Q3 2023 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 fiscal third quarter 2023 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.
If you'd like to ask a question. During this time simply press Star then the number one on your telephone keypad.
Withdraw your question. Please press star one again.
You read the college VP of Investor Relations you may begin.
Thank you operator.
Morning, and welcome to the Compass minerals fiscal 2023.
Third quarter earnings conference call.
Today, we will discuss our recent results and update our outlook for the remainder of 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.
Jamie Standen, our chief commercial officer.
And Christian Bayle, our head of lithium.
Before we get started I'll remind everyone that the remarks that we make today reflect financial and operational outlook as of todays date August nine 2023.
These outlooks entail assumptions and expectations that involve risks and uncertainties that could cause the company's actual results to differ materially.
A discussion of these risks can be found in our SEC filings located online had investors compass minerals dot com.
Our remarks today also include certain non-GAAP financial measures.
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.
Unless noted otherwise.
I'll now turn the call over to Kevin.
Thanks, Brad.
Good morning, everyone. Thank you for joining us on our call today before jumping onto the call for our employees that are listening in today I want to recognize the outstanding safety performance that you've continued to achieve.
We make safety a top priority because it's the right thing to do for our people and it's also the right thing to do for our business George and his team have brought significant and focused leadership to strengthen our safety culture here at compass minerals to keeping ourselves and our colleagues safe is a responsibility we all share.
In a complex operating environment that we work in achieving zero harm is difficult standard to me that you continue to prove it's attainable.
For your efforts on this front and please keep up the excellent work.
I'll now make a few comments on our progress on a number of strategic objectives before commenting on the quarter.
Loren will then review our financial performance in more detail.
Restoration of the profitability of the Salt business to historic levels was an important goal for the company this year.
Year over year, adjusted EBITDA per ton for solid increased by approximately 50% to slightly over $24 41.
And we also meaningfully improved our EBITDA margin percentage.
This improvement was driven by better pricing we.
We saw increases of 16% and 5% and average selling price for highway Deicing and C&I respectively.
Over a year.
We've talked in previous calls about the importance of reclaiming $20 a ton of EBITDA within our salt franchise.
The teams have done a great job of answering that challenge.
Back on track that we remain focused on continuing to further enhance our profitability in that segment.
Moving to our focused growth initiatives, we continue to advance our lithium project on the great Salt Lake during the quarter in.
In May we announced that we had signed a binding multiyear agreement with Ford Motor company to provide them with up to 40% of our planned phase one battery grade lithium carbonate.
Once production begins.
Florida is a trusted leader in the automotive industry and we appreciate their confidence in our project at Ogden, serving our role within their electric vehicle strategy.
With Ford and our agreement with LG energy solution in place, we now have 80% of our planned production from phase one committed.
Initial steps to advance construction on the commercial scale daily demonstration unit proceeded on schedule during the quarter as well.
This unit, which is sometimes also referred to as the desk guard unit or the DJ or it will be the first of four daily units contemplated for phase one.
We continue to expect to be mechanically complete with that unit by calendar year end.
It will begin commissioning in the first calendar quarter of next year.
We also pushed ahead on a number of broader phase one activities during the quarter.
Such as additional Earth work in construction permitting.
As we explained last quarter, we won't be sharing any new cost or economic projections with regards to the lithium project until we have clarity and certainty on several items that came out of the Utah legislated.
And earlier this year.
Youll recall that on our May earnings call, we discussed how Utah House Bill $5 13 introduced a number of changes to the regulatory regime that will govern lithium development on the great Salt Lake.
Since that Bill's passage.
Been actively engaged with political and regulatory leaders in Utah as rulemaking is undertaken by the relevant state agencies.
While we therefore wont be making any updated economic cost disclosures today.
With regard to our lithium project.
Did want to provide a bit of color directionally as we understand some time has passed since we disclosed our preliminary <unk> estimates about a year ago.
We continue to refine the engineering and the associated estimates that will allow us to eventually update our project economics from what we published last September and I'll share a couple of observations as the plan for phase one is continue to develop.
First we're still tracking very closely with our original timeline, which we expect will enable us to begin operations in 2025.
Second and this won't be a surprise to any of you that we've been following another project developments in the lithium space cost inflation over the past two years for these types of projects has been meaningful.
We continue to work with our engineering partners on developing the plans that will ultimately underpin our next round of disclosures, but investors should expect that construction costs will exceed the upper end of the range that we provided in our <unk> estimate.
We look forward to sharing more on this topic. After we've reached resolution on all critical development elements directly with the state of Utah.
