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

Thank you, Charlie. Good morning, everyone, and welcome to our Fourth 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 by giving you a quick outline for today's call. First, I'll take you through our fourth quarter and full year highlights. As I do so, I'll walk you through the main drivers of our results and how they align with our long-term strategic initiatives. As you saw in our press release, we had a strong finish to a record year. I'm excited to share more details in the coming slides. I'm also going to take a few minutes to give you an update on innovation at MTI and highlight a few new products that made an impact on our year and will continue to do so going forward. Erik will then review the financials and provide an outlook for the next quarter and I'll close out with an outlook for 2024. We'll be sure to leave plenty of time to take your questions after our remarks. Let's get started with the fourth quarter. Overall, it was another great quarter for us and I'm happy to report that we set a few performance records. We generated record sales levels for our fourth quarter with broad-based growth across our portfolio. Our strategic positions in higher growth consumer markets and geographies more than offset the softness we saw in a few of our end markets. Sales for the quarter were up 3% with growth coming from both our segments. Excluding the deconsolidation of Barretts Minerals Inc. this quarter, our underlying sales for the remainder of the company were up 6%, better illustrating the performance of the ongoing business. Within the Consumer & Specialties segment, the Household & Personal Care product line continues its stable growth trajectory across all geographies. In the Engineered Solutions, our High Temperature Technologies product line drove this segment to another solid quarter. Operating margins expanded to 13.2% this quarter, a 450 basis point improvement over last year. Margins expanded in both segments as we captured input cost savings, improved productivity in our operations, and tightly managed expenses. Our record level of sales in these expanded margins yielded $69 million of operating income, significantly higher than last year, and earnings per share came in at $1.28, which is another record for our fourth quarter. We continued to demonstrate the company's strong cash generation profile, delivering $95 million in cash from operations. Other highlights for the quarter include our announcement of the doubling of our dividend and, at the same time, initiating a one-year $75 million share repurchase program. Let me move on to summarize the full year. And as I do so, you'll see how similar themes of balanced growth, margin expansion, and cash flow generation played out throughout the year and how they combine to yield a record performance. 2023 was an eventful year for us. We started it by realigning our business segments with our key markets and core technologies to better reflect the MTI of today. This was a major change for the company and was undertaken to unlock our hidden potential. Throughout the year, the realignment drove organizational efficiencies, tighter collaboration, and faster decision-making, all leading to higher levels of performance. Back in May, we held an Investor Day where we outlined MTI's potential and communicated our five-year growth and performance targets. One year in, we're right on track to achieve those targets, and we made progress across each of the priority areas. Let me start with sales. Sales for the full year were a record for MTI and driven by growth in both segments. The Consumer & Specialties segment experienced the strongest sales expansion, with high single-digit and double-digit growth in our cat litter, animal health, and edible oil and renewable fuel filtration products. These products have strong positions in steadily growing markets driven by macro trends like expanding pet ownership, increased demand for natural animal feed additives, and the growing demand for renewable fuels. Growth in the Engineered Solutions segment was primarily driven by refractories, environmental wastewater remediation, and infrastructure drilling products. Sales of these products were propelled by the deployment of our newest technologies to support the growing demand for safer and more efficient manufacturing processes, environmental water clean-up, and an increase in infrastructure projects globally. Given the nature of some of the markets we serve and the geographies in which we serve them, we will see fluctuations in demand as economic cycles and other local factors play through. We experienced a few softer markets this year, but despite these pockets, the portfolio performed as expected. Sales from our positions in higher growth consumer markets and geographies more than offset these areas of temporary lower demand. Our long-term growth should average 5% per year, with economic and local market factors moving that number up or down slightly in any given year. This is a great example of what we call our balanced portfolio and how we see our top line performing over the long term. We emphasized how improving margins was a priority focus area for us. This year, operating margins increased by 100 basis points. We continue to create value for our customers, leverage synergies from the reorganization, capture input cost savings and drive productivity improvements. It's worth noting that our operating margin for the second half of the year averaged 13.6%, above the target we communicated earlier in the year. Record sales this year were leveraged through these expanded margins to deliver record operating income of $280 million, up 11%, and record EBITDA of $370 million, up 8% over last year. Earnings per share were $5.21, another record for the company. Full-year cash flows improved significantly, delivering $234 million in cash from operations, more than double last year, and $140 million in free cash flow. We used this cash to strengthen the balance sheet, reducing our net leverage to 1.9 times EBITDA. As I mentioned earlier, we returned capital to shareholders, driven by our strategy and consistent performance. It takes a dedicated and engaged team, a strong operating culture, and an unwavering adherence to our values. Our team did a great job this year on all fronts. We have a very strong culture of operational excellence here at MTI. We've built an environment of continuous improvement thinking and have equipped employees with the tools and training they need to see, analyze and remove waste from any manufacturing or business process. Our teams conduct over 30 problem-solving Kaizen events every day around the world and provide suggestions at an extraordinarily high level. This engagement and continuous improvement by our employees is the essence of our high-performance culture and something that sets MTI apart. In summary, 2023 was a transformational year for MTI. Our foundation is solid in every aspect, and we intend to build on this year's record performance to deliver another one in 2024. There are a number of key drivers supporting our long-term growth. One of them is innovation. Innovation has always been a part of MTI's DNA, and we've developed new technologies that are becoming an influential part of our story. I want to take a moment to highlight some of the tremendous work that's happening at MTI and point out a few of our newest products aimed at large market opportunities that offer us significant growth potential. In the past several years, we've refined our new product development process to accelerate innovation at MTI, shortening the time from ideation to commercialization. We drove closer collaboration with our customers and focused our efforts on developing the highest valued products to meet their needs. The results of our efforts are evident on the chart in the middle with the percentage of sales from our newest products reaching 18% this year, a record level for the company. On the right, you can see how balanced the distribution of our innovation pipeline is across all four product lines. Let me highlight several of these new products and the trends that have driven their development. In the Household & Personal Care product line, we're creating new cat litter formulas aligned with the latest consumer trends that offer better home hygiene, improved odor control, and help owners with litter box training. We're developing natural feed additives to improve farm animal health and higher performing filtration products targeted at the growing demand for renewable fuels. In Specialty Additives, we're expanding our sustainable recycling technologies for white and brown packaging and developing natural mineral-based barrier coatings for food packaging. In High-Temperature Technologies, our new MINSCAN Scantrol robotic units are transforming the refractory application process in electric arc steel furnaces. In association with these units, we're developing a software system to provide customers with real-time process data analytics. In the Environmental & Infrastructure product line, we continued to improve our FLUORO-SORB technology aimed at removing forever chemicals in water and soil around the world. We're developing new drilling fluid additives to support the growing demand for critical infrastructure projects like grid hardening and geothermal energy systems. Collectively, we have over 500 products at various development stages in our pipeline representing over $1 billion in potential future sales. Not every idea makes it all the way through, but the new products I've highlighted today are good examples of products that came through this development pipeline, leveraging our core technologies and applications expertise to create valuable solutions for large challenges in today's evolving marketplace. Now, I'd like to turn it over to Erik to review the details of the financials. Erik?

