Q4 2022 Compass Minerals International Inc Earnings Call
Good morning, My name is Chris and I'll be your conference operator today.
At this time I'd like to welcome everyone to the Compass minerals Q4, and fiscal 2022 earnings call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there'll be a question and answer session.
You'd like to ask a question. During this time simply press Star then the number one on your telephone keypad.
To withdraw your question. Please press star one again.
Brent Collins VP Investor Relations you may begin.
Thank you operator, good morning, and welcome to the Compass minerals fiscal 2022 fourth quarter earnings Conference call.
Today, we will discuss our recent results and our outlook for fiscal 2023.
We will begin with prepared remarks from our president and CEO , Kevin Crutchfield, and our CFO Lorin Crenshaw.
Joining in for the question and answer portion of the call will be George Schuller, Our Chief operations Officer, Jamie Standen, Our Chief commercial officer, Chris <unk>, our head of lithium and Ryan Bartlett Senior Vice President lithium commercial and technology.
Before we get started I will remind everyone that the remarks, we make today reflect financial and operational outlets as of today's date November 32022, These outlooks entail assumptions and expectations that involve risks and uncertainties that could cause the company's actual results to differ materially.
Discussion of these risks can be found in our SEC filings located online.
Investors Dot compass minerals dot com.
Our remarks today May 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 available online.
The results in our earnings release issued last night and presented during this call reflect only the continuing operations of the business other than amounts pertaining to the condensed consolidated statements of cash flows or unless noted otherwise.
The company's fiscal 2022 fourth quarter results and fiscal 2023 outlook in the earnings release and discussed during this call reflect the previously announced change in fiscal year end from December 31 to September 30th.
All year over year comparisons to fiscal 2024th quarter and fiscal 2020 Q results refer to the corresponding period ending September 32021.
And now I will turn the call over to Kevin.
Thanks, Brent and good morning, everyone. Thanks for joining the call today. We appreciate your continued interest in compass minerals as we work to reposition our company for accelerated growth reduced weather dependency and sustainable value creation by expanding our central minerals portfolio into the adjacent markets of lithium and net.
<unk> generation fire Retardants.
Fiscal 'twenty two was challenging from a short term financial standpoint, but.
I believe will prove to be transformative in the long term, we continue to make meaningful strides in all three of our strategic focus areas.
Building, a sustainable culture, delivering on our commitments and leveraging our advantaged assets to create long term shareholder value.
I'll take a few minutes to highlight specific accomplishments in each of these three areas.
Turning the call over to Loren to provide more details on our financials for the fourth quarter and full fiscal year and then provide some perspective on our outlook for 2023.
Starting with employee culture, we took a number of actions over the course of the fiscal 2020 to provide the tools and training necessary to ensure safe and responsible operations.
I would like to salute each of our employees throughout North America, and the U K for their contributions to the outstanding safety performance. The company delivered this year.
Through their efforts and supported by an increased focus on behavior based safety training and engineering solutions.
We maintained a consistent safety performance throughout the year. The result was a total case incident rate or <unk> of one point to seven reflecting a roughly 56% improvement year over year.
To be clear our ultimate goal when it comes to safety is zero harm, meaning no reportable injuries across our platform.
In our mining and industrial manufacturing environment, that's obviously, a very difficult target to achieve but we owe it to our employees and their families to strive for absolute perfection when it comes to safety.
We also continue to believe this goal is possible as evidenced by the fact that several of our operating sites with the entire fiscal year with zero injuries.
As I've stated previously I deeply appreciate the level of care focus discipline and collaboration essential to operating safely and responsibly, ensuring that each employee returns home to their families in the same condition that they left.
This is and always will remain a top priority for compass minerals.
When you culture is strong and provides the foundation for execution.
Which was our second area of strategic focus delivering on our commitments or put another way doing what we said we were going to do.
A year ago on this call I talked about our commitment to protecting our balance sheet strengthening our core assets and increasing our focus on the high growth opportunities in the lithium and next generation fire retardant market.
From a portfolio perspective, we completed the sale of our South American chemicals business and received the maximum earn out payment associated with the sale of our South American specialty plant nutrition business using proceeds from both transactions to reduce our debt.
To ensure we have the leadership in place to take advantage of our emerging growth opportunities, we bolstered our senior management team with the addition of key executives.
Clearly lorin Crenshaw, Chief Financial Officer, and Christian Bale head of lithium deepening our teams financial expertise industry perspective, and advanced battery supply chain experience I can't overstate their influence on our achievements this year and thrilled to have them on board and look forward to their continued.
Partnership along this journey.
We also broadened the governance acumen of our board and the appointment of Eric Joyce Rich Daly at Valley, Melissa Miller, John Chisholm, and Shane wagon, who collectively enhance the board's operational financial advanced battery supply chain and human capital management expertise.
And with an eye toward the future, we continue to invest in safe and efficient operation of our core assets.
Through continuing to progress on our Goderich mine plan and a much needed upgrades to our barge dock at our Cote Blanche mine.
Turning to our financial performance for the full year as I indicated earlier fiscal 2022 was challenging from a financial and operating perspective for a variety of reasons.
As we've discussed on past calls the inflationary pressures that all industries have had to deal with in 2022 at a particularly acute impact on our salt segment as the contract architecture of our North American Highway business does not allow for the pass through of inflationary costs in real time.
As a result, our profitability was severely hampered by historic levels of inflation, resulting in higher distribution and production costs.
We took actions throughout the year to partially offset some of those effects, primarily through raising price within our consumer and industrial base.
However, ultimately the impact of these efforts fell far short in comparison to the inflationary effects, causing the profitability of our salt segment to come in well below the inherent earnings potential for this business.
The most impactful action, we can take during the year to restore the profitability of this business was to approach. The recent North American Highway Deicing salt bidding season, with a very disciplined strategy emphasizing value over volume and that's precisely what we did.
