Mosaic Company (MOS) — Q1 2024 Earnings Call Transcript

Thank you, and welcome to our first quarter 2024 earnings call. Opening comments will be provided by Bruce Bodine, President and Chief Executive Officer; followed by a fireside chat, then open Q&A. Clint Freeland, Executive Vice President and Chief Financial Officer; and Jenny Wang, Executive Vice President of Commercial, who will also be available to answer your questions. We will be making forward-looking statements during this conference call. The statements include, but are not limited to statements about future financial and operating results. They are based on management's beliefs and expectations as of today's date and are subject to significant risks and uncertainties. Actual results may differ materially from projected results. Factors that could cause actual results to differ materially from those in the forward-looking statements are included in our press release published yesterday and in our reports filed with the Securities and Exchange Commission. We will also be presenting certain non-GAAP financial measures. Our press release and performance data also contain important information on these non-GAAP measures. Now I'd like to turn the call over to Bruce.

Good morning. Thank you for joining our call. In addition to reviewing Mosaic's performance for the quarter, there are three key topics we'll discuss today. First, the transaction we announced with Ma'aden highlights our commitment to unlocking shareholder value. Exchanging our 25% stake in the MWSPC joint venture for an approximately $1.5 billion position in Ma'aden provides a clear indication of value and greater capital flexibility in the future. Second, we are making good progress on several high-return, low-capital intensity initiatives that will improve results across the commodity cycle. And third, fertilizer market fundamentals remain constructive and the phosphate supply and demand picture is particularly compelling. As the North America spring planting season winds down and fertilizer prices have moderated, fertilizer demand strength is now emerging in other key agricultural geographies, which will bode well for pricing in the second half of the year. Before I dive deeper into these areas, let me summarize our first quarter results. Mosaic generated adjusted EBITDA of $576 million on revenues of $2.7 billion. The Phosphates segment generated adjusted EBITDA of $277 million on sales volumes of 1.6 million tonnes. Solid North American demand and limited supply pushed phosphate prices higher in the first quarter, and our realized stripping margins remain substantially above historical levels. Our results in this segment included a higher mix of sales sourced from third parties to mitigate the impact of the heavy turnaround schedule we discussed last quarter. The Potash segment generated adjusted EBITDA of $281 million on sales of 2.2 million tonnes, reflecting the benefits of strong spring seasonal demand in North America. Global prices have stabilized, including in Brazil, where we're seeing prices move higher as we head toward the safra season. For the first quarter, Mosaic Fertilizantes generated adjusted EBITDA of $83 million from sales of 1.7 million tonnes. The continued divergence of our performance from many others in the Brazil ag industry is resulting from the decisions we've made to prioritize risk management and margin over volume. Last year, we quickly worked through high-cost inventory. And this year, we are navigating the challenging credit and liquidity environment by prioritizing sales to lower credit risk customers, demanding prepayments, and insisting on contract performance. Our distribution margin improved in the second half of last year and first quarter results were significantly better than expected. We also had very strong co-product volume and margin performance during the quarter. Our results this quarter show that we're successfully working through challenging environments to drive strong results. At the same time, we are focused on creating shareholder value in additional ways. A great example of this is our transaction with Ma'aden, which will exchange our 25% position in the MWSPC joint venture for an approximately $1.5 billion position in Ma'aden shares. This new structure allows our successful long-term partnership with Ma'aden to continue while also providing increased investment transparency and flexibility for capital redeployment over time. I should note that we believe that neither this transaction nor any potential future transactions involving the Ma'aden shares will result in any material tax friction. We have several other ongoing initiatives to drive improved returns. Our $150 million cost reduction plan is on track in delivering early results. Potash production cash cost per tonne declined about $10 in the first quarter compared with the same period in the prior year. We are rightsizing our workforce and have identified opportunities to reduce our third-party contractors over the next 18 months, which will result in $20 million to $30 million in annual cost savings when complete. We are making progress on our SG&A expense management. With our first quarter SG&A expenses down by $21 million or 16% compared with a year ago. We are also focused on improving and optimizing our operations. In phosphate, we're making good progress on our volume