Good day, everyone, and welcome to the Third Quarter 2023 Minerals Technologies Earnings Call. Today's call is being recorded. At this time, I would like to turn the call over to Lydia Kopylova, Head of Investor Relations for Minerals Technologies. Please go ahead, Ms. Kopylova.

Thank you, Melinda. Good morning, everyone, and welcome to our third quarter 2023 earnings conference call. Today's call will be led by Chairman and Chief Executive Officer, Doug Dietrich; and Chief Financial Officer, Erik Aldag. Following Doug and Erik's prepared remarks, we'll open it up to questions. As a reminder, some of the statements made during this call may constitute forward-looking statements within the meaning of the federal securities laws. Please note the cautionary language about forward-looking statements contained in our earnings release and on these slides. Our SEC filings disclose certain risks and uncertainties which may cause our actual results to differ materially from these forward-looking statements. Please also note that some of our comments today refer to non-GAAP financial measures. A reconciliation to GAAP financial measures can be found in our earnings release and an appendix of this presentation, which are posted on our website. Now I will turn it over to Doug. Doug?

Thanks, Lydia. Good morning, everyone. And thanks for joining today. Let me start off by giving you a quick outline for today's call. First, we'll take you through the highlights of our third quarter. And as part of this, I'll provide some commentary on the dividend increase and share repurchase program we announced last week. I also want to give you a quick update on Barrett’s Minerals. I will spend a bit of time going deeper into what drove this quarter’s strong performance and why I feel it's an indication of how we've positioned ourselves for continued profit improvement. After that, we'll give an update on general business conditions and market trends. Erik will then review the financials and provide an outlook for the fourth quarter. And we'll have plenty of time to take your questions at the end of our comments. I'm sure you've already reviewed our third-quarter earnings press release. So, let's go through some of the main highlights. We had record sales for the third quarter, delivered record operating income for any quarter, significantly improved margins, and increased cash flow. These results are reflective of how we've positioned ourselves strategically, and how we're executing from an operational perspective. Our business segments are performing well. Each continues to face mixed market conditions through the quarter. But despite this, MTI achieved record third-quarter sales. Let me give you some of the highlights. Within the Consumer Specialty segment, the Household and Personal Care product line continues to show strength with stable growth across all geographies. The main highlight being pet care sales, which increased 15% over last year, and our animal health products growth of 38% from last year, as the natural feed additive market continues to develop. In the specialty additives product line, paper markets in North America and Europe remained slow. Although Asian paper markets were stronger, and volumes improved due to our newest satellites in the region. We also saw solid performance from our ground calcium carbonates products in North America. In fact, our GCC facility located in the western U.S. had a very strong quarter, breaking production sales and income records. In the engineered solution segment, our high-temperature technologies product line delivered especially strong performance. North America steel and foundry markets remained stable, and the China foundry market continues to improve each quarter. This business hit on all cylinders, gaining market share, maintaining pricing, capturing input cost savings, and delivering a strong operating performance at production facilities. In the environmental infrastructure product line, wastewater treatment, environmental lighting systems, and drilling products had a solid quarter. We continue to see weak activity in the commercial construction waterproofing market. Next, EBIT margins expanded to 14.1% this quarter, a 170 basis point improvement over last year. Both segments expanded margins significantly. We captured input cost savings, improved productivity in our operations, held pricing, and in many cases continued to improve pricing and leverage our fixed cost base through disciplined spending. Strong sales and expanded margins yielded $77 million of operating income, which is a record for any quarter for MTI. As we expected, cash flows are improving, cash from operations increased 30% sequentially, and year-to-date, it has more than doubled over last year to $138 million. Given the stable sales trajectory of our portfolio of businesses and the expansion of profit margins, we're confident in stronger cash flow levels going forward. Our board shares this confidence, which is illustrated by the increase last week in our quarterly dividend from $0.05 to $0.10 and the authorization of a new $75 million share repurchase program. Before I move on, I want to give you a brief update on where we are with Barrett's Minerals. As we've discussed in these calls, over the past year, cases filed against BMI continued to increase, as well as the cost to defend itself against these claims. We believe these claims to be meritless, and we've always stood by the safety of BMI products. The reality of the soaring legal costs overwhelmed this small business. As a result, on October 2nd, BMI announced that it filed for Chapter 11 protection. We recorded a one-time non-cash impairment charge of the BMI fixed assets, as well as the charge for the litigation costs associated with the bankruptcy process. In the fourth quarter, we expect to fully remove this business from our financial results. We considered several options and decided that using the bankruptcy process was the best path to protect the business, MTI, and all stakeholders. This process will take time to fully resolve and BMI will continue to operate per usual throughout. We'll be sure to update you as it progresses. We see this as a significant step in