Thanks, Doug, and good morning, everyone. I'll begin by summarizing our fourth quarter and full-year financial results, followed by a review of our segments, and I'll also provide our outlook for the first quarter. Following my remarks, I'll turn the call back over to Doug for some additional perspective on the year ahead. Now let's review our first quarter results. Let me begin by saying that we had another strong performance in the fourth quarter, capping off a very strong year for the company. Sales of $525 million grew 3% and represented a record level for our fourth quarter. If you adjust for the deconsolidation of BMI, underlying sales grew 6% year-over-year driven by growth in three of our four product lines. Higher selling prices contributed to growth across the portfolio, and we benefited from continued volume growth in Household & Personal Care and High-Temperature Technologies. Fourth quarter operating income was $69 million, up 57% versus prior year, and operating margin was 13.2% of sales. Earnings per share was $1.28 excluding special items, and free cash flow was very strong at $73 million in the quarter. Before I move to the full year, I want to highlight our operating margin performance against the target we set for ourselves for 2023. At our Investor Day last year in May, we projected that we would exit 2023 with 150 basis points of margin improvement versus 2022 on a run rate basis. Given the typical seasonality we experienced in the fourth quarter, the second half of the year is a good indication of where we are from a full year run rate perspective on margin. Our operating margin for the second half of 2023 was 13.6% of sales, 170 basis points above the full year 2022. We achieved this target margin improvement primarily through price-cost recovery as well as productivity and variable conversion cost improvements at our recent cat litter acquisitions. This performance in 2023 puts us squarely on track to achieve our targeted 14% run rate operating margin in 2024 and 15% in 2025. Now let's take a look at our full-year financial performance. We delivered a solid performance in 2023 with records for sales, operating income, EBITDA, and earnings per share, excluding special items. Sales of $2.2 billion were 2% above last year. Looking at the sales bridge on the right side of the slide, you can see growth in both segments as well as in most of our product lines, demonstrating the balance of our portfolio during mixed end market conditions. Operating income increased 11% to $280 million and operating margin improved 100 basis points to 12.9% of sales. EBITDA was $370 million for the year and represented 17.1% of sales. Our full year earnings per share, excluding special items, was $5.21, a 7% increase compared to 2022. To give a little more perspective, you can see in the EPS bridge on the bottom left that our income performance contributed $0.70 of earnings growth, which more than offset a $0.37 headwind from higher interest expense. Our effective tax rate for the year was 22%. For 2024, we expect our rate to be approximately 23%, a slight increase, primarily due to changes in global tax laws. Free cash flow for the year returned to a more normal level for the company of $140 million or 6.5% of sales. Now let's review our segment performance in more detail, beginning with Consumer & Specialties. Fourth quarter sales in the Consumer & Specialties segment were $280 million, up 3% and up 8% versus last year excluding BMI. Our Household & Personal Care product line continued on its strong growth trajectory with sales increasing 13% year-over-year. Demand for our cat litter products remains strong and we saw growth in several high-margin specialty products, including double-digit growth in animal health, as well as in edible oil and renewable fuel purification. Underlying sales in our Specialty Additives product line were 3% above prior year, ex-BMI, as sales from our newest paper and packaging satellites in Asia offset lower volumes in North America. Fourth quarter operating income was $36.6 million, a significant increase over the prior year, and operating margin was 13% of sales. The improvement in operating income was driven by volume increases in our Household & Personal Care product line, selling price adjustments, and favorable input costs compared to the inflationary spike in energy and logistics that we absorbed last year in Europe. Turning to the full-year stats on the right side, segment sales of $1.2 billion grew 3%. Our Household & Personal Care product line delivered 9% growth on continued strong demand for cat litter. While customer destocking impacted sales for some of our high-margin specialty products, we saw a 34% growth in animal health and 9% growth in edible oil and renewable fuel purification. In Specialty Additives, underlying sales were 1% higher. Three new paper and packaging satellites were ramping up in 2023, including our newest satellite dedicated to serving the growing packaging market in China. Despite significantly lower paper volumes in North America and Europe, sales to paper and packaging customers increased, primarily driven by the new satellites in Asia and contractual pricing adjustments. Demand for specialty additives in other end markets, such as construction and consumer products, has been mixed, with residential remodeling activity helping to offset softness in new construction and some destocking in food and pharma. Operating income for the segment rose 24% to $141 million in 2023, and operating margin improved 210 basis points to 12.2%. Looking ahead to the first quarter, we expect another strong sales performance from Household & Personal Care, driven by demand for cat litter and improving demand for our specialty products. In Specialty Additives, we expect to see improvement in North America paper and packaging and additional volumes in Asia driven by the ramp-up of our new satellites. However, we remain in the seasonally slower period for construction activity. Segment operating income for the first quarter is expected to be up slightly sequentially. Now let's turn to the Engineered Solutions segment. Fourth quarter sales in Engineered Solutions increased 4% versus the prior year to $243 million. In High Temperature Technologies, we continue to see steady demand for foundry and steel applications in North America, and we delivered significant growth in Asia foundry volume. Sales in our environmental and infrastructure product line were 6% lower, driven by softness in commercial construction. Despite some market challenges, the segments delivered another strong operating performance. Operating income in the fourth quarter was $36.7 million, an increase of 16% over the prior year, and operating margin improved 160 basis points to 15.1%. For the full year, segment sales grew 1%. The High-Temperature Technologies product line delivered 3% sales growth. Demand conditions remained steady through the year in North America, while soft steel market conditions in Europe persisted. Demand in Asia foundry gradually improved through the year following a slow start in China. In Environmental & Infrastructure, sales were 3% lower as construction market conditions affected demand for our waterproofing and environmental lighting systems. Sales for remediation and wastewater solutions were a bright spot, increasing more than 40% compared to last year. We saw double-digit growth in our drilling products sales, driven by an uptick in demand from sustainable geothermal energy projects and infrastructure projects. Full-year operating income improved 3% to $151 million in 2023, and operating margin improved 30 basis points to 15%. Turning to the first quarter, we expect to see mostly similar market conditions across both product lines and we expect operating income to be similar to the fourth quarter. Now let's review our balance sheet and cash flow highlights. We delivered strong cash flow in the fourth quarter with $95 million of cash from operations and $73 million of free cash flow, bringing our full year free cash flow to $140 million. Capital expenditures were $94 million for the year. Our strong free cash flow in 2023 marks a return to more normal levels of cash flow generation for the company as the inflationary impact on our working capital has subsided. As we look ahead to 2024, we expect another solid year of free cash flow generation in the $140 million to $160 million range. During the year, we used our cash flow to pay down $49 million in debt, and we returned $22 million to shareholders through $14 million of share repurchases and $8 million of dividends. The balance sheet remains very strong. We ended the year with total liquidity over $500 million and a net leverage ratio of 1.9 times EBITDA. Now I'll summarize our outlook for the first quarter. Overall for MTI, we expect a similarly strong performance in the first quarter. In Consumer & Specialties, we see continued strong demand in Household & Personal Care. In Specialty Additives, higher sales in paper and packaging driven by new satellites and improving demand in North America, with similar conditions following the fourth quarter for other end markets. In Engineered Solutions, we expect similar demand conditions in High-Temperature Technologies across North America and Europe, with sequentially lower volumes in Asia due to typical seasonality around the Lunar New Year. In Environmental & Infrastructure, we will experience similar seasonal conditions to the fourth quarter. Overall for the company, we expect operating income of approximately $70 million, up around 10% from the prior year and EPS between $1.25 and $1.30, which would also represent growth of at least 10% from last year, continuing on our profitable growth trend and solid earnings trajectory. Now I'll turn the call back over to Doug for some additional perspective on 2024.

