Good day everyone and welcome to the Third Quarter 2022 Minerals Technologies Earnings Call. Today's call is being recorded. At this time, I would like to turn the call over to Erik Aldag, Head of Investor Relations for Mineral Technologies. Please go ahead, sir.

Thank you, Jenny. Good morning everyone and welcome to our third quarter 2022 earnings conference call. Today's call will be led by Chairman and Chief Executive Officer, Doug Dietrich; and Chief Financial Officer, Matt Garth. Following Doug and Matt's prepared remarks, we'll open it up to questions. I'd like to remind you that beginning on page 15 of our 2021 10-K, we list the various risk factors and conditions that may affect our future results. And I'll also point out the Safe Harbor disclaimer on this slide. Statements related to future performance by members of our team are subject to these limitations, cautionary remarks, and conditions. Now, I'll turn the call over to Doug. Doug?

Thank you, Erik. Good morning everyone and thank you for joining our call. We have a lot to cover today, so let's dive in. First, I want to acknowledge that MTI celebrated its 30th anniversary this week. We went public in 1992 with revenue of $400 million, and over the past 30 years, we've evolved into a global leader in specialty minerals with operations in 38 countries and revenues exceeding $2 billion. I extend my congratulations to all MTI employees, both past and present, for their commitment and contributions throughout this journey. Today, I'll start by discussing our financial results for the third quarter and providing some context for those results. I’ll also explain how we are executing our growth strategy and share examples of our positioning for sustained growth and performance. Lastly, I’ll touch on developments in our end markets and our outlook for the near term. Afterward, Matt will elaborate on our financial results and fourth-quarter outlook. Let's begin with a recap of the quarter. We continued our growth momentum in the third quarter, achieving a 22% increase in sales on a constant currency basis, totaling $542 million. Each of our segments saw double-digit sales growth, reflecting our strategy to elevate the company’s growth trajectory. This quarter posed challenges from a market and cost perspective, and the risks to our guidance from the second quarter indeed materialized. We encountered softer demand in Europe, rising energy costs, and a slow recovery in China. Foreign exchange rates also negatively impacted our sales and earnings. Initially, we anticipated some downturn in inflationary pressures, but we ended up facing the highest inflation period of the year. Despite these obstacles, most of our product lines performed well. Our pricing initiatives effectively countered inflation, and our acquisitions yielded positive results, mitigating the market weaknesses we faced and resulting in an operating income of $67 million, up 6% from last year. I should mention that we recognized special items in this quarter, including a reserve for ongoing talc-related litigation. Given the current litigation landscape, we've deemed it wise to reserve for potential additional costs. Matt will provide details on this and other charges later. Excluding these special items, our earnings per share reached $1.35, continuing our trend of year-over-year earnings growth. We acted swiftly to bolster our balance sheet by refinancing our debt and extending maturities through 2027. Overall, this quarter was strong for MTI, albeit different from what we expected during our last communication. Our team continues to seize opportunities while navigating global challenges with focus, discipline, and agility. These traits underscore our readiness to sustain our strong track record. Now, I’ll move to the next slide to discuss the sources of the broad-based growth we experienced in the third quarter. Our growth strategy hinges on three pillars: focusing our businesses in faster-growing markets and regions, accelerating the development of new products and technologies, and pursuing acquisitions that further our efforts. This strategy, executed over the years, has led to a more resilient portfolio with a stronger mix of sales from non-cyclical and growth-oriented markets. Once again this quarter, we saw the positive impact of this strategy, with sales up 22% year-over-year due to broad-based growth driven by these three pillars. Let’s look deeper into each pillar. Our success in market positioning is evident in our consumer-oriented product lines and the enhancement of our industrial businesses in faster-growing regions. Base volumes and mix improved by 6% in this quarter, mainly driven by our household and personal care product line, which grew 16% year-over-year, thanks to gains in pet care and edible oil purification. We have been strategically positioning our industrial product lines in these rapid-growth areas, leveraging our application expertise to extend penetration of our core technologies. We saw steady sales growth in foundry and paper packaging markets this quarter, with an overall increase of 7%, largely attributed to a 13% growth in India within our PCC and metalcasting sectors. Our pricing efforts contributed a significant 13% to our overall sales this quarter, demonstrating the value we provide to our customers. The second pillar of our strategy, focused on product and technology development, is producing results. Our innovation efforts continue to yield solutions that save money for our clients, enhance product performance, diminish environmental footprints, and facilitate waste recycling. In the third quarter, sales from new