Q1 2023 Compass Minerals International Inc Earnings Call
Good morning, Ladies and gentlemen, 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 first quarter 2023 earnings call.
Today's call 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 simply press Star one once again.
Thank you and I will now turn the conference over to Brent Collins, Vice President of Investor Relations you may begin.
Thank you operator, good morning, and welcome to the Compass minerals fiscal 2023 first quarter earnings Conference call.
Today, we will discuss our recent results and update 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 Christian Bayle, our head of lithium and Ryan Bartlett Senior Vice President lithium commercial and technology.
Before we get started I'll remind everyone that our remarks, we make today reflect financial and operational outlook.
Today's date February eight 2023.
These outlooks, Intel assumptions and expectations that involve risks and uncertainties that could cause the company's actual results to differ materially.
A discussion of these risks can be found in our SEC filings located online at investors Dot compass minerals Dot com.
Our remarks today also includes certain non-GAAP financial measures you can find reconciliations of these items in our earnings release or in our presentation. Both of which are also available online.
The results in our earnings release issued yesterday 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.
I will now turn the call over to Kevin.
Thank you Brent good morning, everyone and thank you for joining us today on our call.
We continue to make strides in our efforts to reposition compass minerals for accelerated growth reduced winter weather dependency.
Create sustainable value for our shareholders by expanding our central minerals portfolio into the adjacent markets of battery grade lithium and next generation fire Retardants.
As communicated on our last quarterly call. We entered 2023 focussed on achieving six strategic goals I'll take just a few minutes to provide a status update on each of those areas.
And I'll comment on the quarter before turning the call over to Lauren to discuss our financial performance in more detail.
Our first area of focus continues to be the safety and wellbeing of our employees.
Last year was an outstanding year for safety performance across our operations in fiscal 'twenty three we intend to build on that strong performance and our continued drive towards zero harm across each of our facilities.
We acknowledge that achieving zero harm or no reportable injuries across our entire platform will be a challenge in the complex operating environments that we operate in.
However in several of our sites, we've already proven its possible and we are.
I went to our employees and their families to strive for that go every day does employees go home to their families in the same condition as they left.
The next goal we outlined in some detail on our last call is our aim to restore the profitability of our salt business to levels, we have demonstrated in the paas.
As many of you know inflationary pressures created a significant headwind in 2022 that had a direct impact on our salt segment EBITDA per ton.
In an effort to mitigate those challenges and more effectively leverage our expansive salt depot logistics network. We approach the 2023 winter bidding season, with a disciplined pricing strategy and our focus on winning sales commitments in markets that are geographically advantageous for us and relatively efficient to serve.
The results of this strategy were evident in our financial performance this quarter with Salt segment EBITDA up.
7% year over year to just over $17 are.
Our goal is to continue to make progress on EBITDA per ton.
Get back to the levels that we've enjoyed historically.
We made strides in that direction during the quarter and expect to make continued progress towards that goal through the balance of the year. Despite facing some headwinds on the cost front that we'll discuss more in a moment.
With our plant nutrition segment, we're deep in the process of honing in executing strategies to improve the reliability and sustainability of our Sop production.
As indicated on our last earnings call. Our Sop production volumes are expected to be flat in fiscal 'twenty three as the 2022 evaporation season was impacted by less than favorable weather conditions in turn reducing the potassium levels deposited in our solar evaporation ponds.
We continue to believe however that the steps, we're taking now should enable improved production levels at our Ogden side over time.
We will provide relevant updates on our progress towards this objective throughout the year.
On our outlook for the plant nutrition segment in a moment, but I think it's important to note that the decline in the first quarter sales volumes was driven by lower demand.
Production challenges.
In fact, we were and continue to be prepared to service average customer demand if and when it improves.
On the lithium front our goal this year is to achieve several commercial and project project related milestones on our roadmap to advance phase one of our lithium development and Ogden.
Key milestone we expect to reach by mid year is to have a more robust capital cost estimate for phase one and <unk>.
September we shared an mcl one level engineering estimates the next major milestone for this project is to complete an <unk> level estimate by the end of March also known as a pre feasibility study or PFS.
Later this calendar year, we expect to have completed the nephew L. Three engineering estimate also known as definitive feasibility study or DFS.
Each of the progression along the FPL stage gate are expected to increase the level of engineering tightened the accuracy of the capital spend and mitigate operational risks finally, we continue to make progress on our commercial scale DLA units.
Consistent with our prior plans, we expect commissioning and operations to begin in early calendar 2024.
With respect to our other growth initiatives, namely our minority ownership interest in fortress North America. We were very pleased by the December announcement of a major milestone when the fortress team received notice that there are two primary aerial fire retardants.