moving forward and ensuring that our corporate energy is squarely focused on achieving our five-year growth and performance targets. Let's take a few minutes to go a bit deeper into our quarter. Not to highlight the numbers, but rather to illustrate what's behind them, what's driving them, and why we're confident this will continue. Performance this quarter is a product of several elements that are coming together, driven by our strategy and supported by a strong operating model. It starts with our top-line revenue profile made up of our resilient and stable portfolio of businesses. Our ability to deploy our core technologies, combined with our ingrained culture of operational excellence, and the advantage we gained through owning unique long-term global mineral reserves. We've talked extensively about how we've positioned ourselves in higher growth consumer-oriented markets, like pet care and other consumer specialties, while also establishing strong positions in higher growth geographies. This quarter, the stable growth from these areas offset the slowness we experienced in other end markets, like North America, commercial construction, and European steel. The stable growth markets give the company much more balance than it has in the past. As other markets recover, sales will accelerate. This is the combination that yields meaningfully higher long-term growth. We also outlined for you our margin expansion targets. There are three main areas that we see driving margins higher going forward: improved price costs, improved mix from the natural growth in higher margin products, and our ability and discipline to leverage this growth on our fixed cost base. All three of these elements contributed to the margin expansion this quarter, and we see them continuing to contribute to our margin expansion going forward. MTI’s long-term growth potential combined with expanding margins leads to increased cash flow generation. Our balance sheet is in good shape, with net debt around our targeted levels. Combined with this stronger cash generation, we have ample financial resources to fund capital expenditures, pursue M&A, as well as support an increased dividend and a new share repurchase program. All of this is consistent with our balanced approach to capital deployment, and specifically our commitment and history of returning cash to shareholders. Let me wrap up this slide by stating that MTI has a powerful business model, one that combines revenue stability, and growth potential with operating discipline, technological capabilities, vertical integration, and a strong people-centered culture. This quarter is an excellent example of how those elements came together, and how they will continue to provide value in the future. This is a strong quarter for us, but it has more potential. We've got a lot more gas in the tank, so to speak, and we're well on our way to meeting the financial targets we laid out for you earlier this year. Okay, before I pass it on to Erik, let me take you through our markets and what we're seeing. Overall, our market outlook remains similar to what we shared last quarter, with the exception that we're entering some seasonal periods for a few of our markets. Let's start with the Consumer & Specialty segment. Overall, we're seeing continued strong market conditions across our household and personal care markets. There are several near-term and long-term trends that are driving this strength, as we are entering a seasonally strong period in both North America and Europe over the next two quarters. But more broadly, we continue to see positive demand trends for both private-label cat litter in the U.S., as well as premium offerings in Europe, which is where we're positioned in each market. Furthermore, we see continued demand growth in the Asia pet litter market, and we're well positioned to capture this with our mining and production locations. We also expect other HPC markets including edible oils, renewable diesel, animal health, and personal care to also remain on their stable growth path in the fourth quarter and through 2024. In specialty additives, our market outlook remains positive. So, Q4 is typically a seasonally slower period for residential construction. We expect gradual improvement in the North American paper market. Looking into next year, we will see a boost in volumes from the tree paper and packaging satellite ramp-ups that are taking place in Asia right now. We also have a solid pipeline of new packaging business opportunities as we continue our growth and transition into this market. As we look at the engineering solutions markets, we see more mixed conditions. In high temperature technologies, we have a generally positive outlook for both the steel and foundry markets. We see continued stable conditions for our foundry and steel products in North America, and a continued gradual improvement for the foundry market in China. We've signed several long-term contracts for our laser and refractory application equipment, and a number of these come online next year, which will help drive volumes and sales higher. Moving to environmental and infrastructure, we have a mixed and more cautious view on these end markets. The market for our environmental lighting systems, as well as major remediation projects, tends to slow in Q4 and Q1. We also don't expect to see any improvement in the commercial construction waterproofing market, which has been slow all year. On the positive side, infrastructure drilling and environmental wastewater markets should remain solid throughout the quarter. Looking further out, our team has been making great strides in gaining attention for our PFAS remediation technology. The business currently has over 200 active pilots and trials, and we recently presented our technology and unique capabilities at the Gabelli PFAS symposium. This presentation is available on our website if you're interested in learning more. In summary, we see relatively strong markets for us as we head into the end of the year. More so, we've built strong momentum across all product lines, which sets us up for another strong year in 2024. Now let me turn it over to Erik to review our financials in more detail, Erik.