products rose 48% year-to-date compared to last year, now accounting for 14% of MTI’s total sales, up from 11%. Our innovations cater to diverse market needs affecting millions daily. For example, in Fabric Care, we introduced a new additive technology enhancing laundry performance. In Pet Care, we developed low-dusting cat litter to maintain cleaner homes, along with new cat litter box fragrance boosters. Our Specialties product line has produced more efficient bleaching earth products to extend edible oil shelf life, alongside innovations in Refractories and Metalcasting. The third pillar of our strategy, acquisitions, has been vital for our growth by integrating mineral-based companies with complementary technologies. Over the past four years, we acquired four companies that align with our strategy, contributing nearly $300 million in sales, with three focused on bolstering our pet care business, which is now our largest product line. We have a solid pipeline of consumer and industrial opportunities, ready to explore when conditions are right. I want to emphasize our foundation, which encompasses our ability to innovate, our leading technology platforms, and our experienced teams who enhance customer products and processes. Our strong, vertically integrated mineral reserves across the globe and employee support underscore our culture of operational excellence, enabling us to drive value for our customers and shareholders. Now, I’ll share the latest dynamics within our end markets. The economic landscape continues to shift, and we observed several market trends in the third quarter. Our decisions in recent years have fortified our position to endure economic challenges and sustain consistent growth and performance. Our market outlook by product line reveals a balanced perspective. Notably, our Performance Materials segment—our largest—has about half its sales from consumer-responsive products. Our household and personal care line remains positively positioned, benefitting from favorable consumer trends and strong sales from new offerings. This product line, which includes pet care, fabric care, health and beauty, and oil purification, is closely linked to consumer staples, allowing it to maintain sales through economic fluctuations. The private label segment within pet care and personal care markets is expanding, performing well as consumers seek cost-effective options. Demand for household necessities like pet litter, skin care, fabric care additives, and edible oils is expected to rise in the long run due to population growth and increasing global incomes. In Metalcasting, we anticipate a solid market outlook as demand from automotive and heavy equipment sectors remains robust in North America. Although the foundry market in China has been slow, we’ve started seeing increased demand towards the end of the third quarter, which we expect to continue. Our prospects in foundry markets worldwide remain promising thanks to our leading technologies. Our Environmental Products sector, traditionally focused on industrial landfill systems, is shifting to include consumer water solutions and municipal cleanup projects. We’re optimistic about markets for our water remediation products targeting PFAS contamination and anticipate solid demand for offshore water filtration and well testing products. However, we expect a seasonal decline in landfill projects as colder months approach. Our Building Materials product line, serving commercial construction and infrastructure sectors, faces a cautious outlook, particularly in Europe, where market slowdowns are expected to extend into the next year. Nonetheless, the project pipeline in North America remains strong through the fourth quarter. Moving on to Specialty Minerals, we predict a balanced outlook for our Paper PCC business, with growing volumes driven by our recent operations in India and sustained demand in North America due to high paper machine utilization. We also foresee a modest recovery in China extending into next year, albeit tempered by softer conditions in Europe amidst economic strain and high energy costs. The Specialty PCC and Process Minerals lines cater to construction, auto, and consumer markets, with encouraging trends seen in the consumer segment and steady demand for antacid and calcium fortification in food and beverages. Both segments are expected to benefit from stronger auto production. In Refractories, we maintain a balanced yet cautious outlook going into the fourth quarter. We saw some softening in third-quarter business, with North American steel utilization dropping from 79% to approximately 76%, where we foresee it remaining through the fourth quarter. The European steel sector also felt the strain and may experience further weakening into the fourth quarter. Nonetheless, we secured contracts for our new scan-to devices, representing innovation that enhances value for our customers and potentially contributes to our sales and profit growth next year. To summarize, the business environment has clearly changed since the year's beginning, influenced by shifting economic and market conditions and persistent inflation. However, we maintain a positive or balanced outlook for 80% of our markets as we head into the fourth quarter, and we are on track for another record year of earnings. While we are aware that conditions can evolve quickly, our team's focus, discipline, and agility allow us to navigate the future successfully. Our varied portfolio positions us to deliver consistent growth and performance through economic changes. With that, I’ll now pass the call to Matt for a detailed financial review. Matt?

