Good day and welcome to the Compass Minerals Fourth Quarter Earnings Conference. 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, Cynthia. This morning, our CEO, Fran Malecha; and our CFO, Jamie Standen, will review Compass Minerals' fourth quarter and full year 2017 results. We will also be discussing our 2018 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. The statements we make today are based on the Company's expectations as of today's date, February 14, 2018, and involve risks and uncertainties that could cause the Company's actual results to differ materially. Please refer to our Company's most recent forms 10-K and 10-Q for a full disclosure of these risks. The Company undertakes no obligation to update any forward-looking statements that we make today. Our remarks also may include non-GAAP financial disclosures that we feel are important to provide a full understanding of our business and operating conditions. You can find reconciliations of these measures in our earnings release, our earnings presentation, or on our Web-site at the Investor Relations section. Now I'll turn the call over to Fran.

Thank you, Theresa, and good morning everyone. Today I'll begin with a recap of some of the 2017 financial and operational highlights and challenges before discussing the factors impacting our 2018 outlook. Our results for the fourth quarter and the full year are demonstrating the value of having our Salt business balanced by our growing Plant Nutrition business. While we faced a challenging environment, particularly for our deicing salt sales, the addition of full-year results from our Plant Nutrition South America segment and growth in our Plant Nutrition North America earnings provided a significant offset to that weakness. Looking first at our consolidated fourth quarter 2017 results, adjusted operating earnings increased 5% and adjusted EBITDA increased 9% from prior year on a 3% increase in total revenue. Earnings per share, excluding the impact of special items which mainly related to tax law changes, rose 22% from prior year to $1.66 per diluted share. The increase resulted from a lower tax rate and the improved earnings from our Plant Nutrition South America business. For the full year, our adjusted operating earnings declined 12%, which was primarily due to mild winter weather and the follow-on effects of that on our Salt segment results. The first half of the year was very mild in our deicing markets, which reduced sales volumes in the first quarter and reduced both contracted bid volumes and average selling prices for the current winter season. Our production costs were also negatively impacted as we reduced operating rates across all of our salt mines. In the fourth quarter, snow and cold temperatures arrived in late December in North America and were fairly concentrated in the eastern portions of our served markets where we have less of a presence. We were able to offset some of the weakness in North…

Thanks Fran. Today I'd like to start by discussing the tax items which we reported this quarter, and then I'll move to our segment results and 2018 outlook. We had two significant tax charges during the fourth quarter, the first related to U.S. tax reform and the second to a settlement reach between the Company, the U.S., and Canada, that impacts tax positions for a 10-year period. The new U.S. tax law generated a net charge of $46.8 million in the quarter. This charge has two components. First, we estimate that the one-time tax on our unremitted foreign earnings under the new law to be approximately $55.2 million. Offsetting this tax was an $8.4 million revaluation of our deferred tax liabilities. The second tax charge involved a settlement regarding cross-border inter-company transfer pricing that was reached between the Company, the IRS, and Canada Revenue. This settlement addressed uncertain tax positions for several tax years and resulted in a one-time tax expense of $13.8 million. This is the second tax resolution reached with the Canadian government this year. Between this settlement and the Canadian Tax Court victory earlier in the year, previously disclosed reassessments totaling about $125 million have been resolved. Now, let's turn to our Salt segment results, which can be found on Slide 8 for those of you looking at our presentation. For the fourth quarter, revenue declined 2% on 3% lower sales volumes, partially offset by a modest increase in average selling prices. The largest contributor to lower volume was weakness in consumer deicing sales. Deicing sales for both highway and consumer products were negatively impacted by the late start to winter and the Eastern U.S. concentration of snow activity. Just to follow up on how winter is developing, as the chart on Slide 4 shows, strong snow…

[Operator Instructions] We'll hear first from Vincent Anderson with Stifel.

Just going back to guidance briefly, would you be willing or able to quantify the commercialization expense on the Plant Nutrition North America segment, and then what kind of sales, if any, you're also including in guidance as a result of that commercialization effort?

Vincent, I think that I won't quantify it specifically, but we do continue to invest in it. We started that in 2017. It was a little bit slower than we expected on the spin side. And so, as we get that full-year rate in 2018, there is a ramp-up there, but we're not really ready to talk specifically about what that is. It includes commercialization and the continued investment in innovation. And then on the results in terms of what we expect from that investment, there is some built into our plan, but a lot of that value will come even down the road in 2019.

Okay, that's helpful. Thank you. And staying on North American Plant Nutrition, I know it's early, but you have these 17 products, you have your SOP, and you have your own internal pipeline. In your initial conversations and efforts in this commercialization process, are there any products that really stand out as missing from your current portfolio, particularly products that are not in your own development pipeline?