improvement plans through the execution of extensive maintenance turnarounds, including activities at the Riverview and New Wales plants in the first and second quarters and a turnaround at the Louisiana plant in the second quarter. In potash, our Esterhazy Hydrofloat project, which will give us an additional 400,000 tonnes of capacity, will be in service by mid next year. We are expanding our market access with the construction of a 1 million-tonne blending plant at Palmeirante in the fast-growing northern agricultural region of Brazil. The project is well underway. We are currently building the warehouse structure, support buildings, and electrical infrastructure and expect to complete the project early next year. We have recently completed the MicroEssentials conversion at our Riverview facility. Once it is fully ramped up, over half of our U.S. phosphate production will be higher-margin value-added products. We are also on track to reduce our capital expenditures by $200 million this year versus last year. These initiatives all have one thing in common. They improve returns across the cycle. With that, let's take a closer look at agriculture and fertilizer markets. While corn and soybean prices have softened recently, farmers remain profitable. Even a small lift in these commodity prices would return farm profitability to quite healthy levels. Moreover, the prices for many other ag commodities, such as palm oil and rice remain at very attractive levels. In addition, weather is shifting rapidly from a strong El Niño to La Niña, which should prove positive for Southeast Asia, India, and Brazil. Favorable conditions in Southeast Asia are particularly important as we expect the region will be responsible for about two-thirds of global potash shipment growth this year. In fact, in January and February, potash imports to Malaysia and Indonesia were up about 35% versus a year ago due to depleted channel inventories in a very constructive potash to palm oil price ratio. Phosphate markets remain tight; we are seeing the expected post-spring seasonal slowdown in North America, but Brazilian demand for the safra season is emerging. Strong demand and limited supply pushed SSP prices in Brazil up by $30 per tonne in April. The recent seasonal uptick in Chinese phosphate export availability has exerted downward pressure on prices in India. But India's demand for phosphate this year is expected to be solid on the back of an above-average monsoon season. India's demand will surely exceed China's ability to supply the nation. We expect the Indian government to increase the maximum retail price to allow importer economics to work in the current global pricing environment. And thus, incentivize producers to send tonnes there. Longer term, the outlook for phosphate continues to be very positive. Demand is growing to produce more grains and oilseeds for food and biofuels and for increasing industrial uses, including battery production. At the same time, limited new supply is coming to market and Chinese exports are down about 25% from historical norms. The structural changes in phosphate supply and demand point to strong fundamentals in the years ahead. The global potash supply and demand picture is balanced, the same seasonal dynamic is occurring in potash. North America is slowing, but Brazil is picking up, resulting in a $30 increase in MOP prices in Brazil in recent weeks, an indication of positive market sentiment and constructive supply and demand dynamics. With Southeast Asia demand returning, we continue to expect near-record global potash shipments this year. Now moving on to our outlook. For phosphate, we expect second-quarter sales volumes of 1.6 million to 1.8 million tonnes and an average FOB price at the plant of $530 to $580 per tonne. The fire at our Riverview facility caused damage to pipes, pumps, and a phosphogypsum transfer station. Our team engineered a temporary solution that enabled us to restore some phosphoric acid production in just two weeks, and we are now back at full capacity. We expect some reduction in the second and third quarter sales volumes, but overall, the impact was minimized. Our second-quarter guidance reflects the impacts of the fire, the ongoing turnaround activities, and the seasonal softening in the U.S., partially offset by improvements in Brazil. For potash, we expect second-quarter sales volumes of 2.2 million to 2.4 million tonnes and average FOB price at the mine of $210 to $250 per tonne. For Mosaic Fertilizantes, we expect second-quarter sales volumes and profitability to improve from the first quarter, reflecting seasonality and our differentiated approach to tackling Brazil's operating environment. We expect planned turnaround activities to weigh on production margins in the second quarter. As you recall, we completed the high-priced inventory destocking in the first half of last year. Going forward, we expect distribution margins to be at normal annualized levels of $30 to $40 per tonne, but it may vary from quarter to quarter. To conclude, despite the seasonal reset of the market as we transition out of the North America planting season, our outlook for the year is positive. We are taking near-term actions and executing long-term initiatives, as our agreement with Ma'aden demonstrates, to continue to strengthen our business and maximize shareholder value. Now we'll move on to Q&A.

