Q3 2021 Compass Minerals International Inc Earnings Call
Thank you for standing by and welcome to the Compass minerals.
Third quarter in fiscal 2021 earnings call.
Lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session I'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad to withdraw your question again press. The star one we ask that you. Please limit yourself to one question and one follow up.
Thank you and now I'd like to turn the conference over to Douglas Kris Senior Director of Investor Relations. Mr. Chris. Please go ahead.
Thank you Jack.
And good morning, and welcome to the Compass minerals third quarter and fiscal 2021 earnings conference call.
Today, we will discuss our recent results and our outlook for fiscal 2022.
We will begin with prepared remarks from our president and CEO, Kevin Crutchfield, and our CFO Jamie Standen.
Joining in for the Q&A discussion will be George Schuller, our chief operations Officer.
Or are we get started I will remind everyone that the remarks, we make today represent our view of our financial and operational outlook as of today's date November 16 2021.
These expectations 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 that compass minerals Dot com.
Our remarks today also includes 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 on wealth.
The results in our earnings release issued last night and presented during this call reflect only the continuing operations of the business unless otherwise noted.
The company's fiscal 2021 results in fiscal 2022 outlook in this earnings release.
To reflect the change in fiscal year end from December 31 to.
At September 30.
The fiscal 2021 results are reported for the nine month period from January one 2021 to September 32021.
And the company has presented comparable results for the January one 2020 to September 32020 period.
I will now turn the call over to Kevin.
Thanks, Doug Good morning, everyone and thanks for taking time to join our call today.
I want to start by extending my appreciation to our workforce at compass minerals for another strong quarter in their safety performance. Our people continue to execute safely and responsibly with a relentless focus on continuous improvement.
Clearly appreciate everyone's commitment and drive toward operational excellence in every facet of their job including safety.
I'll now provide a brief review of our third quarter and fiscal 2021 performance.
And spend a few minutes discussing the unique and lasting value proposition I believe we are building here at compass minerals.
As a reminder to those of you on the call. We've recently instituted a change in our fiscal year end from December to September, which shortened our 2021 fiscal year to a nine month period.
While we understand this change created a bit of noise around the financials for the past two quarters, which Jamie will address in more detail. We believe going forward that this new approach will enable us to improve our forecasting accuracy by including the complete highway Deicing bid season results within our full year guidance at the beginning of each fiscal year.
As reported in our earnings release yesterday, we've achieved meaningful consolidated revenue growth in fiscal 'twenty, one up 20% versus the comparable period a year ago. This improvement was delivered through strong sales volumes across both our core business segments. Despite a number of headwinds we faced throughout the shortened fiscal.
Year from a strained supply chain inflationary pressures and the impact of hurricane either.
For fiscal 'twenty, one increased sales volumes in our Salt segment also drove operating earnings 5% higher than the prior year period, and adjusted EBITDA was nearly 4% above the prior year period.
These incremental gains were offset however by lower salt pricing that compressed margins compared to the prior year period.
Capping off our consolidated results we ended the fiscal year in a strong liquidity position of nearly $220 million, which includes just under $3 million in cash from discontinued operations.
Drilling down into our Salt segment results.
Revenue was up in both the third quarter and fiscal year compared to the prior year periods.
Conversely, while operating earnings and EBITDA also increased in fiscal 'twenty, one compared to the prior year period. They were down in the third quarter as we proactively tapered production to manage inventory levels after a weaker than average winter.
In addition, during the latter part of the third quarter Hurricane Ida disrupted the U S. Gulf Coast as always our workforce down <unk> did a stellar job of preparing the mine for the storm and thankfully the mine remained out.
Out of Harm's way.
However, the barge provider experience significant disruption in the shipping channels, along the inland waterways remain constrained for a number of weeks.
This ultimately push some highway salt sales volumes into the next quarter and also spurred lost sales volumes for a handful of chemical customers.
The resulting impact to the bottom line, we experienced was approximately $2 6 million, which had a relatively equal at negative effect on both revenues and costs during the third quarter.
Touching briefly upon the completion of the bid season for our North American Highway business, we were able to take advantage of opportunities to strategically regained footing historically served markets.
We do believe these gains will balance out a bit over time, but we're pleased with our ability to serve customers and compete across a broad geographic footprint due to the increased output in recent quarters from an optimized got rich mining operation.