Thanks, Doug and hello, everyone. I'll take you through the third quarter results, the performance of our segments and I'll also share our outlook for the fourth quarter. And then following my remarks, we will turn the call over for questions. Now let's review the third quarter results. Third quarter sales were $542 million 15% above the prior year and 22% higher on a constant currency basis. Starting with the sales bridge on the top left, you can see that foreign exchange impacted growth unfavorably by seven percentage points or $33 million. Acquisitions contributed 3% to the overall growth in sales, driven by Concept Pet, our new SPCC assets and approximately one month of incremental sales from Normerica. Our continued selling price actions drove sales higher by 13% over last year, and improved volume and mix added 6% to sales driven by higher metal casting volumes, continued growth from new contract wins and refractories, higher levels of activity in our project-oriented businesses, as well as an increase in sales from new products. Operating income in the third quarter excluding special items, increased by $4 million over the prior year to $67.2 million. We continue to implement selling price increases during the quarter, amid the persistent inflationary environment. As Doug mentioned, the $51 million of inflationary cost increases was the highest level we have experienced in any quarter this year. You can see in the operating income bridge on the lower left-hand side, that our selling price actions exceeded the inflationary cost increases by $8 million. Offsetting this was $2.6 million of unfavorable foreign exchange and another $2.6 million of other costs including SG&A wage inflation and other operational costs. Now turning to the right side of the slide. The sequential sales bridge shows that sales were lower by 1% on a constant currency basis. Continued selling price actions were offset by slower demand in Europe, softer steel market conditions, and typical seasonal foundry maintenance outages. Adjusted operating income was lower by 9% sequentially, driven by volume and unfavorable foreign exchange of $2 million. We experienced inflation of approximately $4 million higher than we expected at the start of the quarter, due to significant energy cost increases in Europe. As you can see, we were able to fully offset the additional inflation with price adjustments. Relative to the guidance we provided at the start of the quarter, our operating income was impacted by softer demand than expected in Europe and China and unfavorable foreign exchange. Now let me share a reconciliation of reported EPS to adjusted EPS. Third quarter reported earnings per share were $0.41. During the quarter, the company recorded special items of $38.7 million primarily consisting of $31.1 million for litigation costs and $6.9 million for debt extinguishment costs related to the refinance. The litigation costs were incurred to defend against opportunistically settle, and establish a reserve for claims associated with certain talc products from the Barrett's Minerals Inc. subsidiary. The company's position is that all talc products sold by Barrett Minerals are safe and these claims are without merit. We have a relatively limited number of cases but they do require legal preparation and the proper response hence our decision to prudently set aside a legal reserve to resolve them. Now let's review the segments in more detail, starting with Performance Materials. Sales for the Performance Materials segment were $290 million in the third quarter, an increase of 16% versus the prior year and 24% higher on a constant currency basis. This sales growth was driven by strong demand for consumer-oriented products, continued selling price actions, as well as strength in metal casting, particularly in North America. Sales in Household, personal care, and specialty products increased by 16% compared to the prior year and were 1% higher sequentially. Pet Care acquisitions and higher sales in our personal care and edible oil purification businesses drove the growth compared to the prior year. Sales in our Metal casting business were 17% higher than Europe, year-over-year as a result of strong volumes in North America. Sales were 4% lower sequentially on the previously mentioned maintenance outages at our North American foundry customers. We did see a modest improvement in China volumes. However, the improvement lagged our expectations and volumes remain below prior year levels. Environmental product sales grew 20% versus the prior year on strength and remediation, wastewater, and filtration activities, but were 12% lower sequentially due to the timing of projects and building materials sales were slightly lower year-over-year and sequentially, as higher levels of project activity in North America were more than offset by slower activity levels in Europe. Operating income excluding special items was $38.2 million and represented 13.2% of sales, 20 basis points above the prior year and sequential quarter, as pricing actions offset inflationary cost pressures. The segment largely met our expectations for operating income in the quarter as strength in the household and personal care product line and North America metal casting offset the slower-than-expected rebound in metal casting demand in China. Now looking ahead to the fourth quarter. We are entering a seasonally stronger period for Pet Care in both North America and Europe. In Metal casting, we see continued strong demand in North America and improvement in China, with the rest of the Asia region remaining strong. Meanwhile, we are entering a seasonally slower period for our environmental, commercial construction, and drilling products businesses. Given the typical seasonality, we expect segment operating income to be lower by approximately $4 million sequentially. In addition, there continues to be uncertainty in Europe, and we could see continued slowing industrial markets and additional inflationary cost increases. And now let's take a look at Specialty Minerals. Third quarter sales in the Specialty Minerals segment were $166 million, an increase of 13% compared to the prior year and 18% higher on a constant currency basis. Global PCC sales were higher by 14% versus last year, with Paper PCC up 9%, driven primarily by contractual selling price increases. Sales in Asia were lower than the prior year on soft conditions in China and weaker-than-expected demand in Europe due to increasing economic challenges in the region related to energy costs. Specialty PCC sales were 40% higher year-over-year, driven by continued strong demand in North America, higher pricing, and the asset acquisition in the fourth quarter of last year. Processed Minerals sales also grew year-over-year, rising by 9%. Operating income in this segment excluding special items was $16.9 million and represented 10.2% of sales. Software demand in Europe, higher energy costs, and higher operational costs impacted results by $3 million against our expectations. In addition, the segment absorbed $21 million of raw material and energy inflation in the quarter and we've been passing this cost through to our customers in price adjustments. As you are aware, some of these costs are passed through on a contractual basis and there is a lag as to when these adjustments will take effect and improve margin. Now looking to the fourth quarter. In Process Minerals and SPCC, we are entering a seasonally lower period for our construction end markets but we are seeing volumes to the automotive market remaining strong. We also expect our Paper PCC business to have a similar quarter sequentially. Overall for this segment, we expect operating income to be similar to the third quarter. And now let's move to Refractories. Refractory sales increased 13% versus the prior year and sales grew 20% on a constant currency basis, on the continued ramp-up of new business volumes and higher pricing to cover inflationary cost increases. Sales were 8% lower sequentially due to softer global steel market conditions and resulting lower utilization rates. Operating income was $12.4 million roughly $1 million lower than anticipated and margin remained strong at 14.5% of sales. Performance was impacted by higher energy costs in our manufacturing location in Turkey, unfavorable foreign exchange, and softer-than-expected steel market conditions. Now looking ahead, we expect a strong fourth quarter for laser equipment sales. We see North America steel market conditions remaining at similar levels for the third quarter however we anticipate some softening in Europe. In addition, we see continued higher energy costs for our Turkish operations. The net effect of this will result in operating income of approximately 1 to $2 million lower sequentially. Now let's take a look at our debt and liquidity. We completed the refinancing of our revolving credit facility and Term Loan B during the quarter, which extended maturities from 2023 and 2024 out to 2027. As a result of the refinancing our overall interest rate was reduced by 50 basis points and our fixed to floating ratio remained roughly 50%. Cash from operations for the quarter was $30 million and we deployed $19 million of capital expenditures. While we expect a strong fourth quarter free cash flow of around $70 million, inflationary factors have increased our working capital. As the inflationary pressures abate, we see working capital releasing and a return to more normal levels of cash flow. Overall, our liquidity remains very strong at over $400 million. Now let me summarize our outlook for the fourth quarter. Demand remains strong in our consumer-oriented product lines and solid across most of our end markets in North America although note that we do see the typical seasonality in our construction end markets. In Asia, we see continued modest improvement in China with stable conditions elsewhere in the region which should benefit our Metal casting and PCC businesses. In Europe, we expect industrial market conditions to remain soft and we could see higher energy and related input costs as we move into the winter months. Overall, we expect operating income to be around $60 million which would be 10% above last year and EPS of $1.20. From where we sit today, the fourth quarter reflects continued year-over-year growth driven by ongoing execution of our strategic growth initiatives and solid operating performance. Today's guidance equates to full year EPS of around $5.40. This is 8% growth versus 2021 and a testament to the resilience of our portfolio and the perseverance of our team. With that, let's move to Q&A.