Thanks, Bruce. Before we move on to the live Q&A, as we have done in past quarters, we would like to address some of the most common questions we received after publishing our earnings last night. Our first question relates to the Ma'aden transaction. What does the deal mean for Mosaic? And how does it fit with your broader portfolio strategy?

First, I want to mention that our partnership with Ma'aden has been a great one. We brought deep technical expertise to the joint venture, and we benefited from secure phosphate supply for our customers in key markets. Now as Ma'aden shareholders, our relationship has evolved, but our partnership continues. We're committed to working together on opportunities that create mutual benefits. When I think about the transaction, I believe Mosaic shareholders will benefit in multiple ways. The deal provides a fair value for our investment in the Kingdom, gives investors transparency on that value, and greatly improves our capital flexibility over time. In terms of our vision for the broader portfolio, we're continuing to invest in our competitively advantaged and best-performing assets. This is why we're expanding our MicroEssentials production, growing our distribution business in Brazil, and further optimizing our Esterhazy operation. We're also focused on demonstrating value and creating still greater capital flexibility over time. You saw an example of this last year when we divested Streamsong Resort for $160 million, and the Ma'aden transaction is just the latest iteration. Our continuing review of assets could result in a number of additional outcomes, including divestitures, finding partners for certain parts of our business, or idling underperforming assets. These actions, together with our cost initiatives and CapEx reduction, are all in service of driving returns for shareholders.

Our next question relates to the markets. What is your view on how the potash and phosphate markets will evolve for the remainder of the year?

Potash and phosphate markets are playing out much as we expected. Ag fundamentals remain constructive in most parts of the world. China's long-term appetite for ag commodity imports remains strong and is particularly robust for corn and beef. This means farmers have incentive to continue to maximize crop production. We saw that play out in the spring planting season in North America, which brought very strong fertilizer demand. The current market reflects seasonality that one would expect. After a strong spring, price resets are typical ahead of North American summer fill demand, which we expect to be normal. In Brazil, farmers are preparing for their main soybean growing season. After a delayed start to fertilizer buying, demand has emerged over the last several weeks, which we're seeing in potash and phosphate prices. Both are up roughly $30 per tonne from the lows, and demand is expected to intensify as we head towards the safra season. In India, low fertilizer inventories and expectations for a good monsoon this year should drive strong demand. In phosphates, we still expect total Chinese exports to be flat to slightly down from 2023, which is well below historical norms. Tight supply should support above-normal stripping margins through the year. We believe the potash market is balanced. Russian and Belarusian producers are getting back to pre-war and pre-sanctioned export levels, but the demand is there to absorb it, and we continue to expect near-record shipments this year. Southeast Asian demand, in particular, stands out because of their depleted channel inventories and constructive palm oil fundamentals. Additionally, the La Niña weather pattern should provide more rainfall to support the increased demand. In summary, we're seeing normal seasonality, and we expect constructive market conditions throughout the year.

As a follow-up on Brazil, are you seeing the same stress and challenges in the market which others are experiencing?

We believe Mosaic has a competitive advantage in Brazil. We have a large and geographically diverse distribution network across the country. This not only minimizes our risk exposure to disruptions in any one specific region but also equips us with the best market intelligence to inform our business decisions. Our unique positioning in the market is what led us to proactively manage our inventories last year, and set us up for a much more constructive first quarter in 2024. Now we're certainly seeing the same credit and liquidity issues in Brazil that many others are. But our view into the market has allowed us to avoid any significant impact to our business to date by identifying customer issues early and taking decisive action knowing that our decisions might have short-term impacts on market share and sales volumes. Some of those actions include securing a higher percentage of our sales to lower credit risk dealers, taking prepayment from customers when possible, and ensuring sales contract integrity. As a result, our collections as a percentage of sales are well ahead of the same time last year. And our distribution margin per tonne exceeded our internal expectations for the quarter. We believe we have an enormous structural advantage in the country and the combination of risk diversification and proactive risk management are allowing us to successfully navigate the current environment.

Thanks, Bruce. And with that, we'll now move on to the open question-and-answer session. Operator, please open the line for follow-up questions.

I'm interested to know your expectations for the Fertilizantes business's EBITDA over the next few years. Considering the asset you are developing, your productivity initiatives, and the government's efforts to increase cultivated land in the Cerrado region, where do you see that business heading?

