Q2 2022 Compass Minerals International Inc Earnings Call
Okay.
Good morning, My name is Abby and I will be your conference operator today.
At this time I would like to welcome everyone to the Compass minerals fiscal 2022 second quarter earnings conference call.
Today's conference is being recorded and 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 would like to ask a question. During this time simply press the star key followed by the number one on your telephone keypad.
If you would like to withdraw your question Press Star one once again.
Thank you and I would now like to turn the conference over to Douglas Kris head of Investor Relations for Compass minerals, Mr. Chris You May begin your conference.
Okay.
Thank you.
Good morning, and welcome to the Compass minerals fiscal 2022nd quarter earnings Conference.
Today, we will discuss our recent results and our outlook for fiscal 2020.
We will begin airing remarks, Mark President and CEO , Kevin Crutchfield, and our CFO Chris.
Joining in the question and answer.
It will be George Schuller, our chief operations Officer.
Jamie Standen, our chief commercial officer.
Christina.
Yes.
Before we get started I believe.
Good morning, everyone.
Remarks, we make today reflect the financial and operational outcomes.
Okay.
2020.
These outlets.
And expectations that involve risks and uncertainties could cause.
The company's actual results to differ materially.
A discussion of these risks can be found.
SEC filings.
Located at.
At investors day at Compass minerals.
Our remarks today.
Doug.
You can find reconciliations of these items in our earnings release or in our presentation both of which also are available.
The results in our earnings release issued last night and presented during this fall.
Only the continuing operations.
Other than the amounts pertaining to that.
Consolidated.
Cash flow.
Unless otherwise.
The company's fiscal 2022 second quarter results and fiscal 2020 outlook in the earnings release and discussed during this earnings call.
The previously announced change fiscal yearend.
December 31 September 30.
All year over year comparison to fiscal 2022 second quarter results with FERC for the corresponding period ending March 31 2020.
I will now turn the call over.
Thanks, Doug and good morning, everyone. Thanks for taking time to join us today.
Since our last call we've taken a number of actions and we continue to make progress against our strategic plan.
Archives or exit.
First we completed the final step in our previously announced strategic exit.
The South American market through the successful sale of our chemical business in Brazil.
We also continue to advance engineering work on our lithium development project, increasing as expected.
Production capacity as a result.
In addition, we welcomed a new board member.
He brings more than three decades of executive board level extra.
Extraction experience.
And lastly, I'm very proud to share that our safety.
Among our best since we began tracking stock.
Or <unk>, which represents the total number of injuries per 200000.
As many of you have heard me emphasize.
Our leadership team places a priority higher than safety.
We continue to see exceptional safety improvements throughout the company.
Finished the second quarter.
ACI are consistent.
Reflecting a more than 50%.
From the prior year.
Retaining focused engineering solution.
Trading.
Right.
Ensure that every employee has provided a safe and healthy work environment.
The award.
Moving to our fiscal 2022 second quarter results late yesterday.
Order was certainly not without its challenges.
Numerous other companies across industries and supply chains, we continue to grapple with.
The severe persistent sometimes unpredictable inflationary pressures across our business.
Also still managing through ongoing production.
At our RV summer evaporation.
Which produces our premium sulfate potash where S&P products.
Share details related to both of these issues in recent quarters.
<unk> continued to manifest themselves during the second.
With fuel surcharges story due to the ongoing prices in Ukraine.
Our Ogden production levels have not met expectations.
We believe these challenges were made through the balance of the fiscal year.
While not every facet.
We are focused on executing strategies to reduce the impact and benefits of our businesses realizing there.
Yes, the difficult operating landscape, our management team and nearly 2000 employees remain focused on operating safely maximizing profitability of our businesses, serving our customers supporting our communities more frequent shopper.
Going forward, we'll continue to actively seek opportunities to manage these value drivers of our business to successfully navigate through these challenging times.
Toward more normalized salt segment profitability levels.
Nutrition production.
With that high level, Randy I'll now spend a few minutes briefly summarize.
2022.
Then I'll discuss the short and intermediate term steps, we're taking and the effort to pursue profitability of our business.