Thank you. Our first question comes from Daniel Moore from CJS Securities.

Thank you, Doug and Matt thanks for taking my questions.

Hi Dan.

Good morning. Let me start with Performance Materials. If we just maybe talk about volume versus pricing for both household, personal, pet care and this kind of same question for Metalcasting what you saw in Q3.

Sure. Matt, do you want to take that or?

Yeah. Absolutely, so I think Dan, when you take a look the team did a really good job in continuing to drive price. If we break it down for the segment we're still net kind of $5 million ahead of the inflationary factors that they saw. But you are seeing very good year-over-year volume growth across Metalcasting, the pet care business that's helping to drive that and also other components of HPC and that specialty business where the team has been making advances. It might be good, Jones, if you want to give some color on some of those components?

Sure. You wanted me to highlight especially Matt.

Sure.

Hi, Dan. We have a solid range of unique product offerings. Our personal care segment is a key part of that, along with edible oil, both of which are experiencing growth. We're actively looking for ways to enhance our plant capacities to meet increasing demand. Additionally, we have several specialty areas including human health, agriculture, and Advanced Performance Additives, as well as drilling products for oil, gas, and water well applications. There's a broad spectrum of growth across our entire portfolio. Our strategy, which is consistent throughout the company, is particularly effective in the specialty segments. We're focusing on geographic expansion and innovation, with about half of our new products coming from this specialty business. Many elements are aligning to meet high demand with our valuable products.

