Compass Minerals Intl Inc

Good morning, ladies and gentlemen. My name is Abby and I will be your conference operator today. At this time, I would like to welcome everyone to the Compass Minerals Fiscal First Quarter 2023 Earnings Call. Today's call is being recorded and all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your questions, simply press star one once again. Thank you. And I will now turn the conference over to Brent Collins, Vice President of Investor Relations. You may begin.

Thank you, Operator. Good morning and welcome to the Compass Minerals Fiscal 2023 First Quarter Earnings Conference Call. Today we will discuss our recent results and update our outlook for Fiscal 2023. We'll begin with prepared remarks from our President and CEO, Kevin Crutchfield, and our CFO, Lauren Crenshaw. Joining in for the question and answer portion of the call will be George Shuler, our Chief Operations Officer, Jamie Standen, our Chief Commercial Officer, Chris Yandel, our Head of Lithium, and Ryan Bartlett, Senior Vice President, Lithium Commercial and Technology. Before we get started, I'll remind everyone that our remarks we make today reflect financial and operational outlooks as of today's date, February 8, 2023. These outlooks entail assumptions and expectations that 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 yesterday and presented during this call reflect only the continuing operations of the business other than amounts pertaining to the condensed consolidated statements of cash flows or unless noted otherwise. I will now turn the call over to Kevin.