Changing gears to our other primary growth opportunity I'm pleased to be able to share some exciting updates with regard to fortress.
As we announced last quarter, we acquired the outstanding 55% and fortress in May of this year, bringing our ownership stake to 100%.
This occurred shortly after they signed a supply agreement with the U S Forest service.
Using their advanced mobile units fortresses supporting up to five air tanker basis with product and associated services. This 23 fire season.
In June fortress began dropping product at an Arizona airbase marketing fortress first commercial sales.
Being added to the Forest service qualified product list and late 'twenty two.
As expected the feedback we've received regarding both the performance of the products and the execution by the fortress team has been extremely positive.
Subject to quarter end.
We are working on three additional assigned basis.
One in Montana, one in Washington State in the U S Forest service base in California.
In fact, the U S Forest service recently deployed in aircraft out of our base and San Bernardino, California to drop fortress products on the rapid fire and Riverside County, marking our first drops in California.
Most recently fortress has been active in combating fires in the Mojave Desert.
The team at fortress continues to work on its next generation of products.
105 will eventually replace Fr 100, as the company's primary powder retardant offering we.
We expect that it will deliver improvements with regard to visibility environmental impact.
105 is undergoing the continuation of operational field evaluation that began in 'twenty two and to date has dropped approximately 65% of the required 200000 gallons.
We're well on our way to completing the required OSB volume this summer.
Looking ahead, we're currently in discussions with U S Forest service regarding the contract through 2024 and beyond.
We also meet regularly with Cal fire and Canadian firefighting entity, and we expect to be bidding for contracts for the 2024 season.
One note on Canada.
Given the recent wildfire activity there in recent months, we've received a number of questions from investors regarding our ability to compete in that geography.
U S Forest service <unk> is used by their entities as well. So our products are qualified for use in Canada, and we expect to be able to sell into that market starting in 2024.
We're off to a good start with fortress and we're excited about the counter seasonal growth potential that the business can provide for the company.
On the last quarterly earnings call I spoke a little bit about the refinancing we completed in May I won't rehash those details today, but that was technically a third quarter event. So I want to acknowledge that important effort.
Enhancing our financial position.
The final strategic objective that we set for fiscal 'twenty, three and I am pleased that we were able to achieve that despite the challenging environment.
Before turning the call over to Lauren I'll make a couple of comments about the quarter.
I'll discuss salt earlier, my strategic commentary and those results helped drive strong performance during the quarter.
We deliberately chose not to pursue certain business and last year's bid season. So that we can improve our profitability and that value over volume strategy has worked very well in.
In the C&I business, we've done a great job of leading on price.
It's a very solid quarter from the salt business.
In contrast, the plant nutrition business has seen a number of external headwinds this year.
From a macro point of view buyers are simply being very cautious buyers.
Buyer sentiment has clearly shifted toward a fee.
Fear of getting stuck with higher cost inventory and we're seeing lots of just in time purchasing behavior.
Whereas a year ago growers, we're concerned about.
Being able to secure supply today, there is no concern on that front.
You can see the impact this has had on MLP prices throughout the year.
Which in turn has put pressure on sop prices.
While <unk> is a premium product and is preferable by growers in many applications.
Pricing is not immune to the dynamics of the MLP market given that there is some substitution that can occur.
These dynamics have been further exacerbated by the lack of demand.
Caused by the abnormal weather in California that you've heard us talk about in previous quarters.
This is frankly, a rest part of the cycle and we simply have to manage our way through it.
On a positive note we've done a good job maintaining price given what is happening with MLP prices.
Frankly exceeding our internal sales price forecast despite the market pressure we're experiencing.
Based on some things that we're seeing in the market. It does feel like we're close to finding a floor on MLP pricing, which would obviously be a welcome development for holding Sop price as well.
While these weather related factors have challenged our sales efforts this year.
Worth pointing out that operationally things are going well at Ogden.
Year to date, we've not had any significant production issues and we're tracking in line with our internal production target, which has allowed us to replenish our inventory.
All in all we don't see any structural changes with respect to S. Opiate use in demand in California or elsewhere for that matter.
Based on what we're hearing our expectation.
That demand will revert to more normal levels next year.
And that would be constructed to sales volumes in 2024.
All in all we had a solid execution in the third quarter across a number of our businesses. While we continue to make progress on positioning the company for accelerated growth in the coming years, our management team is committed to growing and enhancing the value of the company and the third quarter was a successful quarter in our pursuit of that objective.
I'll now turn the call over to Lauren who.
Provide more detail on the quarter lower.
Thank you Kevin.
