Compass Minerals Intl Inc

Good day, everyone, and welcome to the Compass Minerals Second Quarter Earnings Conference. Today's conference is being recorded. At this time, I'd like to turn the call over to Ms. Theresa Womble, Director of Investor Relations.

Please go ahead, ma'am.

Good morning, and welcome to our call today to discuss our second quarter results and rest of 2020 outlook. We will begin with prepared remarks from our CEO, Kevin Crutchfield, and our CFO, Jamie Standen. Joining in for the Q&A session are Brad Griffith, our Chief Commercial Officer, as well as our Chief Operations Officer, George Shuler. Before we get started, let me remind everyone that the remarks we make today represent our view of our financial and operational outlook as of today's date, August 5th, 2020. These expectations involve risks and uncertainties that could cause the company's actual results to differ materially. A discussion of these risks can be found in our SEC filings located online at investors.compassminerals.com. Our remarks today also include non-GAAP financial measures, such as adjusted EBITDA and free cash flow. You can find reconciliations of these items in our earnings release or in our earnings presentation, both of which are also available at our investor relations website. With that housekeeping out of the way, I now turn the call over to Kevin.

Thanks, Theresa. Good morning, everyone, and thanks for participating today. As reported yesterday in our earnings materials, we posted very strong second quarter 2020 results with both operating earnings and EBITDA growth well ahead of expectations. This was achieved through robust year-over-year sales volume growth across all three of our business segments and strong execution within our operations. And year-to-date 2020 cash flow from operations totaled $233.9 million, up nearly 110% compared to last year's first half. The strong performance we accomplished in the quarter achieved in the face of COVID-19 pandemic demonstrates not only the essential nature of our products, but also the resilience of the core markets we serve. Of course, none of this would have been possible without the deep commitment of our employees to safely serve our customers' needs and execute on our strategic initiatives. And I'd like to take a moment to thank them for all they contribute toward the success of our essential business. From those who work in our underground mines, our packaging and processing facilities, or who have been working remotely in our customer service or corporate support functions, I've been deeply inspired by the commitment they've shown to our customers and our company. The ongoing threat of this global pandemic has required careful analysis and implementation of numerous additional protocols across our operating platform to ensure the safety and health of our people. their well-being remains our paramount concern. Because of the efforts of our employees, we've been able to maintain production across our global operations in order to meet customer demand for our products. While our UK mine was idled for a portion of the second quarter due to a combination of lower expected demand due to the mild winter there and the UK government's recommendation for COVID-19 spread mitigation, I'm happy to report the mine resumed production at the end of May and is ramping production back up to normalized levels. From the perspective of product demand, we've also experienced only limited impact today due to the virus. The primary pressure has been almost exclusively within our portfolio of non-deicing salt products. This includes sales through retail outlets, which were impacted by stay-at-home orders, as well as commercial food producers and industrial customers, who may have faced production outages or slowdowns due to the virus. In most cases, these sales begin to normalize in June. And we continue to be laser focused on our liquidity management, ending the quarter with $67 million in cash on hand and have further reduced risk through the execution of $100 million accounts receivable securitization program that Jamie will discuss in more detail shortly. Digging more specifically into the second quarter results, operating earnings from our salt business doubled compared to second quarter 2019, while EBITDA from the segment grew 60% year over year. In addition to increased highway deicing sales volumes and prices, this significant improvement was also driven by lower per unit salt and logistics costs, both of which are beginning to reflect our improved mining performance at Goderich and benefits from our enterprise-wide optimization efforts. Our plant nutrition businesses enjoyed meaningful gains as well due to robust demand stemming from improved crop conditions in North America and the continued strength of crop economics in Brazil. Compared to second quarter 2019, plant nutrition North America delivered strong sales volume growth of 20% as demand for our sulfate of potash and micronutrients continue to rebound from last year's depressed results. In fact, Total plant nutrition sales volumes in North America year-to-date represent the strongest first half for that segment since 2014. The segment also reported an 11% improvement in operating earnings, with basically flat EBITDA compared to last year. Second quarter operating earnings for our plant nutrition South America segment improved more than five-fold year-over-year, while EBITDA for the segment increased approximately 88%. compared to second quarter 2019. Improved farmer economics so far in 2020 helped to drive increased agriculture product sales again this quarter, and we experienced improved demand for chloralkali products in our chemical solutions business. These strong results during a challenging macro environment, again, demonstrate the resilience of our business and the progress we're making on our strategic priorities. As I outlined last quarter, we have three key priority focus areas as a company, building a sustainable culture, delivering on our commitments, and conducting a deep strategic assessment of our advantaged assets and related capabilities. Despite the pandemic, we continue to make meaningful progress in all three of these areas. Embedded within our strong second quarter is the early impact of our enterprise-wide optimization program as we're beginning to demonstrate the strengthening of our execution muscle. And the pandemic has highlighted for us, as well as for all companies, the crucial importance of health and safety. At the end of the day, our number