Overall committed salt volumes for the 'twenty, one 'twenty two north American Highway Deicing bid season increased approximately 17% compared to prior year bid season results, while pricing has remained relatively flat year over year.
As a reminder, while this past February provided a number of strong snow events across the U S. Overall for the full winter season snow events were 8% below the 10 year average leading to more modest pricing during the early part of the bid season.
Moving to our plant nutrition segment, we experienced significant revenue growth in the third quarter up 60% compared to the prior year period.
Despite the strong demand pull for our products profitability in this segment declined year over year due primarily to the higher costs, we incurred at at Ogden.
As a result, we reported lower operating earnings and EBITDA for fiscal 'twenty, one compared to the prior year.
Our sop production costs at our Ogden facility remained elevated in the third quarter due to the temporary feedstock inconsistency as we continue to manage through on the most recent harvest.
While we aren't out of the woods, yet I'm optimistic we'll begin to see lower year over year unit costs. During the second half of fiscal 'twenty two.
Taking into consideration these production and market factors as well as the continued headwinds we are experiencing.
We're targeting a fiscal 2022, adjusted EBITDA range of $220 million to $250 million.
Jamie will provide more detail shortly with regard to our quarterly and fiscal 'twenty one results in R 22 outlook prior.
Prior to his doing so I'd like to now spend a few minutes addressing the strategic building blocks, we've put into place this past fiscal year and how we view those actions as enablers for the future success of our company.
As I outlined on our second quarter call several months ago, we've made significant strides throughout the year that have enabled the company to deliver on our strategic commitments.
Financially the sale of our South American plant nutrition business, and North American Micronutrient assets earlier in the year allowed for a meaningful reduction in the amount of outstanding debt enhancing the financial flexibility of the company.
Operationally the new long term Goderich mine plan continues to come into form with progress made on the new main roadways, which are expected to ultimately increase efficiency and decrease mind maintenance needs in the odor operating sections of the mine.
We're still a few years out from completion of the new mine plan, but believe the change in Salt segment costs. As a result of this new mine plan will be measured in dollars per ton rather than nickels per ton.
And culturally we continue to focus during the year on building execution muscle billings.
Billings skill gaps where needed adding process rigor through our internal optimization program and prioritizing employee safety wellness engagement.
And during economic moat that bundle fundamentally exists by way of our unique and advantaged assets is further buttressed by a skilled and engaged workforce.
Along with market leadership efficient scale balance sheet strength and cost advantage I believe we've laid the foundation upon which the company can not only drive for growth.
While headwinds might be introduced from time to time, such as the current inflationary environment or isolated short term operational issues.
We believe our privileged assets and long term strategy allows for a compelling return on capital.
To begin seizing upon that opportunity for growth, we progress forward on two recently announced organic opportunities within high growth or underserved markets, namely the development of a sustainable lithium brine resource to support the battery industry.
And securing a 45% minority ownership stake in a next generation fire retardant business.
Both of these exciting ventures leverage our existing production stream and significant infrastructure already in place at our solar evaporation operations on the great Salt Lake.
Both also provide a counter seasonal balance to our core deicing business.
It's only been four short months since we first announced our plans to assess development options for our approximately two four metric ton.
$2 4 million metric ton lithium brine resource and I am extremely pleased with the project milestones we've already accomplished during that brief timeframe.
As we detailed in our more recent announcements successful conversion testing of our lithium brine resource has been completed by Veolia, a respected third party technology provider.
Utilizing a proven commercially viable conversion process, the resulting sample of lithium hydroxide monohydrate met established battery grade specification thresholds, providing increased confidence that we will be ready for market entry with a battery grade lithium hydroxide.
In 2025.
To ensure we're leveraging the appropriate level of expertise as we further navigate the development process for this high demand.
Central mineral we've also recently announced new key leadership appointments with extensive experience in the lithium and advanced battery industries.
These include our new head of lithium Kris and Dale and incoming Chief Financial Officer, Lauren Crenshaw, both of whom recently served in leadership roles at an established player in the global lithium industry.
And our newest board member Gareth Joyce, who brings deep expertise in both sustainability and electric vehicle battery technologies.
I am pleased to have Chris and lowering joining our senior management team and look forward to <unk> continued insights and guidance on our board of directors.