Liquid concentrate and dry powder and officially been added to the U S Forest service qualified product list or <unk>.
This is an extraordinary achievement is fortress is the first new fire retardant company in over 20 years to accomplish such a listing.
And it comes as a result of a six year development effort in order to meet and exceed the U S Forest service rigorous testing criteria within such categories.
Environmental effects and toxicity to aquatic in mammalian species.
Erosion on a variety of aircraft metals burn retardation efficacy and other qualifiers in the form of long term store ability acceptable disc obsity probability and finally, the completion of a live wildfire operation.
Devaluation.
Building upon this positive momentum heading into the 2023 wildfire seasons. The next step is for fortress to be awarded an initial tranche of air tanker basis by the U S. Forest service were optimistic that such awards will occur ahead of the fire season, this year, but in order to be conservative we've not factored in the.
Associated financial results of such an award into our outlook.
They are ready to continue supporting fortress in their efforts to ramp up to full commercialization of their products with a focus on gaining measurable market share within this approximately $300 million revenues addressable market not to mention the profit pool in excess of $90 million currently served by a single market participant.
The recent <unk> listing was a major hurdle to clear all of our path to providing a magnesium chloride based products that is more environmentally friendly and has a greater efficacy than the existing die ammonium phosphate based product that has dominated the market for decades.
You'll recall that we increased our strategic investment in <unk> last year and currently own approximately 45% of the company.
We believe fortress is a bright future and we look forward to the business gaining market traction in the coming months.
Lastly, our final strategic objective heading into fiscal 'twenty, three was to enhance our financial standing and overall credit profile.
We took a meaningful step in that direction. This past October one we closed on a gross $252 million strategic equity investment by Coke minerals and trading LLC.
In addition to funding the first two years of our phase one lithium development.
Investment by Coke also allowed us to strengthen our balance sheet by paying down some debt during the quarter.
We expect to build on this momentum through the restoration of the salt segments profitability.
Which should result in additional deleveraging as our EBITDA rises.
So for the long term, we continue executing on our plan and are pleased with the progress being made.
Unfortunately in the shorter term, we continue to experience challenges, placing negative pressure on our quarterly profitability.
As a case in point, our first quarter results reflected a mixed bag in terms of business trends year over year, we saw an improvement in select financial measures with consolidated revenue, increasing 6% to $352 million.
Consolidated operating earnings up 37% and consolidated adjusted EBITDA around $62 million.
Up 6%.
We had a decent start to the winter deicing season with snow events in the first quarter in line with historical averages and significantly above last year's historically weak number of snow events.
This supported higher salt sales volumes, which combined with a 12% year over year price increase in highway deicing that we realized.
Resulted in stronger salt performance.
Within the plant nutrition segment, although pricing during the period held relatively firm at historically high levels demand was deeply disappointing and well below our expectations.
Driven by exceptionally dry weather conditions that discouraged fertilizer application in our largest markets in the western U S and customers deferring purchases in anticipation of the market softening.
Ironically weather conditions in California abruptly shifted from drought conditions during the first fiscal quarter ending in December to epic flooding in January at the beginning of our second fiscal quarter seemingly overnight.
As a result, our visibility related to near term Sop demand is currently speculative at best.
As it is not clear if growers will apply at historical levels.
Aside from the demand variability I. Just described there's also elevated uncertainty from a global perspective to what degree both MLP and macro fertilizer pricing dynamics may amplify this pressure.
Resulting in the need to recalibrate, our plant nutrition segment profitability outlook for the year.
Despite the challenges we are encountering as the fertilizer market enters a new phase of its cycle.
At a higher level nothing we see suggest the change in the long run through the cycle earnings power of our plant nutrition business.
Our salt business is delivering year over year improvements in our growth initiatives are advancing positively as we work to unlock the embedded value within our company.
As I consider this start to our fiscal year. It's clear we've got a lot of work to do both strategically and operationally to navigate these near term challenges as we do so our focus remains on delivering on our 2023 strategic goals controlling what we can control and.
<unk> to take steps towards creating value for our stakeholders over the long term.
We will also address the challenges being caused by cost pressures across the business by executing on opportunities to reduce our cost structure where appropriate.
Rise of apprised as large as measured by this combined intrinsic value of our salt plant nutrition lithium and next generation fire retardant businesses, and we remain confident in our plan and our ability to realize that value over time.
I'll now turn the call over to Laura Thank.
Thank you Kevin.