Steve, thanks. Let me answer it this way. And I think we've been consistent about this in the past. But the way I look at EBITDA generation in that business is we've got 9 million tonnes of kind of distribution capability today at $30 to $40 distribution margins. On top of that, we've talked about before, we've got co-products and other product sales of probably around another $100 million. And we've announced the Palmeirante project and going into 2025, when that's complete, we'll add another 1 million tonnes of distribution capability, adding that $30 to $40 margin, and you kind of add all those up in the kind of the baseline. The other things that we are looking at are our cost reduction initiatives. And those are going to play out in a couple of different ways that would affect probably the ultimate P&Ls there. Some of what we announced in the prerecorded calls have some of the third-party contractor costs of $20 million to $30 million. A good chunk of that is in Brazil. And then some of our GDA savings will flow through to that as well. So we should see something there on top of that. But outside of those types of things, I think that's a good way to look at kind of the base. We also believe that our distribution businesses, particularly in Brazil, could be the platform to launch our biosciences portfolio with the reach and access that we have in Brazil. And we have kind of launched that earlier this year, and we'll kick that off and probably start to see gradual growth starting in 2025 of EBITDA contribution there as well. So depending on where that goes ultimately, you can start to put those pieces together and see appreciable improvement in EBITDA from what we're at right now.

Bruce, is there a way to hedge in the value of the Ma'aden position since it's a publicly traded equity? I'm just looking at their share price being at record level and yours not. So I'm just wondering if there's a way you could maybe crystallize or walk in that value now and maybe put it to work somehow in your own equity ahead of the lockup period on the shares?

Yes. Thanks for the question, Vince. But let me turn it over to Clint as he's been involved in a lot of the deal-making on this.

Yes, Vincent, I would say, look, protecting our investment, I think, could be important. And certainly, we'll look at the different options that are available to us. I think we'd have to consider the liquidity of the market that it's traded on and other factors like that. So I would say more to come on that. What we'll need to continue thinking through is exactly the best way to manage that position. But I would say right now, we're not ready to speak with any clarity on that topic any further.

I apologize. I was looking at the wrong name on the screen, sorry.

This is Viktor stepping in for Ben. On your Q1 slide deck under performance highlights, you referenced that phosphate supply and demand looks particularly compelling. Two questions. First, can you provide some color on that statement? How do you see the supply and demand balance evolving that makes it particularly compelling? And then by extension, why is output for potash, not particularly compelling?

Thanks, Victor. So I'll start with phosphate. We definitely view that the supply and demand in the overall market is tight on the phosphate side. A lot of that is due to really China backing off on their historical exports. And exports from a few years ago are down 25% from some of the high watermarks on that side, which is a significant reduction of about 4 million tonnes out of the supply side. Demand has recovered back to kind of pre-war levels overall and pretty close to that with the appreciation that we have in the market baked in this year. And there really is no new significant supply. OCP has had a little bit of supply come on. But most of that is in the market now. It may be a small amount remaining. And then the other factor is China is really focusing on shifting some of their agricultural P2O5 into industrial to support their lithium-ion phosphate battery production. So that competition for that phosphate molecule, particularly in China, is causing supply tightening even further on the agricultural phosphate supply. So those combinations really are the structural changes that have been significant recently. But even if you go back in time and you look at China's production capability, and it underpins why their exports are down. Really, there's been a structural change in their output of significance, 25%, 30% over the last, say, decade. Coupling that with some of the policy changes, their domestic food security focus, and the LFP batteries, as we talked about really is a structural change there that has made the phosphate market particularly tight. On the potash side, it's definitely not the tightness that we feel on phosphate. But we would say that it's pretty balanced. Just a couple of years ago, we were wondering if potash demand would ever return to the kind of 70 million-tonne mark, and sure enough, it has. And we believe that it's going to stay that way this year, if not a little bit higher, and then continue to appreciate at kind of that 1% to 2% compound annual growth rate. But the Russians on the supply side and the Belarusians have been very effective at getting back to kind of their pre-war pre-sanctioned levels, which has allowed a more balanced supply. We also see some additional supply coming out of Laos. But with kind of our estimate of last year to this year, just under 3 million tonnes of growth in the market, a lot of that is being absorbed by Russia and Belarus and then a little bit by Laos. But the rest would be absorbed with any excess capacity in Canada. So pretty balanced, constructive. And again, everything underpinned by population growth, good ag fundamentals driving that demand at that kind of good growth rate over the foreseeable future. Jenny, anything that maybe we should add?