Finally, I'll provide a brief update of our efforts to progress our lithium growth opportunity.
As reported in our earnings release yesterday.
Second quarter revenues of approximately $449 million.
Up 5% year over year, primarily driven by volume gains in our salt business.
While our topline results of year over year improvement profitability was negatively impacted primarily by the continued inflationary pressures from distribution and production costs at our Salt segment.
And continued production challenges in plant nutrition that I referenced previously.
As a result, despite a relatively average winter season, our consolidated adjusted EBITDA for the second quarter declined by approximately 42% year over year to $65 million.
Reflecting an adjusted EBITDA margin of 14%.
It is entirely unacceptable.
It's considerably below what I believe is normalized earnings potential of this business.
At our Salt segment revenue grew by approximately 6% year over year.
Higher sales volumes.
Reflecting substantial growth in our north American bid season commitments and improved pricing in our consumer and industrial businesses.
However, this topline growth was more than offset by the significant cost pressures. We've encountered resulted in salt segment EBITDA in the second quarter declining by approximately 40% year over year to $66 million.
A key area, where we've seen greater cost pressure than anticipated during our last earnings call has been distribution costs in our salt business.
Typically escalating fuel surcharges in connection with the recent sharp increase in oil price.
Transportation and handling costs make up a significant.
Approximately 40% on a per ton basis.
Total delivered product cost for our salt products.
For example, we can track bulk shipping vessels barges.
In rail services to move our products from our production facilities and distribution outlets and customers.
Most mix from Salt segment in calendar 2021.
Please see the transfer is required to reach the final destination.
With approximately 45% drop.
37% vessels.
15% barge and 3%.
The cost of each of these modes are impacted when oil prices rise as the underlying contract architecture allows our service providers to pass through fuel surcharge.
In contrast, this is not a cost that we are able to pass on within our North American Highway Deicing business, given the structure of those contracts.
Until the next billing team.
And just one category of these increased costs. The recent oil price surge has cost fuel surcharges derived meaningfully during the quarter across all modes and represents.
Defying inflationary pressures contending with cisplatin.
To combat these pressures in the C&I segment, we're working to recapture these costs during negotiations with our customers.
You can do the same thing during our North America Highway bid season.
While we do not expect to see meaningful fuel costs, and our North America Highway business and some of our next fiscal year.
Related to broad steps to return to historic profitability levels within our softness.
Our approach is to work to secure geographies, where we believe we can harvest logistics efficiency capture market.
Through our improved production profile. The garbage. We also now have a better agility to ratchet that production up or down as the market demand requires and we plan to do so we.
We expect these steps to help ensure a fair value for our central products, thereby ultimately improving profitability.
Our plant nutrition segment, EBITDA of $13 million down 6% year over year as the.
Favorable price impact.
Global fertilizer market conditions was offset by higher unit cost and lower sales volumes.
Trained by our reduced inventory.
Our current expectations these trends type fertilizer supply demand.
And our limited inventory available for sale are likely to persist for the balance of the year.
As we've highlighted this past several quarters, our Sop production partners fund based solar evaporation process.
<unk>.
The persistent weather events last several years, namely drought limited snowpack.
The impact of these weather events had an adverse impact.
On the Sop process due to the fine balance of <unk>.
Street required for the specialized products.
Does not meaningfully impact our salt magnesium chloride production.
It is also not expected to impact our future lithium production site.
We've been acutely focused on implementing both short and long term solutions to this challenge to our S&P production.
In the near term we're in the process of further refining engineering controls.
Such as raising our guidance for optimal deposition asset levels, and our ponds and upgrading pumping systems, while our Ogden plant continues to aggressively manage it gives the lumber potassium.
And our harvest year to date.
But the longer term.
We've undertaken a detailed holistic review of our end to end process to minimize the impact on chemistry, and ultimately ensure stable S&P production levels.
It's also important to note that historically.
We have regularly manage through periods of local capacity concentration in our solar evaporation season, and offset the variability of nature by augmenting that lower quality feedstock with MLP and cost effective to do so.
Switching gears to portfolio the.
The recent closing of the sale of our South America.
Business represents another significant step.
Brian our destination of our progress.