Yes. And one other thing, Dan, as far as metalcasting goes, if you take a look, what we talked about was on a regional basis, really good performance in North America. Again, John has talked about the mix of end markets that we serve there, with automotive continuing to trend well, but those other markets performing very well amongst our customers. And then China, what we talked about is, yes, it wasn't as strong as we expected, but we did see a nice uptick in the third month of the quarter so in September with really nice demand coming back into place. So that helped to really set some of the trajectory that we were looking at for the fourth quarter of continued improvement in metal casting.

I would like to add that we track our daily sales, and in metalcasting, daily sales in Asia have increased every month since May. We had a significant increase in September, and as we head into Q4, we expect that demand will continue to rise. Although it is a bit slower than anticipated, we are still well positioned. Our team is proactive despite the slow market, and we have a strong leader guiding us. We have successfully positioned ourselves with customers and acquired new clients. As a result, our market share is growing with our blended products and our relationships with those customers are strengthening.

You kind of read my mind, I was going to just dig into metalcasting, given the strength of the outlook that you described, maybe try to get a sense of how much is increased penetration or set assume the way share gains versus positive market outlook.

Yes, so we're seeing, Dan, this is Doug, as Matt and John kind of mentioned, volumes are still remaining very strong in North America. We see that automotive demand, heavy equipment is going to continue to drive volumes through the fourth quarter and we see into next year. I think, China is the weakest spot of the year, so far. However, the uptick that we saw in September is going to, we think, continue at a moderate pace. It's not going to rebound. We don't see that drastically, but it's going to continue to grow through the fourth quarter and into next year. A lot of that is coming from our positioning, and you mentioned price before. Our ability to price is coming some from our ability and our applications of these green sand bond products, our blended products in China. And as they become much more of a staple to more modern casting processes, our ability to drive more value and therefore, continue to drive more price is behind that. So we're positive on that, both the pet care and the metal casting as we showed from that slide going into the fourth and into next year.

Perfect. Maybe one more, just digging down into the edible and purification oils. Any sense for, kind of, what run rate revenue we're at? And just, who are your primary customers? Is it larger CPGs? Is it smaller niche companies? Where are you gaining the most traction? And is it mostly North America or pretty well balanced in North America and Europe, since we're hearing more about that quarter-in quarter-out. Thank you.

Our business is primarily based in Europe at the moment, focusing on the production and sales of edible oils. This segment has grown significantly from nothing just a few years ago as we entered the market. We expect revenue in the range of $20 million to $25 million, with rapid growth as I mentioned this quarter. Our customers are major agricultural oil producers, including large companies like Bunge and similar organizations. We've experienced growth alongside these big agricultural clients in soybean and oil production. Additionally, we've developed new, highly efficient purification products that enhance their processing speed, capacity utilization, and improve the quality of the oil, extending its shelf life. This provides real value and efficiency for our customers, as well as a premium product for us. We are looking to further expand this business. As John highlighted, we've made several investments to optimize the utilization of our assets and continue to plan for further investments to sustain our growth alongside our customers. Does that help?

That’s helpful Doug. Yes, it does. I will jump back within it maybe one or two follow-ups. Thank you.

Thanks, Dan.

And our next question comes from Mike Harrison, Sport Research Partners.

Hi. Good morning.

Hi, Mike.

I was hoping that we could dig in a little bit on the margin performance particularly in specialty minerals and refractories. I guess, first of all, on specialty minerals. It seems like you've kind of taken a step back in terms of that price/cost recovery trajectory. Maybe just flesh out in a little bit more detail what you guys were seeing in terms of cost and maybe how we should see margin track over the next couple of quarters as those higher costs are passed through in some cases contractually.

Yes, absolutely. I'm going to start off and then I'll give it to Matt to give you some more details. This is definitely and has been all year the segment and the product lines that have been impacted the most from currency from energy inflation and raw material inflation number one. Number two, it's as we talk about all the time, this business has the most contractual nature to its sales. And in those in those contracts the timing of our ability to pass through pricing. So what you've seen this year is we've seen persistent inflation, persistent energy, we absorbed that in our income statement until we can pass that through and that lag can be three months to six months. And so years passed that happened both up and down, and we'd absorb in the kind of hundreds of thousands of dollars of kind of range. What you're seeing this quarter is in the million. Matt will describe those types, but I want you to know that they do get passed through contractually. So there is this delay. It weighs on our current quarter. We see that in our margins, but then in about three months probably January, a lot of this gets moved through into our customers. Now those margins will rebound, and they'll rebound as inflation starts to panic over our pricing catches up contractually and you'll see those margins rebound significantly. Matt do you want to give some details?

