Operator: Good morning and welcome to Compass Minerals Fourth Quarter Earnings and Full Year Earnings Conference Call. I will now turn the call over to Douglas Kris, Senior Director of Investor Relations. Please go ahead.

Douglas Kris: 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 Standen. Joining in for the Q&A session are Brad Griffith, our Chief Commercial Officer as well as George Schuller, our Chief Operations Officer.

Kevin Crutchfield: Good morning to everyone and thanks for taking the time to join our fourth quarter and full year 2020 earnings call. I will 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 am 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 will provide more color on those shortly and we are taking steps internally to further guard our preparedness for such events. That said, I continued to believe strongly that our team’s prudent management and unwavering commitment to our enterprise-wide optimization efforts underpinned longer term transformational benefits that we have 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 the first quarter and fourth quarter of last year negatively impacted our full year 2020 operating income by approximately $40 million to $45 million. 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 Cote Blanche mine. 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.

Jamie Standen: Thanks, Kevin and good morning everyone. First, a quick review of our consolidated results, our fourth quarter 2020 consolidated sales revenue and operating income both declined year-over-year as late winter weather coupled with lower highway deicing average gross sales price pressured salt results, while lower year-over-year SOP pricing, along with elevated SOP production costs more than offset Plant Nutrition North America sales volumes improvements. For the full year, sales revenue and operating income were also lower as we dealt with over $100 million in sales revenue impact and more than $40 million of operating earnings impact due to weak winter weather. We also had elevated SOP costs and lower SOP pricing, which were partially offset by stronger year-over-year SOP sales volumes.

Operator: Thank you. Your first question is from Chris Parkinson with Credit Suisse. Your line is open.

Chris Parkinson: Great. Thank you very much.

Salt segment volumes were lower, but you did manage to holding margins pretty well. And over the next couple of years, there are clearly a lot of moving parts in both Salt, as well as Plant Nutrition North America, understanding some of the near-term issues are obviously non-recurring. But just how should investors be thinking about the long-term margin profile as we head into ‘22 and ‘23? I mean, what’s your base case overall and what are the kind of the key things over the next several quarters we all should be looking for? Thank you very much.

Kevin Crutchfield: Hey, Chris. Good morning, good question, thank you.

Look, I think we talked about this a little bit in the past that on the Salt side, we’re trying to drive toward the high-20s, low-to-mid-30s dependent on kind of where the market is. And I think we did a pretty good job last year in spite of selling some 1.5 million tons less in expanding our EBITDA margins. So we think, over time, that, that low-to-mid-30s is a nice target area for us over the next couple of years. And the other thing that I would add that it’s subtle but it’s worth mentioning is we’re building a new mine at Goderich right now. Now, you don’t see that through the numbers, but we have development sections that are driving new entries and getting us set up for the next 30 to 50 years.

So even in spite of that additional cost, we’re still reducing costs up there and if we wanted to really increase margins over the short-term, we could do something with those units and idle them etcetera., but George and I’ve talked about it, we don’t think that’s wise to do in the near-term because we think the idea of setting this new mine plan up is the right answer. So – and then on the Plant Nutrition side, I mean, I would expect a sharp snapback return to sort of normalized operating margins in Plant Nutrition North America. What we experienced in the fourth quarter, we believe, is – was temporary in nature and we believe that we have that well in hand. So I think you’ll see a nice snapback and we would expect kind of similar margins there too; low-to-mid-30s, dependent on market conditions.

Jamie Standen: And EBITDA margins.

Kevin Crutchfield: EBITDA margins. Yes, Yes, sorry.

Chris Parkinson: That’s very helpful. And just in the U.S., we are clearly experiencing some extreme winter conditions and I never thought snowfall would get so close to compliance, quite frankly. I think you also have operations in the UK, can you just start a little bit more about the start of the winter and how the platforms plays in the benefit there in terms of thinking about your total portfolio and then also perhaps discuss North American market share in ‘21 and ‘22 onward based on your own ambitions still, as well as the closure of Avery Island? Thank you very much.

Kevin Crutchfield: Okay. Yes, thanks, good questions there as well. Look, the UK is off to a really good start, probably the best start it’s had in the last decade or so. So things are really rolling well over there, it’s got a little milder here of late, but they are off to a great start. And then in terms of market share in the U.S., I mean, we’ve planned – we’ve given our guidance based on average weather and we believe we’ll hit those volumes.

