Good day and welcome to the Compass Minerals’ Third Quarter Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Theresa Womble. Please go ahead.

Thank you, Karina. Today our CEO, Fran Malecha; and our CFO, Matthew Foulston will review our third quarter results and current outlook. Before I turn the call over to them, let me remind you that today’s discussion may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on the Company’s expectations as of today’s date, October 25, 2016, and involve risks and uncertainties that could cause the Company’s actual results to differ materially. The differences could be caused by a number of factors, including those identified in Compass Minerals’ most recent Forms 10-Q and 10-K. The Company undertakes no obligation to update any forward-looking statements made today to reflect for future events or developments. You can find reconciliations of any non-GAAP financial information that we discuss today in our earnings release or in our earnings release presentation. Both of which are available in the Investor Relations section of the Compass Minerals website. Now I’ll turn the call over to Fran.

Thank you all for joining our call today. We are pleased to report our third quarter results were in line with our expectations, although lower than last year’s results. We knew we would face lower pre-season demand for deicing products in both the highway and consumer and industrial businesses due to the fact that last winter was very mild. In our plant nutrition business, we expect lower pricing for our sulfate and potash products as we work to spur demand, maintain our market share, and compete against imports. Further, this quarter is typically a time of preparation for Compass Minerals. It’s a time when we are preparing to meet winter demand for deicing products and to serve the important fall agricultural season in California and other key markets where many chloride-sensitive crops are grown. This year, we were also preparing to close on our acquisition of Produquimica in Brazil. We raised $450 million with an incremental term loan to fund the purchase, and shortly after the quarter ended, we closed the transaction. Before I dig a little deeper into what this transaction means for us, I’d like to review where we stand with our salt and plant nutrition businesses. First, looking at our salt business, the profitability of this segment remains strong, despite lower sales volumes. We are continuing to benefit from the initiatives in our consumer and industrial business to improve profitability, including price improvement in our non-deicing products, customer optimization, and operational efficiency. The salt segment this quarter also benefited from lower trucking rates and fuel costs. We expect this to continue for the remainder of the year, which should help offset some of the impact from lower highway deicing prices. Just as a reminder: snow events for the key cities we track in our served market for…

Thanks, Fran, and good morning, everyone. If you’re following with our presentation online, I’d like first to review our third quarter salt results on Slide 9. Salt segment sales volumes declined 24% due to the lingering effects of the mild 2015-2016 winter. Our highway deicing customer demand for preseason orders was significantly lower. We also saw less demand from retailers for packaged deicing products since they ended last winter with some excess inventory. Average selling price for highway deicing products declined 13%, primarily due to lower contract prices and the weaker UK pound. In addition, our mix of sales to chemical customers increased as a result of the lower deicing sales. Average selling price for consumer and industrial products was little changed from last year’s third quarter, as price improvements on non-deicing products offset the mix impact of selling fewer packaged deicing products. Despite the significant decline in volumes and highway deicing prices, our segment operating margin only contracted 3 percentage points, and our EBITDA margin was essentially unchanged. We continue to benefit from lower shipping costs, as a combination of lower fuel and a softer trucking market led to significantly lower freight costs. In addition, lower demand this year has temporarily reduced some of our warehousing costs. Another bright spot has been the continued benefit from commercial and operational initiatives within the consumer and industrial business. In fact, so far this year, this business has sold about 7% lower volume while actually increasing its earnings by double digits. A testament to the ongoing efforts to really focus on delivering value with this business. Finally, before leaving the salt segment, we were pleased to host a group of analysts and investors for a tour of our flagship salt mine at Goderich a couple of weeks ago. Actually seeing the mine…

Thank you. [Operator Instructions] And we’ll take our first question from Vincent Anderson with Stifel. Please go ahead.

Yes, good morning. Thanks, guys. Can you talk real quick about the performance of Wolf Trax in the quarter? It looked a little weak. And is there any synergy potential for maybe purchasing a blending facility? Or at what point, given the high selling expenses of that product, does it make sense in someone else’s portfolio?

This is Fran. I’m not sure where you’re kind of getting all that information from what we’ve issued here this morning. But my comments on Wolf Trax are that it is a unique product, differentiated in the market, and we are actually expecting year-over-year sales growth in the business through this year versus last year in a very difficult North American ag market. So from the time that we acquired the business back in mid-2014 to today, it hasn’t – I would say it hasn’t met our expectations, but we still believe it has the – and is exhibiting the traits that it had when we acquired it. And as we move through the bottom of the cycle, we think it will perform well going forward. And combining it with the PDQ business and some of the products that are currently made in Brazil that we think we can introduce into the market here in North America will bolster that product line and give us some synergy. So we have no interest in acquiring blenders or getting involved in the retail side of the business. We want to continue to move this specialty fertilizer business towards a more differentiated, higher margin business. And we think Wolf Trax is an important piece of that, albeit a small piece of that for us today.