one responsibility is to make certain our employees go home as healthy as they came to work. Building that culture of safety is paramount. As you can see in our presentation deck, we've already made meaningful progress, and we'll continue to strive for improvements in critical safety metrics, like total case incident rates. We also acknowledged that we had much room for improvement in terms of employee engagement. Shortly after I joined Compass Minerals, we conducted a deep assessment of our culture and how employees viewed their ability to engage and influence change within the company. As part of our optimization program, we've therefore focused a significant amount of time and energy as an extended leadership team listening to the concerns, ideas, and inputs of our people and acting upon that feedback by providing the internal resources to empower success. And while we still have work to do to be the company we strive to be, we're seeing a number of leading indicators that our efforts are making an impact. These efforts are foundational in terms of building the execution muscle we've discussed previously. They're also critical to enabling our ability to consistently deliver on our commitments, whether that means timely and reliable customer service, hitting our production targets at our mines, or innovating new products for our plant nutrition customers. And we're making clear progress in all these areas as well. Our soft segment earnings have shown significant improvement over the last three years from improved production at our North American mines, cost savings, logistics strategies, and strong pricing. Performance at our Goderich mine continues to hit or exceed targeted production rates. including setting a monthly production record in the month of June since we transitioned to the utilization of continuous miners. We've also progressed roughly 2,000 feet into our built-for-purpose roadways in the eastern mine development area and are currently in the process of finalizing the design of and developing for the new mill we've been discussing on prior calls. These are both very important steps in implementing our new mine plan at Goderich. which is designed to better leverage our continuous mining and haulage equipment while simultaneously reducing long-term mine maintenance costs in the old mine works. While we've been pleased with the progress we're making at Goderich, we continue to believe that we've not yet reached the full mine operating potential. To help us get to that next level, a new mine leader, Peter Baker, has taken the helm at Goderich. Peter brings three decades of mining experience in all aspects of operations with specific continuous mining expertise. Equally important, he brings a firm belief in the value of employee and community engagement and a strong track record of leading an organized labor force. We're confident he'll provide the day-to-day leadership we need to drive further progress at the mine, and we're delighted to have him joining our team. Overall, I'm extremely pleased with the ongoing work of our optimization efforts. and firmly believe without them, we would not have been able to deliver the results we have thus far in 2020. Looking ahead, these results have positioned us well from a volume and underlying cost perspective to help weather any challenges in the second half of the year, including continued uncertainty around what impact a sustained or even a second wave of COVID-19 spread in the fall might have on our supply chain or certain end markets. The current North America highway bid season is a prime example of how our improved production allows us increased flexibility to execute on our strategy, even through a challenge market period. The current bid season for North American highway de-icing is about 75% complete. Not surprisingly, it's been a tough pricing environment given the mild winter and the improved supply position for producers. In fact, as we've stated before, We believe that the constrained production we faced at Goderich likely contributed to a price response for the last couple of bid seasons as imported salt began to play a more significant role in meeting seasonal demand. This bid season provided an opportunity for a reset. We've taken a disciplined approach to placing our low-cost production from Goderich to regain market share while maintaining attractive margins. Overall, we estimate that bid volumes in our served market have declined about 15% due to the elevated inventories following the mild winter. But given our bid results thus far, we estimate we've increased our bid volumes for the upcoming winter season by about 8%. We also expect our average awarded bid price to decline about 11% compared to the prior bid season. Obviously, we always like higher prices. But as you can see in the chart on slide eight, over the last three bid seasons, our average awarded bid price has increased 14%, even factoring in this season's price decline. All in all, we believe we've increased our market share in a disciplined and sustainable way, particularly given our improved cost-to-serve customers, which is making us competitive in more geographies. Given the results of the bid season, plus the benefits we're achieving from improved operational execution, we still expect to achieve excellent salt segment operating and EBITDA margins for the full year 2020. Before hearing from Jamie, I'd also like to point out that our plant nutrition businesses have momentum going into the second half of the year. In North America, demand for SOP continues to be stable, and micronutrient demand continues to exceed prior year results. We're also cognizant of potential pricing headwinds as some customers may take a more conservative approach to inventories and spend in light of continued COVID-19 uncertainties. In Brazil, we've recently launched two new products, including the introduction of our award-winning RocketSeeds line into our core South American market, which will complement an already stellar year out of that business. The way our team in Brazil continues to perform only increases our comfort level with the previously announced pause of our strategic review of this business due to COVID-19 and further highlights our position that any future action involving our plant nutrition South America business would have to reflect the intrinsic long-term value of these assets. With that, I'll now turn it over to Jamie to provide additional color on our second quarter financial performance and more detail on our second half outlook. Jamie?

