Good day, everyone, and welcome to the First Quarter 2020 Minerals Technologies Earnings Call. Today's call is being recorded. At this time, I'd like to turn the call over to Matt Garth, Chief Financial Officer at Minerals Technologies. Please go ahead, Mr. Garth.

Thank you, David. Good morning, everyone, and welcome to our first quarter 2020 earnings conference call. Today's call will be led by Chief Executive Officer, Doug Dietrich; and myself, Chief Financial Officer, Matt Garth. Following our prepared remarks, we will open it up to questions. I'd like to remind you that beginning on Page 15 of our 2019 10-K, we list the various risk factors and conditions that may affect our future results and 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 for the introduction, Matt, and good morning, everyone. I'd like to, first, express my thanks and concern to everyone on the call. I know you're dealing with the recent challenges in your lives, and I appreciate you joining us today. As you can imagine, this call is being conducted a little differently than our regular earnings calls. Despite the current circumstances, we're doing everything possible to make this a standard call as each of our business unit leaders is on with us and able to answer your questions. This time though, we'll be doing the call from our home, so bear with us as we go through the remarks and answer your questions at the end. And while I'd normally begin by discussing our first quarter results, I'm going to start by outlining how COVID-19 is impacting our company and the actions we're taking across our operations. I'll then highlight our first quarter results. Matt will follow with more detail on our financial results and commentary on our capital structure and liquidity. I'll wrap up my prepared remarks with insight on the current end market dynamics, the state of our operations and how we're positioned to manage through this environment. MTI is a global company with more than 150 locations in 35 countries. And we've been navigating through the realities of the COVID-19 outbreak since it was first reported in China in January. As we dealt with these issues in China, we developed plans to protect our employees, manage our worldwide operations and support our customers, including heightened virus-related safety protocols, such as sanitary procedures and social distancing, arrangements for remote working and contingencies for our global supply chains. The best practices that we developed early on in China helped inform the business continuity plans and safety and operating procedures that we've now implemented across the rest of the company. First and foremost, our focus has been and continues to be on the health and safety of our employees, consistent with MTI's core values. We have teams in place at local, regional and global levels to ensure the safety of our people and the continuity of our operations while monitoring the status of each location and recommending specific risk mitigation actions. I'm in daily contact with our business leaders to gather the most current information on how COVID-19 is affecting our people and operations so that we can take actions to help them manage through any potential issues. Right now, our operations have not been affected by COVID-19-related illnesses. Out of our employee base of approximately 3,600, we've had 3 confirmed cases. Each of these employees contracted the virus outside of the workplace and are doing well and have since recovered. Overall, nearly all of our global production facilities continue to operate as our products have been deemed essential for the markets we serve. As we run our facilities, we've put in place standardized COVID-19-related protocols across all of our global operations. In addition, wherever possible, our employees are working remotely, adapting to maintain our business process continuity. Now let me give you more detail on which of our facilities were impacted during the quarter and what we saw change towards the end of March. Out of 15 locations in China, our 7 PCC plants remain fully operational with the exception of a short outage at 1 of them. The majority of the impact in China came in our Metalcasting business due to closures from foundry customers. In total, our 1 Refractory and 2 Metalcasting facilities were down for about 4 weeks. In March, these facilities started to reopen. And currently, all of our locations in China are fully operational. Additionally, while our facilities generally have been exempted from government-related mandates, locations in a few countries were impacted by these circumstances. Specifically, our 8 locations in India and 3 sites in South Africa were temporarily closed during the last few weeks of March and part of April due to government directives. These sites are either now back in operation or will be coming online in the next week. A few other facilities, primarily Paper PCC satellites, were temporarily idled in March due to customer-driven outages related to the virus and have since returned to production. All told, the business disruption in China as well as closures in other parts of the world had a limited effect on our first quarter financial performance with sales impacted by $7 million and operating income by $2 million. With everything that we've had to overcome and adapt to in recent weeks and months, I'd like to recognize our employees for their efforts. Thanks to their unwavering focus and agility, our operations and business processes have not missed a beat. I credit our team for their engagement, their perseverance and their people-centered focus, all key attributes that define our culture and our company. Let me now move on to our first quarter results. Overall, we had a solid quarter, and our performance underscores the resiliency of our business through the diversification of our end markets and operations. It also reflects the benefit of the pricing and cost-saving actions we implemented last year as well as the ability of our team to execute well despite obstacles presented from the COVID-19 outbreak. From a financial perspective, total sales in the quarter were $418 million and we generated $58 million of operating income. Our earnings per share of $1.13 was above our guidance range and we also delivered $30 million in operating cash flow. As we began the quarter, we expected similar market conditions to the fourth quarter with continued growth in many of our product lines, offset by slower conditions in others carrying over from 2019. And that's largely how things played out, apart from having to navigate through COVID-19 market issues in China. To touch on some of the growth highlights, we experienced continued favorable trends in several of our markets, specifically in the consumer-oriented ones. Our pet care business continued its strong sales momentum from last year through our robust private label portfolio in North America and Europe. In addition, this business saw increased demand related to COVID-19 consumer spending dynamics. As an example, our order books for our European pet care business doubled in March, and we ran at maximum capacity to meet this high level of demand. Our personal care business also experienced similar conditions with growth driven by strong consumer demand. Other pockets of strength came in our Building Materials business, which was supported by higher activity in the construction market, and Energy Services continued its positive trajectory by capitalizing on increased service demand in the Gulf of Mexico. We also delivered sequential margin improvement in each of our businesses. This performance demonstrates our continued focus on expanding margins through aggressive cost control, productivity improvements and pricing actions, all of which we've been implementing over the last year. I'd also like to provide some context around areas of COVID-19-related weakening demand that happened toward the end of the quarter. These dynamics didn't have a noticeable impact on our first quarter results. But I thought it would be helpful to highlight a few of the trends because they will have a more pronounced effect on our results going forward. Areas where we saw slower sales late in the quarter came in product lines serving automotive, heavy truck and steel markets in North America and Europe. In addition, we started to experience some delays associated with large projects in our Environmental Products business. All in all, the first quarter was a solid one. But given the rapidly changing dynamics at the end of the quarter, we are prepared to navigate through more challenging conditions going forward. I'll get into all of this in more detail when I take you through what we're seeing across all of our product lines and end markets at the end of our prepared remarks. But first, let me have Matt give you all the details on our first quarter results. Matt?