Turning to the recently announced investment in fortress North America, we're equally excited about the potential of this emerging business. This next generation fire Retardant company has developed a patent portfolio of highly specialized aerial and ground retarded formulations with unique properties for fighting wildfires.
Abating fire risk.
There are products, which leverage compass minerals magnesium chloride production on the great Salt Lake are designed to be more environmentally friendly than the traditional products on the market today.
In recent burn test by the U S Forest service. They were also shown to be 20% to 30% more effective in retarding fires.
Taking into consideration the sole source nature and high barriers for entry of the current market, we view fortress as a disruptor with meaningful potential upside.
Our involvement brings to the table not just the capital associated with our minority stake investments, but also our capabilities and expertise and supply chain logistics and providing essential products through government procurement process.
We've been doing successfully for decades.
As such we're confident we can help them scale more quickly and effectively.
Just a few minutes I'll, let Jamie provide some additional details on the investment in the long term growth opportunity.
As we continue to evolve our essential minerals portfolio through organic growth opportunities like these.
It became clear that we needed to reassess our company's historical capital allocation strategy as we alluded to in our lithium announcement back in July as.
As also announced yesterday, our board of Directors has approved a reduction in the dividend for the third quarter, enabling us to leverage our operating cash flow for what we believe is a higher and better use of capital.
Supporting strategic growth and ultimately, creating long term and lasting shareholder value.
Importantly, yesterday's announced dividend level is also better aligned with the dividend yields of peers in the general market going forward. Our board will continue to evaluate the company's capital allocation needs on an ongoing basis and in an attempt to strike a balance between supporting the investment needs of the business with returning cash to share.
Holders.
I believe that this past fiscal year was truly an inflection point for our business.
We've taken strategic measures to recalibrate, our business model in an effort to better position our company towards sustainable earnings and margin growth.
Our path forward through this business transformation is also clear we will work to continue strengthening our core assets and production capabilities to become more efficient and sustainable.
We remain committed to protecting our healthy balance sheet and lower leverage while concurrently increasing focus on the high growth opportunities I've outlined here. This morning.
Our senior management team and board are aligned with this strategy our people are ready to execute on it and I am encouraged by our recent momentum that we can be successful in creating value for the benefit of all compass minerals stakeholders.
So with that I'll now turn it over to Jamie who will discuss in more detail our financial performance strategic investments in our outlook for fiscal year 2020 to Jamie.
Thanks, Kevin and good morning, everyone.
I'll start with a few comments regarding our consolidated results before moving on to our segment performance.
I'll provide a bit more color on the fortress investment and capital allocation framework before discussing our full year fiscal 2022 outlook.
As we reported in our earnings release and as Kevin highlighted earlier all the results. We're discussing today are on a continuing operations basis and reflect our fiscal year change for the current or comparable period unless otherwise noted.
On a consolidated basis for third quarter 2021, our sales revenue increased approximately 20% year over year due to higher sales volumes and pricing in both segments.
Operating income and adjusted EBITDA declined as those top line increases were offset by elevated unit cost as well as impacts from Hurricane Ida.
For fiscal 2021, the company achieved strong sales volume growth in our salt segment and in our plant nutrition segment versus the comparable nine month period in 2020, along with increased pricing in both segments compared to the prior period results.
Due to this topline revenue uplift our consolidated fiscal 2021 operating income and adjusted EBITDA were both higher compared to the prior year period by approximately $4 million and $6 million respectively.
However over the same period, we saw both operating margins and EBITDA margins compress.
This compression is primarily primarily related to unit costs associated with the feedstock and consistency for our Sop production at our Ogden facility that we highlighted previously as well as lower prices in the salt segment.
We are pleased to report that for the nine months ended September 2021, we generated about $163 million in cash flow from operations and approximately $91 million of free cash flow.
This includes free cash flow from our discontinued operations.
As we discussed in prior guidance the change in our fiscal year.
Temporarily increased our expected effective tax rate to approximately 41% and therefore increased our fiscal 2021 tax expense to $14 2 million compared to $10 3 million in the prior year period.
However, this is not expected to impact our effective tax rate or cash taxes over the typical 12 month period.
Now looking at our Salt segment results total sales in the third quarter of 2021 or $159 5 million up from $141 2 million in the third quarter 2020, an increase of approximately 13%.
