Minerals Technologies Inc.
Q2 2014 Earnings Call Transcript

Published:

  • Operator:
    Good day, ladies and gentlemen, and welcome to the Minerals Technologies Second Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I would now like introduce your host for today's conference, Rick Honey, Vice President of Investor Relations. Please go ahead, sir.
  • Rick B. Honey:
    Good morning. Welcome to our second quarter 2014 earnings conference call. Today, Chairman and Chief Executive Officer, Joe Muscari, will provide some insights into our second quarter 2014 performance, as well as a brief update on the integration of the former AMCOL. He will then turn the call over to our Chief Financial Officer, Doug Dietrich, who will give you a detailed report of our financial results for the quarter. Before we begin, I need to remind you that on Page 8 of our 2013 10-K, we list the various factors and conditions that may affect future results. Statements related to future performance by members of our management are subject to these cautionary remarks and conditions. Now I will turn the call over to Joe Muscari. Joe?
  • Joseph C. Muscari:
    Thanks, Rick. Good morning, everyone. This is an exciting time at MTI, and the strong out-of-the-box showing this quarter is certainly an aspect of the excitement. So before we get into our financial performance for the second quarter, I'd like to provide a brief perspective on the company Minerals Technologies has become since the acquisition of the former AMCOL International. We've doubled our size, and are now a $2 billion company with an even greater global reach. Because of this increase in critical mass, we now have a stronger foundation for future growth. We're the world leader in 2 specialty minerals products
  • Douglas T. Dietrich:
    Thanks, Joe. Good morning, everyone. Now let me take you through our consolidated and business segment results for the second quarter. The company now has 5 reporting segments
  • Operator:
    [Operator Instructions] And our first question comes from Daniel Moore from CJS Securities.
  • Daniel Moore:
    I just wanted to clarify, in the chart that you had there, Doug, on synergies, you had about $0.05 of benefit in the quarter. So on a run rate, looking more like $0.08 or $0.09, is that the -- that's the already experienced out of the $50 million of synergies that you hope to achieve over the first year or 2? Just want to make sure I'm not kind of double counting here?
  • Douglas T. Dietrich:
    Yes, that's correct. So we expected -- our target was to achieve $25 million in run rate synergies for the first year. So you can see that as we ended the quarter, we're at that -- we're at $17 million run rate. And so we expect that to grow next quarter to about a $20 million, $20 million to $24 million run rate, and we think we'll be, at the end of the year, at about a $28 million -- a $26 million to $28 million run rate, so that's where we get ahead of our target, our first-year target by about 6 months.
  • Daniel Moore:
    Perfect. It sounds like, shifting gears here, in the PCC side of the business, some of the volume from Courtland that you thought you'd get back maybe taking a bit longer, do you still expect that to recover, most of that loss volume? Has some of it sort of remained offline or slipped to competitors, maybe any color there?
  • Douglas T. Dietrich:
    Yes, we did. You're right. We expected that to be absorbed within the IP system throughout the quarter. We didn't see that happen. We will note that we did see paper production was down 4% in North America over last year, and we also saw an uptick from imports, paper imports. And so we expect some rebound in that volume, but as of the second quarter, we didn't see it, and we think some of that may have been picked up with some imports.
  • Daniel Moore:
    Got it. And lastly, and I'll jump back in the queue. Joe, tremendous color. You've seen most of the facilities in North America, now heading out to Asia and beyond. What have you seen thus far that has surprised you significantly, either positively or negatively, relative to 5, 4, 6 months ago, when we were just getting started?
