Good day, and welcome to the Compass Minerals Third 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, Lauren. This morning, our CEO, Fran Malecha; and our CFO, Jamie Standen, will review Compass Minerals' third quarter 2018 results and outlook for the rest of the year. 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, November 1, 2018, and involve risks and uncertainties that could cause the Company's actual results to differ materially. Please refer to the Company's most recent 10-K and 10-Q for the full disclosure of these risks. And the Company takes no obligation to update any forward-looking statements made today to reflect future events or developments. Our remarks also include non-GAAP financial disclosures, which we feel are important to provide a full understanding of our businesses and operating conditions. You can find reconciliations of these measures in our earnings release or in our earnings presentation, both of which are available in the Investor Relations section of our website at compassminerals.com. Now, I'll turn the call to Fran.

Thank you, Theresa, and good morning to everyone on the call. Today, I will provide a high level overview of our quarterly results, discuss some of the operational issues impacting our 2018 performance, and outline our path forward from here. Although, we've had challenges within our Salt operations which have pressured our earnings in 2018, we have also made important progress in other areas, particularly in our Plant Nutrition South America business and our investments in our sulfate of potash plant in Utah. In addition, our cash flow from operations continues to be strong and we expect to generate positive free cash flow for the year. Our total third quarter revenue increased 11% from last years results driven by improvements in both the Salt and Plant Nutrition businesses. As we have been discussing for a couple of quarters, the underlying market fundamentals of both these businesses have strengthened. Our Salt business has benefited from the very strong 2017/2018 winter in the UK, which has resulted in increased pre-season deicing sales there. In North America, sales have also improved as our deicing customers have returned to more typical buying patterns. In addition, our pricing results from the highway deicing bid season in North America have been very strong. Inventory throughout the North American market are limited due to various market-wide supply constraints and that has resulted in a strong pricing result for the upcoming winter for deicing products. In fact, now that the full bid season is complete, we can report that our average contract price for highway deicing products for the 2018/2019 winter is 18% above last years result. The new prices will begin to flow through our results in the fourth quarter. Despite these positive developments, our Salt earnings were disappointing. This is mainly due to the slow ramp…

Thanks, Fran. Before reviewing our segment results, I'd like to touch on our consolidated results. Our net earnings this quarter totaled $12.8 million compared to 2017 GAAP results of $32 million. The year-over-year decline resulted from lower Salt segment earnings as well as increased depreciation in our Plant Nutrition North America business, partially offset by increased earnings in our Plant Nutrition South America segment. You may also recall that in the third quarter of 2017, we reported to special items, which significantly impacted our GAAP results. First, we reported a tax benefit of $13 million due to the release of tax valuation allowances related to our Plant Nutrition South America segment. Second, we initiated a restructuring plan in the 2017 period, which resulted in a pretax charge of $4.3 million, which impacted our Salt and Plant Nutrition segments as well as corporate costs. Details of these charges can be found in our press release. On a consolidated basis, the net impact of these items was an after-tax benefit of $10 million or $0.29 per diluted share. Looking beyond net income, I'd like to note that EBITDA in the quarter was only modestly lower year-over-year at $67.2 million compared to $68.8 million last year. Additionally, we continued to generate strong cash flow from operations as Fran mentioned. Turning to our Salt segment results, which are detailed on Slide 8 of the presentation, Salt revenue increased 10% and 11% higher sales volumes, while average selling prices were flat. Looking specifically at highway deicing pricing, which was also flat. It's important to note that most of the salt sold in that business in North America was still under the prior season’s contracts. We expect to begin enjoying the better pricing from this year's bid season, beginning in the fourth quarter. Adjusted operating earnings…

Thank you. [Operator Instructions] We'll take our first question from Vincent Anderson with Stifel.

Good morning. Thanks. So when you look at this winter's one contract on a like-for-like basis with last year, pricing 17%, 18%, where did volumes go in terms of one contract at the midpoint, knowing that there was obviously a stronger winter last year?

Commitment levels – are you asking how far down commitment levels are year-over-year?

Yes.

There's a little bit of timing that's going to occur between fourth quarter and first quarter. Overall, commitments are down approximately 15% or so.

