Total System Services Inc (NYSE:TSS)
Q3 2020 Earnings Call
Oct 30, 2020, 8:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to Global Payments Third Quarter 2020 Earnings Conference Call. [Operator Instructions]

At this time, I would like to turn the conference over to your host, Senior Vice President, Investor Relations, Winnie Smith. Please go ahead.

Winnie Smith — Senior Vice President, Investor Relations

Before we begin, I’d like to remind you that some of the comments made by management during today’s conference call contain forward-looking statements about expected operating and financial results. These statements are subject to risks, uncertainties and other factors, including the impact of COVID-19 and economic conditions on our future operations that could cause actual results to differ materially from our expectations. Certain risk factors inherent in our business are set forth in filings with the SEC, including our most recent 10-K and subsequent filings. We caution you not to place undue reliance on these statements. Forward-looking statements during this call speak only as of the date of this call, and we undertake no obligation to update them. Some of the comments made refer to non-GAAP financial measures, such as adjusted net revenue, adjusted operating margin and adjusted earnings per share, which we believe are more reflective of our ongoing performance. For a full reconciliation of these and other non-GAAP financial measures to the most comparable GAAP measures in accordance with SEC regulations, please see our press release furnished as an exhibit to our Form 8-K filed this morning and our trended financial highlights, both of which are available in the Investor Relations area of our website at www.globalpaymentsinc.com. Joining me on the call are Jeff Sloan, CEO; Cameron Bready, President and COO; and Paul Todd, Senior Executive Vice President and CFO.

Now I’ll turn the call over to Jeff.

Jeff Sloan — Chief Executive Officer

Thanks, Winnie. We delivered third quarter results that substantially exceeded our expectations because of our differentiated strategy and technology enablement to drive digital growth. Each of adjusted net revenue, adjusted operating margin and adjusted earnings per share significantly outperformed the targets we put in place post the pandemic outbreak, and we continue to gain share relative to our markets. We thank our team members for their hard work and dedication to our customers, to each other and to the communities in which we live and work during these most difficult times. We are particularly pleased with the significant level of operating margin expansion that we generated in the quarter. These results validate the actions we took at the beginning of the outbreak of COVID-19, both in timing and quantum. As a result, we are delighted to have returned to earnings growth in the third quarter of 2020. Our expectations are for continued progress in the fourth quarter, providing meaningful momentum heading into 2021. We are also pleased to continue to make substantial progress on our strategic goals this year, extending our lead and deepening our competitive moat. Year-to-date, we entered into a landmark collaboration with Amazon Web Services, our preferred provider of cloud services for our issuer business, cross the 60% threshold of our business coming from technology enablement, the goal we set in March 2018 for year-end 2020 and purchased an additional 29% of our joint venture in October with CaixaBank in Spain and Portugal, two of the most attractive domestic markets in Europe.

And we did all this during a once-in-a-century pandemic, while meaningfully expanding market share by signing marquee competitive takeaways, including Truist, the sixth largest bank in the United States, and by extending relationships with some of the largest, most sophisticated and complex financial institutions worldwide, including HSBC, CIBC, TD Bank and Wells Fargo. Turning to our merchant business. Our technology-enabled portfolio consists of three roughly equally sized channels. Our omnichannel, partner software and owned software vertical markets businesses collectively represent nearly 60% of merchant revenue. Our relationship-led businesses make up the remaining portion and continue to differentiate themselves in the markets we serve based on the strength of our technology offerings. Starting with our market-leading omnichannel capabilities, we are unique in our ability to offer local sales and operational support at scale physically in 38 countries and to provide services plus quarter virtually into 100. That scale and reach, particularly in many of the hardware served markets we operate in today, is a significant competitive advantage. Volumes in this channel grew in the mid-teens during the third quarter compared to the prior year, excluding travel and entertainment.

With changing consumer preferences as a tailwind, we believe we will sustain higher levels of growth in our omnichannel businesses on an ongoing basis coming out of the pandemic as channel shift and market share gains continue. Our ability to seamlessly provide the full spectrum of payment solutions drove new wins this quarter with large multinationals, including Yves Saint Laurent, Alexander McQueen and Fedex, each of which spans multiple geographies. Additionally, we recently signed a new multiyear partnership with Uber in Taiwan to provide payment solutions for both Uber Rides and Uber Eats. The Uber agreement was one as a result of the strength of our domestic capabilities. We were also excited to expand our current relationship with global storage solutions company, PODS, beyond North America and Canada into Australia. We went live with Citi in Canada this quarter on our unified commerce platform, or UCP, and we are now pursuing customers jointly across North America and United Kingdom. We are also pleased to announce that we have agreed to expand our partnership with Citi across Continental Europe, and we expect to launch those new UCP markets in the first half of 2021.

Global payments integrated GPI returned to growth in the third quarter because of the unliable breadth of our partnership portfolio with over 4,000 ISVs in the most attractive vertical markets. Prior to COVID-19, our integrated business consistently delivered double-digit organic revenue growth through market share gains and terrific ongoing execution. Through our merger with TSYS, we meaningfully increased the scale of the partner portfolio and enhanced our capabilities with additional assets like Genius and ProPay. The strength of our combined integrated offerings allowed this business to achieve its budgeted new sales forecast for the third quarter, with new partner production increasing over 70% versus 2019. Notable new wins include partnerships with CDK Global, a leading provider of automated software solutions to more than 20,000 dealerships around the world as well as with Sandhills, a large private auction software provider focused on the industrial equipment and machinery market. We also signed Pentair, a leader in software solutions for field service providers, including Pentair’s own 17,000 plus dealers in addition to independent service companies.

Our own software businesses represent the remaining roughly 20% of our technology-enabled merchant revenue, and our leading SaaS solutions in healthcare, higher education and quick service restaurant, or QSR, have been more resilient in the current environment. Even in our businesses that have been more impacted by the pandemic, including active in our K-12 primary education and gaming businesses, we are seeing sequential improvement, giving us increased confidence for 2021. Our strategy of delivering the full value stack in key verticals continues to produce deeper, richer and more value-added relationships with customers and is becoming table stakes in the markets we serve. Our enterprise QSR business continued its success with Xenial’s online ordering and delivery solutions, which has now enabled more than 62 million orders and greater than $1 billion in sales in 2020. We also completed the rollout of our cloud-based SaaS point-of-sale solution with Dutch Bros, and we are currently installing our POS solutions in all Long John Silver’s locations in the United States. And we have now integrated our Genius payment solutions from TSYS into our Xenial offerings, significantly expanding our cross-sell capabilities. Today, we lead with technology and innovative solutions across all of our merchant businesses. This includes our relationship channels where we continue to see strong new sales performance, fueled by our suite of differentiated products and solutions.

For example, in our Heartland business, nearly 2/3 of new sales are technology-driven, including our leading POS software and online ordering solutions. We have seen strong demand for these offerings during the pandemic. Heartland delivered record new sales performance in the third quarter. And while we continue to focus on new technologies and markets, we have not lost sight of our long-standing partnerships with some of the largest, most sophisticated and complex financial institutions worldwide. We are delighted to announce that we have renewed our relationship with HSBC in the United Kingdom for merchant services. This comes a little over a decade after we entered that market with our joint venture. We also recently executed a new merchant referral agreement with CIBC in Canada, a partnership that began right before our IPO in early 2001. Extended relationships in Europe with HSBC and in Canada with CIBC closely followed the expansion of our partnership with CaixaBank in Spain and Portugal. We are thrilled to have closed in early October on the agreement to purchase an additional 29% of Comercia, increasing our ownership stake to 80%. Our exclusive referral relationship now expands through 2040, 30 years after the initial joint venture date. We are humbled by the confidence that our partners place in us every day. Regarding our issuer business, we announced last quarter a transformational go-to-market collaboration with Amazon Web Services, or AWS, to provide an industry-leading cloud-based issuer processing platform for customers regardless of size, location or processing preference.

This is a game changer for three reasons. First, it levels the playing field by bringing leading-edge technologies previously available only to new entrants to financial institutions and retailers of all sizes worldwide. Second, it triples our target addressable market by extending our geographic footprint and transforming our technologies to attract new market entrants while dramatically expanding our distribution assets with AWS’ sales force globally on a unique basis. Third, it brings significant benefits to our customers and their consumers by enabling frictionless digital experiences in a safe commerce environment. Our collaboration with AWS is already bearing fruit. We are pleased to announce our first joined competitive takeaway, a financial institution customer in Asia currently with a legacy competitor to be boarded in our cloud-based solution in 2021. We also have recently been awarded new business with a large domestic financial institution in Europe on a cloud basis. Our issuer technology transformation is now fully under way and on track. As we continue to gain share through our unique collaboration, we will capitalize on the broad and deep pipeline we have the good fortune to have in our issuer business. We currently have 11 letters of intent with financial institutions worldwide, seven of which are competitive takeaways. In the last 18 months, we have had 33 competitive wins across North America and international markets.

Each market share gains are occurring right now in the midst of a pandemic and prior to full implementation of our cloud native solutions with AWS. All of this is, of course, in addition to significant renewal agreements that we executed this past quarter, including with TD Bank, Wells Fargo and Advanzia in Europe. We are also pleased to announce that we have secured long-term extensions with Arvest Bank as well as with Banco Popular in Puerto Rico, and that we have finalized an agreement with Scotiabank to convert its Canadian consumer credit card and loan accounts. Our business and consumer segment delivered high single-digit growth, achieving record third quarter revenues in a challenging macroeconomic environment and well after the April stimulus. This business also substantially expanded operating margins, which we drove by disciplined focus on expense management and execution since the merger. The shift to cashless solutions is benefiting us across the business and consumer portfolio, with customers remaining active longer and utilizing more of our products. As just one example, we are seeing rapid adoption of our TIPs solution with a number of customer locations using us for disbursement of fivefold since the beginning of the pandemic. We also signed a new strategic relationship with Austin Football Club, the newest MLS franchise, and we are working with the team in the stadium to develop a cashless payment account and processing ecosystem while also leveraging brand sponsorship opportunities. We closed on our new joint venture with MoneyToPay on October 1, which expands our target addressable market to include Continental Europe for the first time. We have no better partners in CaixaBank, and we believe the combination will offer significant growth opportunities for this business segment in the future. The new venture also validates the types of revenue synergies we anticipated at the time of our TSYS merger. Finally, the underlying strength of our businesses has enabled us to now return our focus toward the traditional capital allocation priorities that we’ve employed over the last seven years, return capital to shareholders and select M&A. We have put those initiatives on hold at the beginning of the COVID outbreak. It was difficult in March to imagine we would be in the position that we are in today. As a result, we look for more activity going forward subject, of course, to the capital markets environment and outlook.

Now over to Paul.

Paul Todd — Senior Executive Vice President And Chief Financial Officer

Thanks, Jeff. I’m extremely proud of the financial performance we achieved this quarter that once again exceeded our expectations, driven by strong execution of our differentiated technology-enabled strategy. Adjusted net revenue for the quarter was $1.75 billion, reflecting growth of 64% over 2019. Adjusted net revenue compared to the prior year on a combined basis was down just 4%, a meaningful improvement from the second quarter. Importantly, our adjusted operating margin increased an impressive 250 basis points to 41.1% as we benefited from the broad expense actions we took to address the impact of the pandemic and the realization of cost synergies related to the merger, which continue to track ahead of plan. The net result was adjusted earnings per share of $1.71 for the third quarter, which compares to $1.70 in the prior year period, an impressive outcome that highlights the durability and resiliency of our model. These results include an accrual for nonexecutive bonuses as our performance for the quarter substantially exceeded our expectations. We are pleased to be in a position to begin to reward our team members around the world who continue to deliver the highest standard of service to our customers. In our Merchant Solutions segment, we achieved adjusted net revenue of $1.13 billion for the third quarter, a 6% decline from the prior year on a combined basis and significant improvement from the second quarter.

Notably, we delivered an adjusted operating margin of 47.3% in this segment, an improvement of roughly 40 basis points as our cost initiatives and the underlying strength of our business mix more than offset top line headwinds from the macro environment. Our technology-enabled portfolio was relatively resilient once again with several of our businesses delivering year-over-year growth in the third quarter on a combined basis. Specifically, our worldwide omnichannel e-commerce volumes, excluding T&E, grew mid-teens as our unique value proposition, including our unified commerce platform, or UCP, continues to resonate with customers. Also, global payments integrated delivered adjusted net revenue growth in the quarter on a combined basis, while the leading scale and scope of our ecosystem has this business on pace to deliver another record year for new partner production. As for our own software portfolio, AdvancedMD remained a bright spot, producing strong adjusted net revenue growth and once again delivering record bookings during the third quarter. Moving to our relationship-led businesses. We are pleased to have realized solid sequential improvement across geographies this quarter, and payment volumes continued to recover around the world. Once again, execution in these businesses remained very strong this quarter, as evidenced by the new sales performance Jeff highlighted earlier and share gains we have realized. Turning to Issuer Solutions. We delivered $433 million in adjusted net revenue for the third quarter, representing a 2.5% decline from the prior year period on a combined basis. As transaction volumes are recovering, traditional accounts on file continue to grow in the mid-single digits and set a new record for the quarter, and our bundled pricing model, including value-added products and services, benefits performance.