If there is average whether, there is – I believe – I’m really confident in our ability to generate those kind of volumes. But what I would say around market shares, we want to be very disciplined about how we think about that over the long-term. We want to stay focused on taking the right business, taking the right business at the right price, so that we can optimize our margins. And then with respect to – and look if it makes sense to grab a little market share back in – from a market conditions perspective, we’ll do it and if it doesn’t, we will also be disciplined on the production side if that need occurs. We’ll just have to see, I mean, we still got about 8 weeks of weather and hopefully we want everybody to be safe.

But hopefully, we’ll continue to experience some weather conditions so that we can prove to the external world what this platform is capable of doing now that we’ve made these changes to the underpinnings of the organization. And then with respect to Avery Island, I mean, that mine was – it was a planned closure later this year. It was closed or it was announced that it was going to be closed early. They had some operating issues late last year and they decided to close it early. So that’s a 1.5 million ton, circa 1.5 million approximately of ton void in the marketplace that we believe some benefits will – are newer to us.

We’re being careful and thoughtful about that. But on balance – taking 1.5 million tons out of the market on balance, we think, should be a good thing for us.

Chris Parkinson: Great. Thank you very much, as always.

Kevin Crutchfield: Yes.

Thank you, Chris.

Operator: Your next question is from Joel Jackson with BMO. Your line is open.

Joel Jackson: Hi, good morning everyone.

Kevin Crutchfield: Hey, Joel.

Jamie Standen: Hey, Joel.

Joel Jackson: Kevin, I want to – Jamie, I want to ask a very honest question. Compass Minerals has given guidance for 6 years in a row 2015-2020 in the February report. For 6 years in a row, Compass Minerals has delivered, by the end of the year, earning below the low end of the initial February guidance range; so 6 out of 6. The question I want to ask is not to look at the past, but to ask you, have you figured out what in your guidance process the last 6 years has led to that performance and figure how you can make the 2021 guidance more accurate or help us describe why you felt confident in this number when it’s been quite poor in the last 6 years?

Kevin Crutchfield: Yes, I mean, look, I am not going to spend a lot of time looking at the past; we’re trying to look forward.

But as it relates to this year’s guidance, I mean, look, we’re still dealing with sort of the hangover effect from the down unit pricing in the last bid season. So we’ve got to work that off between now and the end of this winter season. And, look, if we finish strong, I think that tees up an interesting upcoming bid season but, look, I believe, I have high confidence level, if we experience average weather, just once this experience average weather, that we will absolutely be able to deliver on the guidance that we’ve outlined here. If the winter stays strong, I actually believe we could outperform it. But that was part of the thinking too was let’s lay out something that we feel really good about hitting and hopefully it’s got some upside to it.

So look, I think from an execution standpoint, we haven’t yet tested what the upside potential of this platform is and if business conditions cooperate, I think you’ll see a set of results that are unlike anything that’s been posted in the past. Again, it takes mostly weather, but at the end of the day, I think you will be able to see the benefits of all the work that’s gone in over the last 18 months in terms of the enterprise-wide optimization, Joel.

Joel Jackson: Okay. Second question would be, for the last decade or so, we know that – we’ve seen some numbers, Compass talked about having freight cost sensitivity of something like $0.75 to a $1 per ton for Salt per $10 change in Brent. Now, since you were assigned all these – got all these awards and bids in the spring and summer, we’ve seen diesel, gasoline, oil price all rise.

Can you give us a sense of what the drag is in 2021 guidance from higher freight costs? What was it in Q4 and any offsets to help you mitigate? Thanks.

Jamie Standen: Yes, sure. Let me take that one, Kevin. Yes. So that range still exists.

It’s about – it can be $0.75 to a $1. I think of it more as $0.50 to a $1 per ton for every $10 of Brent crude. When we looked at – and it depends by mode, right, of course. When we set our plan, we were right around $50 Brent for 2021 and, obviously, I think today it’s around $63. So there is some pressure there.

But – so when I look at the first quarter, I think, we’ll actually be down year-over-year in shipping and handling freight in Salt. That’s really mix-driven. If we continue to see weather like we have and we – it ends up on a normal basis because of the incremental highway deicing sales volumes, you’re going to see that blended salt distribution cost lower year-over-year. But based on what you said and where oil is, certainly in the back half, we would expect to see some pressure and that could be middle-single-digit pressure in the back half of 2021, just really fuel-related. As it relates to the fourth quarter, we really did a good job internally through our logistics team.