Thanks, Kevin, and good morning, everyone. I'll start on slide nine with some comments on our consolidated results before discussing our segments, our outlook, and then a few balance sheet items. This was a very strong quarter for us, given the second quarter is typically our lowest earnings period. We delivered strong sales volume growth across all three segments, and excluding the FX translation impact on our Plant Nutrition South America results, We delivered revenue growth across all three segments as well. Operating earnings rose significantly and our EBITDA result increased 44% compared to the second quarter of 2019. These results, combined with the strong first quarter earnings and the US tax refund we received earlier this year, generated free cash flow of $191 million, more than double the first six months of 2019. As indicated in the EBITDA bridge on this slide, strong salt segment performance in the second quarter was the primary driver for the better year-over-year results overall. We discussed these results on slide 10. Second quarter 2020 salt segment revenue increased 8% year-over-year as an 18% increase in highway de-icing sales volumes and an 11% increase in highway de-icing selling prices from prior year results, more than offset a 9% year-over-year reduction in consumer and industrial sales volumes. A bit of April snow, as well as customers purchasing their minimum de-icing contract volumes, bolstered the improved highway de-icing results. While the decline in sales of non-de-icing salt products due to COVID-19 related impacts depressed consumer and industrial sales volumes in the 2020 second quarter compared to prior year. In addition to increased highway de-icing sales, lower logistics and production costs helped us double our operating earnings and deliver a 46% increase in adjusted EBITDA in the second quarter of 2020 compared to prior year. Per unit logistics costs declined 22%, even after excluding last year's $2.8 million cost impact related to extreme flooding along the Mississippi River. The factors driving this improvement include our overall enterprise wide optimization efforts, improved utilization of Great Lakes vessels, lower fuel costs, as well as favorable customer and geographic sales mix compared to the second quarter of 2019. Per unit production costs this quarter were also significantly lower than prior year. We achieved significant benefits from both lower year-over-year North American mining costs and better product sales mix. However, about half of that benefit was offset by higher per unit costs in the UK due to lower year-over-year production levels as we adjusted for lower weather-related demand and compliance with the UK government COVID-19 guidance. Consumer and industrial salt costs were also slightly elevated due to some minor COVID-19-related production inefficiencies. Even with both of these short-term cost pressures, we delivered the lowest second quarter per unit cash costs in this segment since 2006. Looking forward, we continue to expect lower per unit costs in the second half of the year, although not to the same magnitude as the second quarter result. We are managing production downward at our Cote Blanche mine due to reduced deicing demand in the southern portions of our North American market, as well as lower demand from chemical producers resulting from COVID-19 impacts. That utilization rate is expected to negatively impact salt costs by about 50 cents per ton in the second half of the year. We're also expecting a stronger mix of premium package de-icing versus bulk de-icing in the second half of the year when compared to last year. This change in sales mix would also increase total salt costs by about 50 cents per ton. However, it is expected to push consumer and industrial average selling prices significantly higher in the second half as well. Even with those cost headwinds, we believe we can deliver $1 to $2 of salt unit cost improvement in the second half of the year compared to the second half of 2019, assuming average winter weather in the fourth quarter. This is based on the elimination of purchased salt and continued improvement in our Goderich mine operating rate. Turning to Plant Nutrition North America results on slide 11, we note that strong volume growth of 20% compared to the second quarter of 2019 drove a 15% increase in revenue, more than offsetting a 5% decline in average selling prices. We remain pleased with the stability of our SOP price, which declined about 4% this quarter on a year-over-year basis. but was only $5 per ton below our first quarter 2020 result. The slight sequential decline was largely driven by geographic sales mix, including some international sales volumes. On a net sales price basis, our SOP only price was actually up $3 per ton sequentially. In light of the persistent pricing challenges facing macro fertilizers over the last 12 months, this is a testament to the appealing value proposition of our SOP product, Protassium Plus. Unfortunately, that downward pressure on macro fertilizers does have a negative impact on grower and dealer psychology and is a potential headwind for pricing in the second half of 2020. Operating earnings in the quarter increased about half a million dollars, primarily due to increased sales volumes and lower depreciation expense. partially offset by the lower average selling prices, while EBITDA was down just slightly. Our EBITDA margin compressed about four percentage points compared to prior year on the lower sales price, partially offset by some logistics benefits. We discussed our plant nutrition South America performance on slide 12. The positive trends we saw in the first quarter gained momentum in the second quarter with continued strength in agriculture product demand resulting in sales volumes increasing 17% from 2019 levels. This has been driven by very attractive grower economics for the Brazilian farmer. We have experienced particular strength in our higher value products sold through our direct, which was the primary driver of the 18% average price increase in local currency for agriculture products. We expect our B2C business to continue strengthening in the second half of the year. Although we may have seen some sales pulled forward into second quarter as barter rates have been very attractive and many soybean growers forward sold their crop and purchased inputs a little earlier than normal. Chemical solution sales volumes increased 6% driven by chloralkali demand, which offset some COVID-19 related declines in our industrial process chemical sales. In local currency, These factors combined produce a 28% increase in revenue for the second quarter of 2020 compared to prior year. This increase in revenue and more attractive sales mix compared to prior year helped drive substantial operating earnings and EBITDA increases, as well as margin expansion compared to prior year. Profitability was also boosted by better production costs due to asset utilization improvements, lower energy costs, and early benefits from our enterprise-wide optimization efforts. The second half outlook for our segments is discussed on slide 13. I'd like to take a few moments to provide additional color on some of the puts and takes that are shaping this outlook. First in our SALT segment, as Kevin discussed, our highway de-icing average selling price is expected to decline as a result of the North American bid season results. although the realized decline is likely to be less than the average bid price result. Remember that our reported highway de-icing sales results include rock salt sales to chemical producers and sales in the UK. Taking those other volumes into consideration, we are anticipating average selling prices for the second half of the year to be down between 5% and 7% overall compared to second half 2019. We expect second half EBITDA for the salt segment to be similar to the second half of 2019. Several offsetting factors impact the outlook. While fuel costs are certainly lower and helping our logistics costs, we are experiencing increases in barge and vessel rates. And as a result, we expect slightly higher year-over-year shipping and handling costs for the rest of 2020. We do expect to offset some of this pressure with lower salt product costs as we are no longer using purchased salt to serve our highway de-icing customers, and our gotterage mine costs are expected to decline about 15% from second half 2019 costs. However, as I previously discussed, we are expecting these benefits to be partially offset by increased per unit costs at our Cote Blanche mine and a product mix shift toward premium package de-icing within our consumer and industrial business. In our plant nutrition North America business, we believe our second half sales volumes will be slightly below prior year results as we pulled forward some international sales activity from the third quarter into the second quarter. Average selling prices for the business are expected to increase as we plan to sell more micronutrient products during the second half than we did in the second half of 2019, as crop and weather conditions are significantly better compared to prior year. As a result, we could see higher year-over-year second half revenue for the segment. We expect this segment to deliver roughly flat to slightly higher EBITDA for the second half of 2020 compared to 2019 results. We have a couple of factors offsetting a portion of our expected second half revenue increase. We currently expect a modest increase in per unit logistics costs versus prior year due to rail rate inflation, and a step up in per unit production costs due to the increased mix of micronutrient sales compared to prior year levels. Strong performance in our plant nutrition South America segment is also expected to continue due to attractive grower economics in Brazil. While the weaker local currency is helping with fertilizer affordability, it is negatively impacting our translated results. We are also keeping a close eye on the progression of COVID-19 in Brazil, as we are for all the communities in which we operate. Fortunately, all of our sites there continue to produce efficiently and serve the strong demand we are seeing. And our chloralkali plant is working hard to meet increased demand for chlorine products due to the pandemic. This is providing an offset to some lower demand for other chemical solutions and markets. All in all, we are reaffirming our EBITDA guidance for the full year of between $330 million and $370 million. While we have several significant headwinds, including currency translation, highway de-icing bid season pricing, and lower UK salt demand, we have taken actions across the entire organization, which are expected to offset these headwinds to a large degree. On slide 14, where we provide our corporate items outlook, you can see that we are reducing our expected range for corporate and other expense as we continue to limit all spending to critical items only. In addition, we are lowering our interest expense range due in part to the fact that we completed a three-year U.S. accounts receivable securitization facility, which is now our lowest cost of capital overall at just 1.5%. Furthermore, we also expect to reduce our capital spending compared to our initial 2020 plan. These measures, in addition to improved execution on many levels, are helping to drive improvements throughout our businesses, demonstrate our progress towards an improved balance sheet, and are importantly helping us maintain a strong liquidity position. We ended the second quarter with about $67 million in cash and $300 million in total liquidity. Finally, it's important to note that we expect to generate $125 million to $150 million of free cash flow for the full year 2020 compared to $62 million in 2019. Now I'll hand it back to Kevin for some closing remarks.