In fact, excluding our commercial card business, which represents approximately 20% of our issued portfolio and is being impacted by limited corporate travel, this segment delivered low single-digit growth for the quarter on a combined basis. Adjusted segment operating margin for issuer expanded a very strong 500 basis points to 43.3% compared to the prior year on a combined basis as we continue to benefit from our efforts to drive efficiencies in the business. Finally, our Business and Consumer Solutions segment delivered adjusted net revenue of $204 million, a record third quarter result, representing growth of more than 7% from the prior year. Netspend continues to benefit from strong trends in gross dollar volume, which increased 12% for the quarter, an impressive outcome in light of the environment and in the absence of incremental stimulus. We are pleased that Netspend customers remain active and are utilizing our products for purchases as we are seeing a shift to cashless spending in this channel as well. We are particularly pleased by trains with our DDA products, with active account growth increasing 24% from the prior year. Adjusted operating margin for this segment improved 710 basis points to 25.6% as we benefit from the efforts we have made over the past year to streamline costs and drive greater operational efficiencies in this business. The powerful combination of Global Payments and TSYS has provided us with multiple levers to mitigate the headwinds we have faced from the pandemic. We are making great progress on our integration, which I mentioned, continues to track ahead of plan. It has been just over one year since we closed our merger, and we have the confidence to again raise our estimate for annual run rate expense synergies from the merger to at least $375 million within three years, up from our previous estimate of $350 million.

This marks the third time we have increased our cost synergy expectations. We also remain confident in our ability to deliver at least $125 million in annual run rate revenue synergies and the $400 million in additional annual run rate expense savings related to the pandemic, which is incremental to the TSYS merger synergies. As we sit here today, our business is healthy, and we are able to return to our capital allocation priorities. We generated roughly $500 million in adjusted free cash flow this quarter, essentially funding our purchase of an additional 29% stake in our joint venture with CaixaBank. We reinvested approximately $120 million of capex back into the business. We ended the quarter with roughly $3 billion of liquidity and a leverage position of roughly 2.5 times on a net debt basis. Given our strong liquidity and balance sheet strength, we are pleased to announce that our Board of Directors has increased our share repurchase authorization to $1.25 billion, while we continue executing against the full pipeline of merger and acquisition opportunities. While we are not providing guidance at this time, we currently expect to have margin expansion and earnings-per-share growth for the fourth quarter, providing us with strong momentum heading into 2021. Additionally, assuming the recovery continues to progress and we see a more normal environment in 2021, we are currently targeting adjusted earnings per share of roughly $8 for next year. We are grateful for our market leadership in global scaling payments, while the proliferation of technology and software in our industry should allow us to continue to drive meaningful share gains well into the future.

And with that, I’ll turn the call back over to Jeff.

Jeff Sloan — Chief Executive Officer

I am very proud of all that we have accomplished thus far in 2020 as we execute on our strategic initiatives. This will be a remarkable year regardless of the macroeconomic environment, but it is all the more notable in the face of a 100-year pandemic. AWS, CaixaBank and crossing a 60% digital enablement threshold, just to name a few of the noteworthy accomplishments. Our new collaborations with market-leading technology companies such as AWS, combined with distinctive partnerships with some of the largest and most complex institutions in the world such as HSBC, CIBC and CaixaBank, provide further validation of the wisdom of our differentiated strategies. We are enthusiastic about the future as we continue to advance our technology-enabled software-driven goals, building upon our competitive advantages to widen our moat and to create significant long-term value for our shareholders. Winnie?

Winnie Smith — Senior Vice President, Investor Relations

Before we begin our question-and-answer session, I’d like to ask everyone to limit their questions to one with one follow-up to accommodate everyone in the queue. Thank you. Operator, we will now go to questions.

Questions and Answers:

Operator

Your first question comes from the line of Darrin Peller with Wolfe Research.

Darrin Peller — Wolfe Research — Analyst

All right. Jeff, I just want to start off with your strategy around acquisitions and really the technologies and capabilities you really think you can use to fill out what’s already obviously showing to hold up — hold its own pretty well. And then just on top of that, any data points you can give us on how you’re kind of filling the funnel on the top in terms of bookings, new business trends in the merchant business versus any attrition levels would be great.

Jeff Sloan — Chief Executive Officer

Thanks, Darrin. It’s Jeff, and I’ll start. I’m sure Cameron and Paul can comment on your second question. But on your first question, listen, our strategy has not changed the company probably over the last number of years, and that is to say that we have three legs to the stool. Those legs to the stool include owned and partnered software, include e-commerce and omnichannel businesses and exposure to faster growth market. So I’d say pretty much all the deals that we look at fall into one or more of those three buckets. We’re really pleased about where we are today. And Paul, of course, mentioned this in his prepared comments, is that we sit here today in a healthy position as we’ve ever been, but particularly much healthier than we would have guessed probably back in March or April. As Paul said, there was never a day on a net basis, 2.5 times, and we have $3 billion of liquidity. Our M&A pipeline is pretty full. But obviously, some of that depends on some stability, of course, in the capital markets.

So you saw our announcement today about our Board, thankfully, increasing our share repurchase authorization. For the time being, the best investment, I think, is us, given our performance and where the markets have been. Having said though, we continue to execute against that pipeline, and we’re well capitalized to pursue those opportunities. So I think we’re in a really happy place, Darrin. And I would say our strategy has not changed, and you probably saw this in our release as well as our prepared comments. We’ve actually now crossed the 60% threshold of our merchant business coming from digital trends, which is something that we started talking about in 2015 and 2018. We set that target in our last Investor Day in 2018. For the end of this year, we crossed that threshold in the third quarter. So I think that’s been working really well for us. I don’t really see that changing. And if we were to do additional acquisitions subject to market conditions, they would probably fall on lines of those three buckets. So Cameron, do you want to talk a little about the second question?

Cameron Bready — President And Chief Operating Officer

Yes, sure. Darrin, I’ll touch on that. I’m going to focus on North America since that represents about 80% of our merchant business. But I would tell you, the one thing that we tried to do during the midst of the pandemic is focused on the things that we can control, and that starts with new sales. And I would say the new sales performance across our businesses have really been exceptional. Heartland had a record new sales production period in the third quarter, up double digits year-over-year, up 25% sequentially versus the second quarter. Again, the strongest new sales performance period in the history of that business. Our integrated business, as we noted in our prepared comments, is tracking to budget for the year, notwithstanding the pandemic. New partner production is up 70% year-over-year. And I would say, the overall partner pipeline is as strong as it’s ever been in that business. And we’re pretty optimistic about the momentum we have heading into Q4 and 2021 in our integrated channel. In vertical markets, we saw a particular strength in AdvancedMD. That’s a continuing theme, obviously, we touched on throughout the pandemic. Their new bookings were up 15% year-over-year. In Xenial, our QSR enterprise business. We saw new SaaS sales, up 30% year-over-year. In our higher education business, new bookings are tracking at a consistent level with 2019 despite a number of campuses being closed during the midst of the pandemic.

So we’re pleased with that performance as well. Canada saw new sales up 12% year-over-year in the quarter — or excuse me, year-over-year, year-to-date, they’re up 28% in Q3. So again, continued strong strength in the Canadian market, largely on the heels of our new partnership with Desjardins, which continues to bear free for us in that market. In Europe and Asia, overall, I’ll just touch on briefly, I think their performance has been very strong, notwithstanding the environment they’ve been operating in. New sales remain solid in all those markets. The U.K. has had some significant new wins this quarter that we’re particularly pleased with. Spain continues to be a strong performer for us. Midtown is up in Spain year-over-year. Domestic volumes are up 5%, 6% in Spain year-over-year. We see particular strength in that market as well. And then Asia, again, new sales performance has been very good. Obviously, the overall macro in Asia continues to be a bit soft, given the impact of the pandemic. But I would say, just overall in the business, going back to my opening comments, we are exceptionally pleased with the pace of new sales and how we’ve executed with new sales and bookings throughout the pandemic, but particularly in Q3.

Darrin Peller — Wolfe Research — Analyst

That’s really helpful, guys. Great detail. I mean it sounds like — and I’ll leave it at this, but it sounds like, overall, the technology offerings you have is enabling. You guys can gain share to a degree that you come out of the pandemic potentially larger or in line or larger than you could have been before. Is that fair just based on the type of differentiation you’re seeing versus maybe some of the banks out there?

Jeff Sloan — Chief Executive Officer

Yes. I think we’re certainly — our opinion, you look at Visa and Mastercard just right there, which on a combined basis, I view as kind of the market, and these numbers obviously are multiples better than those numbers. So with that, that I think supports our thesis that we’re rapidly gaining share in pretty much every one of our businesses as we look at it, especially for these purposes, our merchant business. So I think what you said is exactly right. And that in addition to the bookings numbers, which are great leading indicators that Cameron alluded to make us feel really good about the trajectory of the business.

Operator

Your next question comes from the line of Dave Koning with Baird.

Dave Koning — Baird — Analyst

Okay. Nice job.

Jeff Sloan — Chief Executive Officer

Thanks, Dave.

Dave Koning — Baird — Analyst

Yes. And maybe could you review monthly trends in — especially in merchant, maybe — I know you did down 6% year-over-year, but did that improve throughout the quarter? And maybe how is that setting up into October?

Paul Todd — Senior Executive Vice President And Chief Financial Officer

Yes. So maybe I’ll start, and Cameron can give a little more insight. Yes, the monthly trends continue to kind of have good both stabilization and kind of sequential monthly growth. And so we had said for some time now that from a merchant standpoint, our volumes looked a lot like the Visa credit volumes. But most recently, started positively decoupling from those volumes and trending better. And we saw that obviously in the third quarter relative to the Visa volumes that came back yesterday, and we’re continuing to see that improvement in the several weeks here of October that we’ve seen so far. So yes, the trends continue to be positive. The [Indecipherable] kind of how we’ve described them. And obviously, the results flow-through from those relative to the financial performance for the quarter. Cameron, do you want to add to that?

Cameron Bready — President And Chief Operating Officer

Yes. I would just add a couple of things. I think if you look at Q3, we saw obviously continued improvements throughout the quarter. I think the pace of recovery, as we’ve seen over the last couple of months, has begun to slow. And I think that’s pretty consistent with the industry data that has been published as well. We see October trending a little bit better than September. But as it relates to the exit rate for September, I think it’s important to look at the merchant business in a couple of ways. One is, if you exclude our vertical market businesses that have been most heavily impacted during the pandemic, lower indication where schools are largely closed, our active business, where obviously insurance and sporting events have been largely shut down and gaming where obviously our casino business, has been heavily impacted by the pandemic.

If you exclude those, our merchant business for the quarter in the U.S. was roughly flat, down a point or so. So I call that roughly flat for the quarter. And Asia is — September, essentially flat. So I think we have good momentum heading into October in that business. And obviously, that’s a strong sequential improvement over where we were in the second quarter. So certainly, as it relates to North America, again, which is 80% of the merchant business, the trends we’ve seen are positive. October is a slight improvement over September. We’re obviously monitoring that closely as I think the entire world continues to struggle with the pandemic. But the trends we’ve seen thus far are encouraging as we continue to grind higher as a recovery matter heading into 2021.

Dave Koning — Baird — Analyst

Great. And just a quick follow-up. Normally, in Q4, merchants, the seasonality of merchant is for revenues to come in a little bit sequentially and margins to be down a bit. But given kind of the recovery that’s playing out and all the synergies, could we decouple kind of from that normal seasonality? Or should we still have a little bit of it?

Paul Todd — Senior Executive Vice President And Chief Financial Officer

Yes. No, I think in the environment we’re in, we would see some of the decoupling from that normalcy and actually sequential quarter improvement, both from a revenue standpoint and a margin standpoint, particularly on the margin side given the cost actions that we’re taking. So that kind of normal kind of seasonality doesn’t necessarily hold this year given the pandemic.

Operator

Your next question comes from the line of Ramsey El-Assal with Barclays.

Ramsey El-Assal — Barclays — Analyst

[Technical Issues] merger revenue synergies, realization and kind of your thoughts on any challenges or opportunities coming from the impact of the pending. Sort of what are your latest thoughts on prioritization and timing of the revenue synergies realization coming out of the merger?