With the sale, we have now completed the divestment of all of our businesses in that region and successfully completed this phase of the reshaping of our portfolio.
We also have recently received the maximum possible $18 $5 million earn out related to the sale of our South American plant nutrition business to ICL last year.
Proceeds from these two events have enabled us to continue our debt reduction there.
Specifically.
Our decline the combined net proceeds toward reducing our debt outstanding.
We'll have reduced our total debt outstanding by approximately $476 million.
Approximately 35% from December 31, 2020 levels.
We remain mindful of our leverage didn't expect starting the next fiscal year, a substantial leg leverage reduction.
Joining the profitability of our softness which we believe is currently earning well beneath its potential due to the factors that I've already discussed.
I would now like to turn our strategic growth initiatives toward lithium.
In early March we announced an increased projected annual production capacity of our lithium development opportunity by roughly 60% at the mid <unk>.
20% to 45000 metric tons of lithium carbonate.
For LTE to our new projection of 30 to 40000 metric tons LTE.
Additionally, we shared our plans to achieve the same capacity targets.
This approach with initial commercial production capacity of up to 10000 metric tons LTE projected to come online by 2025.
These updates to the projects performed by our engineering assessments for <unk> Award, which has entailed multiple evaluations scenarios project.
It's important to recognize that the scope of our operations in Ogden, Utah.
We sell the water rights and infrastructure, we already have in place.
It is a wide range of production.
Specifically, our solar operation volumes are located on both the east and west side of the Great Salt Lake.
The west side of the complex connected to our esports by 'twenty, one mile underwater Adderall channels.
Our current thinking is the advancement of our lithium project will occur over the course of two distinct development phases.
Reduction of the initial 10000.
We've commenced LTE side, which is where much of our existing infrastructure is currently located.
This would be considered phase one.
This phase of the project included DLA processing facility and a conversion plant designed for either.
Lithium hydroxide and lithium carbonate production phase.
Phase two of our development provides the potential to build an additional DLA process converting plants to produce incremental 20% to 30000 LTE likely on the west side of our Ogden facility.
Good based approach is a function of the inherent nature of the significant assets, we have the privilege of OTT offerings.
It also has the potential benefit of de risking the project from an engineering perspective.
By allowing us to scale into our production profile.
And Additionally de risk the project from a financial perspective by reducing our initial capital outlay.
Creating the prospect of cash flows associated with phase one helping to fund the capital requirements in phase two.
Overall, we continue to believe we are well positioned to serve the widely forecasted increase in market demand for battery grade lithium and remain on track to reach previously announced critical project.
In summer of 2016.
These include the selection and announcement of the DLA technology provider.
Disclosure of a completed <unk> level estimates of operating costs and capital.
Inflation of the initial lifecycle analysis.
We remain confident we're on a path to advance <unk>.
Lee I returning initiatives range of funding options.
Including but not limited to project level finance partners and optics.
We look forward to sharing additional information later this summer and in the <unk>.
Coming quarters.
In closing our organic growth strategy is focused on leveraging our core advantaged assets.
Auction capabilities and logistics expertise at some adjacencies, where we expect.
<unk> earnings power, thereby recalibrating, our weather dependency over time.
Ultimately these identified opportunities are designed to expand our essential minerals portfolio.
The comprise four pillars.
Plant nutrition, lithium and fire Retardants.
As we progress toward our stated objectives.
They have to manage each of the key value drivers of our business with a keen focus on mitigating the effects of the current highly inflationary environment.
Now I'm going to turn it over to Laura who will discuss in more detail our financial performance and our updated outlook for fiscal 2022.
Thanks, Kevin consolidated revenue was $448 $5 million for the second quarter of fiscal 'twenty, two up 5% year over year, primarily driven by higher sales volumes in our North America Highway business and favorable pricing in our plant nutrition segment, where pricing rose, 28% year over year and within our.
Consumer and industrial business, where pricing was up 9% year over year.
Despite the revenue increase our consolidated operating earnings declined to $20 million in.
And adjusted EBITDA declined to $64 $8 million or by 42% year over year as upward pressure on distribution and production costs within the salt segment and higher Sop production costs more than offset favorable plant nutrition pricing.