And that's exactly what we spoke to. I mean, take for instance, again, we talked about it in the prepared remarks. We saw about $21 million of inflation in that segment alone a net of which, I said was probably $2 million to $3 million that will come with a lag on it. So we will capture that. And if all else stays equal Mike that goes back to sort of recovering and establishing the margin. I think the broader point and I know you talked about refractories as well, but let's just step back for a minute and talk about the company's journey over the past two years. So coming out of 2020, we've absorbed $75 million of inflation in 2021. So far in 2022, we've absorbed about $135 million in inflation. So that's $210 million inflation in two years. And although, we've captured most of that in pricing, that in itself is dilutive to margin by about 200 basis points. So the company generating about 14.5% back in that early 2020 time frame and now this quarter around 12.5%, 12.4%, 200 basis points of that difference is the dilution in margin from passing through these inflationary costs. So that speaks to one, do great work by the team to capture those costs pass them through. Two, if you recall we came into this year expecting about $40 million of pricing. That $40 million was to catch up on inflationary costs from 21, but also $20 million to reestablish our margin. We'll continue to work on that as we go forward. Again, capturing those inflationary costs, yes, but then reestablishing our margin based on all the things that you heard Doug talk about the great position of our products, the great position and technical capability we have with our customers and also introducing new products. So that's what gives us the confidence that, as those inflationary factors start to plan over about 35% of the company has contractual lags in that pricing that will come, and the teams are working on the other 65% to reestablish that margin as we move forward.

All right. Regarding the Refractories segment, can you provide more details about the higher costs you're experiencing in Turkey? Additionally, I'm interested in the MGO market and the raw materials you're using in refractories. I believe you acquired some of that material before the significant price increases, so I'm curious about how you anticipate the cost structure for refractories raw materials will develop as we enter 2023.

So the cost increases that you saw in refractories this quarter was as you mentioned in Turkey it's energy related. And so, we do produce our own magnesium oxide. We buy magnesite ore and Centre ourselves in Turkey. And it supplies roughly 35 to 50% at times of our base raw material production for our Europe refractory production in Europe. And so that cost came in in energy as we center and we're moving that through in pricing to customers, but that was a large increase that we saw through the quarter. Magnesium oxide prices in general, we do source from around the world. We source from China, we source from other regions. Last year, you're right, we did take advantage of some dislocations and dislocations, but some lower pricing in the market and we stocked up and that was done for two reasons. One, we found some good opportunities for pricing and also we wanted to buy ahead of if you remember the Olympics that were in China to make sure that we loaded everything out of the country before that potential disruption. We've largely used through that. But again, we're in a position now where, given the conditions in China we're starting to see some good pricing, taking advantage of things not just in magnesium oxide, but in other raw materials. So therefore we're looking at making some opportunistic purchases this year to extend us into next year. So, there are some areas that we are seeing some planning over inflation. We're taking advantage of them, but I think the vast majority of what we saw in the quarter and what we think we're going to probably see in the fourth quarter is energy-related and energy-related here in the United States and in Europe. Does that help Mike?

Yes, very helpful thank you. And then my last question is on the Metals litigation. I'm curious, if you can let us know how many cases were settled and how many cases are still pending? And I'm also curious of the $31 million charge, how much of that is a cash impact and how much of that is a reserve that is a noncash expense for now?

Yes. Sure, let me take you first through the charge so to clarify that. As Matt mentioned there's three components to that it's both defense costs in the quarter, some settlement costs, and then a reserve to establish. Let me outline a little bit for you in talc. I think I mentioned on the last call that talc is about a $50 million business for us. And the cases that we have against the talc business right now are against our legacy cosmetic talc and cosmetic talc has been $2 to $3 million is a tiny piece of that business, a very small piece of the company. We discontinued those products in 2016. And so, because of that we have a relatively limited number of cases. But when we've been defending ourselves over the past several years actually, I mentioned that on the last call that we've been incurring more litigation costs. And as we went into the quarter, we made the decision to settle several of them. But also looking at the litigation environment in general, we said well look we have about 450 remaining cases against the company. We wanted to take a look at that and make sure that we assess any potential future liability that that holds given our litigation strategy. And so, we felt it was prudent to take the reserve this quarter. So it's a portion of that 31%. Now I don't want to break out for you the components. I want you to know a portion of that 31 is that reserve for these potential future liabilities. But I don't want to give you that, that's part of our litigation strategy. As far as cash flows, a portion of the cash flows in the third quarter within our cash flows will be a bit more in the fourth quarter, but the bulk of it is noncash, that will be set aside for resolving these cases as going forward as Matt mentioned. Does that help to mention it for you?