Jeff Sloan — Chief Executive Officer

Yes, Ramsey, we missed the first part of your question, but I think it relates to what we’re seeing from a merger synergy standpoint on the revenue side, how that’s pacing and what our expectations are as we continue to push forward. So I would say we’re very pleased with the early progress we’ve seen from a revenue synergy standpoint as evidenced at least partly today by our reiterance of our expectation of $125 million of annual run rate synergies by the time we get to three years out from the closing of the merger. We’ve launched a number of initiatives in our merchant business to realize those synergies today. Tactically, we are cross-selling our analytics and customer engagement platform now across the TSYS base of business. We’ve introduced vital plus into the Heartland channel. We’ve also brought that solution to Canada as well. We’re leveraging the capabilities of ProPay now in the Heartland business. We’re also bringing that to Canada. Those revenue synergies are well on track and pacing relatively consistent with our original expectations for them, notwithstanding, obviously, the impacts of the pandemic. There’s longer tail revenue synergies, obviously, that continue to progress as well. A number of those are really focused on our ability to cross-sell our issuing solutions into our base of existing merchant-FI relationships outside of the U.S. I would say those discussions continue to be very fruitful and are progressing.

Obviously, the pandemic has had some impact on the pace of those conversations, but we remain very optimistic and bullish as it relates to our ability to be successful in cross-selling issuer into those relationships and vice versa. We’re having a number of conversations today about new merchant relationships that could come from existing TSYS issuing FI partnerships outside of the U.S. as well. And then lastly, we’re making great headway on what we would characterize as our transaction optimization opportunities where we can better blend the capabilities of our issuing and acquiring business to deliver unique distinctive solutions to the marketplace. A lot of that focus continues to be on Europe, in markets outside of the U.S. And I think we’re reasonably optimistic that we’ll have some positive news to announce on that in the coming months. So I would say, all in all, we’re delighted with the progress we’re making. We continue to track well against those synergy targets. I’m more optimistic today than I was at the beginning of the merger as it relates to our ability to drive revenue synergies from the combination. And I would say the early success we’re seeing is very positive.

Ramsey El-Assal — Barclays — Analyst

That’s great. That’s terrific. One follow-up from me. I just wanted to ask about margins. The outperformance in the quarter was obviously great to see. Can you talk to us about the drivers of the beat this quarter and how they’ll compare to what we’re going to see next quarter? You mentioned a potential incremental margin expansion next quarter. Is this more from synergies realization? Is it just operating leverage as the business comes back online? Just any commentary on the color — on the drivers of the beat this quarter and what might be flowing in the next quarter will be helpful.

Paul Todd — Senior Executive Vice President And Chief Financial Officer

Yes, sure. Ramsey, it’s Paul. I would characterize it as both better kind of optimization from the synergies. As we talked about, we raised our synergy target to $375 million. So we are seeing kind of better realization on the synergies front. We clearly achieved the $100 million of run rate cost takeouts relative to the pandemic, and so we’re seeing that benefit come through. And just in general, as we’re getting incremental revenue, the incremental margins of that revenue is coming in at a higher incremental rate than we had originally planned because we kind of locked down the expense base. So it’s really those three drivers. I would say, as it relates to fourth quarter and the margin expansion there, specifically talking about the merchant segment when I referenced kind of the expansion there, I would also say, and I mentioned this in the prepared remarks, the margin expansion we would have had this quarter would would’ve been higher had we not used some of the excess incremental revenue at the incremental margin to set aside for accrual nonexecutive bonuses. So actually, on a core fundamental basis, margin performance was actually even better than the 250 basis points that we realized.

Operator

Our next question comes from the line of Bryan Keane with Deutsche Bank.

Bryan Keane — Deutsche Bank — Analyst

I just wanted to follow up, Jeff, and asked about the M&A pipeline. There’s a lot of people trying to speculate on what deals you guys would look at. In particular, I guess, I’m trying to understand your preference between a scale, kind of a cost synergy versus looking at a growth asset that would supplement your growth rate or even take it higher. Just any thoughts on a preference between those two types of assets.

Jeff Sloan — Chief Executive Officer

Bryan, thanks for your question. It’s Jeff. So let me just start with the criteria that we always apply to kind of every deal, and then I’ll work backwards to kind of address your question more directly. So as you said, for some time, we look at strategic fit, cultural fit and financial returns when we look at new mergers and acquisitions, very few things that we look at actually meet all three of those hurdles. And I would tell you that we vary the financial return hurdle based on risk, not surprisingly, which includes geographic and country risk and also will reflect the volatility that we see in the capital markets currently, and that may or may not persist, time will tell. As I said a minute ago, given what I just said, at current price levels, we believe, buy back our stock is really a compelling opportunity. Hence, the announcement today of the share repurchase increment authorization and a return on capital allocation, which we put on hold in March when COVID initially started. I’d also say, another corollary coming out of what I just said is most of our focus now in our pipeline, as Paul said, most of our focus now is on deals in the United States. So if you look at the criteria listed and you think about macroeconomic risk, country risk, regional risk and everything else, it shouldn’t be a surprise to anyone that unless pricing environments drop, our focus is largely within the United States market, which is about 70% of the company. So that probably shouldn’t surprise anybody.

As it relates to scale versus growth assets, look, our pipeline is still with both of them. What I would tell you at the end of the day, though, is I think it’s unlikely in the immediate term that we do something outside the United States. Within the United States, we’re looking at both software assets as well as traditional processing assets. But if nothing changes from here, I would expect us to do more repurchase. You should be candid at these prices and less inorganic investment. But obviously, that’s subject to the facts. And as the facts change, our opinions will change. The other thing I want to mention in response to your question, as Paul said, is at 2.5 times net leverage and $3 billion of liquidity, we got plenty of financial firepower to do what we need to do on our own. Should we need access to additional capital and we have a use of proceeds for it, then obviously we’ll revisit the composition of our businesses. But I would say sitting here today, we think we’re particularly well capitalized to execute on our strategies. I don’t see us shedding in the assets to do that absent the distinct use of proceeds, which we don’t have today.

Bryan Keane — Deutsche Bank — Analyst

Well, that’s super helpful. And just as a quick follow-up. On the Issuer Solutions business, it seems like it’s trending well and came in kind of a little bit ahead of where we were looking for. Just thinking about the outlook there and the pipeline and issuer, if you could make some comments there.

Jeff Sloan — Chief Executive Officer

Yes. Bryan, I’ll start. I’m sure Paul can contribute also, but let me just start. So I would say it’s a real bright spot, as you said, sequentially, pretty significant improvement, return to better growth in the third quarter, ex the commercial card, which is largely corporate travel related, as Paul described in his prepared remarks. Look, our pipeline is full. I think we’ve said in our prepared remarks, 11 deals in our pipeline, seven of which are competitive takeaways in the last 18 months, 33 competitive wins. So it’s hard not to look at that and be really pleased with how we’re executing. And some of these we mentioned initially, our AWS collaboration, which is unique to us, really starting to bear fruit. We’ve had our first joint win in Asia, and that’s someone going competitive takeaway from someone else from a legacy provider into a cloud-based environment coming in 2021. So now we have market validation from a customer base as to how we’re doing. And our strategy there is a little bit different than everybody else is. So if you look at our strategy in Issuer, which is bearing fruit, it’s to marry great technology with folks like AWS, to marry that with servicing the largest and most complex financial institutions globally. And the reason we go after that market base, and it’s not to the exclusion of everything else, but the reason we go after that market, that place in the market is that those are the folks who are gaining share in their own right.

So as they gain share, we gain share with them. And I don’t think you have to look further than announcements, for example, that Cap one has made and other folks over time about picking up additional portfolios to see that we’re successful when our partners are successful. So that’s why our focus is where it is. So we’re pretty optimistic in that business. Obviously, some of that depends on the macro. As I think Paul pointed out in his commentary and you look at the Visa and Mastercard numbers last night, our business was — I mean, someone can do the math, but it’s 6 times better than the market rates to growth or whatever the math was embedded in the Visa Mastercard commentary last night. So ex T&E, low single-digit growth. With T&E in there and commercial card, minus 2, whatever it was. But that compares to whatever they’ve done last time, minus 7% and minus 12% or wherever the revenue was, minus 14% and minus 17%. So clearly, I think we represent the market on issuing. And I think it goes to show the length of differentiation, the unique value play that we have the value-added services like fraud analytics and loyalty in our businesses, and that stuff, obviously, is winning. Paul, do you want to comment on that?

Paul Todd — Senior Executive Vice President And Chief Financial Officer

Yes, I would. I would just say this, that we are going to see continued growth there, and the recovery with that is happening in that business is very good from a top line standpoint. I would say the other thing is the efficiencies we’re getting that business to get 500 basis points of margin expansion this quarter just speaks volumes to how we’re managing the cost base in the environment we’re in. And then finally, we’re doing all that in an environment where we’re investing in modernization, as Jeff just talked about. So really kind of hitting all three levers of the business of the growth side from the top line, the new wins, the pipeline, the cost base efficiency and then investing to position the business for the future.

Operator

Your next question comes from the line of David Togut with Evercore ISI.

David Togut — Evercore ISI — Analyst

Good to see the major initiatives in Europe, particularly the reestablishment of the HSBC JV and going up to 80% on la Caixa. I’m curious why move forward on both of these initiatives now. And does control of the la Caixa JV allow you to do things that you couldn’t do previously?

Jeff Sloan — Chief Executive Officer

Yes. Dave, it’s Jeff. I’ll start, and I’m sure Cameron will comment as well. So listen, those businesses are both performing really well in the current environment. I think you have to parse out the nature of our business in Europe relative to the nature of the markets themselves or in particular, Visa and Mastercard’s proxies for the market. So our business is in those markets, which is to say Western Europe or the U.K. and Spain and Portugal, have a very heavy domestic component in those markets. And our businesses are growing there absolutely on a domestic basis year-over-year, and I’m thinking about Caixa particularly, and cross border while a piece of our business is a relatively small piece of our business and is nowhere near the driver of revenue growth that you have in Visa and Mastercard. So to answer your question, from my point of view, we have fantastic partners in HSBC and Caixa. Using the networks as a proxy, we’re growing leaps and bounds ahead of where they’re growing in those markets, our ability to invest and capture more share in those businesses. Cameron talked about the bookings totals in some of our markets. We’ve had really good results in terms of new sales in those business. Businesses well in Spain, for example, we’re growing absolutely year-over-year into October on a domestic basis. So I actually think it’s a fantastic time for us to continue to invest in those businesses and support our partners.

Cameron Bready — President And Chief Operating Officer

Yes. I agree with that, Dave. I don’t have a ton to add. I would say, I don’t think there’s ever a bad time to extend a relationship with a partner like HSBC, someone that we’ve worked with over 50 years in our business in some form or fashion. And certainly for the entirety of our existence in the U.K. market, they’re a fantastic partner. We have a number of initiatives from a digital engagement standpoint that align very well with what our strategy is in that market. And we’ve worked together extensively for years and are delighted to have the opportunity to extend our existing relationship and even broaden it into new avenues as we move forward in time. So we’re — we could not be more pleased to have executed that with them. As it relates to Spain, I completely agree with Jeff’s comments. Spain and Portugal are two of the most attractive domestic markets in Spain — or excuse me, in Europe.

As I mentioned previously, Spain returned to volume growth domestically in the quarter, and that has continued in October, even with some reintroduction of restrictions to impact or to combat the coronavirus spread. So we’re delighted with the overall performance of that business. And certainly, as Caixa continues to look to expand in Spain as well through its merger with Bankia, we think there’ll be incremental opportunities for us, and obviously owning more of the joint venture, I think, will yield better returns longer term as we think about that investment. So clearly, the valuation that underpinned and the forecast has underpinned the valuation for that business reflects the environment that we’re in today. We’re outperforming that valuation in that forecast as we sit here today. And again, any time you have an opportunity to invest further in a joint venture that’s been as successful as ours has been with Caixa in Spain, certainly, we jumped at the opportunity to do it.

David Togut — Evercore ISI — Analyst

Understood. Just as a quick follow-up, if I could. You made a number of important announcements, both in the current quarter and previously the 11 LOIs with the financial institutions globally. You’ve got the AWS partnership, the Truist win which you announced earlier this year. Can you help us dimension what this might mean for 2021 or 2022 revenue or earnings growth, recognizing companies aren’t giving guidance in this environment, but maybe give us some framework with which to think about it?

Paul Todd — Senior Executive Vice President And Chief Financial Officer

Yes. So David, this is Paul. I think we gave you a little bit of a framework to think about our thinking as it relates to 2021 with the adjusted earnings per share target that we have right now on our budgeting process of roughly $8. And so that’s how we’re currently thinking about next year, all of those things you just mentioned are obviously dynamics in that overall planning kind of cycle that we’re in right now. But as it relates to the next year, that’s kind of the best indicator we can give you as to our thinking of what next year might look like, assuming a much more normalized and kind of more normal operating environment.

