CMP - NYSE

Thank you for standing by. My name is Carli, and I will be your conference operator today. At this time, I would like to welcome everyone to the Compass Minerals' Second Fiscal 2025 Earnings 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. [Operator Instructions] I would now like to turn the call over to Mr. Brent Collins, Vice President, Treasurer and Investor Relations. Please go ahead.

Thank you, operator. Good morning, and welcome to the Compass Minerals' Fiscal Second Quarter Earnings Conference Call. Today, we will discuss our recent results and provide an update of our outlook for fiscal 2025. We will begin with prepared remarks from our President and CEO, Edward Dowling; and our CFO, Peter Fjellman. Joining in for the question-and-answer portion of the call will be Pat Merrin, our Chief Operations Officer; and Ben Nichols, our Chief Commercial Officer. Before we get started, I will remind everyone that the remarks we make today reflect financial and operational outlook as of today's date, May 8, 2025, and 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 or 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. After a disappointing first quarter, the second quarter was much better in terms of winter weather. This, in turn, has unlocked the benefits of the strategy we embarked upon a year ago. Last year, the company made a strategic pivot to refocus its efforts on the core business. Our goal is to improve the cash flow generating capability of our business by optimizing business practices and structures lowering capital intensity of our assets and improving the efficiency of our operations. Because of the nature of our seasonal business, the steps we take to achieve these roles sometimes take quarters to play out. I'm pleased to share that we continue to make progress on our Back-to-Basic strategy. Almost exactly a year ago, we shared our plan on how we intended to rationalize the North American highway de-icing inventory levels that have grown too large after consecutive mild winters. The primary goal of this initiative was to free up cash that was hung up for working capital and use that cash to reduce debt. Additionally, we knew that salt inventories across the broader system were high, which has impact on the supply-demand balance in the market. We didn't want to further exacerbate that dynamic. We decided to curtail production at Goderich mine and to a lesser extent, at Coke launch with a view that with some help from winter we'd see a meaningful drawdown in our salt inventories and realize significant working capital release out of inventory. A result of that curtailment, we knew that we'd experienced some short-term margin compression due to a higher fixed cost absorption, but the rate was the right business decision for the long-term success to move our business to lower inventory levels. Fast forward a year, you can see that we executed well on the plan. A few points to help that bear that out. North American highway de-icing inventory values are down 47% year-over-year. North American highway de-icing inventory volumes are down 59% year-over-year. Across our depot network, we saw a number of depots being fully depleted by the end of the highway deicing season. And throughout the season, there are multiple media reports about shortages of salt in some of the markets, which suggest there's some tightness in the market during the winter. The successful execution of our plan allowed us to realize approximately $145 million working capital release out of inventory alone, which in turn helped us reduce our total debt in the quarter by more than $170 million. The drawdown inventory across our network was significant this season. We also believe that competitors and customers saw similar drawdowns in their respective networks. Against this backdrop of low system-wide inventories, the company is well-positioned to optimize production inventory levels as we approach the 2025-2026 North American highway deicing bid season. During the second quarter, there's obviously a lot of noise around tariffs, and we needed to see where these things landed before firming up our production plans for the coming year. The salt and fertilizer products that we produce in Canada are qualified under USMCA trade agreement. As a result, they are currently exempt from any tariffs that have been implemented or proposed. With that huge question mark seemingly addressed, the company is in the process of ramping up production, which should have a favorable impact on our per unit cost, all things being equal. From a pricing perspective, the setup as constructive as we enter North American bid season. There's a psychological component to the highway deicing business. It worked against us when we had mild winters for a couple of winters. The customers could look in their sheds and see that they are full of salt. The recently completed deicing season was a good reminder that winners do, in fact, happen. Not unreasonable to think that the pendulum can sweep back in our favor this bid season to allow for some stronger pricing. We could see positive impact on volume commitments in the coming season as well. Our efforts over a year ago are bearing fruit, this position us well to maximize value of our highway deicing business in the coming year. We will continue to maintain flexibility in our operations and capital plans, so that we can appropriately respond to the market conditions. I'll now move to actions we took during the second quarter that we expect to have benefits in future periods. In March, we announced that we're eliminating over 10% of our corporate workforce. This is an extension of our efforts to align our cost structure with our current business needs. We're working on advancing additional cost improvement projects as we continue to focus on driving down costs across the platform. We also announced that we began to wind down the Fortress North American business. These actions simplify our business, allow the company to generate additional cash flow and accelerate deleveraging. With that, I'll turn the call over to Peter for a review of our quarterly results.