Thanks, Doug. I'll now review our first quarter results, the performance of our 4 segments as well as our liquidity and debt highlights. Before moving to the results, I'd like to note that the current economic environment is evolving rapidly, and I will provide you with insight on the impact of COVID-19 on first quarter results. I will then turn the call back over to Doug for some additional perspectives on our current operating conditions and the market visibility we have going forward. For now, let's review the first quarter results. As you can see on this slide, we are presenting the year-over-year comparisons of sales and operating income on the left-hand side and the sequential quarter comparisons on the right-hand side. Given the rapidly changing market conditions, we believe the sequential view adds an important perspective on our business performance in the first quarter. First quarter sales were $417.5 million, 5% lower than the prior year. The bridge on the top left of this slide shows the sales change by major driver. Unfavorable foreign exchange contributed $6 million of lower sales in the quarter or 2 percentage points. COVID-19 impacted sales by approximately $6.7 million, primarily due to weakness in China, and later in the quarter, in North America and Europe. The remainder was due to the softer market conditions in Metalcasting and Refractories that persisted from the fourth quarter. I'll note that while sales in China declined in January and February, driven by COVID-19-related shutdowns, it's worth highlighting that overall sales in China grew 2% in the month of March versus the prior year. The year-over-year operating income bridge on the bottom left shows we were able to partially offset the impact of lower sales with favorable cost performance, primarily driven by the actions we have taken over the last year. In addition, our pricing actions continued, generating $3.7 million on a year-over-year basis in the quarter. We have completed our restructuring program from 2019, and we are realizing the savings in our cost performance. Moving to the right side of the slide. Sales were lower by 5% on a sequential basis. The first quarter had 4 fewer days versus the fourth quarter of 2019. And you can see in the bridge on the top right that this contributed to nearly $19 million of the sequential change. Again, you can see the impact of COVID-19 sequentially. And this was partially offset by continued growth in HPC as well as strength in Specialty PCC, Processed Minerals and Energy Services. Operating income increased 10% sequentially as we benefited from slightly higher volumes as well as continued pricing actions and a favorable mix. Our overall cost performance was favorable due to ongoing cost control efforts and favorable input costs. Adjusting for the number of days in the period, operating income was up 15%, including the negative impact we absorbed from COVID-19 shutdowns. Operating margin of 14% in the quarter was relatively flat versus the prior year and up 200 basis points sequentially. Now let's look at our quarterly EPS trend. First quarter earnings per share excluding special items were $1.13, 2% higher than the prior year and 19% higher sequentially. Despite the COVID-19 impacts, our segments performed better than expected. And this performance drove the improved earnings sequentially. In addition, our EPS benefited from favorable foreign exchange gains. Our effective tax rate was 20% in the first quarter versus 18.9% in the prior year and 17.6% in the fourth quarter of 2019. Let's now review the segments in more detail, starting with Performance Materials. Performance Materials sales were 7% lower than the prior year, primarily driven by Metalcasting, including the impact of COVID-19. This was partially offset by strength in Building Materials. Sequentially, sales were 8% lower and only 3% on a same-days basis. This was primarily due to the shutdowns in January and February in China. In North America, Metalcasting market conditions remained similar to the fourth quarter. HPC demand remained stable throughout the quarter as we saw strong ordering for consumer-oriented products like pet care, fabric care, personal care and edible oil purification. Operating income for the segment was $24.1 million and represented 12.9% of sales. Operating margin increased 140 basis points sequentially, primarily driven by continued pricing and cost control measures. COVID-19 impacted sales in this segment by $5.7 million in the quarter or 3 percentage points, primarily in Metalcasting, driven by foundry closures in China as well as a slowdown in North America late in the quarter. The slowdown in North America occurred as automotive manufacturers began announcing downtime in response to weaker demand and was continued into April. Building Materials and Environmental Products, both project-based businesses, started to experience delays in projects related to COVID-19 later in the quarter in North America and Europe. However, our consumer-oriented products have continued to perform well. Now let's move to Specialty Minerals. Sales for this segment were 5% lower than the prior year, primarily due to the previously announced customer paper machine shutdowns in North America in 2019. Paper PCC sales in Asia grew 4%, driven by 8% growth in China as well as continued growth from our Indonesia expansion, which came online last year. On a sequential basis, sales were 3% lower and increased 1% on a same-days basis. The growth was driven by 14% higher Specialty PCC sales and 10% higher Processed Minerals sales on a same-days basis. Sequentially, segment operating income increased 5% to $20.3 million and represented 14.8% of sales. The increase was due to higher volumes of SPCC and Processed Minerals, continued higher pricing and strong cost control. COVID-19 had a limited financial impact on this segment in the first quarter. However, we did experience COVID-19-related shutdowns in paper mills late in the first quarter in Europe, South Africa and India. These shutdowns continued through most of April. SPCC and Processed Minerals sales were also impacted late in the quarter due to a slowdown in residential construction and transportation end markets in both North America and Europe. And meanwhile, the 250,000 tons of new PCC capacity we are bringing online this year in Asia and Europe remain on track. Now let's turn to the Refractories segment. Refractories segment sales decreased 7% versus the prior year due to lower demand from steel mills in the United States, lower laser equipment sales and the impact of foreign exchange. This was offset by higher sales of metallurgical products. Sequentially, sales were 6% lower or 2% on a same-days basis. Sales were better than we had expected due to the delayed maintenance shutdowns at some customer facilities, primarily in the United States. We expected to see furnace relines that did not occur in the quarter. And this led to higher demand for refractory products. Segment operating income increased 8% sequentially to $11.2 million and represented 16.2% of sales. The impact of COVID-19 was limited for this segment in the first quarter. Two laser equipment sales were moved out from the first quarter in China but delayed lasers were offset by some steel customers who pulled forward orders to build inventory in Europe and North America. Now let's turn to Energy Services. Energy Services had another solid quarter. Segment sales rose 24% versus the prior year and 7% sequentially. The increased sales were driven by higher well testing activity in the Gulf of Mexico and increased international sales. Operating income increased 28% sequentially to $3.2 million and represented 12.7% of sales. The impact of COVID-19 was not material in this segment in the first quarter, although we did experience some delays in projects in Malaysia and the United Kingdom and one of our customers chose to demobilize an offshore platform in the Gulf of Mexico earlier than scheduled. With that review of the segments, let's now turn to our cash flow and liquidity. As Doug mentioned, we generated $30 million of cash from operations in the first quarter and $14 million of free cash flow. And this was up slightly from last year. We repurchased $23 million of shares in the first quarter, bringing the total to $43 million under our current program. Our net leverage ratio stands at 2.2x EBITDA. In times like these, we are taking a close look at our liquidity, cash flow and debt obligations. I can tell you from the multiple scenarios we have been analyzing that the company is in a strong financial position. I'd like to highlight a few key messages around this. First, the company has $418 million of liquidity, including $218 million of cash. As you know from our discussions around markets and products, we have a geographically and industrially diverse set of businesses. And this diversity provides balance for consistent cash flow generation. In addition, we have many levers to maintain cash flow through an economic downturn. Second, we have a broad and diverse accounts receivable profile without significant customer concentration. We monitor changes in customer credit risk on a daily basis, and we will continue to do so as the economic impact of COVID-19 continues to evolve. And last, we have manageable near-term debt maturities. Our liquidity position, combined with our ability to continue to generate cash, gives us confidence with respect to meeting our upcoming obligations. We continue to maintain a balanced approach for the use of our free cash flow. At this point in time, we are prioritizing debt reduction and capital for our facilities. We are looking at our capital spend closely to minimize expenditures this year. While we do not have an immediate need to refinance our debt structure, we are looking at ways to take advantage of favorable interest rates, given our strong credit position. All in all, we are well positioned to navigate what lies ahead. Now let me turn it back over to Doug to discuss our current end market conditions. Doug?