Jeff Sloan — Chief Executive Officer

Dave, the only thing I would add to that is just I think it gives us a lot of confidence around the momentum we have in the underlying business. The macro is the macro and the impact of the virus is what it is. And obviously, that will eventually play out. But as it relates to how we’re executing in the business, the underlying momentum we have from a new sales product and servicing standpoint, I think it just gives us a tremendous amount of confidence as to directionally where the business is heading over time. And as the macro continues the recovery, obviously, that will bear out in the financial results that we produce.

Operator

Your next question comes from the line of Ashwin Shirvaikar with Citi.

Ashwin Shirvaikar — Citi — Analyst

Congratulations on the quarter. Good comments here. I want to actually start with something that you guys didn’t quite dwell on your adjusted free cash flow, almost $0.5 billion, quite impressive — are there one timers in there that help? What should we look for in the full year? And any comments on this net income to free cash flow conversion going forward?

Paul Todd — Senior Executive Vice President And Chief Financial Officer

Yes. So Ashwin — yes, this is Paul. As it relates to — we’ve always had as our goal to kind of convert roughly 100% of adjusted earnings into free cash flow, and we were right at that goal for the third quarter. As it relates to timing, there’s been any really unique timing items in the quarter that I point to. We always have timing, things that kind of flow in and out of a quarter, but nothing that I would specifically call out. And yes, as it relates to kind of the forward look, we’ve said that kind of $1.6 billion to $2 billion run rate on a full year basis is kind of the job that we’re producing against from a free cash flow standpoint. And if you look over kind of the last three quarters, we’re playing right in that zone. And so it wouldn’t mean anything else there. We continue to obviously manage our capital expenditures in a very efficient sort of way, while still investing for growth of basic — the initiatives that we’ve talked about. But there isn’t anything from a unique kind of onetime standpoint than I would point to in the quarter.

Ashwin Shirvaikar — Citi — Analyst

Okay. Got it. So it’s very good to hear the competitive wins continue. Any commentary on the pace of converting these wins to revenues? Are financial institutions, merchants committed to promise time lines? Are they being pushed out, maybe even pull forward given sort of strategic urgency? Any commentary on that, that can have implications for the future?

Paul Todd — Senior Executive Vice President And Chief Financial Officer

Yes, Ashwin, there isn’t anything really from an overall standpoint that I would say is changing the pace of patent realization of those opportunities. Obviously, each client might have a different dynamic just always — that always happens when you’re dealing with clients. But there is one theme or any kind of a particular dynamic at play of either speeding up or slowing down kind of the normalized kind of realization of being able to get those opportunities converted into revenue. I would say, from a conversion standpoint, particularly on the issuing side, which has the longest kind of cycle to bring those, our conversion pipeline is relatively full. And so new opportunities are kind of being paced into that pipeline with that full nature. But there isn’t any unique dynamic at play around acceleration or delaying of those opportunities.

Ashwin Shirvaikar — Citi — Analyst

And that would transl And that would translate to good visibility, I would imagine. ate to good visibility, I would imagine.

Paul Todd — Senior Executive Vice President And Chief Financial Officer

Yes.

Operator

Your next question comes from the line of Jason Kupferberg with Bank of America.

Jason Kupferberg — Bank of America — Analyst

I thought I’d just follow-up on the comment around the targeting $8 of EPS for next year. I know you said that assumes a more normalized macro environment, but I was hoping maybe you could outline just a little bit more about some of the expectations that are embedded behind that target. For example, would you have the flexibility to drive even more cost takeout if necessary to get there? Does it also assume some meaningful amount of capital deployment?

Paul Todd — Senior Executive Vice President And Chief Financial Officer

Yes. So Jason, obviously, we’re in this budget process right now, and we obviously have always got a lot of dynamics at play when we’re in a budgeting process that kind of plays through various scenarios of what the revenue picture looks like and then what the cost side looks like. And yes, we have, obviously, one set of plans as it relates to our cost initiatives. And then under a different set of revenue assumptions, we would have a different set of plans. Do we have additional cost opportunities? The answer to that is yes, there’s always this balancing of the realization of cost opportunities with what that does on the revenue side. And all of this is kind of wrapped in the overall environment that we’re operating in. And we’re going to need the next, obviously, several months to kind of play itself out relative to the overall operating environment, and we’ll seek the cost base relative to that operating environment. But yes, I mean, I wouldn’t give you any more color really than that other than the state that we are in our budgeting cycle, and we play through all those dynamics in every year. This is a more unique year, obviously, given the pandemic and the dynamics that play with the pandemic.

Cameron Bready — President And Chief Operating Officer

Jason, this is Cameron. The only thing I would add to that is it obviously assumes that the path run as it relates to recovery continues. And certainly, it doesn’t anticipate a meaningful retrenchment, particularly as it relates to shutdowns or significant restrictions around commerce that we saw, obviously, earlier this year. So it’s not assuming heroic pace of recovery. It sort of assumes we’re continuing on the pace we’re on today.

Jason Kupferberg — Bank of America — Analyst

Okay. Okay. And just a follow-up on M&A. I mean, I think, historically, you guys have been pretty clear that acquisitions need to be at least breakeven, but more likely accretive to year one adjusted EPS. So is that still the case? And would you do a deal that actually dilutes your organic revenue growth even if it gives you a lot of year one EPS accretion?

Jeff Sloan — Chief Executive Officer

Yes. It’s Jeff. Jason, the answer is no, we will not do that. So we’re very focused on our long-term model that we rearticulated and reaffirmed at the time of our partnership with TSYS about 1.5 years ago now. So no, I don’t see us doing deals that are dilutive to the rate of organic revenue growth. It doesn’t make any sense to push a boulder up a further hill. I think we’ve invested very substantially to get our business to be 60% technology-enabled. We’re very pleased with the success of that strategy. You see in there, differentiated results, which are multiples better than networks last night. I don’t see us going backwards on that.

Operator

Your final question comes from the line of Andrew Jeffrey with Truist Securities.

Andrew Jeffrey — Truist Securities — Analyst

Appreciate you — excuse me, at the end here. Jeff, you’ve spent a lot of time talking about your software technology-enabled businesses, which I think is a key differentiator. I wonder if you could drill down a little bit in the hospitality, where it seems like there’s a tremendous amount of tech change, whether it’s delivery, order ahead with the QR code. You made a couple of comments about Xenial, including the integration of Genius. I just wonder if you could maybe flesh out a little bit volume growth in that vertical, share gains from whom you’re taking share, where you think your competitive advantage is, etc.

Jeff Sloan — Chief Executive Officer

Yes. I’ll start, Andrew, and I’m sure Cameron will comment as well. So listen, we’re very pleased with our Xenial business. As you referenced, we gave additional disclosure today about how that business is performing. We did $62 million, I think, online orders as well as $1 billion of volume coming out of that business in the most recent period. I think Cameron commented on 30% increase in SaaS sales in that business in the most recent quarter. So he can give you more detail, but we’re very pleased about where that business is. But if you step back for a second, you tie us back the overall competitive landscape. I don’t think there’s anybody who’s got the full stack of vertical capabilities that we do in that business. Our pipeline today, Andrew, is filled with cross-sells in that business. So we mentioned Dutch Bros, we mentioned Long John Silver’s today, in previous calls. We’ve mentioned RBI with Burger King, Popeyes, etc. We’ve mentioned NENs and the folks that inspire our focused brands.

So we’ve got enormous pipeline in that business. I would say it has changed a little bit, and this is very good news for us and valuation of our strategy is that in the last six months or so, we’ve been getting a lot of RFPs from either folks who are never customers of ours or exchange in that pipeline. And I think that’s because they see what we’re seeing, which is we call it the restaurant of the future, the QSR of the future, which obviously now includes safer commerce. But looking to RFP, their payments business, and these are businesses that are not with us today with competitors who are primarily rightful shop payments companies. They look at RFP, their payments businesses, and they’re coming to us, and I’m sure others and saying, can you do that while you’re doing everything else that we need the QSR level, including safer commerce. And I think that go-to-market with us, Andrew, is distinctive and unique to us. And that includes both competitive takeaways being brand-new brands, and we have 26 of the top 50 a day, but we don’t have all of them. So it includes brand-new brands, but also includes guys who are customers of us just for a portion of their business. So I think that cross-sell strategy is really working, and we’re very fortunate to be in that position we’re in. Cameron, do you want to talk a little bit about some of the sub detail?

Cameron Bready — President And Chief Operating Officer

Sure. And I’ll be happy to. I think, Bryan it’s important to segment the market as we always do here, particularly in restaurant, maybe more than other vertical markets. So at the enterprise end, Jeff I think described well, how we’re positioned with Xenial and the success we’re seeing with Xenial. I will comment, obviously, that the integration with Cayan really opens up the avenue for cross-selling payments into that channel. I think as you know, SICOM, the legacy business we acquired a couple of years ago, had no real payment volume in that business. And by integrating Cayan in we’re opening up a significant new avenue for payment cross-sell, which is obviously consistent with our overarching strategy. As we move down market into the mid-market channel, which we really attack through the Heartland business, we’re delighted with the success we’re seeing with our Heartland restaurant solution. That is geared toward what I would characterize as the restaurant mid-market channel. Sales of that were up 26% sequentially from Q2, 20% year-over-year. We’re continuing to see significant uptake of our software as a solution — software as a service solutions through the point-of-sale system in that channel and could not be more pleased with the progress in the mid-market.

And then lastly, in the small end of the market, we introduced our omnichannel version of our registered product in this quarter, which we sell into the small end of the restaurant as well as small end at just the merchant base more broadly. We’re seeing uptake of that being particularly good as we integrate our online ordering capabilities into our traditional point-of-sale software solution for the small end of the market. So I think we have better product, better capability, better solutions across the spectrum of the restaurant vertical across all segments of that market. And I think as a result of that, we continue to win and we continue to take share in that channel.

Andrew Jeffrey — Truist Securities — Analyst

All right. That’s helpful color. And then one quick follow-up on the Issuer business. You mentioned a number of competitive wins. Could you just discuss — are those takeaways from existing vendors or internal flips?

Jeff Sloan — Chief Executive Officer

Yes, they’re largely the former, Andrew. We said that they will be we announced with our script this morning. So Scotiabank in Canada was an in-sourcing model. So that actually is conversion in-sourcing and outsourcing. So that’s a flip from in and out. But other than that, as I mentioned in the prepared remarks, seven of the 11 are competitive takeaways from existing providers. And the new one with AWS in Asia is also a takeaway from a legacy incumbent. So the vast majority are takeaways, but Scotiabank will be the exception. On behalf of Global Payments, thank you very much for joining us this morning.

Operator

[Operator Closing Remarks]

Duration: 63 minutes

Call participants:

Winnie Smith — Senior Vice President, Investor Relations

Jeff Sloan — Chief Executive Officer

Paul Todd — Senior Executive Vice President And Chief Financial Officer

Cameron Bready — President And Chief Operating Officer

Darrin Peller — Wolfe Research — Analyst

Dave Koning — Baird — Analyst

Ramsey El-Assal — Barclays — Analyst

Bryan Keane — Deutsche Bank — Analyst

David Togut — Evercore ISI — Analyst

Ashwin Shirvaikar — Citi — Analyst

Jason Kupferberg — Bank of America — Analyst

Andrew Jeffrey — Truist Securities — Analyst

More TSS analysis

All earnings call transcripts

Minerals Technologies Inc (NYSE:MTX)
Q3 2020 Earnings Call
Oct 30, 2020, 11:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day everyone and welcome to the Third Quarter 2020 Minerals Technologies Earnings Call. Today’s call is being recorded. And at this time, I would like to turn the call over to Erik Aldag, Head of Investor Relations of Minerals Technologies. Please go ahead, Mr. Aldag.

Erik Aldag — Head of Investor Relations

Thanks, Sarah. Good morning everyone and welcome to our third quarter 2020 earnings conference call. Today’s call will be led by Chief Executive Officer, Doug Dietrich and Chief Financial Officer, Matt Garth. Following our prepared remarks, we will open it up to questions.

I’d like to remind you that beginning on Page 14 of our 2019 10-K, we list the various risk factors and conditions that may affect our future results. And I’ll also point out the Safe Harbor disclaimer on this slide. Statements related to future performance by members of our team are subject to these limitations, cautionary remarks and conditions.

I’ll now turn the call over to Doug. Doug?