Okay. And then when you think about – we head into third quarter, deicing salt sales were largely customers pulling through last year's contracts. It sounds like you mentioned some of your competitors maybe having some capacity constraints as well. Is it correct to assume that we would need to see an excessively mild winter to not to see further price appreciation in next year’s salt bidding season?

Vincent, it’s Fran. I mean, my expectation would be if we have an average winter, the market is tight, obviously our situation is what it is and we're coming off a reasonably good winter last year. So I would expect that we're going to have a positive pricing environment with an average winter for the next year contracts.

Great. Thanks. And if I could ask a quick one on Plant Nutrition. You had 60% year-over-year increase in the quarter for specialty nutrients in North America and you have – you started talking more and more about new product launches. Do you have – I know we're early for 2019, but do you have an idea of at least what kind of targeted revenue contribution you'd like to see from your current portfolio? If not next year, then call it over the medium term?

I mean, we don't have a target that we're ready to share today. I would say that as we introduced these new products, the initial take up will be small. And then over the next season, it increases and really in the third season, you start to get up to kind of those higher levels. So it's just the nature of the cropping seasons in the Ag cycle.

So the new products launched in 2018, the five new products. Will those be available for farmers to buy for the 2019 season?

Yes.

Excellent. Thank you.

You're welcome.

We'll take our next question from Robert Koort with Goldman Sachs.

Yes. Hi, this is [indiscernible] on for Bob. In your press release, you're guiding to a modest revenue growth for the South America segment, which in Q4 in 2017 was $124 million. However, in the slides you guide to a range of $110 million to $130 million. So should we assume that the range is actually $124 million to $130 million?

Yes, that’s right.

Okay. Thank you. That’s all I have.

And we’ll take our next question from Mark Connelly with Stephens Inc.

Thanks. A couple of things. You said that you've added resources at Goderich and you said it before, and you're still changing work schedule. Is the work schedule change a function of the disappointing results or was the original plan to aggressive? And how long do you expect to have those higher staffing levels?

It’s Fran. We came out of the strike with a work schedule that we trialed, and we did that for essentially the quarter, and we recently started a new shift schedule that we think will allow our employees to maximize the output in 24/7 environment and give them the best opportunity to be successful going forward. And then that maybe just to comment on the ramp up and the cost as you've outlined. I mean, coming out of the strike, we underestimated some of the challenges to produce at these higher rates. And obviously, we've adjusted our expectations as we move forward with a realistic plan. We talked about the shift schedule to give our employees the best opportunity to be successful. We have added additional internal and external resources and expertise to improve our maintenance and we have outside experts working with us to optimize kind of the maintenance and production planning and execution, identifying gaps and then we're working to close those gaps. And then once we're certain that we can produce consistently at capacity, we'll continue to optimize our staffing and our support to ensure that when we're operating at that level that the full cost savings will be in effect going forward. And as I talked kind of in my comments, we're ramping up into 2019. We normally take our annual maintenance shutdown in that April timeframe and coming out of that mid-year, we expect to be at those levels and then fine tuning our resources to get to get to the cost side of the equation. And assuming average winter as I mentioned, we expect a requirement to run full out to build inventories for the 2019, 2020 winter.

Very helpful. Questions on Brazil, can you give us a sense of where in Brazil, north versus south, direct versus dealer, your business was strong or was it across the Board? And did I understand you to say that the LATAM margins in 4Q won't be as good as 3Q adjusted for seasonality or did I get that wrong?

I'll take the business question and Jamie can follow-up on the margin side. I would say the business was strong overall in both the direct to farm business as well as into the dealer distribution network. But stronger in our direct-to-farm and that's where our higher margins are. And as we've been working in moving this business forward, we want to continue to really focus our growth there. We have 200 plus people salespeople on the ground and continue to go more direct-to-farms, which is in more in that central and northern part of Brazil. The southern part is more into the retail and distribution network. But it's performing nicely and really moving along on our expectations.

And I just add a comment in terms of geography, 100% corn was planted in the south and there was a really good – we saw really good activity in the southern markets there in Brazil. Can you repeat your margin question?

