchandise stay stable. I would like to notice that on this product line, our FLUORO-SORB product continues to achieve traction. We have accomplished a municipal water set up in Q2, and presently have over 100 pilot tasks in numerous levels. We stay intently engaged with the U.S. Environmental Safety Company, and are gaining comparable recognition and engagement with businesses in Europe. To sum up, we see a comparatively constructive market panorama forward for us, albeit one with just a few further pockets of commercial market weak point. The second half demand image for a few of our industrial markets, seems to be a bit much less sure than it was within the first half, however it’s one – we really feel we will navigate efficiently to ship one other document yr. Now I will flip it over to Erik to evaluate our – the monetary particulars phase highlights and our monetary outlook for the second quarter. Erik?

Erik Aldag: Thanks, Doug, and good morning, everybody. I will start by offering an summary of our second quarter outcomes, adopted by some particulars on the efficiency of our segments, and I will wrap up with our outlook for the third quarter. Following my evaluate, I will flip the decision again over to Doug for some highlights from our newest Sustainability Report. Now let’s evaluate our second quarter outcomes. We delivered one other robust quarter, with information for working earnings, EBITDA and EPS, excluding particular gadgets. Gross sales within the second quarter have been $541 million, up 1% on an underlying foundation versus final yr. Working earnings elevated 20% over final yr to $85 million, a document for the corporate. And working margin expanded 290 foundation factors to fifteen.7%. For the primary half, our working margin was 15.1%, nicely above the 14% interim margin goal we set for 2024. You may see within the working earnings bridge that quantity and blend elevated earnings by $3 million, which is web of the influence of the deconsolidation of BMI final yr. The Shopper & Specialties phase contributed a lot of the favorable quantity influence. We delivered one other robust quarter, with information for working earnings, EBITDA, and EPS excluding particular gadgets. Gross sales within the second quarter have been $541 million, up 1% on an underlying foundation versus final yr. Working earnings elevated 20% over the past yr to $85 million, a document for the corporate. And working margin expanded 290 foundation factors to fifteen.7%. For the primary half, our working margin was 15.1%, nicely above the 14% interim margin goal we set for 2024. You may see within the working earnings bridge that quantity combine elevated earnings by $3 million, which is web of the influence of the deconsolidation of BMI final yr. The Shopper & Specialties segments contributed a lot of the favorable quantity influence, whereas the favorable product combine got here principally from Engineered Options pushed by greater gross sales of our latest automated refractory gear inside Excessive-Temperature Applied sciences. Collectively, quantity and blend contributed 80 foundation factors of margin enchancment. Larger promoting costs drove an extra $3 million of earnings, contributing 40 foundation factors to the development in working margin. The remaining $8 million of earnings and 170 foundation factors of margin progress got here from an enchancment in our general value place. We’re realizing the advantages of productiveness and variable conversion value financial savings, a typically secure enter value surroundings, and the total run price influence of our $10 million value financial savings program. We additionally benefited from favorable vitality prices relative to our expectations heading into the quarter as our provide chain groups did a pleasant job profiting from decrease charges. EBITDA was $108 million within the quarter, and EBITDA margin was 19.9%, up 310 foundation factors over final yr. Earnings per share was $1.65 excluding particular gadgets, up 26% from prior yr. And money movement stays robust with money from operations of $50 million, 10% greater than final yr. Earlier than we transfer on to our segments, let me take a minute to stipulate on the particular gadgets within the second quarter. We recorded particular prices of $34 million, primarily associated to a $30 million provision for credit score loss referring to the corporate’s dedicated line of credit score to BMI OldCo, which is the entity previously often known as BMI. MTI supplied this line of credit score to facilitate progress in BMI OldCo’s chapter continuing, and ongoing mediation course of. So far, MTI has loaned $5 million of this $30 million dedication. Nonetheless, a provision for the total quantity was obligatory because the funds will possible be consumed within the course of and/or credited in direction of the final word creation of a 524(g) belief. Now let’s evaluate the segments, starting with Shopper & Specialties. Second quarter gross sales have been $284 million, 3% greater on an underlying foundation. Gross sales within the Family & Private Care product line have been 1% greater year-over-year. Cat litter gross sales have been quickly decrease this quarter, because of the timing of product changeovers of some retailers within the U.S. In the meantime, we noticed greater gross sales in a number of high-margin client purposes equivalent to private care, cloth care and animal well being In Specialty Components, gross sales have been 4% greater on an underlying foundation. We