Douglas T. Dietrich — Chief Executive Officer

Thanks for the introduction, Erik, and good morning everyone. We appreciate you taking the time to join today’s call and I hope you are all staying safe and healthy. Let me outline a brief agenda for the call. I’ll begin by taking you through our third quarter highlights, including improving trends in our sales results, strengthened operational and financial profile, and progress made on the business development front. I’ll then turn it over to Matt to provide a more detailed look at our third quarter performance by business segment. I’ll conclude our prepared remarks by discussing trends in our end markets and highlighting new business that will contribute to our volume growth next year.

First, I want to comment on the 8-K we filed this week related to a ransomware attack we recently experienced which impacted access to some of our company’s IT systems. We have procedures and protocols in place for situations like this. Immediately after detecting the incident, we implemented our comprehensive cyber security response plan, including taking steps to isolate and carefully restore our network to resume normal operations as quickly as possible. We’ve notified law enforcement and have been working with industry-leading cyber security experts to conduct a thorough investigation. Throughout this situation, we operated our facilities safely and met our customer commitments.

Before going through the third quarter review, I’d like to note that I’m very pleased with how our global team and businesses have performed in what continues to be a complex and challenging environment. We remain focused on managing our company with an unwavering commitment to keeping our employees safe, operating our plants efficiently and serving our customers with value-added products. Dedication, engagement and resilience of our employees has been nothing short of exemplary during these times. And I want to thank them for the perseverance they’ve shown over the past several months.

Let me take you through how our third quarter unfolded. As we previewed in July, we anticipated that demand conditions in our end markets would improve with the second quarter having the most acute impacts from COVID-19, and that’s largely how the quarter played out as we were prepared to respond to the volume recovery, which led to sequential sales growth in nearly all of our product lines.

Overall, we had a solid quarter from an operational and commercial standpoint. These results reflect our team’s disciplined execution related to cost control, pricing and productivity, which resulted in higher sequential and year-over-year operating margins. We also demonstrate how our strong product portfolio and end market mix has enabled us to capture opportunities with existing and new customers.

From a financial perspective, total sales in the quarter were $388 million, an increase of about 9% sequentially, but still at lower levels compared to last year. As we indicated on our last call, our July sales were trending upwards and demand conditions in several markets continued to strengthen throughout the rest of the quarter. We generated $52 million of operating income and earnings per share were $0.92. In addition, we delivered $54 million in cash from operations, continuing our solid cash generation profile.

After experiencing volatile conditions in our businesses that serve industrial-related end markets through the second quarter, we saw considerable demand improvements in the third quarter, one with continued strength in our consumer-oriented product lines.

Let me touch on some of the highlights. Metalcasting business continued to rebound as our foundry customers in North America ramped up production to meet the demand increase in the automotive sector. At the end of the third quarter, our Metalcasting facilities were operating at about 95% of last year’s levels, a noticeable improvement from the reduced levels seen earlier. In addition, penetration of our pre-blended products remains on a strong growth trajectory in China as sales increased 20% over last year and this momentum should continue moving forward.

Sales in our portfolio of consumer products which includes Pet Care, Personal Care, and Edible Oil Purification remained resilient, led by an 11% year-over-year growth in Pet Care. We continue to strengthen our robust private label Pet Care portfolio in North America and Europe and have expanded our presence through partnerships with several new customers.

Another area to highlight is our global PCC business which benefited from satellite restarts in India and North America, combined with an improved demand environment from the low levels in the second quarter. As we indicated on our last call, July volumes were trending approximately 15% higher compared to June, and these dynamics continued through the third quarter. Of note, Paper PCC sales in China continue to deliver a solid performance with 18% growth over last year. In addition, Specialty PCC sales increased sequentially as automotive and construction demand strengthened through the quarter and food and pharmaceutical applications remained at strong levels.

Other pockets of strength came in our Talc and GCC business as demand improved for our products used in residential and commercial construction, as well as automotive applications. And in our Refractories business, we see steel utilization rates increased in the U.S. from a low of 50% in the second quarter to 65% at the end of September.

While many of our businesses returned to a positive trajectory, we’ve had some challenges in our project-oriented businesses, such as Environmental Products, Building Materials and Energy Services, which are still experiencing volatility in order patterns and timing delays. Energy Services was further impacted by several hurricanes that occurred in the Gulf of Mexico during the quarter. As our volumes began to trend upward through the quarter, we were able to leverage these sales into income, resulting in overall operating and EBITDA margin improvement on both a sequential and year-over-year basis.

We’ve maintained our focus on operational efficiency, including variable cost adjustments and structural overhead savings, as well as on continued pricing increases, capturing favorable raw material costs and increasing sales of higher-value products. As markets continue to recover, we are well-positioned to expand margins further on increased volumes.

Our focus on strengthening our financial position also remains a priority with an emphasis on tightly controlling our cash generation cycle and creating more flexibility around our capital structure. We delivered another quarter of strong cash flow generation, the majority of which was used to pay down debt.

While navigating through the current environment, we’ve remain focused on advancing our growth initiatives and made further progress this quarter on several fronts. Let me go through some of these highlights in more detail. The commissioning of two new PCC satellites scheduled for the fourth quarter continue to move ahead, currently ramping up production at our 45,000 ton facility in India, our 150,000 ton satellite in China should be operational by December. We will also be resuming production in November at our previously closed satellite in Wickliffe, Kentucky to support Phoenix Paper’s restart of that mill.

During the quarter, we made a small acquisition of a hauling and mining company to further strengthen our vertically integrated position at our bentonite mines in Wyoming. This transaction improves our cost position and enhances our flexibility with our mining and/or transportation in the region. In our Refractories business, we signed two new five-year contracts to supply our refractory and metallurgical wire products in the U.S. These contracts total approximately $50 million or about $10 million of incremental revenue on an annual basis.

Our new product development efforts are progressing well as we look to accelerate the pace of commercialization and drive new revenue opportunities. We commercialized 36 value-added products so far in 2020 with contributions from each of our businesses. 12 of these products were introduced in the third quarter. We kept at a similar pace to last year, while conducting many of these product development activities virtually.

All in all, there are a number of positives about our performance in the quarter, especially, how we’ve executed as a company, while navigating through difficult conditions. There are still some challenges ahead. With strong momentum across many of our businesses and with an enhanced cost profile, we expect to continue to deliver improved profitability as volumes recover.

With that, I’ll turn it over to Matt to discuss our results in more detail. Matt?

Matthew E. Garth — Senior Vice President, Finance and Treasury, and Chief Financial Officer

Thanks, Doug. I’ll now review our third quarter results, the performance of our four segments, as well as our cash flow and liquidity positions. I’ll then turn the call back over to Doug for some additional perspective on our current operating environment and the visibility we have going forward.

Now, let’s get into the review of the third quarter results. Third quarter sales were $388.3 million, 9% higher sequentially and 14% below the prior year. Gross margin, EBITDA margin and operating margin all improved sequentially and versus the prior year, driven by our continued pricing and productivity actions. SG&A expense was flat with the second quarter, and also contributed to the margin expansion. Earnings per share, excluding special items was $0.92 and we incurred special charges of $3.2 million after-tax in the third quarter or $0.09 per share. Our effective tax rate for the quarter was 19.8% versus 19.1% in the prior year and 16% in the prior quarter. Going forward, we expect our effective tax rate to be approximately 20%.

Now, let’s review the changes in sales and operating income in more detail. On this slide, we are presenting the year-over-year comparisons of sales and operating income on the left side, and the sequential quarter comparisons on the right side. Third quarter sales were 13% lower than the prior year on a constant currency basis. Slowdown in economic activity brought on by the COVID-19 pandemic continue to impact our volumes on a year-over-year basis in the quarter. The operating income bridge on the bottom left shows we were able to significantly offset the impact of lower sales versus the prior year, the favorable pricing and cost performance driven by the actions we have taken after the last year. These actions resulted in higher operating margin versus the prior year despite the lower volume.

On a sequential basis, we saw significant improvement in demand with sales up 7% adjusting for currency and up 9% overall. Conditions improved across most of our end markets and we maintained pricing levels across the company. On our last call, we told you that sales rates in July were trending approximately 5% higher than June, and this trend accelerated through the rest of the third quarter. Daily sales rates in August were 6% higher than July and September was 7% higher than August.

Operating income increased 18% sequentially on a constant currency basis, primarily due to the improvement in our end markets and continued cost control. Operating margin was 13.3% in the quarter versus 13.2% in the prior year, and 11.8% in the second quarter.

Now, let’s take a closer look at the operating margins and how they have improved on the next slide. On this slide, we are showing year-over-year and sequential operating margin bridges for the third quarter. Starting with the prior year comparison, our pricing and cost actions contributed 190 basis points of improvement, which more than offset the unfavorable volume impact. On a sequential basis, we leveraged additional volume into 60 basis points of margin improvement and our continued cost control contributed another 70 basis points of favorability. The actions we have taken on pricing, productivity, cost control and new product development have positioned us well to leverage incremental volumes into improved margins going forward. Another margin related highlight for the third quarter was that EBITDA margin improved by 70 basis points versus both the prior year and the prior quarter.

Now, let’s turn to the segment review, starting with Performance Materials. Performance Materials sales increased 10% sequentially and were 8% lower than the prior year. Metalcasting sales grew 26% sequentially as foundry production improved in North America and demand remained strong in China. The improvement in North America was primarily driven by the ramp up of automotive production. China Metalcasting sales grew 11% sequentially and 20% versus the prior year on continued strong demand from our customers and continued penetration of our specially formulated blended products. Household, Personal Care and Specialty Product sales remained resilient, up 7% sequentially and flat with the prior year on continued strong demand for consumer-oriented products. Meanwhile, Environmental Products and Building Materials continued to experience COVID-19-related project delays, and sales remained below prior year levels.

Operating income for the segment was $28.2 million, up 34% sequentially and up 5% versus the prior year. Operating margin was 14.8% of sales, up 270 basis points from the second quarter and up 180 basis points from the prior year. Continued pricing actions, strong cost control and expense reductions, more than offset the operating income impact of lower sales versus the prior year.

The chart on the bottom right shows daily sales rates by month this year compared to the prior year. This segment experienced a clear rebound in demand and sales increased steadily throughout the third quarter. We would normally expect a seasonal decrease in sales for this segment between the third and fourth quarters, driven by our construction and environmental end markets. However, this year, we expect to offset the typical seasonality with continued positive momentum in our other markets. Overall, we expect fourth quarter sales to be similar to the third quarter, despite the typical seasonal effects. I’d also like to note that we experienced higher mining and energy costs, while operating in colder months, and this will temporarily impact segment margins in the fourth quarter.

Now let’s move to Specialty Minerals. Specialty Minerals sales were $125.1 million in the third quarter, up 14% sequentially and 13% below the prior year. PCC sales increased 14% sequentially as paper mill capacity came back online in the U.S. and India, following temporary COVID-19-related shutdowns. Paper PCC sales in China grew 11% sequentially, and 18% over the prior year on continued penetration and strong customer demand. Specialty PCC sales increased 16% sequentially as automotive and construction demand improved through the quarter and consumer-oriented products remained strong. Processed Minerals sales increased 13% as end market steadily improved through the quarter.

Operating income excluding special items was $18 million, up 18% sequentially and 17% below the prior year and represented 14.4% of sales, which compared to 13.9% in the second quarter and 15.2% in the prior year. The impact of lower volume versus the prior year was partially offset by continued pricing actions and cost control. Daily sales rates charged for this segment also shows improving conditions through the third quarter and we expect this trend to continue into the fourth quarter as paper production in the U.S., Europe and India continues to ramp up. In addition, we are bringing online new capacity in the next several months and most of this capacity will come online late in the fourth quarter.

The sequential improvement in Paper PCC will offset the typical seasonality we experience in the residential construction markets served by the other path lines [Phonetic]. Overall, for the segment, we expect fourth quarter sales to be similar to the third quarter.

Now let’s turn to Refractories. Refractories segment sales were $59.3 million in the third quarter, up 6% sequentially as steel mill utilization rates gradually improved from second quarter levels in both North America and Europe. Segment operating income was $7.3 million, up 24% from the prior quarter and represented 12.3% of sales. Again, you can see improvement in the daily sales rates through the third quarter. We expect continued improvement in the fourth quarter as steel utilization rates improve and laser equipment sales pickup. And, overall, for the segment, we expect a modest sequential improvement in sales in the fourth quarter versus the third quarter.

Now let’s turn to Energy Services. Energy Services segment experienced significant customer project delays in the third quarter. These delays were related to COVID-19 restrictions, as well as several weather-related shutdowns in the Gulf of Mexico and what has been a very active storm season. As a result, sales were $13.3 million and operating income was breakeven for the third quarter. The daily sales rates chart shows the solid start to the year, followed by sales levels that have remained low relative to the prior year. We continue to see a strong pipeline of activity and we expect sequential improvement for this business in the fourth quarter.