Thanks, Ed. I'll comment briefly on the financial results for the quarter before turning the call over for Q&A. For the second quarter, consolidated revenue was $495 million, up 36% year-over-year. Operating loss for the quarter was $3.1 million, which was an improvement from the operating loss of $39.3 million last year. Consolidated net loss was $32 million compared to a net loss of $38.9 million in the prior period. These results include impairments taken on Fortress in both periods, as well as the impairment in the Plant Nutrition business last year. Adjusted EBITDA for the quarter was $84.1 million, which compares to $95.7 million a year ago. As noted in our press release yesterday, the treatment of the contingent consideration liability for Fortress impacts the comparability of adjusted EBITDA between periods. When that is taken into account, modified adjusted EBITDA was $76.2 million in the quarter compared to $71.9 million in the second quarter of 2024. In the salt business, revenue in the second quarter was $433 million compared to $310 million a year ago. Pricing was down 5% year-over-year to approximately $85 per ton with volumes up 47% compared to the prior period. Net revenue per ton, which accounts for distribution costs, decreased 4% to $57. On a per ton basis, operating earnings came in lower year-over-year at $13.10 per ton, down 31%, while adjusted EBITDA per ton decreased roughly 30% to $16.75. The decrease in margins primarily reflects the increase in production cost per ton due to the curtailment of the production at the Goderich mine last year and software pricing for highway dosing salt compared to last year. In the Plant Nutrition business, revenue for the second quarter was $58 million, which is up 16% year-over-year from $50 million. Sales volumes were up 26% from prior period, while pricing was down 8% for the same period. Distribution costs per ton increased 13% to around $102 per ton and all-in production costs per ton decreased by approximately 10% when adjusting for the impairment in the business last year. As Ed mentioned, we executed successfully on our plan to reduce North American highway deicing inventory levels, harvest cash, and pay down debt. The value of North American highway deicing inventory declined 47% year-over-year and the volumes associated with that were down almost 60%. This allowed for a sequential decrease in total net debt of $171 million and an $81 million decline from last year's second quarter. At quarter end, we had liquidity of $329 million, comprised of $51 million of cash and revolver capacity of around $279 million. From a guidance perspective, we increased our adjusted EBITDA guidance for the year. At the midpoint, we are now showing $188 million for the year, which is an increase from a midpoint of $173 million coming out of Q1 2025. The $188 million includes a gain related to the write-off of the fortress contingent consideration liability of approximately $8 million. Even adjusting for that item, we're showing improvements in guidance for Salt and Corporate. I would also point out that our guidance for capital expenditures was unchanged at a range of $75 million to $85 million. As we continue executing on our Back-to-Basic strategies, we will focus on controlling costs, managing inventory and working capital, and enhancing free cash flow. I'll now open the floor for questions. Operator?

[Operator Instructions] Your first question comes from David Silver with CL King.

Yes. Hi, good morning. Not used to being called first. Okay. Thank you very much. I do have a couple of questions regarding kind of the balance sheet and the cash flow statement, in particular. And I understand there's a number of relatively different events kind of puts and takes. Can I just ask you, unlike most March quarters, the accounts receivable level actually rose from December to March? And overall, I mean, I think it's at a very high level relative to your sales or historical season-ending levels. Is there something going on there? Or why shouldn't I think that this would be a significant source of incremental -- further incremental cash going forward? Just some comment on kind of the March month-end level of accounts receivable, please?

Hi. David, this is Ed. Sometimes it's good to be first. But anyway, good to hear us. Let me pass this off to Peter Fjellman to address your question about the balance sheet.