On a consolidated basis revenue was $352 million for the first quarter up 6% year over year consolidated operating earnings rose to $27 9 million up 37%, while adjusted EBITDA from continuing operations was $61 $8 million up 6% year over year, beginning with our <unk>.
Salt segment, Salt revenue totaled $308 million for the quarter up 12% year over year, driven by 10% higher price and 2% growth in sales volumes.
The highway Deicing business experienced 12% higher pricing year over year to just shy of $66 per ton and sales volume growth of 3% year over year.
Delivering growth in sales volumes reflects a relatively strong result, when you consider that our team deliberately took 9% fewer sales commitments as part of our value over volume commercial bidding strategy last year.
A key driver of the positive volume development was weather, which improved year over year we.
We experienced solid winter activity on average across our markets, but lower than projected sales to commitment ratios in certain key areas, such as Detroit, Milwaukee, and Chicago, where we have relatively heavy commitment levels.
These areas experienced somewhat mild weather and relatively low quality events during the quarter.
Across the 11 representative cities, we've discussed in the past.
43, snow events were reported during the quarter up 48% year over year and in line with the 10 year average.
Within our C&I business volumes declined 2% year over year, driven primarily by the timing of water care sales and slightly weaker consumer deicing demand.
While price rose, 9% to approximately $190 per ton.
Higher fuel and logistics expenses drove per unit distribution costs, 14% higher compared to last year.
Operating costs were higher by 6% year over year to approximately $45 per ton, reflecting the 2022 inflationary environment embedded in the cost of goods sold of our highway Deicing salt now being sold out of inventory.
Overall this translated into higher operating earnings and EBITDA for the Salt segment with operating earnings rising 20% year over year to $47 1 million and EBITDA rising 10% to $61 million as Kevin discussed earlier, our strategic objective of ours. This year is to restore the profitability.
<unk> of the Salt segment back to levels that we've historically realized we made progress on that goal this quarter and continue to see a path towards achieving profitability in the range of 19% to $20 of EBITDA per ton assuming normalized winter occurs the rest of the second quarter with the second half.
Higher than the first reflecting the fact that our higher margin per ton C&I business makes up a greater percentage of our revenue in the second half than it does in the first.
Turning to our plant nutrition segment grower purchasing behavior had an adverse impact on sales volumes, resulting in weak revenue for the quarter.
More than offsetting higher sales price.
Specifically revenue declined 24% to $41 6 million.
Driven by a 46% decline in sales volumes.
We believe there were two significant dynamics in play here.
Deflation.
And drought conditions across our primary served markets regarding deflation during the quarter buyers appear to defer purchases on the expectation that fertilizer prices will continue to come down from the recent highs we have seen over the past year.
In our experience during deflationary environments, especially early in the application season is not uncommon for customers to wait as long as possible to by displaying real time purchasing characteristics more or less and we believe this dynamic was in play during the quarter.
Regarding the second driver of lower volume drought conditions are major markets for our premium Sop products are on the west coast, which broadly speaking experienced exceptionally dry weather during the quarter.
We believe this caused farmers to defer purchases as they typically want to apply fertilizer. When there is sufficient moisture available to efficiently deliver sop into the soil.
Distribution costs increased 19% year over year on a per ton basis, due to higher fuel rates and fewer sales volumes to absorb fixed rail fleet costs. Similarly.
Similarly, operating costs were up 26% year over year, due primarily to the inflationary environment over the last year.
From a profitability perspective plant nutrition EBITDA came in at $19 $3 million up 5% year over year, despite lower sales volumes and higher product costs on strong pricing, which rose 40% to roughly $924 per ton.
In terms of cash flow.
The most notable event during the quarter was closing the previously announced investment by Coke minerals and trading of $241 million net of fees, we've earmarked approximately $200 million of the net proceeds towards funding. The first two years of spending related to phase one of our lithium development.
Additionally, this transaction allowed us to reduce debt and puts a meaningful amount of cash on our balance sheet, both of which improve our leverage profile as reflected by net debt declining by approximately 24% to $686 million.
Turning to our outlook for the rest of the year beginning with salt.
On our last earnings call, we shared a modified approach to providing EBITDA guidance for salt shifting away from assuming normal winter weather at the beginning of each year.
Instead, we're now providing a range of potential earnings outcomes that consider various winter weather scenarios with EBITDA projected to range from a low of $175 million in the event of a mild winter to a high of $275 million in the event of a strong winter and between 215 and 200.
<unk> $55 million in between with that middle range reflected of profitability levels in the event, we experienced snow events and sales to commitment ratios in our core markets in line with long range historical trends.
The range shown for the Salt segment remains unchanged.
However, four months into the year. We now believe results are more likely to come in below the midpoint of the 2023 range for sales volume revenue and EBITDA.