That's very helpful. Thank you very much.

And our next question comes from David Silver at CL King.

Yes, hi, thank you. I think I just, if you wouldn't mind, I'd like to just go back to the talc question for just a moment. But maybe just to clarify, but of the cases at issue here, are the parties all focused on I guess the cosmetic use of talc or is there some litigation that might be related to industrial or non-cosmetic use of the product? Just what is the range of the parties, who are filing the suits, just what parts of the talc business are at issue? Okay. I'll stop there. Thanks.

Hi, David. These are cosmetic talc applications as I mentioned a very small portion of the talc business, not the industrial application. And they're all associated with lung issues and that's right. I'll stop there. Does that help?

Okay. Great. Okay. Thank you for that. So next question, I think I'd like to ask you is about the PCC businesses. So they showed a very nice revenue gain sequentially and whatnot and year-over-year double digit. And I was just wondering, if you could characterize a little more detail the source of the increase. So, in particular, I'm wondering if there are some new project or new satellite plant start-ups in there or if it's just higher utilization from your existing network? In other words, what it seems like there's a lagging price effect. So, maybe if you could just talk about the source of the double-digit year-over-year increase? Thank you.

Yes, sure. I'll start and then I'll pass to DJ to give you some more details. Look, we've seen, as you know we've built a number of PCC satellites in India. We've got a new one ramping up in China over the past several years. And what we saw in the quarter is really just the stronger volumes from those new satellites. And you also see strong demand in Europe. I will tell you utilization rates, paper machine utilization rates are very high in the United States. We are selling just about every ton of PCC we can make here in the United States that's behind that. A little bit slower in China, but we still see a really strong pipeline of opportunities. I'll let D.J. kind of highlight more of those and some of the business development activities.

Glad to Doug. So David a couple of things. Regarding new satellites, nothing really significant yet, but you're going to start seeing in this quarter and really ramping up in the early part of 2023 is the new satellite that we had previously mentioned. Bayona's about a 50,000 ton satellite. In January, we're going to have another satellite turn on in India. And then just a reminder, we had announced last year a major new product for us in packaging, white packaging and that is a GCC satellite in China and that is still on track to kick in on the second half of next year. So those are all things in building in commissioning of things to come. On top of that, I look at the pipeline, there's a pretty significant pipeline that's still underway. It's reasonable for you to think, it's about 15 to 20 sort of discussions that are going on, split between Asia and Americas and Europe pretty evenly. In Asia, it's traditional PCC, plus some penetration in the packaging. And in the Americas and Europe, it tends to be these newer products, these environmentally focused products and packaging, so that's kind of where the pipeline is evolving to. But in terms of what you're seeing now, the big part of it as Matt mentioned is price with still more to come to recover on that energy, and then the volumes on those projects will start kicking in really early part of next year. I hope that gives you the color.

And yeah, no thank you for that. And if I could just follow up quickly, but from your experience DJ, does the prospect of like a slowing global economy, let's say, impact the capture rate for these new project opportunities. How do customers typically respond to a slowing economy when they're considering a new satellite project or a packaging conversion?

So in general, it creates more opportunity for us certainly the urgency of the conversations cranks up during these periods. There's two things driving that. The first thing is most of the customers look at it as a chance to reposition and upgrade on their quality. The second thing, especially when you're dealing with these energy prices, we've had big price increases, but it's against the increases that they're seeing in their pulp. It's against the increases that they're seeing in drying their paper, and our products help with both of those parts of the value equation. So I would say that what I've been experiencing most recently is an increase in interest on the traditional products and our newer products. So that's what's still holding out now.

Okay. Great. And then, I did have one more question on, within Performance Materials on environmental products, in particular. So second quarter and third quarter together that's over $100 million of revenue from that product line. And I mean, that historically that's a very strong trend. So, just a couple of questions about that. But first, could you just kind of speak to let's say the backlog or the order book for new environmental products based project work? And then secondly, if you could just give us an update on fluoro sales and beta testing and development like that? That would be helpful. Thank you.

Sure. Let me start, and then I'll give it to John. We have seen some really good growth in this business. As I mentioned, several years or for several years this is our Environmental Products business has been based on lining systems. So, geosynthetical liners for municipal and industrial landfill use. Over the past couple of years, we've spent a lot of time and innovation in more water applications remediation applications. Our PFOS product, our FLUORO-SORB product is one of those outcomes. And so we are moving this business and we've seen a tremendous amount of growth on the water side of things, and even more so looking at drinking water applications. And so a lot of our newest technologies are on that remediation. We think that it's obviously a growing market. There's a number of factors there. One obviously the consumer side of it, in terms of protection of drinking water, but also the municipal side of it, which, while there isn't a regulation necessarily to a level of remediation cleanup by the government, there is municipal interest and local interest in cleanup efforts and we've been taking part in that. So a real shift toward more of the water side of things and remediation side of things. And John, you want to give more detail on some of the flouro and the projects that we have in the backlog.