Thanks, Doug. And good morning, everyone. Let's start by reviewing our third-quarter performance and also provide our outlook for the fourth quarter. Following my remarks, we'll turn the call over for questions. Now, let's review our third-quarter results. Let me start by saying we had a strong third quarter marked by records for adjusted operating income and EBITDA, significant margin improvement, and higher cash flow. Overall sales were $548 million similar to both the prior quarter and prior year. You can see in the bridge on the top right that two of our product lines grew sales and two were lower, reflecting the mixed market conditions we are experiencing this year. This bridge is a good representation of the benefit that our higher growth consumer-oriented products are having on the overall portfolio, providing stability and growth when other markets aren't as strong. And we are leveraging our sales into significantly higher earnings across both segments. Operating income excluding special items increased 15% versus last year and improved 9% sequentially to $77 million, record results for MTI. We remain on track to deliver our targeted margin improvement. Operating margin improved to 14.1% of sales in the third quarter. This result was 170 basis points above last year and a 130 basis points higher sequentially driven by the combination of price cost recovery, productivity improvements, and favorable mix from the growth of higher margin specialty products. Adjusted EBITDA was $102 million in the quarter and represented 18.6% of sales. It's worth noting that this was the first time the company has generated quarterly EBITDA above $100 million. Our reported results included two special items in the quarter. The largest of the two was a non-cash $72 million impairment of all the fixed assets within Barrett’s Minerals Inc. The second special item was a $13 million charge for litigation costs, also related to BMI and its filing for bankruptcy protection. EPS excluding special items was $1.49. To give you some perspective, on the lower left, we've included our third-quarter EPS trend over the last five years, which shows a 9% compound annual growth rate since 2019. And our third-quarter EPS even includes $0.10 of higher interest expense versus last year. Now we'll review the performance of our two segments, beginning with Consumer & Specialty. Sales in the Consumer & Specialty segment were $291 million, 2% above last year and similar to the second quarter. Sales in the household and personal care product line were 9% higher than last year and 3% higher sequentially. Growth in pet care remains strong, with sales up 15%. Sales across the other specialty consumer markets in this product line were 8% higher sequentially. Sales in the specialty additive product line were 2% lower than last year. While North American paper production improved from the second quarter, demand remained below prior year levels in both North America and Europe. Meanwhile, volumes in Asia improved year-over-year driven in part due to the ramp-up of our new satellite facility. In residential construction markets, market conditions remain mixed with steady demand for our products that are used in remodeling activity, helping to offset the impact of fewer new builds. Adjusted operating income for the segment increased 23% year-over-year to $38 million. Operating margin was higher by 230 basis points, primarily driven by price cost recovery. Looking to the fourth quarter, we expect continued strength from household and personal care, driven by strong pet care sales and continued gradual improvement in other specialty consumer products. In specialty additives, we expect typical seasonality and construction, partially offset by continued improvement in paper production in North America and additional volume from our new satellites in Asia. In total, we expect operating income for the segment to be around $33 million in the fourth quarter. Note that this guidance reflects the deconsolidation of BMI, which means BMI’s revenue and profit will be excluded from MTI’s results going forward beginning in the fourth quarter. Now let's turn to the