From a profitability perspective consolidated operating margins for the quarter were four 5% and adjusted EBITDA margins were 14, 5%.
On a segment basis, salt revenue totaled $391 $3 million up 6% year over year, driven by 6% higher sales volume.
Typically highway Deicing volumes rose, 6% year over year, primarily reflecting higher commitment levels achieved during last year's bid season.
Consumer and industrial sales volumes increased 8% year over year based on strength in both the icing and non deicing products.
Bulk segment average selling prices were relatively flat year over year, reflecting a 3% decline in highway deicing sales price offset by a 9% increase in consumer and industrial average sales price.
In our consumer and industrial business.
Base price increases continued to be implemented across most product categories, primarily in response to the inflation environment, enabling us to recoup a portion of the overall inflation related drag on our profitability.
Despite higher revenue solid operating earnings declined 6% year over year to $49 3 million, while EBITDA declined 40% to $65 5 million. Both results primarily reflect the effects of inflation on distribution and production costs and the impact of lower prices.
Yeah.
From a cost perspective.
Approximately $9 drop in EBITDA and operating profit per tonne year over year.
Roughly $6 two thirds was driven by higher shipping and handling costs, which rose 25% to roughly $29 per tonne and.
And roughly $3. We're one third was driven by higher cash costs of 13% to roughly $32 per ton the.
The increase in per unit shipping and handling costs, primarily reflected inflationary impacts such as fuel surcharges and higher cost to serve our markets due to geographic mix and impact of the Cote Blanche outage last quarter continuing to flow through our P&L.
The increase in per unit cash cost was primarily driven by inflationary impacts and unfavorable mix.
We don't expect these inflationary pressures to subside through the balance of the current fiscal year as the nature of our North America Highway Deicing contracts structured with various states and municipalities does not permit the pass through of inflationary costs, such as fuel surcharge on a midyear basis.
Overall, the challenges impacting our salt segment profitability. During the period were primarily related to cost pressures and not weather as we experienced above average second quarter winter weather activity in our North America served market compared to the 10 year historical average.
Despite snow events during the quarter tracking above average our estimate of the net impact of weather on our operating profit was slightly negative.
Collecting below average sales to commitment ratios within our markets. Historically, our experience has been that several factors can drive relatively low sales to commitment ratios, despite relatively normal snow events, including the timing severity and exact location of snow events and cut.
Our inventory levels.
Turning to our plant nutrition segment revenue for the second quarter rose, 1% to $54 $3 million year.
Year over year, despite 21% lower volumes on higher pricing.
Specifically the average sales price for our S&P products rose, 12% sequentially to $736 per ton and was up 28% year over year, reflecting the supply demand dynamics impacting the global fertilizer sector at this time.
Operating earnings were $4 4 million and EBITDA was $13 2 million down 6% year over year.
And the unfavorable impact of lower production volumes on sale and per unit cash costs more than offset higher average selling prices.
From a balance sheet perspective, we ended the quarter with net debt of $867 million down.
Down $47 million.
From our 2021 fiscal year end and with net leverage of approximately four times as defined under our credit agreement, which includes EBITDA from discontinued operations.
As Kevin referenced the combined net proceeds related to the recent sale of our South American chemical business and the earn out related to the prior sale of the South America plant nutrition business, both of which occurred in April were immediately applied to debt reduction further improving our debt profile.
Nevertheless in the coming months, we will proactively engaged in discussions with our bank group with the aim of amending our net leverage covenant to provide sufficient flexibility as we continue to manage through this period during which our businesses are performing below what we believe to be their potential.
Finally, an attractive feature of the debt portion of our capital structure that we often underscore is that beyond our AR securitization facility, which matures next summer we have no debt maturities prior to 2024 as detailed on slide eight of the accompanying earnings presentation overall.
Overall, our financial flexibility with over $300 million of liquid.
<unk>.
We are in and balanced manageable debt maturity profile gives us confidence in our ability to manage through the current period with the ultimate restoration of the profitability of our salt business expected to drive the next leg of deleveraging.
Now turning to our outlook for the balance of the year.
