Q1 2021 Compass Minerals International Inc Earnings Call

Welcome to the Compass minerals first quarter, 2020, One earnings conference call.

Your host Douglas Kris 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 standard.

Joining in for the Q&A session are Brad Griffith, our Chief commercial officer.

As well as George Schuller, 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 five 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 with the SEC located on line and investors that compass minerals Dot com.

Our remarks today also includes certain non-GAAP financial measures.

You can find reconciliations of these items and our earnings release and our.

Presentation, both of which are also available on line.

Yeah.

In March 2021, the company's board of directors approved the divestiture of the company's South America businesses.

And it's North America, and micro nutrients business as part of a broader asset optimization strategy.

<unk> the results of these businesses are 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.

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.

The first highlight another new safety milestone achieved by our operational team and the first quarter of this year.

When we talk about our safety performance is a leading indicator for operational success is 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 and mind I'm pleased to report that we would achieved another step change decline and our total case incident rate or <unk>. This past quarter coming in at a multiyear low for our 12 month Rolling average with a <unk> of $1 39.

And 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 are and our 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 and our overall financial results enabled primarily by a meaningful increase and year over year operating earnings within our salt segment as well as five year lows and operating cost per ton and the segment.

And these results are about more than just volumes or price leverage I firmly believe theyre 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 2021st quarter results. In addition, we continued to generate strong positive cash flow from operations.

Totally 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 and.

In addition, EBITDA grew 37% to $98 million, while our EBITDA margins increased approximately two percentage points to 27% and despite a 9% reduction and average salt pricing for the quarter again, that's versus first quarter 2020 levels.

And our Goderich mine, specifically production tons increased approximately 6% compared to first quarter 2020 levels. The.

And the steadily improving production metrics highlight the drumbeat you heard me communicate a number of times before with regard to our performance or God rich 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 and the quarter I'd be remiss. If I didn't also mentioned briefly the historic five year collective bargaining agreement, we finalized at the tail end of the quarter with our talented represented workforce at the Garden Ridge mines.

We value the improved partnership we have forged with the union up a god rich and I remain personally optimistic about the future of our flagship mine.

I'm sure. Many of you experienced a severe winter weather that blanketed much of the U S and February as discussed in our previously published Snow data report. However February was the exception not the rule for the 2020 2021.

Winter season, with snow events, and our 11 track representative cities actually falling below the 10 year average and March being unusually weak.

One contrasting bright spot of the mild winter was a robust winter season, and the U K throughout the first three months of 2021, which helped to drive a meaningful contribution to our salt sales volumes.

In total we estimate the 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 million to $14 million.

Given the severity of the February storms and 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 and the quarter also had a positive impact on our consumer and industrial or C&I business. We.

We sold approximately 25% more tons of packaged deicing products this quarter than we did and the comparable quarter last year.

We also saw improvement and C&I pricing from our non Deicing perspective, which aligns with one of our enterprise wide optimization goals to smooth the seasonality impacts where we can.

As we shift to our plant nutrition segment I want to first reemphasize that we've made a change and how we will report this segment going forward.

Jamie we'll go in to this and 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 and both sales volume and selling price.

Our EBITDA margin and 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 and 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 increased 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 and MLP 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 too 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 and order to best position Compass minerals for future success such.

Such internal valuations are never easy and 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 and the aggressive optimization of our operational footprint and.

Enabling us to hone our focus on core operations, while simultaneously delevering 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, a roughly 975 times 2020 adjusted EBITDA.

And ICL were 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 continued 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 and 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.

And this group has successfully grown this business over the last few years, while having to navigate through and 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 America, and micro nutrient 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 coax broader portfolio, while allowing our plant nutrition segment to focus its efforts on marketing, our leading potassium plus sop product.

Wanted to also take a moment to thank our current and former employees, whose talent and innovative contributions helped to develop those micro nutrient assets overtime.

Collectively we feel these transactions will be transformational for our company by divesting. These assets, we expect to Derisk the business and addition to strengthening the financial position of the company.

These actions allow us to focus on our market, leading north American businesses, and a complimentary 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 value.