All right, thanks. That’s helpful color. And then to shift over to PDQ – Produquimica, where do you see within – maybe starting with the capital structure, but if it’s not too early to talk about the rest of the income statement – where do you see the low-hanging fruit to maybe help that bottom line along?

Yes, this is Matthew. You know, since we’ve taken full ownership in this, we’ve essentially had people on the ground – finance people down there working with the team pretty much full time. And one of the areas we want to look at is working capital, and specifically inventory, and see if there’s ways we can squeeze inventory out of that business, run it a little more efficiently from that perspective. You know, with the overall objective here of continuing to grow that business at the kind of rates it’s demonstrated before, but by being self-funding and not sending any more money down into Brazil. So we got the team down there very focused on that kind of growth with those attributes. And I think inventory is going to be the area we spend most of our initial time.

All right, thank you.

[Operator Instructions] And we’ll take our next question from Ivan Marcuse with KeyBanc. Thank you.

Hi, thanks for taking my questions. In terms of the salt business, to get I guess the industry back to normal conditions, do you need an above-average winter? Or would an average winter suffice to get inventories and everything else back to normal, where we will have I guess a little less competitive bidding season as we go into next year?

Yes, Ivan, it’s Fran. We think that with a normal winter, average winter, in the year ahead here that it would pretty much bring us back to I think a average state of inventories. And that should bode well for pricing next summer. We don’t require an extreme winter, but we will always take it.

Got you. And then in terms of PDQ, how much is this going to add to I guess your capital – your CapEx projections when you’re looking out to next year and beyond? And how much of a contributor to your free cash flow should PDQ be in 2017 in total?

Yes, Ivan, this is Matthew. We think the CapEx requirements for this business are pretty modest here in the short-term. I think if you guys remember a chart we’ve shown before with the amount of excess capacity we’ve got to facilitate the growth, it’s significant across all the product categories. So we’re thinking south of $10 million a year of CapEx that, that business is going to require.

Okay, thanks.

And in terms of thinking about how to think about this business going forward, I know it’s been very complicated because we have 35% of their net income that we’re showing up. We’re now going to move in Q4 to a full accounting of the whole business. So what I thought I’d spell out a little bit here is how to think about this on a go-forward basis. And if you just take 2016 EBITDA, first three quarters results plus where were guiding you, you get to about R$225 million. If you take off depreciation of R$40 million and what we think going forward will be a good estimate of local interest expense of another R$45 million, you get down to PBT of R$143 million, R$145 million. Once you tax effect that, the net income should be close to R$100 million. So from a U.S. net income perspective, we’re really thinking about this business of generating in the region of $30 million or $0.85 to $0.90 a share. So again, that’s using this year’s revenue, and we know we’re hoping for more. But I think that will help you try and model this as you go forward, and I apologize for the opaqueness we’ve had this year just because of the way we had to account for it. And I think just one other thing: when you think of the calendarization of this business, you know, it’s typically about 30% in the first half and 70% in the second. And of those respective quarters, Q2 is the biggest quarter in the first half and Q3 is the biggest in the second. So I think that’s what to expect from this business as we move forward, and obviously we are expecting higher EBITDA as we go into 2017.

Got it. And then real quick, I guess your corporate expense or other, whatever it’s called, it looks like you’re guiding for, just based on your guidance, sort of in that $17 million range for the fourth quarter, and then interest expense pops up to $15 million. Is that how to think about sort of the corporate expense going forward, and also the interest expense now that the debt is out there? Or is there some one-timers in there to think about, and when we go into 2017 it should be lower?

Yes, I don’t think there’s anything from an interest expense that’s particularly odd. In fact, if I think about next year, I think of that in the range of $50 million to $55 million when you annualize it. And on the corporate expense, we’ve got some one-time costs associated with getting this deal done, but they are probably in the $2 million range and spread over Q3 and Q4. So I don’t think there’s anything dramatic of a one-time nature.

Okay. So going forward, thinking that $16 million – I guess $15 million to $16 million range per quarter?

I think that’s possibly a smidgen high.

Got it. All right, thank you.

And we’ll take our next question from Chris Parkinson with Credit Suisse.

Hi, good morning, everyone. This is Graham Wells on for Chris; thanks for taking the questions. I was just wondering if you guys could talk a little bit about how you’re kind of seeing growth for Produquimica in their plant nutrition business versus their chemical business. And also whether in the time that you’ve had people on the ground, whether strategically you’ve seen any opportunities to potentially change some of the things strategically they are doing in that market.