Vincent, it's Fran. We have a much broader pipeline to the point today than we had a year or two ago, and we're seeing strong growth in the specialty fertilizer products. So, we're going to continue to build on that through innovation, as Jamie mentioned, and where we may have some gaps, we are working to find those collaboration partners to bring those products to market. So it won't be everything invented here. I think it will be a combination and we hope to talk about those things more in the future as they come to fruition and we bring those products to market.

Thanks. If I could sneak a third quick one in, should we not be seeing some kind of business disruption insurance payout this year, is it in the guidance, and what kind of number should we expect?

So, I think that we continue to evaluate that situation. We're not ready to take position on whether we would have a recovery or not. We have to get through the season, see what the actual tons that we didn't have, we need to find out exactly what those are in order to start developing a claim. We have one year to file a claim. So, it would be premature at this point to decide how much it is because we would have logistics costs related to illogical shipping and actual lost business, which we just don't know until winter is complete.

That's very helpful. Thank you.

And there's nothing in the guidance, nothing in the guidance for that, Vincent, just to add to Jamie's comments.

Right. Great, thank you, guys.

We'll hear next from Joel Jackson with BMO Capital Markets.

My first question is, thinking about some of your mix on your contracts for deicing salt this year, so it looks like you don't have as much exposure to the Eastern Great Lakes which are seeing better snowfall, is there something, Fran, you go back and look at maybe what your strategy was for mid-season and think about if maybe from a risk mitigation perspective you were covered for the full extent of your region and how you might look at this going forward? And second part of that is, you're taking some down-time at Goderich, but if the entire region is seeing good snowfall, good salt shipments, would you not think that there is a destocking going on and there will be opportunities to sell more salt next year? Thanks.

Sure, Joel. First off, I mean I think if you look at our approach to the bid season last year, we felt like we maintained our share across the geography that we serve, and the pricing was disappointing but that was a function of oversupply and the market inventories being elevated due to the mild season, and we're just bearing the brunt of that through 2017 and the pricing early 2018. But I think the timing and the geography of the snow this year maybe hurt us a bit early in the year, and I think if you look at the recent snowfall, probably helps us a bit on the back end of the year. So, we're expecting, I guess I'm optimistic about how the season will end here if it continues as we have seen through January. That will have a better environment come the bid season ahead, both in terms of volume and hopefully on price. So, I think that's really the Salt business for us, and our approach to the market will continue to be consistent with that. And just on, you mentioned this slowdown at Goderich, we aren't slowing production down there. It's just a matter of ramping it up and dealing with some of the issues that we've had to deal with. So, we believe that inventories will be less kind of North to South and we're going to produce for that. But in addition, we're also going to be producing more tons in our Cote Blanche mine, quite a bit more tons over the last year just even looking at how we see demand in the South and to cover some of the production shortfall that we incurred in the North this past year. So, I'd expect production at all of our mines to be up in the year ahead to meet the demand that we think will be out there.

And just to add on regarding the shutdown, I think we've got required maintenance that has to occur. So we shut down in March typically and at the same time we're going to address those quality issues that we've encountered in the geology.

Okay, appreciate that. And then my second question is on SOP. So you did a very large expansion at Ogden. It's been completed for some time. Your 2018 volume guidance for SOP for Plant Nutrition North America is pretty flat with 2017. So, is this a question of the volume out there isn't really there to push SOP further at risk of price erosion?

I think if you go back a couple of years when we – the assumptions that we used to drive the project, I would say that our demand estimates have been curbed from that. But as we've talked kind of consistently over the last maybe 18 months with the lower ag pricing in North America and a bit lower demand that we would build production, build production based on demand consistently but at a slower pace going forward. And so we're kind of looking at that I would say 3% to 5% type demand increase in SOP and we plan to meet that demand by selling to those chloride sensitive crops wherever we can and then competing mainly by using KCl to augment the production as we use up our pond-based production capacity in some of the other crops and markets that we continue to look for growth in.

Thank you very much.

Next we'll hear from Chris Shaw with Monness, Crespi.

Can you talk about the quality issues in the salt mine at Goderich? I guess it's – having visited that one time, everything – when I looked around, everything I saw was salt. So, is it just that it's impure or what does that mean when you're saying 'quality issues'?