The factors shifting profitability below the mid point relate to volume and cost.
From a volume perspective in aggregate across our core markets.
First quarter was decent weather wise as I indicated earlier, but.
But sales to commitment ratios and certain of our core U S North markets, Milwaukee, Chicago, and Detroit, where we have a disproportionate book of commitments were below trend.
<unk> into an EBITDA drag versus normalized levels, we had 42 snow events in our core markets in January which is in line with the 10 year average.
It's worth pointing out however that while this deicing season has tracked with the 10 year average for snow events.
Those have generally been what we would describe internally as lower quality snow events.
No events that are clustered into a short time periods are not as impactful as the same number of events spaced out over a longer period.
More high accumulations can actually discourage salt application.
An example of this was the series of winter storms that hit the Buffalo area earlier in the season.
Furthermore, snow events surrounded by periods of warm weather are considered lower quality when compared to events surrounded by cold weather.
So far this season, the snow events that we've experienced.
Have been followed by relatively warmer weather.
As we look at the Deicing season to date.
No events in aggregate have been normal but.
But we would characterize this year's snow events, particularly within the U S market, where we have somewhat outsized commitments as relatively lower quality overall.
These year to date trends weather-wise are contributing to earnings power for salt trending below the midpoint of the 2023 range.
We also see salt trending below the midpoint of the 2023 range due to slightly higher cost trends year to date.
We've experienced higher natural gas costs in 2023 related to the supply and demand dynamics impacting the regional gas pipeline, serving our Ogden facility.
Extremely cold weather drove a surge in demand from energy producers draining already low regional inventory levels.
Prices have now stabilized in the region.
While our hedging program for Ogden has historically been highly effective in reducing the volatility of natural gas costs. The dynamic in play temporarily rendered our hedges ineffective we've.
We have since re calibrate our hedges to protect us in the event a similar episode presents itself in the future.
Our full year outlook for plant nutrition from an EBITDA perspective is lower and wider versus our prior guidance our COO.
Current view of profitability outcomes ranges from 30% to $60 million of EBITDA compared to our prior range of $55 million to $70 million.
Investors should interpret this widening as reflecting higher uncertainty.
And lower visibility than we had heading into the year.
Given this reality, we developed several scenarios to inform our range.
The lower end of the range reflects the prospect of volumes tracking well below the five year average for this segment, while simultaneously pricing declines in the second half to levels approaching the 10 year average for this business.
The midpoint of the range reflects the scenario where volumes are roughly three quarters of the five year average for this business.
While second half Sop pricing tracks near the average price we experienced in fiscal 2022.
Higher end of the range reflects the scenario, where our western markets bounce back quickly volume wise and global MLP in Sop pricing trends reversed themselves due to supply demand dynamics, resulting in MLP pricing bottoming near current levels, then rising the second half of the year.
This fluid and uncertain backdrop, we are preparing for each of these scenarios, while maintaining a focus on agility.
And controlling what we can control.
Cost wise per unit production costs for the balance of the year and plant nutrition will be higher than expected due in part to the same increase in natural gas costs at Ogden I described earlier, our solar evaporation pond complex, and Utah produces salt and Sop and Mag chloride, therefore higher production cost there.
Impact the profitability of both the salt and plant nutrition businesses.
Turning to our Capex guidance in line with our lowered overall profitability outlook.
We have lowered our spending plans by $10 million at the midpoint to the 165% to $220 million range, notably our expected spending on lithium is unchanged from our prior estimate of $75 million to $120 million to be funded by proceeds from the recent coke transaction. However.
Sustaining capex has been lowered by $10 million at the midpoint to a new range of between 90 and $100 million.
As far as the mix of Capex spending by quarter, we expect the cadence of lithium spending to be very second half weighted with approximately 80% occurring in the second half while sustaining capex.
As expected to show a pattern split roughly one third first half and two thirds second half.
Kevin already outlined the positive news regarding two are fortresses products, achieving <unk> status. However, I want to reiterate that we have no positive EBITDA contribution from fortress baked into our outlook.
We assume fortress is a drag on our results. This year profit wise, but are working closely with fortress to assist them in their efforts to be prepared to fully capitalize on their recent success upon receiving their first base allocation, which could occur this wildfire season.
Finally, as a reminder, whereas in the past we issued two reports of year one in January and one in April we will no longer issue stand alone Snow reports as press releases, but we will continue to provide perspective as we have today.
As part of our first and second quarter earnings calls.
With that I will turn it back to the operator to open the lines for Q&A.
Operator.
Thank you.