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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 our core advantages we possess within our unique asset base and our efforts to increase financial flexibility gives me, great confidence and 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 and more detail as well as our rest of year outlook Jamie.

Thanks, Kevin and good morning, everyone.

I'll start with some comments on our consolidated results and then move on to our segment specific performance before discussing our outlook for the remainder of the year.

As we reported and our earnings release and as Doug highlighted this morning.

All the results. We're discussing today are on a continuing operations basis, unless otherwise noted.

And our South American and North American micro nutrient businesses falling into the discontinued operations back.

On a consolidated basis for the first quarter 2021 year over year sales volume growth and our salt segment more than offset the slight decrease in plant nutrition sales volumes compared to prior year results.

Consolidated operating earnings grew 40% when compared to the prior year to approximately $63 6 million.

While our consolidated adjusted EBITDA grew almost 30% compared to 2020.

Over the same period, we saw operating margins grew 180 basis points to nearly 15%.

Also generated nearly $200 million and cash flow from operations and $180 million of free cash flow.

This compares to free cash flow of about $206 million during the same period last year.

Remember last year's total included and approximately $55 million, one time tax refund.

Excluding that refund our consolidated free cash flow is up about 19% year over year.

Looking now at our Salt segment results.

Total salt sales and the quarter were $369 million up from 288 million and the first quarter of 2020 and increase of approximately 28%.

This improvement was largely due to stronger weather driven demand for our deicing products.

The severe winter weather, we experienced during February and the U S paired with the strong U K winter season, along with some incremental bookings from snow events that carried over from late December 2020 translated into stronger sales volumes versus the prior year.

2021, snow events were 8% below the 10 year average.

While we provide the snow event data as a directional indication of winter weather activity and related demand and our north American Deicing market, we obviously sell deicing products to many regions within this market and weather can vary significantly throughout those regions.

This quarter, our book of business outperformed the broader weather statistics and because of that we have estimated a positive winter weather sales revenue impact of 27 million to $33 million and and 11 million to $14 million positive impact on our operating earnings for the first quarter of 2021.

As expected highway deicing prices were down 9% versus the prior year quarter at $64 per ton.

Which reflects the drag from the previous year's bid season.

However, consumer and industrial average selling prices increased 5% to $162 70 per ton due to broad based price increases across both dicing and non deicing product groups as well as a stronger mix of packaged deicing products sales.

Operating earnings for the Salt segment totaled $80 1 million for the first quarter versus $56 9 million last year.

EBITDA for the Salt segment totaled $98 1 million compared to 71 $5 million and the prior year quarter.

We are pleased to report operating and EBITDA margin expansion of approximately 200 basis points for both metrics and our salt segment compared to first quarter 2020, mostly due to our strong sales mixed shift toward highway deicing and higher year over year production levels at both our Goderich mine and wins.

For UK mine.

A combination of these factors more than offset our lower average selling prices for the quarter.

Looking at our first quarter Salt per unit operating costs, we delivered a 13% improvement versus first quarter 2020, which is the lowest first quarter Salt unit cost performance since 2016.

As I mentioned previously these lower unit costs helped offset the decline and year over year first quarter Salt average selling prices. In addition, the segment delivered lower logistics unit costs, and our highway business for the quarter, which more than offset higher year over year consumer and industrial shipping costs.

We continue to implement initiatives across the organization designed to drive revenue higher and costs lower as part of our enterprise wide optimization efforts, while many of these individual projects and initiatives are small on a standalone basis. They are really starting to aggregate into meaningful improvements and revenue and <unk>.

Your costs.

In addition, they are contributing to our EBITDA margin expansion, which at 27%. This quarter also represents the highest first quarter result since 2016.

Turning to our plant nutrition segment first quarter 2021 revenue was 4% lower compared to the prior year at $54 2 million.

This reflects a 2% reduction and both sales volumes and average selling prices compared to the prior quarter.

It's worth noting that during the first quarter. We have continued to see strong demand for our potassium plus and delivered a 5% sequential price improvement with an average selling price of $573 per ton compared to the fourth quarter.