As a reminder, the seasonal nature of our business becomes more obvious in the third quarter as winter subsides, and we see the impact of the decline in highway Deicing sales on a consolidated basis revenue was $208 million for the third quarter down 3% year over year.
Third quarter consolidated operating loss improved to zero point $6 million from a loss of $3 $5 million last year, while adjusted EBITDA from continuing operations was $28 $6 million essentially flat year over year.
We reported net income of $40 million for the quarter driven by a $43 million tax benefit that reflects our recent acquisition of fortress and recent changes in Canadian tax law, specifically the fortress acquisition impacts our U S tax profile quite favorably as we are now able to utilize net operating.
Losses, and interest deductions that are prior U S income outlook did not call for us to be able to utilize while also enabling us to reverse a portion of the deferred tax allowances, we had taken in prior quarters.
Starting with the Salt segment Salt revenue totaled $156 million for the quarter, which was essentially flat year over year, despite volumes being 11% lower reflecting strong salt segment pricing, which rose 12%.
The highway Deicing business saw sales volume declined 13% year over year.
<unk> heard us talk about focusing our efforts on more valuable business over the last year, even if that means giving up some volume that.
That strategic pursuit combined with the impact of a below average winter within the markets that we serve explains the decline in volumes year over year price.
Pricing for highway Deicing rose, 16% year over year to approximately $74 per ton and was an important contributor to the improvement in profitability that I will speak about in a moment.
Within our C&I business volumes declined 7% year over year, driven primarily by the timing of non deicing demand.
This was partially offset by higher C&I pricing, which rose by 5% to approximately $182 per ton.
The C&I business has done a great job this year at maintaining positive momentum on pricing in its markets.
Distribution costs and all in product costs on a per ton basis increased 4% and 5% respectively year over year.
The salt that was sold in the third quarter was produced and moved to depots in 2022, a period of time when we saw strong inflationary pressure on costs. So there is a delayed impact that you see flowing through.
Operating earnings for the segment were $21 $7 million in the quarter, an increase of almost 75% year over year.
Adjusted EBITDA came in at $36 $4 million, an increase of 31% year over year.
Adjusted EBITDA per ton was $24 41, which is in line with historical levels of profitability as Kevin discussed earlier, restoring the profitability of the Salt business was a strategic objective for this year that we are pleased to have successfully accomplish.
Turning to our plant nutrition segment, the lingering impacts of extraordinary weather.
We experienced this year continued to impact our sales those sales for the quarter were roughly in line with our expectations. We had hoped that applications of SLP that under normal conditions would have been applied in the first and second fiscal quarters might shift to later in the year. Unfortunately that didn't materialize with sales volumes down 6% year over.
Year.
And as Kevin mentioned, there has been a change in sentiment over the last several quarters that has impacted pricing.
In the third quarter, the average selling price was $750 per ton down 9% year over year and 6% sequentially.
The combined impact of lower volumes and lower prices was that revenue in the quarter was down 15% year over year to around $48 million.
Well that is obviously not great for the current year. Our view is that it sets us up for a positive 2024 from a volume perspective generally we believe that applications have not kept pace with the mining of the soil that occurs through normal growing conditions and that the extraordinary weather conditions that occurred this year.
Seem unlikely to repeat themselves in fiscal 'twenty four.
As a point of reference, California, just experience the seventh wettest year in the past 129 years.
Clearly qualifies as extraordinary.
One benefit of the slowdown in Sop sales is that we've been able to build in forward deploy some inventory across our warehouse network.
Picking a distribution during the quarter, we saw those costs decrease on a per ton basis by 8% year over year as.
As we saw a higher proportion of sales being picked up at our warehouses as opposed to being delivered by the company.
I would note that this dynamic can also influence price and that we will often take a lower sales price. If we don't have to assume responsibility for delivering the product.
Distribution cost per ton also benefited from a shift in the regional sales mix during the quarter.
All in product costs on a per tonne basis were up 6% year over year driven by operational steps that we took following the subpar 2022 evaporation season, including the use of kcl to bolster production yields and the impact of the natural gas spikes from earlier in the year on our inventory costs.
<unk>.
The net impact of these drivers is that third quarter adjusted EBITDA declined from $19 million to approximately $12 million year over year.
As Kevin highlighted.
<unk> had its first sales in third quarter. So we enjoyed a small positive contribution from the business. So revenue operating earnings and adjusted EBITDA. This period.
We are excited with the quick traction the fortress team has gained in the marketplace.
At quarter end, we had liquidity of $418 million comprised of roughly $58 million of cash and revolver capacity of around $360 million net debt to adjusted EBITDA stood at three one times at the end of the quarter.
