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AMCOL International Corporation (NYSE:ACO)

Q2 2013 Earnings Call

July 26, 2013 11:00 am ET

Executives

Ryan F. McKendrick - Chief Executive Officer, President, Director and Member of Executive Committee

Donald W. Pearson - Chief Financial Officer, Chief Accounting Officer, Senior Vice President and Treasurer

Analysts

Richard Wesolowski - Sidoti & Company, LLC

Albert Leo Kaschalk - Wedbush Securities Inc., Research Division

L. Todd Vencil - Sterne Agee & Leach Inc., Research Division

Jay Richard Harris - Goldsmith & Harris Asset Management, LLC

Andrew Nelson

Operator

Good morning, ladies and gentlemen, and welcome to the AMCOL International Announces Second Quarter Results Conference Call. At this time, I would like to turn the call over to Ryan McKendrick, President and Chief Executive Officer. Please go ahead, sir.

Ryan F. McKendrick

Good morning, everyone, and thank you, Donna. Welcome to AMCOL International's Second Quarter 2013 Earnings Conference Call. We're going to start out today with Don Pearson, our Chief Financial Officer, for a briefing on the financials before providing an overview of operations, and then taking questions. So, Don, if you'd like to start us off.

Donald W. Pearson

Thank you, Ryan, and good morning, everybody. We are just $0.51 on a GAAP basis in the quarter, and we had $0.06 of special items that I'll go through in a moment, coming up with $0.50 x items that we had in the press release. We also pointed out that we had $0.09, the estimated amount of the impact, quarter-over-quarter, from our drilling fluids and chromite products, coming up with a pro forma total of $0.60, compared to the $0.67 last year.

To take a closer look at the restructuring cost in the quarter, it totaled $1.9 million, $1.7 million was in our Construction Technologies segment and $200,000 at Performance Materials segment. That accounted for the $0.04. The other charges that we noted, there was $0.02 of that, $0.5 million was from our Energy Services segment and $400,000 related to our Performance Materials segment, and those both impacted the gross profit. So the special charges in the quarter were $2.8 million and accounting for the $0.06.

Sales in the quarter, year-over-year, were up 2%. This is driven by strength in our Energy Services businesses. However, due to some competition in pricing on the land-based services, that did take down the consolidated gross margin.

In the Construction Technologies area, we're down $5 million, almost 9%. The majority of that reduction in revenue related to the contracting services which we've exited. You'll notice that margins were up there, so that was a positive. And then, in the Performance Materials that Ryan will spend more time on, the sales are down again, from our drilling and our chrome operations.

Within the SG&A line item, again, there's $1.7 million of restructuring in the $47 million. Our effective tax rate in the quarter, 28.6% included $400,000 of some special discrete one-time items. So we're still looking at a 28% effective tax rate for the year.

On the balance sheet and the cash flow, our working capital, particularly our receivables, are running higher than we'd like. We're taking some specific actions on that. And our capital spending is up, ticking a bit, we are planning to have an increase in capital spending for the year.

So, Ryan, that concludes my summary. I'll turn it back to you.

Ryan F. McKendrick

Thank you, Don. So, during the quarter, there were some strong performances for several product lines, but also several challenges we're addressing.

So we'll start off with Performance Materials. The metal casting product line includes both bentonite-based products as well as chromite. We generated nice growth in sales for our bentonite base foundry products, used in gray iron or ductile iron casting, but that was offset by a drop in chromite sales, used primarily in steel casting.

Gross margin for metal castings improved both year-on-year and sequentially, due mostly to product mix. Most of our major foundry customers for bentonite-based products expect steady demand for casting, especially those related to the auto sales, which are continuing at a strong pace.

In Asia, we saw an upward trend for volume in China and gross margin there improved nicely, as well. Year-on-year, on chromite sales -- chromite sales were down as we continue to encounter some softness in steel casting demand globally. Selling prices for foundry grade chromite sand are also under some pressure. But we are generating low double-digit gross margin so far this year for chromite, but building sales volume continues to be a challenge due to the softness in overall demand for steel castings.