Plant nutrition operating earnings were down $2 2 million to $4 4 million and EBITDA was down $3 2 million to $13 2 million for the first quarter compared to 2020.

With lower earnings we also had some compression and our operating margins from 11, 7% last year down to eight 1%, while our EBITA margins compressed about four seven percentage points versus first quarter 2020 landing at <unk> 24 for this year.

Although we experienced a higher proportion of direct to customer shipments driving favorable logistics per unit costs that only partially offset the lower average selling prices and higher per unit operating costs.

During the first quarter, we continued to work through our sub optimal harvest quality impacting our sop production rates.

Historically, we do experience variations and our pond harvest quality from year to year, depending on the prior summer evaporation season.

Our current harvest material isn't as rich and potassium minerals as it has been during the last several years, which is putting some short term cost pressure on our plant nutrition segment.

We continue to optimize our raw material feedstock sorting and utilize MLP as an input when needed.

All of this is expected to put modest cost pressure on the segment until the harvest quality improves our we transition into the 2021 2022 harvest material. This fall.

Now I would like to touch on the impact of our recent divestiture announcements.

We have determined that our decision to sell our South American and North America, and micro nutrient businesses represents a strategic shift that has a major effect on the Companys operations and financial results. We will now instead focus on our core salt and potassium mineral portfolio.

As a result.

We have classified these assets and liabilities of these businesses as held for sale on the consolidated balance sheets. Additionally, these businesses are being reported as discontinued operations and our consolidated income statements again as Kevin mentioned during his remarks. This strategic decision to exit these businesses allows us.

To accelerate our leverage reduction goal and focus on our core businesses.

Now I'll spend a few minutes on our second quarter and rest of year outlook.

Again, we are providing full year, adjusted EBITDA guidance and corporate level expenditure guidance on a pro forma continuing operations basis, which excludes the 2021 operating results from our discontinued operations.

Continuing operations of the company are now reported on a corporate consolidated level and in two segments solved and our newly renamed plant Nutrition segment.

Given first quarter business performance and continued benefits from our enterprise wide optimization efforts, we're optimistic about 2021 as we move through the second quarter and this year.

We expect second quarter Salt segment revenue of $110 million to $135 million and EBITDA of 37 million to $47 million.

We have also increased our full year salt segment sales volume midpoint guidance by about 500000 tons due to the strong sales volumes, we delivered during the first quarter of this year.

We're cautiously optimistic on the market outlook for our plant nutrition segment as we continue to monitor the drought situation and California.

While we continue to expect strong demand for our S&P products and the back half of the year a continuation of the drought could put some sales volume pressure on this business.

We also expect to continue to see modestly elevated per unit operating costs for that segment until we move into the fourth quarter of 2021.

The combined impact of our segment outlook has allowed us to move our consolidated adjusted EBITDA guidance upward to 270 million to $295 million for the full year 2021.

This compares to our prior pro forma adjusted EBITDA guidance of $250 million to $280 million.

Now a few corporate items, we've reduced our interest expense estimate for the year to 58 million to $60 million as we expect significantly lower debt levels beginning in the third quarter.

Our capital spending forecast has also been revised slightly lower to the $95 million to $100 million range and we continue to expect full year cash flow to be at or about $90 million and 2021.

And finally after adjusting both our debt levels and EBITDA for our discontinued operations, we expect our leverage ratio to be and the $2 75 to three times net debt to EBITDA area at the end of 2021.

In summary, we are extremely pleased with the strategic progress we have made to start the year, our people and their collective safety continues to be our top priority. While at the same time, we execute revenue and value, creating optimization initiatives across the organization.

With that I'll ask the operator to begin the Q&A session operator.

Thank you at this time, if you'd like to ask a question. Please press star one on your telephone keypad.

First question comes from Vincent Anderson with Stifel. Your line is open.

Yes, good morning, and congratulations on the on the CBA up and up and Goderich.

And although we have kind of a clear view on unit costs and your <unk> business.

Yes.

The Brian quality issues aside would you be willing to talk about how you're thinking about target unit cost levels there.

I think.

We can give you a little bit of guidance for the rest of this year. So like we said they would be a bit elevated when you start to see the year over year comparisons.