As noted previously we were pleased to successfully execute our refinancing in may of our $250 million of notes due in July 2024.
Our focus as we work through that refinancing centered on four objectives.
Refinancing on a reasonable pricing terms pushing out our debt maturity profile bolstering our liquidity.
And creating flexibility within the credit agreement to accommodate a wide range of potential non debt financing sources to fund our lithium efforts in the coming years.
I believe that we achieved each of these objectives as part of the refinancing.
Moving onto our outlook for the remaining of the year.
Our press release yesterday, we announced the narrowing of our guidance range to reflect the fact that we are now three quarters of the way through the year.
And so we now expect EBITDA in the range of $220 million to $235 million.
As you know, we did not adjust our salt segment guidance throughout the year until now.
As we approach the final few months of the fiscal year.
Our original guidance given at the beginning of the year implied midpoint for EBITDA of $235 million and assumed average winter weather.
The fact is we had a below average winter deicing season, resulting in the midpoint of volumes revenue and EBITDA, all moving down to reflect that fact.
At the midpoint of our original guidance is still within striking distance. Despite a winter that was 80% of average reflects very favorable sales mix within the highway deicing business and strong C&I pricing.
For reasons that we've discussed today and on previous calls this has been an exceptionally challenging year to forecast our plant nutrition business. Despite these challenges we have managed the business throughout the year in such a way that even though we expect to see fewer volumes.
For the year compared to our original expectations the midpoint of our EBITDA guidance for this business remains unchanged at $45 million.
Our commercial teams and our salt and plant nutrition businesses have done a great job managing price this year.
And it played a big role in helping the company successfully navigate a year of profit restoration on the salt side of the business and a challenging weather conditions and demand dynamics on the plant nutrition side.
At fortress, we still expect that business to contribute EBITDA in the low double digit millions of dollars with nearly all of that expected to be recognized in the fiscal fourth quarter.
That business rolls up into the corporate and other expense net line item.
Which we are forecasting will come in at $65 million to $70 million for the year unchanged from our prior guidance at the midpoint.
Capex is moving down slightly to a range of $130 million to $150 million.
This is the result of moving lithium development capex down to a range of $40 million to $50 million from our prior range of $60 million to $75 million, reflecting a shift in timing that will result in capital being spent early next quarter pushing into the fiscal 2024 year rather than late during the.
Current quarter.
Our sustaining capex guidance of $90 million to $100 million remains unchanged from our prior guidance.
At this time I will share a few thoughts about the 'twenty three 'twenty four bid season.
As we noted in yesterday's press release, we're about 65% of the way through the current North America Deicing bid season.
Based on the results that we've seen to date, we are expecting an approximate 3% increase in price for highway Deicing Salt next year.
Committed bid volumes are coming in roughly 5% lower than what we saw last year, which is not entirely surprising given the below average the icing season, we just had.
Throughout the 23 bidding season, we've continued disciplined adherence to our value over volume commercial strategy with an emphasis on building a book of commitments bias towards markets that are most natural geographically for us to serve and therefore most profitable.
As usual, we will true up our projected salt price and volume on our November earnings call. When the bidding season is behind US However, 65% of the way through the season, we view the results to date as highly constructive, particularly against the backdrop of a relatively sluggish winter this year.
Briefly turning to the cost rationalization efforts, we've undertaken on our last earnings call. We discussed the first phase of our cost savings program was expected to ultimately result in an annual cost reduction of corporate related expenses of $17 million to $18 million by fiscal 'twenty five compared to fiscal 'twenty two.
Yeah.
These cost savings are split roughly equally between product cost and SG&A.
The second phase of this initiative relates primarily to production and packaging operations and last week, we notified the impacted personnel.
Costs related to the impacted operations are generally inventory level and as a result, the expected benefit of the phase II cost rationalization efforts will be recognized through the income statements. When those products are sold out of inventory, which is expected to begin in the middle of fiscal 'twenty four for the plant nutrition.
<unk> business and late in 'twenty four for the salt business subject to the impact of winter weather in the upcoming year.
The key takeaway is that the combined impact of phases, one and two is expected to result in meaningful savings that all else equal should lower our cost structure and improve our profitability in the coming years.
Finally, I wanted to share a couple of thoughts on valuation.
Notwithstanding the recent rally in our share price.
Some of the parts valuation buildup of our company's valuation.
Side reasonable multiples to the long run earnings power of our core Salt and plant nutrition businesses. We believe continues to support a stock price higher than where we're trading today.