Thanks, Erik. As we move into 2024, our priorities are clear. We aim to further strengthen the MTI business model by continuing our penetration into higher growth markets, developing new and innovative products, expanding margins, and maintaining strong cash flow generation. On the sales front, as we head into the year, we're seeing generally stable, and in some cases, more positive trends across our end markets. Our consumer-oriented markets, like pet litter, animal health, and edible oil and renewable fuel filtration, remain strong and will deliver another year of high single-digit to double-digit growth. Our businesses in Asia will continue to grow in 2024 with the ramp-up of our newest packaging satellite and stronger foundry markets compared to last year. One additional item to highlight, since our last call, we've signed two additional long-term contracts for paper and packaging satellites in Asia, one in India and another for ground calcium carbonate and new yield for a packaging application in China. These will be constructed over the course of this year and are likely to start up late this year or early next. Other markets, such as automotive, steel, and residential construction, are expected to remain stable at similar levels to last year. Markets that show improvement this year are North America paper and packaging and personal care, as the destocking we saw last year comes to an end and volumes in these businesses rebound. One area where we haven't seen much change is the commercial construction market, though we could see some recovery in project activity in the second half of the year. As Erik mentioned, we're targeting a 14% operating margin by the end of 2024 and are on track to achieve this through strong pricing, a higher margin product mix, diligent cost control, and continuous improvement in our operations. Sales growth and stronger margins will continue to generate higher cash flow. This gives us the resources we need to keep the balance sheet solid, while at the same time providing us with the flexibility to pursue both M&A opportunities and return capital to shareholders. In summary, I see 2024 setting up to be another strong year for MTI. The combination of our positions in growing markets, differentiated technologies, applications expertise, financial stability, global mineral reserves, and a strong culture truly sets MTI apart and is a formula that will continue to drive long-term value for shareholders. I'd like to thank our teams at MTI for a great year, and thank you for joining the call today. Now let's go to questions.