This business, having extracted that micro nutrients business, but sequentially.

Sequentially as you go into quarter, two it's probably up 20% to $25 a ton and.

And the back half of the year, it'll it'll come back down a bit to probably and that $450 a ton range.

Okay.

And then just kind of sticking with AG.

<unk> had a fairly long relationship with Amy Yoder on your on your board and I assume by extension and new via I was just thinking through their portfolio would seem to align pretty well with the organic SLP offerings is there any current or future collaboration plan, there and now that they've begun really scaling up that business.

And I don't think we'd have any comment on that.

That's it.

Sure that's fair.

And then I guess, just kind of thinking to the future here I know, it's a little early but.

The planned divestments are finishing up goderich is at the very least back to good.

As you think about what's next for Compass, maybe if you could talk about what you view as kind of your core competencies.

You would consider building off of and the future.

Thinking youre production assets are quite unique but leverage points like Brian based material experience your salt depot network familiarity with the municipal bidding process, just anything you'd want to highlight there in terms of areas for future growth leverage.

Yes.

And that's a great question and I guess, what I would say just kind of roll the clock back a couple of years.

First priority was to get God rich back on a on a better track and I think it's safe to say now after a couple of years. It is headed in the right direction.

Georgia sit and hate to comment on it but while we do a lot better we still believe there is a ton of extra potential up there which continues to excite us.

The second priority was to improve the performance of sort of all the assets to make sure that they are.

Performing at their at their full potential and that was the purpose of our enterprise our enterprise wide optimization approach that we took and I think.

We're continuing to put runs on the board there and we will continue to do that and the future and then sort of third priority was to assess core versus non core and we've obviously made that decision and then.

Along with that will come a delevering event. So I think that gives us kind of a clear path and so that's act one and then two is to start to think about where we go from here and your point's a good one around competencies around whether it's extractive, Brian base mining et cetera, but I would also say that.

The logistics network how we.

The competency that we have and moving bulk materials around.

Officially the depot network that we have is kind of a.

Protector of our business et cetera. So we're just starting to kind of roll into that and I think over the course of the next.

A couple of quarters, you can expect to hear something back from us in that regard.

Alright, Thank you I'll pass it along.

Thanks Vince.

Our next question comes from Seth Goldstein with Morningstar. Your line is open.

Hi, good morning, Thanks for the question.

Kevin in your prepared remarks, you mentioned that.

And you think salt costs may be able to become well we're from this point.

You know, what's what's the future trajectory here and how low do you think they can get.

Yes.

And I don't want to throw out a specific number is what we've been talking about is trying to run the salt segment to try to move it into that.

<unk> 30 to mid 30% EBITDA margin, so thats a function both of cost and what's happening and the in the marketplace and look what I'd say about salt segment costs. Thus far is there.

They are decreasing but keep in mind too that.

Occurring behind the scenes as kind of invisible to the external world that we're effectively building, a new mine and God rich.

So we've got a lot of development costs that are blended and of that cost, which we could take out tomorrow. If we wanted to cease development and.

And you see a step function reduction and costs, but we don't think that's wise because we think this is though.

A viable long term investment and we're building these new roadways, and it'll be standing for 30% to 50 years. So.

I think with the passage of time and as we move into this new mine plan and Youll continue to see step function cost reductions over the next really three to three to five years at which point it will kill them.

And a sustained itself.

Forward based on the way we've designed this new mine plan.

Okay, great. Thanks for the details I'll pass it on from there.

Thank you.

Our next question comes from Joel Jackson with BMO capital markets.

Your line is open.

Hi, good morning.

The past couple of questions one by one.

You sold off a lot of earnings Harrier device and our earnings this year, while more deal to go and what does that and maybe your corporate costs and scaled down lower can you talk about why corporate costs are pretty inelastic.

Despite the large asset sales.

Yeah. So so they were they were not.

<unk> related to the acquisition of those assets, we have a number of fixed cost just being a public company.

Operating here in North America, so as they as those businesses are now divested.

Youre not going to see any immediate impact, but we're constantly looking at our corporate costs and as as required as needed we will be diligent and make sure. We we said that that level at the appropriate amount given.