This improvement was due to 10% higher sales volumes and 3% higher average selling prices.
Our consumer and industrial sales volumes increased to more typical levels as demand seems to have normalized when compared to third quarter 2020, which was negatively impacted by the pandemic.
These volume gains during the quarter were slightly offset by the effects of hurricane Ida on logistics at our Cote Blanche mine in Louisiana.
Our mine was not directly impacted our barge provider was affected not only sustaining disruption to its fleet, but also experiencing delays due to inland waterway constraints.
From a sales perspective. This means we lost some sales to chemical customers. They can't be recovered and we expect to push certain customer.
The icing shipments to the first quarter of fiscal 2022.
This translated into approximately $2 6 million of negative Salt segment margin impact split evenly between revenue and cost in the third quarter.
For fiscal 2021, Salt segment sales increased 22% to $671 1 million from $550 9 million in the 2020 comparable period, primarily due to severe winter weather during the month of February driving strong highway sales volumes, partially offset.
Set by 5% lower average salt prices.
It's important to note that a 33% increase in highway deicing sales volumes compared to the prior year drove a significant mix impact in our salt segment average salt prices.
On a year to date basis highway deicing prices were lower by approximately 4%, while C&I prices rose approximately 4% when compared to the prior year period.
For the third quarter Highway Deicing prices at 57 900.
<unk> $57 92 per ton were slightly higher year over year, while consumer and industrial selling prices increased approximately $3 50 or 2%.
The $166 45 per ton due to inflation based price increases across most of our product groups in that business.
Operating earnings for the Salt segment totaled $22 4 million for the third quarter versus $26 2 million in the 2020 quarter, while EBITDA for the Salt segment totaled $40 1 million compared to $43 6 million in the prior year quarter.
Our operating and EBITDA margins contracted approximately 5% and six percentage points, respectively compared to the third quarter 2020.
Mostly due to the proactive tapering of our Goderich mine production to manage inventories as well as the impact from Hurricane Ida.
Excluding the impact from current Hurricane Ida Salt segment operating margins were 16% and EBITDA margins were 27% for the third quarter.
For fiscal 2021, the Salt segment generated $133 2 million in operating earnings and EBITDA of $186 5 million increases of 14% and 13% respectively from the comparable 2020 period results.
Fiscal 2021 operating margins were down 130 basis points and EBITDA margins were down 230 basis points compared to prior period results, primarily driven by lower highway deicing.
Average selling prices and lower operating rates at some of our C&I plants due to regional labor shortages.
Turning to our plant nutrition segment third quarter, 2021 revenue was 60% higher than the prior year quarter at $49 million at.
At $49 3 million.
This reflects 40%, 46% higher sales volumes and an increase of 9% and our average selling price year over year, which was impacted by a weaker application season last year due to wildfires in certain of our western sales territories and delayed application in other key markets.
Fiscal 2021 revenue was $156 8 million again, driven by higher volumes in pricing versus the 2022 2020 comparable period.
We continue to see strong demand in North America for our potassium plus Sop product and we are pleased to see continued improvement of approximately 3% and our average sales price compared to the second quarter of 2021.
Plant nutrition operating earnings were down $1 3 million and EBITDA was down $1 7 million to $8 7 million compared to the third quarter 2020.
For the quarter, we experienced significant operating margin compression going from approximately 4% last year to slightly negative this year, while our EBITDA margins also compressed by 16 percentage points to 18% versus third quarter 2020.
For fiscal 2021 operating earnings were down $6 2 million to $5 8 million, while EBITDA was down $8 1 million to $32 6 million versus the 2020 comparable period.
As expected we continued to see elevated per unit operating costs during the third quarter as we worked through the feedstock inconsistency is impacting our sop production rates at our Ogden facility.
While this impacted our financial results throughout the fiscal year. These elevated short term costs are expected to start declining in the second half of fiscal 2022, as our proactive feedstock management and plant optimization efforts start to flow through the P&L.
Now switching gears I would like to spend a few minutes building upon kevins comments regarding the recent announcement of our strategic investment in fortress North America.
We are extremely excited about this partnership fortresses of next generation fire Retardant company and their product line has the opportunity to be a major disruptor in a market that has historically been served by just one producer.
