Compass Minerals Intl Inc

Ladies and gentlemen, good morning. My name is Abby and I'll be your conference operator today. At this time, I would like to welcome everyone to the Compass Minerals fourth quarter and fiscal 2023 earnings conference call. Today's conference 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 that time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one a second time. Thank you, and I will now turn the conference over to Brent Collins, Vice President of Investor Relations. Mr. Collins, you may begin.

Thank you, Operator. Good morning, and welcome to the Compass Minerals fourth quarter and fiscal 2023 earnings conference call. Today we will discuss our recent results as well as our outlook for 2024. 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 Jamie Standen, our Chief Commercial Officer, and Chris Yandel, our Head of Lithium. George Shuler, our Chief Operating Officer, is away today. Before we get started, I will remind everyone that the remarks we make today reflect financial and operational outlooks as of today's date, November 17, 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 last night and presented during this call reflect only the continued operations of the business, other than amounts pertaining to the condensed consolidated statements of cash flows, or unless noted otherwise. I'll now turn the call over to Kevin.

Thank you, Brent. Good morning, everyone, and thank you for joining us on our call today. Over the course of fiscal 2023, we advanced the ball on a number of important strategic fronts. Unfortunately, the positive strides we've made across several areas this year have been wholly overshadowed by sustained uncertainty surrounding our lithium project in Utah, which has weighed heavily on our share price. I'll come back to our strategic achievements in just a moment, but I first want to provide some commentary on our operations in Utah and on our lithium project specifically. As a reminder, we've been operating in the state of Utah for more than half a century, currently providing approximately 370 local jobs at our Ogden facility. We've been an engaged corporate citizen in the community for decades. Our plan to lithium project would build upon the successful sulfate of potash, sodium chloride, and magnesium chloride businesses that currently operate on the lake and would not require any additional brine draw from the Gray Salt Lake. The current process draws mineral rich lake water or brine from the Gray Salt Lake into a series of solar evaporation ponds, which the brine moves through over a two to three year evaporation cycle. As the water content of the brine evaporates and the mineral concentration increases, some of those minerals naturally precipitate out of the brine and are deposited on the pond floors. These deposits provide the minerals necessary for processing into SOP, sodium chloride, and magnesium chloride. Those three products make up our core Ogden business today. Our lithium development would simply entail extracting a fourth mineral salt out of the brine that we're already processing. Our project would add over 100 incremental local high-paying jobs and drive substantial additional royalty and tax receipts to the local economy. In our view, that's a win-win situation, and we continue to patiently educate all relevant parties and decision makers on the positive attributes of this project. Utah House Bill 513 was enacted to establish a regulatory framework for how lithium would be developed, as well as introduce some updated rules on management of the Great Salt Lake. We're acutely aware of the recent concerns and sensitivities related to the Great Salt Lake. Maintaining the health and sustainability of the lake is a shared goal for all stakeholders in the community. We are no different, and in fact, we've worked hard to be part of the solutions to maintaining and improving the health of the lake for the long term. Several weeks ago, we announced our intention to suspend indefinitely any further investment in our lithium project in Utah until we achieve regulatory clarity with the state. We did not make this decision lightly. A critical linchpin to making investments on the order of magnitude we're considering here and have now paused is regulatory certainty. Without such certainty, it's essentially impossible to have confidence in the projected returns on invested capital over the next 30 years. Therefore, to move forward prudently, we must have confidence that the regulatory environment will include a set of rules that are reasonable now and will be stable and predictable over the coming decades. The March passage of House Bill 513 and particularly the subsequent rulemaking process have introduced uncertainty around the regulatory environment we'll be operating in, as well as the timing of how our development could proceed. Since the inception of House Bill 513, Compass Minerals has actively engaged with the state of Utah in a collaborative attempt to ensure the provisions of the legislation are implemented in a way that will not slow or halt the progress the company has made to date regarding its pursuit of developing a sustainable lithium salt resource to service the burgeoning North American advanced battery market. Despite the active and ongoing best efforts by all parties, we concluded that it's in the best interest of our shareholders to suspend further investment in our lithium project beyond certain already committed items associated with the early stages of construction of the commercial scale DLE demonstration unit that we've talked about in the past. I want to share some additional thoughts about how we're thinking about the project. First, to be perfectly clear, we'll not move forward with the project at any cost. We'll continue to refine our engineering estimates on phase one and we'll incorporate the proposed financial terms from the