Compass Minerals Intl Inc

year earnings conference call. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star one on your telephone keypad. If you require any further assistance, please press star zero. I'll now turn the call over to Douglas Criss, Senior Director of Investor Relations. Please go ahead.

Douglas Criss Good morning and welcome to the Compass Minerals fourth quarter and full year 2020 earnings conference call. Today, we will discuss our recent results and our outlook for 2021. We will begin with prepared remarks from our CEO, Kevin Crutchfield, and our CFO, Jamie Stanton. Joining in for the Q&A session are Brad Griffith, our Chief Commercial Officer, as well as George Shuler, our Chief Operations Officer. Before getting started, I would remind everyone that the remarks we make today represent our view of our financial and operational outlook as of today's date, February 17, 2021. 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 certain non-GAAP financial measures. You can find these reconciliations of these items in our earnings release or in the updated corporate presentation, both of which are available online. I will now turn the call over to Kevin Crutchfield.

Good morning, everyone, and thanks for taking the time to join our fourth quarter and full year 2020 earnings call. I'll start today by giving a top-line overview of our financial and operating results for 2020 before providing some thoughts on the impacts of our enterprise-wide optimization efforts as well as our path forward. As we look back on the year from a broader perspective, 2020 introduced personal and professional challenges to each and every one of us. I'm incredibly grateful to the men and women of our company for staying laser-focused on operating safely and responsibly, continuing to bring forward new ideas for improvement and remaining committed to delivering for our customers, communities, and our shareholders during this extremely difficult time. As we published in our earnings release yesterday afternoon, a number of full-year 2020 financial metrics fell short of our expectations, largely due to certain external factors and other anticipated events that directly impacted our 2020 results. We'll provide more color on those shortly, and we're taking steps internally to further gird our preparedness for such events. That said, I continue to believe strongly that our team's prudent management and unwavering commitment to our enterprise-wide optimization efforts underpin longer-term transformational benefits that we've started to see throughout our operations and fully expect to positively impact our financial results in the future. One key factor we simply cannot control, but rather we must manage through, is the weather. We estimate the weak winter weather season in both first quarter and fourth quarter of last year negatively impacted our full year 2020 operating income by approximately 40 to 45 million dollars. Other external factors adversely affecting our business during the calendar year included the wildfires in California and drought conditions in South America, both of which impacted demand timing from our plant nutrition customers and multiple hurricanes in the Gulf Coast, which required multiple brief but unplanned shutdowns at our Cove launch mines. In addition, our South American plant nutrition business experienced stronger year-over-year agriculture sales volumes and in local currency achieved a 16% increase in fourth quarter operating earnings versus 2019. However, the Brazilian currency weakened by approximately 33% during the year compared to the U.S. dollar, which ultimately hurt our bottom line in terms of U.S. results. As we look at full year 2020 on a consolidated basis, net income for the year decreased by approximately 5%, and adjusted EBITDA decreased by approximately 8% when compared to 2019 results. On the positive side, we continue to generate strong positive cash flow from operations totaling over $175 million for the full year. We also took an aggressive approach to managing our capital plan, and I'm pleased we were able to come in 13% below the midpoint of our original guidance for a total spend of roughly $85 million for the year. Our free cash flow for the full year was just over $90 million. and we returned $99 million to shareholders through our dividend program, which reflects our confidence in the company's ability to deliver cash flow through varying economic and weather-related cycles. As we stated in our press release last night, we have commenced a strategic separation of our South American assets into two businesses with the dual goal of attracting the right counterparties and unlocking maximum value for each asset. As a result, we formally relaunch what is designed to be a targeted and expedient process for the sale of both of our chemical and plant nutrition businesses in South America. If completed, we intend to use the proceeds from these transactions to continue reducing our debt, further enhance our liquidity, and continue our focus on meeting our customer demand for our essential products. Given the sensitive nature of these matters, we will not be fielding any questions on this topic, but will provide more information as it becomes appropriate to do so. With our multi-year runway of ample liquidity, no material debt maturities due for over three years, capital plan flexibility and improving execution capabilities, our near-term priority is to deploy any incremental free cash flow after dividends, whether from organic generation or strategic transactions, towards continuing our deleveraging process and paying down our debt to further enhance our equity valuation. Now, moving to our SALT segment. Full-year adjusted EBITDA margins increased approximately three percentage points to 29%, despite our adjusted EBITDA being lower by 2%. We also saw continued improved production performance at our flagship Godrich mine, On a full year basis, production tons out of Goderich have increased 17% from 2019 results, and production costs are down 16%. In addition, during the fourth quarter of 2020, the team was able to achieve its highest production month since its conversion to continuous mining and haulage. These steadily improving production metrics highlight a sentiment you've heard me communicate before, that we've not yet reached our full long-term potential at this operating asset. I'm confident our progress will continue as we build out our new mine plan, helping to ultimately secure Goddard's position as the leading salt mine in North America from both a cost and volume perspective. When coupled with enhancements that are designed to provide long-term flexibility and optionality to our logistics and procurement teams, we set a course to capture significant value during stronger seasonal demand by meeting the needs of current and new customers alike. Our Cote Blanche mine also demonstrated strong year-over-year operating performance while managing through four significant hurricane events in 2020. These storms resulted in approximately 11 lost production days in the year. The preparations made by our team to protect the site and ensure the safety of our people allowed us to resume production efficiently and effectively after each event. This culture of resilience that