At this time I would like to remind everyone in order 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 Silver with CL King Your line is open.
Yes, hi, good morning.
I have a couple of questions on the Salt business and then maybe I would like to follow up with a general question about the great Salt Lake.
But I was hoping you might provide a little bit of color on the comment in the press release regarding sales to commitment ratios.
Term that I haven't heard too often in the past and just wanted to make sure I'm not.
Missing something but.
I guess theres always been minimum and maximum volume commitments and your contracts and there have been periods, where the March excuse me. The June quarter has seen some makeup volumes where the volumes are unusually low so could you just talk about how you.
You're tracking of the sales to commitment ratios is impacting your.
Your commentary earlier about.
How the entire winter deicing season might play out thank you.
Hi, David Good morning, Kevin.
Maybe Jamie is probably best suited to handle your question around sales to commitment ratios, yes, so David when we say sales to commitment ratio we're talking about.
When we go out and bid all of our commitments over the history of time, we expect average weather to deliver a certain percentage of those commitments. So in some of our northern markets. It tends to be a higher sales to commitment ratio.
And some of our southern markets. It can be lower so it can be 95% and some northern markets and average can be lower in southern markets, where there's less less snowfall less activity. So you can have averages that are 75% or 80% and so when we talk about how we're tracking toward our <unk>.
Stuart will sales to commitment ratio, that's what we're talking about so thus far this season.
The winter weather snow events in the 11 cities was was right on average.
And big and because of the quality of some of the events and so our actual sales commitments have been lower than the historical average so it varies across the.
The network.
In the Lake Superior area, it's been actually quite strong they've seen a lot of snow up north and the upper upper peninsula of Michigan.
Or portions and eastern portions of Minnesota.
We've also seen strong sales to commitments and some of our southern markets on the southern Miss actually in the Western Ohio, but when you look at Michigan when you look at.
Northern Illinois, and our eastern markets, they've experienced lower than historical sales to commitments. Thus far this season.
Does that help.
Yes, I think so so it's kind of within that upper band and lower band and where it falls there sorry upper band the lower band of the volume commitments.
And how that plays out.
But separate from separate from the minimums and Maximums concept. This is this is just really purely trying to explain and talk about how above or below we are from a historical basis.
Alright, and then one other question probably for Jamie but.
This has to do with maybe spot versus contract pricing for the de icing salt business. So.
In the past during very heavy snowfall.
High quality snow event type number seasons.
The the call or the ability to kind of supplement the contract volumes has given us some pricing flexibility, let's say.
Okay.
With the volatile cost situation could you.
Is it a fair question to ask if.
Your expectations are like that the spot sales however, active they may be.
<unk> be priced above you are.
Typical contract volumes or might might the spot fall of the spot price for incremental volumes fall below.
But the contract dual commitment delivered prices. Thank you yes.
Given the circumstances, you should expect them to thus far because winter hasnt been robust because we haven't.
<unk> sold our commitments are gotten into fully delivering under our under our contracts. Once you fully deliver on your contracts spot prices come after that point. So we haven't seen whether to really drive that what we have done though in our contractual negotiations through last summer when both municipalities state bidding process.
As well as our commercial negotiations we've captured a recapture of inflationary pressures through our pricing actions, which is which is.
Which youll see is this winter continues done old and is embedded in the 12% bid season price improvement that we were able to achieve which includes both commercial activity commercial customers.
Commitments as well as the bid commitments that we that we do annually hi, David Let me add a little bit of color to jamie's comments as well I mean to the extent that you experienced a season, where you sold through the upper end of your committed level, which is typically 120%.
Initial arrangement that would imply that you are having a pretty tough winter from a.
A good winter from our perspective, and thus you could fully expect spot prices to be in.
Excess contract price.
I think it would stand to reason that.
What fair market value for those that next ton would be above that I think would be speculative, but I think it's easy to say or.
Safe to say that it would be it would exceed the contract price.
Our ability to earn.
The margin on that incremental.
Given the fixed cost absorptions artifact era.
Much more powerful than under contract scenario.
Yes, no no. Thank you for that color and I agree usually it's a question when.
<unk> is quite strong.
Was thinking of it a little bit more at this time.
Related to the cost.
The volatile cost elements.
For all the color last question would be kind of a general question really kind of about the great Salt Lake So.
I am tapping in a little bit to the <unk>.
National headlines, but.
The Governor of Utah recently issued an executive order.
Kind of.
Involving berm heights, and other complicated things, but maybe to direct more water into parts of the great Salt Lake.
And.
I know times limited here, but I was just wondering if you could take a couple of minutes, maybe just sketch out the broad strokes of what seems to be a high priority issue for the governor there involving the.