Moving on to basic minerals, within the Performance Materials area. Within that basic minerals product lines, sales were up slightly. But the most profitable products, which are drilling fluid additives, were significantly behind last year's first and second quarter pace. Demand continues to be impacted, partially by lower drilling activity, but also by increased competition. Newly hired, experienced oilfield salesperson are making some real progress in developing a broader customer base for us, and we're seeing gradual increase in volume. Our sales did increase about 5% sequentially for the drilling fluids.

As Don mentioned, the last two items I just talked about, chromite and drilling fluids. Declines in sales for chromite and drilling fluids accounted for about $0.09 per share impact on earnings for the quarter, with drilling being the largest share of the negative impact.

Moving on to Specialty Materials product line. You saw a $4.9 million drop in sales for Q2 within that product line. The majority of the decline being from the Paper business, which we exited this year and from our personal care business, where we are evaluating several strategic alternatives there. Other businesses included within that product grouping include fabric care. Sales for fabric care were basically flat, but we continue to see improvements in margin in certain quarter, with operating profit now in the low double-digit range. Several new product initiatives are gaining acceptance with major customers, and there is improved outlook for demand in our established product lines. We secured orders for one new detergent additive product this month for over $1 million, as a matter of fact.

Specialty Materials also includes our bio ag products, where sales were up nicely for the quarter. This is an important growth area for AMCOL and we're excited about the prospects here.

The last area within the Performance Materials segment is pet products. We saw a nice increase in sales versus prior year Q2, and also a 9% increase in sales sequentially, with improved operating profit contribution. Increase in volume from recently executed supply agreements is having a positive impact here, and increased activity with several customers for fully packaged products will continue to improve results as we move into Q3 and for the balance of the year.

So I'm moving on to the Construction Technologies segment. First of all, on building materials, global sales were down 1.6%. So, basically, flat versus Q2 last year. We're pleased with the 15% growth in the U.S. market, but the growth here was offset by sales decline in Europe, where building activity is being affected by deep recession there.

The outlook for this product line for the balance of the year for is relatively steady sales resulting from lower building activity in Europe, as well as lower activity in the public sector for the U.S. market, which is offsetting some of the increase we're seeing in U.S. non-residential construction.

In the lining technologies area within the segment, demand continued to be fairly weak, globally, for traditional geosynthetic clay liner products. But we are seeing an increase in opportunities for the second half of the year for our standard products. In addition, we are continuing to secure sales and specifications for our newly developed liners, with some real performance advantages based on proprietary technologies. We started supplying one large project, expected to generate sales in excess of $20 million over the remainder of this year. The restructuring initiative we started in early 2013, throughout the segment, is now complete.

So I'll move on to Energy Services. For the segment, sales for the quarter were up 27%, with operating profit up 14%. The majority of the sales increase was related to stronger offshore activity in the Gulf of Mexico. And we expect the major clients, which are primarily exploration and production companies, to increase their spending, both internationally and offshore, but keeping land-based spending in North America relatively flat.

The outlook for land-based drilling and associated services remains cloudy in North America, where relatively low natural gas prices have put a damper on activity here, resulting in increased competition among service providers and increased pricing competition in particular. We are addressing some of that competitive pressure by targeting cost reductions, of over $600,000 per month, primarily in land-based well testing and coil tubing operations as a means of improving margins in the segment.

So, that's it. That's a quick summary of the business results and operations, and we'd now like to open the call to questions.

Question-and-Answer Session

Operator

[Operator Instructions] And the first question is from Rich Wesolowski from Sidoti & Company.

Richard Wesolowski - Sidoti & Company, LLC

Zeroing in on the metal casting, and I understand the bentonite versus the chromite. We don't exactly see into those numbers so we can't tell. But the metal casting sales, as a whole, have been flat for the past 3 quarters. And the Americas sales for the Performance Materials, as a whole, have been down in the first half. And I'm hoping you can square the bentonite bit with what looks to be a favorable backdrop for U.S. autos and your car production.

