Q1 2024 Compass Minerals International Inc Earnings Call
Ladies and gentlemen, good morning, My name is Abby and I'll be your conference operator today.
Speaker Change: At this time I would like to welcome everyone to the accomplishment of our old first quarter fiscal 'twenty 'twenty four earnings call.
Abby: Today's call is being recorded in all lines have been placed on mute to prevent any background noise.
Abby: After the Speakers' remarks, there will be a question and answer session. If you would like to ask a question during that time simply Breasty Starkey followed by the number one on your telephone keypad.
Abby: If you would like to withdraw your question Press Star one a second time.
You and I will now turn the conference over to Brent Collins, Vice President of Investor Relations you may begin.
Brent Collins: Thank you operator, good morning, and welcome to the Compass minerals fiscal 2024 first quarter earnings Conference call.
Brent Collins: We will discuss our recent results and update our outlook for fiscal 2024.
Abby: I will begin with prepared remarks from our president and CEO Edward Kelly.
Brent Collins: And our CFO Lorin Crenshaw joining.
Joining them for the question and answer portion of the call will be George Schuller, Our Chief operations Officer.
Brent Collins: Nichols, our chief sales officer, and Ginnie Hood, our chief supply chain officer before.
Brent Collins: Before we get started I will remind everyone that the remarks, we make today reflect financial and operational outlooks as of todays date February eight 2024, these outlooks until assumptions and expectations that involve risks and uncertainties that could cause the company's actual results to differ materially.
Brent Collins: A discussion of these risks can be found in our SEC filings located online at investors Dot compass minerals Dot com.
Brent Collins: Our remarks today also include certain non-GAAP financial measures you can find reconciliations of these items in our earnings release or in our presentation, both of which are available online.
Brent Collins: I'll now turn the call over to Ed.
Ed: Thank you Brendan good morning, everyone and thank you for joining us on our call today I look forward to engaging with you as accomplishment of <unk>, new President and CTO.
Ed: I'll begin my remarks today by discussing some of the announcements we've made over the past several weeks.
Ed: Yesterday, we share within our quarterly earnings, but we decided to terminate our lithium project in Utah.
Ed: So I expect most of you know this was a brownfields project.
Ed: Sort of enabled the extraction of one additional mill salt.
Ed: Lithium.
Ed: The carbonate as a co product within our existing SLP salt magnesium chloride production terms at Ogden operations.
Ed: Unfortunately, the environment surrounding this project as a ball drastically from when we began investing in this project several years ago.
Ed: The proposed regulatory changes.
Ed: Oh led to significantly increased uncertainty.
Ed: You combine and uncertainty regulatory environment with other changes that have occurred within the commercial landscape for lithium resolve the project has a higher than acceptable degree of risks and uncertainty.
Ed: This requires a higher return in order to justify such investment so I understood. The projects like this carry risks, they're willing to take and manage measured risk.
Ed: Although we will not invest into uncertainty you ultimately included let's just too much on sort of any of those projects.
Ed: I will note that the lithium content at the great Salt Lake because of the significant resource thats not going anywhere.
Ed: Ability to revisit the potential to develop the resource of the future clearly that's not today, we'll continue to monitor engage the appropriate legislative and regulatory processes, and Utah as well as watch emerging.
Ed: Commercial loans.
Ed: To preserve long term optionality of that resource.
Ed: As a result of the decision not to move forward with the lithium project, we have disbanded the lithium development team crescendo.
Ed: Our lithium has left the company.
Speaker Change: Another of talented individuals who work to advance the program I want to thank Chris and the lithium team for their efforts over the last couple of years.
Ed: The best in her future endeavors.
Ed: With these actions, we're taking charge in this quarter.
Ed: Next our decision to exit the lithium program, which includes severance cost for the employees that are leaving the company as well as impairment of certain lithium related assets and future commitments, which Lauren will discuss in more detail.
Lauren: Next I'll discuss our recent CEO transition.
Ed: Well, Kevin Crutchfield joined Compass minerals in 2019 as mandate from the board was to address the following.
Ed: One <unk> what has been a challenging production guidance mine and repair significantly strained relationships labor relationships at the mine.
Ed: Two eggs in South America, and jewelry determinant, there is any areas of growth adjacency to the Companys core business.
Ed: Salt and plant nutrition.
Speaker Change: I've known Kevin for three decades.
Speaker Change: It is a talented executive the highest integrity and personal character.
Ed: Our response here is successfully address all three of these challenges.