As a result, we expect pricing in 2023 to arrive on the order of 15% and volumes to decline on the order of 9%.
I'm pleased team's efforts and expect to see substantial progress in fiscal 'twenty three as measured by EBITDA per ton rising to match or exceed the $20 per ton and EBITDA. The salt segment has delivered on average over time up from approximately $15 EBITDA per ton is delivered in fiscal 'twenty.
Two.
Our plant nutrition business had a strong year from a profitability perspective with.
With EBITDA per ton of approximately $245 above the long run average for this business.
However, we continued to be challenged throughout the year to deliver production volumes in line with historical levels.
While that measure we fell short of what we believe is the inherent potential for this business.
Again, Lauren will provide more color on the financial shortly.
While navigating these short term challenges to our core businesses. We stayed laser focused on advancing our third strategic focus area.
Leveraging our advantaged assets.
Reposition our company for future growth.
One dimension of that repositioning relates to our strategic investment in <unk> North America and.
And next generation fire Retardant company focused on reinventing wildfire application technologies to make them safer for the environment and.
And also more effective.
<unk> had three primary strategic objectives for calendar year 'twenty two.
Secure adequate capital for full commercialization bolster.
Bolstered the leadership team and advance each main products.
600, Fr 200, Fr 100, and Fr 105 closer to qualification and commercialization.
From a funding perspective, our $45 million equity investment this fiscal year increased our stake to roughly 45% and helped position fortress to build out its manufacturing infrastructure stockpile inventories of raw goods and began hiring key staff.
From a people standpoint workers make great strides in 2022, naming a chief manufacturing and supply chain officer and achieved of airbase operations. We formerly served as the U S Forest service director of fire in Aviation management for California region five.
The U S Forest service largest region in the entire country.
They've recently recruited several highly skilled airbase infrastructure and operations managers with decades of experience building and operating air tanker base.
Product wise.
600, a ground retardant was fully qualified in early 2022 and.
And placed on the U S for services qualified product.
Fortress loss production and successfully provided revenue producing desk volumes for select clients.
With use cases focused on utility residential and commercial properties.
F. R 200, a liquid concentrate area of our targets.
Definitely past all required tests and completed all operational field evaluation requirements, which included successfully are dropping the required 200000 gallons under live wildfire conditions, which workers performed at an air base located in Montana.
Fr 105.
Second generation dry concentrate area, where target has successfully passed all required tests and commenced this operational field evaluation, which we expect to be completed during 2023 fire season.
And lastly, fr 100 fortress first generation dry concentrate as past all required guest and successfully completed its operational field evaluation required.
We're pleased with the progress that fortress has made a couple of important milestones that are not entirely within the team's control, but essential to breaking through or the completion of the environmental impact statement or EIS.
By the U S Forest service and substantially being awarded airbase allocations in the contracts.
This is scheduled to be updated every 10 years and expired in December of 2021.
Our working assumption was that it would be finalized by the end of calendar year 2020.
That didn't occur and the EIF is now roughly 11 months behind its regulatory exploration date.
We expect the magnesium chloride formulation at the heart of workers Retardants to be confirmed as acceptable reviews as part of the EIS.
As a result, we expect the eventual completion of this study to provide the necessary environmental clearance for <unk> aerial fire retarded.
And to set the stage for bringing their highly effective more environmentally friendly flame retardants market.
On the lithium project for US most of you are well aware of the significant progress we've made this fiscal year.
In September we provided a comprehensive overview.
Our strategic path forward to maximize the value of our North America, a lithium brine resource.
As a part of that strategic update we announced the achievement of five key milestones.
First we announced a $252 million strategic equity investment from Coke minerals and trading LLC to advanced phase one of the development of our lithium brine resource.
Splore opportunities for execution synergies across the company and further align our capital structure with our strategy through additional debt reduction.
We shared the selection of energy source minerals as our phase one DLT technology provider. After three years of extensive testing multiple BLE technology can providers.
We also shared the results, including a technical report summary.
Of our <unk> engineering estimates.
Confirming that our project is projected to be highly cost competitive.
The lowest by our estimation on the entire domestic lithium cost curve.
Leveraging our robust existing infrastructure.
We announced our intention to construct by 2025.
A conversion facility at our Ogden, Utah solar evaporation site with a targeted annual production of 11000 metric tons of lithium carbonate with.
With an expected NPV of between 626 million to $985 million and an after tax IRR of between 28% and 36% an estimated development capital of approximately $262 million at an <unk> level of accuracy.
And finally, we announced the completion of a lifecycle assessment confirming our strong sustainability profile for phase one of our lithium developed.
From a valuation perspective.
Projected after tax NPV of phase one of our lithium project is approximately $626 million, assuming an average lithium carbonate selling price.
Approximately $16000 per Mcf.
Which equates to nearly 40% of our 30 day average Martin gas were approximately $15 25 per share.
Similarly, the NPV of phase II of our lithium development is projected to be approximately $1 4 billion, assuming an average lithium hydroxide selling price of approximately $17000 per AMC.
Equating to roughly 85% of our 30 day average market cap and approximately $34 per share.
It's worth noting that the average sales price for lithium products used to calculate the NPV is been a mere fraction of todays indicative pricing highlighting the upside leverage our project possesses.
Together the growth opportunities, we're undertaking clearly represent sizable potential upside for our business.
And one that we would expect to benefit our employees communities and our shareholders alike.
Overall, we believe the actions we've taken in fiscal 'twenty to lay the foundation for an increase in the absolute earnings power of Compass minerals, and our long term earnings growth rate and ultimately in the valuation of our company.
With that said the fact that our stock price is trading at a considerable discount to the value of successfully executing our lithium development suggests the considerable upside potential.
It also likely reflect a measure of skepticism among investors in our view.
Our leadership team and employees embraced the execution challenges before us and expect to resolve the current valuation disconnect overtime through successful execution.