had stable quantity progress in paper and packaging, pushed by improved market situations in North America and Europe, and the ramp-up of our latest satellites in Asia. As well as, we have seen comparatively secure demand for our merchandise serving the residential building market. Section working earnings was $44 million within the second quarter 29% greater than final yr, pushed by greater quantity, improved product combine, favorable enter prices and better pricing. And our operations groups delivered a robust productiveness efficiency. Briefly, the enterprise is performing nicely. And consequently, working margin has improved considerably, up 370 foundation factors from prior yr to fifteen.4% of gross sales. Waiting for the third quarter, we count on year-over-year progress for Family & Private Care within the mid-single-digit vary. In Specialty Components, we count on underlying gross sales progress to stay much like what we noticed within the second quarter. Total for the phase, we count on underlying gross sales progress versus final yr within the low to mid-single-digit vary and working margin remaining robust round 15%. Now let’s flip to the Engineered Options phase. Second quarter gross sales have been $257 million, 2% under final yr. Within the Excessive-Temperature Applied sciences product line, gross sales grew 1%. In North America, foundry and metal markets have been secure, except softening ag gear demand for a few of our foundry clients. In Europe, metal markets have remained sluggish by means of the primary half. In the meantime, we noticed continued progress in foundry volumes in Asia, pushed by market penetration of our differentiated inexperienced sand bond techniques and technical companies. Within the Environmental & Infrastructure product line, gross sales have been decrease by 8%, pushed by weak point in business building and huge environmental tasks. After we talked to you final quarter, we anticipated extra tasks to maneuver ahead within the second quarter. Nonetheless, we have seen a continued shift within the timing of tasks for this enterprise. Section working earnings was $45 million, up 16% over final yr, pushed by greater volumes and a positive product combine in Excessive-Temperature Applied sciences, in addition to disciplined pricing and value management. Working margin was 17.4% of gross sales, up 270 foundation factors from prior yr. Waiting for the third quarter, we count on market situations to stay comparable, with gross sales for the phase barely decrease than final yr, and that is pushed primarily by the market situations in Environmental & Infrastructure, in addition to softer situations within the North American ag gear market. And we count on working margin of roughly 16%, in keeping with our goal degree for this phase, though decrease than the second quarter, on account of a extra normalized product combine. Now let’s flip to our stability sheet and money movement highlights. Our money movement efficiency has been robust. Money from operations for the primary six months of the yr totaled $106 million, up 34%. And we delivered free money movement of $69 million, greater than double the primary half of final yr. For the total yr, we count on free money movement within the $150 million vary. We deployed $37 million in direction of CapEx within the first half, and we count on between $90 million and $100 million of CapEx for the total yr. The speed of capital spend will enhance within the second half as we put money into a number of new paper and packaging satellites, together with these outfitted with our NewYield recycling expertise, and as we full a number of models of our high-tech refractory gear for supply and set up at buyer websites. Within the second quarter, we additionally repaid $10 million in debt and returned $23 million to shareholders by means of share repurchases and dividends. To-date, we now have repurchased $49 million of shares below our one yr $75 million authorization. Our stability sheet stays very robust with over $500 million of liquidity and web leverage at 1.7 instances EBITDA. Now I will summarize our outlook for the third quarter. We count on an analogous degree of gross sales, and a stable working efficiency within the third quarter. In Shopper & Specialties, we count on underlying gross sales progress within the low to mid-single-digit vary versus final yr, pushed by greater gross sales of cat litter and different consumer-oriented merchandise. In Engineered Options, we count on gross sales to be barely decrease than final yr, much like what we noticed within the second quarter. In abstract for MTI, we count on gross sales between $535 million and $545 million, persevering with the identical underlying gross sales progress traits we noticed within the first two quarters. With a extra normalized product combine in addition to some seasonally greater vitality prices, we’re anticipating working earnings between $77 million and $80 million, and working margin remaining robust at shut to fifteen%. And we count on EPS between $1.50 and $1.55. The place we land on this vary will depend on how demand performs out, particularly within the few industrial markets the place we have famous some softness. Regardless, delivering this steerage would characterize a document revenue degree for our third quarter, and would place us nicely to ship a document efficiency for 2024. With that, I will flip the decision again over to Doug to share some highlights from our newest Sustainability Report.