Thank you, Brent. Good morning, everyone, and thank you for joining us today on our call. We continue to make strides in our efforts to reposition Compass Minerals for accelerated growth, reduce winter weather dependency, and create sustainable value for our shareholders by expanding our essential minerals portfolio into the adjacent markets of battery-grade lithium and next-generation fire retardants. As communicated on our last quarterly call, we entered 2023 focused on achieving six strategic goals. I'll take just a few minutes to provide a status update on each of those areas. Then I'll comment on the quarter before turning the call over to Lauren to discuss our financial performance in more detail. Our first area of focus continues to be the safety and well-being of our employees. Last year was an outstanding year for safety performance across our operations. In fiscal 23, we intend to build on that strong performance and our continued drive towards zero harm across each of our facilities. We acknowledge that achieving zero harm or no reportable injuries across our entire platform will be a challenge in the complex operating environments that we operate in. However, in several of our sites, we've already proven it's possible, and we owe it to our employees and their families to strive for that goal every day so that employees go home to their families in the same condition as they left. The next goal we outlined in some detail on our last call is our aim to restore the profitability of our salt business to levels we have demonstrated in the past. As many of you know, inflationary pressures created a significant headwind in 2022 that had a direct impact on our salt segment EBITDA per ton. In an effort to mitigate those challenges and more effectively leverage our expansive Salt Depot logistics network, we approached the 2023 winter bidding season with a disciplined pricing strategy and a focus on winning sales commitments in markets that are geographically advantageous for us and relatively efficient to serve. The results of this strategy were evident in our financial performance this quarter, with salt segment EBITDA up 7% year over year to just over $17. Our goal is to continue to make progress on EBITDA per ton and get back to the levels that we've enjoyed historically. We made strides in that direction during the quarter and expect to make continued progress toward that goal through the balance of the year, despite facing some headwinds on the cost front that we'll discuss more in a moment. With our plant nutrition segment, we're deep in the process of honing and executing strategies to improve the reliability and sustainability of our SOP production. As indicated on our last earnings call, SOP production volumes are expected to be flat in fiscal 23 as the 2022 evaporation season was impacted by less than favorable weather conditions, in turn reducing the potassium levels deposited in our solar evaporation ponds. We continue to believe, however, that the steps we're taking now should enable improved production levels at our Ogden site over time. will provide relevant updates on our progress towards this objective throughout the year. I'll touch on our outlook for the plant nutrition segment in a moment, but I think it's important to note that the decline in the first quarter sales volumes was driven by lower demand, not production challenges. In fact, we were and continue to be prepared to service average customer demand if and when it improves. On the lithium front, our goal this year is to achieve several commercial and project-related milestones on our roadmap to advance phase one of our lithium development in Ogden. A key milestone we expect to reach by mid-year is to have a more robust capital cost estimate for phase one. In September, we shared an FEL1 level engineering estimate. The next major milestone for this project is to complete an FEL2 level estimate by the end of March. also known as a pre-feasibility study, or PFS. Later this calendar year, we expect to have completed an FEL-3 engineering estimate, also known as definitive feasibility study, or DFS. Each of the progressions along the FEL stage gate are expected to increase the level of engineering, tighten the accuracy of the capital spend, and mitigate operational risks. Finally, we continue to make progress on our commercial scale DLE unit. Consistent with our prior plans, we expect commissioning and operations to begin in early calendar 2024. With respect to our other growth initiative, namely our minority ownership interest in Fortress North America, we were very pleased by the December announcement of a major milestone when the Fortress team received notice that their two primary aerial fire retardants, liquid concentrate and dry powder, had officially been added to the US Forest Service Qualified Product List, or QPL. This is an extraordinary achievement as Fortress is the first new fire retardant company in over 20 years to accomplish such a listing. And it comes as a result of a six-year development effort in order to meet and exceed the US Forest Service rigorous testing criteria within such categories as environmental effects and toxicity to aquatic and mammalian species, erosion on a variety of aircraft metals, burn retardation efficacy, and other qualifiers in the form of long-term storability, acceptable viscosity, pumpability, and finally the completion of a live wildfire operation field evaluation. Building upon this positive momentum heading into the 2023 wildfire season, the next step is for Fortress to be awarded an initial tranche of air tanker bases by the U.S. Forest Service. We're optimistic that such awards will occur ahead of the fire season this year, but in order to be conservative, we've not factored in the associated financial results of such an award into our outlook. We stand ready to continue supporting Fortress in their efforts to ramp up to full commercialization of their products with a focus on gaining measurable market share within this approximately $300 million revenue addressable market, not to mention a profit pool in excess of $90 million currently served by a single market participant. The recent QPL listing was a major hurdle to clear on our path to providing a magnesium chloride-based product that is more environmentally friendly and has a greater efficacy than the existing diammonium phosphate-based product that has dominated the market for decades. You'll recall that we increased our strategic investment in Fortress last year and currently own approximately 45% of the company. We believe Fortress has a bright future, and we look forward to the business gaining market traction in the coming months. Lastly, our final strategic objective heading into fiscal 23 was to enhance our financial standing and overall credit profile. We took a meaningful step in that direction this past October when we closed on a gross $252 million strategic equity investment by Koch Minerals and Trading, LLC. In addition to funding the first two years of our phase one lithium development, that investment by Koch also allowed us to strengthen our balance sheet by paying down some debt during the quarter. We expect to build on this momentum through the restoration of the SALT segment's profitability, which should result in additional deleveraging as our EBITDA rises. In the long term, we continue executing on our plan and are pleased with the progress being made. Unfortunately, in the shorter term, we continue to experience challenges placing negative pressure on our quarterly profitability. As a case in point, Our first quarter results reflected a mixed bag in terms of business trends. Year over year, we saw an improvement in select financial measures with consolidated revenue increasing 6% to $352 million, consolidated operating earnings up 37%, and consolidated adjusted EBITDA around $62 million, up 6%. We had a decent start to the winter de-icing season. with snow events in the first quarter in line with historical averages and significantly above last year's historically weak number of snow events. This supported higher salt sales volumes, which combined with a 12% year-over-year price increase in highway de-icing that we realized resulted in stronger salt performance. Within the plant nutrition segment, although pricing during the period held relatively firm at historically high levels, demand was deeply disappointing and well below our expectations, driven by exceptionally dry weather conditions that discouraged fertilizer application in our largest markets in the western U.S. and customers deferring purchases in anticipation of the market softening. Ironically, weather conditions in California abruptly shifted from drought conditions during the first fiscal quarter ending in December to epic flooding in January. the beginning of our second fiscal quarter, seemingly overnight. As a result, our visibility related to near-term SOP demand is currently speculative at best, as it's not clear if growers will apply at historical levels. Aside from the demand variability I just described, there's also elevated uncertainty from a global perspective to what degree both MOP and macrofertilizer pricing dynamics may amplify this pressure, resulting in the need to recalibrate our plant nutrition segment profitability outlook for the year. Despite the challenges we're encountering as the fertilizer market enters a new phase of its cycle at a higher level, nothing we see suggests a change in the long run through the cycle earnings power of our plant nutrition business. Our salt business is delivering year-over-year improvements, and our growth initiatives are advancing positively as we work to unlock the embedded value within our company. As I consider this start to our fiscal year, it's clear we've got a lot of work to do both strategically and operationally to navigate these near term challenges. As we do so, our focus remains on delivering on our 2023 strategic goals, controlling what we can control and continuing to take steps toward creating value for our stakeholders over the long term. We'll also address the challenges being caused by cost pressures across the business by executing on opportunities to reduce our cost structure where appropriate. Size of the prize is large, as measured by the combined intrinsic value of our salt, plant nutrition, lithium, and next-generation fire retardant businesses, and we remain confident in our plan and our ability to realize that value over time. With that, I'll now turn the call over to Lawrence. Thank you, Kevin.