Looking ahead, our focus in 'twenty three will be to deliver improved overall financial performance and continue advancing our transformation strategy.
With an emphasis on the following six strategic objectives.
Number one building on the outstanding safety performance of the past 12 months.
<unk>, our drive towards zero harm across each of our facilities.
<unk> two <unk>.
With strong restoring the profitability of our salt business to levels, we've demonstrated in the past.
Number three developing and executing strategies to improve the reliability and sustainability of our Sop production, which should allow for increased production levels over time.
Number four achieving the commercial and project related milestones on our roadmap to advance phase one of our lithium development.
Number five.
According fortress North America's efforts to become the first new entrant in the market for fire retardant chemicals in two decades during the upcoming 23 wildfire season subject to completion of the EIS.
And last number six continuing to enhance our financial standing and maintained our overall credit profile.
In closing I'm excited about the path, we're on and the sizable opportunity before us as we execute our strategy to accelerate our growth rate in our earnings power and reduced our weather dependency I.
I believe that we have the right team and the right strategy in place to realize this opportunity and create real value over time.
With that I'll now turn the call over to Laura who will discuss our financial performance in greater detail and our outlook for the fiscal 'twenty three year Lauren.
Thank you Kevin on a segment basis salt revenue totaled $188 9 million for the fourth quarter up 18% year over year, driven by 15% growth in sales volumes and a 3% increase in average selling price both the highway and C&I businesses delivered higher sales volumes versus.
The prior year.
Average selling price was up 7% and C&I pricing rose roughly 5%, primarily due to continued price increases to offset inflationary pressures on a full year basis <unk> revenue grew 12% to approximately $1 billion.
On an 11% increase in sales volume and 1% increase in average selling price.
Higher revenue solid operating earnings declined 27% to $16 $3 million for the quarter and by 34% to $117 $4 million for the full year as increased production and distribution costs more than offset revenue growth.
From a cost perspective, roughly two thirds of the full year increase was driven by higher shipping and handling costs, which rose 19% to roughly $28 per ton and one third by higher all in production cost, which rose 7% to roughly $43 per ton the increase in cash cost was primary.
Really driven by inflationary impacts and higher maintenance costs, the increase in shipping and handling costs, primarily reflected a combination of inflationary impacts such as fuel surcharges and higher cost to serve our markets due to geographic mix.
Turning to our plant nutrition segment revenue for the fourth quarter grew 17% to $57 8 million.
Despite a 22% decline in sales volumes on higher pricing, specifically average selling price rose, 12% sequentially to over $929 per ton and was up 49% year over year, reflecting the continued favorable supply demand dynamics impacting the global fertilizer sector during.
The period of.
Operating earnings were $12 6 million up from a loss of <unk> $2 million.
And EBITDA was 21 8 million more than doubling year over year.
Higher average selling prices more than offset the impact of lower production volumes on sales and cash cost, resulting in operating margins of 22% and adjusted EBITDA margin to 38% both up substantially year over year flattened.
Flatten attrition full year results reflected operating earnings of $37 $1 million over four times higher than the prior year levels and EBITDA of $72 7 million up 62% year over year, driven by a strong pricing environment.
On a consolidated basis revenue was $249 4 million for the fourth quarter up 18% year over year and rose 9% for the full year.
Fourth quarter adjusted consolidated operating earnings increased $2 $7 million year over year to $5 1 million and declined 42% to $65 $3 million for the full year.
You'll notice in this quarter's income statement that we've broken out the impact of our equity method investment in portraits, we currently own approximately 45% of fortress and pick up our proportionate share of their net income or loss as a noncash item in our income statements.
Adjusted EBITDA from continuing operations includes the drag on earnings related to our early stage strategic initiatives and lithium and next generation fire Retardants.
In the fourth quarter, adjusted EBITDA increased by 6% to $35 million, which includes $4 million of cost for lithium and the noncash loss related to <unk>.
For the full year adjusted EBITDA from continuing operations was 187 1 million down 22% year over year.
This included $13 1 million of costs for those same strategic initiatives.
From a leverage standpoint, we ended the year with net leverage of four six times as defined by our credit agreements throughout the year, we took several steps to align our financial policy and capital structure with our strategy to accelerate growth and reduce the weather dependency of our earnings profile, including Recalibrating our dividend <unk>.
<unk> $200 million of the net proceeds from the Koch equity investment towards funding phase one of our lithium development and approximately $40 million for permanent debt reduction and finally, completing the divestiture of our South America chemicals business and applying the net proceeds towards debt reduction.
We are thrilled to be fully funded from a lithium development perspective through 2024 and fill the approach that we took demonstrated our commitment to funding our growth in a financially prudent manner.
From a free cash flow perspective for fiscal 'twenty two despite the substantially below trend adjusted EBITDA performance and $45 million investment in fortress. We Nevertheless delivered positive free cash flow of approximately $18 million benefiting from the $51 million in proceeds from the sale of our South America chemical.
Business.
And an $18 5 million earn out payment associated with the sale of our South America specialty plant nutrition business overall, our financial flexibility liquidity and manageable debt maturity profile and amended credit facility gives us confidence that we are well positioned to manage through a wide range of potential.
Weather related outcomes in fiscal 'twenty three.
Shifting towards our 2023 earnings outlook first of all investors will notice that we have modified our approach to providing adjusted EBITDA guidance from only providing guidance assuming normalized winter weather.
Providing a range of potential outcomes.
Although on average and over time demand for Deicing salt is stable, it's virtually impossible to reliably and accurately forecast in any single year winter weather activity and the icing sales volumes in the North American and UK markets that we serve given the highly weather dependent nature of demand. According.
This year, we provided a projected range of potential earnings outcomes that consider various winter weather scenarios, including the potential impacts of mild or strong winter weather.
I'll start by framing our expectations for salt and plant nutrition.
And then lay out the high level strategic milestones, we expect to accomplish for lithium and fortress, our two primary growth initiatives.