Doug Dietrich: Thanks, Erik. Hopefully, you may hear me this time. However let me end up right here, after which I will make some feedback on ensuring that our replay and the transcript may be very clear for you. However earlier than we go to questions, I simply need to end up by highlighting our newest Sustainability Report. It is the sixteenth that we have printed. For the previous decade and a half, we have outlined in these stories how security, environmental stewardship, monetary energy, worker engagement, buyer satisfaction, neighborhood relations and shareholder engagement, have at all times been a part of our values, cornerstones of how we run the corporate, and key sides of our technique. This yr’s report is a broad one which displays all the corporate has accomplished and continues to do in every space. And some highlights from this yr’s report. You may see that we proceed to make vital progress in direction of attaining our 2025 environmental targets. And in reality to-date, we have already considerably exceeded 10 of our 12 targets. We have initiated a science-based goal initiative that we’ll use to border our new long-term environmental targets. And we have printed the primary draft of our Scope 3 emissions. Please take a while to learn by means of the report, because it highlights our tradition and the fervour our workers have for our firm. It is a true testomony to our crew’s actions to assist MTI make a constructive influence in every a part of the world through which we function. I need to thanks in your consideration as we speak. It was dropped at my consideration that loads of you in all probability could not hear, or there was an echo when it comes to a few of my remarks. We had a bit of a hearth drill in right here, ensuring that that was corrected. However we’ll be sure that there is a clear audio replay so that you can take heed to, from my 10 minutes remarks and in addition a really clear transcript so that you can learn at your leisure. Anyway. Operator, let’s now transfer into questions.

Operator: Thanks [Operator Instructions] We are going to take our first query from Daniel Moore with CJS Securities.

Daniel Moore: Thanks. Good morning, Doug. Good morning, Erik. Hopefully, you may hear me. I heard you loud and clear.

Doug Dietrich: We will hear you. Properly, did you hear something I stated, Dan?

Daniel Moore: I heard all of it. So hopefully, others did as nicely. Perhaps begin with client. Quite a lot of client, extra discretionary companies, had a harder time in Q2. Your client enterprise is held up very well. Feeling any kind of pinch in any respect in these companies, simply from perhaps a harder surroundings? That is one. And two, within the pet care facet, perhaps just a bit bit extra element concerning the product changeover, once you count on volumes to return, and finally, may that result in even larger income alternative?

Doug Dietrich: Sure. Thanks, Dan. Really, we noticed robust – continued robust demand throughout the consumer-oriented merchandise in Family & Private Care. Quite a lot of these merchandise aren’t – they’re extra client nondiscretionary. They’re cat litter, they’re pharmaceutical pushed. They’re into drinks, issues that people are shopping for regardless. So not your typical client spending downturn kind merchandise. So we noticed some robust demand. The changeover, I will cross it to D.J. provide you with some extra coloration, it is a part of that enterprise, within the pet care enterprise, it occurs repeatedly. We simply known as this one out this time simply to offer you some comparisons year-over-year, however nothing irregular. D.J., you need to go into extra coloration on what that was about and type of the way it performs to among the energy of what we’re doing in pet care?

D. J. Monagle: Certain. Thanks for the query, Dan. Simply to echo a part of what Doug stated, mainly, what the shifts that we’re seeing within the client market are favorable to us, or continues to be non-public label, particularly within the cat litter, is rising at the next price than the remainder of the market. We’re in a position to benefit from that, however we additionally have gotten nice positions with our branded clients. So far as this changeover goes, it is a part of our technique to work with our companions of their non-public label methods. And that can, now and again, simply as we reset and reintroduce new merchandise and improve these merchandise, we’ll see this from time-to-time. However usually, issues are going in keeping with our technique, handsome second half, quick approaching. And simply to offer you some broader dimension of among the issues that we’ll do throughout these upgrades, it may very well be so simple as an ergonomic shift on packaging, or only a change in packaging kind, or perhaps a change in perfume. However then it additionally will get extra advanced, to vary the look and movement of the product, to advertise larger hygiene on the house. So, it is a few totally different modifications happening with – a few of our good retailers. However general, it is serving to additional develop this class, and in addition enhance our margins as we improve the merchandise.

Daniel Moore: Excellent. Perhaps switching gears to Refractories within the Excessive-Temperature Tech a part of the enterprise. I believe we have put in a few dozen, or so automated techniques over the past two years. There’s, I believe, 60 or so in electrical arc furnaces. What are your expectations for progress going ahead? Has the low-hanging fruit been picked? Or is there actually a gradual, for instance, slope of upgrades nonetheless forward of us?

Doug Dietrich: Sure, I will take that after which I will cross it over to Brett. No, there is a lengthy highway forward of us right here. There’s – we’re simply – that is an electrical arc furnace utility. I believe we have put in 15 of them over the previous two years. We’ve got one other 5, I believe, to put in this yr. There’s extra to that in the US. And I believe we’re now simply introducing it in Europe. However Brett, do you need to give us some type of how that is taking part in out, and the way far we will take it?