Yes, there's a lot – it is solid salt. I think as you look at it, it's not always that discernible. So we're in the area of the mine that we're mining today there is a small amount of other impurities, I guess is what I would call them, in salt that we are mining at this time. It's hard for us to predict kind of what that looks like ahead of us because we can't drill down kind of vertically, because we are under the lake, to kind of determine the exact geology as we go forward. It's just we just can't be that precise with it. But I would say for the 40 or 50 years that we've operated the mine, we haven't experienced anything quite like this in terms of that level of impurities. So, what we've done is find the mechanical solutions to deal with these levels of impurities. We'll install them through our normal shutdown period, which will be in March. Then when we come out of that, we should be able to separate that out effectively and deliver the quality that we need to our chemical customers and our highway customers. So, it's just I think the geology that we're dealing with. We have a handle on it and we have a solution as we go forward.

The impurity is more important to the chemical customer I assume than the road salt guys?

They are. I mean the quality specs are higher on the chemical customers than the highway customers.

Okay. Then back on the third quarter call, you guys discussed the roof collapse at Goderich a bit, and it seemed like everything was going to be back on track. Maybe, I guess maybe the question [indiscernible], it was more so in terms of production versus – I guess what happened, was anything different that happened that now is delaying the cost savings from the continuous mining outside of I guess both the – I guess you cited the impurities and also the roof collapse, but is there anything else that's really just putting that off to 2019 to get the full run rate?

I'll make a comment and maybe Jamie can add on to that in more detail. The only thing I would say is that with the challenge that we had with the roof collapse and kind of maintaining the mine through that, we probably have – we have not reduced our labor force there as quickly as we maybe would have anticipated prior to that by roughly a quarter. So, as Jamie mentioned earlier, we've initiated that process at the mine and that is delaying some of the savings in the early part here of 2018. Jamie, I'm not sure if you…

No, I think that as we went through September and experienced the ground-fall, we really focused in on ground control for a little while, and that really slowed down the timing of the ramp-up. And because this equipment is so important to us, we just want to make sure that we've got the right focus on it. So, as we got through that ground control issue, now we're taking out the labor and we've just basically got a delayed ramp-up. That's why it's pushing it out about six months.

Okay, great. Thank you.

Next we'll hear from Chris Parkinson with Credit Suisse.

You hit on this a little but can you just further breakout the first half impact from higher transportation costs and then just run through the selling of the high-cost inventories? I think Jamie mentioned that a little bit. And then also just do you have any preliminary thoughts for long-term freight expense, given the shifts in your overall geographic mix? Thank you.

So going back to the $25 million in the first half and I talked about it being half high-cost carryover, which is higher cost inventory carryover from 2017, so think of that as $12.5 million, and then also just generally lower operating rates, but the logistics cost comes from – a big portion of it is really shipping salt from our Southern mine and Cote Blanche North. So, that is premium freight. So, as on balance, it's best off for the Company to utilize our own mine and pay incremental freight expense to move some salt North up the river system and otherwise versus finding other salt, import salt, transporting it here and bringing it up through. So, it's basically 12.5 and 12.5 related to carryover and logistics. We do expect that high-cost inventory to be gone likely by the end of first quarter. Some of it may drag into second quarter.

And if I just might add, I think the difference I think as we look ahead in terms of what our book of business can be on Salt as we go through the bidding season next year, with stronger weather in the East, that should occupy those Eastern mines to a greater degree and I would expect that we would swing back maybe a bit more to our more normal territory for salt and our best-margin business with lowest freight to the customer. So, there's always those differences that can happen year-to-year driven by the weather that can impact the freight as you had mentioned.

And then from a longer-term logistics perspective, we're seeing 3% to 5% freight rate increases. You've got fuel, you've got oil at $65 a barrel, earlier this year it was much lower than that. So, depending on oil and we've got a very tight truck market across the U.S., so it's difficult to recapture these costs in season, particularly in our highway business. So, as we go through our bid season, to Fran's point, and look at our netbacks and optimize, we'll do whatever we can to recapture some of these rising logistics cost. But in the short to medium-term, we are seeing inflated logistics.

Great. And just a quick follow-up, could you just kindly breakdown or parse out some of the key factors in the pricing improvements in Brazil, and how you see those evolving in 2018 given that market still seems to be a little bit volatile? And then just also a quick comment on your direct to grower sales strategy would also be appreciated. Thank you.

Sure. So let me talk about the pricing, kind of what has happened. I think what we've seen a lot of the pricing benefit in the fourth quarter year-over-year particularly is related to lower sales through distribution and higher sales to direct-to-grower, and our margins are better, our prices are higher, and there's a lot more full-year products. So, we've got high-value full-year products that are growing rapidly and we're selling more of those, and what we sold less that was lower-price lower-value products that went through distribution. So, that's the real mix that's been driving the benefit year-over-year. I would also say, as we go into next year, we will continue to grow the higher value products at very rapid rates, but we're also looking at pushing some of our older products that we used to sell to B2C, which have been now replaced, we're looking to push some of those in through distribution. I mentioned in my script that we've got some interest by some of those smaller growers in those products. So, those are a little bit lower priced. So, it won't be as much of a price play in 2018 as much as a volume growth play. So, we'll be adding more high-value stuff but we will pick up some of the lower value too as farm incomes are now stabilized and we expect some of that distribution sales channel volume to improve.