Our overall business portfolio.

I wanted to follow up on a comment Kevin and I think you talked about that.

You said that rock Salt channel inventories are.

Our lower below average and average bladder theater and the call. So I mean, obviously it was a milder a little bit below average winter and.

And March was quite light so end of year, I imagined consumption and solid rock salt and there.

And <unk> and counties is low and you had a record Q1 volume to rock salt after a low Q4, so some shipments obviously deferred to Q1.

It would seem like from net outside that all of that would lead to channel inventories being high. So maybe you can comment on some of that and when you get your data points, you, obviously have people and the field and you're actually selling and what are your data point and to sort of.

GAAP these inventory assumption levels, yes.

Yes.

Yes, good question, Joel I mean I think.

I would say is that we've reported data on those 11 cities and we sell salt and a lot of other places and.

And just so happened that a lot of those other places needed a whole lot more of the salt and sort of their base commitments and some cases 150, 175% of their based commitments and.

And again kudos to both the production side and the logistics side for being able to flex into a demand scenario and move volumes up nearly one 5 million tons quarter over quarter. So I think number one that's a testament to the sort of the changes and the plumbing that we that we've made here to be able to respond.

In that fashion, but.

February was.

Snow again and.

Took everybody down really really deeply and we think that coupled with March was mild but we saw some activity in April but the other factor that I think you have to consider two here is the boy did Avery Island has created in the marketplace.

Circa 1% to 2 million tons.

That's a pretty pretty big Boyd and what is considered a actually a pretty pretty small marketplace. So we think all of that sets up for like we said in the prepared remarks.

<unk> bid season and.

Thus far and we're only 20% or so and we're not seeing anything out of the ordinary and discipline, so far and.

It feels pretty good and beyond that I don't think we would like to say too much given that we're only.

Approximately 20% in.

And if I could ask a follow up on that.

When you think of bid season, and freight costs around and so there's probably upward pressure on delivered salt price. So ignoring the strength of the chain inventory season, there's probably some upward pressure on on on growth deliver prices because of freight costs, yes.

How does this play out this year, where freight costs will probably be higher Tommy and Thats the case.

And then try and figure out what the actual net backs to you what the sensitivity could be.

Yes, good question, and maybe let Brad or Jamie come and on the actual free cost itself, but the other phenomenon and you've got going on here too as well as.

It's not only.

U S freight freight in general is up including Seaboard.

And from our perspective is additive and good news for us because it makes it harder on the.

Quarters, that's not to say that we won't see them from time to time and our businesses as we.

Have and probably will continue to but it makes it a little more challenging for them. So again.

And just to answer with the.

The way we approach this is optimization and looking at our portfolio of assets and how we can deliver at the lowest price possible to generate the highest margin margin possible. So.

I don't know Brad Jamie do you want to comment on rates themselves and I'll make a high level comment and Brad you could add but I think certainly we're going to see elevated freight rates as we go into the second quarter. When you look at and.

Inflation, just rate inflation and oil prices and sales mix, we expect to see a higher mix of C&I and.

And our second quarter two this year versus last year, and then what you can expect to see higher rates through the rest of the year, but as we go to the bid season, we build those in and graduate and talk a little bit about that.

And I would just add to what Kevin and Jamie said Joel.

So first of all as we look at proxies, we look at Tinder sizes and as Kevin said, we're only 20% through the season and those those.

Tender sizes are largely what we have expected and there appears to be a good logical disciplined and the and the market as Kevin alluded to though both bulk freight rates have changed dramatically versus same time last year as you're probably aware the Baltic exchanges, Maine Sea freight index gained last week to its highest level.

Since September of 2010 as demand really strengthened across all vessel segments.

Economies around the world and supply chains are trying to snap back and thats, putting a strain on rates.

So we do expect to see a firm freight market for importers. This year for both Deicing rock salt and to Vincent's question earlier Sop.

The next question. Our next question comes from Mark Connelly with Stephens. Your line is open.

Thanks, Kevin you've you've eliminated your salt and ports Avery has taken out some supply there.