Engineered Solutions segment. Third-quarter sales in the Engineered Solutions segment were $257 million, similar to the prior year. In high temperature technology, sales were 1% higher than last year as demand for steel and foundry products in North America remains strong, and we continue to grow foundry volumes in China. Environmental and infrastructure sales were 2% lower than the prior year as commercial construction activity remains slow. Sales for drilling, wastewater, and remediation applications continue to grow, including the completion of another PFAS remediation project using our floor absorb technology, this one at a U.S. Department of Defense location. Third-quarter operating income for the segment was $41 million, 12% above last year. Price cost recovery and solid execution drove operating margin expansion in the quarter, which was 15.8% of sales, an improvement of 160 basis points. Looking ahead to the fourth quarter for high temperature technologies, we expect continued strong demand in North America and we expect conditions in Europe to remain similar sequentially. In Asia, we anticipate the growth trend in China foundry volumes will continue. Additionally, we expect to see a benefit from higher laser measurement equipment sales. Finally, in the environmental and infrastructure product line, sales will be lower sequentially as we enter the seasonally slow period for environmental and construction projects. In total for the segment, we expect operating income will be approximately $35 million in the fourth quarter. Our guidance includes some limited impact from the UAW strike, and we are continuing to monitor the situation. Now let's turn to our balance sheet and cash flow highlights. Cash flow accelerated in the third quarter as we expected, bringing year-to-date cash from operations to $138 million, more than double the same period last year. Capital expenditures were $25 million in the quarter, bringing the year-to-date total to $71 million. And year-to-date free cash flow was $67 million. For the full year, we continue to expect free cash flow between $100 million and $125 million. Our balance sheet remains very strong. Total liquidity at the end of the third quarter was $458 million and net leverage improved to 2.2 times EBITDA. With leverage approaching our target of two times EBITDA and cash flow continuing to improve, we are well positioned to maintain our balanced approach to capital allocation, which includes returning capital to shareholders through our dividends and repurchase program. Now I'll summarize our outlook for the fourth quarter. Overall, for MTI, we expect another solid performance in the fourth quarter. In the Consumer & Specialty segments, we expect continued strong demand from the household and personal care product line, and in pet care in particular, and specialty additives, higher sales into the paper and packaging market driven by our new satellites, and gradual improvement in North American production rates will be offset by seasonally lower construction activity, as well as the deconsolidation of BMI from MTI’s results. In the Engineered Solutions segment, we expect continued strength in high temperature technologies driven by higher laser measurement equipment sales and growing Asia foundry volumes. Meanwhile, environmental and infrastructure will experience typical seasonality. As we currently sit, we expect fourth-quarter operating income between $65 million and $70 million, and earnings per share between $1.20 and $1.30. This guidance represents a continuation of the company's earnings growth trajectory. Despite the mixed markets we've experienced this year, this guidance equates to full-year operating income growth of approximately 10% and full-year EPS growth of 5% to 7%. In addition, we expect the fourth quarter to be our strongest cash flow quarter of the year. As highlighted earlier, the key elements of MTI’s business model were on full display this quarter. This powerful combination of growth ability, margin improvement, and cash flow generation will continue to drive our performance going forward. With that, I'll turn the call over for questions.