If one didn't contemplate the earnings potential of the growth opportunities that we have at fortress and with our planned lithium development. It's clear why we're excited about the opportunity to create shareholder value by accelerating our earnings growth and reducing our weather sensitivity.
Advancing into near Adjacencies that align with our core competencies as a company.
With that I will turn it back to the operator to open the lines for Q&A.
Operator.
Thank you and as a reminder, if you would like to ask a question. Please press Star then one on your telephone keypad.
First question is from David Begleiter with Deutsche Bank. Your line is open.
Thank you good morning.
Kevin on the highway Deicing bid season volumes being down 5%.
Are you seeing greater competitive intensity in this season, this year and with volumes down in the last two years. The U S running your operations at below optimal level optimal levels of production.
Hey, David Good morning, Good question, there were air pockets.
I would say kind of in this bid season, we had a few areas that expense experienced an outsized winter where bid volumes were up and prices were up considerably than other areas that kind of the inverse of that happen, but on balance we're kind of characterizing the winter as 80%.
And I would say for the most part Jamie is here I think thats color, but for most part.
Our competitors in the marketplace behaved in a relatively disciplined fashion and everybody's kind of settling into their natural geographies and there was definitely a view.
Promote value.
And the marketplace this year, we'd like to see more obviously, but.
Given the fact, it was 80% winter. The fact that were up 3% on price is actually a pretty big win at the end of the day and then with respect to volumes.
As I've said before we'll do whatever it takes to keep the market balanced if we need to tweak our production volumes.
We will do it to manage inventories and manage working working capital.
But we needed to let kind of the next season began to unfold before we'd be able to make that call.
Very good and just on lithium minutes state Utah.
Four months I think since the <unk>.
That law with Pi into law.
Whats the timeframe that you tend to get this a regular regulatory clarity you referenced in the <unk>.
And you in your remarks.
I wish I could stick a pin in that I think it will be done when it gets done.
I don't mean to be cute, David but it's process. The rulemaking process is ongoing we remain very active in that rule, making process in that plane will get landed when it gets landed.
Hopefully sooner than later, obviously, because we need it.
Kind of we.
We need that certainty to be able to advance our <unk> III estimate.
Final investment decision that sort of thing so hopefully the.
The state of Utah will get that plane landed sooner rather than later.
Agreed.
Thank you very much.
Thank you David.
The next question is from David Silver with C. L. King Your line is open.
Okay.
Yes, hi, good morning, Thank you.
I would like to maybe.
To start off with a question on lithium or actually two questions but.
Firstly regarding the reduction in the fiscal 'twenty, three capex to $40 million to $50 million.
I did hear your comments about that.
Just kind of come back and say that I think this is the second.
A reduction in that projected spend through fiscal year 'twenty three now.
And I was just hoping you could talk about maybe what.
The reduction in spending this year might be for for the ultimate timeline to completion.
And then secondly, this is very speculative it very early but.
With the binding multiyear agreements for phase one volumes.
What happens if you.
You're a little bit behind schedule, three to six months or whatever.
Of your planned startup or Alternatively ahead, I mean under the under the agreement.
Are you committed to supplying a certain amount of volume by a certain start date you may have to go out in the open market or something but how does the multiyear binding agreement handle deviations I guess from the planned startup schedule. Thank you.
Let's start with question two first I mean, our agreements with <unk>.
<unk> and forward provision for a lot of flexibility in terms of startup timing.
So there is no scenario, David that we can contemplate where we'd ever have to go to the market to fulfill our obligations under those agreements they give us plenty of flexibility.
To get these operations mechanically complete and get them optimized and performing as advertised so.
I think we're good there and then in terms of the.
Capital, we're just pushing out the longer lead items into the probably the next couple of quarters, which has taken some.
Sure Austin.
Capital expense during <unk>.
Fiscal year, 'twenty, three but Chris any color you'd like to add to that Kevin just real quick so with regards to the longer lead items that Kevin spoke about that's really related to the broader.
Project on entirety east side.
So what we've been doing as we continue to optimize that schedule and look at what that drop dead date is or having to spend on those long lead items. So fortunate for us those have been able to get pushed out a little bit. Additionally, what I would say yes.
Coming into the beginning of the year, we had a certain estimate associated with what it would cost to build the desk or commercial demonstration unit and as we've continued to refine that we've been able to reduce that cost. So that's been a benefit that you heard in the last quarter and reduction of Capex and as Loren also mentioned what we've also seen now.
Now as we've also been able to get very good terms with our vendors and thats allowed us to have.