And then I just might add to Jamie's comments, we have a very significant sales force on the ground in Brazil and with the management team down there we continue to work to see more customers, get on more hectares, increase fee, the amount of sales per salesperson, and I expect that to continue to increase over time. I think there's just a lot of potential for us down there because we have more feet on the ground and better penetration in these markets than any of our competitors in this space.

Thank you very much.

And next we'll hear from Jeff Zekauskas with J.P. Morgan.

This is [indiscernible] on for Jeff Zekauskas. I just had two quick questions on taxes. First, what was your cash tax rate in 2017 and what do you expect it to be in 2018? And then secondly, of your $61 million in one-time tax charges, how much of that was cash?

So, let me answer the last one first. The $61 million is net of the – of the total $61 million, all of it will ultimately be cash. However, a large portion of it will be deferred. So, the unremitted foreign earnings will be paid over eight years, so think of $4 million or $5 million related to about $55 million of that amount will be paid at that period. So, of the $13 million, the other portion, that will be paid – that's a net number, so we will be paying significant cash taxes to the Canadian government in 2018 and then we will be getting a large refund from the IRS in 2019. So, we would expect cash taxes in the U.S. in 2018 to be quite high. Think of our effective tax rate plus about $65 million of additional cash taxes in 2018. And then in 2019 we would get about $50 million back from the IRS. So, that's a net $15 million on this transfer price finalization and a big part of that comes in 2018 and then we get the lower cash taxes in 2019. And then as for the big repatriation, like I said, it's about $55 million and you should think of that as $4 million or $5 million a year going forward.

Very helpful. Thank you.

We'll hear next from Robert Koort with Goldman Sachs.

This is Dylan Campbell on for Bob. Quick question, on the capital expenditures, what proportion of that is maintenance CapEx? And I guess secondly, as these capital expenditures wane or decline, could you talk a little bit about your priorities for cash flow utilization?

Sure. The vast majority, nearly all of that CapEx spend is maintenance capital. A portion of that maintenance capital is to finish, as we mentioned earlier, the Goderich shaft relining. That spend will be complete in 2018. And the rest is I would say getting pretty close to kind of what our normal maintenance and business capital would be, in that $75 million range is what we have talked about, and we'd be getting close to that once you take out the balance of the shaft relining. And in terms of our capital priorities, we've continued to look at the dividend as kind of the base of that along with investing in our business and improving our balance sheet as the three areas of focus going forward. And I think the year – two years ahead of us are really around executing our current business plan, maintaining our assets, generating increased cash flow, and really focus probably more on the balance sheet, I would guess in the shorter-term than on what may be the next acquisition or a significant investment in the business. So, that's generally how we're thinking about it over the shorter-term.

Got it. Thank you.

We'll hear next from Garo Norian with Palisade Capital Management.

I wanted to make sure I understood correctly the situation at Goderich regarding the lower purity. It seems you guys are going to have kind of a mechanical separation solution installed in March. But I'm curious, how long do you expect to be kind of in this part of the mine or how long do you think this is going to last that you're going to be needing to have this extra separation?

I mean we're going to be in this part of the mine for the next probably several years, but it doesn't mean that geology will consistently be like this. As I mentioned earlier, that's difficult to predict. So, we'll be able to deal with those impurities with, as you mentioned, it's a mechanical separation and sorting equipment that we're putting in, but we will be operating in this area of the mine for a number of years to come.

Okay. And then separately, can you give a sense of expected free cash flow for the year and where you expect leverage to end at the end of this year?

Sure. So, given the tax payment that we expect, given our interest expense, we view cash flow as flat to negative in 2018. And what's really driving that, we would've generally thought of generating about $50 million of free cash flow in 2018, but for this settlement that I described a few minutes ago, that's really pulling about $60 million to $65 million of cash flow in cash taxes out of 2018 and it's pushing it out into 2019. So, we would now expect a dramatic improvement in free cash flow in 2019 as $60 million basically moves from 2018 to 2019.

And the leverage at the end of 2018 as a result?

I think approximately 4x.

Thank you.

That concludes today's question-and-answer session. Ms. Womble, at this time I will turn the conference back to you for any additional or closing remarks.

Thank you, Cynthia. Once again, we appreciate your interest in Compass Minerals, and if you have any follow-up questions, please contact Investor Relations. Thanks.

Ladies and gentlemen, that does conclude today's call. Thank you all for your participation. You may now disconnect.