Now, let’s turn to our cash flow and liquidity highlights. As Doug noted, third quarter cash from operations totaled $54 million and free cash flow was $40 million. We continued our balanced approach in deploying cash flow, paying down $30 million of debt and we resumed our share repurchases acquiring $3 million of shares in the quarter. We continue to repurchase shares in October and completed the expiring program with $50 million of shares under the $75 million authorization. As noted earlier, the Board of Directors has approved a new one-year $75 million repurchase program. Our net leverage ratio is 2.1 times EBITDA and we have $682 million of liquidity including over $375 million of cash on hand.

And before I hand it back over to Doug for the market outlook, I’d like to summarize my comments on what we are expecting for the fourth quarter in each of our segments. In our Minerals businesses, we expect continued improvement and many of our markets to offset the typical seasonality, and we expect sales to be similar to the third quarter. Margins will remain strong on a year-over-year basis, though, sequentially, margins will be impacted by seasonally higher mining and energy costs.

In our Services business, we expect continued gradual improvement in Refractories as utilization rates improve and we expect sequential improvement in Energy Services as delayed projects resume and activity levels pick up.

Overall, we expect MTI sales in the fourth quarter to be similar to the third quarter.

With that, let me turn it back over to Doug to discuss our current end market conditions and outlook in more detail. Doug?

Douglas T. Dietrich — Chief Executive Officer

Thanks, Matt. Before beginning the Q&A portion of the call, I wanted to take some time to provide a little more insight into the conditions across each of our businesses and where we see opportunities to drive incremental growth. The improving market trends experienced across most of our businesses will likely extend through the rest of the year, while our project-oriented businesses may continue to face persistent challenges with uncertain customer order patterns.

In addition, as we build on the momentum from the third quarter, we’re also executing on a wide range of attractive growth projects which will accrue to revenue in 2021.

Let me now take you through what’s happening by business segment, starting with Performance Materials, our largest and most diverse segment. Our Household and Personal Care product line will continue on its strong sales trajectory as demand for these products stays high and we leverage our expanded channels and presence with new customers. Specifically, we’re growing our portfolio of premium Pet Care products in both North America and Europe with the expansion of new online retail channels with larger customers, and the introduction of new products such as our 100% carbon-neutral Eco Care product in Europe, an example of how we’re satisfying customer preferences, while also contributing to our sustainability efforts.

In addition, sales of our Edible Oil Purification products have more than doubled since last year as we grow this business through an expanded global customer base. In our Metalcasting business, we expect to continue to benefit from the automotive demand rebound in North America. Noted earlier, we expanded our customer base in China through the continued penetration of our higher value blended products, which led to sales growth of 20% over last year. Our solid growth trend there will continue for the rest of the year and into 2021.

I’ll touch on Environmental Products and Building Materials together as they are both experiencing similar dynamics. While each maintains a robust and active pipeline and continues to introduce more specialized products, these businesses have been impacted by timing delays around when customers will commence larger remediation and water proofing projects.

Switching to the Specialty Minerals segment where I’ll begin with Paper PCC. With paper demand in North America and Europe gradually improving, we expect sequential volume growth in all regions in the fourth quarter. Asia and, China more specifically, will continue its solid growth trajectory. We’ll also benefit from the ramp up of our satellite in India, and our new satellite in China should be operational in December. On the horizon, we have two new facilities coming online in the first half of 2021, one for a packaging application in Europe, and another for a standard PCC facility in India. Overall, we’re bringing online 285,000 tons of new PCC capacity over the next three quarters. We also maintain a very active business development pipeline across our broad portfolio of PCC technologies, including high filler, packaging and recycling. Each of these opportunities could add to our overall volume total next year.

In our Specialty PCC, GCC and Talc businesses, sales for our pharmaceutical and consumer products, including food applications will remain strong. Demand for our high-performance sealant and plastic products that are used for automotive applications should strengthen as build rates continue to improve in North America and Europe. And sales for products used in residential and commercial construction applications should stay steady.

For the Refractories segment, current steel utilization rates in North America and Europe are around 70% and 65%, respectively, and we expect these rates to gradually improve in the upcoming quarters. In addition, our order book for laser measurement equipment remains strong in the fourth quarter. As I mentioned earlier, we’ve recently signed two five-year contracts totaling $50 million to supply our broad portfolio of refractory and metallurgical wire products, which will start to accrue to revenue growth in 2021.

Finishing up the discussion with Energy Services, where we maintain an active pipeline of offshore services, while COVID-19 and adverse weather conditions have led to some early demobilizations or postponements from our larger offshore projects, some of these projects have been rescheduled to resume in the fourth quarter. In addition, we’ve recently been awarded new large projects in the Gulf of Mexico, which we expect to commence over the next few quarters.

We’re focused on navigating through a highly dynamic environment and our culture of continuous improvement positions us to do so. Over the past six months, we’ve been successfully implementing virtual tools to help improve productivity, efficiency and connectivity with our employees and customers. And I’ve been impressed with how quickly we’ve adapted to the changing environment. These tools have enabled us to run our business smoothly as we connect seamlessly with our operating facilities for meetings and site visits, conduct problem solving Kaizen events and collaborate and communicate efficiently with our global customer base. Many of these new ways that we’re operating on, on a daily basis will become permanent and we’ll balance them with in-person activities.

As we look ahead into 2021, I’m confident in the direction we’re heading, the solid foundation we have in place to leverage improved market conditions and the growth projects we have in hand. While COVID-related uncertainties still persist, our end market conditions continue to show signs of improvement. With the operational actions we’ve taken, we are well-positioned to drive improved profitability. In addition, strength and flexibility of our balance sheet provides solid resources to support both organic and inorganic growth opportunities.

Before taking your questions, I want to say to our team at MTI how proud I am of the way they’ve executed and performed in what has been an incredibly complex and dynamic environment, and thank them again for their dedication and engagement.

With that, let’s open the call to questions.

Questions and Answers:

Operator

[Operator Instructions] All right, the first question is from Daniel Moore with CJS Securities.

Daniel Moore — CJS Securities, Inc. — Analyst

Doug, Matt. Good morning, thanks for taking the questions.

Douglas T. Dietrich — Chief Executive Officer

Hey, Dan.

Matthew E. Garth — Senior Vice President, Finance and Treasury, and Chief Financial Officer

Good morning.

Daniel Moore — CJS Securities, Inc. — Analyst

I wanted to start with PCC. Can you just refresh us or break down the revenue by geography in Q3, where we are today as a baseline, and where do you see that by the end of ’21, given all the new scheduled capacity coming online?

Douglas T. Dietrich — Chief Executive Officer

Let me start, Dan, I’ll give you kind of a bridge to the new capacity and volumes that we see for 2021. And then, Matt, maybe you can have a word sort of revenue by geography. As I mentioned, we’re bringing on about 285,000 tons of capacity, 200,000 of that will be here in the fourth quarter, ramping up kind of this quarter and into the first, and then another 85,000 tons in the first half of next year, and that’s two facilities, the packaging and another facility in India.

This year, we experienced shutdowns, if you remember last call, Verso Paper and Domtar mill in Ashdown, Arkansas totaling about 100,000 tons of volume came out this year. So net-net, we’re up about 185,000 tons next year, by the middle of next year we will have installed about 185,000 tons of incremental. Given the timing of when they come on and as they ramp up, we see probably 125,000, 150,000 tons of new volume in 2021 kind of on an annualized basis. So when you get to the second half of next year, you should be on an annualized run rate of about 150,000 tons of additional volume.

Daniel Moore — CJS Securities, Inc. — Analyst

Very helpful, given all the puts and takes we’ve had over the last couple of quarters. And then just trying to get a sense for what the new baseline looks like as Europe and as far as Asia and China continue to grow, India as well, while North America has been on a bit of a different trajectory. Any update there?

Douglas T. Dietrich — Chief Executive Officer

Yeah. So I think it’s — let me go back, pick the right baseline. So if you look at our 2019 volumes, before going into 2020 with all the puts and takes I just gave you, we’re are about 2.9 million tons of PCC. We’ve had a — you saw the chart, the big dip in volumes through the second quarter and a gradual improvement through the third and we think into the fourth. With this additional volume, we should probably, by the end of next year, be back to that level. Right? And then with the additional volume accruing into the next year. So again, look, we have — there is a lot of demand conditions that have to continue through the fourth quarter and into the first and seeing where we are with kind of COVID-related uncertainties, but if you’ve taken like on of ’19 base with the puts and takes from this year, we should be able to get back to that level run rate basis by the end of next year.

Daniel Moore — CJS Securities, Inc. — Analyst

Okay, I’ll do some of the math offline on geography. Go ahead, sorry.

Matthew E. Garth — Senior Vice President, Finance and Treasury, and Chief Financial Officer

No. No, and, Dan, I was going to give you actually that rough breakdown on a geographic basis. And let’s do it on a revenue basis as you asked for. It’s roughly 40% in the North America region, they’re going to have, the rest fairly split between Europe and Asia. There is a small bit in there, call it, 5% that exists in Latin America, but that’s the way we’d break it down.

Daniel Moore — CJS Securities, Inc. — Analyst

Perfect. That’s helpful. Okay.

Douglas T. Dietrich — Chief Executive Officer

I’ll add to that, Dan…

Daniel Moore — CJS Securities, Inc. — Analyst

Sorry, go ahead.

Douglas T. Dietrich — Chief Executive Officer

I’ll add to that, that’s what we have in hand. So if things kind of stop today, that’s how that’s going to shake out. There are — we always talk about we have a pipeline of opportunities that we continue to work on. They are in different stages, technologies in terms of our high filler, our new yield products, recycling and those — many of those are in advanced stages of discussion which also should accrue to — could accrue to volume next year as well.

Daniel Moore — CJS Securities, Inc. — Analyst

That was my follow-up was some of the new — it seems like the dam is breaking a little bit for new contracts. Are you seeing increased momentum there? And it sounds like you are, at least, with some of the new technologies.

Douglas T. Dietrich — Chief Executive Officer

Yeah, let me give you — D.J., are you there? You want to give a little color about some of our new technologies and some of the trials we’re running?

D.J. Monagle, III — Group President, Specialty Minerals and Refractories

Yeah, sure. Glad to. And Dan, just to further the conversation on regional breakdown, for the standard PCCs, I would say that, of the contracts we’re chasing on standard PCC and the putting in writing grades, most of that is India and China and the rest of Southeast Asia. So that shift will continue to happen. And then if we look at the new technologies, it’s kind of a balance. The new yield technology that we’ve got where we’ve run some pretty successful machine trials and we’re into the commercial discussions, that’s a little bit more in Europe and the Americas, kind of balanced between those two.

If I look at the new products in packaging, the most momentum we have right now for the white grades, the whiteboard packaging would be North American Packaging and then we’ve got a couple of products in brown grades, that newer technology, one being new yield, others being a new product design for brown paper. Those would be in the Americas too. So standard PCC, clear path for growth and a good pull in Asia. And then the new products seem to be getting more momentum in the Americas and a little bit in Europe.

Daniel Moore — CJS Securities, Inc. — Analyst

Perfect. That’s Helpful. A lot of really good work done on the cost side and a lot of discussion in the prepared remarks about the opportunity for margins to move higher. Just remind us either across the businesses or consolidated, what incremental margins typically would look like and whether we’d see upside to those kind of historical typical incremental margins over the next 12-plus months, given some of those cost-reduction initiatives as volumes do recover?

Matthew E. Garth — Senior Vice President, Finance and Treasury, and Chief Financial Officer

Yeah, Dan. And what we’ve typically told you, and if you remember in the beginning of the year, as revenues were tracking down, we talked about the decremental margins being in that 30% range and that’s been proved out as you look at the second quarter. What’s come back on the incremental margins has also been in that 30% range. Now it’s a little bit north of there and we would expect with the cost control that we’ve been seeing and the effort on our fixed cost expenses, that we would be able to move that incremental margin as the volumes are coming back. So I’d use those two numbers around 30% either decremental or incremental for now. And we’ll prove it out as it’s expanding over the next coming quarters.

Douglas T. Dietrich — Chief Executive Officer

And, Dan, I didn’t answer your initial question. There is absolutely room for margins to move north. If you take a look at the margin chart in terms of the volume impact we’ve absorbed and offset, that volume at those incremental margins really accrue to income but also those margins as well. We’re always looking at opportunities to become more efficient with our culture in terms of productivities and looking for ways to do things better. We’ve captured a lot of that over the summer and in these months, but that’s part of our DNA. We do that constantly.

And so we’re always looking for ways to continue to hold costs or reduce costs, so that those new products, those higher margin products and that volume, as our markets continue to recover, all drop right to the bottom-line and help those — that margin story. So I think we always talked about 15%. If you take that volume from the first quarter or even just from last year, we’d be north of that right now.