And our ability to push out those payments into the next fiscal year. So all in all it's a good story from a capex perspective, and as we heard in the opening comments, we're still on schedule for mechanical completion by the end of this year.
Thus far is well on its way to being prudent.
Thank you for that very.
I appreciate the detail I'd like to shift over to salt and I'd like to pick up on Lauren's comments about.
I guess accounting costs.
This quarter.
Relative to what we might see going forward.
Yeah.
The past year or 18 months has been had been one of <unk>.
Significant cost inflation as you look ahead to the next winter is it possible for you to.
Give a quick rundown of how you see let's say barge rates or plastic prices or pallet prices.
Whatever key elements that you can maybe lease or lock in prices for ahead of time, but any thoughts about where the plus the puts and takes the pluses and minuses on your overall salt.
De icing salt cost.
Elements shakeout here now thank you.
Yes, let me just touch on inventory days and just the way the data transition through our P&L and then I'll ask Jamie to talk about kind of supply chain effects et cetera, but when you look at our inventory days on average if you look over the past several years, they're sort of in that 125 130.
Day, Mark and so that tells you you have a four month turn however.
You can produce all that in a relatively weaker winter you don't sell for quite some time.
You take our March salt production.
And then you take a 80% winter.
Could be selling salt from 2022 inflationary.
Environment.
For some period for some period of time and so.
Looking at our inventory days and seeing how they flow through our P&L kind of as a function of the winter that you use.
Experienced but Jamie any thoughts on just supply chain effects you want to share.
David You mentioned a couple of items pallets continue to be fairly expensive and inflated we don't see that coming down polypropylene has come down obviously related to two to oil prices. So if brent stays in this area, we'd look to see some benefit there in the C&I business on the freight side.
Good.
We've actually seen lower trucks and fuel rates through 2023, those probably creep up those are going to have mostly related to the C&I business.
On the on the dry vans that those prices tend to go up but but we've got a lot of great work. The team has on the price pricing Brian .
Really get ahead of that to recapture some of the inflation, we saw last year and continue to push price through 'twenty, three and even into 'twenty four so we.
We are cognizant of those those truck freight rates rising in 'twenty four but we think we can stay ahead of it with pricing and really see some some margin improvement in 2024 on the highway side most of our material is shipped.
Vessel and barge or vessel rates are locked in through 2028, our barge rates are locked in through next summer summer of 2020, or so we'll be renegotiating those rates.
Later this year or early in 2024.
On the on the vessel side, we've got inflation and CPI type.
Inflationary adjustments.
On the vessel side, so we feel good about the long term aspect there.
The primary kind of supply chain inputs that I'd be able to talk about right now ahead of.
Our full year discussion later this year for 2024.
Yes.
Yeah I appreciate it's early days, but thank you for that very very helpful.
Okay.
The next question is from Chris <unk> with loop capital markets. Your line is open.
Yes, a follow up on the salt business piggybacking on some of the discussion already just curious.
The notion that roughly 65% of the.
Negotiations are complete just wondering it's that.
Against this backdrop of our 80% winter is are those discussions they align.
With.
And in any way with the geographies that sort of had a.
Stronger winter, whereas.
The.
Unsettled negotiations might've been geographies, where there is a lighter winter I'm just curious.
The words.
On average 80% winter by clearly it was it was mixed across North America. Just curious if that has any endpoints on the discussions with municipalities.
And your ability to.
It's a contract.
Not really I think so like Kevin mentioned, a little bit earlier, there were there were pockets of success, we had stronger stronger winter weather activity in.
Higher sales on the upper Mississippi.
It was weaker along the Ohio River Valley, we would typically be 65% to 75% complete with our bid season.
Sitting here in early August .
A lot of the states in municipal bids are finished and the latter half of the season is is commercial business. So it would be rare.
Uh huh.
The full year bid season pricing ends up.
And then the 65% Mark.
So I.
I hope that answers most of your question I would also note that.
That 65% really applies to about 75% of the overall highway deicing business. So outside of this north American bid season, we've got our UK Highway Deicing business, we've got our Mag chloride business.
And we've got our chemical business as well and we are pushing significant price increases on those fronts as well.
Because the market allows it and we're pricing to value so.
That bid season data is just part of the picture as it relates to the highway business in general I, just wanted to make that point.
Okay, and then the follow up on again on Salt.
If you are at this point.
The commitment that you have for down 5% volumes up 3% pricing.
By no means are you, suggesting that the guidance for 'twenty four would be down 5% volume, we just don't know.
Ali.
Saying that because of the.
Reaction to the stock price. This morning, I am curious, though if in a scenario where you.