Starting with the Salt segment.
2023 range that we provided reflects our current book of business for fiscal 'twenty, three and then assumes normalized weather conditions and average historical sales to commitment outcomes.
<unk> sales volumes for the de icing business are expected to be down approximately 7% year over year, which is consistent with our focus on value over volume during the recent bidding season.
As Kevin indicated earlier, we expect North America Highway Deicing pricing to rise roughly 15% compared to prior year bid season results.
This translates into a projected increase in pricing at the salt segment level of approximately 9% year over year.
Within our C&I business, we expect pricing to be up a couple of percentage points year over year on similar volumes under those parameters. We would expect salt segment EBITDA in the range of $215 million to $255 million in fiscal 'twenty three.
Overall, assuming normalized winter weather, we expect our salt segment to show improved profitability year over year to around $20 of EBITDA per ton up from roughly $15 per ton in fiscal 'twenty two on higher pricing driven by our successful efforts to pass through inflationary and fuel impacts incurred in <unk>.
<unk> 22, as part of the recent bidding season, and Recalibrating, our mix or geographies, where we have natural competitive advantages that enhance our profitability.
Achieving EBITDA per ton of around $20 or more which reflect a successful restoration of the profitability of this business to historical levels, which was our objective heading into the most recent bidding season.
In our earnings release and earnings deck. We have also provided the estimated impact of volume revenue and EBITDA for the salt segment during mild and strong winter weather scenarios.
These bookends entails significant estimates by management that use an array of information, including historical weather data and sales to commitment outcomes in.
In plant nutrition higher unit costs, reflecting elevated production costs are expected to result in lower profitability as measured by EBITDA per ton on a year over year basis on relatively flat sales volumes as background Sop production levels in any given year are ultimately a function of the amount of pawn times available.
To harvest between September and May which are in turn a function of the quality of the evaporation season, which occurs between May and September . Unfortunately.
The 2022 evaporation season resulted in less potassium deposited in the ponds year over year due to less than favorable weather conditions, which will adversely impact our fiscal 'twenty three production capacity.
With a focus on servicing our long standing customer relationships and maintaining our position as the primary north American producer of S&P. This year, we will purchase potassium chloride as a supplemental feedstock and effective approach to driving more tons, but one that yields lower than normal margin at current potassium chloride <unk>.
Mrs.
In addition to the increased use of potassium chloride in 2023 compressing our margins.
Cost per ton are also expected to be higher due to a combination of higher per unit on processing costs, which have a significant fixed component in.
And incremental costs related to actions, we are taking to mitigate the impacts of the ongoing drought at our Ogden facility.
Pricing wise, we expect to continue benefiting from a broadly constructive global fertilizer supply demand dynamics.
Our guidance calls for a modest year over year increase in the average Sop price on a full year basis with pricing in the first quarter of 'twenty three expected to track roughly in line with the fourth quarter of 'twenty, two before moderating each quarter sequentially thereafter.
Our view on Sop pricing reflects our best estimate at this time and one that we will update quarterly throughout the year.
In 2023, we will remain focus on implementing both short and long term solutions to improve our ability to predict annual S&P production levels at Ogden more consistently and reliably through data and science based approaches that enable us to evaluate the myriad of weather and chemistry conditions.
Impacting production there.
In the near term we're in the process of further refining engineering controls and design such as raising our guidance improving access to Brian more efficient use of freshwater and upgrading pumping systems to maximize harvest tons.
For the long term, we have undertaken a detailed review of our holistic end to end process designed to optimize our pond chemistry, and ultimately ensure more sustainable and reliable sop production levels, including both PON base and supplemental potassium feedstock further solidifying compass minerals as the leading <unk>.
Provider in North America overall.
Overall, we expect the key drivers of this segment's profitability in fiscal 'twenty three to be production yields and unit costs at our Ogden facility and the impact of global.
<unk> market dynamics on Sop pricing and volumes.
Based on our current outlook, we expect that the plant nutrition segment will generate EBITDA of between 55% to $70 million.
I'll now provide some commentary on a few other financial measures that are important to forecast our business starting with Capex, our capital spending forecast of between $175 million and $230 million is divided into two categories with sustaining capex related to salt and plant nutrition of between 100 110 million.
And growth Capex of between 75 and $120 million earmarked for lithium development.
As a reminder, the net proceeds from the Koch equity contribution were received in mid October and therefore are not reflected on our 930 balance sheet. However, we intend to use those proceeds to fund the lithium related capex and proceeds from our core operations to fund sustaining capex over the next three years.
Until late 2025, when we expect phase one of our lithium development to come online.
It will be important to distinguish between free cash flow with and without lithium related capex to maintain and accurate pulse on the results of our core business.
We will assist in that regard by breaking out lithium versus non lithium capex in our reporting.
On the topic of lithium I would also note that lithium related operating expenses are projected to be in the range of $10 million to $12 million this year versus $8 million in fiscal 'twenty two while.
While in the short run these costs compressed our profitability there.
Our essential investments, enabling us to execute on an opportunity that we believe represent substantial upside and an exceptional proposition for our stakeholders. Finally, we expect our effective tax rate to be in the range of 30% to 35%, excluding any additional expense related to valuation allowances on deferred tax asset.
Now turning to fortress in our view.
2023 has the potential to be a breakout year with the Companys Fr 200, Fr 100, Ariel retarded, having the greatest potential to impact results.
Given that several catalysts are outside of fortresses direct control, we've chosen not to assume any financial upside for fortress in our guidance.
Instead, we have forecasted our share of its assumed losses, which are included in the corporate facet of our guidance will be around $5 million.
However, as Kevin mentioned earlier, if the <unk> is approved in time for the 23 wildfire season and fortress is assigned basis 2023 to be the year that the company starts gaining traction there.