Largely due to the order of magnitude of the escalation in fuel surcharges across all transportation modes in our salt segment in particular.
And the continuation of S&P production yield challenges, resulting in higher than expected fixed cost and lower than expected sales volumes, we have lowered our projected fiscal 'twenty to consolidated adjusted EBITDA to a range of $170 million to $200 million.
From our previously announced range of $200 million to $235 million.
These impacts are expected to only be partially offset by higher pricing in plant nutrition and targeted productivity initiatives.
Specifically, we are introducing second half fiscal 'twenty, two salt segment adjusted EBITDA guidance in the range of 60 to 75 million.
Down from our expectation at the time of our February earnings call and.
And second half plant nutrition segment, adjusted EBITDA guidance in the range of $25 million to $35 million.
Roughly in line with our February outlook, reflecting our expectation that the substantially higher than expected S&P pricing will be largely offset by lower than expected sales and higher than expected unit cost due to the lower production levels at our Ogden facility.
As we consider the range of our revised adjusted EBITDA guidance, among the key drivers of potential upside or downside to the midpoint of that range for the balance of the year are the same themes that have weighed so heavily on our first half results, including production yield rates at our Ogden facility the impact of global fertilizer.
Market dynamics on ultimate S&P average selling price levels and sales volumes and the direction of the trends and inflationary pressures on key inputs, including whether oil prices average around current levels rise or fall through the balance of the fiscal year.
In the face of the challenging operating environment, we are experiencing in the short run we are executing targeted productivity initiatives to partially offset the cost pressures, we have encountered year to date specifically.
Specifically in addition to raising prices in markets, where that's possible and where contracts allow we are also tightening our belt from a fixed cost perspective by taking actions expected to result in lower plant operating costs and SG&A expenses.
Looking further out and into the next fiscal year within our consumer and industrial business. We expect to continue to leverage the flexibility we have to pass through inflationary cost on a more expedited basis.
With regard to our North American Highway Deicing business as we have previously stated.
This season process is our only meaningful opportunity to pass along the higher cost we are experiencing.
With that in mind.
And our approach to this year's bidding season. In addition to restoring profitability by recapturing the significant inflationary pressures we have faced this year.
Our focus is on capturing margin by Recalibrating, our business mix, even further towards geographies, where we have natural competitive advantages, even if that entails curtailing production volumes by whatever degree as necessary.
In executing our bidding and production strategy, our focus will be to carefully balance our commitment to serving our customers when and where it matters with the need to maximize profitability and minimize suboptimal logistics moves and the associated costs.
From a capital spending perspective, though we continue to reexamine certain areas that may provide for potential further reductions our fiscal 'twenty, two and full year guidance remains $100 million to $110 million.
Which was lowered by $25 million last quarter.
Finally, with the reduced EBITDA expectation for the year driven by lower U S income.
We have recorded additional noncash tax expenses in the form of valuation allowances against certain U S deferred tax assets.
Our effective tax rate for the year is approximately 30% excluding the additional expense from the valuation allowances and a negative 227%, including those expenses.
Likely to take additional both smaller allowances and each of the next two quarters, assuming our earnings outlook tracks in line with our current expectations.
With that I will turn it back to the operator to open the lines for the Q&A session.
Operator.
Thank you.
As a reminder.
If you would like to ask a question press Star then the number one on your telephone keypad.
And we will pause for just a moment to compile the Q&A roster.
And we will take our first question from David Begleiter with Deutsche Bank. Your line is open.
Hi, Good morning. This is.
David following here for Dave I guess first can you talk about your early thoughts on HDI salt pricing for next winter and specifically do you expect to fully offset the inflationary pressure when the contracts reset.
Yes, good morning.
I'll take a quick stab at that and Jamie may want to add some color, but we're only about.
I don't know, 10% or so into the bid season.
We werent the only ones that were impacted by these <unk>.
Inflationary cost that we absorbed.
The early the early says is that there's enough value in value in the market too.
Make an artist attempt at recapturing those those costs and additionally, as we've talked about before a part of our part of our strategy is also to reposition our portfolio to serve markets that are more natural to us where we have a competitive advantage. So we feel pretty optimistic about how things are setup. So far any further.