  • Joseph C. Muscari:
    Dan, I'd say, right now, we really -- I haven't seen any major negative surprises. Things in terms of, let's say, with opportunity areas or issues or challenges are pretty much what we thought they would be. And in terms of the trips I've been making and meetings I've had with both management and employees, it's reinforced the potential that we saw in the company, in terms of the growth potential, the potential to integrate some of the MTI systems around operational excellence. And there's a, I think I had mentioned, before the acquisition, we felt that the manufacturing base was pretty solid. And so far, what I've seen, it reinforces that, which means that we should be able to go faster, from an operational excellence, full operational excellence integration standpoint, as contrasted to MTI when we started out in 2007. So it's been more reinforcing as opposed to some surprises, basically triangulating what we thought. And on the customer side of things, things have just stayed right on track. I don't think we've missed a lick on the customer side. The biggest challenge we've had, and Doug talked about it, is the rail car issue. There've been -- those challenges were there in the first quarter for AMCOL, and they continued into the second quarter. But overall, that's why I mentioned in my remarks, that it's just tracking very, very well.
  • Operator:
    And our next question comes from Ivan Marcuse from KeyBanc.
  • Ivan M. Marcuse:
    Real quick, from a -- I guess these are more questions for Doug. If you look at your CapEx and your D&A, now that you've been able to do the accounting, where do you see that for 2014, 2015?
  • Douglas T. Dietrich:
    Sure. So with the purchase price adjustments and the amortization changes, depreciation and amortization changes, total annualized depreciation and amortization is about $112 million for the entire company. That's about $14 million incremental on a pro forma basis, and that's where we landed on. Again, things are still moving around a little bit, but that's where it's -- that's what it's looking like, our planning [ph].
  • Ivan M. Marcuse:
    And then on the CapEx?
  • Douglas T. Dietrich:
    Well, CapEx for the quarter was $26 million. For 2014, we're estimating $100 million to $110 million for the combined company.
  • Ivan M. Marcuse:
    Okay. And then on your cost savings, you got $2.5 million. Was that at any particular segment or was that just more on the corporate side? And where do you see sort of the -- sort of how do you see the cost savings, I guess, flow through the different businesses more as we move through the year?
  • Douglas T. Dietrich:
    The first $2.5 million were more duplicate corporate expenses, professional services, things like that, fees that were redundant and duplicate. Going forward, though, and -- but some of that was due to shared services implementation. It's kind of hard to give you exactly how that's happened across the segments, but what we're doing is we're absorbing transactions and organizing into our shared service model, and that's a combination that's coming from a combination of the 3 different business segments. But the synergies that you see going forward, will be more of that. There'll be more in terms of continued deployment of the shared services. You noticed we announced our restructuring program that's dealing with the deployment of our shared service model, and there'll be some headcount reductions, and I mentioned about 5% associated with that. So that's where the continued progression of synergies will come over the next several quarters.
  • Ivan M. Marcuse:
    And then if you look at -- you have 5 reportable segments now, is this sort of a reporting structure that you want to keep going forward? Or do you see, as you sort of integrate this business, consolidate down to maybe less than 5?
  • Douglas T. Dietrich:
    Yes, as you noticed, 5 is a lot, right? So we're going to continue with 5, we think for a while, and see how it goes. We wanted -- we felt that would be the best way to continue to describe the business, how we operate the business. There may be some changes later on, but for now, that's -- we're going to continue with the 5.
  • Ivan M. Marcuse:
    Great. And then my last question is more on the NewYield product, which looks fairly interesting. What kind of -- and you may have said this, and I apologize if I missed it. What kind of sales do you anticipate this producing? And is there any way to quantify the opportunity in China and India that you identified in terms of revenues and your ability to capture that? And what do you see sort of as the timing of those revenues or how long does it take to commercialize this product to a fairly meaningful level?
  • Joseph C. Muscari:
    Yes, Ivan, I think I mentioned in my remarks that for China, we're targeting around $80 million. That's what we see as the potential. And the platform itself, will have, let's say, other product applications. And that overall, beyond China and in the other application area, that it could be double that. So we could be looking at a potential of $150 million to $160 million. And keep in mind, this is something we've been actually working on. We've talked about, from time to time, that we were focused on the papermaker processes, and the ways to save them energy or process steps. So this is something that has been in our pipeline, that we've touched on, and we're -- it's -- it is the fact that we have a commercial agreement, I think, is quite significant for the company. And so we are expecting to be able to do more with it. It's going to take a little time to prove it out at the first site, but there are other identified sites that are right behind it. I'm going to ask D.J. Monagle to kind of give a little more to it, because he's the one that's been leading this. D.J.?