Thanks, Bruce. I think you covered that. Probably just some data points on phosphates. In Q1, Chinese export actually were reduced by 70%, which was a 1 million-tonne reduction. What does that mean to the market? At the end of the spring season in the northern hemisphere market, the major market ended the season with very low inventory. For India, the inventory at the end of March was down by 28% year-over-year, which is 800,000 tonnes lower than last year, which was already low. In Brazil, the inventory level was down by 30%, which is 700,000 tonnes year-over-year. So all this very low inventory in the major market is portending a very strong pent-up demand for the rest of the year. So I just wanted to add that data point on the phosphate market.

I want to follow up on the Ma'aden transaction. Talk about what other maybe deals could be on the table? Would you be looking at shopping the operational stake in the JV to other producers to be able to cash out maybe sooner by small evaluation? Like were there other deals on the table? Why was this the best deal? You did talk about the rationale, but just that. And also, I think there was a view when you got involved with this maybe a decade ago that this is going to help automotive consolidation phosphate, right? Potash caught back then and OCP was starting to work together on to be you and Ma'aden working together a bit. You're going to help Ma'aden ramp up their operation, get expertise and maybe work together a bit more. Is it maybe a bit of a deconsolidation in the space or not really?

Joel, thanks. As far as other deal structures, we've been contemplating how best one of our challenges is getting for our own shareholders and investors, what is the real value of this investment and making it more transparent. And then obviously, you've got to work with the shareholder partners on what deal constructs they'd be willing to do as well. So ultimately, this was the best one to bring that transparency of value and give us that capital flexibility that we wanted into the future, and kind of is what it is from that perspective. Going back to 13 years ago when we first got into this, I can't say that I remember all that was said for sure. But from our perspective, one of the big reasons to get into that joint venture was a hedge on risk of some of our permitting issues around our South Fort Meade mine at the time and some of the challenges that we were suffering with that here in North America, and that would allow us kind of a hedge for longer-term idling of that facility due to lack of permits. I also thought that Ma'aden at the time would always have some advantaged cost structures with raw materials and co-participating, and that probably wasn't a bad idea at the time. So as far as consolidation, I don't think that was our primary objective, getting into it. And we really don't think about this deal as being anti-consolidation either as we sit here and think about it today. It really is trying to bring more clarity on the value of our investment in the Kingdom and then allowing us more flexibility in the future for capital redeployment or capital allocation, how we so choose in the future. Clint, I don't know if there's anything to add.

No, the only thing that I would add is that, obviously, we've laid out some of the things that were on our mind as we thought about this transaction. I think at the same time, our partner was looking to consolidate ownership of the JV for their own purposes. And so I think as we looked at the structure, I think the relationship is important. I think the partnership is important. I think we both agree to that. But there were some objectives that each of the parties really had in mind. And I think this deal structure achieves that.

There are several aspects to consider here. When we take a broader look at the expected future strip margins, it’s clear that there are many factors affecting your U.S. phosphate business right now, including downtime and the recent fire, as well as the turnarounds of the dragline, chemical plant, and ammonia plant. You have a plan to reach an annualized production rate of about 2 million tonnes by year-end, and the slide mentions a potential $15 to $20 per tonne reduction in conversion costs once you achieve that. What are your thoughts on the advantages beyond just lower conversion costs when we consider increasing the amount of ammonia produced internally, which should be more economical? Additionally, how do you foresee the impact on rock costs from Florida or the need to utilize more Miski Mayo rock, and how long can we expect those cost reductions to last before you might need to invest significantly in new rock reserves in Florida?