Daniel Moore — CJS Securities, Inc. — Analyst

Perfect. Last from me and I’ll hand it over. You gave very good color on Q4 and then some color on some of the margins for the individual — the individual segments. Overall, if we put all those together, margins flat or slightly down from Q3 sequentially, based on how we see the world today. Is that the right takeaway or is there a better conclusion?

Matthew E. Garth — Senior Vice President, Finance and Treasury, and Chief Financial Officer

What we told you, we basically laid out the trajectory for revenues to be essentially the same. Now, the mix of revenues is going to change. And one item we also called out for you, Dan, was the higher mining and energy costs, there can also be some other incremental costs that will be in there, and those are going to be in that $2 million to $3 million range. So you are going to see the margin impact taking place just based on sort of those seasonal temporary effects of the mining and energy costs, while revenues are staying relatively flat.

Daniel Moore — CJS Securities, Inc. — Analyst

Perfect, thank you. I’ll jump back for any follow-up.

Matthew E. Garth — Senior Vice President, Finance and Treasury, and Chief Financial Officer

Yeah. But, Dan, just to be clear, those margins continue that trend of being above the prior year, so strength in the margin story, but sequentially because of those seasonal effects, will be down.

Daniel Moore — CJS Securities, Inc. — Analyst

Understood. Now, that’s really helpful. Thank you.

Matthew E. Garth — Senior Vice President, Finance and Treasury, and Chief Financial Officer

Yeah.

Operator

[Operator Instructions] The next question is from Silke Kueck with J.P. Morgan.

Silke Kueck — J.P. Morgan — Analyst

Hi, good morning. How are you?

Douglas T. Dietrich — Chief Executive Officer

Good, Silke, how are you?

Silke Kueck — J.P. Morgan — Analyst

Good. Do you have any view on [Indecipherable] just the fourth quarter, have your customers shackled [Phonetic] anything about whether there’ll be shutdowns in the U.S. in December or there won’t be, and what, sort of, like that trajectory looks like? Like it looks like the — there’s sort of like some COVID shutdowns coming in Europe, like often there’s some seasonal shutdowns that happen in the U.S. in December, and the Asian markets, they’re really strong. And so, like I was just wondering like what you hear from your customers.

Douglas T. Dietrich — Chief Executive Officer

Sure. Let me start it off and then I think we’ll talk more about the automotive, the impacts, just to remind everyone, impacts in automotive have — primarily in North America and Asia for our Metalcasting business, we supply more of the automotive industry, and our Minerals businesses in our Specialty PCC, a little bit more of North America and Europe focus. So just to give you the breakdown of those impacts. Jon Hastings, you want to talk a little bit about Metalcasting and what we’re hearing from customers going into the fourth quarter?

Jonathan J. Hastings — Minerals Technologies, Inc. — Group President, Performance Materials

Sure, Doug. Hi, Silke. How are you?

Silke Kueck — J.P. Morgan — Analyst

Good.

Jonathan J. Hastings — Minerals Technologies, Inc. — Group President, Performance Materials

Let me touch base on North America, I’ll talk about China and then also Southeast Asia. But what we’re seeing in North America is everybody is running pretty well, pretty strong. As you know, auto production went south in Q2, rebounded in Q3, but the inventories are remaining low and everybody’s looking to restock the pipeline and auto sales remained pretty strong. All of our customers are telling us that they are running fairly strong throughout the remainder of the year. Again, we’ll see what happens around the end of year holiday season with shutdowns, but we don’t expect any major impact. We see it fairly strong.

China, about 40% of our business is in auto and heavy truck in China and we’ve seen a very, very strong year. The build rate — the customers are — has come back extraordinarily strong in Q3. We expect that to continue into Q4. What we see is not only domestic production and consumption but then also the exports, exports of parts and also vehicles going into both U.S. and Europe. Those continue to rebound and, as a result, the demand has been very strong. The last region in the world that’s rebounding is Southeast Asia. And what we’re seeing is that they’re currently running at about — our business is about 80% year on year. That’s a relatively small piece of our Metalcasting business worldwide. But we do see that increasing on a sequential basis and that’s because the auto production in Thailand, Korea, Indonesia — they’re on the rebound, coming off the COVID shutdowns. So that’s the last region and overall, we continue to look pretty strong going through Q4.

Douglas T. Dietrich — Chief Executive Officer

So, Silke, the only thing I’d add to that is, look, I think, our visibility in the middle of the third quarter was probably a little bit stronger going into — looking into the fourth. I will — addressing, I think questions coming from, with the shutdowns, recent news in Europe and what we’re seeing around the world, yes, it’s a bit of cautious, but right now, what we can see through the fourth quarter is kind of continued demand levels, as Jon alluded. And that includes the automotive supply that we have through North America and Europe and our Specialty PCC business for now. But we continue to watch it and we’re prepared to react accordingly.

Silke Kueck — J.P. Morgan — Analyst

Okay. And then secondly, yeah, it looks like your cash balance is like getting close to like $400 million again. Like, what are you going to do with all the cash? Keep it to kind of begin to buyback share is more meaningful? What are your capital allocation plans?

Douglas T. Dietrich — Chief Executive Officer

Our capital allocation has remained similar to what it was. We talked about that in the last call. Look, I think going into April, ensuring that our balance sheet was in solid shape was — it was a priority and making sure that liquidity was there and our debt maturities were proper for the environment. We took advantage of the markets — capital markets in June, and we did just that. We pushed out maturities, $400 million unsecured out eight years. We left some cash on the balance sheet. And right now where we stand, we think that’s a great position to have to make sure that regardless what happens, this company’s liquidity position is solid. We do have a solid cash flow year which is good, as we’ve made some adjustments in working capital. And so we continue to put that cash on the balance sheet.

I think, right now, our priority is making sure our debt positions — we’ve paid $30 million in the third quarter. I think we’ll continue to steer our capital more to that direction. But as you know, we have a $75 million authorization that we intend to execute on, and we have some cash on the balance sheet for opportunities. We’re going to support these growth projects that I mentioned today and do things like a small — we have our small hauling business that we acquired, we have a nice portfolio and profile of potential companies we think worked for us. And so I think our balance sheet is in a good position for all of that, repay debt, execute on our share repurchase program and ensure that we have resources to support our growth initiatives.

Matthew E. Garth — Senior Vice President, Finance and Treasury, and Chief Financial Officer

And, Silke, let me just add the free cash flow dimension to that. And Doug talked about the strength of the story and you saw here in the third quarter, generating another $40 million of free cash flow. If you listen to the call from last quarter, we told you that we were going to generate about $100 million to $120 million of free cash flow in the quarter — sorry, in the year. Based on what we’re seeing now through the rest of the year, we’re in the $140 million to $150 million range of free cash flow generation in 2020 for the company, and that includes continuing to invest in the company from a sustaining EHS and growth perspective. That capex level is going to be in the $60 million to $70 million range and so feeling good about, as Doug said, a very balanced approach toward the use of our cash flow generation.

Silke Kueck — J.P. Morgan — Analyst

So it seems like you’ll have plenty of cash to buy back $70 million worth of stock? You think that’s a a good investment?

Douglas T. Dietrich — Chief Executive Officer

Yeah, we think it is a good investment, Silke. So — but that’s not to say that — we’ve always talked about our approach and making sure that our debt levels are down at target levels, first investing in ourselves and our growth opportunities where we see the returns and that fit our strategy, and then, yes, we will balance returning cash to shareholders, and also as acquisitions, potentially there. As those change, we can share — steer more toward share repurchases and as those opportunities, we’d steer more toward our inorganic opportunities. So we’ll continue that approach. But I think the point is that making sure that we are in solid footing, regardless of what economy we’re in. I think we have that position, and being able to take advantage of opportunities, be it in the market for a return to shareholders or in the market for things that we think fit our core capabilities from an inorganic standpoint.

Silke Kueck — J.P. Morgan — Analyst

Thanks very much.

Douglas T. Dietrich — Chief Executive Officer

Gives us a lot of options, Silke.

Operator

All right. And the next question is from Rosemarie Morbelli with G. Research.

Rosemarie Morbelli — G. Research — Analyst

Thank you. Good morning, everyone.

Douglas T. Dietrich — Chief Executive Officer

Hi, Rosemarie.

Rosemarie Morbelli — G. Research — Analyst

So just finishing up on the cost side, how much of — first of all, do you have a dollar amount in terms of how much you have been eliminating in terms of costs? And then, how much of that do you think is only temporary and will come back?

Matthew E. Garth — Senior Vice President, Finance and Treasury, and Chief Financial Officer

Yeah. Silke, if you take — I’m sorry, Rosemarie.

Rosemarie Morbelli — G. Research — Analyst

It’s OK. We both have an accent.

Matthew E. Garth — Senior Vice President, Finance and Treasury, and Chief Financial Officer

Yeah, thank you very much, Rosemarie. If you take a look at what we just showed you, on a year-over-year basis, with the effort of cost that we have taken out in terms of expenses, fixed costs, starting with the restructuring that took place in the middle of last year where we told you that would be about $12 million. Since that time, we’ve also seen expenses and related to T&E and also other cost, meaning other headcount costs coming out that we haven’t been back filling and that we’ve been finding a way to be more efficient overall in our system, so that we would not need to backfill those heads. When we talk about what’s permanent and what’s not permanent, we say that about two-thirds of the overall cost benefit that we’ve been experiencing on a year-over-year basis is going to stay in place. And so we showed you here in the third quarter that that was about 180 basis points worth of favorability. And so, you could expect that to continue on at about a two-thirds basis going forward.

Rosemarie Morbelli — G. Research — Analyst

Thank you. That’s helpful. And then still on the quick questions type of answers, this last year of your $75 million of authorization, you only bought back $50 million worth of stock. Do you think that this year you could get closer to that full authorization?

Douglas T. Dietrich — Chief Executive Officer

Yeah. So I think, Rosemarie, we were on track to do the full $75 million authorization. We suspended that in March after the first quarter, given the conditions. And so our pace was to — and our intent was to fully fulfill that authorization. So we took a pause over the summer, making sure we preserved cash, making sure that we are in the right position, as I mentioned earlier, on our balance sheet and then when we saw — as the cash flow and our balance sheet, resumed it with the remaining time that we had. We ended up with $50 million due to a bit of a pause. We have the cash on hand to be able to do that $75 million and I think we’d intend to do that going forward.

Rosemarie Morbelli — G. Research — Analyst

All right, thank you. And still on the cash note, I thought that with your debt level as low as it is right now, you had kind of post-debt repayment. I suppose I was wrong. Are you still — and if I heard probably, you are still planning in reducing your debt. So what is the net leverage target then?

Douglas T. Dietrich — Chief Executive Officer

We’ve maintained kind of a target level of 2 times, Rosemarie. We’ve been around that 2.1 times for a while. I think as we went through the second and the third quarter, as we viewed kind of the economy and what was happening, we felt prudent, as I said, to make sure that we had a very strong balance sheet and the priority was that. And so we put most of the free cash flow, the $40 million in the third quarter to debt repayment, a bit to shareholders. We’re comfortable with where our debt position is. We could make some additional debt payments going forward, but again that balance sheet that we have gives us a lot of options to make sure that our debt’s in the right position, we can steer our cash to shareholders, but also making sure we have resources for our growth opportunities. So we have a lot of options here. We might steer a little bit more to our debt, given where we are in the economy, but we take that balanced approach and we’re going to continue to do so.

Rosemarie Morbelli — G. Research — Analyst

Okay, thanks. And now, looking at your consumer-driven markets, revenues into those markets, overall, are now 25% and you are targeting that level to grow to 35% to 40%, if my memory serves me right, and that would include test doubling, going from $200 million to $400 million. So can you talk about the timing? And whether most of that growth is going to come from internal growth or whether in M&A is actually the biggest chunk getting you to your goal?

Douglas T. Dietrich — Chief Executive Officer

Yeah, I think you’re, Rosemarie, referring to a question maybe from the last call. I think we answered how big could our consumer-oriented businesses be. Look, I think it could grow to that size. I think we’re certainly — our strategy around creating balance in the company from an industrial and consumer standpoint, as you mentioned, we’re currently about 25% consumer-oriented, and we look to grow some of our core positions. So I think we’re vertically integrated in our Pet Care business and a couple of years ago we added to that with an acquisition called Sivomatic which doubled that Pet Care business. I think you saw that the organic growth of that business is at 11%.

And so we think that a large portion of those businesses, our Edible Oil Purification, our Animal Health business, our Pet Care business, our Fabric Care businesses, those will continue to grow and we continue to develop new products and ensure that we have the right capital base there to have healthy returns. We will continue to grow those organically and I think there’s opportunities out there for us to continue to add to our consumer-oriented product base to expand that I think. Could it get to 30%, 35%? Sure. That’s going to be both a combination of growing our current core positions organically and adding to them inorganically. And so over time, I think that’s a possibility to get to those types of levels. But we’re certainly focused on growing those product lines — these core product lines that we have in those consumer-oriented products.