  • D. J. Monagle:
    Ivan, I'm going to try and take you back to some discussions we had back in January, to go along with that pipeline, but we were talking about addressing with a couple of different products that are in energy and sustainability. This NewYield is the branding that's associated with that thrust into this area. In addition to what Joe said regarding the market side, I guess I'd like to emphasize 2 other things. Although it is a different manufacturing process and a different product, well, it still holds true to our satellite model. So we are on-site, in this case with Sun Paper to start out, and so the basic business model stays the same. It's on-site. It's very intimate, and it's very much formulated in partnership with the customer. And then we'll be deploying this by location as we go forward. But we're quite excited about the NewYield platform.
  • Operator:
    And our next question comes from Al Kaschalk from Wedbush Securities.
  • Albert Leo Kaschalk:
    I wanted to focus on the rail car matter in particular, in Performance Materials. And specifically, what -- have you seen any ease come in the July, August timeframe here? Or how long do you think this plays out?
  • Joseph C. Muscari:
    Al, this has been a tough problem for the business, and we recently actually took advantage of the fact that -- as part of the integration, but we've run some kaizens, both at our Lovell facility and our Colony facility. And I'm going to ask Gary to kind of give you a little more perspective around it, but we have developed a plan to work this down, but it's a complicated problem. It's not one issue. It's a number of issues that the teams that participated in the kaizen have now developed a very aggressive action plan around. And I'm going to turn it over to Gary Castagna to kind of walk you through it a little further. Gary?
  • Gary L. Castagna:
    Al, yes, the situation is that, in terms of the most recent period, as you asked, actually, from the rail supply standpoint, there's actually not been a great amount of improvement. However, referencing to Joe's point on the team work on the -- and our kaizen process, we do expect through different management initiatives to be able to narrow the problem down, the extent to which is still under evaluation as to where we can get there. Because ultimately, the issue is, is that the rail companies, and we're talking about 2 rail companies here, one being the BNSF, the other being a subsidiary, the Genesee & Wyoming, having independent issues with respect to rail car supply availability, most of that to do with just the other demands on the supply chain.
  • Albert Leo Kaschalk:
    Meaning there's higher economic use for them, so your rate would elevate, or you would need to pay up for it?
  • Gary L. Castagna:
    I don't think I can speculate it's even that, Al.
  • Joseph C. Muscari:
    I think it's fair to say the team that worked on these, that has developed a plan, that we do see daylight, we do see a pathway to getting to a much better place in a reasonable period of time. Some of these can't be solved overnight. Some of them are chronic issues within the rail companies themselves that we're working in addressing at a different level. Others are things that the management teams have under their direct control, that they can change and affect, and those are putting into -- being put into place right now.
  • Albert Leo Kaschalk:
    The observation is coming because the operating margin, even adjusted, seems to be below, or quite a bit below, and I'm sure not at the level both Gary's accustomed to, but also, obviously, that you're expecting, Joe.
  • Douglas T. Dietrich:
    Yes, so you have to remember a couple of things. Also, the increased depreciation, amortization, the purchase price adjustments, but also, that number is reflected on a fully allocated basis. You might be familiar with past results, where there was a corporate center reported separately, all of that corporate expense has been allocated to the 3 segments now.
  • Albert Leo Kaschalk:
    Fair enough. On the organic growth side, Joe, can you give a little more details? And I don't mean for the next quarter, but maybe it's the next year or so, if there's an update on some of the commercialization of these products. It sounds like the Novinda one has moved along quite nicely from a publicity standpoint, but I'm wondering about the revenue standpoint.
