Compass Minerals Intl Inc

Welcome to the Compass Minerals first quarter 2021 earnings conference call. Your host, Douglas Criss, Senior Director of Investor Relations.

Good morning, and welcome to the Compass Minerals first quarter 2021 earnings conference call. Today, we discuss our recent results and our outlook for the balance of 2021. We will begin with prepared remarks from our President and 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 will remind everyone that remarks made today represent our view of financial and operational outlooks as of today's date, May 5th, 2021. These expectations involve risks and uncertainties that could cause the company's actual results to differ materially. A discussion of these results can be found in our filings at the SEC located online at investors.compassminerals.com. Our remarks today also include certain non-GAAP financial measures. You can find reconciliations of these items in our earnings release, in our presentation, both of which are also available online. In March 2021, the company's board of directors approved the divestiture of the company's South America businesses and its North American micronutrients business as part of a broader asset optimization strategy. Collectively, the results of these businesses have presented as discontinued operations for all periods presented. The continuing operations of the company are reported on the consolidated level and in two segments, salt and plant nutrition, which was previously known as Plant Nutrition North America. The results in our earnings release issued yesterday and presented during this call reflect the continuing operations of the business unless otherwise noted. I will now turn the call over to Kevin.

Thank you, Doug, and good morning, everyone. Thanks for taking the time to join our first quarter 2021 earnings call. Before providing an overview of our financial and operating results for the quarter and sharing some color on the recent progress we've made executing on a number of our previously communicated strategic priorities, I want to first highlight another new safety milestone achieved by our operational team in the first quarter of this year. When we talk about our safety performance as a leading indicator for operational success, it's a reflection of not just who we are as a company but who we strive to be. And while I'm deeply proud of the meaningful progress our team continues to make in this area, we will not rest until we reach our ultimate goal of zero harm across our entire operational footprint. With that in mind, I'm pleased to report that we achieved another step change decline in our total case incident rate, or TCIR, this past quarter, coming in at a multi-year low for our 12-month rolling average with a TCIR of 1.39%. I want to personally thank our team for their continued focus on keeping themselves and their coworkers safe, whether they be operating underground at one of our numerous processing plants or in a support role at our corporate offices. Nothing we do is more important. As published in our earnings release yesterday afternoon, we also achieved a measured improvement in our overall financial results, enabled primarily by a meaningful increase in year-over-year operating earnings within our SALT segment, as well as five-year lows in operating costs per ton in the segment. And these results are about more than just volumes or price leverage. I firmly believe they're also a clear indication that our enterprise-wide optimization strategies are working. This progress has been reflected in the margin expansion within our SALT segment compared to first quarter 2020, despite a lower average price per ton for the first quarter of 2021. As we look at the first quarter on a consolidated basis, operating earnings increased by approximately 40%, and adjusted EBITDA increased by approximately 30% when compared to 2020 first quarter results. In addition, we continued to generate strong positive cash flow from operations, totaling approximately $197 million for the quarter. We also continued to actively manage our capital plan, with that spend coming in at approximately $17 million for the first quarter. Focusing on our SALT segment, first quarter operating earnings grew to $80 million, which was an approximate 41% increase versus first quarter 2020. In addition, EBITDA grew 37% to $98 million, while our EBITDA margins increased approximately two percentage points to 27%. And despite a 9% reduction in average SALT pricing for the quarter, again, that's versus first quarter 2020 levels. At our Goderich mine specifically, production tons increased approximately 6% compared to first quarter 2020 levels. These steadily improving production metrics highlight a drumbeat you've heard me communicate a number of times before with regard to our performance at Goderich. While great strides have been made over the last few quarters, I still feel that we have not yet reached our full potential. Before I touch upon winter weather impacts to the broader segment in the quarter, I'd be remiss if I didn't also mention briefly the historic five-year collective bargaining agreement we finalized at the tail end of the quarter with our talented, represented workforce at the Godrich Mine. We value the improved partnership we have forged with the Union up at Godrich, and I remain personally optimistic about the future of our flagship mines. I'm sure many of you experienced the severe winter weather that blanketed much of the U.S. in February. As discussed in our previously published snow data report, however, February was the exception, not the rule, for the 2020-2021 U.S. winter season, with snow events in our 11 tract representative cities actually falling below the 10-year average and March being unusually weak. One contrasting bright spot of the mild U.S. winter was a robust winter season in the U.K. throughout the first three months of 2021, which helped drive a meaningful contribution to our salt sales volumes. In total, we estimate that salt sales volumes resulting from the strong U.K. winter season and February storm activity in North America facilitated a positive impact to operating earnings of approximately $11 to $14 million. Given the severity of the February storms in the U.S., we would expect customer inventory to be at average levels, which should bode well for the