Key 2023 strategic milestones for <unk> are detailed on slide 10 of our earnings presentation, but at a high level. They include advancing commercialization of <unk> 600 <unk>.
Porting, the EIS process, and ensuring operational readiness to deploy fr 200, fr 100, and upon <unk> approval, securing an initial tranche of air basis.
Finally, turning to lithium.
In September we laid out a comprehensive strategic plan detailing our path forward to build an 11000 metric ton battery grade lithium carbonate production facility expected to come online in 2025.
And the related transcript technical report presentation and replay may be found online under the Investor Relations section of our website.
We are excited to officially shifted from evaluation mode to execution mode on our strategic journey, we expect to reposition compass for accelerated growth and reduce weather dependency overtime.
Over the next several quarters, we expect to accomplish the following strategic milestones securing additional definitive offtake agreements.
Together equivalent to at least 80% of 11000 metric tons of anticipated phase one battery grade lithium carbonate production capacity.
I'm pleading in FPL two level engineering estimate for phase one by March <unk>.
Completing in FPL three level engineering estimate by June and.
In achieving mechanical completion of a commercial scale <unk> unit by December 23.
I would note that we broke ground on this unit in the Middle of November which was slightly ahead of our plan.
Finally for several years, we have issued two snow reports a year one in January and one in April these.
These reports have historically summarize winter weather activity as measured by snow events and 11 representative cities and our primary North America Highway Deicing service area and.
In fiscal 'twenty, three we will no longer issue Standalone Snow reports as press releases, but we will continue to provide perspective on snow events during our first and second quarter earnings call.
The snow events data for the 11 cities is readily available.
And a reasonable indicator of winter weather conditions in these cities. However, as we have shared in the past several factors make snow events in these cities and in perfect proxy for our actual quarterly sales to commitment levels, which ultimately are what drive sales volume for.
For instance, while this dataset reflects relatively large cities for which data is readily available.
Not only serve large cities, we typically serve broad swaths of states that include rural areas metropolitan areas and everything in between and.
In addition, certain reasons such as the UK are important markets for us, but don't have similar public information that allows us to include these reasons in our snow report.
Other factors that make the snow report an imperfect proxy include winter severity and year over year variations in customer inventory levels.
Going forward, we look forward to continuing to provide perspective on snow events with our quarterly earnings results rather than on a standalone basis.
With that I will turn it back to the operator to open the lines for Q&A.
Operator.
Thank you.
I'd like to ask a question. Please press Star then one on your telephone keypad.
Our first question is from Joel Jackson with BMO capital markets. Your line is open.
Hi, Good morning. This is Alex Chan on for Joel Jackson, Thanks for taking my questions.
For my first question. It seems like Salt margins are expected to improve 100 basis points year over year can.
Can you maybe provide all the puts and takes to get to this improvements between.
15% higher pricing.
<unk> and other components and maybe what needs to happen to recover the remaining 500 600 basis points of margin to get back to 2021 levels.
Yes, hi, good morning, Alex This is Kevin.
Sure that I agree totally with your premise, but let me.
Let me try to address.
In the context of the guidance, we've given so we experienced about a 15% price increase across our highway deicing sales for the for the season.
Against the backdrop of about.
I think about a 9% reduction in volume.
On a year over year basis. So our view is that gets us back into the two.
To handle Zip code.
From a margin perspective EBITDA per ton.
That's also got a fair amount of those.
The inflationary effect that we experienced in 2021 carrying in 2020 to carry into 2023 as well so to the extent that that inflation abates.
Unexpectedly or inconsistent with our planned because we were pretty conservative.
You can see that margin expansion replicate our view and kind of where we were in 2021, but look at the folks that the weather out of our control functions of the inflation semi out of our control. So we're comfortable with the guidance. We've given that we're back into that two handle range with potentially some upside.
Based on <unk>.
Winter unfolds.
And I would just add when the commercial team enters into the bidding season, we're thinking about profit per ton in Europe .
<unk> started with margin and over the past decade, our average profit per ton has been about $20 and thats. What the team has achieved and so we've restored the profitability to historical levels on a profit per tonne basis and thats. The way we entered the bid season.
I appreciate that color. Thank you and for my second question we've.
We've seen diesel prices increase in bid season, and but for barges are currently challenged.
Is there a concern over barge availability this winter and if you can elaborate on the costs do you expect from maybe higher diesel barges issues and.
Fiscal <unk> III and if we could expect significant increases in parts of their cost for maybe 224.
Sure. Thanks, Alex this is Jamie.
Obviously, the lower Miss experienced low low levels.
Pretty much over the last six or eight weeks.
But over the last few weeks, we've seen a lot of rain in the Midwest the levels have come back up.
We had some short term concerns about it but now it is pretty well normalized we've got the barge traffic that.
That we need on a covered barge basis.
I would also say most of our material is already deployed and has been deployed we we started that work in April and throughout the summer we ship the upper Miss and then.
<unk> moved down as the season goes along and serve the Ohio River. So we don't expect.
Any any impact this winter as it relates to rates going forward.
We.
Basically have.
CPI type adjustments in our agreements as well as fuel surcharges so depending.
Depending on fuel, we could see perhaps some.
Some relief there in 2023.
And then as it relates to CPI, we we monitor that closely and wood.
I would expect perhaps.
Flat to maybe slightly higher but but.
That remains to be seen.
Thank you for that and my last question if I may.
We are we correct to assume that implied companywide fiscal 'twenty, two or three EBITDA guidance is around $220 million to $230 million after adjusting for our corporate costs and maybe you could talk a bit about why only.
The segment EBITDA guidance as provided in non company wide guidance.
Yes. So thanks for that question. So we've taken a different approach to earnings guidance. This year that really reflects the reality that although over a long period of time. This business is stable and delivers profitability and volumes at what I would call. The middle of the Bell curve. When you think about snow days in any give.
Even year the earnings profile.