Brett Argirakis: Certain. Thanks, Dan. Look, as we have talked about earlier than, the market has shifted from a BOF, or built-in metal extra in direction of the nonintegrated metal or electrical arc furnaces. We have put in this new gear, in fact, for security causes for extra environment friendly refractory purposes for our clients. And it makes use of the mixture of our laser expertise, our cameras in order that we will transfer folks off of the store ground, in order that they will see contained in the furnace, and see what they’re making use of our product to. After which the robotic system that is PLC management that applies the product to the fitting spots of the furnace, to make it very environment friendly. As Doug talked about, we now have signed 15 agreements, together with the refractory provide, in all probability round $150 million over that interval by means of 2025, and we’re working actually onerous to additional penetrate the U.S. market. However we’re additionally now, we now have a pleasant footprint, a pleasant pipeline in Europe and in addition in Japan. So, we now have three extra agreements signed for 2025. As Doug talked about, we now have 5 – 6 extra to put in this yr. So truly, it is 9 whole models in 2024. And we’re creating that pipeline for Europe and Japan. So, we be ok with increasing, as a result of the European market can also be shifting in the identical path. They’re shifting from the built-in to the nonintegrated. And so, we need to be there to assist them, and we’re nicely aligned to satisfy their wants.

Doug Dietrich: And Dan, as you understand, these are arrange, as Brett talked about type of five-year contracts that present not solely the gear both as a capital sale or a lease, however then the refractory by means of it. And we have modified our refractory formulations for the electrical arc market. That is what I referred to, some greater tech formulations, this gear and among the information gathering that we’re engaged on to carry some extra intelligence to that course of. So it is type of a special enterprise than it was 4 or 5 years in the past when it comes to simply per ton gunning, now it is a totally different mannequin that we’re going at. And I believe, we nonetheless have some room to develop that globally.

Daniel Moore: Wonderful. Perhaps switching gears, yet one more and I will leap again in queue. However simply how ought to we take into consideration the $30 million dedication to BMI? Is that by means of authorized expense, or will a superb portion of that possible go to fund the eventual settlement? And does this any manner replicate type of expectations round timing of after we would possibly lastly put it to relaxation?

Doug Dietrich: Sure, it should fund the method, largely, that these are authorized bills to proceed to fund the method. However we’re in mediation proper now. Look, I believe it is a supportive and constructive step, to maintain the method going. It is a very structured course of, as you may think about, by means of chapter. I can not provide you with proper now a date as to the way it will play out, or when it’ll play out. However I can say that being in mediation continues to be a superb course of, proper? So we’re – we really feel like this $30 million ought to fund it by means of – largely towards the top of the yr. And we predict that is a superb runway to maintain that course of going. So a constructive step, we wished to maintain it going. And like Erik stated, both it is going to be consumed, or it’ll in all probability be contributed into the fund, if the mediation solves itself sooner. However both manner, that is why we took that cost, to account for it this manner.

Daniel Moore: Okay, very useful. By doing follow-ups? Thanks once more.

Doug Dietrich: Thanks, Dan.

Operator: We are going to take our subsequent query from Mike Harrison with Seaport Analysis Companions.

Mike Harrison: Hello, good morning. Simply one other clarification on the $30 million. Is that one thing that you could possibly recoup in some unspecified time in the future? I believe you type of categorised it as a credit score line that – which suggests that it may be repaid in some unspecified time in the future. Is that the expectation?

Doug Dietrich: Our expectation proper now, which is why we took the total cost for the $30 million, is that it’s going to both be consumed over the following a number of months, to fund the method going ahead. Or if that mediation ends for some purpose, it is going to be a contribution into the belief. So both manner, I believe it should be accounted for, as absolutely consumed come what may into the method – into the chapter, Mike, if that helps.

Mike Harrison: Okay. Understood. On the Engineered Options enterprise, simply the steerage that you just’re offering for Q3 and the 16% working margin degree, which is quite a bit decrease than what you simply reported right here in Q2. You referenced that the combination goes to be normalizing. Are you able to give a bit of bit extra coloration as to what was uncommon concerning the combine in Q2 that, would have such a dramatic influence sequentially on the margin efficiency?

Erik Aldag: Sure, Mike. Thanks. That is Erik. So it was the a number of gear gross sales that we talked about. That was the primary contributor of the extra favorable combine within the second quarter, relative to what we’re anticipating within the third. A part of that’s pushed by – I imply, Doug alluded to the truth that a few of these are outright gross sales and a few of these are leases. So those within the second quarter occurred to be outright gross sales and that gave a lift to the margins within the second quarter. We’ve got, I believe, 5 to go or 5 deliberate gear gross sales by means of the remainder of the yr, however most of these are structured as leases. So a bit of bit totally different of an influence on margin. Although I’ll say, they’re all together with our refractory merchandise. So that they do present a pleasant long-term recurring income stream for us in that manner. However principally, I might say, it was the high-margin gear gross sales within the second quarter, after which a bit of little bit of vitality as nicely when it comes to Q2 to Q3, we’re seeing a bit of bit greater vitality prices. These are the primary margin variations.