Thanks, Matt. I wanted to take some time before moving to questions to provide an update on the current state of our operations, our end market conditions and what we can see from where we sit today. As you can imagine, with the COVID-19 pandemic constantly evolving and the duration and broad-based impact hard to predict, our forward visibility is limited at best and the information we do have is changing regularly. For reference, customers have told us they would be taking outages for 3 weeks or when they come back online in a week or it's gone in the other direction. And we're prepared to adjust to the government directives for plant reopenings and that could alter our current operating conditions and plans. With that overview, I felt the best way to organize this discussion would be by taking you through each of our 4 segments. I'll start with the Performance Materials, which is our largest and most diverse segment with a presence in a broad range of end markets, including consumer, transportation, environmental, construction and agriculture. Our household and personal care product line, which serves consumer-oriented markets, has continued to run at strong demand levels with similar growth rates to what we've been delivering in recent quarters. As you know, this is a business that serves markets with stable long-term growth potential, and we've invested in building unique capabilities, resources and value-added products to serve our customers. Our order books continue to be full in North America and Europe for many of our products, including pet care, fabric care, personal care and edible oil purification, extending the momentum from the first quarter. While some of the sharp uptick in demand we saw in March has tempered slightly, demand levels through April remained very strong. As I mentioned earlier in my remarks, we are seeing the most pronounced impact from COVID-19 conditions in our Metalcasting business. Production curtailments in the automotive and heavy truck sectors in North America, which began at the end of March, became more noticeable in April as our foundry customers started to take downtime and reduced shifts to adjust to the lower demand. For context, in April, our Metalcasting facilities in North America operated at about 60% of normal demand levels. Based on the latest indications from our foundry customers, we expect these rates to improve to 80% to 90% in June. However, it's still a bit uncertain as to how this trajectory might unfold. In China, Metalcasting volumes were strong at March and grew 4% over last year, driven by our tailored greensand bond products. And we expect this trend to continue through the quarter. After a strong first quarter in our Building Materials business, the timing of ongoing shipments for our active projects is moving around. At this point, it's difficult to predict how much of our active order book will be completed in the second or move to the third quarter. Our pipeline of future projects is robust. But we do see the potential for some delays relating to softening construction market conditions in North America and Europe. And in Environmental Products, we continue to advance our high-value portfolio of specialized technologies, which has enabled us to secure more complex remediation projects. Some of this momentum has been impacted by more challenging conditions as several large projects were pushed out of April, likely into the back half of the year. Now let me turn to our Specialty Minerals segment. This segment's revenue is driven by paper and packaging as well as construction, automotive and food and pharmaceutical end markets. I'll start with Paper PCC and our operations in Asia. As I mentioned earlier, all of our facilities in China continue to operate and are running at near-normal production levels. Our 6 PCC facilities in India that were closed in March due to government mandates are currently back in operation or they plan to be within the next week. Our facilities elsewhere in Asia have been operating at normal levels. In total, we expect our volumes in Asia for the second quarter to be similar to the first quarter. Regarding North America and Europe, the second quarter is typically when paper producers in these regions take seasonal maintenance outages, and we're seeing some facilities extend these outages for several additional weeks. As a result, our second quarter volumes in North America and Europe could be around 10% lower than the first. Again, this outlook may move around as we've already experienced facilities come back online sooner or take further outages. The construction of our new satellites and expansions, totaling 250,000 tons of capacity, continue to move forward. One of these satellites in India is now complete and the remainder are on track to come online this year. From a business development standpoint, our pipeline of new filler and packaging opportunities as well as for our latest technologies is intact. And our discussions with customers continue to advance. In our Specialty PCC business, sales for our pharmaceutical and food and beverage products have been strong. But our products that go into automotive sealants have been impacted by lower build rates in North America and Europe. Sales in our Processed Minerals product lines, which serves primarily construction and automotive markets, have seen a mixed impact so far. There have been areas of strength and weakness in both our ground calcium carbonate and talc product line. Now let me move on to the Refractories segment. Following a stronger-than-expected first quarter, we are now experiencing customer production curtailments. North America steel capacity utilization rates have declined from 77% in the first quarter to 56% currently, with European utilization rates at similar levels. Our refractory sales typically follow these utilization rates. However, in times like these, furnaces that are running usually run longer and harder and consume more refractory material, so these rates are not a direct correlation on our sales. While we continue to have a strong full year order book for our Ferrotron lasers, some of these are likely to be delayed from the second quarter into the back half of the year. I'll now finish this segment review with Energy Services. While the energy market has gone through significant volatility recently, our service order book for offshore projects remains largely intact. We are seeing some impact from COVID-19 resulting in early demobilization for virus-related issues as well as projects being shifted out of the second quarter. I'll remind everyone that this business operates solely offshore, so the price of oil takes longer to change the demand level for our services there. Energy Services is a small piece of our portfolio and profitability. And therefore, we expect these dynamics to have a limited impact on our financials. As I just described for you, we're dealing with several evolving market dynamics, which have many puts and takes. And all of this contributes to a lack of clear visibility going forward. But I wanted to provide you with as much detail as I can at this point. The latest information I can give you is that these operating conditions in April have led to a sales trend that is approximately 10% lower than what we experienced during the first quarter. Looking at the remainder of the quarter. There are aspects of our outlook where we expect to see some improvement to this current sales rate but also other areas where there is more uncertainty, given how fluid the environment has been. We are working through the evolving challenges of today while also keeping our focus on our values, our longer-term goals and strategies, which includes taking measures to strengthen our foundation and the long-term health of our company. The underlying fundamentals of our business are intact, and we remain committed to our long-term growth strategy. Our business model, along with our cash generation, is resilient, supported by diversity in geographies, customers and markets. We are confident that our team's experience and agility, disciplined execution, cost management focus and strong balance sheet position us to navigate through this period of uncertainty. Our team has effectively managed challenging times in the past, and we will make the necessary adjustments to align our business to market conditions as they evolve. With that, let's turn the call over to questions.