Ryan F. McKendrick

Okay, so if you look on the -- thanks, for the question Rich, it's a good one, as usual. If you look at the quarter-by-quarter sales for metal casting, globally, okay? The chromite business had been somewhat of a drag. And actually, second quarter 2013, going back all the way to early 2012, that was a record sale for us. We had $63 million in sales for green sand and bentonite-based materials, okay? The drag on sale there has been the chromite. So, on a sequential basis, we're pretty happy with the overall foundry market and the green sand, our traditional business, and chromite is the thing that's been dragging it down. The situation in the Americas, I'm not sure that we have a -- we'll hit the same numbers here. Don, I'm not sure if you'd like to give some insight into -- you see here, but it looks like Q1 over Q4 was up 6%.

Donald W. Pearson

Yes, if you're looking at just the Americas, U.S., you've gone from -- in total, products were up sequentially from Q4, for the U.S. unit in total.

Ryan F. McKendrick

So I think just to encapsulate this thing, Performance Materials sales for U.S. were up sequentially for Q1 to Q2 by about 8.5%, but down versus the prior year by about 11%. The main drivers for the sales drop off versus prior year Q2 has been drilling fluids, which are down by about $4 million. The paper business, which is included in that Specialty Materials category, it was down by about $3 million. We exited that business. In personal care business, we're looking for some strategic alternatives there. That's down by about $2.1 million. So those are the big negatives that pulled down the sales versus last year.

Richard Wesolowski - Sidoti & Company, LLC

I appreciate the detail, very helpful. What would you guess is a market-wide growth rate for the demand for your traditional bentonite metal casting product over the next year or two?

Ryan F. McKendrick

It's going to be driven by automotive. And I think, in the U.S., it's probably low single-digit growth opportunity. But in China, probably close to high single-digit or 10% sort of a growth opportunity there.

Richard Wesolowski - Sidoti & Company, LLC

Okay. Switching to Construction tech, last call you had discussed closing some offices in Europe, and a little less so, detailed -- or hoping to detail what you're doing on the manufacturing side to get the cost down, to get competitive on price for the commoditized products?

Ryan F. McKendrick

Yes. I think, on the manufacturing side, the most important things we've done, first of all, consolidating production in U.S. for the lining technology business to one plant. Basically, idling one of the lines that we have and reducing overall cost. In Europe, we've reduced plants, I think significantly, at 3 plants. And most importantly, we've standardized production practices globally, measuring and benchmarking performance, which is really having a pretty nice impact in the overall cost structure for that business.

Richard Wesolowski - Sidoti & Company, LLC

Great. And then the last one, you mentioned that the advanced GCL product did chip in $20 million in the second half, one project. Have your bookings extended there since the past call? Could you characterize your prospect list and would you consider this a trial project, something you can throw on your resume and take around with you?

Ryan F. McKendrick

Definitely. I think this is a project that we'll be -- we'll probably be making some sort of press release about it in the next several weeks, describing it more fully. But it's not a single project. We have a large -- another additional project going in Canada right now, which is being installed, 2 others here in the U.S. So it's broader than just the one project, Rich, so we're getting much broader acceptance for this new technology and some applications that were basically closed to us in the past.

Richard Wesolowski - Sidoti & Company, LLC

How many customer would you guess that you've had signed on so far?

Ryan F. McKendrick

I'd say the number of customers that have actually ordered so far is pretty limited. It's under 10, but the prospects are much broader than that.

Operator

The next question is from Albert Kaschalk from Wedbush Securities.

Albert Leo Kaschalk - Wedbush Securities Inc., Research Division

Ryan, the energy segment is generally excitement in terms of growth, but it appears that some of the cost or competitive nature here are certainly hurting the performance and mix. So your cost plan reduction here, is this something solely with land-based? And then, secondly, does it change how you guys think about approaching the market, given what likely is always going to be a fairly competitive market on the service side there?