Yes, Adam, there's a lot to discuss. We are definitely working hard to reach a 2 million-tonne run rate by the end of the year. As we've mentioned and you've highlighted, we still have significant turnaround schedules in the second quarter, extending a bit into the third quarter. There's also a sulfuric acid turnaround at our Bartow facility in the fourth quarter. A lot of work remains to address the backlog of maintenance issues caused by COVID and several hurricanes over recent years. However, I feel confident about our position by the year's end regarding that run rate. Additionally, if I understood you correctly, the improvement on cost absorption alone is actually $20 to $30 a tonne, not $15 to $20 as you mentioned. This range likely includes benefits from power generation through improved sulfuric acid and steam utilization, along with better water treatment costs. When we aren't running at full capacity, we have less evaporative heat for our water balance, which means we have to rely on pricier options like reverse osmosis and lime treatment for our water needs. These are structural benefits from cost absorption based on volume and the actual advantages of operating at higher capacity, which are sustainable and will continue to align with our goals. Regarding rock reserves, we have around 30 to 40 years of reserves. If you look closely at our 10-K and other publications, you'll find a plan to eventually build a new greenfield beneficiation plant at our Desoto reserve. Meanwhile, we're pursuing projects we've already announced, like the Eastern extension at South Fort Meade, to acquire additional reserves for existing beneficiation plants and extend our timeline for a new mine. We have also identified the idle South Pasture option that we can restart. Our reserve base has several avenues that will help us continue utilizing our integrated rock source for a long time, allowing us to postpone that significant greenfield investment at Desoto for as long as possible. I hope this answers most of your questions.

I would like to follow up on the global dynamics and what you're observing regarding the global supply, particularly in relation to the proposed changes to tariffs and duties in the U.S., Russia decreasing, and Morocco increasing again. It appears that authorities are uncertain in their decisions since they reversed these changes just a few months ago. What is your general perspective on this, and what are consumers actually demanding and asking for? Also, how does Mosaic fit into this situation?

Yes. To confirm, the Department of Commerce did as part of their process due to their preliminary ruling from an annual review standpoint. This would be on 2022 duties, so going back in time. And what were their interpretations of subsidies or things that were done in those jurisdictions, namely Morocco and PhosAgro in Russia. And yes, the preliminary numbers went up on one then went down on the other. The other complication in this process is there are appeals that are still outstanding waiting for rulings on. And then the annual review and new duties for what was just announced don't get finalized until November of this year. So I think to your point, there is a lot of volatility and uncertainty around where some of these duties lie. Our customers, I think, have gotten used to that in North America. We're here and our heavy focus is on supplying North America first with our production and market share over 50%, where we like to be and continue to be here for our domestic customers. But we're also saying no hesitation to bring in more imports from a more diverse set of importers. And I think at the end, what that means is a healthier industry for U.S. fertilizer, but also healthier competition for the U.S. farmer. So I think the duties from our perspective have worked as intended. They are leveling the playing field and eliminating unfair subsidies that were quite honestly proven again with the International Trade Commission earlier this year, causing injury to the industry. So we're supportive of the process. We know that, obviously, it's got some uncertainty around it. But I do believe the U.S. farmers have adapted to that and it's just modifying trade flows and bringing more competition and a more diverse slate of importers here in North America.

Going back to Ma'aden, it's been noted a few times that the deal was partly made to enhance the transparency of your investment's value. I'm curious about your current feelings regarding the valuation. I recognize it is a market value, but it also appears somewhat high compared to some of your peers and the potential to realize that value may depend on liquidity. How do you perceive the $1.5 billion valuation today?

Andrew, good question. Something we've been talking about, obviously, a lot as we entered into this deal. And I'm just going to turn it over to Clint because he's got some good thoughts around this topic.

Yes. We have a few different thoughts on this. When evaluating our joint venture interest, we assess its value through traditional discounted cash flow methods and other techniques, and we believe that the $1.5 billion valuation is quite fair and attractive, which we agreed upon with our counterparty. Looking at the shares and the consideration we are receiving, we expect this transaction to close by the end of 2024. Analyzing consensus estimates for Ma'aden, which is well-covered, we find that the implied multiple aligns closely with their historical trading patterns and appears to be lower than what was observed in 2023. Thus, as we prepare for our ownership during 2025 and 2026, the expected multiple aligns well with historical trends over the years. It's also worth noting that Ma'aden has historically traded at a premium relative to its peers for various reasons. Our assessment for the expected ownership period suggests that the relative multiple remains consistent with historical data and does not seem inflated. In terms of our share of the joint venture, it reflects a valuation that is double our initial investment, and we find this to be fair and appropriate. Additionally, when considering our stake in Ma'aden and related valuation metrics, they appear consistent with past trading patterns as we look into 2025 and 2026. Taking all these factors into account gives us confidence in the structure we've agreed to.