  • Joseph C. Muscari:
    Yes, well, they are getting orders, and they're close to some additional orders, and that's what we're seeing right now. We are seeing some additional orders coming through, and we're actually getting ourselves ready for higher demand towards the latter part of this year, early part of next year. We're even at the point right now where we're looking at additional capital to expand capacity. So it isn't -- I mean, it's beginning. We haven't felt the full impact yet, but we're looking at more of the customer contracts side, and beginning to see more contracts lining up, that as they become signed, are going to translate into -- could translate into significant volume for us. But we don't expect to see that, as I said, until the fourth quarter or so. Some will be in the third quarter, but actually, expecting it to start to come in, in the first quarter next year. Does that -- Patrick, does that sound about right?
  • Patrick E. Carpenter:
    Yes, we -- Patrick Carpenter here. We know through Novinda that we've got, Al, we've got 4 contracts. A significant energy company in the United States is about to sign the fifth. We're in the final details of that. So the contracts will be, by the end of the month, at 5. And the mass drive for that regulation will fall in place at the end of Q1 '15. So we expect a significant ramp-up of utilization of this technology to meet that regulatory drive towards the end of the quarter 1. So '15 would be a significant pickup, and then well into '16 and furthermore.
  • Albert Leo Kaschalk:
    Right. And finally, if I may, it looks as if the Energy Services had a nice benefit from what I think is the critical technology there, the filtration side. Can you elaborate if that was some new wins or is it placement? What transitioned there from maybe since your ownership?
  • Douglas T. Dietrich:
    Al, this is Doug. Yes, the 3 areas -- 2 main areas that really had really strong performance in the second quarter was the filtration and also the well test. We had a large pipeline job as well that continued through, and that was -- it was really an offshore -- large offshore projects that continued through, through the quarter. So those 3 main product lines did very well in the quarter. I did mention though that, as you probably are familiar with the segment, these very large projects can come on and go off. We're not seeing those sizable projects in the third quarter, but it was filtration. It was traditional filtration. I'll pass it over to Mike to give you a little bit more color on that. Mike Johnson, to give a little bit more color on the type of projects that happened in the second quarter.
  • Michael R. Johnson:
    Thanks, Doug. Al, it's Mike. Al, I guess the big improvement for oilfield services was the deepwater business with filtration, and the high-pressure work with well test, plus the online -- I mean, the online pipeline work. We also had -- we restructured Malaysia, but also, we also secured the contracts in Brazil. So all those helped improve Q2.
  • Operator:
    And our next question comes from Rosemarie Morbelli from Gabelli & Company.
  • Rosemarie J. Morbelli:
    Joe, looking at that NewYield technology, or D.J., as you are going to provide the paper, the paper mill with some new fibers or filling pigments that you will extract from the waste, isn't that going to be cannibalizing some of your other PCC business in that particular location?
  • Joseph C. Muscari:
    No, it actually -- I'm going to let D.J. give you a little more depth on this, but actually, it's additive. So because it's providing actually more product in terms of what the papermaker needs than they're currently getting. And actually, it's going to make a nice combination for us. I'll call it a trifecta, if you think in terms of base filler satellite, a high-yield process and FulFill 325 on top of that, it paints a picture of, particularly in a place like Sun, where we're starting, where you could see all of the 3 different technologies that we have, our base, our NewYield and our higher filler technologies coming into play in a very coordinated and integrated way. D.J., you want to add a little more to that?
  • D. J. Monagle:
    Glad to, Joe. Rosemarie, a couple of things. First, there's a unique situation with Sun. And when you think of Sun Paper, you need to think of millions of tons of paper that are produced at one location. So this application of NewYield is only additive to us. There's no cannibalization at all that goes on there. More importantly, as we look at the rest of the market, those numbers that Joe and I were sharing are all incremental growth. It's letting us into some paper mills that would have been tough to get into based on the value equation of their current filler pigment. It's primarily targeted at emerging economies, where their papermaking process is not as environmentally friendly as what we see in North America and Europe. So this is all growth to us. The only thing that is -- and as I mentioned before, it's a satellite opportunity. The only thing that's different is that the value equation's a little bit different. We provide a highly-engineered filler, that part's the same, but by reducing the papermakers' landfill and environmental costs, that's additional value that's created. And also, the raw materials that go into this are much different and have a different cost profile. So all those things are different.