Thank you. We will now take our first question from Daniel Moore with CJS Securities. Please go ahead.

Thank you. Good morning. Thanks for all the color, and congrats on some strong execution and margin improvement. Maybe start with Erik, if you could give us a sense for obviously, you've made strong pricing gains, kind of volume versus price across both consumer and specialties as well as Engineered Solutions? And how long do you expect the pricing to remain a tailwind?

Sure, Dan, thanks for the question. So, yes, we had pricing, positive pricing in the quarter. That positive price cost recovery contributed a lot to the margin improvements that you saw, particularly this quarter. And that's happening across both of the segments, more so in the Consumer & Specialties. I think when you go back to last year, in 2022, as a company, we'd absorbed something like 150 basis points of margin from being upside down on price versus inflation. This year, we set out to recover all of that 150 basis points through pricing. So, that's what gets you to what we've stated previously have kind of a run rate averaging of 13.5% operating margin by the end of this year. And so we're on track for that. We're achieving what we said we would do and more so you know, the price with cost recoveries coming to a greater extent in the Consumer & Specialty segment. But the overall pricing impact is much less than it has been in the first half as we've left some of our significant pricing actions from the third quarter last year. So, now we're seeing the pricing in the low single-digit kind of range in terms of an impact on our top line.

Very helpful. And then you just talked about getting to that 13.5% adjusted operating margin, you exceeded 14% this quarter, in a relatively tepid demand environment, at least across some of your businesses. So, I realized this is the seasonally stronger quarter we just exited. But your longer-term goal is 15%. Do you see that as being potentially somewhat conservative? If not, maybe the timing, then kind of the absolute level of where you see these businesses?

And maybe I'll jump in that one, Daniel. Look, I think, you know, we've set out a target of 15% by 2025, and yeah, you are looking at a stronger, seasonally stronger quarter. But I do think it is representative of kind of the potential. As we knew that we'd start to capture cost deflation, we'd start to see those play over. And we see that the pricing and the value of our products in the market continue to hold. I think you'll start to see you're seeing that through our gross margins as well. We've done a great job selling on value; we are a long-time stable supplier because we own our unique mineral reserves. I think customers see that, and that enables us to make sure that we're getting the value for our products. As you see the consumer business continue to improve, and we continue to improve in pet care, you're starting to see the growth in those higher-margin specialty products, which are also higher growth. That's part of that margin expansion. Yes, I think we can push through that 14%, 15% margin; I think further, though, it's going to take that stable growth profile and leveraging our fixed costs. Also, to get those new innovative products in these specialty products out on the market, those are higher-margin products that are year or two years out. I think there's the potential to get past 15%. But we're laser-focused on delivering that 15% like we told you by 2025. So, start there; I think there's potential for more, it's going to come from higher-margin products and leveraging our fixed cost base with that growth.

Very helpful. I may have one or one and a half more questions before I conclude. Clearly, the Taos litigation, despite the announced bankruptcy, remains a significant concern for some investors. Can you provide any updates on the current status of the process and what the next steps are? Additionally, could you explain your rationale for choosing the bankruptcy route as a means to limit liability and protect MTI, especially when looking at similar cases? While I understand that direct comparisons may be challenging, other instances, such as asbestos cases, haven't fully shielded the parent company. Any information on this topic would be greatly appreciated.

Yeah, well, as you mentioned, each of these processes are different, they have different dynamics. We looked at different scenarios and we've made sure we really understood what was happening in the landscape. As I mentioned in my comments, just the caseload that BMI was being pulled into kind of this tort overwhelmed the business. We felt that the best path forward for BMI, for MTI, and again, all stakeholders, including shareholders, was to seek bankruptcy protection. That places it in a very well-defined, structured, and transparent process. There are a number of dynamics that will need to be worked through. So, it's hard to give you at this point in time a timeframe or how that will play out. It's just right at the beginning of it. I think the next major milestone will be selling of the assets, the BMI assets. Using that to fund the trust. Once we're through that, we'll have a better idea of how this will play out and the timeframe. But right now, it's a bit premature to give you a clear view of how it will play out, but it is designed to ensure we ring fence and protect the company and take steps to protect MTI through the process. And that's what we've done.

All right. Lastly, as you mentioned, the 2025 targets a couple of times in the prepared remarks. So, is it fair to say that the removal of talc doesn't have any impact on the targets in your mind?