Our first question is from Daniel Moore with CJS Securities. Your line is open.

Thank you. Good morning, Doug. Good morning, Erik. Appreciate the color and thanks for taking questions. Start with kind of the top line outlook. You've got a longer-term kind of 5% growth target, gave a lot of great color around the various end markets as we enter the year. How do you see fiscal '24 shaping up from a top line growth perspective relative to that longer-term 5% target? Obviously, visibility isn't perfect, but where do you see the biggest puts and takes that could cause you to hit that? Maybe come up a little shy or even exceed it.

Yeah, let me give you a perspective on how. This year, around 3% kind of growth excluding BMI from the underlying business. Let me characterize it: 80% of the company grew last year, and 20% didn’t or kind of went backwards a bit. I try to highlight that 80% is going to continue to grow strongly again this year. The 20%, which is paper and packaging and some of the destocking that we saw, commercial construction, the majority of that starts to move back forward. We're seeing early signs of a rebound in those destocking markets. So we see those volumes rebounding. That leaves commercial construction, which right now looks a bit sideways from where we are but could improve later next year. That tells me that that 3% kind of refers back up to that 5% on average and could go higher depending on what happens with commercial construction. When everything's going and things are really booming, I think we could go back up to that 7%, with little local factors that could change that. That's why we highlighted that 5% average over time, plus or minus 2% on either side depending on economic factors and local. But I think we're reverting back up to that average growth rate and could exceed it depending on commercial construction.

Really helpful. To what extent do you expect pricing to be, I guess, I should say, what do you expect pricing impact to be both H1 and for full year on that overall growth?

That could be another positive impact this year. We still have stronger pricing in the pipeline. There are pockets where we're continuing to drive the value and get price for it. I can say it's probably not going to be at the levels we saw over the past couple of years where we were pushing through almost $200 million of pricing. But still, there are great opportunities to ensure that we're getting the value for the products that we deliver to our customers.

Very helpful. And maybe splitting hairs, but just to make sure we're on the same page, the 14% operating margin that is sort of exit run rate for 2024. Is that the expectation for the full year?

Yeah, Dan, this is Erik. Thanks for the question. Right now, we feel really good about that 14%. I indicated in the prepared remarks that that's a run rate by the end of the year, but we have really good line of sight to achieving that 14%. It's all of the three margin levers that we've been talking about since Investor Day: pricing, fixed cost leverage including more to come in pet care that we've been talking about, and continued mix improvement from the new products that we're launching. So I'd say if markets stay where they are, we feel really good about that 14% run rate by the end of the year. And as Doug was talking about, if the 20% of markets start to go in our favor that weren't in our favor last year, we feel better about that on a full-year basis as well.

Really helpful. I'm going to ask one more related question. If I look at H1 of this year with the exit run rate of H2 last year of 13.6, should we be at least there and building? Or is there anything that would cause you to take a step back?

Yeah, I think you're right. We're exiting on that same run rate. I think there are opportunities to build on that, Dan. If you look at the fourth quarter, probably similar to Erik mentioned, similar levels in the first quarter. But then we start hitting some really strong quarters for us. The second and third are typically the strongest for the company. As I said, some of these markets that are typically strong in the second and third, like paper and personal care, and even some of the construction markets, we see them rebounding where they were soft last year. So we think we have some real strength going into the middle of the year.

Really helpful. I'll jump back with any follow-ups. Thanks.

Our next question is coming from Mike Harrison with Seaport Research Partners. Your line is open.

Hi. Good morning. Congrats on a nice end to the year.

Thanks, Michael.

Doug, I was wondering if you could give a little bit more color on the strength that you were seeing in that Household & Personal Care business. I guess specific to pet care, maybe talk a little bit about what the growth looked like across the different regions. Are you benefiting from any share shift toward private label? And then over on the personal care side, was there still some destocking headwind in the fourth quarter or did that appear to have subsided versus the destocking you were seeing in maybe Q2 and Q3?