You were down 5% volumes and up 3% pricing it seems and given.
Notwithstanding some of the inventory costs are still flowing through your.
Flowing through your P&L.
In that scenario.
Area with Salt EBITDA be up in 2024, it seems like it would be.
Yes.
That's a great point, so remember the winter was mild and we're experiencing that in our current period results. So we sold less material than we would have expected when we roll out our view on 2024.
It will assume average winter weather, so while the commitments are a little bit lower.
Recovery or normalization of our average winter weather kind of offsets that actually more than what offset that decline and commitments and then.
You take into account the price.
The portfolio portfolio improvements that we're making in the business remember GSP is only part of the picture. We're focused on net back we might be shipping something with a lower GSP gross sales price, but we make more money on it because it is a lower transportation cost.
It's closer to the line. So we're only giving you part of the picture.
For competitive purposes, but.
Certainly feel like we can see improvement in the salt business Highway and C&I in 2024.
Bingo.
The next question.
<unk> is from Greg Lewis with <unk>. Your line is open.
Thank you and good morning, and thank you for taking my question I appreciate the comments around the 65% in the municipalities and the now the shift to more industrial.
Realizing we can't comment on pricing, but.
Is that fair way to think about as we look at the back or the remaining kind of the stated number thats out there kind of serves as an anchor antibody the pricing like just as we think about previous years as the upside downside.
Is it like I mean, how tight is that range as are we.
Basically this is the price.
Or is there upside or downside.
It is there isn't there is typically not a lot of movement between what we say now around pricing commitments and how we finish the bid season.
Again, we are now in really commercial negotiations with.
Independent contractors and landscapers and.
I think our guys who resell this material for.
Parking lot clearing and and whatnot so.
We are pushing price across the board.
I think youre right theres not a huge amount of upside that there is there is very limited downside as well as we go through the remainder of this season.
Okay, that's great to hear and then and then just.
As I think about fortress.
It seems like this is just getting just continuing to be a nice driver for the company.
And realizing there is that there is a major.
Listing competitor.
I guess the question is what needs to happen for the company to really scale up this business.
And I know as we were talking in the last couple of months.
Is there a way to accelerate that scaling up to kind of.
To take advantage of just really the demand for that.
Yes, we're well on our way and in doing that we are engaging with the U S Forest service for it for a multi year agreement.
2024, and beyond those those discussions.
Will.
We will really get into.
In the details.
This month and in September .
So I think we're going to have a lot more visibility on what the next few years look like.
The next 60 to 90 days. So there is nothing that we can do beyond may kind of nailing that arrangement as we go into 'twenty four 'twenty five.
But also we're talking about.
The California market with Cal fire that is dependent on the completion of our ISO that we talked about in the prepared remarks around our fr 105, and then when we think about Canada.
British Columbia, and Saskatchewan, and Alberta, those are opportunities in Western Canada, as we go into 2024 as well.
Okay. Thank you very much.
Again, Thats star one if you'd like to ask a question. The next question is from Joel Jackson with BMO capital markets. Your line is open.
Hi, good morning.
I have two questions.
Just on 2024.
It's a 3% gross price increase in highway Deicing salt is that enough to have margins in 2024, and south be higher what would you need to have margins be higher in 2024 and then.
The second part of that question is I understand that for some of your competitors, maybe yourselves barge rates are going to go up on some of the contracts can be as of January 1st and the necessity.
Can you talk about that how barge rates might go up and how that might affect cost and margins in 'twenty four.
Well I won't address it specifically we have not.
Started our discussions on beyond.
Kind of July 2024, with our barge carriers, yes, there is talk of those going going up for sure remember we are the backhaul.
They need us.
We'll go through that process and.
Good news about.
The barge rates and the timing is that we'll be well into our discussions let's call. It in February or March before we even start our bid season. So we will have good line of sight during our bid season on what those barge cost will be in 'twenty, four and a multi year agreement through perhaps 26 or something like that so.
Don't have specific comments on what that how that would impact it would have very little impact on 24 because of the timing.
And Joel in terms of profitability from an EBITDA per ton perspective, we're tracking towards an excess of $20 of EBITDA per ton and we see no reason why we shouldnt be able to hold that I'd like to talk in terms of the middle of the bell curve to the point. We made earlier there is no reason that we can't see improvement and Salt next year at.
At a comparable EBITDA per ton.
With the pricing that we are.
Sharon.
That's helpful Arne Thanks.
<unk>.
Okay and then finally for me you.
You May have said on the call earlier I know this is pushing back timing of your capex reduction of $20 million or something like that is that just pushing back the long lead time items.
