CMP - NYSE

Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Compass Minerals First Quarter Fiscal 2025 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star, then the number one on your telephone keypad. To withdraw your questions, press star one again. We kindly ask that you limit your questions to one and one follow-up. I would now like to turn the conference over to Brent Collins, Vice President, Investor Relations and Treasurer. Please go ahead.

Thank you, operator. Morning, and welcome to the Compass Minerals fiscal 2025 first quarter earnings conference call. Today, we will discuss our recent results, and update our outlook for fiscal 2025. We will begin with prepared remarks from our President and CEO, Edward Dowling, and our CFO, Peter Thielman. Joining in for the question and answer portion of the call, will be Ben Nichols, our chief sales officer and Jenny Hood, chief supply chain officer. Before we get started, I will remind everyone that the remarks we make today reflect financial and operational outlooks as of today's date February 11, 2025. These outlooks entail assumptions and expectations that involve risks and uncertainties that could cause the company's actual results to differ materially. A discussion of these risks can be found in our SEC filings located online at investors.compassminerals.com. Our remarks today also include certain non-GAAP financial measures. You can find reconciliations of these items in our earnings release in our presentation, both of which are also available online. I will now turn the call over to Ed.

Thank you, Brent. Good morning, everyone, and thank you for joining us on our call today. Before I begin, I want to make a few comments about the senior leadership additions we announced a couple of weeks ago. An important aspect of executing on our back to basic strategy is operational discipline and intense focus on continued improvement. The appointments of Pat Merritt and Peter Feldman as COO and CFO, respectively, bring two executives to Compass Minerals with proven track records of leading teams and building cultures focused on disciplined operational management. They will join the company officially in early March. Peter's been with the company a short time, and he's quickly getting up to speed. He's with us on the call today. I am excited about these additions and these two leaders to our core team. I look forward to their contributions to the company. Peter is succeeding Jeffery Cathey who stepped down for personal reasons. Though we will continue to benefit from his knowledge as he serves in a consulting role for the next several months, Jeffery first served as our chief accounting officer then as CFO. He's instrumental in leading the finance and accounting organization through a number of important matters. On behalf of Compass Minerals, I want to thank Jeffery for his many contributions to the company. I wish him well in his future endeavors. I'll start with making a few comments on the business beginning with our salt business. Consistent with prior comments we've made, one important area of focus this year has been to flexibly manage the business and to reduce our absolute inventory levels of highway deicing salt. You'll recall this was a key driver in our decision to curtail production at Goderich mine in 2024. Reducing inventory obviously has the benefit of freeing cash that is hung up in working capital. It also helps remove the supply-demand balance in the market that is long on supply following last year's weak split. Salt is like any other commodity. When there's too much of it in the system, it will weigh on price. All things being equal, we're making good progress in reducing our inventory volumes. We want North American Highway Deicing inventory volumes down approximately 10% year over year. And that is despite the fact that winter began slower than we had hoped in October and November. We typically see both pre-fill activity and replenishment early in the fiscal first quarter generated by early snow events. Unfortunately, we really didn't see any weather in our served markets early in the quarter to drive our orders given that large parts of our customer base had adequate inventory following last year's exceptionally mild winter. December saw an increase in winter weather that was consistent with the ten-year average in our served markets and is significantly above what we saw last year. Looking outside the quarter, we saw winter weather further strengthened in January, which allowed us to call back some of the shortfall from the first quarter. We'll see how the rest of winter, the ice season progresses, that will inform our production plans for the coming year. One new factor that could influence production plans is the tariff on Canadian imports that the US administration announced and then quickly paused last week. And the impact that this would have on both salt and SOP produced in Canada and sold in the US, should the tariff eventually be implemented. There's obviously a lot of details to work through but I'll share a few of our initial thoughts. Regarding our highway deicing business, we don't expect the tariff would materially impact the current year's deicing season, as the inventory is largely forward deployed and available for our customers. It does have the potential to impact next year as we will need to produce and then move salt across our DeepWet network. We're evaluating options to minimize the more immediate impact of such a tariff could have on our C&I Chemical and SOP business. As received, this matter will likely be very dynamic for some time. And we will continue to monitor it closely. As the situation continues to evolve and settle out, we will update the investment community as appropriate. In the plant nutrition business, we've talked in the past about the goal of restoring a pond complex. This is a multiyear process. That we engaged with for several years in focus, it's improving consistency of the grade of SOP raw materials going to the plant. Acknowledging that this has not been a quick recovery process, there are beginning to see positive results from these efforts, which are having an impact on our cost structure. The site has been focused on finding opportunities to improve operational efficiency. While pricing in the quarter was a little weaker than expected, we had stronger sales volumes and lower costs that allowed us to exceed forecasts. This turn is enabling us to increase guidance for this segment. At Fortress, we're continuing to evaluate all options for the business, including ongoing discussions with the US Fire Service regarding the evaluation and testing of the company's conditionally qualified technical grade ortho phosphate-based aerial fire retardant. Well, with respect to guidance, we're moving the range for total adjusted EBITDA down by roughly $15 million. The main driver of this change is the lighter start in sales and our salt business attributable to the mild weather in October and November I mentioned earlier. Again, January came in better than forecast, we've included some of that outperformance into our revised guidance. Plant nutrition is up by about $4 million based on the factors previously mentioned. Corporate EBITDA is unchanged from what we guided in December. To offset this reduction in adjusted EBITDA, the company is reducing the range of capital guidance by approximately $45 million. When we laid out our guidance for the year, in our last earnings call, we noted that we had sculpted the CapEx program such that we could modify our spend to adjust to how the deicing season shaped up. And we're pulling that lever. As a vision, I'll note that the operational initiatives are underway, improve reliability, lower cost, which will have a positive impact on CapEx over time. We're already seeing benefits, and some of that work. Respect to the balance sheet, our plan remains to refinance our debt stack this year. With the intention of restructuring, in a way that better aligns with our current strategy. We believe that we'll be able to move forward with the structure that provides more flexibility around our covenants. Our vision for Compass Minerals remains unchanged. To build a company that generates free cash flow even in mild winters, strong free cash flow during normal years, and outstanding cash flow in strong winters. We have more work to do to get there. The company has made important strides over the past several quarters. We're improving areas that we have the most ability to influence. Said differently, we're doing a better job at controlling the controllables. I'll expect our progress on this front to continue to accelerate with the arrival of Pat and Peter. We remain focused on delivering on our back to basic strategy. I'm excited about the progress we're making in the organization to execute on that goal. With that, I'll turn the call over to Peter.