Ryan F. McKendrick

I think, looking at the Energy Services business as a whole, it's got great growth potential and we believe that the overall strategy is working out quite well. Gross margin, 26.5%, actually dropped versus last year, and it's all due to the continuing pricing pressure in the land-based service business in the U.S. market. We're also, as you know, very engaged in the offshore portion of the business. We're seeing nice growth there, which we expect to offset some of that land-based margin decline. And I'm not sure we can reach that 30% target this year, as far as gross margin for the whole business. Unless we see some sort of rebound in North American drilling activity. But, just to get to the point of your question, we are seeing significant pricing pressure resulting in gross margin compression and it's all in land-based work in coil tubing and well testing. We're not losing business, per se. I mean, our utilization rates remained fairly stable. It's all based on pricing pressure. And we do have some fairly aggressive cost control initiatives underway starting in August, which will take effect in September. And we're targeting about $600,000 a month in cost reductions there. But it's all focused on the land-based activities.

Albert Leo Kaschalk - Wedbush Securities Inc., Research Division

What's the duration of what you think you're going to be extracting $0.5 million of that are in cost out. At some point, you then probably have cut in the muscle and...

Ryan F. McKendrick

Well, we're going to be reducing some staffing, but also, I think some of the rates that we're paying to people are probably higher than they need to be. So I think the duration will be fairly long-term. We don't see a short-term turnaround in terms of activity being generated for these land-based services.

Albert Leo Kaschalk - Wedbush Securities Inc., Research Division

And can you refresh, at least my memory here, what percentage of energy, again, is land-based and what percentage is offshore?

Ryan F. McKendrick

I think we break it down more in terms of the water treatment, water filtration business versus the coil tubing versus the well testing and then other, okay? And then filtration and water treatment is primarily offshore. And that's in both the Gulf of Mexico and international. So that portion of our business, which is primarily offshore, accounts for about 40% of our total sales revenue. The coil tubing is in the 28% sort of range, right around -- between 25% and 30%. And well testing is also about the same size, maybe 25% of the total revenue. Part of that well testing service, though, is offshore. Maybe 1/3 of it. So it's kind of a mix within the service offerings of offshore versus land, with coil tubing being almost all land-based, filtration being virtually all offshore and well testing a mix.

Albert Leo Kaschalk - Wedbush Securities Inc., Research Division

So 40%, 45% of your business is objective to these competitive pricing pressure in that segment?

Ryan F. McKendrick

That's a fair number, right.

Albert Leo Kaschalk - Wedbush Securities Inc., Research Division

And does it makes sense? I mean, like what is the strategic efforts that you need to be in coil tubing and well testing in those markets?

Ryan F. McKendrick

Well, well testing for us is a good strategic fit with our filtration and water treatment business. A lot of the work that we're doing in well testing is very closely related to filtration work. So from a strategic standpoint, it's very important to us. Coil tubing is not as closely aligned with the filtration business, but it has opened the door for us for quite a bit of water-related work, which is our real key technology differentiator. So we view, from a strategic standpoint, the filtration and the water treatment work to be most important, in terms of defining who we are and being able to differentiate ourselves from a technology viewpoint. Well testing is more closely related to that technology differentiating business than the coil tubing is. But we consider all of them to be important as part of a portfolio of product mix.

Albert Leo Kaschalk - Wedbush Securities Inc., Research Division

Then my final, if I may, just switch gears to Construction Technology. Can you talk -- if you took the same store concept or apples-to-apples basis, if you think about your forward calendar, where are you seeing the strength in terms of -- I won't say booking a backlog, but where are you seeing pockets of strength in that segment in general? And what is still yet to maybe take off? And if you just frame it in terms of 60% of your businesses moving along at a good pace or you're seeing scrap in-chutes [ph] And 30% and that's all Europe or -- just give us a little bit of handle about the forward visibility in that segment.