Some of your lithium opportunity.
Is that what you said, yes, yes.
Yes for the most part.
Joe it's that coupled with Chris and the team have been able to.
Skinny down the expectation around the desk scarred unit as well so it's a combination but it's largely made up of longer lead time items that we've been able to push it to the next quarter and the quarter after that.
Maybe I'll come back to the barge rate question do you have some history when barge rates have gone up how that it's worked out through the following bid season.
Has.
As the price and pass through to the different tenders I understand it's a bidding process, but generally or have margins come down in the year afterwards, a bit of an adjustment period. What typically has happened when Barclays had gone up between you and competitors.
I don't I don't have that that history off the top of my head but.
Remember we would be.
It will be impacted.
Cargill and the stone Canyon asset would be equally impacted by any change in barge rates again. The good thing is so so you would assume that disciplined market competitors, which would recapture that value through pricing as they as they go through those bid season again, the good thing for us.
Is that the timing is that it is it is a July renewal of 2024 and.
And we'll be we'll have really good line of sight on what that looks like for the 'twenty 'twenty four 'twenty five winter and we will embed that in our in our bidding analysis as we excel at next summer.
Just maybe one more for me.
You have some working capital needs in September and December quarters.
Looking at your balance sheet right now are you comfortable or are there any actions you may want to <unk> to give you more flexibility of the balance sheet.
Well our leverage just hit.
Three one times and so we are happy with the progress that we've made.
To Delever now granted some portion of that relates to the coke proceeds, but a lot of it relates to the restoration of the EBITDA of this business and so three times is a very comfortable level for our company with our credit profile and we will see what we always see in terms of the season.
Dynamics.
Around the final quarter of the year, but we feel very good about.
Our leverage position as we continue to drive it down.
Thank you.
The next question is from Chris Capps with loop capital markets. Your line is open.
So it's a little detailed question on the lithium business, but.
It's really against the context, Lauren mentioned valuation investors can probably debate, whether or not theres much of any value being ascribed to your franchise right now for the perspectives value from the lithium resource at the great Salt Lake.
Question. My question addresses the visibility <unk> perceive risks associated with standing up that project right. Now. So directionally you suggested I know, we're going to wait until the conversations with Utah are complete understand that but directionally you suggested that capex might be higher.
And what the original FPL, one engineering plan had been scoped out at.
As Youre looking forward, though I'm just curious if there's a way to maybe contained costs.
In page two of the plan is to to standup lithium hydroxide conversion facility, whereas phase one is carbonate and that adds a presumably more more cost per.
Per capita per se more complexity, therefore, maybe more risk. So I'm wondering if could you just remind us why the strategic rationale is therefore do carbonate and hydroxide.
It might be.
It seems like there might be.
A pathway for last perceive risks less capex.
Both phases, we're carbonate.
Is there any thinking along these lines. Thank you.
Yeah, Hey, Chris This is Chris as well.
With regards to looking at phase, one and phase two phase one is that lithium carbonate and we're talking about phase two on the west side would be that hydroxide component.
As we've talked about progressing our capex and our <unk> one our <unk> great detailed engineering, what we're referring to is really our phase one so it's the carbonated side and Thats. When we talk about the Capex is higher than what we saw in the one were specifically speaking to the carbonate perspective.
If you look at the market dynamics and what customers are looking for Ics split really between the LSP at NMC type batteries and so from an <unk> standpoint, we're producing that carpenter produced carbonate.
Customers are also looking for the hydroxide piece as well so hopefully that <unk>.
That provides some detail to your question.
Right, but one of the offtake agreements with Ford.
Half.
Obviously this.
Early stage, but commitment with.
Partnership with <unk>, which presumably is focused on LSP, which required carbonite. So I'm just wondering if.
As this evolves if there is.
Any consideration on your part to just.
Do both phases in carbonate, which might derisk, the overall project and maybe even bringing in a little bit of a capex. So that's what I'm asking thank you.
Sure Chris that's what that's a great point and we'll continue to look at that right. Now we're hyper focused on getting phase, one up and running and executing there and as we progressed through that we'll certainly take a look at our phase II and whether that's carbonate or hydroxide. So great point.
Thank you.
Again, Thats star one if you'd like to ask a question.
And it appears we have no further questions at this time I'll turn it back to the presenters for any closing remarks.
Thank you for joining the call today and thank you for your continued interest in compass minerals.
And we will continue to keep you posted in subsequent quarters.
Thanks, everybody have a great day.
This concludes today's conference call you may now disconnect. Thank you.
[music].
Okay.
Okay.