Our ranges and so what we've done is provide investors more information than we ever have with respect to the range of potential outcomes in terms of the earnings power of the business and the way you get to an EBITDA is simply to add the segments and subtract corporate expenses, that's the way, we've always done it but rather than.
Focus on a specific numeric adjusted EBITDA, we're providing a range of potential outcomes and so in that 2023 range on slide 17, the midpoint is on the order of 220.
And on the high side, it approaches and a strong winter 270.
But our focus is on having a conversation about earnings power as opposed to.
Just a normalized earnings number and so that's the way I'd look at it.
Perfect. Thank you so much.
The next question is from Jeff Zekauskas with Jpmorgan. Your line is open.
Thanks, Thanks very much.
There was a lot of snow in Buffalo recently.
And theres been some snow in the Midwest How C.
Sure first quarter looking.
Sort of year over year, when you look at November volumes versus history.
Have things been unusually strong or are they normal are weak.
Yes, Jeff.
Comment Jamie to provide some additional color maybe get Buffalo got amber.
I don't know something on the order of 40 inches.
Preferred 10, or it snows as opposed to $1 40, its 40th slow obviously, but I think we'd say that the season, thus far is off to a pretty good start.
We're early in this a couple of months, but so far so good anything you'd add Jamie I'd say, yes. It is certainly early we do like the flow we like the order book.
We're already refilling some depots, we've seen nice nice weather.
Kind of northern Illinois.
Wisconsin, Western Michigan, which has been great to see that start.
Historically a bit early.
It does need to continue throughout the season obviously.
And then don't forget about the west.
We've seen a lot of snowfall.
Sierra is the Rockies, we do sell <unk>.
Rock salt in the west as well out of Ogden, so that bodes well for <unk>.
Drought conditions and lake levels, there as well on the operation side, So really.
Really feel pretty good about how we've started the season.
So can you quantify do you have any quantification of what's going on.
No we feel like we're tracking.
Right in line with our plan.
This start feels a little bit.
But again the season as long and a bulk of the activity winter weather activity.
For our first quarter the December quarter occurs in the month of December so.
We're just right at the right at the line there.
And I would just say it goes back to the whole the whole bell curve every month as a statistical.
Data point on that Bell curve. So it would be entirely premature to speculate about how the next couple of months are going to transpire, but we're off to a good start.
Nature.
We'll see.
I wasn't asking you to speculate I was just asking you to.
Speak in retrospect in terms of what would happen.
Yes in terms so in your commentary on plant nutrition.
What did you say about first quarter plant nutrition prices did you say that they would be roughly.
<unk> versus the fourth quarter or flat versus the first quarter of 2022.
We said it would be flat versus the fourth quarter. So the quarter. We just reported just Bachelor that's right before then moderating throughout the year.
What was your accounts payable in the quarter and what's your cash tax rate for next year.
In terms of cash taxes, I think a number.
25, 20% to 25% ranges is a good number to use as far as our accounts payables or at.
At the end of the year.
Yes.
I don't have that number at my fingertips, we will follow up with you on that okay.
Okay and then.
And then lastly, you talked about prioritizing sort of value over volume is solved.
What does that really means does it mean that you don't want to shift unprofitable tons.
They are profitable tons that you do want to ship, but they are.
They are profitable tons that you don't want to capture because of the March and you find in sufficient can you can you explain what the value over volume approach means.
Yes, our focus this year, Jeff was too.
Felt like there was value in the marketplace and we wanted to try to optimize slash maximize that value.
We we think we did across the board and the other thing we did was we.
We moved some of our business to more logical areas, where we have geographical competitive advantages relative to some of the more difficult areas to get to certain parts of Illinois, Pennsylvania for example.
So we think we optimized our our book with a focus on the restoration of more historical <unk>.
Margins something with a two handle.
And.
I think the team did a good job and this is look this is a two to three year journey as well so there's a year one.
And of that recapture so that's held by value over volume.
Okay, great. Thank you so much.
Thank you.
And yes, the accounts payables at the end of the year was on the order of $115 million.
The next question is from David Silver with CL King Your line is open.
Yes, hi, good morning.
Had a couple of clarification questions first and then I hope that I had a couple questions about the.
The lithium project.
But earlier in the Q&A I think Lauren Might've mentioned $220 million kind of.
This case mid point target for.
Your fiscal year 'twenty three adjusted EBITDA.
And I'm just wondering if we should make some adjustments to that.
That would move the number a little higher in particular I was thinking of stock based compensation.
For starters, but.
Is that $2 20 number.
<unk>.
The midpoint of the base case assumptions and whatnot or.
Should we.
Are there some adjustments that we need to make.
In addition to that.
Sure. So I wouldn't suggest any adjustments related to stock based comp, but as you think about the earnings power of our business, we restored salt to where it is and if you want to think about earnings power I would underscore that there is roughly $20 million of expense embedded in that $20 million.
Two $220 million number related to lithium and fortress, which are investments that we're making that we fully expect.
Two.
And gender returns to investors, but at the moment is about a $20 million drag on that to 'twenty related to those two businesses are.
Our plant nutrition business is average kind of in the mid seventy's of EBITDA over the past decade, and we're projecting it to be about in that sort of low 60, Mark and so from an earnings power perspective, those are the kinds of things I would think about and then I would think about <unk>, when we think about <unk> and earnings power.
As we said on the last earnings call. This is about a 300 million addressable market and if you look at the monopoly that is currently.
And play and you look at those margins, it's about a $90 million profit pool, that's implied and so as we get market share in that business.
That would add to that earnings power. So those are the kind of things I would think about for a long term perspective.
Okay. Thank you for that and then just one other thing.
It's been a few quarters, but we haven't really had an update on the.
The major upgrading program at Goderich.
And as you think about fiscal year 'twenty three I mean could you just maybe update us on how things are going on underground there and whether there is a meaningful.
Improvement in the underground mining efficiency, let's say fiscal year 'twenty three versus fiscal year 2002. Thank you.