Their business meshes, well with ours and we believe it has the potential to offer as a high growth cost advantaged business that is breaking into a market hungry for competition.
Ganic nature of the opportunity has roots in our asset optimization model, we have developed.
As a primary raw material input and fortresses retardant formulations is the magnesium chloride, we already produce from the Brian at the Great Salt Lake at our Ogden facility.
The commercial aspect of the forest fire retardant business has many similarities with our highway deicing business in terms of selling both products to government entities under multi year agreements ultimately and importantly.
Both are used to keep people safe.
The North American long term fire retardant market represents between 60% to 70% of the global market with 20% estimated U S usage.
Excuse me with usage of approximately 72 million gallons and a five year average use of approximately 58 million gallons per year.
Based on data from the U S Fire Service Bureau of land management, and California Department of Forestry and fire protection.
These three agencies represent the largest of the north American consumers.
Notably fire retardant business is counter seasonal to our Deicing business, which we anticipate should ultimately improve our profitability during the summer months, historically, a lower earning period for us through.
Through leveraging our logistics and sourcing core competencies. Our partnership is also expected to enable fortress to scale more quickly.
As a point of reference the current market leader was recently purchased at a valuation of approximately 15 times EBITDA.
To sum up given the potential addressable market. We feel this represents a high growth opportunity that is able to unlock additional value for our existing magnesium chloride production stream.
I would now like to briefly discuss our capital allocation framework.
This framework has four key priorities.
Sustain and improve productivity and efficiency of core operations invest in organic growth opportunities maintain financial flexibility and return capital to shareholders I'd.
I would like to offer some additional perspective regarding how we're executing against these priorities.
Core underlying base business businesses of Salt and plant nutrition, our cash flow generated and we believe that incremental investment opportunities are embedded in each of these businesses that have the potential to increase our production and earnings growth.
These businesses have been and are expected to remain the foundation of Compass minerals.
However.
When the divestitures the company announced earlier this year allowed us to reduce our outstanding debt by 30% and strengthen our balance sheet. It provided us with more flexibility to build upon this foundation.
Organic high growth opportunities such as our lithium resource in the fortress investment are expected to allow the company to again unlock additional value from our advantaged asset base, while also providing the opportunity for higher growth and long term shareholder returns.
Over the last decade, we have provided a lofty dividend to shareholders. It was well above market levels in terms of yield and payout.
As we evaluate the investment opportunities in front of US. We believe we have the ability to generate risk adjusted cash on cash returns in excess of 20% over the long term return levels such as this simply can't be ignored.
Given this backdrop and following a detailed analysis management has recommended and our board of directors has approved a strategic shift in our capital allocation philosophy to better align with our strategic priorities, which includes a reduction of the quarterly dividend by approximately 80% to <unk> 15 per share.
This dividend represents an approximate 90 basis point yield, which is well aligned with market levels and our peers to be very clear. This decision was not taken lightly but one that we believe will create long term value for shareholders.
Now looking forward I would like to discuss our fiscal 2022 outlook and the role this capital allocation plays in our guidance and ultimate long term success as a company.
This outlook covers 12 months and only represents the continuing operations of our business.
As we head into fiscal 2022, we continue to be optimistic long term performance of the overall business.
We expect our salt segment will deliver improved revenue and lower EBITDA generation during the first half of the fiscal year as strong sales volumes will be more than offset by higher shipping and handling costs and slightly lower average sales prices.
We expect Salt segment revenue of 675 million to $725 million and EBITDA of $145 million to $170 million during the first half.
It is important to note that shipping and handling costs increased materially throughout the highway bid season last summer, while we were able to build some of those expected increases into our bid prices in certain markets. Most of those rising transportation costs were not captured however.
However, we believe all of our competitors were similarly impacted by increased costs and our expectation is that we should be able to recover these costs. During the 'twenty two 'twenty three bid season that begins next spring.
In our plant nutrition segment, we currently anticipate significantly lower year over year sales volumes during the first half of fiscal 2022.
However, second half sales volumes should be consistent with prior year levels.
The feedstock inconsistent fees in fiscal 2021 has prevented us from being able to replenish inventory levels at the same rate and which market demand has unfolded, which is putting pressure on our first half sales volumes.