Thanks, Ed. Good morning to everyone. I'm extremely excited to be joining Compass Minerals and working with the team here. My background and skill set align well with the back to basic strategy the company has embarked on. I want to echo the sentiments shared by Ed earlier about Jeffery. He's been incredibly helpful and generous with his time and knowledge as we transition the role. I'll comment briefly on the financial results for the quarter before turning the call over for Q&A. For the first quarter, consolidated revenue was $307 million, down 10% year over year. It's important to remember that the fiscal first quarter of 2024 included contribution related to Fortress from the US Forest Service contract we had in that year. From an operating earnings perspective, we essentially broke even in the current quarter. Consolidated net loss was $24 million and adjusted EBITDA was approximately $32 million for the quarter. Drilling down into the segment results, in the salt business, revenue in the first quarter was $242 million compared to $274 million a year ago. Pricing was up 1% year over year to approximately $97 per ton. With volumes down 13% compared to the prior year period. Net revenue per ton which accounts for distribution costs, increased 3% to over $68. On a per ton basis, operating earnings came in lower year over year at $11.79 per ton, down 34%, while adjusted EBITDA per ton decreased 17% to $19.17. The decrease in margin reflects the increase in production cost per ton due to the curtailment of production at Goderich mine last year. In the plant nutrition business, revenue for the first quarter was up 24% year over year from $50 million. Sales volumes were up 36% from prior year while pricing was down 9%. Distribution cost per ton decreased 2% to around $91.50 per ton, and all in production cost per ton decreased 10%. At quarter end, we had liquidity of $126 million, comprised of $46 million of cash and a revolver capacity of around $80 million. At quarter end, the consolidated net leverage ratio was 5.9 times, within the company's net leverage covenant of 6.5 times. Last week, the company had approximately $195 million of liquidity with $65 million of cash and $130 million of revolver capacity. With that, I'll turn the call over for questions.