No that covers it.
And thank you and then second also discuss how the solid unit production costs will trend in the second half and maybe into next year.
Well what you saw during this particular quarter was about $9 Delta in terms of the operating profits per ton about two thirds of that related to distribution caution and one third related to cash cost we would expect those trends to continue for the balance.
The year I would say comparable.
Increment in the back half of the year.
As Kevin just indicated we would expect to restore the profitability through this upcoming bidding season.
But that will not be reflected in the second half of the year.
Okay. Thank you.
And we will take our next question from Seth Goldstein with Morningstar. Your line is open.
Thanks for taking my questions good morning, everyone.
Just wanted to ask if if we see oil prices have a similar fall.
Two how quickly they rose in the next fiscal year would your contracts basically stayed flat from a price standpoint, meaning that would all fall to the bottom line or are there I guess D inflation escalators in those deals.
Okay.
Yes. This is Seth this is Jeremy I would say that as it relates to highway deicing.
We will set fixed contract prices through the summer through our bid season, so to the extent next winter fuel prices fall and fuel surcharges fall, we would capture that benefit for sure.
When you talk about our C&I business or plant nutrition, theres, a bit more variability meaning.
We can capture some of that through price.
But over in over the history of the business as we've implemented.
The recapturing of fuel surcharges in both C&I and plant nutrition when fuel prices fall, we tend to hold on to that.
And capture some value there as well.
Okay. Okay I appreciate the details and looking at peak.
Yes.
Is the.
Does the pond system works such that.
You really can't do much within a year to increase production, but next year's harvest could potentially be better.
The weather turns out to be better than expected or I guess any detail you can give us with to help us think about how weather can impact future production will be appreciated.
Yes, good question.
It does vary sort of season by season, then tend to think of it in those terms, but our issue has been the ability to maintain continuous flow Bryan.
Our western set a pause just given the drought in the lake levels.
Exacerbated also by lack of access to fresh water also given given the drought we put plans in place to begin resolving those those issues. In addition to a couple of things I mentioned in the script just raising the dike is et.
Et cetera. So we believe the efforts that we're taking will lead to a longer term more sustainable predictable reliable.
Set of production values coming coming out of Ogden, but this is it.
Going to take a while I think we're we're confident we've got our hands around the issues that we know we know what to do.
But it's going to take a while to kind of work through any color you'd like to add to that George look Kevin I think you highlighted the majority of it again, it's really been around the persistent drought limited snow pack, what we seen over the last few years and those those factors that you referenced in the summertime, whether its win whether it's temperature those.
Types of things can drop out other other minerals.
Throughout the pond system at a different time.
Mostly magnesium, which then makes it a challenge so again, it's just making sure that we drop it out at the right place, but I think you can cover the majority of the Kevin. Thank you.
Hi, Thanks for taking my questions.
Thank you.
As a reminder, it is star one if you would like to ask a question and we will take our next question from Joel Jackson with BMO capital markets. Your line is open.
Hi, good morning, everyone.
Just following on just following up on that topic, I mean, obviously since <unk> put in.
A decade ago, the expansion and hoping to get $3 50 is upon based therapy every year. The thing just never work, Greg you had lots of problems with the plans to crystallize. The evaporator I don't really remember the impurities werent proper and I think I don't remember, Kevin It was under U or the prior CEO .
We went in and just stick on the plan.
Still not getting the yield 10 years later, so what's been done.
And we're just going to have to face up to 20000 ton production forever and Thats just the way it is.
Yes, again sure Joel This George sure I'll take a shot at that and look at it. There's no question. It's all goodness find balanced upon chemistry required out of that operation.
Our first mode of attack under Kevin's leadership.
We went to our immediate controllable factors, which was really around the operational efficiency and reliability of the plant.
So again, we spent quite a bit of time really trying to focus on that and really what that might look like.
But what we've switched too.
Over the last I'd say six to eight months is more around the both short and long term solutions.
Those solutions are really more around the short term being around some engineering controls and design such as raising our dykes optimize our pawn chemistry, and our pumping system, but the longer term. What we've done is taken a holistic end to end process designed to optimize is on again when I go back and I referenced.
