Compass Minerals Intl Inc

Good morning and welcome to the Compass Minerals second quarter 2021 earnings 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. Instructions will be provided during that time. Please be advised that today's conference is being recorded. I would now like to turn the call over to Douglas Criss, Senior Director of Investor Relations. Please go ahead.

Good morning. And welcome to the Compass Minerals Second Quarter 2021 Earnings Conference Call. Today, we will 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 today 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 the remarks we make today represent our view of our financial and operational outlook as of today's date, August 16th, 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 reconciliations of these items in our earnings release or in our presentation, both of which are also available online. The results in our earnings release issued Friday, August 13th and presented during this call reflect only the continuing operations of the business unless otherwise noted. The results also restate historic amounts for comparative purposes and reflect adjustments to information presented in the company's previously filed annual report on Form 10-K for the year ended December 31, 2020, and quarterly report on Form 10-Q for the quarter ended March 31, 2021. As previously announced, the nine-month 2021 Fiscal year reflects the change in fiscal year end from December 31st to September 30th. I will now turn the call over to Kevin Crutchfield, our President and CEO.

Good morning, and thanks for taking the time to participate today. While I'll kick off my comments with a brief overview of our financial performance for the second quarter, I also want to take a few minutes to review where we stand as a company in light of our leadership team's previously communicated strategic priorities. As reported, we maintained solid momentum in the second quarter, controlling what we could control in pricing and salt sales volumes. Ultimately, that work resulted in strong consolidated revenue growth of 14% compared to the prior year period, as meaningful contributions from both salt and plant nutrition enabled us to exceed our top line revenue expectations for the quarter. We continue to work through our previously reported sulfate of potash feedstock inconsistencies and managing around supply chain disruption and inflated shipping costs, which are not unique to our industry. While both our consolidated operating earnings and adjusted EBITDA saw second quarter declines compared to the prior year, largely due to margin compression during the quarter, year-to-date we've seen measured growth in these categories of 20% and 13% respectively. I'm pleased with the way our team continues to navigate this challenging environment, staying laser-focused on execution in our core businesses. In fact, during the first half of 2021, we generated strong positive free cash flow of $220 million, an increase of approximately 23% versus the prior year. On the cost management side, we've taken prudent steps to control our selling general and administrative expenses compared to the prior year. We also continued to actively manage our capital plan with spending in that category coming in at approximately $34 million year-to-date. Focusing on our solid segment for a moment, second quarter revenues were better than expectations at over $142 million, while operating earnings of approximately $19 million and EBITDA of $37 million were both down primarily driven by a 28% increase in shipping and handling costs for the segment. Our reported SALT segment results for the quarter were also impacted by an accounting methodology change that Jamie will discuss in more detail. When considering our SALT results on a year-to-date basis, however, we've achieved meaningful growth of 23% in operating earnings and 20% in EBITDA for the segment. Regarding the 2021-2022 bid season for our North American highway business, we continue to take a disciplined approach, balancing market share with margin capture, while always looking for opportunities to strategically expand our footprint. With our bid season approximately 80% complete, we expect the average contract pricing for this winter season to be generally consistent with prior season results. while our total committed bid volumes are expected to increase by approximately 7%. Leading to our plant nutrition segment, an increase in average selling price of 6% and relatively flat volumes in the second quarter compared to prior year translated to $54 million of revenue for the segment, which was slightly better than expectations. Operating earnings for the segment were $5.6 million lower compared to second quarter 2020, while EBITDA came in at $9.8 million, roughly in line with expectations given our previously discussed feedstock inconsistencies that are anticipated to weigh on segment costs at least through the third quarter of this year. We continue to believe the impact of the feedstock quality issues on the cost structure of our plant nutrition business is short-term in nature, and the proactive adjustments that we've implemented to address the issue have shown favorable incremental results. We're also actively monitoring the ongoing drought conditions in the western U.S. and continually assessing how they may potentially impact near-term demand for our potassium plus SOP product. SOP sales volumes remain stable through the quarter, and we expect volumes to remain steady through September compared to the prior year quarter. However, we'll continue to keep a close eye on demand as the drought season continues as there could be volume impact later in the 2021 calendar year. As I alluded to at the beginning of my comments today, I'd like to now shift gears from the quarterly recap to provide some color on our strategic execution as a company. When I joined Compass Minerals in mid-2019, one of my first tasks as Chief Executive Officer was to set a course for Compass Minerals that acknowledged but didn't dwell on the challenges of the past. that recognize long-term success must be built on a foundation of consistent execution, and then providing clarity to both our employees and our external stakeholders as to what kind of company we were committed to becoming. With the help of my senior management team, I outlined early in 2020 three priority focus areas for our company. Building a sustainable culture, delivering on our commitments, and conducting a deep strategic assessment of our advantaged assets and related capabilities. It's