Management of the Great Salt Lake and if you wouldn't mind, what is your base case and what might be.
Best case worst case scenario from Compass minerals perspective on that thank you.
Good question, David Thanks for bringing that up.
We've obviously.
As any surprise to you that we've worked closely along with.
The government agencies in Utah as it relates to the executive order and what will ultimately become.
The burner management plan, we've been an active operator out there.
50 years, and working proactively with both the DNR and the.
Q.
As it relates to this burner management plan so again.
Point number one unanswered questions yet till the firm management plan.
Just decided upon again gets put in place.
The second point I would make is with.
Based on what we know right now.
We expect.
Temporary short term raising of the burn right to have a de minimis impact.
On our operations in 2023.
Largely a function of the.
Above average rainfall that we've experience out there over the last few months.
And additionally, the snowpack that the governor reference and as.
And his executive order is kind of running about above average so we would expect so.
Very efficient spring run off so.
That's kind of point to we don't expect any.
De Minimis impact in 2023, and then the third point I'd make is we will continue to work very closely with regulatory authorities out in.
Utah as it relates to the development of this burner management plan, but as a public company, we have stakeholders that have.
Interests that we will protect.
Up to and including.
First the pursuit of legal action if necessary, we certainly would.
<unk>.
What happened and certainly hope that that doesn't happen, but we certainly reserve all of our rights in that regard to predict our mineral and water.
Water rights interest out in the great Salt Lake, which are very valuable.
So hopefully that gives you some background. Thank you for that question.
Much appreciated thanks for all the color.
Thank you.
Okay.
We will take our next question from David Begleiter with Deutsche Bank. Your line is open.
Thank you and good morning, Kevin just on highway Deicing pricing in the quarter up 12% why was it below the 15% you have.
I guess contracted in for the full year.
I think maybe Jamie could add a little color, but I think part of that is a function of just just timing yes.
Yes.
Yes, I'll jump in there Kevin this is Jamie.
Theres always customer mix when we when we complete our bid season, we analyze the average price across the entire portfolio.
If we get.
Stronger weather or weaker weather in a region that happens to have higher prices or lower prices that will manifest itself as as a variance from our from our bid season expected pricing outcome.
Understood and just on the EBITDA guidance for Salt.
Below the half below I guess below the midpoint of the range, but given where we are today in the winter and given the long term forecast is there the potential for this to be a mild winter and EBITDA.
Most of the bottom end of that range you've articulated thank you.
So what we shared to date David is that based on the winter to date I would say through through January .
Due to the sales to commitment dynamic that Jamie referenced.
We believe we will be below that midpoint, which is $2 35.
The balance of the winter is before us.
<unk>.
Like I always say in terms of the Bell curve. There is no reason for us to believe that it won't be a.
Normal winter, where February and March and so we could very well fall closer to the right side of that page then the less it just depends on how the winter transpires Jamie that's.
That's exactly right yes.
10, 12 weeks of winter lift than it.
It seems like.
If history is any indication that.
Seasons are a little delayed and I'm not projecting it's going to be a strong remaining part of the season, but it seems like the best.
Progressing well into March and sometimes even April so I would say that we've got.
Yes, 12 weeks of winter left which will drive where we fall on that bill.
Bell curve David.
Understood. Thank you very much.
Yeah.
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. Your line is open.
Hi, everyone. This is Joseph on for Joel.
First in terms of fortress is it still going to be a negative 5 billion EBIT contribution for fiscal 2023, and also what would a reasonable contribution range look like for fiscal 2024, and what would have to happen to reach the high end low end of that range.
Yes, as our base case heading into this year on the order of magnitude of that $5 million is is what we've got baked in.
And the extent to which that improves is a function of the timing of when <unk>.
<unk> has received its first.
Base allocation and so to the extent that that happens this side of the wildfire season.
And we're able to execute then you could see that drag I would say diminish as you think about the future.
I go back and say, we think the overall profit pool here is in that $90 million to $100 million range, and so and as much as it is our objective to get a very substantial portion of this market whether it be a third 40% or 50% you can do the math on.
The implications of that on our EBITDA, which is pretty substantial and so we wont speculate about base allocations and our success, but it is.
The size of the prize is pretty significant.
Okay. Thanks for that and then could you also please just explain what's going on with a higher tax rate this year and what would a normalized tax rate look like for 2024.
So in terms of taxes, our tax rate.
He is higher despite our profitability being lower.
And that's a result of really our earnings mix, if you think about <unk>.
Our guidance today.