Speaker Change: As we know the last year has been a challenging one for accomplished minerals ultimately the board and Kevin agreed that a change in leadership was in the best interest of the company.
Ed: The central office employees, and the Investor community to refocus on our advantage assets that underpinned, our core salt and plant nutrition businesses as well as the emerging and exciting fire returning business.
Ed: The board and personally.
Ed: I don't think Kevin for his leadership over the past several years.
Ed: And his continued support during this transition.
Ed: Looking forward I'm excited about the opportunities ahead of us accomplished minerals.
Ed: On the board here for just under two years.
Ed: More broadly.
Ed: For the totality of my career in mining industry.
Ed: As an executive and operating roles around the world.
Ed: Unfortunate to work on almost every mining environment you can imagine.
Ed: I think I bring an acute understanding of what it takes to achieve operational excellence and drive improved profitability in mining.
Ed: Successfully led numerous cost reduction and capital efficiency.
Ed: For several companies in the past given these experiences in my familiarity with the company as the vantage assets. The board determined that that was the right person to lead the conference barrels at the point in this journey.
Ed: In addition to maintaining a safe and responsible operations with compass minerals is known for the mandate I have is pretty soon.
Ed: So improved free cash flow generation and returns on capital we provide to our shareholders.
Ed: Confident that we can get there by improving production effectiveness and asset efficiencies in our salt and plant nutrition businesses.
Ed: It's up a more stringent approach to evaluating capital requirements will execute strategies aimed at reducing working capital.
Ed: We'll also thoughtfully build out our emergency fire retardant business are.
Ed: Company has a tremendous set of unique and proven assets that would be almost impossible to replicate today, but we must and we will take actions to maximize the performance of these assets.
Ed: During our most recent earnings call, we laid out six strategic focus areas for fiscal 2020 for those work build on our strong safety performance and our continued to strive for zero harm across each of our facilities.
Ed: To maintain a disciplined pricing strategy in our North American highway de icing business and focus on geographically advantageous markets.
Ed: Three execute our strategy to deliver more reliable sustainable Ogden production.
Ed: Four achieve clarity regarding Utah's regulatory regime as it relates to lithium production again, some gains increased clarity on this matter where now it depends down on lithium.
Ed: Five continue to scale.
Ed: Manufacturing and supply chain capabilities of our prior returns business on its path of full commercialization increased market share.
Ed: And six maintain a strong balance sheet and prudent fiscal policy.
Ed: Those areas remain the same today and we will approach them using proven cost improvement capital discipline tool sets and a renewed emphasis on improving the management of our operating expenditures capital expenditures and working capital in the coming quarters, So expect to hear more about.
Ed: What about the progress we're making in these areas again I'm extremely excited about the opportunity accomplishment also this next chapter in it. So it was great congestion to our great set of assets. The company is blessed with a talented and committed group of employees My wife, and I are looking forward to relocating to the Kansas City Metro area now becoming more involved in the local community.
Ed: The year with that I'll turn the call over to Loren to review the quarter.
Loren: You Ed on a consolidated basis revenue was $342 million for the first quarter down 3% year over year, our profitability. This quarter was impacted by the $75 million impairment, we took related to our decision to terminate our lithium project in Utah, which Ed referenced earlier the consolidate.
Loren: Operating loss was $55 million versus operating income of $28 million last year, we reported a net loss of $75 million for the quarter, which compares to a net loss of $300000 last year.
Loren: Adjusted EBITDA was approximately $59 million slightly lower than the $62 million in the prior year period.
Loren: I'll begin with the Salt segment, where revenue totaled $274 million for the quarter down 11% year over year.
Loren: The main thing here is that we experienced extremely light volume on account of exceptionally mild weather, we saw across our core markets during the first quarter <unk>.
Loren: Specifically highway Deicing volumes were down 22% year over year to $2 3 million tonnes at C&I volumes.
Loren: Which include retail Deicing products were down 5% over the same period to 589000 tonnes.
Loren: Salt segment volumes were down 19% year over year and reflect the fact that the first quarter was the fourth worst quarter with regard to snow event activity within our served markets that we've seen over the better part of three decades. In fact December 23 was the worst December.
Loren: Amber over that span.
Loren: So despite the fact that our commercial group did a fantastic job on pricing.
Loren: The icing price increased 7% and C&I price increased 3% the.
Loren: The weather didn't cooperate the way we'd like to begin the year.
Loren: While the snow data is disappointing it is important to remember a couple of things about the weather first over the long term about 70% of the snow days in our served markets occur in the second fiscal quarter. So there is a lot of winter left in this season.