  • Rosemarie J. Morbelli:
    So once you put it all together, the margin on those revenues is not going to be different from what you have. You gain on some sector and then lose it in another?
  • D. J. Monagle:
    I don't know about the losing it...
  • Rosemarie J. Morbelli:
    Well, you have a higher cost of raw materials, if I understood what you said. No?
  • D. J. Monagle:
    No, no, lower. Bordering on free, for the main conversion of raw material that is typically a waste product. So what we have is similar returns for the capital, and we'll have very good revenue, and more importantly, good margins that come from that.
  • Rosemarie J. Morbelli:
    Okay. And looking at AMCOL, Doug, are you going to provide us with some pro forma numbers and going back to the first quarter of this year? And adjusted, of course, for that corporate expense that they used to exclude and that you are putting into those segments?
  • Douglas T. Dietrich:
    Well, we did put out the pro formas of the combined companies with the purchase price adjustment. Those were published prior, obviously, to these results. And it's difficult to go back, Rosemary, and give you -- the segments are different in terms of how we've constructed them, slightly different. The basis of their operating income is different, given that they're now fully allocated with the purchase price adjustments done to each, different amortization in each. So no, I wasn't going to provide you a bridge of these results to say the first quarter. But we did publish that, and it should give you a good feel for the adjustments that were made to the company -- the companies, and I can provide that for you again, if you'd like, and we can take you through those in a subsequent call.
  • Rosemarie J. Morbelli:
    So if we look at the second quarter contribution of $0.38, adding back that $0.05, adding to it the $0.05 of synergies, and then taking out the interest expense, is that more or less -- and then, of course, put it on a full quarter basis, is that more or less what we should be expecting, going forward, except for the fact that the synergy part is going to increase?
  • Douglas T. Dietrich:
    Well, yes and no. So yes in the sense that your math is absolutely correct. That is the contribution. And putting it on a full quarter basis, again, there's going to be some seasonal-ization to that number. As I mentioned, you're going to go into the third quarter, and we do see the decline in the Energy Services business. I'll also say you're going to see -- I tried to mention that you'll see some increased inventory costs, as we draw down the higher -- the marked up inventories. You're going to see about $0.03 per quarter over the next few quarters in terms of higher inventory. So on a run rate basis, I think, we're -- you can use those numbers adjusted for what I see in Energy Services and the inventory cost.
  • Rosemarie J. Morbelli:
    Okay. And then lastly, if I may, on the railroad issues. Is one of the solution to truck everything? Or what else are you thinking about if the railroad are making more money on servicing other customers, and therefore, you don't have the availability of the railcar that you need?
  • Joseph C. Muscari:
    Yes, Rosemarie, we have been. Trucking is the countermeasure. It's a costly one, but that's what we do to ensure that we don't miss any customer orders and all the orders are basically getting filled. So the issue is not fulfillment. It's getting back to a lower-cost and more stable supply chain system. Because this has disrupted our supply chain, we've had to do things we normally don't do, and that's why we've got pretty high expectations out of the work that the kaizen teams have put in place. But it's -- like I said, it's a number of issues that should result as we're successful in just getting back to a more stable place, but also getting the costs back to where they should be from a transportation standpoint.
  • Rosemarie J. Morbelli:
    I understood that you are more or less at the mercy of the railroad companies.
  • Joseph C. Muscari:
    Well, we can truck -- I mean, you can trans-load. You can truck to another railroad. We're looking at things like that, and we can truck as far as we want, but it's more expensive than rail. And they have had a very good system in place that's been stable, served them well. But when the car shortage issue came up, it's caused a lot of the disruption to the whole system.
  • Operator:
    And our next question comes from Steven Schwartz from First Analysis.
  • Steven Schwartz:
    In your prepared remarks, Doug, I think you mentioned in PCC, a Domtar facility, the Ashdown satellite, was seeing weakness?