We'll take our first question from the line of David Begleiter with Deutsche Bank. Please go ahead.

Thank you. Good morning. Ed, given the recent winter weather activity, can you kind of frame the outlook for highway deicing volumes in both Q2 as well the full year?

Well, you know, we're in February now. January was a mean, as we said, October, November were not good months for us. The winter really didn't materialize in our served markets. December was a really solid month for us. You know, really being relatively equal to our ten-year average. January was really great. And really, mainly in our southern markets, where the storm tracks largely in the south. And, of course, now what we've been seeing more recently the storm tracks are really into our core served markets and you know, we hope that sort of continues. You know, we'll see. So February is looking pretty good so far. Have to see how March lays out, and we'll and that effect on inventory. We'll do a production planning based on really how we sort of wrap up the season. Kind of at the end of March.

Very good. And just on Fortress, when you say conditionally qualified, what does that actually mean?

There's several steps that the forest service uses to prove a product. The first step is sort of a lab-based product to conditionally qualify it. There's several really, things that go into that. Once that is conditionally qualified, which it is, then you take it into the field through what's called an operational field evaluation, OFE. Right? And that's what we're talking to the forest service rep right now. Add anything to that? I'll just add as part of the field evaluation, the OSB that Ed just mentioned, during that process, they'll also be doing integration testing with the legacy retardants that are in the market. Thanks.

And does this mean you've solved the corrosion issues you highlighted last year, what they highlighted last year?

It's a different base chemistry. You know, initially, the chemistry was a magnesium chloride, base chemistry, and that's where, you know, we were all surprised. About this time last year, to learn when we were very close to having a contract that, it's especially airplanes found the corrosion. That investigation is still going on. We can't comment on it. Because it's going on within the NTSB. What we're talking about with Quella it is a different chemistry based on a phosphate type chemistry. And it's been through the testing and evaluation, which is obviously getting a lot more scrutiny given where we ended up last year. So anything you wanna add to that? No. Thanks, guys.

Thank you very much.

Our next question comes from the line of Joel Jackson with BMO Capital Markets. Please go ahead.

Hi. Good morning. Thanks for the call, Kevin, team. First question, surprised that you lowered your full year volume guidance. It is snowing a fair bit. I live in Toronto. And as you know, I'm shopping a lot. We're all shopping a lot and talking about it. American Rockwell's having me start with production. Right? It seems like there's some shortages in Western New York. Understand that we started light at the beginning of the winter December, but I'm surprised that you lowered your volume guidance considering everything going on. Can you talk about that?

Well, this is what we've done is, you know, we're not weather forecasters. I can't project going forward. What we're doing you know, in the past, you'll recall, we were using more of a system a distributed approach to guidance. What we're doing is, as we've talked about in the past, a little different approach to it now. Where we're given the shortfall in the first quarter. Really, we've taken that. We've added a little bit back in January, and that's kinda what we're saying right now. Now if we have mock out February and knockout March, probably adjust it back up. But you know, we're just being careful about it.

My second question can be two parts. The first part, at least following up on that. But you gave guidance in the middle of December and it's only snowed very strongly since then. That's why I'm surprised you lowered your volume guy. The second question is, Ed, talk about what you're doing on SG&A because that's been a big focus of yours when you came in about a year or fifteen months ago. And SG&A in the first quarter was extremely flat with SG&A in fiscal quarter of twenty fiscal Q1 of twenty-four. So what progress are you making and can you make on SG&A?