No, I think, BMI was a $50 million business, so it will have an impact. We're going to probably have to call out the difference in year-over-year comparison to next year with the profit and the sales out. We'll do that, but no, I don't think that changes things. I think the growth, the potential growth that we have in front of us across the board will offset that. I don't think on the scale of being a target of running at an average of 5% growth over the next five years, kind of a $2.6, $2.7 billion revenue target; $50 million is going to make a big difference. We will be giving you some comparisons for the next couple of quarters. So, you haven't bridged, right. But no, I don't think that's going to change meaningfully our target growth.

And we go next to the line of Mike Harrison with Seaport Research Partners. Please go ahead.

Hi, good morning. Congratulations on a strong quarter. I had a question on the household business. So, one of the main players in that pet care space had a cyber-attack last quarter; it led to some significant product shortages. We understand that dynamic has led many pet owners to switch to a different brand. Can you talk at all about what impact that event may be having on your pet care business? And have you seen any acceleration in consumers switching to private label brands?

Yeah, let me take that. We noted that issue that occurred this past quarter. We did see a little uptick in order volume to make up for that. I don't want to say it's substantial. Most likely it is temporary. But I think the longer term, you're right, I think we are well-positioned to supply private labels in North America. We've built up our position through a couple of acquisitions, as you know. And yeah, we're seeing that as the category grows. Pet litter grows in North America; the category of private label is growing a bit faster than the average. So, with our locations, with our mining assets, and being that private label provider, that's what's driving the growth in North America. Yes, we've benefited a bit from folks looking for private label brands when a branded product has trouble. So, I think that's temporary.

Okay, so you don't see, you don't envision that there's going to be some permanent switching. I guess I think of cat litter as something that consumers try to stick with one brand. If something becomes unavailable, that would maybe ignite a switch that could end up being more permanent. You don't see that happening?

I don't want to speculate, but I agree there is brand loyalty. When a brand faces challenges, it can impact that loyalty. We've seen some benefit from that this quarter due to availability issues. It's uncertain whether this change will lasting. However, I believe overall demand for private label products is growing faster than for other options. This trend is likely to continue in the long run, despite the one unfortunate incident affecting a company. I hope that answers your question.

Yep, no, that's fine. And then just quickly, where do you guys think we are in terms of realizing the $10 million worth of cost actions? Are we still pretty early in that process? Or do you have kind of a run rate of where we were as of the end of the third quarter?

Yeah, Mike, this is Erik. We're about two thirds of the way through from a savings perspective through the third quarter on a run rate basis.

We expect to achieve the full run rate by the beginning of next year, specifically in the first half. We are on track to meet those savings.

Perfect. Okay. And then a couple of questions for me on capital allocation with the increase in your dividend. Just curious, is that expected to just be the new rate going forward that $0.10 a quarter? Or is the board considering future increases maybe in line with earnings growth, maybe any comments you could provide on the new approach to dividend policy and other returns to shareholders?

So, yes, that is a permanent $0.05 increase to the quarterly dividend to $0.10. I do think that, you know, as we go forward, the board is going to continue to look at how we allocate that capital. As you know, we've preferred using share repurchases because there's some flexibility that gives us the opportunity to make sure that as M&A comes up, we're able to steer capital to what we think is a higher value use for that cash. The board will continue to look at dividend policy going forward. But where we are now is that $0.05 increase, and that is a permanent increase. So, the board will look at dividend increases going forward, but that's where we are for right now.

All right. And then in terms of M&A, just kind of curious, you guys did a transformative deal back in 2014 when you acquired AMCOL. You were looking at another major deal a few years ago; just wondering if you can provide some updated thoughts on your appetite for a larger or more transformative deal? What criteria would it need to meet? And how much would you be willing to leverage the balance sheet versus that 2.0 times net debt to EBITDA target leverage in order to complete a larger transaction?