  • Douglas T. Dietrich:
    We did. They actually had a prolonged outage in the quarter. It was unplanned. They saw some -- the lower demands -- so we saw the Courtland facility, that's the main driver of the lower volumes in North America. But then, yes, that is a Domtar facility. It took an extended outage. D.J., the main issue there was?
  • D. J. Monagle:
    Yes, so a couple of things. And so we didn't actually highlight Domtar, Steve, but yes, they have a facility that is where we're co-located. We service a couple of customers from there. One of the locations that we used to service, that was an announced shutdown, was at Georgia-Pacific in Crossett, Arkansas. So that took away some volume from us at Domtar, and there were some curtailments that Domtar had done in general, and I can't provide much more color than that, but what the volume effect that we saw was concentrated at that Ashdown facility.
  • Steven Schwartz:
    Okay. Well, sorry to put you on the spot there, D.J., with your customer.
  • D. J. Monagle:
    No problem.
  • Steven Schwartz:
    Anyway, okay, but it's isolated to the quarter, in other words. So IP Courtland is really the only ongoing concern we should have, it sounds like?
  • Douglas T. Dietrich:
    Yes, I mean, the Crossett volume was a machine shutdown last year, so that's some of the comparable year-over-year. But going forward, it's really the Courtland volume that's out, and then we'll be looking to continue to be taken up in the IP. But as I mentioned earlier, we haven't seen that happen, Steve.
  • Steven Schwartz:
    Yes, and so if you had to estimate, you've got so many great initiatives in developing your volumes in Paper PCC in development. Even for a couple of quarters though, the North American issues have outweighed those. So when do you get an inflection point, do you think? Is it just 2 more quarters until we lap the start of Courtland?
  • Douglas T. Dietrich:
    Well, I don't -- we haven't been -- the North America sales decline -- North America and Europe combined have not been greater than what we've added in Asia. Actually, we're ahead of that curve. We're keeping pace. Let me put it that way. We've kept slightly ahead of pace of what's come out of North America and Europe combined with our building in India and China. And if you look at going into next year, we should have about $38 million to $40 million, $43 million worth of new revenue. Well, it will ramp up through next year, but that's what we're installing in those 5 contracts, those 5 ramp-ups in constructions next year. So look, we do see the occasional mill come out, but within the next year, we should be well ahead of that pace.
  • Steven Schwartz:
    Okay, well, then that was a misunderstanding on my part, so I appreciate you setting me straight there. Just as a follow-up question, with respect to the NewYield program, so are there capital requirements with each new site, capital requirements on MTX?
  • D. J. Monagle:
    Steve, it's D.J. again. Yes, there are, and it is similar to what we experienced with our filler satellites today. It's just a different manufacturing process, but again, the same basic business model that goes in. So with every new location, it will be a -- some sort of a capital needed to deploy that technology.
  • Steven Schwartz:
    Okay. Is it significant enough for us to want to pay distinct attention to?
  • D. J. Monagle:
    No, not any one deployment would require significant capital spend. You're looking at, going forward, our plan is that, as we're building and proliferating, what our need for capital is will be commensurate with what we've been doing over the last couple of years in China, where we're building 5. So you're talking about a few million dollars, Steve, to frame it up.
  • Operator:
    We do have a follow-up from Daniel Moore from CJS Securities.
  • Daniel Moore:
    Just a follow-up to the last question. The return profile for NewYield, pretty similar to kind of a new PCC satellite, greater, lower?
  • D. J. Monagle:
    Slightly better at this time. Again, we'll -- as we deploy further, this is the alpha site. But right now, we would look at it as equal to or slightly greater.
  • Daniel Moore:
    Great. And obviously, with the synergies running ahead and the cash flow that you've generated in the quarter. Is $265 million still sort of an accurate target for year 1 in terms of cash flow from operations? Or should we think about that being ahead of that goal as well?
  • Douglas T. Dietrich:
    That's probably about right, Dan. We'll probably be a little bit ahead of that, but I think you got about right.