We talked a little bit about it in our prepared remarks, how we optimized our distribution network, and we did a lot of good value-add opportunities in there and that really muted the fuel cost increases that we were seeing in the back half of 2020. So, as I said, probably looking lower year-over-year in the first quarter and there could be some mid-single-digit back half 2021 pressure in freight.

Joel Jackson: Thank you.

Operator: Your next question is from Mark Connelly with Stephens. Your line is open.

Mark Connelly: Thanks. Two questions. If we – if I could start with the harvesting improvements on the SOP you talked about, you said that, that would improve yield and take cost down in that business. But now it looks like you’re expecting lower volumes. And so my question is, if you’re expecting lower volumes, will you still proceed with that change? And should we expect that the financial benefits of those changes are either going to be reduced or deferred based on the lower volume?

Kevin Crutchfield: No, look, I mean, I think, Mark, what happened in the fourth quarter, the wildfires delayed harvest and we had a really compressed sales season and we really emptied our pockets to deliver on our customers’ needs.

But the harvest process is full in check. We kind of incurred the cost for that last year. We’ll have a full year of that benefit. So we would absolutely expect to see that flow through the cost. And, like I said on the – and Jamie said in the prepared remarks that the inconsistencies that we experienced across the pond harvest last year, we think that we have that well in hand through testing and blending to create a more uniform feedstock for the plant.

And I think you will see things snap back out there pretty quickly this year.

Mark Connelly: Okay. And then just one more, my original understanding was that when the second 46 went into service at Goderich, we bring it down from 4 CMs to 3 but you changed other parts of the plan, now you have got 2 36s in mine development, for example. So can you walk us through what happens from here now that you’ve got the second 46 in service and what’s going to be running where?

Kevin Crutchfield: Yes. So, this in simple terms – and if I say something wrong here George’s here to correct me, but we had 4 36s running.

We got the first 46 in, we moved a 36 off on to development of the new roadways when we got the second 46 in, which is even a beefier unit than the first 46 we got. That freed up a second 36 to work on the new mine’s development and that’s the goal over time to connect the shaft to the old part of the mine via these new roadways as soon as we reasonably can. So we still have four mine production near this. Fair?

George Schuller: It is. We run 4 – just to add additional comment, we run the 4 SVTs behind those units and as Kevin said, with the increased productivity, it does allow us to flex a little bit to do some preventive maintenance and that’s a lot of that optimization and upside you kept seeing throughout 2020 and we’ll see in 2021 as well.

Kevin Crutchfield: Thanks, George.

Mark Connelly: So should we expect another $46 million to come in and when or are we going to just stick to rig into small?

Kevin Crutchfield: Look, we are still working through that. There is a lot of moving parts up there. We’re trying to focus on what the final production fleet ought to look like, but also equally focused on getting this new mine plan developed – get these new roadways developed and then start developing these new rooms and as I’ve said before, that’s a journey and it’s going to take some time. But hopefully from the outside, looking in, you really won’t even see it because we’re – that’s well under right now.

So, still kind of working through what the ultimate production fleet might look like. Could be 3 46’s and dependent on weather conditions you run all 3 of them hard or you may have to create a more favorable-type approach just based on what the demand scenario looks like.

George Schuller: We still have some useful life too in these 36s and we are just getting capital investment couple of years ago. So we still have some life left in those machines and we want to utilize them to the fullest before we replace it with 46.

Mark Connelly: Understood.

Very helpful. Thank you.

Kevin Crutchfield: Thanks Mark.

Operator: Your next question is from Vincent Anderson with Stifel. Your line is open.

Vincent Anderson: Yes. Thank you. So 2021 guidance for Salt, so it’s going to assume normal winter volumes, but is the guidance assuming any kind of incremental price pressure in next year’s bid season from what had been until recently a milder winter or is it related to an anticipated inventory hangover that could have led to some customers taking volume maximums?

Jamie Standen: So, as we always do, we always assume average. So as we start our annual planning process in late 2020 this year as we would have last year, we make average winter weather assumptions. So, our guidance is assuming average winter for the full season and then our expectation of how that would flow through into the bid season.

We won’t comment specifically on what we think price might move in the bid season, but that’s all baked in, Vincent.

Vincent Anderson: Okay. And I guess, maybe then to clarify a little – just a bit further, would you say that the risk of customers taking greater volumes under their contract maximums just based on what we’ve seen year-to-date, would that be a higher or lower risk impacting your second half outlook?