Mike Harrison: All proper. After which I had a few questions on the pet care enterprise. Did this product changeover timing, did that pull quantity ahead into Q1? Or is it going to push quantity out into Q3? Or am I confused on the entire mechanism and I should not be excited about it as totally different timing of quantity hitting your P&L?

Doug Dietrich: Sure. So actually do not need to make a much bigger deal of it than it’s. That is – so we had in all probability just a few clients change over this quarter. The dynamics are totally different with every one. You are altering field varieties, art work, pails, expertise, et cetera. And on this case, it was with a bigger buyer that, as D.J., I believe talked about, we’re shifting to a special expertise. So we had forecasted, that might occur. Generally the timing of them and the length of them are totally different. So it actually wasn’t something out of the traditional. We did not pull something in to refill the shares. And I’ll say, although, that after the changeover happens, and that is why I believe Erik is mentioning pet care volumes rising, two issues are going to be taking place within the again half of the yr. One, that changeover – one or two of these changeovers needs to be full, plus we begin to hit the excessive season for pet litter. The colder months are often greater pulls. There’s often promotions which are happening late within the fall. And so, I believe these – as soon as that change – a few changeovers have moved by means of. And we’ll possible have one other one within the fall. However both manner that with the upper seasonal volumes will pull by means of, Mike. It is nothing out of the atypical. It was simply to spotlight the comparability to final yr.

Mike Harrison: Obtained it. After which there was additionally a remark, Doug, in your remarks, that you just guys have been launching a brand new world model. Are you able to share some extra particulars there?

Doug Dietrich: Sure. We have – let’s have a look at, what number of manufacturers? We’ve got 4 manufacturers on this firm proper now. So if you understand how the enterprise has been put collectively, it began as a $70 million enterprise working below – actually not even a model, below the American Colloid ACC model identify, a part of the AMCOL acquisition. We purchased in 2018 an organization in Europe known as Sivomatic. We bought in 2021 one other firm known as Normerica. After which in 2022 or ’23, if my reminiscence serves me, we purchased third firm in Slovakia known as Idea Pet. So we now have 4 totally different firms. And we have now built-in them into one world firm that we use. And we’re increasing now into Asia. So, we have invested in infrastructure, we have invested in automation. We have invested – and to be sure that these are the lowest-cost vegetation, they’re all vertically built-in. We’re beginning to use these reserves globally to assist clients, massive clients that function globally. And so now that that integration is completed, we predict it is time to have that enterprise, which is $400 million, and our targets are to develop it to over $500 million within the subsequent two, three years, have its personal identification. And one which our clients can consult with, whether or not they’re in Asia, Europe, North America anyplace. And so, we’re type of enthusiastic about that. We’re engaged on it. And so keep tuned. I simply wished to offer one other temporary commercial on that identify popping out. It needs to be popping out within the subsequent couple of months.

Mike Harrison: All proper. Superb. Thanks very a lot. I will get again in queue.

Doug Dietrich: Thanks Mike.

Operator: We are going to now take our subsequent query from Kyle Could with Sidoti.

Steve Ferazani: Good morning. That is Steve Ferazani on for Kyle. I admire the element on the decision this morning. Wished to ask a bit of bit extra on the – I wished to ask a bit of bit extra on the energy in margin within the quarter. Clearly, you identified the product gross sales on the refractory facet. However once I have a look at your bridge, seems like combine was a smaller piece. So loads of it got here on the associated fee facet. Are you able to spotlight a bit of bit extra these efforts? And to get that type of margin enchancment in a comparatively flat market is spectacular, is there extra to go on the associated fee facet?