We will now take our first question from Daniel Moore with CJS Securities.

To start with the PCC, it has decreased by 10% sequentially. Thank you for the details. Do you think this trend will likely continue for most of Q2? Additionally, do you anticipate any changes in paper usage in North America or Europe due to COVID that might lead to more capacity closures later in the year?

Yes. Let me begin by saying that the 10% decline was observed in North America and Europe, where we've experienced several extended maintenance outages. Generally, we see about two weeks of downtime in Europe this time of year, and in North America, some outages have been prolonged to four weeks, with a few extending even longer, while others might be shorter. We anticipate this 10% reduction to continue throughout the quarter in those regions. On the other hand, our demand in Asia has remained stable, operating close to normal levels, particularly in China. With India back up to speed, we expect similar performance there as well. Concerning demand trends, we've certainly noted some changes. D.J. has been closely monitoring our customers, so I’ll turn it over to him to provide more insights on the demand trends in North America and Europe. D.J., are you there?

Yes, I'm Doug. Thank you for the question, Dan. As for the insights I can share about this quarter, it's the best I can provide, and we'll discuss our outlook moving forward. The outages we noticed, which Doug mentioned, were caused by some major industry players with significant machinery. In Europe, Navigator has publicly announced the removal of several of their machines, one of which is linked to our product. In North America, Domtar and PCA Jackson also experienced significant outages. These developments served as a clear signal to the market that adjustments are being made this quarter. Additionally, to support North America's long-term market stability, we have confirmed International Paper's decision to shut down the machine in Selma, Alabama at the Riverdale complex. This reduction in capacity had already been planned to transition to a packaging operation. Doug's forecast for this quarter is expected to hold, but it’s challenging to predict the third quarter until we see changes in consumption habits. The industry is impacted by declines in school consumption, office use, and in-mail advertising, all of which have decreased this quarter. It’s unclear how quickly that consumption will rebound. I hope this gives you a clearer picture.

It certainly does. Absolutely.

I would like to add that when we assess demand levels, we focus on operating rates. Currently, operating rates are in the 90s but have decreased to 85%. We will need to monitor their status throughout the quarter to see how they recover, if at all, in the third quarter. As operating rates drop into the 80s, there is a potential for a shutdown, which is always a possibility we consider. We will keep an eye on this situation. For now, we can provide an estimate for the second quarter, and we will give you more information after that regarding the third quarter.