Yeah. You know, we are we have made progress in SG&A. You know, if you think about, sort of, the headcount we are down. Nope. Probably about eighty percent running with a team of about eighty percent of the number of people that we had here not too distant past. What's been offsetting us are things, you know, like, legal costs associated with, some of the class action lawsuits that things like that has been offsetting through SG&A. It remains a really important focus for it's a very active discussion. Going on with management as we speak. And just and just about front that Yeah. Look. And and and it's it's just that the You gave you gave that to the other six December. Right? Yeah. I was just gonna say in the middle of December, to kinda follow-up on that, You know, we really was you know, we did that mid-December. We'd only closed in October. Before that. Right? K. Thank you.

Our next question comes from the line of Jeffrey

Thanks very much. Can you talk about what's going on in your accounts receivable line? And you know, where you expect that to go? And, likewise, do you have targets for where you wanna bring your inventories down to?

Yeah. Well, we can tell you that we talk to inventories a lot. We are bringing them down. We'll bring them down to lower than historical norms. Delivering the cash associated with that. Anyone add anything to that?

No. I think that's right, Ed. Just where the winter is tracking all things being equal. And if you kinda take the midpoint of our guidance, you know, that's relative to last year. That's roughly a half million tons alone on the demand profile. So you know, we're also taking actions at the mine that you've seen published and we anticipate to throw the inventories down significantly. Yes. We continue to run Godwinson, the perchilled rate and we won't ramp it back up. Until we've got a better level on our inventory. You wanna talk to AR?

Yeah. Jeff, it's Brent. So AR, that's just sales. So as we talked about in the prepared remarks, October and November were pretty light, but December was a strong month. So that's just the cash conversion cycle things coming out in inventory, going up into accounts receivable, and then we'll start collecting that here in the second quarter. K.

And then it looks like you're I don't know if you're deferring twenty-five million in CapEx or canceling twenty-five million in CapEx. Can you talk about what it is that you're not spending and whether you'll see that in the future?

Let me remind everybody that we last year, we installed a more disciplined approach to capital where we ranked projects based on really the risk associated with kinda not doing a project. And not gonna cut environmental health or safety. Let's just say that. And we still get emergency capital requests. That come through. That we have to have a provision for. What we're talking about are projects that we've ranked from kinda higher risk to lower risk that are in the capital plan for 2025 and what we're planning at this point is not doing about twenty-five million dollars worth of that of the lower end of those projects which were scored lower. In terms of that risk profile. Now they'll probably show back up, in 2026, and we'll go through that process again. You know, so what the so we put the process in place last year. What we've done this year is organize our capital plan so that we could ramp it up or ramp it down depending on how the year went. Given the first quarter, was behind plan, we've ramped it down accordingly.

Great. Thank you.

Hey, Jeff. This is Brent. I did wanna clarify one thing on the accounts receivable that I was I think about. So on the on the product recall, we advanced that was disclosed last quarter. The way the accounting for that works is that you we we expect that to be covered by by insurance. The way that you have to can't handle that from accounting perspective is you have to do a gross up the claim and then the receivable. So that that could be something that you're seeing there is that there's just a gross up on the balance sheet growth like that.

How much is that?

Thirty-five million dollars grossed up.

Okay. Thanks.

Our final question will come from the line of David Silver with CL King and Associates. Please go ahead.