permeated throughout the organization in 2020 is perhaps best reflected in the operational agility of our co-punch team, who were still able to achieve their full year-end production targets despite having navigated a record hurricane year in the Gulf. In addition, Given the recent announcement of a nearby competitor closing its facility, we're carefully analyzing opportunities to capture value for our portfolio by enhancing relationships with our existing customers while also potentially putting us in a position to cultivate some new relationships. I'd also like to give a particular call out to our logistics team, which has worked diligently on reshaping our network of partners to maximize efficiencies across our operations, while maintaining strong service levels for our customers. As I mentioned previously, our plant nutrition business, particularly in North America, faced some unforeseen circumstances of its own this past year, including extreme wildfires and drought. The resulting conditions from those events delayed the harvest of key crops, particularly tree nuts, along with the fall fertilizer application season. Our team worked to ensure we were well positioned to capture those sales volumes in the fourth quarter, ultimately delivering strong year-over-year revenue growth of 16%. Thanks to those efforts, our fourth quarter sales for this segment was the highest in the last 20 years, making up the significant third quarter shortfall. Given this strength, we were able to partially offset some of the unexpected higher costs that we experienced during the year. Our Potassium Plus product continues to be the SOP market share leader in North America, and recent pricing dynamics have reinforced our confidence that near-term underlying demand remains robust. We anticipate upcoming harvests in certain key markets to be very strong, which further translates into nutrient deficiencies for the soil and the need for our products. When coupled with much more positive global backdrop for all fertilizers and the recent surge in pricing, we anticipate steady demand from our North American customers in 2021. I would also like to point out that our micronutrients product line was able to achieve a full-year gross sales record in 2020 since our acquisition. Our South American plant nutrition business continued to achieve measured growth in local currency with sales revenue up 18% for the full year 2020. Our customers on the agricultural side have experienced very attractive fundamentals, and we anticipate these sales trends to continue in 2021. But as has been a recurring theme, the weaker currency has hurt our results in U.S. dollar terms. 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. As a reminder, 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. In prior quarters, we highlighted our Harvest Hall project at our Ogden facility in Utah, the SALT Finds Compassion project at Goderich, and the progress we're making with employee engagement through our organizational health focus. I would now like to highlight some optimization benefits we're experiencing in procurement. In 2020, we completely transformed that department. moving from a decentralized and transactional function to a centralized, high-standard team focused on operations excellence through global strategic sourcing mindset and a performance-driven culture. We implemented a category management function, a team concept built to bring together procurement with all relevant areas within that segment. Each team in a category is a cross-functional and cross-regional aligned to business needs and extensive engagement with stakeholders. During its initial year in this new structure, the department executed over 65 initiatives, driving as much as 10% annualized savings in a number of specific procurement categories, such as contractor services, packaging, raw materials, and equipment spare parts. In addition to cost savings, This new procurement strategy is expected to reduce the risk of supply chain disruption and provide a market advantage when our customers require a more sustainable and responsible supply chain. This high degree of focus from our team is expected to produce long-lasting benefits and help expand our margins. As we work to both navigate external challenges and drive internal improvements over the course of 2020, There was no area of focus given more attention than our responsibility to keep our employees safe and healthy. As many of you have heard me communicate before, our number one priority as a management team is ensuring our employees go home at the end of their shift as healthy as they arrived. Our focus on this zero-harm culture has been critical in our ability to navigate the current pandemic. For the year, we achieved another step change decline in our total case incident rate, or TCIR. In addition to achieving a multi-year low for our 12-month rolling TCIR average in 2020, we ended the year with an average of 1.53, and I'm happy to share that our TTCIR in December was among the lowest of any month in the history of the company, coming in at 1.23. As a leading indicator for operational success, this continuous improvement in our primary safety metric highlights our commitment to conducting business in a responsible manner that protects the health, safety, and security of all of our employees, contractors, and the communities in which we operate. The COVID-19 pandemic remains an ongoing challenge, and we continue to take actions to mitigate its impact. In addition, we faced another slow start to the winter season in our served markets. Yet our talented workforce, advantaged assets, and efficient procurement and logistics operations continued to perform with excellence through this adversity, supporting our global customers with essential products, proving our resilience as an organization. While our overall financial performance in 2020 was below our expectations, we were aggressive in our efforts to mitigate the various external headwinds we face. We now estimate a combined negative impact to our original operating earnings forecast of roughly $67 million due specifically to weak winter weather in both the first and fourth quarters, a Brazilian currency that progressively weakened throughout the year, and COVID-19 impacts including both cost preventative measures at our sites, and reduced demand within certain higher margin end markets. While these factors were out of our control, be assured we're acutely focused on identifying steps we can take to help insulate our businesses from the severity of similar impacts in the future. Again, what has allowed us to effectively navigate through the past year is the underlying resilience of the markets in which we serve with our essential products the strength of our advantaged assets, and the dedication of our employees to drive improvements through the optimization effort. We've also maintained close contact with our customers and remained on course with our previously communicated strategic priorities. I continue to be excited about the future prospects of our company and confident of long-term value our team at Compass Minerals can deliver. So now I'll turn it over to Jamie, who will discuss in more detail our fourth quarter and full year results as well as our 2021 outlook. Jamie?