Compass Minerals Intl Inc

Good morning and welcome to the Compass Minerals third quarter earnings conference call. All participants will begin in a listen only mode. A question and answer session will follow the presentation by management. Today's call is being recorded and replays will be available on the company's investor relations website. I will now turn the call over to Theresa Womble, Director of Investor Relations. Please go ahead.

Good morning and welcome to our call today to discuss our third quarter 2020 results and rest of your 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 George Shuler, our Chief Operations Officer. Before we get started, I'll remind everyone that the remarks we make today represent our view of our financial and operational outlook as of today's date, November 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 online. With that housekeeping out of the way, I will now turn the call over to Kevin.

Thank you, Theresa, and good morning to everyone. I know this is a busy earnings day for many of you, so thanks for taking the time to join our third quarter 2020 earnings call. As we published in our earnings release last night, our third quarter 2020 results were below prior year levels. There are several reasons for that delta, primarily related to delayed ordering of plant nutrition products in our North and South American markets. Those timing issues were driven by very dry weather in both Brazil, and key North American markets, as well as extreme wildfires in the western part of the United States. We also reported an unfavorable non-cash inventory adjustment related to an error in bulk stockpile measurements at our Ogden, Utah, SOP facility, which Jamie will discuss in more detail shortly. Because we expect these third-quarter market disruptions to be short-term, I'll focus my remarks instead on our year-to-day performance. On a consolidated basis, operating earnings for the year-to-date period increased 19% and EBITDA rose 10% compared to 2019 results. In addition, we generated over $188 million of cash flow from operations, which is a 93% increase from 2019. These are very strong results given the fact that we experienced a mild winter in all of our de-icing markets, in the first quarter, as well as the operational challenges stemming from the global pandemic beginning in March. We also highlight in our presentation the excellent trajectory we're on in terms of the safety of our employees. As many of you have heard me say before, our number one priority as a management team is ensuring our employees go home at the end of their shift as healthy as when they arrived. Our focus on this zero harm culture has been as critical to our ability to navigate the current pandemic as it is toward the sustainability of our organization. And anyone who has spent their career in mining knows the value of this focus benefits all stakeholders, as it has been proven time and time again that over the long term, the safest operations are also the most productive operations. This quarter, we continue to see a decline in our total case incident rate, or TCIR, In addition to achieving a multi-year low for our 12-month rolling TCIR average, I'm very happy to share that our TCIR in September was among the lowest of any month in the history of the company. I would also like to specifically commend the employees at our Ogden facility for their exemplary safety performance. They're very near to achieving 1 million exposure hours with no lost time safety incidents. As a leading indicator for operational success, This continuous improvement in our safety metrics speaks volumes about the discipline and commitment to safe and responsible operations our employees bring to their jobs each and every day. We clearly see the impact of this improved operational discipline and execution in our SALT business, highlighted on slide five of our quarterly presentation. I may sound like a broken record here, but it's a song I'm really glad to sing. Our Godrich mine continued to deliver very strong year-over-year production results. For the quarter, production volumes were 53% ahead of third quarter 2019 results, while the cost to produce these tons declined 24%. On a year-to-date basis, production tons have increased 28% from 2019 levels, and production costs are down 11%. These steadily improving metrics highlight the strength of our continuous mining platform there, which will help to ultimately secure Goddard's position as the leading salt mine in North America from both a cost and volume perspective as we continue to build our new mine plan there over the long term. Our Coke launch mine has also demonstrated strong performance here today, not to mention impressive dose of MOXIE. by meeting the challenges posed by not one but four significant hurricane events in 2020. These storms resulted in seven lost production days during the third quarter and another four lost production days in October. The preparations made by our team to protect the site and the safety of our people meant we've been able to resume production efficiently and effectively after each event. As another testament to our operational agility, we expect to make up most, if not all, the lost production from those unplanned outage days by the end of the year. This quarter, the SALT segment also delivered early benefits from our enterprise-wide optimization effort, particularly in terms of lower logistics costs. Our logistics team has worked diligently to reshape our network of partners to maximize efficiencies across our operations to deliver cost savings while maintaining strong service levels for our customers. Keep in mind that we typically move more than 12 million tons of bulk materials using multiple transportation modalities each year. Their work has helped offset the impact of some of the short-term freight rate inflation we're experiencing this year. Our commercial teams have also been highly engaged in the enterprise-wide optimization effort looking for opportunities to adjust and improve customer mix as well as pricing levels. These efforts were largely responsible for the 8% year-over-year increase achieved for consumer and industrial average selling prices this quarter. These achievements were important drivers for the margin expansion we've reported and helped us overcome the impact of lower sales volumes due to mild winter weather so far in 2020, as well as the COVID-19 impacts on non-deicing salt sales. Before moving on, I'd like to provide a final update on the 2020-2021 North American Highway de-icing bid season. Given the mild weather during last winter, it came as no surprise that the bid season was competitive, as we noted in our second quarter call, with total bid tenders down roughly 