Yeah. Thanks, Mike. Tell you what. Let me give that question to D.J. and let him talk about the segment. Give you more color there.

Yeah, thanks for the question, Mike. So let's first kind of dig into pet care. Pet care, very strong volumes. We continue to see that trajectory. As we had imagined earlier in the year, we said that this is going to be growing at a 7% to 9% sort of rate. We still see that for our long-term outlook and feel really good about how we go into this year with that. The growth that we're seeing is across both North America and Europe. In addition to just the general segment rising, we have seen more of a shift toward private label. I go further; Doug was talking a little bit about our culture, and he was highlighting some of the operational excellence things. That team in particular really improved their ability to meet all the private label promotions and requests, and they stretched their ability to be extremely reliable in delivering on time in full volumes. So that helped us out a lot as private label was particularly aggressive. But we also have further relationships developing with the brands given our vertical integration. So we're really happy with the way pet care is going. There is also some pricing leverage that we still see in that area. Then you had asked about destocking. I would say the destocking was more on the consumer specialty side of things, particularly in the health and beauty solutions. As we look at the order books now, as we go into the first quarter, we are comfortable that that destocking looks like it's behind us. We've got some strong order books, so the outlook is very positive for that product line.

And then maybe, since I have you, D.J., maybe just to ask kind of a similar question on the paper, PCC business. Get a sense that maybe in North America, in particular, those customer operating rates weren't where you would like them to be for 2023. Just curious if you feel like destocking and lower operating rates were something you were still dealing with in the fourth quarter and maybe how those are trending thus far in January and early February?

Yeah, so a couple of perspectives on that. In Europe, it's still lagging a little bit down in that 70% operating rates. We've been fortunate in that our customers have been less affected by that decline. But Europe is still sluggish. North America is in the low 80s, starting to climb up. We look at inventory levels, and those have come down. We project that North America volumes will be better this year, and we're starting to see some of that come back, but not at the rate we're hoping for, but it's certainly better than last year. That's how that looks. And then, of course, in Asia, we're less dependent on the operating rates. Asia is more of a penetration story, and that continues to go very favorably.

All right. And then, I guess, maybe just over on the metal casting side of the business, we talked about Q1 maybe being kind of a slower seasonal period in Asia, but I'm just curious if maybe you can talk in a little more detail about the pace of recovery in China. I think everybody around this time last year was hoping that we were going to see a more robust rate of recovery; it hasn't really materialized that way. Are you seeing signs that some of the government stimulus and other actions that are in place in China are starting to drive some market improvement there?

Yeah. Thanks, Michael. I'm going to pass it over to Brett Argirakis as well. But let me start by saying that last year we saw, referring to the metal casting business, continued growth quarter after quarter, and we're still seeing that kind of trend. For us right now, going into 2024, it looks like a really solid year for us both on, as D.J. just mentioned, some new satellites ramping up, new contracts in paper, but also in metal casting. Let me give it over to Brett to provide you some color.

Hi, Dan. Thanks for the question. Look, in China, as Doug said, the market continued with a slow but continuous recovery last year. The green sand bond volume improved about 7% versus prior year. We still have plenty of room to go to get to those peak levels that we saw in 2021. The fourth quarter volumes increased about 26% over the same period in '23, but again, that was a low point. You could see the recovery is continuous. You mentioned the government stimulus programs. There have been several of them to boost the economy, and we are seeing some impact from them. During the investor day presentation, we discussed going into the blended products more into some of these mature markets. We have it in the mature markets and are moving them into other markets. So, we continue that initiative. All in all, we see 2024 with about similar growth of around 6% to 8% this year.

And sorry, is that a comment on China specifically or for the metal casting business overall?

No, that's China specific.

Got it. Okay. And then last question for me is one more for Erik. Just curious for your thoughts on interest expense for both Q1 and the full year. And maybe just remind us how much of your debt is at a fixed rate versus exposed to some variable rate.

Sure, Mike. Thanks. Roughly 50% of our debt right now is variable. Average interest rate right now is around 6.15%. So the fixed rate is at 5%. Those are the notes, and the floating is around 6.9%. If and when interest rates come down, we'll see some benefit on that floating piece of the debt. I think shorter term, Q4 to Q1, since we were able to pay down some debt in the fourth quarter, we're probably going to see about $500,000 of lower interest expense just sequentially from Q4 to Q1. So hopefully, that helps.

Very helpful. Thanks, everyone.

Thanks, Mike.

Our next question is coming from David Silver with CL King. Your line is open.

Yeah. Hi, good morning. Thank you. So I do have a number of questions, and I'm going to demonstrate my lack of organization here, but I'll probably go back and forth a bit. First question would be on price and volume trends. But just looking at the fourth quarter ex-BMI, you were plus 6%, right? I know you had pricing initiatives in place through the year. You highlighted a number of new product introductions. How would that 6% in general from your perspective break down? I mean, how much was price, how much was volume increased? I don't know if you look at it at the company-wide level, but any kind of breakdown there would be helpful. And I apologize if I missed it. I don't think I saw it in the slides.