Thanks, Jamie. I want to take another moment to emphasize that we are making important progress on our journey to build a company consistently able to deliver value for all of our stakeholders. For the rest of 2020 and beyond, the key factors for us to deliver this value start with the health and safety of our employees and our communities. With or without the current pandemic, this is critical. Second, we're an essential business providing critical inputs across a wide range of markets, most of which are resilient throughout the economic cycle. And that is largely the case now. Our employees have demonstrated great agility in meeting our customers' needs during this challenging time. This is a key proof point that we're getting better at execution and growing those capabilities, which we expect to continue building with our enterprise-wide optimization effort. And as these benefits are reflected in our future earnings, we expect to continue improving our balance sheet and earn the right to explore additional growth opportunities for our businesses, be they organic or otherwise. I'm extremely pleased with the progress we've made thus far and excited for what lies ahead for Compass Minerals. Now, I'd ask the operator to open up the session for questions. Thank you.

Thank you, sir. If you'd like to ask a question at this time, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure that your mute function is turned off to allow your signal to reach our equipment. We ask that you please limit yourselves to one question and one follow-up question so that we take as many questions as possible. Once again, that is star one if you'd like to ask a question. And we'll pause for just a few moments to allow everybody the opportunity to signal. All right. And one more time, that is star one. If you'd like to ask a question, we'll pause for just another moment.

And we'll take our first question from Mark Connolly with Stevens.

Thank you. Two things. First, Brad, you recently said that you were pleased with the way Compass approached the bid season. So I was curious if you could give us a sense of of what you saw and whether there were any big surprises this year. Last year we had some places where you didn't see a lot of big competition. So I'm curious how this bid season progressed. And then the second question, I don't know, maybe this is for Jamie. I'm curious if you have any sense of how much of a pull forward you might have seen because it looks like acres are going to be up nicely in the second half. So some producers that we're talking to are figuring that even though they did pull some sales forward, it may not pull down their overall results very much in the next quarter. So just curious if you have any visibility on this.

Hey, Mark. This is Brad. Appreciate the question. You know, I would say to characterize the season, it's certainly been competitive. As Kevin and both Jamie pointed out in their comments, the RFQs, We would estimate to be down in the mid teens. We're about 75% of the way through, so we're not done yet. You know, am I pleased? I am. Our bid team has decades of experience backed by analytical tools that really help us approach each bid in a very process-driven, disciplined manner. And, you know, the goal of each one of these bids is to optimize the production tons that we have you know, now really from Godrich's mind with a degree of consistency where we're producing more tons utilizing the same inputs. So, you know, it's obviously my team's job to put those tons in the right places. You know, as I reflect on the season, are there surprises? There's always going to be surprises. You know, there are going to be markets that make perfect sense, and we estimated it perfectly through our analytical tools and knowledge and historical context. And there'll be others that are probably more surprising. But, yeah, it's certainly been more competitive. I think, obviously, our production coming online, our competitors having inventories, a weaker winter. You know, as we say, a good early winter and a sustained winter is a key catalyst for pricing and volumes. And, obviously, we didn't really have a lot of that coming into this season.

One other thing, Mark, too, if I might add, I mean, one of the key things that we talked about for us was, you know, Godrich had its, you know, issues over the past couple of years. We'd begun to import a fair amount of tons. And the goal this year was not to rely on those imports. And to Godrich's credit, the operating team up there, they've done a good job of delivering that and getting Godrich back on track and putting us in a position to grow and our market share back to kind of what was really ours to start with. So we're really just clawing background that we used to own anyway. And then in recognition of what we're seeing in the market, that's why we decided to curtail some production at Cote Blanche to try to better balance that out. But as Brad said, look, we're really pleased with You know, look, we always love higher prices, but at the end of the day, you know, the strategy for us has been getting Godrich back on track. And, you know, kudos to the team there for getting it headed in the right direction.