Yes, David I mean, I would just say George is in here and he can add color, but we continue to advance the new mine plan and as we've discussed on a number of occasions before the first step and that is creating these new permanent long term 50 year roadways.
Disconnect.
The existing shaft system with the mine works out in the west.
And those are kind of on the order of about 50% complete.
So that's the first step in a long series of steps to reposition the mine and then George and his team are also developing the west set these rooms up as we've described before to maintain quality and good mining conditions and that sort of thing. So we're.
Yes.
We continue to progress.
It's a plan that we're implementing that will take a number of a number of years, but I would say that the progress is on track with you want to add anything to that yes.
Yes, maybe just a little bit there and thanks, David George Schuller.
I think as Kevin highlighted.
<unk> continued to be on track and continue to meet and exceed expectations, starting with safety and our and our growth there as far as our new mains development and existing asset their existing parts of the mind that we have so.
At this stage I would say we're on track maybe slightly ahead of being on track for that I think when Kevin laid this out there.
Couple of years ago started.
Probably a four to five year journey for us to get there sooner.
So we're tracking extremely well there.
And again really really no negatives.
To see that progressing the next I'll call it <unk>.
Okay, Great I have a couple of questions on the.
The lithium project I'll ask them both here.
Firstly regarding the binding agreement with LG.
Gratulation on that I mean, I do recall there was another party for that Ford motor that signed the the preliminary Mou.
Should we be expecting something.
Miller from Ford Motor.
Regarding a binding agreement.
And would that be kind of the main piece of the puzzle to get to that 80%.
Target I guess of committed sales from the phase one production that.
I believe was mentioned in the in your earlier remarks, so that'd be one question second question would be about the Koch industries investment.
And I'm just wondering.
Does that does their investment come with any future.
Optionality. So in other words might say you have a right of first refusal if you were to pursue additional investment down the road.
Or does their purchase price should they choose to make further investments as their purchase price cap tour.
Any any other optionality regarding the coke investment that that we should keep in mind is.
This project progresses over the next several years. Thank you.
It will hit those questions in reverse David.
Do you see is what you get with the Coke investment they made an investment in the company 200.
$52 million, which resulted in our ownership stake.
On the order of 17, 5% or so so there are large investor, we actually think of them as a partner.
They bring a lot of tools to the table from our perspective, not only in regards to lithium in there.
<unk> group, but also.
Big bulk commodities mover, we think there could be synergies with overlap.
Transportation <unk> bulk commodity types of types of things. So we view them as a partnership and there's no more to the partnership then HCI no hidden first rights of refusal or anything like that.
And then with respect to forward.
Ryan that color, but we continue to progress the agreement with <unk>.
With the board and we'll just we'll just see how it goes anything you want to add to that Ryan Yes. David. This is Ryan I would just say that.
LG early on has proven to be a very collaborative partner and we're excited for the deal that we put down with them. We do continue to progress discussions with Florida as well as with other potential customers to get to that 80% of phase one volume. So as we have updates for that will provide them.
Okay, great. Thank you very much.
Thank you Dave.
The next question is from David Begleiter with Deutsche Bank. Your line is open.
Thank you and good morning.
Kevin looking at Slide 12, congrats on the DLA breaking ground.
What's the limiting factor in.
Perhaps pulling forward the lithium carbonate conversion facility.
Earlier start date here.
Did you hear that risk.
I'll, let I'll, let Chris answer that yes. So.
Again for recognizing that we did break ground in.
Earlier this month with regards to our daily.
Commercial unit they were.
Looking to for verification of scalability.
As far as pulling the project forward, what we're really doing is we're moving forward on moving out scalability of DLA.
With our 400, GPM unit, which we anticipate to be mechanical completion by the end of 2023.
During that time, we're also progressing with our yield to own the entire east side, we expect that to be complete at the end of March next year.
And the three aspects, we expect to be complete by the end of June next year that really allows us to.
To start some of the earlier groundwork that we'd have to do with regards to.
The overall E side. In addition, what we're going to get out of that as such net equipment be we'd have to buy or the conversion facility. Maybe long lead. So were looking at a multitude of different angles of how we kind of crash schedule and accelerate that but currently the schedule that we have with regards to being operational.
In 2025 remains our realistic schedule.
Understood and just on daily once the commercial once an account is mechanically complete.
23, what's the process to validate the technology and during 24, while the steps you'll be doing during.
During that year to validate that it actually does work.
So during once we've finished mechanical completion will go into commissioning and startup.
We really want to do is go back to look at our results with regards to what we accomplished in the previous pilot programs and then we'll look at that with regards to what we anticipate coming out may feed type ratio that we talked about in September we talked about how we basically.
<unk> increase our lithium and rejected magnesium.
And then we have a certain magnesium cockpit and lithium yield that we expect coming out of DLH. After verification that we'll be looking for as long as well as <unk>.
Ability and kind of mechanical design aspects of it that we can improve as we go into the overall field.
Maybe David this is Ryan I'll, just add on to what Chris said, there it will have a very specific.
Full year design of experiments that would mimic what we've done with the other pilot plants that are proven to scale <unk> Iliad technology and what we're looking for is really the ability to match what we've seen with those other scales. We remain highly confident that we'll be able to do that with this full scale commercial unit and we're excited to get it up and running.
Okay, Great I guess, one more question, just maybe Lauren on shipping and handling costs. What can we expect for 2003 have you seen any relief at all in some of these are solid to shipping and handling cost metrics.
Yes, I think for the full year, a number around say $30 is a good number to use and we've through our commercial team's success in the bidding process.
<unk> been able to capture our best estimate of what those costs are going to be.
To the extent that we see continued inflation.
We will run the same playbook that we ran last year, which is to raise prices in our C&I businesses as we are able to and to recoup any inflation as we've proven that we can do.