Yeah. Thanks, Dave. So as we moved through 2023, pricing became less of a year-over-year impact. As we got to the fourth quarter, pricing was in the low single digits in terms of year-over-year revenue change. So a lot of that 6% is coming from volume and mix improvement.

Got it.

And I'll just add, Dave. That's going to be the case going forward. I would say that our growth in 2024 is going to be much less price driven than it has been the last two years. We see good volume growth. As Doug's been talking about, Household & Personal Care staying strong, with pockets of a few markets recovering from where they were in 2023. So the growth going forward, we expect to be much more volume driven.

Thank you for that. And let me just follow up. I guess 12 months ago, Erik, you had indicated with your pricing initiatives that they would take effect kind of a little bit on a lagging basis. I just wanted to clarify, but for the fourth quarter, would you say the price-cost balance has fully offset or you're slightly better than covering all your costs? And then maybe from your view, from your customers' positioning, what is the nature of kind of the request for some give backs? In other words, it's a mixed cost outlook, right? Labor is up, but at least in a number of areas, goods prices are softer. What's your view, or what's baked into your expectations for next year regarding maintaining the price improvements that you've achieved across 2023? And if you could, your expectations for that price-cost balance?

Yeah. Thanks, Dave. So I would say we've largely caught up. We still have some more pricing to go, pockets of pricing to make sure that we're capturing the value that we're providing to our customers. From an inflationary standpoint, I'd say right now facing a much more stable inflationary outlook than we have over the last two years. But from a pricing power and overall input cost perspective, we're in good shape. I would say we're in a much better position today than we have been historically in terms of reacting quickly to any changes in input costs. We've got our supply chain working really closely with the commercial teams. So we feel good about being able to mitigate any changes that we're not anticipating at this point. But overall, we're in a good position in terms of pricing power.

Yeah, David, let me pass it over again to D.J. and Brett to give you a kind of feel what's going on, where our products are, the new products, the mix, and how pricing is playing out this year versus prior. So, D.J., I'm going to start with you.

Certainly. So, David, as I'm looking at the segment, of course, we've got part of our pricing that's well covered with contracts. So that's on the paper and packaging side and agreements. If I look at the broader Specialty Additives group, our pricing power is pretty strong. We've been able to recover, and our ability to execute on orders and requests and just be that reliable supplier when other folks have been running out of stuff keeps us very strong in our ability to hold onto the price. On the pet care side and on the consumer specialty side still remains very strong. A good pull for the products. Underlying all of this is that with these new products, as Doug had pointed out earlier, the significance of the new products is that they are providing higher levels of value, which is translating into better margins for us. All of those factors add up to us being able to expand further upon our price versus inflation. But as Doug said, pricing is probably not going to be to the same degree that we've seen in the previous year.

For the Engineered Solutions segment, our customers are looking for lower prices. This group collaborates closely with them to not only manage higher costs but also to offer alternative solutions, such as different product formulations or faster, more efficient application technologies. As a result, they are using less. Currently, costs and prices appear stable in most cases, but as mentioned earlier, there are certain areas in our business that still necessitate additional pricing adjustments. We are adapting to rising labor costs where needed, and some products require higher prices due to specific parts of their formulations. We are committed to working closely with our customers to meet our needs while also addressing theirs.

And David, let me just summarize all that for you and give you kind of how that plays out this year. What Erik was saying is that we see a pretty strong volume year, at least a stronger volume year ahead for us than when we were in 2023. There's still good opportunities for pricing and we have strong pricing power in the marketplace to make sure we hold onto it. On a comparison basis, over last year, maybe pricing may be less of an impact because of the huge increases we were putting through in the inflationary cycle. So, this year is going to be still some pricing, but more revenue growth will be driven by volume, but that's going to lead to leverage through our gross margin. So gross margin expansion will occur because we'll cover fixed costs with more volume through those plants, and that's going to translate down into that operating income line. You know us; we're pretty stable with our fixed corporate expenses, and those are going to hold flat this year. So that's where it's really going to come in that margin expansion. While earlier Erik said that’s why we're pretty bullish on making sure we hit or exceed those targets that we let off for you on operating income. Okay. Hopefully, that helps.

That's great. And I do want to ask one more and I'll apologize in advance. Well, actually, I'm going to ask Brett kind of two separate questions, if you don't mind. But first, on your traditional refractories business, high-temperature activities, you did show good growth in Q4 year over year. You cited North American steel. I believe in that group you have signed or you have a number of meaningful new contracts signed over the past 12 months, 24 months, at least one went into effect last year. What is the outlook for those incremental new supply agreements that you have booked in the past and are supposed to play out over the next several years? I mean, what should we expect in that regard for 2024? I'll stop with that one.

Yeah, no problem, David. I'm happy to answer that. Look, this business has done a really good job, again, working very closely with our customers in selling value, as Doug pointed out, creating a much safer work environment and solving problems by using a combination of our refractory materials, our laser equipment, and our application technology. In addition, we've also been able to grow our business from a metallurgical wire standpoint for a cleaner steel operation. As far as the agreements go, these are five years in duration and include, as I said, product and equipment. We currently have 13 refractory and wire contracts in place. The net value is about $150 million through 2026. The annual run rate for this business in '23 was about $29 million, which is about $10 million higher than '22. Looking forward, the contracts will generate about $40 million in '25 and about $50 million in '26. This represents a great opportunity, changing the market to be safer and more efficient, giving this deal maker what he needs to protect his people and protect his furnaces. We're looking forward to expanding this into other regions of the world.