upcoming bid season. That said, we're still in the early innings of the bid season process, and we would anticipate being able to provide some incremental color, as we've historically done during our second quarter call. Winter weather in the quarter also had a positive impact on our consumer and industrial, or CNI, business. We sold approximately 25% more tons of packaged de-icing products this quarter than we did in the comparable quarter last year. We also saw improvement in CNI pricing from a non-de-icing perspective, which aligns with one of our enterprise-wide optimization goals to smooth seasonality impacts where we can. As we shift to our plant nutrition segment, I want to first reemphasize that we've made a change in how we'll report the segment going forward. Jamie will go into this in more detail on the financial mechanics during his comments, but the key takeaway is that starting this quarter, continuing operations for the plant nutrition segment is primarily focused on our SOP business, which we market as potassium plus. For the first quarter, we reported revenue for that business of $54 million, which was relatively in line with our expectations, reflecting an approximate 2% decline in both sales volume and selling price. Our EBITDA margin in this segment fell for the quarter to 24% as we continued to implement process improvements to address the feedstock quality issues we experienced at our Ogden operations in the fourth quarter of 2020. We're making measured progress but believe these changes will take hold over the next few quarters. We're pleased with some of the success by our logistics team to offset a portion of that margin decline through improvement in the per-unit expense structure. We're also actively monitoring the ongoing drought conditions in California and have seen water costs there increase substantially, which could potentially impact near-term demand. For the time being, however, we continue to experience strong demand from our customers for our potassium plus fertilizer product, which provides a lower salt index than MOP, ultimately improving drought tolerance. We've also taken a number of actions year to date to execute on our strategic priorities. A key area of focus you've heard me speak to often on these quarterly updates has been a commitment from our board and our senior management team to conduct a deep assessment of our business, operational assets, and core competencies in order to best position Compass Minerals for future success. Such internal valuations are never easy, as behind every asset there are teams of talented and committed employees, past capital investments, and years of sweat equity. But based on our assessment, it became clear that the right path forward for our company required an aggressive optimization of our operational footprint, enabling us to hone our focus on core operations while simultaneously delivering our balance sheet. As we previously announced, we executed in March a sale agreement for the agricultural portion of our plant nutrition South America business with ICL to purchase those operations for $418 million or roughly 9.75 times 2020 adjusted EBITDA. At ICL, we're pleased to find a buyer who could appreciate the potential of that business and who provides a great fit for our South American team. From a timing perspective, we're working closely with ICL to finalize the transaction and remain on track to close early in the third quarter of 2021. In addition, We continue to pursue a sale of our South American chemical business and look forward to announcing details around that expected transaction as soon as we have something to report. Before moving on, I'd like to give a quick call out to our team down in Brazil, who've worked diligently throughout the sale processes to continue to maximize efficiencies of our operations and maintain a strong level of service for our South American customers. This group has successfully grown this business over the last few years while having to navigate through an extremely challenging environment, and we appreciate all they've contributed to our company. We also recently announced a definitive sale agreement for certain of our North American micronutrient assets to Koch Agronomic Services for approximately $60 million. Aligned with our broader asset optimization strategy, we did not envision a future state for the company where these assets would be considered core. We feel the assets are well-suited within Koch's broader portfolio while allowing our plant nutrition segment to focus its efforts on marketing our leading potassium plus SOP product. I want to also take a moment to thank our current and former employees whose talent and innovative contributions helped develop those micronutrient assets over time. Collectively, we feel these transactions will be transformational for our company. By divesting these assets, we expect to de-risk the business in addition to strengthening the financial position of the company. These actions allow us to focus on our market-leading North American businesses and a complementary productive UK salt business while eliminating our foreign currency exposure to Brazil, which has been a drag on profitability the last few years. Importantly, as we expect to use the proceeds from these transactions primarily to reduce leverage. The transactions should also enable the financial flexibility required for us to stay agile, positioning us well for both organic and inorganic opportunities, if and when they arise, to ultimately enhance our equity evaluation. To recap, this has been a quarter of meaningful improvement and significant change, achieving a number of milestones to reshape and strengthen our company. I continue to be impressed by our employees' resiliency to not only navigate the changing operational landscape of our company, but to demonstrate their alignment with our strategic plan through the energy and engagement they bring to accomplish these goals. This support and expertise, coupled with the core advantages we possess within our unique asset base and our efforts to increase financial flexibility, give me great confidence in our company's ability to deliver ongoing, and sustainable shareholder value. Now, with that, I'll turn it over to Jamie, who will discuss our first quarter in more detail, as well as our rest of year outlook. Jamie?