Sure. I appreciate the question. I guess, think about the magnitude of what we're doing and who we're working with. First, put it in terms of pilots. We've had about 100 successful pilots demonstrating the activity of the product and the success of the product. And that certainly sets the stage for commercialization. We've been talking about that for quite some time. We have started to see the ramp-up of commercialization. So it's broken into a couple of different segments. If you think about in-situ soil stabilization, this is what we've been doing with some of the defense department. And we've got a major installation with the DoD site. We've had two industrial sites. We've got two mobile filtration units that were moving around all generating sales and revenue. The second segment is drinking water, like Doug described. This has the potential to just be continuous business, as they use the media and we replenish the media. And right now we've got two orders for full-scale water purification systems and that will be we suspect a great entry into the utility segment. Once we demonstrate full-scale commercial success, we believe others will be watching that and we have the potential to continue to grow that. And then the last segment is landfills. And during the quarter, we had two systems go in. We've got another order for another system. We've had one in place for over a year now, so again that's kind of our bed and butter as well. So three segments all have significant potential. We believe that what's really going to drive this is regulation and once regulations get in place with the technology being fully demonstrated, we'll have the ability to grow that exponentially. I hope that provides some color.

I like the word exponential. Okay. Thank you very much. I appreciate all the color.

Thanks, David.

I almost had to hold John back there on the exponential number, but yes no good growth.

And we'll take our next question from Daniel Moore at CJS Securities.

Hi, Dan, are you there?

No. We still have Dan connected, Dan, your line is open. Would you like to go ahead and ask a question or maybe we did lose him. Would you like to go to the next question and possibly have Dan requeue.

That would be fine.

Okay. Our next question comes from David Silver at CL King.

I'm not going to say I had anything to do with that but anyway when I have to get a follow-up, and I'll go to any extreme. Anyway sorry about that. I just wanted to touch base real quickly. Thanks for laughing that's all I could come up with on short notice, but okay. So cash flow and in particular, working capital. So, I would just say over the last several quarters, there has been a pretty significant buildup in the use of working capital. And certainly, there's been some buffer inventories and some accommodations to supply chain issues and whatnot. But I'm just wondering, if I look over the last four to six quarters, I mean the net increase in working capital build, it’s been pretty substantial. And I'm just wondering if you could, two things, I mean could you cite maybe the strategic rationale behind that? And then secondly, how do you anticipate that level of working capital progressing, let's say, over the next quarter or two? Thank you.

Sure. Thanks, David. We consider a variety of factors. As you mentioned, during the period you described, we implemented strategic inventories. We managed through higher revenue phases in the second and third quarters and established strategic inventories ahead of the winter months for the mining businesses. Throughout this, it's essential to evaluate our efficiencies. From a days on hand perspective, we're nearly flat compared to last year, indicating that our inventory levels align with the revenues we're generating. The inflationary pressures we've encountered have influenced both our revenue and inventory, but the net efficiencies—meaning the actual units we hold—are consistent with previous quarters. As those inflationary pressures diminish, we expect working capital to release. Keep in mind that we typically operate on 60 to 70-day terms, so any changes will reflect that time lag. To consider, the impact of inflation has been in the $70 to $90 million range, depending on whether you're comparing year-over-year or looking back six quarters. This will equilibrate within a 60-day timeframe once inflation stabilizes.

David, I want to emphasize that we see no change in the company's cash flow generation potential. In fact, as we add product lines that are less cyclical and have higher margins, we expect to enhance that going forward. Many companies are experiencing inflation being absorbed in their balance sheets. As this situation stabilizes, we anticipate a return to normal cash flow yield characteristics. We initially thought this would happen in the second half of this year, but as we continue to face inflation and invest in our higher products, it may take a bit longer—another quarter or two—to see a release. However, I do not believe there are any changes in the company's characteristics or in our historical cash generation.

That's where I was, and that's what I was wondering. Thank you very much. I appreciate the detail.

Thanks David.

It appears there's no further questions at this time. I'd like to turn the conference back over to Doug Dietrich for additional or closing remarks.

Thanks, Jenny. Thanks everyone for joining the call. We do appreciate the questions and the attention today. We'll talk to you in another three months. Thanks.