Let me start by answering it. M&A is a stated part of our growth strategy. We've demonstrated that through four bolt-on acquisitions over the past five years. We see that as an opportunity to pull in valuable pieces. As I said, build positions that make sense for the company. Each of our product lines also has good organic opportunities that we have capital to fund and inorganic opportunities. It's set up that way. So, we're going to look at that going forward. There are some transformative acquisitions in our portfolio that we're considering. Those are things that we look at on a number of different elements. How much we're willing to leverage up depends on the environment, what we see, how we're performing, the synergies available, and where we are in the capital markets. I would say, where we were with AMCOL, let’s say four and a half times before, I would think that our leverage targets would probably be lower than that. But I will say, when we go into these deals, we look at them from all angles, making sure that both risks are understood, that the cash flow was understood, that the synergies are very well understood and that the debt pay down happens rapidly. I think we demonstrated that in our ability to de-lever with the AMCOL transaction. Anything we would do of size would have that same type profile, we would look at it, its risks, first and foremost, the benefits of the company, the value created, and the rapid debt pay down. That's how we look at these. So, I can't answer how high we go. It really depends on the target and what we see at the time.

All right, very helpful. Thanks very much.

Our next question or comment comes from the line of Steve Ferazani with Sidoti & Company. Please go ahead.

Good morning. This is Alex Hantman on for Steve. My first question is around the buyback. Given the sizable buyback announcement, is there still room to reduce debt? And generally, how do you prioritize share purchases and debt reduction?

Sure, so our policy and the way we look at our capital allocation is that we take free cash flow, which is typically around $150 million a year on average, and we see that continuing to grow with our growth and profit expansion. Over history, we typically allocate about 50% of that back to shareholders, typically in the form of a share repurchase program. At this point in time, a dividend increase, plus the $75 million share repurchase program is around half of that, giving us half of that free cash flow to de-lever. Again, we usually look at this capital allocation when we're at our target leverages, which is around two times. If we have an acquisition, the past year, we've been up around 2.83 times, we're going to look to get the balance sheet back down to around two, free cash flow then gets steered toward shareholders. We have the flexibility in share repurchases. If a sizable M&A transaction comes around, we have sufficient capital and expect sufficient capital going forward for both dividend increases for the share repurchase and reserving capital to both put on debt reduction for a potential bolt-on M&A. That flexibility is consistent with our stable sales and expanding margins, which generates, historically around a 7% cash conversion to sales. That type of capital gives us a lot of options and keeps the balance sheet in good shape while returning to shareholders.

Thank you, appreciate the color there. Speaking of capital allocation, given the size of opportunities you've laid out previously in PFAS remediation, we talked about today, do you expect significant additional investments in business?

Yes, organic investments. We're continuing to invest. If I understood your question properly, we invest in R&D. We have a sizable pipeline of new products. We've gone back to talk about how we've increased the revenue from new products that we're making investments in. We used to be around 5% of sales, we're now approaching 12%, 13%, 14% of sales will get you a number. This year, we've accelerated new product development, cutting the time in half to bring them to market and doubling the impact. $300 million of our sales are coming from new products each year; that was much less than half about five years ago. So, we are investing in new technologies and newer, higher-margin products. We're working closely with customers to build what we call roadmaps, looking out four or five years with them and seeing what their needs are and building new products and technology roadmaps. We are also investing in our plants to make sure that we have sufficient capacity to create those products. But that investment comes through our normal capital expenditure program that's about 4% of our sales. Yet we still have excess capital and free cash flow after that to keep the balance sheet steady and return to shareholders. So yes, we are investing in many ways in ourselves. Investing in ourselves is one of the best investments to be honest with you.

Absolutely. Just one quick clarification on that. I meant to focus a little bit more specifically on PFAS remediation and the additional investments you might have in that line of business?

Yes, we have a number of environmental infrastructure technologies related to PFAS remediation. Our business has over 200 active pilots and trials and understands the capacities and capabilities of our plants. We'll invest when we see the inflection points for PFAS specifically, going forward.

Perfect, very helpful. Thank you. One last question for me. We've discussed the growing mix of industrial and consumer technologies for everyday life. Can you talk about how you evaluate the existing product portfolio and any opportunities you might see for pruning?