And Theres still a lot of imported salt coming into your target geography. So how do you think about growing your your volumes as <unk> becomes more productive.

And is it mostly.

Staying within the same geography, you're in and as your costs come down presumably your geographic reach rises too. So I'm just sort of wondering if you can help us think about how those different things play into your plans.

Yes look I mean I think the.

Importers will always be kind of a fungible thing theyre going to come they're going to go theyre going to be.

Inconsistent at best.

I think with Avery Island avoided that creates you think about the jockeying for position that's going to occur there importers are going to have their eyes on it and be cargill is not going to let that business go without a fight through them and try to figure out how to backfill. Other strategics are going to figure out how to try to take some of that business and look at the end of the day.

Some of that business will inure to our benefit and we want to chase business that makes sense for us.

And im not going to speculate right now about how much that will be but to your the second the other question around how do we grow.

Couple of options, you can take market share and the existing footprint or as you point out as we get better and better at God rich and and.

<unk> launch continues to perform the way. It does we can think about it more from a footprint standpoint and start to grow our marketing region I don't think thats.

I think thats in the cards over the course of the next couple of years I don't know if that will play out so much this year, but that's how we're thinking about as youre looking at a different footprint.

Okay.

Wonder if we could talk about the union contract unions don't typically signed five year contracts without some incentive to do that so can you talk about anything and this contract that might be different from what we've seen in the past.

Yes, well look I'll hit at a high level George is here and he was involved in day to day to day, I mean, I think as much a testament to the.

The relationship the acknowledgement that its a partnership up there as anything and look in terms of giving away. The farm nothing nothing could be further from the from the truth, it's very consistent with what you'd see and any sort of renewal, but georgia and any color you'd like to add to that yes. Thanks, Kevin and yes look I would like to say from our perspective.

We're extremely pleased with the CVA at Goderich.

As Kevin highlighted I think and demonstrates our continued collaboration with our entire team at Goderich and really when you look at it our entire enterprise across entire enterprise.

We'll continue to build from this as we go forward as cash.

Kevin highlighted.

And there weren't anything it's just really around that relationship its been built.

Built over the last couple of years and I think it sets us up for a great future.

So again I think.

This is one of those prior ones, where I would say our workforce and our leadership team consider this a win win thank you.

That's helpful and just one quick question for Jamie the Capex reduction is that just related to the divestitures or something else and there.

Yes no.

It's a little bit of trimming and a.

A couple of different areas, but primarily the removal of the discontinued ops.

Okay. Thank you guys.

Thanks, Laura.

Your next question comes from David Silver with CL King Your line is now open.

Okay. Thank you very much.

I had kind of a marketing based question on your <unk> business.

So.

And last year, you sold 383000 tons, which as you know something above what.

And your capacity is for solely pond based Sop production.

Production to lower cost.

Tier of production and my sense is the AG markets are quite robust you could probably sell a similar amount or more.

And I was just wondering from a marketing perspective or managing the business longer term I mean, what is what is the optimal strategy.

In a environment like this in other words do you want to purchase potash and ramp up internal production to limit the amount of imports even if it limits the price improvement or do you kind of pull and just a little bit and try to squeeze out a little more price during the growing.

And for sure, but overall I mean, how do you kind of handle this.

Marketing opportunity.

There.

And my opinion, the demand is clearly going to be above that threshold for you.

And your pond based Sop production. Thank you.

Hey, David Brad Griffith here.

Excellent multi factorial question.

What I would say first as Youre exactly right on Ogden.

Feed tons available Ogden on feed tons.

And remember too that we add are when your Saskatchewan operation.

Call It 40, and 41000 tons. So that's not an insignificant.

Source of Sop supply for us to market here in the U S MCA.

From a marketing perspective, we.

Listen we model this thing.

All the time and we try to make the.

<unk>.

And optimal financial decision, coupled with an optimal customer decision.

And Kevin's comments you alluded to.

Having the right agronomy and talking about potassium pluses conferring.

Route drought tolerance, and we think about how we market.

Our macro nutria and our specialty macro nutrient.

The.