Okay, great. No, that's extremely helpful. And then last one for Brett, and then I promise I'll get back in queue. But, you know, I was reading what was presented for the environmental activities. I guess there's probably some seasonal issues there to account for the year-over-year decline. But, in particular, I was hoping you could give us an update on progress with PFAS. In particular, just from your perspective, the pace of commercialization, getting past the beta testing and other trials and moving on to full commercialization. Maybe just a comment on where you think PFAS has made the greatest impact or penetration to date. Is it in municipal, drinking water, groundwater, or soil remediation? Where has the uptake to this point been the most prevalent? Thank you.

Yeah, sure. Let me give you a little update on the PFAS regulations. To date, there has been no finalization of the regulations, but the EPA does plan to continue regulating PFAS this year and beyond. In March of last year, they did propose national drinking water standards, but that was a proposal. We expect rulemaking to occur by March of this year; that's not in stone, but that's the target that it seems the EPA is putting out. Let me give you an update on FLUORO-SORB. I think that's where you're going because that continues to generate an increasing level of inquiries and requests for piloting across four verticals. Those verticals are drinking water, water treatment, landfill leachate, and, of course, in-situ remediation groundwater. The drinking water space has a high level of interest. Right now, that space is slow to accept new technology, but again, we have a lot of activity going on. We are participating in two full-scale implementations where FLUORO-SORB is the media, and we expect four more full-scale implementations to commence sometime this year, hopefully in the first half. We also have a couple of pilot programs for drinking water and soil stabilization that we initiated in Europe, the UK, Germany, and Belgium. In addition, we're also actively working with some of the largest landfill companies in the world on leachate treatment using FLUORO-SORB. We continue to pursue the in-situ remediation segment to control PFAS. We have recently been specified into two Department of Defense sites in the United States, and these opportunities are expected to generate favorable sales in 2024. Overall, our FLUORO-SORB activity remains high, and we fully expect to continue to expand this business through '24. It's a mixed bag; drinking water is the slowest, but it is generating probably the most interest.

Okay, thank you. I'll get back in queue.

Thanks, David.

And our next question is coming from Kyle May with Sidoti & Company. Your line is open.

Hi, good morning, everybody.

Hi, Kyle, how are you?

Just a quick one. Now that your leverage ratio is below two times, does that change the way that you approach or think about the buyback program?

No, it doesn't change it right now. We've fully intended to complete that program. I think we'll probably look to continue to ensure our balance sheet through debt is in good shape, and I think also building up some cash reserves. Our typical allocation is 50% of our free cash flow; we like to return it to shareholders, with the other 50% kept on the balance sheet. Once we're at this kind of leverage ratio, this year, with the balance of our share repurchase program and the doubling of our dividend, that's probably going to be about $75 million to $80 million back to shareholders in 2024. As Erik said, that's probably about 50% of our $160 million. We could flex that up. We like to hold some money for opportunistic M&A. If that comes around, that market may improve, and opportunities will arise if we see them in 2024. If not, we always have the opportunity to flex that back and increase that share repurchase. Right now, we're on course to finishing the one we have, and we can change that later in the year if conditions warrant.

Got it. That's great. I appreciate it. And then also I was curious about the new product pipeline that you touched on. Correct me if I'm wrong, I believe you said that there were maybe 500 products in development with over $1 billion of potential revenue. I assume that's a long-term target, but just curious if you could give us any color about how much of that product pipeline could potentially come through in 2024? And how much of those products could contribute to a revenue growth this year?

Yeah, so the number I gave you, the 18%, is the percentage of our sales that's generated from new products over the past five years. It's kind of like a freshness indicator, right. So that gives you an idea of how much revenue has been generated. We think that's probably going to be between 18% and 20%. I think 20% is a real benchmark out there. So between 18% and 20% will be the pace of how we're commercializing products to replace the ones that we were generating sales from before. We count the freshness if they make it every five years; something falls off, and something else comes back in. So we're probably commercializing around 35 to 40 new products every year, probably higher than that. But that gives you an idea of what’s coming out. About 50% of those we kind of call replacements. So they're upgrades or higher margin versions of something we've been selling before. The other half is targeted at growth. I would say of the growth ones and all of them, about 80% to 75% have a sustainability element to them. We're talking about increasing recyclability, lower energy consumption for either how they're produced by us or how they're used and consumed by our customers. That gives you a feel for them. We expect probably a similar level of sales and rate of commercialization this year to last. The billion dollars is in that portfolio— that's the potential I mentioned. Not everything is going to make it through, but there are some big ones in there. We've commercialized some substantial projects targeted at big market opportunities, focusing on the environmental space, recycling, and consumer space, as well as some new technologies going into high-temperature technologies. Hopefully, a long-winded way of giving you some color on what's in there.