Perfect. One of the certain bright spots, continuing bright spots is household and personal, saw a nice uptick in March, certainly. Any guesstimate, gut feeling as to how much of that is sort of stocking up and one-time in nature versus a maybe more sustainable uptick?

We observed a significant increase at the beginning of March, particularly in our pet care business. Fabric care remained more stable. The rise in pet care sales likely resulted from some customers buying in advance, as our order books in Europe during March doubled. The demand was immense, and we are still actively fulfilling those orders. Although some of that initial surge has tapered off, we believe it indicates forward buying. However, throughout April, we have maintained strong performance levels, surpassing last year's numbers. Looking ahead, we expect continued strength in both North America and Europe for our pet care business throughout the quarter.

Helpful. And just shifting gears, Environmental Products and Building Materials kind of separately, maybe just talk about the conversations with customers, projects being delayed. Any talks of cancellations at this point? Do you feel pretty confident that it's more likely just being pushed out into the right?

It's a little hard to see right now. What I will do is, Jon, why don't you give a little color on the projects and kind of some of the movement around in this quarter and then where we see things probably pushing up until later in the year?

Thank you, Doug and Dan, for the question. As you're aware, both environmental and building sectors are influenced by their project-based nature. Currently, our project pipelines remain stable, with a consistent number of projects planned for completion each quarter. However, we are experiencing some work site shutdowns, delays in project starts, and uncertainties regarding project timelines due to funding issues, particularly as we move from the end of Q1 into Q2. This means we’re mainly facing delays in both segments. It’s challenging to forecast at this point because while projects may be delayed, they can suddenly resume or orders can come in quickly, making the situation quite unpredictable. Looking ahead, we anticipate that some of these delays may shift into the latter part of the year, but we are monitoring the situation closely and are flexible enough to respond as needed. Overall, while we expect some delays to affect Q2, the project pipeline remains solid.

That was very helpful. Lastly, I wanted to ask about the considerable cost reduction measures you implemented last year due to COVID. Are you considering any further restructuring or cost-saving initiatives? Also, are there specific areas in the business that you are monitoring for potential permanent cost reductions? Thank you for your insights, and I must say, great job managing through a tough environment in Q1.

Thank you, Dan. Certainly, we will be careful with managing discretionary expenses and will strategically approach our working capital expenditures. It's important to me to emphasize that we have an outstanding team at this company, with dedicated and experienced employees. I want to look beyond short-term challenges to ensure the long-term stability of our organization. There may be areas where we need to make adjustments due to structural changes that will have a lasting impact. We will be ready for that. However, I also want to ensure that this company emerges from this situation with our team prepared to tackle growth opportunities when they arise. We will make the necessary decisions while balancing both short-term and long-term considerations.

And next, we'll go to Silke Kueck with JPMorgan.

I have a couple of questions, if I may. Is the $6.7 million headwind to sales from the COVID outages, is that a net number? Does that include the outages? And is that like net of the prebuying and stocking that you may have seen on the household care side and maybe some of the pull-forward with the refractories? Or is it just defined to the outages that you saw?

Matt, you want to go ahead and explain how we designed that?

Absolutely. The impact of COVID-19 on sales reduction is not net. You would have noticed increased sales in some of the other product lines we discussed, particularly in Refractories, where there was some COVID impact from the delays caused by lasers. However, some refractories experienced pull-forward, which offset some of that impact. The overall reduction was around $6.7 million. It's important to note that the majority of this $6.7 million impact stems from the shutdowns in China affecting the Metalcasting business. The remaining impact is from the shutdowns that began at the end of the quarter in North America.

Okay. That's helpful. If you look at your household care products, do you think the results would have been positive without considering prebuying? It's hard for us to determine, and I'm not sure if you can provide insights. But I was wondering if you could quantify the benefit. Additionally, how long are your lead times for items related to pet litter, fabric care, and personal care? Some consumer companies have mentioned they are uncertain about what will happen in May. From Nielsen data, it appears that March was quite strong, the beginning of April also looked good, but then there was a noticeable slowdown in areas like fabric care by mid-April. The consumer companies we serve typically take time to gauge future orders, so it’s unclear what May might bring. I was curious if you have any perspective on this.

Well, Silke, let me take a shot at that. Rather than speculate, I'll provide some context. Over the past few quarters, our pet care business has been growing at approximately 3% to 4%, with some quarters even at 2%. It's been a consistent growth rate within that range. However, this quarter we observed a growth of 6%. There's a persistent trend of growth in that sector, driven by factors such as increased cat ownership and a shift towards clumping cat litter and premium products, especially in Europe. I do believe there was some prebuying that contributed to that increase, particularly in March. Looking at our order books for April, we have seen a substantial amount of orders, particularly in Europe. As we process through that backlog, there may be some fluctuations in May and June. As of now, through April, our levels remain strong. I anticipate that we might not sustain the 6% growth rate throughout the quarter; it may revert closer to our usual rate of around 4%. Our lead times for orders are generally quick, allowing us to process orders, except for some delays in March in Europe. Overall, we have adequate stock of raw materials to fulfill orders swiftly. By the end of this month, we should have a clearer picture for May and June. I cannot predict the specifics of our order books, but I expect them to normalize somewhat, reflecting the preordering surge we experienced in March.

That's very helpful. And if I can ask last set of questions on cash flow and bad debt expense. I was wondering whether you took any additional bad debt reserves in the quarter and whether you can quantify it. And I was also wondering whether you have a revised CapEx target or free cash flow target for the year.