15%. We've essentially completed all bidding activity and have achieved 4% growth in our contracted bid volumes, with a price decline of 11% compared to prior bid season results. Consequently, these bid season results, along with slightly elevated customer inventories, have us trimming our full-year salt volume guidance by about 250,000 tons for 2020. Ultimately, our de-icing salt sales are driven by winter weather, and we expect the production and logistics cost improvements we've made provide offsets to lower bid season prices. Similar to the hurricanes hitting Louisiana, our plant nutrition business, particularly in North America, faced some unforeseen circumstances this past quarter, including extreme wildfires and drought. The smoke from these events has delayed the harvest of key crops, particularly tree nuts. This has also delayed the fall fertilizer application season, and thus we believe that a portion of expected third quarter 2020 sales volumes have been pushed into the fourth quarter. Recent conversations with customers have reinforced our confidence that underlying demand remains robust for the remainder of 2020, particularly given that some of these harvests are expected to be very strong, translating into nutrient deficiencies for the soil and thus the need for our products. Similarly, in Brazil, we experienced some timing issues with sales volumes in the third quarter. After a very strong second quarter, we believe some of our agriculture product sales were accelerated. Additionally, the hot and dry weather in that geography has also been unfavorable. So we believe a portion of what we expected to sell in the third quarter has now shifted into the fourth quarter. On a positive note, South American farmer economics continue to be very attractive, particularly for soybeans. In fact, a record level of the soy crop in Brazil has already been forward sold. which means farmers need yield and thus will need our specialty plant nutrients to support that yield. As a result of these underlying positive market fundamentals in Brazil and North America, we're keeping our sales volume ranges for 2020 unchanged for both the plant nutrition North and South America segments. Against the backdrop of the challenges we've all faced in 2020, I'm even more impressed with the efforts of our employees to engage and execute on our enterprise-wide optimization effort. This effort is focused on five broad value streams, namely operations, commercial, logistics, procurement, and working capital. I referenced previously in my comments some of the early benefits coming through our SALT segment results from certain of these value streams. We also highlighted last quarter the progress we're making with engaging our employees through our organizational health focus, as well as the compaction project at Goderich Mine to essentially recycle salt-fine waste into saleable product at a minimal incremental cost. Today, I'd like to share a little detail regarding a very exciting project at our Ogden, Utah facility. As many of you know, our solar evaporation pond-based SOP production at this site is among the lowest-cost processes globally for this specialty form of potassium. Anything we can do to expand our ability to produce with that low-cost feedstock further increases our competitive advantage domestically and globally. In a typical year, the very condensed brines from which we extract both salt and SOP feedstock spend two months in the final evaporation stage. After draining those ponds, we then spend 10 months harvesting, which is essentially scooping up the material from dry pond beds and transporting the material to the production plant. The goal of our optimization project is to extend the evaporation season and decrease the length of the harvest period. Doing so is expected to materially increase the yield of feedstock from the ponds. By insourcing our harvest and haul activities using pond-appropriate equipment, we can do just that. The change in equipment allows us to work faster and deliver more tons per load of material to our SALT and SOP plant. Currently, under this new equipment setup, we're delivering 28% more tons per load for SOP and about 14% more for SALT. As a result, we're able to shorten our harvest season to eight months and extend our evaporation season to four months, which ultimately provides us with more and higher quality SOP feedstock. Further, this new equipment is expected to be safer for our ponds, further reinforcing our sustainable harvest practices. This project highlights our ability to look at old problems and generate new and innovative solutions to help ensure the long-term sustainability and growth of our companies. As we continue to execute on the many projects throughout these value streams, over the next couple years, we expect to fundamentally improve the earnings potential of Compass Minerals. In the near term, we continue to aggressively work to overcome the various external factors which have reduced our earnings compared to our original outlook for 2020. Just to level set a bit, we entered the year with a strong expectation for around 20% EBITDA growth. using the midpoint of our guidance provided in February. We now estimate a combined negative impact of this original forecast of about $45 million from several factors which were largely outside of our control. These include mild winter weather in the first quarter, a Brazilian currency that progressively weakened throughout the year, and COVID-19 impacts, including both the cost of preventative measures at our sites and demand impacts on certain customer and industrial products. Despite these external challenges, through a laser focus on cost and buttress by our improved operational performance, we still expect to deliver EBITDA growth for the full year and additional growth in 2021. This is possible because of the underlying resilience of the markets we serve with our essential products, the strength of our advantaged assets, and the dedication of our employees to drive improvements through our optimization effort. We've also stayed on course with our strategic priorities and maintained close contact with our customers throughout these unprecedented times. I've recently had the chance to talk with a number of them personally about their own challenges and growth opportunities and, through their perspective, have an even greater appreciation for the essential nature of our products and the important role we serve for our customers as well as the communities where we operate. All of these things generate great excitement for me and the entire Compass team. Now let's hear from Jamie, who will discuss the third quarter results and outlook in more detail. Jamie? Thanks, Kevin, and good morning, everyone.