So, Jimmy, you want to hit Mark's second point? Mark, I think you were referring to kind of plant nutrition, North America, and SOP and the pull forward. Is that right?

No, no, no, I'm thinking about Latin America because we certainly are seeing in other crop inputs some pull forward, you know, from farmers plus the cast. And I know your comments didn't reflect that so much, but, you know, with acres in Brazil looking like they might be up, I'm just really curious how those two things might be balancing. And also whether your Brazil mix is shifting to more direct because of that.

Yeah, well, maybe Brad can add some color on that. But, you know, it's hard to have perfect visibility in how that's going to unfold throughout the rest of the season. Obviously, very pleased with our volumes. But it's difficult to say the order of magnitude there. But it's a significant amount where we saw a lot more higher value products purchased in the quarter. Now, we're going to push hard. and try to deliver and look back and say, well, it wasn't pull forward, we hit these numbers better. But we're just cautiously optimistic that some of those have been bought, and we won't be able to, you know, kind of hit the second half that we thought because they were pulled forward. I don't have a good figure for you in terms of how big that is. But it was, we believe it is sizable, which is why we haven't changed our full year volume guidance there in South America. Brad, did you want to add a little color on the direct?

I think you summed it up, Jamie. You know, I think the other thing I would mention on our direct-to-farm team, we call it the B2C team, Mark, and that team continues to perform at an exceptional level. And so even through the pandemic, you know, where we've had salespeople who have had a more challenging time accessing their accounts with their customers because some of the municipalities have and the states have really shut those things down. Our team has continued to use digital means to reach their customers. We just wrapped up our eighth installment, eighth annual installment of NutriXperts, which is some of the world's leading thought provokers on specialty crop nutrition and crop nutrition. Two-day program, we had over 350 key crop nutritionists advisors from Brazil in attendance, and that program continues to get rave reviews from the crop consultant. So I've been very pleased with how the team has adapted to the environment that they're in right now. We're seeing customers begin to sort of open up and welcome us back to their farms, but it's slow going in Brazil, as you might expect, based upon the cases in country.

Sure. No, and I appreciate it.

It's very tough this quarter to get a sense of the pull forward, but I appreciate your help. Thank you. All right. We'll take our next question from Vincent Anderson with Stifel.

Good morning. Nice job on the quarter. My first question was for Kevin. You know, just any major takeaways, I think this is your first full annual maintenance shutdown at Godrich under your leadership. So, any takeaways there that, you know, kind of tied to that? Was any of the lower CapEx guidance coming out of Goderich? And if so, what was, what drove that decision?

Yeah, why don't I take it at a high level and then pass it off to George to make a few comments about Goderich. We've got a lot of great things going on up there, but I think, and echo George's sentiments here, that we would characterize the maintenance shutdown at Goderich as being, having been very, very successful. It was very detailed, very planned out. They got everything done that they planned to do. And, you know, look, as it relates to capital, we always estimate up front. And then, you know, as we manage our way through this pandemic, we're trying to limit spending to that, you know, that's absolutely critical because Jamie's, you know, he's watching our balance sheet along with myself very carefully to make sure that, you know, in the event we have something unexpected occur with this pandemic that, you know, we're in good shape to be able to absorb a body blow like that. But, George, would you want to add any comments to, you know, the Goderich shutdown, just Goderich in general, how things are going up there?

Yeah, sure. Thanks, Kevin. Again, I appreciate your question there, Vincent. Yeah, a little bit more on what Kevin said. I mean, you know, when I look at the annual shutdown that we had, I would say it was a real success. Some of the major things that we've actually done during that process were We were actually setting ourselves up for the new eastern mains that Kevin spoke about earlier, so it's some of that transition we had in that area. Also, we have the compaction that we talked about in the last quarterly meeting, setting that up, some of the belt lines and some of the transition areas. So, again, when you look at it, we're still spending a lot of capital at Godrich. You know, when you look at where it's at, it's very selective capital. But, you know, some of the things that we're seeing in our shutdown is our lifecycle management, trying to understand in real good detail what you know, our miners, our FCPs, you know, what type of maintenance do they need annually? What do they need monthly? And not to say they haven't done that in the past, but to put some real good rigor and timing around how we're going to actually do that on a year-on-year basis. So, look, I thought it was an extreme success. I would always go back to safety. We didn't have any injuries during that period of time. There's a lot of work going on. So I'm pretty excited about where we are and where we're heading for in the future. Thanks, Kevin.

That's very helpful and encouraging. If I could turn back to the bid season just in a little bit more detail, you know, that's a pretty significant outperformance on volumes. I guess the question would be specifically are the importers besides yourself, losing a lot of that share? You know, is there any encroachment from the East Coast winter being also exceptionally poor last year? And then finally, you know, did you notice any change in Kistner's bidding under its new ownership this year?

It's so a lot to unpack in there. So just a little bit of background on the imports. I mean, I think we enabled, in large part, we enabled importers to kind of come into the market just given the issues that we had at Goderich in particular production-wise. And then, you know, as we continue to improve up there, and we've improved a lot over the last year, but I think we have that much to go again. you know, this market will begin to rebalance. And I just don't see the importers' ability to stay competitive in the market, especially when you look at when we get Goddard's where we want it to be, where it's going to be on a volume basis and a cost basis. So I think, you know, it probably takes a couple of seasons for that to balance out. And we're not focused on running the importers out. We're focused on playing for the long term up here because this is a 60 to 100 year mine. And we're getting it set up now for that. So we're playing a long game and you know, importers that they can come, they can go whatever, whatever they want to do. But I think over time, what you'll see is this market kind of kind of rebalance with Godrich being the premier, the premier low cost supplier there. And then in terms of did we see any encroachment into our served market from the folks, you know, over in the east? that had, you know, suffered a more mild winter than even we did. The answer to that question is no. No, no, just absolutely not. And then the last question, I'm probably just going to let that one go. I don't really want to comment on our competitors' behavior. We saw pockets of hot competition, you know, everybody trying to get their tons placed, and, you know, a lot of it played out as you would expect, but we did have some areas that were pretty competitive. But again, we're real pleased with where we ended up. We've got a little bit more to go. And, you know, our game is to try to optimize our production and optimize the profit margins, thinking about it more on a net back basis as opposed to a gross price basis, because that's what really matters at the end of the day.