Sure. Thanks, Silke. So Silke, let's address what's taking place on the receivable side. I think during my prepared remarks, you heard me outline the fact that we have a daily program in place, that extends obviously throughout all circumstances. But right now, it's very important to monitor what's taking place from a receipt perspective and, by the way, on a payments perspective across the company. And so in that process, we're tracking customer conversations and customer payments on a daily basis. And we have yet to see really any type of change in our delinquency pattern. We continue to maintain a very good payment practice and again, not yet seeing any type of deficiencies or delinquencies in the payments. The cash flow for the company, like we said, remains in that position of generating slightly higher than what we did in the first quarter of last year. If we were to look out through the second quarter, what we would tell you is that it's probably good to think that we could repeat the free cash flow performance that we had in the first quarter, maybe even a little bit better as we get some working capital release. But going out beyond that, obviously, we're going to wait to see what happens with some of the changes in the markets. Saying that, we have taken a look historically over many different circumstances. And just to highlight for everyone on the call to again remind you that even during the 2008/2009 time frame, the company delivered very strong free cash flow relative to what was taking place on the top line. And so the company can and will continue to generate good levels of free cash flow. From a CapEx perspective, I think you heard me say it as well in our prepared remarks, we are pruning that back a bit. I think we came into the year telling you that again it would be about that $70 million to $80 million level of spend split fairly evenly between the sustaining projects and growth projects. Right now, we're looking more in the $55 million to $60 million range, pulling down some of the spend and prioritizing, again, investment in the facilities, maintaining the sustaining CapEx there, the necessary EHS spend while also continuing to pursue, as Doug said, the growth capability of the company.

And next, we'll go to Rosemarie Morbelli with G.research.

I was wondering if you or D.J. could discuss the paper side, particularly whether in this environment, customers are taking advantage of the slowdown to increase the number of trials with FulFill packaging products and the reuse of fibers in the waste systems. Or has that side completely shut down?

No, we haven't experienced that shutdown. D.J., would you like to provide some insight on the current activity you're observing?

Sure. Rosemarie, we had an excellent first quarter in this area and I'm really pleased with the progress of our pipeline. I often talk about our pipeline which includes around 12 very active projects. At any given time, there may be 15 to 20 different discussions happening. In this first quarter, we conducted substantial full-scale commercial trials of new yield at two locations: one at a packaging manufacturer and the other at a printing and writing manufacturer. These trials were successful, and we are working on scheduling our next demonstration of value. We have also made significant progress in discussions with a major European papermaker about Envirofil, especially after the success of our first Envirofil launch in Germany last year. Additionally, we are experiencing strong interest in our standard PCC products, particularly in printing and writing grades in Asia. It was a fantastic quarter with plenty of trial activity, and customer interest remains high. However, we are currently facing some challenges with our experts traveling to locations to properly conduct these trials. This has created a slight delay in the rapid progress we made in the first quarter regarding our pipeline. We are now assessing when we can conduct these extended trials and finalize some commercial agreements, but this issue is mainly related to travel restrictions rather than a decline in overall commercial activity. I hope that clarifies things.

Yes, it does. So this is not something that can be done virtually with the equipment?

Certainly not the full-scale commercial trials. It's a matter of equipment, and we have some world-class experts who can collaborate with the papermakers to showcase maximum value on that paper machine. Regarding the standard PCC opportunities, we are making some progress virtually. Therefore, I am optimistic that we can secure a couple of new PCC contracts in the upcoming months. However, for this traditional product, we are on track. For the new advanced products, it requires regional or global experts going into these areas to fully demonstrate the value.

Sorry, Rosemarie. I was just going to add, I think that kind of our product development, our new business development, as you know, most of these products kind of are cost savings opportunities for our customers and they're displacing something that's currently existing. So you saw that in March. As China kind of reopened in March, we saw a 4% volume growth in our Metalcasting business. And that was largely driven by the greensand bond products, that blended engineered product that kind of helps with quality and productivity and cost savings. And so filler, for PCC Filler, our new yield products, all of these have that same aspect. They're displacing something that's currently being used and they save money. And so we think that the pull for our products, yes, there might be some challenges in terms of travel temporarily. But we think the pull for our products, both in strong demand times and weaker economic conditions, is solid and intact. So I thought I'd add that.

And that brings me to Metalcasting. The growth that you are seeing, is it mostly substitution and obviously reopened foundries? Or is it linked to actually an increase in the number of trucks and autos being manufactured in China, let's call it, for the domestic market at the moment as opposed to exports?

Yes. I'll start and then maybe Jon can provide some additional insights. In the current demand environment, it's mainly substitution. Our Metalcasting products are penetrating markets in Asia, particularly China and India, primarily due to the growth conditions leaning more towards substitution. This highlights our cost-saving value proposition and the superior quality of our foundry operations. In the past, during periods of normal growth in China and India, we were both expanding our product offerings through new foundries and converting from alternative products. Jon, did I take your point? Would you like to add anything?

No, you're absolutely right, Doug. Just a couple of things to add to that. Yes, we continue to see the substitution. And that's really what's helping us fairly significantly here in March and April as that market rebounds. I will say that the team has stayed very agile from a production perspective, cost perspective. They're very innovative. And it's times like these where we're demonstrating our value to the foundries. And they're looking to take costs out where they can and stay very productive. So our value has been recognized certainly by the customers that we have and some new customers as we continue to expand. You did mention for China, for example, a lot of domestic consumption. We see the rebound primarily in domestic consumption. We're watching the exports because those exports do go to both Europe and North America, especially for auto. But so far, what we've seen is a very robust rebound from a very dramatic decline that happened in the February timeframe. But like I said, the value proposition, the innovation, the interaction that we have with the customers, even working remotely, we've done a really good job. That team has done a great job in maintaining those customer relationships. And it gives us the opportunities to grow where we can.