Yes, I'm just trying to understand whether there was anything unusual in your margin this quarter. And did I hear you say that the fourth quarter margin in LATAM won't be as good?

Correct. So what happened is, on a year-over-year comparison basis, last year, we had improved sales mix in the fourth quarter because of the delayed purchasing. So it was a late planting, late application season. And when we talk about sales mix, we were talking about earlier versus soil applied often. And so our full-year products, which are higher value, higher margin products were sold. They slipped into the fourth quarter, last year, which elevated margins. This, here it was a more normal season and so this year we sold some of those foliar earlier, kind of in the September timeframe, which boosted margins to the higher level this year versus last year, which was depressed. So that's going to happen from year to year, it depends on whether plantings and timings and input purchases by growers. But this year would be more typical.

That's really helpful. I should have caught that. Thank you.

We'll take our next question from Joel Jackson with BMO Capital Markets.

Hi, good morning.

Good morning.

Fran, what gives you confidence that you can get Goderich back and running here? Is there a chance we have to change the system that to be more of a hybrid of continuous mining, but more drill-and-blast maybe maintaining two systems ending up with higher costs and what you had before versus your expectation of lower class?

I mean, I think when we made the decision, Joel to go to the continuous mining. It was really around couple of major factors there. One was air quality in the mine and buy by bringing in the mining equipment and moving out with the diesel vehicles. We've significantly improved that air quality. So allow us to provide a safer environment for our employees and, and beat any regulatory metrics. And then also to be more efficient in production and improve our cost base, so we're continuing, as I mentioned earlier on a measured plan to improve and increase our production. And we're confident that we'll get there. As I mentioned is transformational we had a number of position reductions in 2019 and we went through a work stoppage and our employees are coming together and working to improve our results every day. So we remain competent, I don't see us going back to drill and blast and as we move forward into 2019 will continue to assess our equipment requirements and our people requirements and then adjust accordingly if necessary.

Okay. And following up on that, I mean, have you considered maybe going back at the conveyor system, I know you use a large conveyor network down there. It's another continuous mining system in mine. We'll use a lot less conveyors and trucks and maybe changing to our truck system to help out or is the air quality issue or problem here? Like are you reassessing the conveyors?

Well, there's a - it is an end-to-end system, from the mine phase where we're mining with these machines to our hoist. And that's where it gets more into that optimization on the maintenance and production that I talked about earlier. And just in fine tuning that and ensuring that equipment is up to where it needs to be in terms of a performance.

Okay. And just finally, maybe given a sense of once you get through with a maintenance period in April of Goderich? What kind of salt cost or margin improvements, margin improvement could we see? Are we talking a couple 100 basis points, 300 basis points? What would you second against the middle of next year as you get past Goderich issues?

I don't think we want to give any specific description of what that looks like. Yes, Joel, I mean I think as we get through the rest of this year and as we continue to ramp up. We set our annual operating plan and we'll have a lot better insight into what that looks like in February certainly. So I just we'd prefer to hold off on that the timing as I've talked about before of when these things hit certain rates are very impactful to the timing of when the lower costs start to flow through the P&L. So that's I would just prefer not give you any color on that.

Thank you very much.

We’ll take our next question from Chris Shaw with Monness, Crespi.

Hi, good morning. How are doing?

Great.

I just follow-up on I guess the previous question a little bit and about I guess the quantitative, but qualitatively for 2019 like what is the impact going to be? Is it from just merely this dropping commitment volumes if 15%, is it that the cost of – will you still be selling imported salt or purchase salt or is it just that the mine will be operating at maximum efficiencies? I mean, what would the drag on what part of those things is actually going to be the thing that will cause at the impact of 2019 for the Salt business?

So we mentioned in our deck and that there would be some carryover costs. You can see we've estimated $15 million to $20 million of costs. So that has the components of that or some carryover imported salt costs and higher production costs from this year. So that $15 million to $20 million is our current estimate of the impact of 2019, mostly Q1. Now as we – like I said, continue to ramp up, higher volumes produced quickly translate into lower unit costs of salt, which we would be selling in the second half of 2019. So the non-repeat costs are those that carryover this year. And as we produce at higher volumes and lower unit costs, we start to drop off in the second half of 2019. Is that helpful?