Thanks for the question.

All right. Yeah, absolutely.

I'll pass along. Thank you.

All right, next question comes from Chris Parkinson with Credit Suisse.

So just to quote one of the first questions, can you talk about the margin differential between the incremental increase at the Goddard production versus the imported products in years past? How should we think about the differential versus 11% lower prices just in terms of like netbacks and profitability? Can you give any framework there? Thank you.

Yeah, yeah. So, you know, we've historically talked about kind of the $15 million of incremental costs related to import salt back in 2019, and that was going across years. You know, we had about $5 or $6 million of that cost that was in the first quarter, really more like $5. There's been about $6 million year-to-date. You know, It is a significant impact to the tons that we sell. We were selling on an import basis, but, you know, you could think of it as I'd say roughly five or eight points it can be pretty easily if you want to think about that differential.

Got it. And just to correlate with the last question, we're obviously on top of the, you know, the increase of 8% awarded bid volume growth versus your comments, I guess, is a negative 15% decline in RFQs. Can you just talk a little bit, if, and once again, you can help us a little bit, but can you just talk about, you know, any additional shift in strategy, if at all, in terms of your addressable market perceptions, just given you did have a weaker winner in the East Coast, obviously not a focus of your markets, as well as your, let's say, 12 to 13 focus markets in your snow index in the Midwest, and just how you're thinking about that on an aggregate basis versus, let's say, how you were looking at it pre a lot of the issues at Goderich. Has there been any change in perception there, or is it just trying to go back to kind of where you were? Thank you.

Yeah, Chris, we were having a little trouble hearing you there. I don't know if it's on our end or yours, but... You know, we don't see it much differently, and it is going back. Like I said, we couldn't pick up a lot of that question. There was a lot there. But, you know, when we look at the market as a whole, our served market, you know, the East Coast primarily served by imports over there, a couple other players, you know, in between. But we don't see the market changing that much. And I'm sorry, maybe if you had a better signal, I could answer that a little bit better. But I don't really have anything more to add there.

No. I mean, I guess as we think about our market, you know, we can reach it from Cote Blanche. We can reach it from Goderich. And what we'll do is, you know, as Goderich gets better and better, its reach gets greater and greater. And, you know, there's probably some areas outside of the traditional served market that become – more interesting for us with the passage of time. We're not going to approach those overly aggressively, but, you know, we just try to optimize our portfolio, you know, on a cost basis to optimize around margins. I'm not sure that answers your question, Chris, again, because as Jamie said, it broke up pretty badly about halfway through there.

If you can hear me, you did get the question, and thank you very much.

Okay. All right. Good. Thanks. Thank you.

All right, once again, that's star one to ask a question. We will next go to Joel Jackson with BMO Capital Markets.

I'd like to follow up on the same discussion. I mean, if you think in kind of high-level language, you know, on bid season pricing here, well, you know, Kevin, you came in, you did a strategic assessment, and you talked about how, you know, it looks like you're playing the long game here and the strategy to get garbage back on track. And this is the year – you know, to try to push Goderich harder. And to do that, I guess you had to win more volume, push out imports. If we talk about, I don't know, $5, $6 on lower pricing on the portfolio, on the holiday hiking portfolio, can you talk about what kind of cost improvements there is from freight, from Goderich? How do you make that up? Like, it seems like, you know, you have analytical models, but, you know, in some of the states, it seems like you bid so low, it would be hard be more profitable on the mix you have now through this season. I don't know if that makes sense there, but I'm just trying to figure out how do you overcome such a large price decrease? What do you have to get out of Goddard's trade class to make it all make sense?

Well, so number one, again, we're in this for the long haul. This is not an optimized season by season. It's been very important, I think, given the attention that Goddard has gotten and the issues that it's had, to allow it to progress on its plan back towards restored health, consistency, profitability, et cetera. So, you know, taking your argument maybe to an extreme, you know, one could have said, well, we need Idle Godrich for six weeks or two months or something. I just didn't think that was prudent, nor did George, when they're on such a nice run and making such a nice progression. Because, again, we're thinking about this over the very long term. What's going to drive pricing year on year is the kind of weather that we have. We don't have any control over that. What we can control is what our mines look like, how they produce, what the safety record is, their productivity, how we allocate capital to them, etc. Then over the long term, based on what we see, the perceived difference in supply and demand, we'll moderate moderate accordingly. So I don't have any regrets at all about the position that we took. In fact, I'm quite pleased with where we've ended up thus far. And, you know, we'll just take it winter from winter from here. Do you have anything you want to add to that, Jamie?

No, I mean, I think that, you know, remember, net prices are up 14%. We've got an environment where we expect costs to be falling. And over the last three years, net price is up 14%. So we're very well positioned to go forward. And as Kevin said, I mean, every bid season has a life of its own. And we're running this business over the long term. And that's all.