So next year's bidding season, we are also from a fuel perspective exploring a hedging program that would allow us to mute the impact on some fraction of our fuel cost Jamie I would just just to clarify as you think about the full year may be approaching that $30.
Arrange for Salt, we're talking specifically and then it would be a little more front end loaded so there'll be a bit higher than our first and second quarters and then it should be kind of taper off as we get into the second half of the year as for plant nutrition.
Most of that material moves via rail.
Rates.
<unk>.
While volumes are down so unit costs were up there is it.
Component of shipping and handling in our.
In our plant nutrition business. So you would expect to see higher shipping and handling.
In the plant nutrition business.
Thank you very much.
Again, Thats star one if you'd like to ask a question. The next question is from Chris Shaw with <unk> Crespi. Your line is open.
Good morning, everyone. How are you doing.
Hi, Chris.
Couple of clarification questions I guess just following up.
I'm sort of topics.
Last question.
The guidance for the Salt segment.
On the cost side I, just wanted to make sure you're sort of assuming the same cost from 'twenty. Two that include the fuel surcharges as well are those fuel surcharge is still in place with your suppliers.
So nothing's changed in terms of the contract architecture in terms of the fuel surcharges when we enter into the bidding season, we are assuming that nothing changes.
And so.
Nothing's changed there.
So as I said earlier for the Salt business Youre looking at something like $30 for the full year for logistics and maybe something more like 44 cash costs.
Is there more to your question.
Yes, Thank you and then.
The coke mining relationship.
Just talking about before but has anything been figured out yet in terms of if there is any savings for 'twenty three in terms of logistics or anything or is that going to take a while for them to sort of get more involved.
Yes, yes coke's here.
I'll take that one Kevin if you want to yes.
Yes. So we are currently in the process of going through all the opportunities.
The key opportunities would reside in logistics transportation overlap.
Got it.
Partnering on on Big contracts Big transportation contracts on the procurement side as it relates to some inputs around bags and pallets, we see some some real opportunity there and then across our footprint of our depots. They have terminals we have.
Depots that are operated by terminal operators and.
And we're looking at optimization there to generate some value. So those are the key areas, but we're just not ready to quantify anything yet, but the discussions are going well.
Got it and then just a quick one on the fourth quarter.
Highway Salt volumes I've seen pretty strong I was just wondering was there or is that pre buying for this season or whether they're a bunch of customers may be taking.
Taking advantage of the lower pricing from last year's contracts.
Yes, Theres a couple of things.
On there.
We were still set we were still delivering into some of last year's contracts. So you saw a little bit of incremental volume related to kind of the Illinois, Indiana area.
To be clear.
But we're.
Actually go and they end up being pre fill because those times don't get it.
Getting rebid.
As well as kind of a strategic decision to pull some direct barge and vessel shipments forward instead of trying to sell them in season getting some of our certain commercial customers to take them a little bit earlier. So we had some volume shift into the.
The September quarter as well so those are the main drivers there.
Got it thanks a lot.
The next question is from Seth Goldstein with Morningstar. Your line is open.
Hi, good morning, everyone. Thanks for taking my questions.
I wanted to ask.
First of all I really appreciate the winter weather range guidance Thats extremely helpful. So thank you for that.
Looking at the four scenarios.
What is that EBITDA per ton was basically flat in the strong winter scenario versus the upper end of guidance is there any sort of operating leverage that would be occurring from the strong winter weather or how you think about that.
If you look at the midpoint of the 22 2023 range on that slide and I'll, let George elaborate it implies about $20 a metric ton of EBITDA and you do see a dollar increase.
In the strong winter. So you do see some benefit from absorption in that in a strong scenario, but George maybe you can elaborate on the.
The dynamics that drive, perhaps even greater profitability in a extremely strong winter, yes, I mean look just.
I was just going to pick certain operations.
Things that drive that are I think you've heard Kevin say this in some of the previous earnings calls our flexibility to flex up is is substantial in our operations specifically a place like God Ridge mine, so with a strong winter we have flexibility to go up several hundred several hundred thousand tons.
Effectively in a short period of time without adding labor without additional equipment that is very beneficial to us and a milder.
Winter I'll call. It we also have the availability to flex down based on what we might do with some of our labor practices maintenance practices and those types of things that allow us to kind of get into that range.
Thanks, Jeff.
The point of just color for you as you think about.
A strong winter one of the reasons, we don't have the <unk>.
Mediate leverages by virtue of.
Our contract structure, which is there.
The customer has a 20% call option.
Anything over 100%, so our price stays flat through 100, 120% that's beyond the 120% is when we would begin to experience spot.
Spot market conditions were that to occur. So I think most of the leverage up to that 20% is on.
As Lawrence said and George.
Fixed cost absorptions.
So hopefully that makes some sense.
That's really helpful. Thank you and then my other question is on plant nutrition can.
Can you walk through how should we think about the percent of production coming from the Pons versus MLP conversion and how do you expect this to evolve in the future.
Yes look I'll go ahead and jump on that one Seth It's George again, I think maybe starting with.
With that PON base versus what's actually coming from kcl or MLP that is something that we've undertaken for a period of time now for I'd say the last six to eight months.
We're trying to do is.
Two actually.
Actually look at the asset that we have and trying to look at it what that sustainable tons will be coming out of that that will be coming out on there is no question that the.
The impacts of the drought over the last couple of years have had a impact on our pond based tons, but again as long as it's economically viable.
<unk> will be added to achieve more I'll call it.
What I would call more historical type numbers coming out of the the Ogden facility.
Facility.
As it relates to 2023.
<unk>, it's less than 10% of the production would be expected to come from APM.
Thanks, Jim Okay. That's really helpful. Thanks for taking my question.
Thank you Sir.
We have no further questions at this time I will turn it over to Kevin Crutchfield for any closing comments.
We appreciate everybody joining our call today look forward to keeping you updated in the coming quarters. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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Yes.
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