Very helpful. And then lastly, if I may, on the M&A front, I mean, I do realize that now the name of the game is cash conservation. But are you seeing additional properties potentially coming into the market, given the current environment and potentially issues with those properties that you were hoping that would come up for sale at a lower price?

No, I can't say that we've been focused on anything major recently. Our main priority has been managing through the current situation and ensuring safe and continuous operations while concentrating on cash flow. The expectations of buyers and sellers have diverged significantly at this time, and we need more clarity before taking any major steps. However, we do have a solid portfolio of opportunities that align well with our company. There are some smaller prospects we've been exploring that could quickly enhance both earnings and cash flow, even during these times. Nonetheless, we will likely remain cautious and keep any potential moves modest and quickly accretive until we gain better visibility into the economy and its trajectory. So, there are still opportunities, but we're inclined to keep things small and manageable. Does that clarify things?

For our next question, next, we'll go to David Silver with CL King.

So I'm just going to let you know, my phone connection is very poor, unfortunately. And my computer, the webcast is better, and I'm switching between one and the other, but there might be a delay just as I listen to your answers on a delayed basis. So thank you. But I had a few questions. The first thing I was hoping you could comment on or probably add some color to was pricing power. So I think in Doug's prepared remarks, you cited selected areas where there is pricing power. And I was wondering if you could highlight them and in particular, if you could maybe characterize whether it's the classic demand outstripping supply or whether it's due to something, maybe a disruption at an alternate supplier or you mentioned some prebuying. So the pockets of pricing power, if you could maybe point those out, please.

Sure, David. There are two components to the pricing mechanisms in our company: contractual pricing and our pricing strategy. We have longer-term obligations in various parts of our business, such as at Paper PCC, where we price based on different input costs and volumes. Over the past couple of years, in this inflationary environment, as we face higher raw material costs, we pass those increased costs on to our customers, although there can be a delay of about 3 to 6 months. Similarly, when input costs decline, there is also a delay in adjusting prices downward. Most of our contracts are run on these formulaic structures, so a significant portion of our business relies on these contractual obligations. In the refractories sector, we also have longer-term pricing mechanisms, typically around six months, which we negotiate. However, a large part of our pricing is based on delivered value. We assess the value we provide and the cost savings or enhancements our products bring to customers to ensure we remain valuable at the set price. Regarding pricing power in this environment, many of our products do maintain that power. We continue to offer cost-saving opportunities, but we do expect some pressure from customers as they navigate the current climate and may ask for adjustments in pricing. We're accustomed to demonstrating our value to our customers. In some segments, particularly in consumer-oriented businesses, pricing is well-established, and we act as price takers because of competition with larger market players. However, in most instances, we are in a strong position to influence pricing based on the value we deliver. While we might face challenges going forward in maintaining our pricing power, we are well-equipped to handle those situations. I hope this gives you a general sense, and while I can't discuss specifics on a product-by-product basis, this is an overview of our pricing approach.

My next question is about the ongoing transition in broader PCC capacity. It seems that closures in North America and Europe are progressing faster than the new capacity being established in Asia. I noticed the Century plant in India and a large project in China are set to be completed sometime in 2020. Additionally, there’s a specialty packaging project in Europe with a capacity of 50,000 tons. Could you provide an update on the expected timing for these developments and your outlook on the ramp-up process? Please describe the capacity development.

Sure. Currently, the Century paper satellite is expected to be operational in the third quarter, likely toward the end of the second quarter. Based on our progress in India during the first quarter and into April, it seems plausible for this to happen by the third quarter. The new large satellite in China, which weighs around 165,000 tons, is anticipated to come online towards the end of this year; initially, we aimed for it to be ready by the end of the third quarter, but it's now delayed by about a month. We hope it will launch by the beginning or middle of the fourth quarter. Additionally, we have another satellite in India and a packaging expansion opportunity in Europe for which we've signed a contract, and both of those are also on track for completion this year. Overall, all four projects should be on schedule, adding approximately 250,000 to 260,000 tons of new capacity, with only slight delays.

Okay. Great. I have one more question about share buybacks. There was a $23 million figure mentioned for the buyback activity this quarter, which I believe is the largest amount allocated to buybacks for your company in quite some time. This seems to be in contrast to the trend I see with most of my other companies. Could you elaborate on this? Are these purchases all within the repurchase authorizations, or are they outside of that, such as equity holders selling shares to cover taxes or other specific situations? It would be helpful to hear your thoughts on the increased level of buyback activity this quarter.

Yes, I can share that we are currently operating under a $75 million buyback authorization that started in late October 2019, making it a one-year program. In the fourth quarter, we purchased $20 million worth, and in the first quarter, we bought an additional $23 million, totaling $43 million so far. Due to recent shifts in the economy and COVID-related issues, we are pausing the buyback for now. We want to ensure that we manage our cash flows effectively, prioritize our capital expenditures, and focus on the safety and maintenance of our facilities, as well as on reducing debt in anticipation of future maturities. There is still time left on the buyback authorization, and we’ll reassess the situation as cash flows improve towards the end of the year. While our pace aligns with last year’s $75 million authorization, our current focus will prioritize our internal capital expenditures and managing our debt maturities.

And next, we'll go to Edward Marshall with Sidoti & Company.

I hope this all finds you and your families well and in good health.

Thank you.