That's helpful. So my follow-up is looking at Goderich. So getting it back on track, the things that you're looking at. You know, if you want to try to push another million tons or whatever it's going to be, can you talk about how you're going to get there? Like, do you have to look at the equipment? Do you have to bring back drill and blast? Do you have to do a hybrid model of drill and blast and continuous mining to really shove out that volume over the next couple of years? Did that add on more cost? Did you need to add on more bodies? Does that want you to push for more volume for fixed concepts? Or can you talk about the interplay and all of that?

Yeah, so let me, again, hit it at a high level and ask George to add some additional color. Number one, and this is really important, we haven't added additional inputs at Goderich. Inputs are the same, output's higher, so that means efficiency is getting greater, costs are falling. Over the long term, we will want to moderate our fleet up there. But as we've talked about, you know, we're trying to get the eastern roadways developed because that's the artery for the next 50 years at that mine and get these new rooms set up. But you could expect over the course of the next few years that our production fleet is going to look different than it has in the past with these, you know, these newer CM46s, et cetera. Again, it's a work-in process. We are on the right trajectory. We still have a long ways to go. We didn't get into this fix overnight. We're not going to get out overnight, but I'm very pleased with the progression. I think this would be a good opportunity for George to add some color because he's all over this thing on a daily basis with the team up there.

Yeah. Thanks, Kevin. Just to add a little bit of color there, I'll try to temper my enthusiasm here, but Kevin laid it out pretty well. Lots of the changes that we've seen over the last year, a lot of folks think it's equipment, it's people, it's anything but that, as Kevin highlighted. It is around operational efficiency. It's understanding maintenance. It's taking a look at how we operate our shifts. It's all about our people. It starts with safety. And, you know, every time I talk about this, lots of times everybody's looking for a silver bullet, I guess I would call it. But when you look at it, it's not one thing. It's multiple things really in succession that are driving the improvement at Godrich. As I said, we started with our people. Again, a great team up there, great resource. Again, when you look at it, I'm pretty excited about where we are. I don't see that in the future. I think what we'll continue to do is see how we optimize that with looking at the equipment we have. I'd say maybe getting more out of it. We might even look at what we do to potentially reduce the unit and increase, and I say reduce the unit, but actually take some metal out of the operation itself so we don't actually have to put additional FCTs and additional miners. As Kevin said, the 46s are really pounding out the tons. So hopefully I added a little bit of color, Kevin. Thank you.

Just on the question I was asking, do you have to reintroduce drill and blast to get to the volume targets you want?

No, no, absolutely not. We may do it opportunistically from time to time because we've got no issue with drill and blast on a limited basis, but it would be opportunistic as the situation presents itself. But, no, we do not have to do it to get where we need to be, absolutely not.

It's a mechanized mine. Sorry, it's a mechanized mine going forward. As Kevin said, we don't, you know, we have opportunities to do it. But, again, that's not to increase production. That's to supplement or, you know, do some development areas that we currently have. So I don't see that short-term or long-term. Thank you. Thank you.

All right. Next question will come from David Begleiter with Deutsche Bank.

Thank you, Kevin. You mentioned Cote Blanche having low volumes flowing through. Are there cost actions you can take there to limit the impact on those unit costs?

Yeah, I mean, we're doing everything we can to, you know, to minimize the cost of the curtailment. But, you know, look, as we all know, this is a volume game, and you have relatively high fixed costs. cost set of inputs and when you cut the volume, it's going to make your unit cost look higher than it has in the past, but we're trying to minimize that and manage our way through it. We spend a lot of time on these calls talking about Goderich, but you got to give a special call out to the folks at Cote Blanche who basically hit their plan day in, day out and do exactly what they're asked on a regular basis. we'll have a good winter and we'll be able to get them dialed back up so we'll be at full production levels and get that full cost benefit.

Very good. And just on the premium packaged increase, what's driving that increase and how much higher margin is that product?

Can you repeat that question? Sorry.

On the premium packaging increase you're talking about, what's driving that increase and How much higher margin is that product?

Yeah, it's significantly higher margin than bulk. Think of selling massive amounts by the more than truckload by the rail car, so to speak versus selling package de-icing. So it's a significant impact and you'll see a very material improvement in the back half and that will come through the CNI pricing. I'm not going to tell you exactly how much better those margins are, but they are significantly better.

Thank you. Next, we'll go to Chris Shaw with Monash Crispy. Yeah, hi.

Good morning, everyone. How are you doing? Hi, good morning. I can ask him, Goderich. Sorry, everyone's sort of asking questions around that, but it's obviously important. But, you know, if you go back, I can't remember how many years ago, and the You know, when Compass, before, you know, Kevin, you were there, Compass set out on this plan to reline some shafts, bring in the continuous mining equipment, you know, and there was a goal of, you know, increased volumes. And I just have to figure out how far along are we on that process? Or am I comparing apples and oranges now? But, I mean, the initial sort of, I guess, effort or goal to get Goddard to this higher production level and all, I mean, are we – Are we 90% of the way there? Or given that we're only replacing the imported volumes this year, are we not even back to sort of where we started? I've kind of got lost over the years where that sort of original plan is. Maybe that plan is up there.