state when we receive them. Then we'll have a better view of the economics of the project. We'll only proceed if we're convinced that the long-term returns justify the investment. Second, if we do advance lithium, we'll do so in a manner that is financially prudent. As projected capital for the lithium program has increased, questions about how we'll fund the program have taken on greater importance. Clearly, bringing a partner in at the asset level will help answer at least part of that question by reducing our share of the capital cost. We still have some work to do on this, but the one thing I want to stress today is that we're firmly committed to not using common equity to fund our share of any future lithium development. We believe there are numerous other viable sources of funds at considerably lower cost of capital and do not dilute the ownership of existing shareholders. Third, whereas previously we were on a path toward commencing operations in the fiscal 2025 timeframe, we have to acknowledge that our timeline today is different than when we started this project. I'm hopeful that we will be able to chart a path forward with the state of Utah that will allow this resource to be responsibly developed for the great benefit of all stakeholders, including the state, in a timely manner. but we have to believe that we know the rules of the game and are standing on solid ground before we can credibly talk about timing again, and we aren't there yet. I'll comment now on the progress we made on our 2023 strategic objectives. Lauren will then review our financial performance for the year, and we'll discuss our outlook for 2024. We talked about it a lot this year, but restoration of the profitability of the salt business to historic levels was an important goal for the company in fiscal 23. Year over year, full year adjusted EBITDA per ton for salt increased by approximately 40% to $20.38 compared to $14.59 last fiscal year. Salt's adjusted EBITDA margin percentage also increased over the same period, up to nearly 23% from 18% a year ago. This improvement was driven by better pricing. as we saw increases of 12% and 6% in price for highway de-icing and CNI, respectively, year over year. We did a great job getting back to the basics and focusing on winning markets that we can effectively and profitably service. I'm also happy to know that despite the recent bidding season occurring on the heels of a winter that within the North American markets that we served had only 80% of the average number of snow days, Our base plan for 2024 shows us continuing to improve salt profitability on both an EBITDA per ton and EBITDA margin basis. Fiscal 23 was also an exciting year for our emerging fire retardant business. After a rigorous multi-year process, two core Fortress products were added to the U.S. Forest Service Qualified Product List in December of 2022. This opened the door to allow governmental agencies to purchase Fortress fire retardant products, which were the first new products to enter the market in nearly two decades. Fortress was awarded its first contract in May, and we consolidated our ownership of the company shortly thereafter. In June 23, we achieved another milestone when we dropped our first commercial product. The feedback that we've received on the efficacy of the products and the operational performance of the team has been excellent. We're currently in the process of finalizing our contract with U.S. Forest Service for 2024. We're off to a good start with Fortress, and we're excited about the high margin counter seasonal growth potential that this business can provide for the company. We also improved the balance sheet and financial standing of the company during the fiscal year, which was another of our strategic goals. Early in the fiscal year in October, we successfully closed on a strategic equity partnership with Coke Minerals and Trading to help fund phase one of our lithium project and to pay down debt. We also improved our debt maturity profile in May with a successful refinancing that pushed our nearest maturity out to 2027. As a result of our focused execution on this goal, year over year, we saw an improvement in our available liquidity, a decline in our net debt outstanding, and a lengthening of our debt maturities. The last strategic goal that I'll touch on today relates to safety and our efforts to build a culture of zero harm. I say this almost every earnings call due to its importance. We make safety a top priority because it's the right thing to do for our people and it's the right thing to do for our business. Safety is often a leading indicator of operational performance. And if you can't do the basics of keeping yourself and your colleagues safe, how can you possibly operate reliably and efficiently? Our employees have clearly embraced the culture we're building here around zero harm, and it shows in our results. Specifically, our total recordable injury rate dropped approximately 8% to 1.17, and our lost time injury rate declined from 0.93 from a 1.02, or 9% in the comparable year ago period. Those are outstanding numbers. particularly in the complex operating environments that we have here at Compass Minerals. I want to extend my thanks to all the employees across the company for their commitment to safety and contribution to these outstanding results. As I reflect on the year, it's disappointing to know that the solid steps forward we made across our business were drowned out by noise and uncertainty that arose in Utah around our planned lithium project. We're determined to resolve those questions as soon as possible and we remain engaged with Utah leaders on that front. Compass Minerals has unique high quality assets that have tremendous value. I'm confident that the intrinsic value of the company will be recognized with continued strong execution. So with that, I'll now turn the call over to Lauren.