Just another quick one on Ma'aden. Just I was trying to think about the cost side of things. So as you convert to an equity holder versus an operator share in that JV, what's the impact on free cash flow and EBITDA over the last 12 months and you talked about some offtake agreements. Does any of that change now that you're paying market versus costs, so just the moving parts there, please?

Yes. Thanks, Josh. As far as the supply agreement, I think it's just we have the option to look at that if we needed for key markets, so addressing your latter part of your question. And those things would be to be negotiated, but we have that optionality. As far as the first part of your question, maybe I'll turn it back over to Clint and give your thoughts around the EBITDA.

I believe it will have very minimal impact on EBITDA and free cash flow for Mosaic. Historically, we've only considered cash dividends in our EBITDA calculations. We do have equity earnings reflected in our financial statements, which were $57 million pretax in 2023. Regarding cash distributions, we received $25 million last year and $15 million in the first quarter of this year. This is what would factor into our EBITDA and free cash flow. Looking ahead, I anticipate that there will be minimal, if any, long-term impact or consequences for our EBITDA and free cash flow.

Just a couple of things. First, regarding the upcoming turnarounds, while I understand they improve efficiency and are necessary, will there be any increase in supply as a consequence? I know it isn't a chemical operation, so that might not apply, but will there be any supply increase from the turnaround? Second, do you believe the outages had an impact on prices, pushing them upward, and now that everything is operational again, has that influence diminished? Finally, concerning Ma'aden, does the shareholding from the joint venture affect your influence over the company's decisions? Are there any plans for expansion in the future, or are they focused on current operations at this time?

Thanks, Charles. Let me begin with the last point since it's not as fresh in my mind. I don't believe the changes in deal structure will have a significant impact. We've acted as a technical advisor and minority partner, and I expect that role will remain largely the same. They still want Mosaic's technical insight and resources involved in this, allowing us to participate and assist them. You'll need to ask them about their future expansion plans, which I know have been discussed in the media. As a shareholder, we are interested in their goals for maximizing shareholder value, but I don’t anticipate any notable change in our influence compared to the past. Regarding turnarounds, they are essential, and we've been focused on them, particularly with our sulfuric acid plants. We have more than a dozen globally, and they undergo major turnarounds on a three-year cycle to maintain reliability. If we don’t adhere to that schedule, we risk compromising our operations. The steam produced in the sulfuric acid process is vital for evaporating lower concentrated phosphoric acid for granulation and for power generation through our cogeneration facilities, which are more economical than purchasing from the utility. To your question about whether our drop in production has influenced pricing, I don't think it's been substantial enough to do so. Even returning to our historical run rate of 8 million tonnes won't significantly alter the situation, especially considering the growth in phosphate demand and constrained supply. I believe the market will remain tight, and our tonnes will be necessary to maintain that balance. Lastly, regarding prices, I believe I've covered that already. I appreciate your flexibility in allowing me to address these points, so thank you for that.

Just a quick follow-up on a previous comment made during the prepared remarks. You mentioned that fertilizers are set for higher prices in the second half as demand recovers, and considering Jenny's comments on the potash contracts, would you be very disappointed if those contracts do not align with that perspective?

I think we'd be surprised based on what we believe about the supply and demand and what's needed in the marketplace. But I'll turn it over to Jenny and see if she's got any more since she addressed that original question.

Yes, thank you for the question. We have our own estimation based on the fundamentals, and we are monitoring the latest negotiations, especially in India. I would say the contract prices are likely going to be settled and are already included in our price forecast.

Well, thank you, operator. To conclude our call, I'd like to emphasize our key points. First, our transaction with Ma'aden will benefit our shareholders by establishing a transparent value for our investment and providing us with greater capital flexibility for the long term. Second, we are making good progress on our strategic initiatives. We're investing in our best-performing assets while reducing costs and capital expenditures. And finally, fertilizer market fundamentals remain constructive, and we expect continuing strong demand through this year. To summarize, Mosaic is generating solid results in dynamic conditions, and we're working to deliver strong shareholder value. So thanks for joining us today, and everyone, have a good and safe day.