No, that's great. I really appreciate it. That's all from me this morning. Thank you.

Thanks, Kyle.

Our next question is coming from Daniel Moore with CJS Securities. Your line is open.

Sorry about that. Had to get off mute. Part of my quick follow-up was just covered, but maybe just housekeeping, Erik, the share count as of December 31st. And Doug, you mentioned potential prospects for M&A. Maybe just talk a little bit about what the pipeline looks like and if anything, about what type of size deals you might be looking at. Thanks.

Yeah, Dan, I'm going to give you a number, but it's in the press release, so make sure you check me on this. I think it's around 32.5, the share count at the end of the year, but I'll get you the right number there.

Perfect. Thank you.

Yeah, I was going to answer the M&A while they scrambled for the share count. But as far as M&A, look, it's been a quiet couple of years, as you've probably noticed. We've used that time to focus on the acquisitions we've completed over the past four years. We've done four acquisitions in four years, and I think you're seeing the benefits of us truly integrating them. There's one thing we call about integrating them—bringing them into the company and getting them into our financials. We're doing a great job in that regard. We're through that, and I think you're starting to see those acquisitions in the pet care space. If you look at that margin expansion in consumer specialties, that’s where that is coming from. That's the true integration of the MTI culture, the MTI operating system, and the operating practices into these businesses. We've taken a great step forward this year with those. We're in a good spot with where those businesses are. As D.J. highlighted, those teams did a tremendous job this year on that front. We've got a great muscle memory in this company to pull in acquisitions and turn them into value. This year, there could be some opportunities as the market will kind of shift. There's been a couple of years of a bit of a lull, but I think that could come around. We'll be cautious about that. We've got the balance sheet in great shape to execute on something. You know us, we'll be diligent about how we look at things, what we do with them, and the opportunity they provide for us and our shareholders. We think the balance sheet could present some opportunities for us this year.

Appreciate the color, as always. Thank you.

Thank you.

And our next question is coming from David Silver with CL King. Your line is open.

Yeah. Hi, thank you. I did want to ask you about the program that was announced during your Investor Day or thereabouts with the $10 million cost reduction efforts. Just in general, how much do you think was reflected in your fourth quarter results? And then maybe if there was any kind of feel for the cadence for the remainder of capturing the full $10 million benefit? Thank you.

Yeah, sure, Dave. So we're about 75% of the way through that program. We'll be finished in the first half of this year. We've got around $2 million more to go this year, which should help margins by around 10 basis points for 2024.

Okay, great. And the next question would be, I guess, for D.J., but it's about the PCC business. Two parts to it. First, I was wondering if you could give us maybe a view to the new project funnel or the opportunity set that you're working with currently? And then secondly, I'll ask you that. I'll stipulate this is an unfair question. I'm sure you love all your children equally, but if you were thinking about your book of business in China and your book of business PCC satellites in India, you have a healthy number of relatively new projects in both areas. Regarding the business environment and whatever other factors you consider relevant, I mean, where do you think— not necessarily the group best upside is, I'm sure they're both very high growth opportunities. But where do you see the business environment maybe being a little bit more difficult to navigate or other types of risks? In other words, if there was a kind of shortfall in your growth plans in either of those two countries, which might it— where might it occur and what might be the source of maybe a little bit of a slowdown in anticipated growth? Thank you.

So, David, I'm going to try and answer those. Let’s get set on the baseline. Erik had mentioned the three new PCC plants coming on mixture of China and Asia. One came on early, and two came on just towards the end of the year. To get something established here, that was roughly 300,000 tons of GCC, which is a new product for us going into the packaging space. We had about 65,000 tons of what I'll just call engineered crystal and those PCC type products. Not to be too indescript here, but part of that is new yield and part of that is our standard PCCs. Coming through, you'll see the full benefit of this year is those 65,000 tons of PCCs, call it, and 300,000 tons of GCC. What we are in the process of building, as you’ll see towards the end of the year, is two other projects in Asia that bring on 140,000 tons of traditional PCC. I say 140,000 tons of traditional PCC, but one of those is in a specialty papers and packaging application. Doug also mentioned that we have— we’ll be announcing soon who our customers are for the two other projects in Asia, again India and China. It is standard PCC and a printing writing grade. It does have a combination of new yield and GCC in a packaging grade. That’s another called 50,000 tons of the engineered crystals and 145,000 tons of the GCC. We've got a lot coming on that's in the pipeline. As I look at that broader pipeline, it's interesting; especially related to our pursuit of packaging growth, it’s not just Asia. Asia still is a good part of our growth, but we’re getting a global pull. Lots of new products are offering something different than what we've offered before, and our penetration in the packaging is of interest to those folks. A lot is coming on, with much of it in the pipeline. You should see a little of the results show up in '23, but 2024 will have more coming.

No, that's great. Thank you very much. I appreciate it.

Thank you, David.

And it appears there are no further questions at this time. I would like to turn the call back to Mr. Dietrich for any closing remarks.

Thanks everyone for joining the call today and staying on for a bit longer. We do appreciate it. We'll talk to you again in three months. Thanks.

This concludes today's call. Thank you for your participation. You may now disconnect.