A key differentiator is the fact that our product contains boats, both potassium and sulfate sulfur and both of those play critical roles and drought tolerance.

Potassium will facilitate a more robust route system.

And sulfate sulfur is more readily available for plant uptake and comparison to elemental sulfur when soils are dry and.

Microbes are less active or available for sulfur oxidation and that's the situation.

And our customers find themselves in today.

Year to date, California's and its fourth driest drought.

And so we're really staying close to our farmer customers and some of the difficult decisions that theyre, having to make with limited groundwater pumping available.

And we're seeing a decrease and vegetable crops and an increase and higher value orchards like almonds and pistachios. So again back to your question on volume.

We watch the market, we say exceptionally close to our customers and our distribution and retailers.

And we make the call and try to optimize production, including when we would add a potassium chloride into our facility at Ogden.

Okay. Thanks for that can I, just maybe follow up real quick Brad.

And I'm, just scratching my brain here, but I remember back.

And the 2007 2008 timeframe when potash pricing really took off like a rocket ship.

Your company had potash purchase agreements that were kind of uniquely favorable and that the.

Price was faithful to the price was set you know maybe for late in the prior year and other words when the posted price was lower.

Wondering if that contract and stipulation or that contract element kind of remains in place for your purchase potash needs. This year.

Yes, no. So we've got a couple of pieces there the one you're referring to David.

Expired in.

I want to say 2000.

<unk> 13, or 2014, or so so that is no longer so if we're going to supplement our Ogden operations.

It would be buying.

MLP at.

Market prices and converting it.

Up to.

Converting that upgrading that up into S&P. So.

We do have.

And agreement in place as it relates to our wynyard facility, but that specific to win here.

Okay. Thank you for that.

One quick question on salt, but.

With a free island kind of out of Commission you know you've talked a lot about.

What it means for your.

So your de icing salt business, but I was wondering if it does if in your opinion and it provides any incremental opportunities on the C&I side.

And in other words here.

And historically cargo.

Full line of salt products, and with a lot and like institutional and agricultural processing.

And certainly some products on the grocery shelf.

Are there incremental C&I opportunities for yourself business and as a result of the.

Departure of Avery Island.

I'll take that.

It's.

It's tough to get salt from.

And from Utah and to the market at that.

<unk> Island with serving the freight differential there just really eats up the cost I think everybody understands we've got <unk>.

Virtually unlimited salt and coming off of our operations and Ogden.

But the freight costs eats it up and you just really can't compete from from that distance.

Okay very good thanks very much.

Thanks, David.

As a reminder, ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad.

Our next question comes from Chris Shaw with <unk> Crespi. Your line is open.

Yeah. Good morning, how are you doing.

Yes.

And then you guys mentioned the U K and I had a strong snow year and a strong fourth quarter.

What.

Break that out exactly about and how much of an impact that wasn't a quarter or maybe if that specifically from sort of a bigger.

And because of the breadbasket kind of comment.

Yes, I would say rough estimate is.

Two or three 2% or 300000 tons. So there was a pretty pretty even split between the impact and our U S market and our U K business.

Split between I'm sorry.

Yeah. So the UK specific is call it call.

Call. It a few hundred thousand tons of benefit.

Yes.

Okay and then.

Post the divestitures, particularly in South America will the tax rate significantly different.

Think I remember and moving.

First acquired those.

Yes, so we've.

The rate we've guided at 28% includes the divestitures. So so so South America, Brazil, our tax rate was about 32%. So we're we're shedding one of the higher rate tax jurisdictions and our.

And our mix there so that's how we come down to right around 28%.

On a continuing operations basis.

Alright, and I missed that thanks, that's all I had thanks a lot.

Thank you.

There are no further questions in queue at this time I will turn the call over to Kevin Crutchfield, President and CEO for closing comments.

Just want to thank everybody for tuning in today appreciate your time and questions look forward to keeping you updated over the course of the next few quarters as we.

Continue to execute on our <unk>.

Operations internally and start to think about where we're going to go from here. So thanks again for tuning in and have a great day.

This concludes today's conference call you may now disconnect.

And the region.

And this week.

And going forward.

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