Yeah. Hi. Thank you. I do have a couple of questions. So first one would be about your managing your salt business through the balance of the winter season. Know, in reading through the press release couple of words that I don't use usually see there, toggle and tariffs. And when I think about it, I'm guessing officially, the tariffs would not kick in until, I don't know, March third or fourth. In a worst-case scenario, and in the meantime, I'm guessing that you are leveraging, you know, the Cote Blanche production to kind of meet the needs in your target market area marketing radius to the greatest extent possible. But could you just kind of talk through you know, why would the tariffs, at least for this winter, be an issue in kind of a worst-case scenario. In other words, between now and March fourth, you can produce and position and then you can run Cote Blanche or toggle. I guess running Cote Blanche a little harder and moving product up the river. But between the toggles and the tariffs, what is kind of a what do you fear, I guess, at least in terms of the current winter season, you know, through March thirty-first or April. My assumption is you should be able to get through unscathed. But is there kind of a worse-case scenario there? Thank you.

Yeah. Thanks, Jacob. In terms of the highway deicing, we don't really see much risk associated with tariffs for this fiscal year. As we said, most of our inventory is already forward deployed so that the customers can access it to share. We're gonna have to see what happens with an in an if the tariffs are reinstated here, in a month or so, so if you need to be prepared for that. You mentioned one potential contingency. And this would be really more for next year, not this year, but some flexibility associated with Cote Blanche to serve some of our historical markets. And there would be over time, a reordering that would happen within the serve markets for all the salt producers. We just have to see what happens. And there's many, many, many potential scenarios. That come out of that. We did mention that product from like, our SOP product and C&I product, made in Canada and imported into the US, could be affected through tariffs this year. And there's scenarios where that could be both negative, obviously, but it could, you know, ironically, could end up being positive. For SOP produced in Utah. So we'll just have to see how it goes.

Okay. Thank you for that. Next question would be maybe a follow-up on a certain extent to the CapEx question, but then also about your SOP business in particular. So the wording in the press release indicated that I don't know, remediation or repair efforts, and I apologize. I forget the exact term. But, you know, you're doing things with the SOP ponds and whatnot that are generating some better results. You also talked about optimizing the use of KCL. So I'm kinda scratching my head, but within the context of knocking or taking twenty-five thousand twenty-five million out of the CapEx budget, I mean, are the efforts or are the steps you're taking, you know, at Ogden on the SOP business, are those capital projects or is the spending that you're doing there actually flowing through the income statement by quarter. So just, you know, maybe a comment on what most recently you've done at the Ogden and SOP ponds that are generating better results. And then you know, how does that kinda play into the capital budget that you've established, you know, as of this quarter.

Jake, thanks for the question. We've been working for some time to restore the that's the word we're using, restore the health of the ponds that we mine basically scrape up the material and to really control the brine chemistry more properly, along with approved use of KCL, which does help that restoration. That's really the first step in terms of restoring this business to its historical level of business performance. And what we're really pointing out is after a year of work, and, of course, remember this is a multiyear cycle, we're seeing the benefits of that. What we're seeing is what we expected to see is higher grade SOP and the material that we mine and send to the plant. Now there's two plants. There's a left plant where we separate SOP from magnesium chloride then the SOP then goes over to the dry plant. There will be some capital projects in that dry plant, in the future, to get the water really the moisture in the SOP right for compaction. And operating that plant for some period of time, in a less optimal less than optimal process in terms of the moisture feeding compaction. And we suffer losses associated with that. So we're seeing benefits now to operating cost just by managing our business better. That's more just operating cost. In the future, we will have capital cost and this is not something that we wanna defer. They're really two really critical sort of business projects that we wanna do on the capital side. You know, one, as I mentioned, the dry plant at Ogden, which will help us reduce our cost even more. The second which is really a sustainability project, is a real goal relocation at Goderich mine. Which will occur probably in 2027. So we're preparing to do those projects doing the engineering and doing the engineering right. We are spending capital on those. But those projects themselves will be coming in the future.

And that will conclude our question and answer session. And with that, I'll turn the call back over to Ed Dowling for closing remarks.

Okay. Thank you for your interest in Compass Minerals. Please don't hesitate to reach out to Brent if you have any follow-up questions. We look forward to speaking to you in the next quarter. Thanks very much.