Yes, it’s helpful. It sounds like it's all sort of all those things combined a bit. And then the 50% drop in commitments, was that what you were planning on when you entered the strike? I remember the initial guidance was sort of – you could, I think you're going to lower commitments then, but did you have to accelerate this sort of or [indiscernible]? Did you have to drop that number even more once the strike was over and the ramp up didn't go as quickly as you expected? Or is that sort of what you’re always aiming at, that sort of 50%?

So it's a dynamic situation every year. So this year we happened to be going through a strike. We had some contingency plans in place and we're planning to produce with replacement workers and you kind of know how the story unfolded over the summer and ended up with finalizing a new collective agreement in July. And so all that – through all that time, we're bidding tons. Our highway deicing team or highway bid team is assessing bids, looking at production, assessing production. So we go through all those state and municipality bids through – mostly complete through August. And then at the end of the season there's a commercial aspect where we've got another nice chunk of tons that is we call professional deicers. And so those are some of the tons late in the season that we can decide not to serve. And so those are kind of – we have bites at the apple along the way as we manage our success in our bids are won and lost and our production plans throughout the process they're connected.

Okay, great. That’s helpful. Thank you.

And we will take our next question from David Begleiter with Deutsche Bank.

Thank you. Fran, I know you don't want to discuss too much about salt production costs, but what is the potential longer term for salt production costs on unit basis once everything is operating at designed and optimal rates?

I think Jamie mentioned that, as we get through the balance of 2018 and move into 2019 and set our plans for the year and typically our guidance on the February earnings call, we'll be able to talk more about those costs impacts and what the investors should expect into the future, whether that's for the balance of 2019 and then beyond. And there are some of these timing impacts that are driven by certainly our production levels and by winter by the demand. And the pull on the inventory at the end of the day that results in where those costs land. So I would just prefer that we get into that timeframe and then are able to provide more concrete guidance to investors on the cost structure going forward. We still expect that we will reach our production capabilities with the mining systems that we have in place and that the cost savings that those run rate levels will be as we've discussed previously. I would just caveat that to say that, we are adding additional resources here to get up to those levels and then optimize after that.

Very good, and Jamie, just quickly on 2019 and beyond tax rates, how should we think about that going forward?

Yes, you should use in the 26% longer-term tax rate.

Thank you very much.

[Operator Instructions] We'll take our next question from Christopher Parkinson with Credit Suisse.

Hi, good morning, everyone. This is a Graeme Welds on for Chris. Just the question around the cost that we still have to see from the short fall in production of Goderich this year in terms of the timing of how it will flow into next year? I'm curious if obviously how losses will be dependent on kind of the flow of sales, but I'm curious if there's any kind of color you can give us around the quarterly cadence of when you expect those costs to be realized?

Yes, so you can assume there is $7 million to $9 million of costs coming through in Q4. So we talked about the 15 that just hit us in the third. There's $7 million to $9 million coming through in the fourth quarter and then the carryover is has been estimated at the $15 million to $20 million. So again, the timing of weather and snow events can impact and move those numbers around.

Okay. That makes sense. And then kind of shifting gears over to Plant Nutrition South America, I had a question on the volume outlook for the full-year. I noticed that the guidance range for full-year 2018 came down quite a bit at the top end of the range and I know that you've kind of had a more normal year – this year versus last, but I was just curious as to what were the factors that led to that new guidance range versus the previous one that you put that last quarter?

Yes, sure. I mean that’s the easiest way to describe. It is a focus on higher value products. So we're really just – we're selling a higher value products that have – that are that are sold in fewer amounts of tons, and have shed away some of the more commodity type products. So we're focused on making more dollars, millions and strong margins. Volumes will come over time. We have plenty of excess capacity down there. So yes, our guidance implies tonnage lower than 2016 levels, but we have improved profitability because of sales mix.

Got it, makes sense. Thanks so much. End of Q&A

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

Thank you, Lauren, and thank you all for joining today. And if you have any other follow-up questions, you may contact the Investor Relations department, and information that is available on our website. Thank you.

And that does conclude today's conference. We thank you for your participation. You may now disconnect.