  • Daniel Moore:
    Okay. And then one more. Quickly, just on the metallurgical wire side and just refractories in general, really, pretty significant uplift over the last couple of quarters. You put it all together, just what you're seeing in terms of outlook, you've mentioned it's sustainable for Q3. Are these types of levels sustainable and can we grow from here over the next 2 to 4 quarters?
  • Douglas T. Dietrich:
    Yes, we're looking right now sustainable in the third, and that's really due to a number of the projects that have come on in the Middle East. We've had a new -- some new equipment sales there, which are delivery of new refractory products to a couple of customers in the Middle East. We have some new share gain in India. I mentioned in my remarks a number of new basic oxygen furnace business throughout Western Europe as well. So that's all new business for us, and some of that came on in the second. We expect it to continue, some more to come on in the third. We do think that, that's sustainable. And then as you see, we have the one new CPT contract with Bhushan in India, will contribute about $2 million per year. And we're close to another one, another contract in the U.K. So yes, I do see it sustainable over the next several quarters at this -- at kind of these sales levels. Does that help?
  • Daniel Moore:
    It certainly does.
  • Operator:
    And we have a follow-up from Rosemarie Morbelli from Gabelli & Company.
  • Rosemarie J. Morbelli:
    I was wondering if the turmoil in -- and the issues between Russia, Ukraine and Europe is going to affect some of your operations? Do you have a feel for it?
  • Joseph C. Muscari:
    Yes, Rosemarie. This is a question that came up on the last call as well in that we do...
  • Rosemarie J. Morbelli:
    But it's getting worse since the last call.
  • Joseph C. Muscari:
    Yes, it is, but I'd say we are well-prepared. We do get some supply in wire, as you'll recall, some calcium metal from Russia. That could be affected and Han Schut and his team has put some things in place to abate that, should it occur. Han, would you like to comment on that, please?
  • Han Schut:
    Yes, Rosemarie, thank you for the question. Of course, first of all, we have our Canaan facility, and in our Canaan facility, we produce calcium ourselves. So we're the only producer in the Western hemisphere whose actually backward integrated. And what we have been actively working on is to increase our self-sufficiency and to reduce our dependency on Russia. And of course, also, we have made sure that we have increased our inventory levels, that if there would be a sudden change, that we're covered for our customers.
  • Rosemarie J. Morbelli:
    So at the moment, Russia doesn't want any of our chickens. I don't know what it is that they don't want from Europe, but obviously, there is a big trade agreement between the 2 of them. So could it be that if they don't take some, and I'm going to pick anything, cars, airplanes and so on, coming from Europe, then their steel production comes down and that would affect your operations, right?
  • Douglas T. Dietrich:
    Well, Rosemarie, we have a small portion of our sales into Russia. We do sell into Russia, but it's not a real significant portion of our sales. So from a sales side, it will have some impact, but not significant. I think, to -- on the supply side, as Han mentioned, it's probably a little bit more of an issue, but again, we're backward integrated in our calcium production in Canaan and working to make sure that we have mitigating processes if something were to happen, severe.
  • Rosemarie J. Morbelli:
    And the improvements you have recently seen in Europe, could that suddenly go away?
  • Douglas T. Dietrich:
    I don't think so. A lot of that has been really in the Middle East. It's been in Western Europe, and as I just mentioned, India. So -- and a lot of that -- those supply chains and those production facilities, again, we have our Turkish facility supplied through Turkey and into ourselves. We have some integration, a vertical integration there. And our facility in Ireland is also supplied from Turkey, as well as we do buy some magnesium oxide from China. So I think that growth that I just mentioned to Dan should be sustainable, barring an economic-type downturn that could happen in Europe.
  • Operator:
    And I'm not showing any further questions. I would now like to turn the call back to Rick Honey for any further remarks.
  • Rick B. Honey:
    That concludes today's call, and thank you for your interest in the new MTI. Have a good day.
  • Joseph C. Muscari:
    Thank you.
  • Operator:
    Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone, have a great day.