Doug Dietrich: Thanks, Steve. Thanks for the query. So sure, margins have been robust, and we’re forward of our targets for the yr. We highlighted that we might be at 14% type of for the yr this yr, and our goal was 15% for subsequent yr. And I believe we’re in all probability going to be proper round a yr early on that concentrate on. However what’s behind it’s a few issues. It is, sure, you noticed that it is partially value. And I believe as we have seen that inflation stabilize over the previous yr, we have accomplished an amazing job when it comes to stabilizing that value base. However I believe now could be a real reflection of what the corporate from a price base actually is when it comes to profitability. My feedback have been this can be a little bit totally different. We have invested in type of higher-margin markets. We have invested in applied sciences which are addressing more difficult points, offering these options, which generate greater margins for us with the worth we offer. And so that blend story and that quantity. So quantity is coming from positions we’re placing ourselves in a rising market. That is including – we’re leveraging that quantity and that worth over a disciplined value base. The combo is coming from, as we talked about this quarter, we have got some high-tech gear, however it’s additionally coming from among the client and the specialties. It is coming from animal well being, it is coming from these private care merchandise. It is coming from bleaching or – these are higher-margin merchandise that we have invested in over the previous few years. The cat litter enterprise is changing into, as we have built-in and invested in value discount, a higher-margin enterprise as nicely, which is now steadily rising. So I believe what you are seeing is the associated fee base, sure, we’re gathering – we’re producing some advantages from value. However it’s a extra secure value base from the place it was final yr. And what you are seeing now could be this combine and this quantity actually being leveraged and placing ourselves in higher-margin merchandise. And that leads me to let you know, sure, there’s extra to go. In order these merchandise – these higher-margin merchandise proceed to develop. They’re rising at a quicker tempo, they may accrue to our margins, and we’ll be disciplined about that overhead spending, as you understand us, and leverage all these new gross sales over that mounted value base. So there’s extra to go.

Steve Ferazani: Wonderful. Thanks for that. On the free money movement goal of $150 million, it appears like you’ve got extra CapEx to go within the second half. So a 2-piece query. The place is the CapEx stepping into second half? And any danger to that $150 million goal?

Erik Aldag: I believe we – thanks, Steve, that is Erik. I believe we really feel fairly good about that money movement goal, the money from op goal. The corporate is producing robust ranges of money movement and dealing capital is in fine condition, the efficiencies are in fine condition. By way of the ramp-up in CapEx spend, I referenced a few the areas. However it’s mainly we have got 4 paper and packaging satellites being constructed and ramping up within the fourth quarter, and into the primary quarter of subsequent yr. And we have got MINSCAN. These are the refractory gear. We have completion of a number of of these models within the second half of the yr. After which I might say, it is a handful of smaller type of debottlenecking and automation tasks that we’re additionally engaged on. However we do count on it to ramp — the CapEx to ramp up from the primary half into the second half.

Steve Ferazani: Thanks, Erik. Thanks Doug

Operator: We are going to take our subsequent query from David Silver with C.L. King.

David Silver: Sure. Thanks. Good morning.

Doug Dietrich: Hello David.

David Silver: Perhaps simply to begin. Hello, thanks. Perhaps simply to begin, I would prefer to get a bit of clarification on the newest query about free money movement for the yr. However the $150 million goal, as you are it proper now, is that inclusive of the $30 million line of credit score for BMI? Or is that unique of that? In different phrases, that is type of a brand new component because the starting of the yr. Is it going to be $150 million even after allocating the $30 million, which I believe you indicated was more likely to be consumed by the remaining – by the top of this yr?

Erik Aldag: Thanks, Dave. Simply as a matter of geography on the money movement assertion, that is going to enter the money from investing, the $30 million, as a mortgage.

David Silver: Superb. Okay.

Erik Aldag: Will probably be money outflow for the corporate.

David Silver: Okay. Thanks for that clarification. Sticking with Erik, I used to be parsing among the language within the press launch and among the issues right here as we speak. And I would such as you perhaps to touch upon worth/value from a company-wide perspective. However there is a component of worth in your efficiency this quarter, year-over-year, for instance, and there is additionally a component of value discount. So traditionally, we have been a bit of bit attempting to compensate for worth in an inflationary surroundings, and you have accomplished a superb job about that. However is there a component within the outcomes this quarter the place truly you have been rising costs on the identical time you have been decreasing prices, like, for instance, for chosen product strains? Or have been the associated fee reductions elsewhere, perhaps on the SG&A degree? However simply to touch upon worth/value and the way that performed into your outcomes this quarter.

Erik Aldag: Sure. So I imply I will simply break it down. By way of the associated fee favorability that we noticed, it was break up roughly — so would present $8 million of favorability over final yr within the bridge, break up roughly evenly between vitality, uncooked supplies, after which productiveness type of variable conversion value, mounted value financial savings. Pricing, we worth on worth. So the pricing alternatives that we now have. We’re pricing the merchandise based mostly on the worth that we’re offering to clients. However simply to take a step again, I suppose, after we laid out our margin enchancment targets, the 15% goal, we assumed 150 foundation factors was coming from worth/value, 100 foundation factors was coming from mounted value leverage, and 50 foundation factors was coming from progress in high-margin merchandise, the improved mixture of the portfolio. And so, I believe when it comes to what you are seeing in our margins to this point, loads of the margin enchancment you have seen has come from the worth/value and are available from the improved combine profit. That is simply to say there’s nonetheless loads of room to go on the mounted value leverage piece as we transfer ahead, on the piece that is about leveraging our environment friendly mounted value base with incremental quantity as we develop.