The snow pack in the effects of the drought those things have a profound effect actually on the PON chemistry, and how will you actually drop out those minerals. She goes through so as Kevin highlighted I do think we've got our hands around that I know you probably say well you know it's been in several years, but it is again this is 55000 acres upon.
Out there it's literally miles so again, it's pretty critical on where we are and also keep in mind. When you talk about some of those high numbers that are out there historically.
We've actually added MLP, which is ACL into that process to augment that and make sure those tons stay up we've been trying to do this from from our pond based system only because of the current price of the MLP, but again.
Again from what I do say I do think we have our hands around on it and heading in the right direction.
Hey, Joe Let me just add that the plant will do what it's designed to do you just have to see what it what it's designed for and that's been the issue is.
I will call it a kind of on the outbound side or the upstream side is you've got to control that chemistry to feed that plant what it wants it will it will do that.
Whatever number we needed to.
What we've got to do is fix the chemistry on the inbound side.
What we're working and Joe one more but Kevin one more thing I'll add to that too is everything we do in adjusted EBIT main Joel if it's two to three year process. So every adjustment. We make is you don't see it like in one month or three months. It actually takes it time to run that Brian through the entire process to get it from salt the Mag chloride with S&P.
And in the middle.
We'll be following up that and also.
Bridging into lithium here, so if I understand with the now the east and the West split plan for first part of my question D. So we're talking about I guess two different technologies that would be needed for the 10 East plant and the follow on later on West plant and again, that's because the assets the lithium resources youre tapping into it a little bit different.
And then just.
Time to layer, what we just talked about on Sop.
Because of the issues with PON chemistry, and the variability year to year, and it's not necessarily getting the right feed into the plant.
Not going to play into your lithium youre not going to have a consistent feed in lithium and will the DLT technologies.
When you have a lot of questions around them is sufficient enough to handle said variability.
Let me.
Tackle.
The second one first Joe we don't think any of.
Everything we've seen thus far we don't believe this is going to affect.
Our ability to extract the lithium ions through the the DLA technology. So I.
I don't know what to say beyond that that's what we believe and then with respect to the east versus west side.
It's possible you used two different sets of DLA, but it's not likely.
The more likely cases, we use one DLT technology, because chemistry is not that different from side to side, but Chris would you want to add anything to that.
Sure. Thanks, Kevin I think Joel as we look at it Kevin alluded to the future.
Early technologies and really there is an aspect of BLE technology, and then what you do for conversion side.
You can convert from Delhi to carbonate to hydroxide to hydroxide and carbonate so it really just.
And on that which you decide to do from the conversion aspect. No. Currently we look at running our <unk> pilots and they continue to prove out.
Target requirements for lithium recovery nine user rejection and that really speaks to some of the impurities that unit two as well right. So that the design is really too.
If the lithium and rejected impurity, so as we see additional impurity around as we magnesium the DLT systems should be designed to reject that.
We think that the path that we're on.
With regards to the pilots are both solid choices for the LTE technology.
I think what would you also look at is our continued evaluation of those technologies so to speak to the rigor either we're assigning to the process that informs our decision. So our final technology of options are bulk driven effective and the goal over the next few months is to really pressure test. These technologies in the areas that scalability and reliability.
Thank you.
Thanks Bill.
A reminder, it is star one if you would like to ask a question and we will take our next question from Chris Shaw with <unk> Crespi. Your line is open yes good.
Good morning, everyone, how you doing.
Alright got it.
The salt looking ahead of the bid season.
Maybe order of magnitude.
Your average Todd what.
Price increase would you need to get to offset current either fuel surcharges are inflation.
Transportation at this point on average across the whole book of business.
Yes, I would start by just saying that when we think about sort of our go gurt and what we felt we feel entitled to.
Look back at the operating profit per tonne on this business, we're about $5 away at least from where we ought to be and that would translate into $50 million to $60 million.
At least I don't think it would be prudent to back into what the respective price would be because there are several ways that I'd like Jamie the elaborate on for us to get that and more is not just price it's about optimizing the mix as well, but Jamie maybe you could elaborate on what our goals are.