However, we have incorporated a number of recent value based price increases to customers, which should drive strong margin improvements compared to fiscal 2021.
Given this backdrop of elevated first half unit costs as well as our expectation of rising shipping and handling expense, we are expecting plant nutrition revenue of $85 million to $110 million.
EBITDA in the range of 25 million to $35 million for the first half of fiscal 2022.
We remain focused on running this business sustainably for the long run and will continue to balance price demand customer relationships to optimize the value of every time.
On a consolidated basis for fiscal 2022, we expect our adjusted EBITDA to be between $220 million and $250 million, which includes a $3 7 million executive transition expense add back that will be recorded in our first quarter fiscal 'twenty two results.
Now a few corporate items, our interest expense estimate for fiscal 'twenty, two is expected to be $55 million to $60 million ish.
Additionally, our corporate and other segment will include the addition of operating expenses related to our lithium resource development in Ogden of approximately $10 million.
These these costs represent the onsite pilot plants running engineering as well as staffing the appropriate expertise for the project.
All of this results in a guidance range for total corporate and other expense of approximately $65 million to $70 million for fiscal 2022.
Our capital spending forecast is approximately 125 million to $135 million for fiscal 2022.
This level of capital spend incorporates not just our historic ongoing maintenance levels of approximately $80 million, but additional spend on long term projects that are expected to add efficiency ensure reliability reliable production and safety as well as provide a benefit to our long term cost structure.
We expect to spend approximately $15 million to upgrade our Cote Blanche barge dock approximately $15 million on lithium extraction assets as well as several other smaller cost reduction and efficiency enhancement investments across both businesses for.
For fiscal 2022, our free cash flow is expected to breakeven and we now expect our fiscal 2022 end of year leverage ratio to be at or around three eight times net debt to EBITDA.
As Kevin noted in his comments, our entire organization is unified and focused on executing against the strategic imperatives, we've laid out for the company as we continue to optimize our existing assets and build out our essential minerals portfolio to help solve natures challenges for our customers and communities we will continue.
To allocate capital in a way that is designed to maximize shareholder value.
With that I'll ask the operator to begin the Q&A session operator.
Certainly again as a reminder, if you'd like to ask a question. Please press star one.
To remove your question from the queue. Please press star one again, please limit yourself to one question and one follow up.
David Begleiter with Deutsche Bank. Your line is open.
Thank you and good morning.
Kevin Jamie just on the first half guidance can you help us with the cadence of the Q1 versus Q2 earnings for both Salt and plant nutrition.
Sure.
Yes, so I'll start with plant nutrition quickly.
I think the volume.
Mix for the first half for plant nutrition will be a little bit stronger in the second quarter in that March quarter.
Also going to see stronger profitability in that second quarter. So.
I would wait those earnings to the March quarter as it relates to plant nutrition and then on the on the Salt side, obviously winter weather is going to drive the distribution of profitability across our first quarter in our second quarter.
So youre going to see.
You're going to see that unfold.
As weather.
Demand in.
Pull through occur so typically our first quarter is our strongest so that's where you would see.
Stronger EBITDA would be our first quarter 2020.
Our second quarter 2022.
No very helpful. Jamie just also.
Plenty of fish, you mentioned second half EBITDA should be a little better as some of these other cost.
<unk> go away how are what are you thinking about second half EBITDA.
For that segment versus the first half.
Yes, so we would expect it to be a bit a bit stronger.
Maybe 10% to 15% stronger EBITDA in the second half of the year.
Very helpful. Thank you very much.
Thanks, David.
Jeff Secaucus with J P. Morgan your line is open.
Yeah.
Thanks, very much can you can you tell us something about fortresses.
Revenues are EBIT da or what you expect in the coming year.
And.
What do they plan to spend <unk>.
<unk> million dollars on that you've injected into the business.
Yeah, Good morning, Jeff I'll.
I'll take that.
Not going to be.
Overly.
Transparent about what we think about <unk> I mean, there are some materials in the document that talks about the addressable market.
Typically expressed in gallons.
Over over the long term, we think that just based on the fact this is a sole source market for.
Decades.
That is right for a new entrant.
When you look at fortress is the efficacy of their retarded material is using our Mag chloride is the base retarded coupled with its.
Enhanced environmental sensitivity.
<unk>.