Ryan F. McKendrick

Sure. I think when you look at the opportunities and the objectives for the group, the building materials there, which is the construction waterproofing business, we continue to broaden the product mix to access a wider range of applications on typical large commercial and infrastructure projects. We think that's going to be a long-term opportunity for us. We have put in place the sales teams with the understanding of the specifications-oriented kind of selling process, followed by strong on-site ductile support and installation quality assurance. So we think that we positioned ourselves well to take advantage of growth within that sector. And we see it in pockets. California right now is very strong, some areas in the East Coast are very strong. The U.K. market is very strong and we think that the economy strengthens, and Europe has got to come out this recession eventually. We'll be positioned very well there. So that, for us, is a very important part of the construction technology group. In lining technologies, we've been talking about the traditional end-use markets being less attractive, but our strategy there is working. It's really to drive manufacturing costs to a low-cost production model and then to augment that with new technology, enabling us to enter new end-use opportunities. We're more optimistic now on the new technologies than we were in the past, and that's validated by our recent success in securing major projects. So we look for that area to rebound in the next couple of years and be an equally important part of the business. So we've also got drilling, non-oil and gas drilling as part of the mix. That's also becoming a more important element in that business, and so we're continuing to expand our global presence with the same market approach and product line expansion that's been successful in the U.S. market. So I think all 3 of those areas within the construction technology group present an opportunity for us, and we've gone through a lot of streamlining to position us for that kind of opportunity.

That's all I've got on that, Al.

Operator

The next question is from Todd Vencil from Sterne Agee.

L. Todd Vencil - Sterne Agee & Leach Inc., Research Division

Let's talk for a minute, let's say, on construction service for a second and just a couple items. You've covered a lot of stuff and that's been great. We've still got a little bit of the contracting revenue left kind of flowing through. How much more of that is there to come?

Ryan F. McKendrick

By the end of this year, it will disappear.

L. Todd Vencil - Sterne Agee & Leach Inc., Research Division

Okay, excellent. You had a nice margin quarter, this quarter. It's not a range in which you sort of bounce around. I mean, are you expecting to see margins, for the segment overall, in about 32% this most recent quarter? Are you expecting to see that sort of continue to climb or are they going to stay in the 30%, 32% range that they've been?

Donald W. Pearson

Yes, Todd, you're exactly right. We expect to be north of 30% and stay in the low 30s, and we're happy to see that that's been validated. Despite the drop in sales, even this quarter, that business that we exited just really had poor margins. So the other product lines are actually doing quite well. And we expect to be in that 30% to 32% range.

L. Todd Vencil - Sterne Agee & Leach Inc., Research Division

Got it, perfect. Switching to energy in the land-based side. You talked about cutting, I think, $600,000 a month of cost -- is that the right number -- out of that business. Is that sufficient to offset the sort of reduction in pricing that you've seen, at least so far?

Ryan F. McKendrick

It's not going to offset it completely, Todd. I think we're seeing day rates for certain services, certain land-based services, dropping by as much as 30% versus where we were last year. So cutting cost by $600,000 a month for those 2 service areas is not going to offset the entire amount of that pricing. But we're hoping that, at some point in time, we're going to see some sort of turnaround in terms of North American land-based drilling activity, which will remove some of this glut of underutilized equipment, which is really the cause for much of this pricing pressure.

L. Todd Vencil - Sterne Agee & Leach Inc., Research Division

Sure. So that's going to continue to be a bit of a drag, at least from where it has been, at the same time it sounds like international offshore, particularly Gulf of Mexico, improving. Can you frame up for us how much that's improving for you?

Ryan F. McKendrick

The filtration business, which is primarily offshore, increased considerably in Q2 this year versus last year's Q2. I don't have a number right in front of me, but I think that portion of business was up something like 30-some-odd percent wasn't it?

Donald W. Pearson

Yes, it was pretty substantial. I think, Todd, it's just -- the activity that we're seeing is probably as exciting. We've been waiting for this for several years, and now it's really starting to come to fruition.

L. Todd Vencil - Sterne Agee & Leach Inc., Research Division

Well, at least you've got the offset there on the land-based side [indiscernible].

Ryan F. McKendrick

Todd, I just looked up our number here. I think it's important to understand this. When you look at just in the U.S. now, when you look at Q2 last year versus Q2 this year, our filtration business -- which, again, is mostly offshore -- went from $6.9 million last year to $16.5 million this year. So, it's huge, and the margins on that are the best margins that we have within the group.

L. Todd Vencil - Sterne Agee & Leach Inc., Research Division

How much of those -- how much of a premium the kind of group average does filtration get roughly?

Donald W. Pearson

Talking about the margin?

Ryan F. McKendrick

Group average was 26.5 and filtration was in the mid-30s actually. So I think we're seeing more demand for services offshore in the Gulf of Mexico. We're also seeing more growth opportunities in international, which is primarily filtration offshore-oriented. So that, we think, is going to offset some of the downward pressure from the pricing on the land-based services.