Our outlook today, we're really not taking down saw very much and a lot of that profitability happens in Canada, where we have some of our higher tax rates what were taken down largely as plant nutrition, which a lot of that profitability occurs in the United States, where we project that we'll have.
Losses.
In the United States and as a result, we won't be able to take those losses as a deduction and so that's why the numerator there is sticky.
And despite the profitability going down and so on a normalized basis.
From a cash tax perspective, I would say something in that 25% range is a good number to use from a cash flow perspective.
On a normalized basis.
Okay. Thanks for that and then one more if I can.
Just seeing that GM is not willing to pay upfront in terms of prepayments and equity Stakes and use lithium assets does that make compass wanted to reassess and we'll use it as the daily process needs to be proven out a little bit more before the company.
Pursue some upfront capital.
I'm, sorry, I missed the very first part of that question would you mind repeating it.
Sure sure no worries.
You're seeing that GM is not willing to pay upfront for prepayments and equity Stakes and use lithium assets does that make compass wanted to reassess. Its current Mou user does the daily process just needs to be proven out a little bit more a little bit more.
Yes. Good question I mean, I think the bottom line around that investment is that's quite quite compelling news and I think it's just a testament to.
How much people, what north American source lithium in the future and it's a testament that one of the iconic.
Car brands in the U S is willing to write a check.
<unk>.
As it relates to our offtake agreements I mean, we're certainly open to various structures. We have one that's in the bag already with LG, yes that we've talked about and we continue to prosecute the second one.
With another iconic.
Our brand here in the U S and would hope to have that resolved.
The.
Next few weeks, but I think the agreements that we are working on.
Ryan and Chris are here.
Jim.
Add some additional color, but I think we're pleased with our agreements.
The way they are structured and the potential profit pool that that will create for us in the future.
Would you want to add anything to that road, yeah, I can add to that just a little bit Joseph So I think as Lauren has iterate it before.
Off take of prepaid off take agreement type of arrangement isn't necessarily off the table for compass, but we do believe that it's important for us to prove out the DLA technology with this commercial scale unit, which we think gives us a more attractive lets say cost of capital as opposed to giving that upfront when perhaps the the <unk>.
Central Investor May perceive higher risk in the project due to DLP. So as Kevin said, we're open to any form of arrangement, but we feel it's prudent for us to make the hit the next milestones before we would engage in a prepaid uptick.
Okay. Thank you guys.
And we will take our next question from Vincent Anderson with Stifel. Your line is open.
Yes, thanks, everyone.
So if youre able to I'd, just kind of wanted to reset the stage a bit as we get ready for the FPL too.
Yes, <unk> had very wide confidence ranges I think it's like plus or minus 30% across everything but.
If we were to just look at your modeling on things like reagents and absorbent polymers are you able to maybe just speak to your relative level of confidence in those values versus other parts of the engineering and design.
Just.
If the FPL one is simply mandated to have that confidence range kind of regardless of what the reality might be.
Yes.
Chris.
To address that Vincent thank you.
This is Chris So you are correct.
<unk> had a wide range.
At minus 32, a plus 40.
And if you recall kind of the middle of that range was the $262 million.
So if you look at that plus 40, you get somewhere around $367 million with regards to overall capex.
Typically what you see is projects do increase from an <unk> part of that is just the engineering aspect in the refining of the process and that kind of answers the question as well around the opex.
And the one you're around two.
2% to 3% engineering and Youre looking at.
Utilization of reagents EG progressed to an NPL to you get more defined than that you find things and that process that you have to take care of through product specifications and you have to put.
Unit equipment in to do that so we expect that the cost per ton of reagents, probably stays about the same maybe a little bit more due to inflationary aspects, which would also.
Expect to impact the overall NPL too I think if you recall the one we've done in that.
Early 2022 time frame and so the full year of inflationary.
Aspect did not hit in that cost estimate, which we expect to manifest in the <unk>.
Does that answer your question Vincent.
That's helpful.
I guess, maybe what I was getting at a little bit more specifically is.
On the utilization from a volume perspective.
When it comes to unit cost just you mentioned that there is it sounds like there is maybe a little bit of Capex creep from FBL wanted to FBL, two but do you see something similar on.
On the engineering around the reagent use.
Or is it very much down to what they find and we'll just have to wait for the report.
I think it's better to wait for a report, but what I would say is.
What we would expect is to see probably a different utilization.
Really different than what we announced.
Okay.
Helpful. Thank you.
And then if I.
Thinking about fortress now that we're getting a bit closer to two revenues here are well earnings.
Can you just talk about the relevance of the tankers that are used in fire suppression.