Yes, we approach this bidding season. Thanks, Thanks, Lauren and Loren did a good job of summing it up in his prepared remarks in terms of our our strategy. This season, but it's it's winning the right tenants that may make the most logical sense for us the ones that are easiest to serve.
And so it's not just about Asps it's.
It's about net back so our focus this season is on optimizing the net back for every ton that we produce.
<unk>.
That could mean, a significant shift in our portfolio from last year in terms of states and municipalities that we're going to serve as we go through this bid season, we're definitely optimistic about the value per ton or margin per ton that we're seeing thus far and.
It bodes well for for the bid season as a whole.
And how the 2023 salt segment will look.
The thing is we've mentioned it a couple of times today, and particularly in prepared remarks.
If we need to dial back goderich, a little bit we're willing to do that.
Mine is in is running great. We've got some opportunities to do that efficiently to toggle it up and <unk> down. So again, we're very focused on value per ton.
And are optimistic and that feeling pretty confident about how the bid season is going to unfold.
In the past I am sure Compass as many times as talked about optimizing net backs.
Is the reason that.
Did you the company go away from that or is it just is that not a static thing is that because.
The cost of.
The different transportation system shift every year of geographies and things like that or is it just something that.
We just haven't focused on it as much more recently would need to get back to it.
Is there any can you provide any color there.
Yes, I would just make just a small comment.
As we got.
<unk> back up running.
As it as it should as its capable while we were doing that.
We we're recapturing some share that we had previously loss. So so we feel like that's completely behind us.
We feel like we have the right balance now and that means you can really zero in on optimizing the portfolio and.
Winning the tons that make the most sense for.
For us.
Yes, I would expect to see a pretty significant portfolio restructuring. After this bid season concludes to Jamie's, Jamie point to optimize and maximize our rail natural competitive advantaged markets.
Less worried about placing that incremental volume of tons now that George and his team have godrej job operating so well.
Looking at the past.
I know a lot of guys you guys were at probably around I think in 2018, but there was this I remember getting all excited.
Earnings upside potential the drop I think oil probably went from like 80% to 50.
And then I think the next 12 months were solid but a lot of that also seem like all of our thinking it was.
You did well on pricing on the salt side. So you didn't really see that I thought there's going be a bigger lift from.
The reduction in oil is there anything in how either contracts or Scott structured or is it this time because of the magnitude so different with different debt.
You don't realize the benefit on the way down as much I mean, you talked about earlier I know, but is there something about surcharges.
Surcharges, where they never surcharges in the past so they never going to have the roll off of this will be different because they were just roll off.
Why does that seem differently, maybe my Bevers a little foggy.
So.
I had trouble getting a little bit of what you were asking Chris but as it relates to our highway deicing contracts.
In general.
Fixed price.
Fixed delivered price so when we're bidding through the summer like last summer.
We had an expectation of what fuel would look like during the season and obviously it was wrong fuel has been.
Much much higher than we anticipated even when we were sitting in the fall in September .
We were thinking about Brent.
Brent crude it at $75 $76, a tonne, we're thinking about Brent crude right now at $115 a ton kind of as we get through.
This summer and we're making.
Taking a view on it next next winter as well so.
We don't have the ability to pass through fuel surcharges here in North America, the governments and municipalities.
Run the process and have terms that we bid on.
They don't incorporate fuel, it's a fixed price deliver a fixed delivered price.
And we have that's why it's very important this bid season to understand tick uptick the appropriate view on fuel next year, the appropriate fuel view on truck transportation barge and vessel as well and base, our bids on that and recapture that value and.
Really focus on improving our margins as we go into 2023.
Is there any number of factors that could have offset those savings last time oil prices came off but the contract architecture. It hasnt changed it is what Jamie just expressed.
And this concludes our question and answer session. Today, I will now turn the call back to Mr. Kevin Crutchfield for closing remarks.
Thanks, everybody again for participating today, and we really do value your time and feedback.
Appreciate the opportunity to engage with each of you as we continue navigating our strategic path forward and we will keep you updated thank you.
And this concludes today's conference call. We thank you for your participation and you may now disconnect.
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