L. Todd Vencil - Sterne Agee & Leach Inc., Research Division

Got it. And then on the business that -- you're looking for strategic opportunities, I mean, can you talk a little bit about timeframe and range of outcome there?

Ryan F. McKendrick

It's premature for us to really talk in much detail about that, Todd.

L. Todd Vencil - Sterne Agee & Leach Inc., Research Division

A couple of housekeeping items for Don. You mentioned that CapEx is going up this year, can you tell us what you're budgeting and what's driving it higher?

Donald W. Pearson

Yes, at the last couple of calls we were suggesting we might approach $100 million. I think we'll probably be $105 million, maybe up as high as $110 million. A lot of the opportunities, the new incremental, are some new opportunities in Energy Services, particularly on the filtration side.

L. Todd Vencil - Sterne Agee & Leach Inc., Research Division

Okay. And how are you feeling about the tax rate this year?

Donald W. Pearson

Pretty good, I think if you look at the effective tax rate for the last several quarters or maybe 4, 5 quarters, it's starting to compress and normalize around that 28%. So I think the volatility of that is substantially reduced and pretty comfortable with 28% for the year.

Operator

The next question is from Jay Harris of Goldsmith and Harris.

Jay Richard Harris - Goldsmith & Harris Asset Management, LLC

Ryan, I think in your formal remarks you talk about a $20 million lining check order.

Ryan F. McKendrick

Right.

Jay Richard Harris - Goldsmith & Harris Asset Management, LLC

Where, geographically, is that?

Ryan F. McKendrick

Middle East.

Jay Richard Harris - Goldsmith & Harris Asset Management, LLC

And where do you see the pipeline of opportunities, geographically?

Ryan F. McKendrick

The other projects that we have underway or specified was primarily North American.

Jay Richard Harris - Goldsmith & Harris Asset Management, LLC

Is the turnaround in Europe solely dependent upon an economic recovery or are [indiscernible] and will be fighting competitive pressures?

Ryan F. McKendrick

It depends on the segment we're talking about. In the building materials area, which is the construction products for concrete waterproofing, that is more dependent upon economic recovery and recovery in nonresidential building. In the lining tech area, I think we engineered the restructuring program we have, really focused on the manufacturing side, that put us in a much more favorable position from a cost perspective against competitors. So we're able to secure more projects at lower prices and still maintain a reasonably good margin. So I think we're not as -- that segment of the business is not quite as sensitive to the economic downturn in Europe as the building material area is.

Jay Richard Harris - Goldsmith & Harris Asset Management, LLC

Isn't part of the problem in Europe a lack of funding related to recession?

Ryan F. McKendrick

Certainly.

Jay Richard Harris - Goldsmith & Harris Asset Management, LLC

So I gather the answer to my question is that the European scene, in lining technology, is primarily related to an economic improvement there?

Ryan F. McKendrick

No, it's not. I think the lining technologies business in Europe is not related to investment in so much in construction as is it to ongoing projects required for solid waste, and the solid waste being generated in Europe hasn't dropped off dramatically. So, the governments, regardless of whether they're having funding problems, are still going to have to fund lining the types of projects that we're providing products for. We're also seeing, in some segments of Europe, we've seen some nice opportunities for public works projects in Eastern Europe, roadways, storm water retention, ponds and so forth, which are still being funded.

Jay Richard Harris - Goldsmith & Harris Asset Management, LLC

Okay, that's a better answer. Turning to your Oilfield Services. I think your press release indicated you were spending $5 million on new equipment.

Donald W. Pearson

No, I don't think we called out anything in particular in the press release.

Jay Richard Harris - Goldsmith & Harris Asset Management, LLC

Well, what is the lowest gross margin that would justify continued capital spending in that segment of your business?

Donald W. Pearson

When we look at these incremental new projects, Jay, we target a minimum hurdle rate on a internal rate return basis, which is going to be probably in the mid-teens, and to do that at a incremental basis a new projects probably needs gross margin in the mid-30 range.