I've participated in several industrial calls this earnings season, and I've noticed a distinct difference in the pace between Asia and North America, as well as Europe in April. My question is when you began to restart your facilities in Asia, what insights did you gain? How can you use those lessons to inform operations in other regions as you navigate the challenging stages? Additionally, could you discuss the order recovery rates you're observing between China and Asia compared to Europe and North America currently?

We learned a lot in Asia, particularly in China. Starting in January, our team there responded quickly, implementing practices to protect employees. We coordinated to set up remote operations and safety protocols. The plants that operated in China reopened under strict conditions, following local regulations and passing necessary checks. We established supply chain monitoring for raw materials and inventory levels, ensuring everything was tracked daily. We adapted tools and protocols from China as we expanded them through Europe and North America. We remain committed to adhering to the same strict standards for safety, especially when returning to normal operations in Europe and North America. We're closely managing customer relationships virtually, which allowed us to enhance our product demand during the downturn in China, a strategy we are replicating in Europe and North America. Currently, all our facilities are operational, and we are not yet shifting from remote work. We'll have procedures ready for when we transition back to in-person operations. This approach was pioneered by our teams in China and has been adapted globally.

Very thorough. The few quarters now you've been talking about Metalcasting and the slowdown that you're incorporating there. I just want to get some context around, I guess, in one of the slides, you talked about getting back to 90% in June. And I just want to get the sense, are you referring to kind of back to precrisis normal levels? Or are you referring to prior expectations? How do I frame that 90%?

I believe we're looking at levels similar to what we saw before the crisis. There was already significant demand in North America and China for Metalcasting as we entered the year. Initially, we anticipated that the demand in the first half of this year would resemble the second half of last year, which shaped our forecasts. We maintained those demand levels during the first quarter in Metalcasting until disruptions occurred in China in January, followed by delays in North America and Europe later in the quarter. Presently, the situation is still quite uncertain. However, we are beginning to see a revival in demand driven by the automotive sector in Europe and North America. While it’s difficult to predict stability and future trends, our order book suggests that we are seeing demand at around 80% to 90% of the precrisis levels. We need to monitor how things develop, as several factors could influence this outlook.

Sure. Fair enough. The last one for me, I'm surprised a little bit by the energy and the order book, the statement that the order book is intact. And I went back to '15 and '16 and looked at the slowdown that you might have incurred there, especially in '16. And I'm curious as to kind of maybe what might have changed in that business as we're kind of going through a similar period, maybe even little sharper of a decline now and how the order books remaining intact.

Yes, let me start and then I'll pass it to Andy Jones, who is on the call. The business is quite different now compared to before. There is no doubt that the energy market is facing significant challenges currently. Back in 2015 and 2016, a large portion of our business was onshore-based and included various product and service offerings like coil tubing and nitrogen delivery. We exited those businesses during that time. We focused on offshore operations, specifically deepwater offshore basins globally, which involve higher technology and a better level of service. This shift has provided us with a more stable cost structure and service base. We believe we are now positioned in a sustainable competitive position offshore. Regarding the order book, Andy, how is it looking at this moment? I know it's challenging, but what are your thoughts?

Yes, it's feeling pretty good. And thanks for the question, Ed. I mean the thing is you have to look at the difference here between offshore production and land production. It's much, much easier for operators in times like this to shut down onshore production. Wells offshore, multiples are higher in terms of cost to put in place, up to 100x that of a land well. But the production is so prolific compared to an onshore well, perhaps 10 to 30x the production. And the last thing you want to do is shut down a high-producing, deepwater, high-temperature well, offshore. And the reason you don't want to do that is once you shut it in, it's very, very difficult to bring it back online because you'll cause all kinds of damage to the reservoir and to the wellbore itself as you shut that well in. So we are predominantly focused in deepwater basins, as Doug said. We do hardly any work on land. We have some work on land in Saudi Arabia, that's a slightly different story. But otherwise, we're in all of the deepwater basins in the world. And we're still seeing a good order book. We're still seeing orders coming in, contracts being signed even in April for new and upcoming work in the Gulf of Mexico. So far, we're safe there. We do see some disruptions because of COVID-19, resulting in early demobilization for virus-related issues as well as projects being shifted out of the second quarter. I'll remind everyone that this business operates solely offshore, so the price of oil takes longer to change the demand level for our services there. Energy Services is a small piece of our portfolio and profitability. And therefore, we expect these dynamics to have a limited impact on our financials. As I just described for you, we're dealing with several evolving market dynamics, which have many puts and takes. And all of this contributes to a lack of clear visibility going forward. But I wanted to provide you with as much detail as I can at this point. The latest information I can give you is that these operating conditions in April have led to a sales trend that is approximately 10% lower than what we experienced during the first quarter.

Looking at the remainder of the quarter. There are aspects of our outlook where we expect to see some improvement to this current sales rate but also other areas where there is more uncertainty, given how fluid the environment has been. We are working through the evolving challenges of today while also keeping our focus on our values, our longer-term goals and strategies, which includes taking measures to strengthen our foundation and the long-term health of our company. The underlying fundamentals of our business are intact, and we remain committed to our long-term growth strategy. Our business model, along with our cash generation, is resilient, supported by diversity in geographies, customers and markets. We are confident that our team's experience and agility, disciplined execution, cost management focus and strong balance sheet position us to navigate through this period of uncertainty. Our team has effectively managed challenging times in the past, and we will make the necessary adjustments to align our business to market conditions as they evolve. With that, let's turn the call over to questions.

That does conclude today's question-and-answer session.

Okay. Thank you very much, everyone. I do appreciate everyone joining today. A little bit long, but I hope everyone and your families stay safe and well, and appreciate again you joining today. Thank you very much.

That does conclude today's conference. We thank you for your participation. You may now disconnect.