Jamie Standen: I would say that based on what we’ve seen year-to-date in terms of weather activity, we’re pretty well aligned with that. It feels pretty average weather activity on a year-to – on a season-to-date basis with, obviously, some strong activity as of late, which has really helped us to get back to that area. So I wouldn’t expect it to be significantly different than what we thought earlier when we were doing our planning as we’ve now kind of landed in that average area year-to – season-to-date.

Kevin Crutchfield: Yes. And a lot of it, Vincent, too is like, okay, what – we – Yes, it’s been tough for the last couple of weeks for sure, but what does the next 6-week look like. I think that’s what will tee up the next season one way or the other. So far the fields have been brought on. So hopefully he continues to be right.

Vincent Anderson: Fair enough. Just following that point of clarification on Avery Island, to be clear, they were in the market for the last bid season. And so this accelerated outage would not really be showing up until not this year’s bid season?

Kevin Crutchfield: Yes, that’s right.

Vincent Anderson: Okay, alright. If I could sneak in a little bit of a longer one then, do you mind just walking through what gets us to the high versus the low end of expectations in North American agriculture? You had a good almond harvest last year.

But you also have a good row crop set up there. Micronutrients didn’t seem to fully participate in during the fourth quarter, S&P pricing came down at the end of the year. So, maybe if you could spend a minute bridging 2020 to 2021 from a scenario perspective? That would be helpful.

Brad Griffith: Yes, sure. Hey, Vincent, Brad Griffith.

I think, as Kevin said in his comments, we had that record fourth quarter for SOP stemming from a very light 3Q, driven by the California wildfires, and we’re seeing continued significant activity in the – into the first quarter. Vincent, we’re 2 – not quite 2 full months into 2021 and so as Jamie had mentioned in his comments, our guidance range will factor in things like end use crop economics and what we see in terms of average application seasons for both the spring and the fall. I think in our favor, when we look at higher MOP and sulfuric acid feedstock costs for Mannheim producers, as well as freight rates now that are about 2x what they were versus same time last year, we certainly would expect to see some import price appreciation in the coming months. And so when we take all of that and couple it with our expected ramp to what we typically see in our pond-based production in Ogden, we remain confident in our ability to hit that and serve that market demand, while simultaneously capturing the value from every ton. So I think that the delta is on that range.

Really come down to what we see in terms of application seasons and how producers respond to end use crop economics, which continue to evolve a bit as more of the world becomes vaccinated. Exports are likely to improve from where they are today. And that, of course, will help our end use customers dramatically.

Vincent Anderson: Alright. Thank you.

That’s all from me.

Operator: Our next question is from David Begleiter with Deutsche Bank. Your line is open.

David Begleiter: Thank you. Good morning.

Question on free cash flow maybe more for Jamie you said it will be similar to 2020. We are looking at EBITDA up about $50 million year-over-year at the midpoint and CapEx only up about $40 million. What’s the delta in that analysis?

Jamie Standen: Cash interest will be about $65 million cash taxes around $35 million and working capital will be kind of $50 million to $60 million. So that’s the – that’s kind of where that is. We’ve got a bit of a working capital build there.

About half of that is sold. As you look at our full year guidance on volumes, we are taking our salt inventories up toward the end of the year. There is a little bit of SOP increase on the inventory side and then the strong, let’s call it, relative fourth quarter versus 2020, would generate a significant amount of receivables. So that’s a couple – about $25 million of increase in receivables. So that’s the breakdown of that working capital increase.

David Begleiter: Thank you. And Kevin, just on Goderich, what were your production volumes in 2020 and what you expect them to be in 2021?

Kevin Crutchfield: We don’t really talk specifically about Goderich volumes. They were up – there was a 16%, 17% year-over-year and we expect to continue to grow volumes to the extent that the market will handle them. But a lot of that’s a function too of what the market will – what the market wants. And we’ll do everything within our power to balance supply and what we see as the anticipated demand.

But like I’ve said many times before, I think Goderich will reach a point where it runs out of market before it runs out of capability just based on the nature of the deposit, the gear we’ve got in place, the greatly improved relationship we have with the workforce up there. There is still extraordinary pent-up potential there at Goderich.

David Begleiter: Thank you.

Kevin Crutchfield: Thank you.

Operator: There are no further questions at this time.

I turn the call back to presenters for closing remarks.

Kevin Crutchfield: We appreciate everybody tuning in today. Thanks for the interest and any follow-ups, just let us know. Thanks, everybody. Have a great day.

Operator: This concludes today’s conference call. You may now disconnect.