Kind of influence they could have on the adoption of your products. If they had concerns or consternation over changeover time between your product and perimeters product or mixing trace amounts of <unk> products with the other.
Is there just kind of a gray area in the whole the whole process I was hoping you could speak to their influence.
Hey, Vincent this is Jamie I'll address that one so so so co mingling is what you're referring to.
When you perhaps have an aircrafts going from one base to another and would be using our product after having used perimeters product.
Exactly there are standard protocols around how to rinse the tank how to prevent any issues.
First like dimension.
The fortress products have have passed with flying colors any corrosion testing.
So thats a non issue when you have some co mingling you end up with some some residue in a tank. So it's simply a rents process and a reload. So we don't view it as an issue we think its very very manageable by by base operations.
For tankers coming into.
Competitor bases and competitor tankers coming into into fortress basis, So very manageable and we're off.
On the QTL and we passed all the tests so.
It should not be an issue.
Okay excellent.
I'll leave it there and turn it over.
Just 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 My next Crespi. Your line is open.
Hey, good morning, everyone.
Alright, I tried to figure out the the higher production costs.
Gas.
Then.
It kind of made it sound like that was a <unk>.
<unk>, that's kind of over now but.
It seems like that factored into the lower guidance for both segments for the full year and I know obviously it impacted the quarter, but is it going to is that are those higher production cost is going to continue through the year or is there something else thats creeping up in production.
Or maybe I just misunderstood it completely.
Sure sure.
It was a relatively temporary sort of episodes, but it will flow through our cost as inventory is sold.
And because our Ogden.
Asset.
Produces products that benefit both our C&I business as well as our plant nutrition business you will see commentary.
Regarding natural gas costs for both businesses I would say, it's probably 80% skewed towards plant nutrition in terms of the dynamic, but youll see that flow through as our inventory turns and that episode.
Is now behind Us and.
And we also have hedges that we expect to provide us with good protection.
Got it that makes sense.
And then soft highway Deicing salt.
It seemed like I thought when I look at some of the data that the snow was particularly heavy in areas like AR and both like Toronto, Montreal, Ottawa and Montreal Might've had records. Those in January are those markets smaller for you nowadays or was it a self commitment levels issue there or.
I remember that in the past I think they might have had some longer term contracts. So have their pricing not caught up to maybe where you would want it to be is that why we're not seeing an impact from I think the start of the Canada is getting.
No I think I would say in Ontario, no year to date has been been pretty average.
In Quebec, it's actually been a little bit below average.
Area, where typically has strong whether you've noted that it was particularly good there were a good couple of weeks in January for sure but.
You have to look at the entire portfolio and the mix of weather across all of it. So that's always always going to cause some volatility like I said, it was particularly strong year to date in the southern.
Along the Mississippi generally the western Ohio, even even the Tennessee River. So our southern markets have had a bit more weather than normal and so those sales commitments are higher.
Canada in general is is pretty close to average a little bit below.
With Ontario kind of right on right on average sales commitments.
Okay and then.
Yes.
Turning to fortress first stack also.
You characterized the profit market or the profit potential there the whole market is 90 to 100.
Is that including.
So you'll be selling mag chloride to them.
Is there.
Does that include sort of the that that estimate of the market include what you could do sell or profits you would get from selling more mag chloride or will you not be selling more of that quality.
<unk> <unk>.
Redirecting it from another customers.
No.
Have mag chloride capacity at Ogden, so it would be supplemental or incremental to that.
And I don't want you to read too much into the profit pool, because youre talking about our competitors' margins et cetera. So Don so don't imply that our cost structure would be the same as our competitors. So we're just trying to provide sort of a scope of the size of the prize in terms of <unk>.
Revenues gallons and what the prophet profit pool is but I think when you look at our.
Cost structure.
Relative to our competitors.
We would expect our profit margins to be pretty healthy as well.
Just specifically about the Mag chloride, though like if you were to get half the market. I mean is that a significant amount of mag chloride youre selling relative to what you saw now I don't know what the sort of volumes are.
I mean at half if we were to achieve paas market share it represents less than 10%.
<unk> chloride that we're currently produced at our Ogden, So it's not difficult for us to be able to handle that kind of incremental capacity.
That's what I was wondering alright, thanks a lot.
Yes. Thank you.
And there are no further questions at this time, so I will now turn the call back to Mr. Kevin Crutchfield for any additional or closing remarks.
We appreciate everyone's interest in compass minerals, we look forward to keeping you updated and please don't hesitate to reach out to Brent.
In the interim if you have questions. Thank you so much for attending today.
And ladies and gentlemen. This concludes today's conference call. We thank you for your participation you may now disconnect.
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