This is Fran. I think both those businesses have been growing and we would expect them to continue to grow. The specialty chemical business and water treatment business down there, it’s consistent, it’s consistent growth, and is a nice balance against the ag business, which is more seasonal – not surprising. So we think they fit together and there’s some operating synergy between the two in terms of where the products are made at plant location. So it’s a nice mix of business and a good fit together. I would say the strategies that are in place are strong, and we expect them to continue to drive growth. And then I might just comment that on the ag business, on the specialty fertilizer business, Produquimica’s been on a path over the last five years to seven years of differentiating themselves in the market with products. So investing in innovative and new products and follow-on products, a broad product line they deliver to the market. And given the weak soil profile in Brazil, the need for these nutrients and the capability of the specialty fertilizer products, and the strong profitability for growers down there, despite difficult credit conditions, continue to drive growth as a strategy that we’d like to see continue. And I think the business is very well managed, managing credit into the market very well. So a strong management team that was in place and that remains there and in place going forward, along with people that we have down on the ground and we’ll continue to manage the business well going forward.

Excellent; thanks for all of that color. And then just a quick follow-up, on the SOP side here in North America, you guys mentioned that you’re seeing a bottom, or you believe we are kind of approaching a bottom in that market. I’m just kind of wondering how you are thinking about SOP pricing relative to MOP indexes as we head into next year. And then also, any added color you can contribute to what we’ve really seen on the import side that’s driven that reduction in imports would be greatly appreciated. Thank you.

Sure. I think we do believe the market has bottomed here, and we’re gaining some momentum in the fall. We hope that continues into the spring in next year. It’s hard to predict what’s going to happen with MOP pricing, but recently over the course of the last quarter it appears to be slightly positive, or at least prices haven’t gone lower. So we think that bodes well for looking into 2017. And in terms of the spread that we have between the two products, SOP and MOP, I think it’s really a function of what crops we’re looking at, where that demand is, chloride sensitivity, non-chloride sensitivity. And as the price of MOP moves, I would expect in some cases that we would be adjusting our prices higher. Other cases, maybe not, and competing to bring back more of that non-chloride sensitive demand that we think we’ve lost over the course of the last year, year and a half. So we’re certainly managing the business that way and focused on our customers and primarily focused on building a better demand base as we go forward in the chloride-sensitive crops.

Great. Thank you so much.

You’re welcome.

And we’ll take our next question from Joel Jackson with BMO Capital Markets.

Hi, good morning. So I know the preseason was tough for highway deicing in Q3 because of the mild winter last year. What’s the drag into Q4 on preseason sales, I guess in October? So if you had a normal winter in Q4, how much will you be lacking in sales early in the quarter just because of the high inventories among customer?

Go ahead Matthew.

I was just going to say, Joel, I think most of that reset impact, if you like, we think we’ve seen in Q3 with a much lower pre-fill. And clearly Q3 for us was down significantly year-over-year and down but way below average. So our hope going into the year is that we’ve got Q4 and Q1 set up around the commitments that we’ve won and our normal percentage of those commitments that find their way to market. And we have skewed that a little bit in favor of Q1, ever so slightly, because that tends to happen coming off a weak winter. So we feel that calendarization looks pretty decent right now, assuming we have average winter.

Okay, that’s helpful. And then my second question would be there’s been some press this week. And you’ve talked about this before, but can you give us sort of an update on some of the issue with the water levels, the causeway at Ogden or Great Salt Lake? And how that might impact some of the pond-based SOP production you might be able to achieve next year and the year coming up, just maybe some of the challenges there? Thanks.

Sure. First off, in terms of our production for 2017, this really won’t impact it at all. In fact, we’ve had a – I would call a strong evaporation season this year in Ogden, and are set up well with the harvest of that evaporation season to produce SOP next year to our plan. So this is probably more of a longer-term issue as I would think about it, although there’s a short-term component to it in the breaching of the causeway that the UP railway has been dealing with over the last couple of years. So it’s something – that breaching is something that all stakeholders had previously agreed to. So we continue to work hard with the representatives in Utah, the stakeholders, to make sure that plan is adhered to. And it was delayed here over the last month or so, and that was a bit of a surprise to us. And I think what – some of the press that you’ve seen the last few days is just a caution to the market that we have invested in our ponds. We’ve invested in the last couple years over $100 million into our plant, both in terms of expansion and improvement capital, to make sure that asset can perform well in the future. And it’s incumbent on I think the stakeholders to understand that. And that this causeway will be breached and that will at least give us some short-term relief on the conditions that have been caused by just some low snowpacks over the last number of years out there. But if you look back over history and over time, that snowpack comes and goes. The lake recharges and evaporates down over a longer period of time. So we are at low levels, but levels that we think can certainly be remedied with just the normal weather cycle over time. So we’ll watch that closely. And if the lake doesn’t rebound and continues to decline, there’s some additional capital, small amounts of capital that we can put in to extend our reach into the lake and continue to produce well into the future. So I think that kind of summarizes maybe what you’ve seen in the press over the last couple of months. In the last maybe few weeks, it’s been a little more heightened as we get closer to what we believe the breach will happen and at least kind of bring that north arm up to better balance against the south arm in the short-term.