Sure. This is Peter. There are a couple of insurance settlement matters within the AR and both the AP balances. And so you'll see a site gross up to both for the accounting as well as we continue to have a good quarter, and we see those AR balances will continue to come down slightly related to just the natural flow of the inventory sell-through.

Okay. Very good. And then maybe a business question, but I'm sure your team -- this has to do with the upcoming bid season, and I'm sure your team is very proficient at kind of reading the tea leaves, I guess. But what can you say or what can you define, I guess, from the early requests for bids? In other words, have the volume commitments that the customers are seeking, have they noticeably increased versus the past year or two? Are the delivery points indicating areas that may be the Depot depletion, Ed, that maybe you cited in your remarks? Just -- I know it's early, but the bidding does start pretty early or at least the mid process starts pretty early. What can you define from what's available to you at this point?

David, I'll make some general comments upfront and then pass it off to Ben here. It is very early in the bidding season. We do think that the market based on the difference between a year ago and now in terms of inventories in the winter that we served last year is much more constructive than we've seen over the past several years. So that, by itself, gives an indication of potential price increases and potential volume increases, but recognize that not all areas are the same that some areas experience more snow than others. So those sort of things will be different depending on the sort of current situation and the different locals. It's a setup that we understand reasonably well. So pass that off to Ben Nichols here, to see what else you might want to add.

Hey, good morning, David, this is Ben. I think what Ed alluded to, the regional nature of that is important to understand. I would also say we have some early data points on tender sizes, which the municipal and state level indications of what they see their needs for the upcoming season. And I would tell you that those are ranging to slightly up, significantly up in some regions. So all things being equal, we think the dynamic is going to be positive year-over-year moving forward. And I would tell you, our team is very excited about that opportunity.

Okay. Great. And I'm just going to sneak in one more. But this would be related to your SOP business. And just as a note, I mean, to me, that business still has a lot of potential to kind of improve the margins there, especially given the pretty two consecutive quarters, I think, of pretty high shipment levels. Ed, you've -- I understand the Salt segment and particularly the icing inventories was job one here. But what do you see over the next few quarters or next year or so in terms of restoring kind of that cash cost or cash production cost performance level to, I don't know, more historical levels and maybe driving some incremental cash flow from that part of your business? .

Yes, it's an important objective for us, David. We outlined the efforts that we were initiating a year ago, and it's a multiyear effort. And it really starts with the brine chemistries and controlling the brine chemistries better as we go into our evaporation ponds to sort of repair and restore these ponds back towards sort of historical levels. We talked about sales or harvest ratios and -- harvested production ratios, excuse me, and other things. The early indications are very good in that regard. And you see that through the increased volumes that we're now producing in Utah. So that's really just the first step. That will continue for some period of time, but it's really just the first step. The other big end of this is sort of the back end of the SOP production, which is related to what we call the dryer plant or the compaction plant, which requires a capital project and modification. That engineering work is well advanced. We want to make sure that we're really spot on and able to manage this really well. But between those different efforts, we believe that we will be able to materially reduce the cost of our SOP production. I'll hand this off to Pat Merrin a little bit to see if you'd like to add some additional comments there.

Thanks, Ed. Hi, David. This is Pat. I've had a chance to get to Ogden a couple of times now. And certainly, we have a fantastic team there and a very unique asset. And on top of the projects that Ed has talked about, we certainly see some opportunities for us to drive improvements in how we run the business. But that's going to be incremental over time. But the two big projects that Ed has spoken about, the restoration of the ponds and the capital projects will give us a step function going forward while we continue to drive improvements in the business.

Okay. Thanks very much. I’m going to get back in queue. Appreciate it.

Thank you, David.

[Operator Instructions] There are no further questions at this time. I'll now turn the call back over to Edward Dowling, President and CEO.

Thank you, Carli, for the moderation here. I appreciate that. And thank you all again for your interest in Compass Minerals. We are focused on delivering on our Back-to-Basic strategy. We're making good progress in that regard, and I'm excited about the steps the company is making. 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.