In our business, we’ve been building the consumer business. I don’t see an immediate need to prune, I think there’s continued investment in broadening or strengthening that portfolio of product lines. We see a lot of growth potential in areas like filtration, edible oil purification, biodiesel, animal health, and personal care. We'll consider pruning in areas that don’t demonstrate growth potential or contribution. We periodically evaluate our portfolio to ensure we're steering capital to those that yield the highest value, growth, and profits.

We'll take our next question from David Silver with C.L. King. Please go ahead.

Yeah, hi, good morning. Thank you. I think my first question, I'll ask a few questions, and they're all going to be somewhat related to the idea that revenues were a smidgen year-over-year, but the operating income and the margins had improved disproportionately. Firstly, I'd like to ask you to highlight the trends in Asia, particularly in your Asian activities. Is it fair to say that those businesses are still trending, let's say, below year earlier levels, but they probably improved sequentially through this year? If that is the case, how close would you say they are to being fully recovered in your mind?

I'm speaking to the market today; it's a different place than where we are, right. The market in China with the paper packaging and our foundry market is likely back to pre-COVID levels. However, we're a different place. We've continued to grow, and despite demand levels that may have been stagnant, we've achieved growth through our products and penetration in our blended products business. I'll have D.J. provide color on paper and packaging in China and India.

Thanks for the question. Our growth story for Asia on the paper side is penetration and the introduction of new products. The growth we're seeing this quarter is good for sales, volumes, and that contributing to overall income. We've recently launched satellite operations in India and are ramping up facilities in China, with expectations for growth from that investment and new product offerings. The growth demonstrates our ability to penetrate and introduce new products in these markets, leading to good positions for us.

Brett, want to talk about the foundry market?

Sure, Doug. Hi, David. Our green sand bond business has shown continuous improvement quarter-on-quarter. We’re looking forward to a gradual recovery leading into 2024. We're positioning ourselves for solid growth in China.

Okay, great. Thank you for the color. Doug, this question is about pricing. Your company has been pushing for price to offset higher costs and inflation. However, it seems we're in a slightly different environment right now. Without the tailwind as much in a cost inflationary environment, how important would you say incrementally getting price is to hitting those 2025 targets? What are the prospects for your portfolio? Or if you want to call out one or two areas, but what are the prospects for getting incremental pricing even on your best valued products in the current mixed environment?

You took my answer off the table; we price on value, so I guess I will go back. My view is we’ve always looked to price products according to the value they deliver and our effort is to make sure we're capturing that appropriately. I think products we develop and design deserve higher margins, and we will have higher margins out there in the marketplace. Overall, the pricing we've historically worked on was to cover inflation, but now we're into a phase where value-driven pricing normalizes. Pricing will continue, but doesn't solely drive our growth to 15%. Our operational model allows us to find waste within the manufacturing process, enabling us to leverage fixed costs while capitalizing on stable growth from higher-margin products.

Okay, no, thank you for that. Just one last one, maybe for D.J., I typically focus on PCC, but I heard today in the opening remarks about a record performance in your GCC unit. I'm assuming that's not related to the China project and that's separate. But for the record, what's the outlook for continued growth in that unit and in that product in 2024?

That particular unit serves as GCC in non-paper applications, and we're seeing demand in California right now, which is well positioned for home improvements. This complements our strong performance and implements our sustainability practices. Although I can't promise record performances every quarter, it’s a great spot to be in for future growth.

David, I appreciate you asking the question. I put it in my speech to highlight it; Wisconsin must be commended. They can learn to work as a true team to deliver higher levels of productivity, throughput, and increase sales. I appreciate their teamwork.

Yeah, thank you for that. I did think that TCC was tied to construction, which made me scratch my head, but I did air I thought that was for GCC as a whole and not just a specific facility. Anyway, I’ll stop there. Thank you. Thank you all. Thank you for all the color. Thank you.

Thanks, Melinda. Appreciate that. Thank you to everyone who joined today. Appreciate you listening in. I appreciate the questions. Looking forward to a strong fourth quarter. We'll be back talking to you in January. Thank you very much.

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