Doug Dietrich: And David, I believe to additionally reply a part of your query is, sure, it is each. Whereas we’re seeing prices normalize, and even capturing some value declines, we’re in a position to proceed to cost with energy. And in order you noticed, we had some favorable prices, and I believe web worth is up $3 million. So there are pockets the place, in our base merchandise, we’re rising worth, as a result of we’re producing extra worth. The combo is coming from merchandise which are greater priced, however they’re additionally greater worth, greater margin. After which the associated fee items Erik simply talked about. So I believe we’re placing that chart up, Erik’s first chart, to point out you that the place the margin is coming from is precisely the place we instructed you it might come from a yr and a half in the past in our targets. And it is coming in that type of ratio as nicely. And as we talked about, we predict there’s extra to go as these higher-margin merchandise proceed to develop.

David Silver: Okay. Superb. Thanks for the colour there. I did need to ask you a bit of bit extra, if I may, about FLUORO-SORB. Earlier this yr, the EPA did set content material limits and time strains, which I thought-about essential milestones. And in your ready remarks, you probably did contact on exercise ranges. However I’m type of inquisitive about what has occurred, or is there an inflection level in interactions and exercise because the EPA has finalized the boundaries and the set of time line? In different phrases, is a sure subset of your potential end-market shifting extra shortly to attempt to benefit from improved, I do not know, improved applied sciences? Or has the extent of engagement, in different phrases, is there an inflection level because the finalization of the EPA guidelines? Or is it extra only a regular enhance simply associated to general interactions? So any inflection level from the shopper facet — buyer engagement facet because the finalization of the EPA guidelines?

Doug Dietrich: Certain. Let me – I’ll cross it over to Brett. I suppose, David, we have seen – actually seen the next degree of curiosity and exercise. You are in search of the inflection level that claims, when does this factor change into actually big? I believe we’re on that path. That is going to take a while. However sure, we now have seen some elevated curiosity, elevated exercise. Let me have Brett take you thru a few of that coloration.

Brett Argirakis: Certain. David, thanks for the query. David, as you understand, this regulation is a five-year course of. In order that takes us out to 2029. However completely, we’re producing an elevated degree of inquiries. We have had over – I believe we talked about final quarter, we have had over 100 pilot applications operating. We’re seeing acceleration with native, state and federal businesses. In truth, we have been invited by the U.S. EPA, and we’re presently negotiating with them on a collective analysis and growth settlement and hope to finalize that shortly. We’re actively working with them, the EPA, on 5 utility pilots which are being supported below the bipartisan infrastructure regulation and EPA technical assist group. And there is utilities which are taking part on this program, which is able to consider PFAS elimination from numerous medias in fact, GAC, Ion Trade and FLUOR-SORB. As well as, we now have 4 lively full-scale ingesting water techniques operating and 4 further full-scale ingesting water techniques which are pending this yr. Internationally, we have additionally seen an uptick in lively piloting of FLUOR-SORB in numerous European international locations to take away PFAS from ingesting water. And so based mostly on our precise efficiency and piloting suggestions, we’re actually assured within the FLUOR-SORB and we count on this to proceed to maneuver ahead. Ping [ph] level, I am unsure when that can occur. We’re seeing it in a slower course of all through the product. After which over time, we should always see revenues begin to decline.

David Silver: After which only a temporary follow-up on that, Brett. However you probably did contact on worldwide curiosity in your ready remarks, or in Doug’s ready remarks. Is it your expectation that the content material limits might be as stringent because the U.S., extra stringent, much less stringent? What’s your sense to how Europe would possibly proceed relative to how — or Europe or different geographies, how they may proceed relative to what the U.S. EPA has accomplished?

Brett Argirakis: Sure, certain. David, I am not I am unsure the place it’ll find yourself, however I think it is going to be pretty much like the U.S. We’re seeing it in some responses in numerous international locations. However so far as the the place it finally ends up, my guess, at this level, is comparable.

Doug Dietrich: Sure. The U.S. EPA tips are type of the bottom detectable restrict, components per trillion. So we would count on that to be in all probability comparable around the globe. However nonetheless, our FLUOR-SORB by itself is able to eradicating PFAS to these ranges. And so no matter what the rules are or the regulation is, we have got an amazing product to have the ability to take it all the way down to non-detect or lowest detectable restrict.