It'll be in very inviting product to be on the on the marketplace. So obviously that the sole source current provider has 100% market share wed.
We'd like to.
Start to nip away at that over time.
The last thing I would mention is the current sole source providers in the process of going public and there are documents out there that you could <unk>.
Examine just to give you a sense of the.
Not to imply that as a proxy for us, but just to give you a sense of how that market works. So I would guide you in that direction.
And then in terms of what they are using the capital for just to stand up the business.
You got it.
You set up infrastructure at these forward operating air basis et cetera. So it's just it's various and sundry equipment.
<unk> mixing equipment et cetera. So that's what the funding that we provided did was to accelerate the standup of the business.
Okay and for my follow up.
Do you expect to partner with anyone in your lithium venture.
Or if you are going to partner and what would be the extent of your partnership.
I don't know that I would say we expect.
We're we're structure agnostic and focused on value and if a partnership from say a technological standpoint makes sense, we will absolutely and entertain that in an effort to try to de risk.
The long term projects. So what we're trying to focus on right now is.
Making the appropriate selection around DLT, we've obviously brought some lithium talent in to help advise and make good decisions. So yes.
We haven't foreclosed on any any decisions and we're continuing to move ahead on that basis.
Okay, great. Thank you so much.
Okay.
Again, if you'd like to ask a question. Please press star one on your telephone keypad, Joel Jackson with BMO capital markets. Your line is open.
Hi, good morning, gentlemen.
Hi, Joe.
Jamie Kevin with near breakeven free cash flow. This year, you have a lot of growth opportunities you want to pursue you have a four times levered balance sheet.
How much capital do you think you're going to have to put into these projects for the next little while and are you prepared to issue equity to get the targets you want.
Yes, I think look in terms of lithium.
We are we're in the process of doing the next round of engineering and would expect to be able to.
Speak more precisely sometime by early next summer just in terms of what we're thinking in terms of total total capex irrespective of whether we have a partner or not where we fall on the cost curve expected production et cetera.
And then in addition to that we have.
The rights under the fortress agreement to own 100% of that business subject to certain performance criteria over the next couple of years and we want to see how that goes and then as Jamie mentioned, we have some.
Internal efficiency types of projects that we think are worthy of some of some funding so.
The dividend reduction will go a long ways towards.
Paying for some of that in total and making good down payments on other other parts of it.
Look I think to the extent that we don't.
Don't have sufficient cash flow to fund what we want to fund.
We would examine whether it makes sense too.
Do it in the debt markets or raise equity or maybe.
As Jeff mentioned in his question from JP Morgan take on a take on a partner that can also bring some financial wherewithal. So I don't have a specific answer to that I think it'll be conditions based in the future.
I'd just add to that Kevin if I may be we have we.
We expect significantly improved profitability in both salt and plant nutrition as we go into 2023 and 2024 so.
That will go a long way toward keeping leverage in check of course lining up all of these particular investments.
Against that improved cash flow over the next couple of years are also going to make a difference so the timing does matter.
And our focus would be to stay below that four times leverage and my view is that.
Partner or without a partner on the lithium side, we should be able to do that with the improvement in the business going forward.
Hey at that level and raise raise debt.
As necessary.
And as the business improves to Joel I mean I think.
Jamie and I are steadfast in our commitment that we think so.
That two five turn leverage ratio sort of mid cycle continues to be the the optimal target for us and that's what we're trying to manage towards over the long term.
Okay, and looking at Goderich and yourself strategy.
<unk> production in the third quarter.
Looking at how much volume awards increases you got this year I mean, it looks like you decided not to take regard it as much as you cut out.
And run Goderich at strong rates, which has been I believe your goal to Kevin did you came on so the question wanted to ask is.
It looks like in order to keep <unk> running harder you extended some of your regions and where you sold solve that fits even increased volume a lot.
Your goal here to keep <unk> running at the high operating rates to hit the operators targets you want to hit.
And you'll let the market deal with that volume and see how it goes or will you be adjusting it to every year. Its got a rich operating reached the target or other things that target.
A lot packed in there Joe good question I mean.
The ideal world you'd like to run <unk> full out all the time, but we obviously made the choice this year to type of production.
To better balance out the marketplace.
I think long term, what we will do is.