Rosemarie Morbelli — G. Research — Analyst

Could you get to that level faster just by reshuffling your portfolio of businesses, meaning that divesting some non-consumer related operations?

Douglas T. Dietrich — Chief Executive Officer

On a percentage growth, yes, that could — that would do it. I think, at the moment, I think we’re looking — at the moment, yes, that would do it. But at the moment, we’re looking more toward adding and growing those businesses organically and potentially inorganically.

Rosemarie Morbelli — G. Research — Analyst

Okay, thanks.

Operator

All right. And your next question is from Mike Harrison with Seaport Global Securities.

Mike Harrison — Seaport Global Securities — Analyst

Hi, good morning.

Douglas T. Dietrich — Chief Executive Officer

Hi, Mike.

Mike Harrison — Seaport Global Securities — Analyst

I was wondering if we could talk about the HPC business, you said Pet Care was up 11%, but the business was flat overall on a year-over-year basis. So what’s going on outside of Pet Care? Was there some destocking or maybe declines from surge buying that was happening earlier in the pandemic?

Douglas T. Dietrich — Chief Executive Officer

Yeah, that — the — that business product line is Household Personal Care & Specialty, and in that Specialty segment, there is some kind of high-end additives for drilling products, so both in construction drilling and oil and gas drilling. And that was the one product line that has been off, mostly that oil and gas drilling, those additives for oil and gas drilling. So I believe every other portion of that product line had grown over last year, with the exception of that.

Mike Harrison — Seaport Global Securities — Analyst

Right. And then within the Paper PCC business, have you seen any of your printing and writing paper customers getting some benefits from colleges and schools getting back to some in-person learning or has that not provided much pick up and until we get totally in-person, we don’t see that improvements?

Douglas T. Dietrich — Chief Executive Officer

I think that some of what’s behind the demand growth recently — I’ll pass it over to D.J., I think the majority of our growth from the third — through the third quarter was really due to restarts. We had a number of shutdowns in the second quarter for entire entire months. So India, government restrictions and shutdowns for almost part of April and May. We had some shutdowns in South Africa and some of our plants in Europe. And so those restarted in the third quarter, which was really driving through that growth. I do think there is some demand improvement. I’ll let D.J. Monagle talk more to that about our conversations with customers. D.J. are you there?

D.J. Monagle, III — Group President, Specialty Minerals and Refractories

Yeah, I am, Doug. So, Mike, the way we’re — to generalize the statement, Doug is spot on that what we’ve been seeing is really just restarting and coming up from the shutdown. There is a general optimism that as more and more schools come online and more businesses get to work that operating rates will improve. Just to give you a perspective on this, the operating rates as we went into 2020 were in the neighborhood of just below 90%, so somewhere between 85% and 90% and North America was right at 90%, Europe was a little bit lower than that. So as things are coming back up, most people feel that North America is going to be back into that 80-plus percent operating rate. Europe seems to be a little bit slower.

And the big question on everyone’s mind is, they know that going back to work or they feel that as people return to the offices and more and more people go into the schools, because a lot of schools are working on these hybrid things, that paper consumption will grow. What the question mark is, is how do the habits — how do the long-term habits change based on this pandemic? And there is a school of thought that says the longer that this lasts, the more likely people are going to be transitioning to more, I guess, electronic methods of keeping their data or doing their work. So there is a big question, but what we’ve seen is about getting people back to work and having the shutdowns stop. But there is still a big question on long-term demand, especially in North America and Europe.

And then in Asia, the demand picture is the same, but for us, our growth story is more about penetration and that’s — that continues to move forward. Does that help, Mike?

Mike Harrison — Seaport Global Securities — Analyst

Absolutely. Very helpful. And then last question I have is on the Refractories business. It seems like utilization rates are starting to approach the 70% level. I feel like 80% is more the magic number where these mills feel like they can run efficiently and profitably. Do you guys see 80% or 70% or any specific utilization rate as a magic number in terms of a pickup in your Refractories sales?

Douglas T. Dietrich — Chief Executive Officer

Let me start and then I’ll ask Brett Argirakis to comment. Historically, in this business, we thought that like an 85% rate was necessary for this business to be really strong in terms of operating income. We’ve changed this business tremendously over the past couple years from a margin contribution, margin technology, its portfolio of products. And so I think you saw last year, in the mid-70s, late in the first quarter, mid-70s, this business is still very profitable. So we’ve changed that kind of — the profile of the business over time. Brett, why don’t you talk a little bit about what you see in the marketplace and where you think our operating rates are going based on what you hear from our customers?

Brett Argirakis — Vice President and Managing Director, Minteq International Inc. and MTI Global Supply Chain

Sure, sure. Thanks, Mike. Yeah, right now, looking at the market conditions, all regions, of course, has shown reduced rates from prior year, but all showing gradual improvements. Doug and Matt both pointed out automotive is improving really to pre-COVID levels. In NAFTA, we’re seeing steel and scrap prices in North America and Europe increasing, which is definitely beneficial to the steel industry and right now, the U.S. just continues to show signs of getting back up to those — to the better levels. Right now, it’s just under 70%. For the past couple of years, we’ve seen 80%, which was very healthy. At 80%, it gives the steelmaker plenty of time to do maintenance, but also at a very healthy rate. I would anticipate that these rates will continue to gradually improve. But as Doug pointed out, 80% would be great to get back to, and I think we can get there, assuming no further setbacks from COVID. But, overall, we are positioned pretty well to operate even if we don’t hit the 80% rate and continue on.

There is also steel capacity that’s coming on, new plants. These new plants are starting up between the fourth quarter and through 2021, which we’re very well aligned to continue to expand with them. They both — Doug pointed out some of the new business growth that will be moving along with them in both refractory and metallurgical line. So, yeah, I think we have a really good chance to get back to some reasonable rates and if not 80%, we’re positioned well, Mike.

Mike Harrison — Seaport Global Securities — Analyst

All right, thanks very much.

Operator

All right. And we’ll take the next question from David Silver with CL King.

David Silver — CL King — Analyst

Yeah, hi, good morning. Thank you. Actually, I should say good afternoon. So, I had a couple of like targeted questions here. Early on in your comments, Doug, you mentioned regarding the 11% increase in Pet Care sales this quarter year-over-year and sequential. You made a reference to partnering. And I have to confess I’ve never come across that before and also — sorry, come across that before in your commentary, and the 11% I think is significantly higher than maybe the 3% to 5% or 4% to 6% kind of numbers you’ve been targeting for that business for a long time.

So, maybe just a little bit of color on, are you doing anything differently? Are these partnerships a little bit different? And what would be the ultimate potential to increase partnering opportunities in terms of growing that part of your Pet Care business? Thanks.

Douglas T. Dietrich — Chief Executive Officer

Sure. Thanks, David. I think when I referred to partnering, we talk about — we are a private label pet care supplier, and so partnering is producing brands for others for their shelves. And so when talking about partnering, we’ve been partnering with new customers around the world. We have a growing business in China. Our business in Sivomatic continues to grow its solid rates in Europe and continuing to come up — and supply new brands to new partners there as well. I think the other comments were, as we move and as you see the consumer buying behavior to be more online, we’re also looking at — and have started some online channels for our sales.

So there’s a number of different partnering things that are going, and that’s not just — and that’s around the world. Those online channels are global, and our main regions. So when I talk about partnering, it’s that. It’s being able to partner by being able to provide brands for those who want to work with us and our vertically integrated position as a supplier.

David Silver — CL King — Analyst

Okay. Sorry, I didn’t associate the partnering with private label. But thank you for clarifying that. I wanted to maybe shift over to that PCC business in particular and in particular the volume growth that you cited in China this quarter. I think it was 18% or so. But I was scratching my head and I’m trying to kind of relate that growth this quarter with the upcoming new project for Chenming, which I guess has not started up.

And I was wondering if you could characterize the full growth, all of the growth in China as related to the legacy satellite units you have there, or might there have been some product produced at other locations, but may be shipped over to the Chenming location, maybe to get things started there ahead of your full-scale start up. So in other words, was any — was that all — was the growth in China all related to legacy plants or was this somehow part of it — part of the growth related to Chenming, I guess, maybe pre-production or pre-start-up volumes that are may be required?

Douglas T. Dietrich — Chief Executive Officer

That — the growth — year-over-year growth in China was all from our legacy operating facilities there. So we saw some strong demand year-over-year from our legacy. So, to give you an example, the Chenming facility will be about 150,000 metric ton facility coming online — that has not come online, so none of those volumes came from that facility. That should be commissioned in December and ramping up through kind of the first quarter of next year. To give you an idea, our installed base of capacity in China is probably 850,000-ish tons and Chenming will represent another 150,000 tons, so bringing us to close to 1 million tons of capacity in Asia so — in China. So when you see that 18% growth and we’re adding another almost 16%, 17% to our capacity base, which we think ramps up next year, that’s why we are very enthusiastic about our growth in Asia and the Paper business because of that penetration story.

And then also in India as we’re building — ramping up one and another facility next year. So as D.J. talked about, those opportunities and penetration are really driving our growth in this business in Asia. That’s where it’s coming from. So we see those type of growth numbers continuing through next year in Asia, David. Hopefully, that helps.

David Silver — CL King — Analyst

Yeah, yeah. Thank you. So 1 million metric — sorry, 1 million tons installed out of some — you’ll have a little bit over 3 million total and that’s kind of China share of your overall installed base.

Douglas T. Dietrich — Chief Executive Officer

I think the 1 million tons installed is in — it’s kind of our Asia base, 1 million tons in Asia, and the majority of that’s been in — the majority of that’s been in China. However, India has been growing very quickly over the past five years.

David Silver — CL King — Analyst

Okay and then just maybe one other question, this time on the foundry business. But for many quarters now you’ve been highlighting the growth in China related to the custom blends that you offer there, and again, just probably a gap in my understanding, but should I assume that the types of products, the custom blends that you sell in China are similar to the ones that are marketed regularly to, let’s say, North America or western Europe? Or is it the case where customers in other regions, maybe like to blend their own? In other words, is the value proposition the same in China as it is in North America and Europe or either due to custom or the types of products you’re selling, is it qualitatively or quantitatively different as you go region to region?

Douglas T. Dietrich — Chief Executive Officer

It’s not. It’s very much the same in terms of concept. And so I guess they’re not exactly the same formulas and the reason behind that is because we are tailoring a formula to that customer’s equipment, what they’re trying to make, the quality requirements and dimensions of that cast product. And so — but being able to develop a system and a blend and an additive blend that meets the requirements to help them whether it’s through their scrap — reduce their scrap rates to very low levels to improve the throughput through those casting machines, we’re able to tailor that. So the blends may not be exactly the same, but that is our value proposition, being able to, from a technical standpoint, go in really deeply understand and help that foundry improve many aspects, reduce cost, improve quality and then be able to deliver that blend kind of real-time.

I mean, in North America, we’re delivering trucks on an hourly basis to our customers — our foundry customers. It’s that and if they have an issue, they can pick up the phone and talk to us. Our technical experts will go through and make sure we understand what the change we can make — what the issue is, we can make a change to our blend and deliver it on the next truck. It’s that level of capability and it’s exactly the type of value proposition, the technical capability and the know-how that we’re developing around the world and China. That’s what’s driving kind of a lot of our growth in China.

David Silver — CL King — Analyst

Okay, great, thank you very much.

Operator

[Operator Instructions] All right. It appears there are no further questions at this time. I’d now like to turn the conference back to Mr. Dietrich for any closing remarks.

Douglas T. Dietrich — Chief Executive Officer

Thank you very much. I do appreciate everybody joining the call today and I hope everyone and your families remain safe. Thank you again.

Operator

[Operator Closing Remarks]

Duration: 71 minutes

Call participants:

Erik Aldag — Head of Investor Relations

Douglas T. Dietrich — Chief Executive Officer

Matthew E. Garth — Senior Vice President, Finance and Treasury, and Chief Financial Officer

D.J. Monagle, III — Group President, Specialty Minerals and Refractories

Brett Argirakis — Vice President and Managing Director, Minteq International Inc. and MTI Global Supply Chain

Daniel Moore — CJS Securities, Inc. — Analyst

Silke Kueck — J.P. Morgan — Analyst

Jonathan J. Hastings — Minerals Technologies, Inc. — Group President, Performance Materials

Rosemarie Morbelli — G. Research — Analyst

Mike Harrison — Seaport Global Securities — Analyst

David Silver — CL King — Analyst

More MTX analysis

All earnings call transcripts