David Silver: Okay. Fantastic. Thanks for that. And final query I’ve for D.J., and it might be perhaps to only decide aside the Specialty Components efficiency just a bit bit. So I believe that is the final quarter of type of apples to oranges with the BMI revenues included within the prior yr, et cetera. But when I strip it out, there’s nonetheless type of two consecutive quarters of perhaps mid-single-digit income progress. And I am type of scratching my head and I am questioning, is that progress, is that quantity associated from both start-ups or ramp-ups of latest satellites? Is it pass-through of upper prices? Or is it truly handed by means of decrease prices and the amount progress is greater? However simply how we – I am pondering of the connection between income progress on an underlying foundation and profitability from PCC within the present surroundings, or satellites within the present surroundings?

D. J. Monagle: Sure. So thanks for the query, David. Only a minor setting of the baseline. BMI is one other quarter the place BMI was in our outcomes. So fourth quarter is when it was eliminated. However to the true meat behind your query, I might say that there is two issues driving that. The primary is the paper and packaging satellites which have come on-line. So this yr, we introduced on one in China that was on prime of a few others that got here in final yr. After which, as Doug had talked about in his ready remarks, we have got one other 3 which are in building. And so all of these are contributing to this. There’s additionally one of many gadgets that is additionally below building that we introduced earlier, is a conversion to NewYield. And whereas that might not present you any extra quantity or income per se, would present a rise in margin as we convert to those extra value-added merchandise. In order that’s additionally serving to in these regards. And I give that for instance. There are a number of different examples that might contribute to that. The opposite gem efficiency that we have got, David, is our West Coast operation has had terrific quantity. And so there’s – it is principally by means of the development trade, however it’s additionally simply usually nice efficiency by that plant and a few product modifications that we have made that meet the market wants. In order that’s additionally contributing to the amount progress as nicely. So yet one more quarter for the comparisons of BMI, regular progress coming from the paper and packaging satellites, Lucerne Valley continues to carry out fairly nicely. And the pipeline for the paper enterprise is extraordinarily robust. So I am hoping that I will be saying the identical types of issues as we speak within the quarters to come back. I might say the pipeline has bought a few dozen alternatives in it, mixture of packaging, and paper in all probability 30-plus % of these alternatives of packaging. Fairly just a few of them are NewYield alternatives. And so the long-term seems fairly robust as nicely.

David Silver: It is nice coloration. Thanks very a lot.

D. J. Monagle: Actually.

Doug Dietrich: Thanks David.

Operator: We are going to take our subsequent query from Mike Harrison with Seaport Analysis Companions.

Mike Harrison: Hello, guys. Only one extra, fast one for me type of following up on David’s query on the paper PCC enterprise. I am simply curious there, you’ve got some contractual pricing mechanisms inside that enterprise. And there have been a number of quarters if we return to a few years in the past the place prices have been going up quite a bit quicker than pricing. Your margins have been being negatively impacted by that. At this level, have you ever recaptured these greater prices and you have got margins again at a standard degree? Or are you at some extent proper now the place prices are literally shifting decrease whereas costs are secure or nonetheless shifting greater such that you just’re getting some uncommon energy within the margin efficiency of that paper PCC enterprise?

Erik Aldag: Sure, Mike, that is Erik. So no, I might say we’re again to type of regular pass-through cadence. And in reality, our pricing, with European vitality charges coming down, our PCP or our paper and packaging pricing got here down a bit within the quarter, within the $1 million vary. So absent that, our general pricing would have been a bit of greater. However it’s now extra of a standard type of cadence for the worth pass-through mechanisms for that enterprise?

Doug Dietrich: A few dynamics, Mike, which have occurred. Traditionally, simply reiterate right here that these costs in a few of our older contracts are set on an annual foundation or semiannual foundation. As they’ve renewed over the previous a number of years, we have modified that to a tighter alignment with these prices, whether or not it is a quarter and generally a month. So we noticed a few of that delay on the way in which up, and we had a few of that lag on the way in which down, however as Erik talked about, we’re largely by means of that. I believe now there’s perhaps some regional ups and downs which are taking place, however that is – it is a regular cadence proper now. And I believe you are seeing what’s actually reflecting the traditional margins of this enterprise. That stated, we now have some new merchandise popping out like NewYield, we have got some packaging, and people can are likely to generate greater margins. So we now have some upside there sooner or later.

Mike Harrison: All proper, very useful. Thanks very a lot.

Doug Dietrich: Thanks, Mike.

Operator: Presently, we shouldn’t have any additional questions. I wish to flip the decision again to Mr. Dietrich for any closing remarks.

Doug Dietrich: Everybody, thanks very a lot for becoming a member of the decision as we speak. We apologize for any technical points that brought on for a few of you, it appears like. What we are going to do is be sure that there is a very clear replay for you posted on our web site and be sure that the transcript displays that readability. Thanks very a lot for becoming a member of as we speak. And we’ll speak to you once more in three months.

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