Operator

The next question is from Rich Wesolowski from Sidoti & Company.

Richard Wesolowski - Sidoti & Company, LLC

Regarding the combined international oilfield or Energy Service revenue, combining EMEA with the Asia-Pacific, it grew monstrously in 2012. It's up substantially in March. It flattened a bit in June and it probably speaks to just the timing of projects. And I'm wondering whether, in the first half, there are projects that you are about to complete or are there any about to begin, where we expect either a falloff or boom in international oilfield revenue?

Ryan F. McKendrick

We're wrapping the whole thing together. We're looking for the second half, this year, to be pretty much an extension of the first half. We're not looking for any big growth, and certainly, we're not looking for any sort of a downturn.

Richard Wesolowski - Sidoti & Company, LLC

Okay, that helps a lot. Lastly, is the severity of the price competition in U.S. land-based energy getting incrementally worse throughout the year or are you just now recognizing the resetting pricing that occurred in late 2012 or early 2013?

Ryan F. McKendrick

I think we're recognizing it. Really, it has hit us hardest in this past quarter. A lot of the business that we're doing on land-based work in oilfield is under longer-term contract. So some of those contracts came up and in the second quarter, and as a result, we've had to reduce our prices. So I guess our view of it is that it has been a more recent development for us than maybe for some of our competitors.

Richard Wesolowski - Sidoti & Company, LLC

Is there a way to give us a window into how many of the contracts have been reset -- I imagine a lot of this is in coil tubing -- versus how many have yet to be reset in the second half, i.e. is the $600,000 a month going to enable you to run in place or is that improvement?

Ryan F. McKendrick

We're not expecting to see any major contract drop at this point. I mean, there's nothing that's really in place that's at significantly higher day rates than we would expect to see going forward in the future. So we're not looking for any significant margin drop from here on out.

Operator

The next question is from Andrew Nelson from Nelson & Associates.

Andrew Nelson

I just had two quick questions. On your metal casting, how much comes from the chrome and how much comes from the bentonite?

Ryan F. McKendrick

I don't have it offhand. Bentonite is, by far, the largest part of it. If you look at the second quarter, relative -- 2 relative sales numbers, where the green sand bentonite-based materials were in the $63 million range, chrome was about $5.5 million.

Andrew Nelson

Okay, close to 90% probably?

Ryan F. McKendrick

Right.

Andrew Nelson

My second question. I wasn't aware of Novinda, that you just invested in the first quarter. Can you talk about the size of your particular investment and what you see that contributing to AMCOL's future?

Ryan F. McKendrick

Well, I think it's important to note that this product area is a great example, I think, of AMCOL investing in products with a clear technology differentiation in a market niche where we can gain some significant share. The addressable market for this product area, in North America, based upon Novinda's estimates, will be in the range of about $800 million a year. So what we're doing with this business is AMCOL is manufacturing and supplying Novinda Corporation with a chemically-modified bentonite clay for removal of mercury from coal-fired power plant emissions. And what we've done for that $5 million, we have acquired a minority position in the Novinda Corporation, which amounts to, was it -- I think, 14% ownership position.

Donald W. Pearson

13%.

Ryan F. McKendrick

13%, okay. So full-scale trials in a number of power plants continue to yield promising results, both in terms of performance, in terms of mercury removal and in terms of cost for the power plants. At this point, Novinda has secured 3 contracts with power plants, with supply to start in late 2014 and early 2015, when the federal regulations on mercury control become effective. There are a number of additional full-scale trials being conducted or are scheduled. We'll be sharing more information about those in the coming quarters as the business develops. But, again, if we could capture a 10% or 15% share of this $800 million market, it could be a substantial side business for us.

Operator

There are no further questions registered at this time. I'd like to turn the meeting back over to Mr. McKendrick.

Ryan F. McKendrick

Right. Thank you, Donna, and thanks everybody for participating today and look forward to speaking with you next quarter.

Operator

Thank you. The conference has now ended. Please disconnect your lines at this time, and thank you for your participation.

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Source: AMCOL International Corporation (ACO) Management Discusses Q2 2013 Results - Earnings Call Transcript
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