been approximately 18 months since we laid out those priorities, and while there still is certainly work to be done, I'm extremely pleased with how far we've come in that short time span. Over the course of the last six months in particular, we have successfully executed against a number of strategic priorities that provided the company with a platform to generate material long-term benefits to our shareholders. Paramount to building a sustainable culture is ensuring the safety and well-being of our workforce. We focus on a zero harm imperative for our people and our environment by continuing to strengthen safety and environmental stewardship processes across all sites with the ultimate goal of zero injuries or incidents in the workplace. We continue to enhance employee safety training, which focuses on elimination of at-risk behaviors, and we maintain a culture of open communication and trust by empowering every employee to stop any work process they deem to be unsafe. I'm proud to say the results of our safety focus was reflected in the first quarter of this year by a multi-year low for our total case incident rate, or TCIR, 12-month rolling average. That strong safety performance continued through the second quarter with a rolling 12-month TCIR of 1.48, representing a significant improvement over the previous five-year period. As you've heard me say before, we believe our safety performance is a leading indicator for operational success and one of our fundamental commitments to creating a sustainable business. The other half of building a sustainable culture requires increasing our levels of employee engagement and our execution muscle, which has been a key focus of our internal optimization effort that we launched in the fall of 2019. Making improvements in this area doesn't come easily or quickly, and it requires a certain level of humility as an organization to gain self-awareness about what we do well, where we can get better, and what steps are required to get there. While I'm generally pleased with the strides we've made in this category, including but not limited to our commitment as a board and senior management team to ensuring diversity and inclusion throughout all levels of the organization. This will continue to be an ongoing area of focus for our company. Through our increased execution muscle, we've enabled improvements in our second strategic imperative, delivering on our commitments. The foundation of this priority is simple. Be clear with our stakeholders about our goals, capabilities, and challenges, and then do what we say we're going to do. We've talked a lot on these quarterly calls about the other half of our internal optimization effort, creating value for the organization through a bottom-up process of innovation and continuous improvement. We're purposeful in not calling these efforts a program as they permeate through all levels of the organization and are increasingly becoming simply how we do business here at Compass Minerals. As it has clearly been a strategic focus for our team, I'd offer recent performance at our Godrich mine as probably the most salient example of our efforts to date. Over the course of the last two years, we've made meaningful improvements in both production and safety, hitting internal records in both categories. We've implemented a new long-term mine plan to increase production efficiencies and extend the longevity of this strategic core asset. And as reflected in the historic five-year collective bargaining agreement secured in late March, we've buttressed those efforts by committing time, energy, and resources towards rebuilding strong and lasting relationships with both our represented workforce at Goderich and the community they call home. But despite this progress, I still believe we have room to grow at Goderich before we can say it has fully reached its operating potential. Which brings me to the final area of strategic focus I've often spoken about, positioning our company for success by getting our core asset mix right, finding new ways to leverage those advantaged assets, and strengthening our balance sheet in the process. In this area, our actions have been well documented. With the completed sale of our North American micronutrients business in April, followed July 1, With the completed divestment of our South American plant nutrition business, we achieved the financial flexibility needed to consider strategic growth opportunities, whether organic or otherwise. Specifically, these transactions have enabled us to reduce our long-term debt by approximately $400 million. In addition, we continue to pursue a sale of our South American chemical business and look forward to sharing more information around that expected transaction when appropriate. And finally, as we announced several weeks ago, we're excited by the opportunity to broaden our essential mineral portfolio through the identification of a sustainable lithium resource at our Ogden, Utah, solar evaporation site on the Great Salt Lake. We're currently undertaking a strategic evaluation to assess development options for this lithium brine resource in order to service growing domestic market demand while maximizing the long-term value of the asset. As a co-product of our existing SOP, salt, and magnesium chloride production processes, the addition of lithium to our Ogden production portfolio is not expected to have an impact on the essential minerals we already produce on site. Equally as important, by leveraging existing operational infrastructure, permits, and pond processes at our Ogden facility, we believe we're uniquely positioned to capture this newly defined lithium resource with nominal incremental impact to the beds and waters of the Great Salt Lake. We feel this organic opportunity is well aligned with our strategic imperatives, and we're excited to share more details soon on this and other future projects that lie ahead. But opportunities like this are only feasible if the underlying fundamentals of our operating segments are sound. I remain highly confident about the inherent strengths of our advantaged assets, the resiliency and commitment of our people, and the discipline with which we operate. As we continue to advance our strategy and grow our essential minerals business, we do so with a deep commitment towards generating sustainable earnings growth and EBITDA margins, thereby creating value for all stakeholders. Now, at this time, I'll turn it over to Jamie, who will discuss in more detail our second quarter financial performance and a rest-of-year outlook. Jamie?