What would be sort of worst-case capital investment required?

I think, Joel, worst case, we would see somewhere in the probably $8 million to $10 million over a couple of years out there.

Okay. Thank you very much.

[Operator Instructions] And we’ll take our next question from Robert Koort with Goldman Sachs.

Good morning. This is Ryan Berney on for Bob. I was hoping that you – and I apologize if this question has sort of already been answered in a different way. But just a little bit curious on the full year salt volume guidance. Seems like maybe you raised it a tick and curious if that had anything to do with – obviously the September numbers are in, but if there was anything in the early order book in October that maybe was part of the decision to tick that up slightly.

I think as Matthew described it, it’s really just looking at kind of a normal winter against the commitments that we’ve put in place. And he also mentioned that if you compare it to last year, we just had a lower amount of early fill and that impacted the third quarter. But with average winter weather in the fourth quarter, we’d expect to hit those volumes that we are guiding to.

Okay, great, thanks. And then secondarily, on the cost-cutting program, I think last quarter you’d announced a program and you alluded to it a little bit earlier in your prepared remarks. But just curious what kind of overall EBITDA contribution or kind of putting some brackets around how much you expect kind of the cost-cutting specific piece of the earnings growth for next year.

I think this actually goes back a number of quarters. I think we were back in the first quarter when we recorded a charge of $3.2 million, $3.4 million, something like that, for restructuring, which had a couple of components to it. One was the headcount related to transitioning to continuous mining, which will come towards the end of 2017. And then the other piece of it was a general approach to cutting costs in corporate management and really across the company. Some things like centralizing accounts payable and taking advantage of efficiencies, broader spans in control, and things like that. So we have been realizing the impact of that progressively as we’ve been going through 2016. I don’t think there will be an enormous kick up if you look at 2017 run rate versus 2016. The biggest thing ahead of us in cost and covered by that will be when we take that step function improvement in Goderich, which won’t just be personnel related. It will be hardware related, it will be fuel related, it will be efficiency, single handling instead of double handling. And that’s going to kick in to the tune of close to $30 million in 2018.

Great. Thank you very much, Matthew.

And we’ll take our next question from Chris Shaw with Monness, Crespi. Please go ahead.

Yes. Good morning, everyone. How are you doing? I just want to clarify your guidance comment for the plant nutrition business on the pricing side. I know you have it up sequentially in the fourth quarter, but is that strictly just the seasonal mix in Wolf Trax? And should I understand that SOP pricing is basically flat in your model?

Yes, that is exclusively the impact of the increased mix of Wolf Trax. As you know, it has a very different selling price point, and Q4 is a big – the biggest quarter for us. So that’s what you’re seeing coming through there. We’re not planning any adjustments on the other side of the business as we go into Q4.

Seriously, in a typical plant nutrition fourth quarter, what’s the mix between Wolf Trax and SOP approximately?

I don’t think we’ve talked about that mix in – but I think if you go back over time, you can see this seasonal impact sequentially Q3 to Q4 has been a feature of the business for the last couple of years. So I think you can look at that uptick and then look at what we talked about for SOP and get to that piece of it.

All right, thanks. That’s helpful. And then on the salt side, typically when do your customers – the highway customers do their pre-season fills? Is it mostly in the third quarter, or is it mostly in the fourth, or is it split between the two?

It’s a split between the two, I think historically. And probably it’s really a September or October timeframe as they come out of their summer highway programs, road repair, that type of thing, and start looking to the winter to fill sheds and that type of thing. So it’s hard to say what that exact split would be; every year is a bit different, but typically you’d see some in the third, some in the fourth.

I’m trying to understand, then, sort of the guidance you have. I guess the full year guidance for salt volume sort of implies volume growth in the fourth quarter, and I assume some of that would be highway. So is that just based on average winter weather or is there something there I’m missing in terms of timing or…

As we said earlier, it’s based on average winter weather and the commitments that we had in place.

Okay, great. Thanks so much.

And there are no further questions at this time. I would like to turn the conference back over to Theresa Womble for any additional or closing remarks.

Thank you, Karina. And we appreciate everyone’s interest today in Compass Minerals. Please feel free to contact the Investor Relations department with any additional follow-up questions. You can find our contact information on the Compass Minerals website under Investor Relations. Have a great day.