I don't know. That's understandable. Yeah, look, I'm not sure how much has been talked about in the past, you know, what the targets were. I actually don't care what those original targets were because I see a different set of targets now up there. And I know I've said this on multiple calls. I think at Goderich we'll run out of market before we run out of capacity there and capability once we get everything running exactly the way it needs to be, and that's when it'll – you'll see us then begin to calibrate, okay, this is a year where it needs to produce 20% less than it did last year, for example, and we'll find a way to be able to manage through that from a supply-demand perspective. But given the gear that's there, and, you know, getting reoriented towards this long-term mine plan. I think, you know, expectations of the past are not particularly all that relevant because I see much more potential than perhaps they even did in the past. But, again, it's going to take a while to get there, getting this new long-term mine plan developed. As we talked about, we've got 2,000 feet. I think there's an illustration in the appendix, but we've got about 2,000 feet that's developed. We're, you know, starting to transition to that, you know, that Chevron pattern, which will be easier on the FCTs, et cetera. So, you know, as we get the mine positioned, I think it'll be, you know, it'll be a very predictable, very reliable from a volume and cost and output standpoint, and then we'll calibrate volumes based on what we see developing in the marketplace.

Fair enough. And then if I could ask on South American business, I mean, I know you suspended the strategic review, I guess, last quarter, but what's the sort of signpost maybe you're looking for to sort of bring that back to, you know, an active status in terms of looking for an alternative home for that maybe?

Yeah, I mean, look, we'll kind of play it day by day based on, you know, what's going on in the environment. You know, travel's still extremely limited. Capital markets are a little better than they were there for a while, but At the end of the day, I think our pause does nothing but reemphasize the fact that we made a good decision. The team down there gets a ton of credit for the way they're executing this year, and any action that we'd ever contemplate, it's got to recognize the intrinsic value of those assets, or we wouldn't pull the trigger on it. So we'll decide when the time is right, and beyond that, I really don't want to say too much more about it.

Great. That's helpful. Thank you.

All right, well, next we'll go to David Silver with CL King.

Yeah, hi. Thank you. So I'll apologize in advance. I joined the call a little late, and I had a little trouble hearing a couple of the questions as well. So apologies if I make you repeat yourself. First thing, you know, three months ago, Jamie, I believe, set out a cost reduction target for your salt business of an incremental $2 a ton, I believe, lower mining costs or production costs year over year beginning in the second half. And there's been many questions about that. And again, I apologize if you touched on this already. But is that $2 a ton target still on track for second half? And would that, and I apologize, would that apply to Goderich alone or does that apply to the entire salt segment. Thank you.

I think we mentioned in our prepared remarks that we're targeting $1 to $2 of total salt cost improvement in the second half of the year. A couple of things are impacting that. There are a few mixed issues there, but most notably the Coke launch curtailment is having an impact there, as well as the U.K., the impact of lower production at the U.K. So, yes, we still expect lower costs in the back half across all tons of $1 to $2. So, you know, we don't talk about the Goderich-specific factors on a dollars-per-ton basis.

Okay, great. Thank you. And then I did have a question maybe about a strategic issue that's kind of looming in the industry, and that's, you know, that the owner of Morton Salt has kind of put the asset up for sale with a timetable, ideally, I think, by the end of the year. And I understand or I stipulate you're not going to be able to swallow it whole or anything or that that's kind of off the table, but You know, this is the second time the asset's been up for sale in a little over a decade. And I'm sure institutionally, you know, you guys have done your due diligence on that asset. So a couple of things. But, you know, from an antitrust perspective, I mean, do the authorities look at the SALT business all at one? In other words, one ton of SALT is the same as any other? Or do they segment it by, you know, the highway de-icing business versus the consumer business versus, I don't know, the agribusiness element? And then secondly, I mean, just noticing the stock price of the owner of that company. I mean, it really doesn't look like the stock price of them, in my opinion, is acting like they're expecting a, you know, a knockout bid or anything. From Compass's perspective, would there be an opportunity maybe to separate the business that's on the market and maybe go after the commercial or the non-de-icing salt there? In other words, pair up the leading de-icing salt producer with the leading branded salt maker? To me, that that would seem like a natural pairing and would really cement, you know, their leadership position in the industry. So there's a lot there, but I'm just wondering, you know, what, if anything, can be done from your perspective in terms of strengthening your company as a result of the pending sale of the Morton Salt business? Thank you.

Yeah, let me address the parts of that that I feel comfortable addressing. You know, when I got here, I think, or at least I hope I did, I made it clear that our top priorities are creating a culture and a system and a structure here to deliver on our commitments. And we felt like just after we did our top to bottom assessment of the company that we weren't delivering at our full potential. And so our 100% focus has been dedicated to that because we have a great set of what I would call privileged or advantaged assets that weren't performing to their full potential. And there's a lot of potential here. So that's really jobs one, two, and three for us. And as it relates to strategy, I mean, we're not, you know, sitting back ignoring what's happening in the world. We do want to think about that, but I think for us, number one, we've got to be able to deliver on our commitments to sort of re-earn the right then to think about strategic intent, be it organic growth or inorganic growth via the means that you're talking about. I don't think there's any doubt from a Justice Department standpoint that the Morton asset would be highly problematic for us, and I don't think it takes a rocket scientist to figure that out. But look, to the extent that whoever ends up with that, and there are assets that could fit us better than them, we would certainly be open to those conversations to build out our portfolio, to augment our portfolio, but it would have to be at valuations that we think make sense, that are strong synergies and fit, you know, with our competencies. So, wide open to those in the future. But beyond that, I really wouldn't want to comment any further. But thank you. It's a good question. Thank you. And I don't know if Jamie wanted to comment on the whole HSR thing, how they look at it, because I don't really know.

No, I mean, I think you hit it with fundamentally there would be some issues. Nothing to add. Thanks, Craig.

Okay. Okay. Thank you very much. Appreciate it.

And ladies and gentlemen, unfortunately, that is all the time we have for questions, and that does conclude today's conference call. We thank you all for your participation. You may now disconnect.