Given that we're kind of regained what we view to be our sort of our rightful total share across our served market. It may not occur on a state by state basis. The way, we want to we will balance that out in the future, but now that we have sort of our traditional market share. The name of the game will be to execute certainly on the cost side, but.
Also on the revenue side to recover those inflated logistics costs that caught us this year, but also continue to raise price going forward. So that we can remain steadfast in our pursuit of those.
EBITDA margins that have a three handle on them. So.
Again this was long long term game, but I have every confidence that the the.
Production engine is sitting here ready ready to perform but we will calibrate it based on.
What the market needs and wants.
We're not going to try to jam tons in places, where where they don't belong so trying to strike that balance.
The near term goal is to.
To move price up.
The coming bid season, starting in April.
Thank you very much.
Chris Shaw with modest Crespi Your line is open.
Yes. Good morning, everyone. How are you doing.
Good morning.
Can I ask.
The fortress opportunity for your magnesium chloride seams.
Pretty big but.
Currently I mean does that require you to process at more I mean, do you have extra magnesium chloride lying around kind of like.
Yes about lithium was there and would you be diverting it from from other customers. I mean, just can you give me a little color there.
Yes.
We we've assessed what sort of Mag chloride needs, we would have for to fund or to supply the fortress business at hypothetical 50% market share.
Sub 10% of what we actually produce there already so we have actually extra production capacity. There now so it doesn't constrain us in any way and it doesn't take volume away from our existing customer base. So.
That's it.
That's easy for us to accomplish I am sorry, what was the first part of the question.
I was curious does it require any additional processing about your users would just go directly to them is as backward.
Yes.
It's just an ingredient.
It kind of represents 10% or so of the final product.
At fortress would use so it gets mixed in blended in there is proprietary.
IP and <unk>.
And ingredients that are that are blue.
Blended and shipped out to basis.
And when you look at this combination again, we view this as an organic.
Based on opportunity.
Because we make the mag chloride and their needs are easily supplied.
We're pretty good at logistics. So as we think we can be helpful to them in terms of moving this material around and obviously dealing with governmental agencies is something we've been doing for a long time and you couple that with.
The expertise that they bring to the table, which is considerable which of these are all ex U S Forest service firefighters. So they know this business cold.
They have.
The patents on the IP for these new these new blends and in the process of some of them are already approved to.
To supply to the government and they have a handful more that are.
Various stages of the process to get approved as well. So we think it's a very synergistic.
Relationship that at its core is an organic type of growth opportunity and it will it will start putting runs on the board.
Terms of EBITDA, well before lithium so we like the way these things phase in over the next handful of years as well.
Got it and if I can ask a plant nutrition question would you guys consider these days sort of maybe normal or normalized volumes in that business I know the past.
You can just think of it as like a 100000 tons a quarter.
<unk>, but I don't think we have been there in a while so what.
What do you guys consider.
Yes, the market is the market continues to be.
Fluctuates it can be 450 to 500000 tons and and our share is typically 70% to 80% of that so.
That's been pretty consistent.
Historically.
So nothing's really changed in the market. It's just it's still just sort of volatile I guess year to year. So just because of droughts or what have you.
That can be there can be drought conditions.
No.
It depends on in product prices for enrollment growth for example, things vary they can make.
Discrete decisions to mine the soil a little bit so it always it's going to ebb and flow, but over long periods of time.
Our share tends to be that 70% to 80% of that 500000 ton market in North America.
Alright, Thanks, a lot.
Yes.
There are no further questions at this time I would now like to turn the call back over to Kevin Crutchfield for closing comments.
Thanks, again to everybody for participating today and I wanted to close the call today by thanking Jamie for his strong financial stewardship over the past number of years as I've said in a recent announcement of upcoming senior management team changes I would put jamie's knowledge of our core business and markets up against anyone's. He has been a key contributor.
<unk> at our company for more than 15 years, and the leader I'm proud to have OMA team.
Im looking forward to seeing him Leverages intellect and talent as he transitions into the chief commercial officer role starting next month, when we welcome Lorin Crenshaw Compass minerals and the role of Chief Financial Officer.
We continue to be very excited about our future here at compass minerals and look forward to continuing to engage with each of you along the way thanks for listening in today.
This concludes the compass minerals third quarter in fiscal 2021 earnings call. We thank you for your participation you may now disconnect.
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