Loren: Second statistically looking at historical data a weak first quarter.
Loren: One that is below the historical average has not historically foreshadow a below average second quarter, specifically when we look back over the past couple of decades, we see that in the 10 first quarters with recorded snow days below 90% of the long term average 70% of the time.
Loren: In the second quarter of that year was at 90% or greater of the long term second.
Loren: Second quarter average so again it is simply too early to state with any confidence how the rest of the winter season will play out.
Loren: Distribution costs on a per tonne basis were basically flat year over year.
Loren: All in product costs on a per ton basis rose, 9% year over year and reflect C&I salt sales, representing a higher percentage of the sales mix this quarter.
Loren: And fewer sales tons to absorb cost in the period.
Loren: Despite these challenges we earn more of this quarter year over year as measured by operating earnings for the segment, which were $51 million up nearly 7% year over year.
Loren: And as measured by adjusted EBITDA, which came in at $66 million up 8% year over year.
Loren: Our adjusted EBITDA margin improved by over 400 basis points and adjusted EBITDA per ton was $23.
Loren: We work diligently over the past couple of years to control the things, we can control and improve and maintain the profitability of the salt business. These.
Loren: These effects were reflected in this quarter's results and reflect a positive takeaway during a quarter in which we didn't get any help from the weather.
Speaker Change: Moving onto our plant nutrition segment, Youll recall that calendar 'twenty three.
Speaker Change: Saw incredibly dry conditions early in the year, and California quickly shift to historically unprecedented flooding conditions, the combination of which severely impacted sales throughout last year.
Speaker Change: From a commercial standpoint, the good news is that demand has returned as we expected in our core West coast markets and we had sales of 75000 tonnes. This quarter, which is an increase of 67% from the prior year quarter.
Speaker Change: The pricing dynamic for Sop continues to reflect the excess supply of potassium based fertilizer in the market, which led to a 29% decrease in price per ton year over year to $660 per ton.
Speaker Change: The net effect of higher volumes and lower pricing was an increase in plant nutrition revenue of 19% year over year.
Speaker Change: A significant portion of the plant nutrition business is distribution costs are fixed so the increase in sales volumes benefited distribution cost per ton in the quarter by 11%.
Speaker Change: All in product cost on a per tonne basis were up 4% year over year.
Speaker Change: The net impact of these drivers is that first quarter adjusted EBITDA declined from $19 million to approximately $6 million year over year as the favorable impact of higher volumes was more than offset by significantly lower pricing and higher cash costs.
Loren: At fortress, our results related to the calendar 'twenty three contract or a little better than we expected we recognized approximately $13 million and adjusted EBITDA during the quarter associated with the take or pay provisions of that contract.
Loren: Yeah.
Loren: Also regarding fortress we.
Loren: We recognize a roughly $3 million noncash.
Loren: Charge related to an increase in the valuation of the liability associated with the fortress acquisition and the contingent consideration related to that transaction.
Loren: As a reminder, when we purchased fortress approximately 50% of the purchase price was contingent with roughly half of that linked to the achievement of certain business development milestones and the other half based on volumes sold and paid over a 10 year period.
Loren: As of December 31.
Loren: The net present value of this liability was approximately $47 million.
Loren: Each quarter, there will be gains and losses as the liability is mark to market to reflect changes in the discount rate used in the valuation and changes in our outlook for the business.
Loren: Because of this liability was established as part of an acquisition the accounting guidance does not allow for the noncash mark to market to be added back to reported adjusted EBITDA. However, our adjusted EBITDA would have been $3 million higher if we added back that noncash charge.
Loren: That $3 million expense is captured in other operating expenses on the income statement.
Loren: Lastly, with respect to our lithium program as Ed mentioned, we have made the decision to not move forward with that project.
Loren: As a result of that decision in our view that the risk adjusted returns on capital of moving forward with the project are inadequate. We have disbanded the lithium function and are recognizing a charge of approximately $77 million related to the impairment of associated assets and future commitments as well as the severance costs of those.
Loren: Team members that will be leaving the company.
Loren: Before leaving the income statement.
Loren: I'll make a couple of quick comments on income taxes first the effective tax rate for the quarter is not meaningful due to the impact of the impairment that we took in the quarter.
Loren: In periods like this year when our U S businesses are under earning it creates income mix issues, where our worldwide income consistent foreign income driven by our salt business that is significantly offset by U S losses, driven by our plant nutrition business.
Loren: These dynamics are driving the estimated tax guidance for the year, which excludes the impact of valuation allowances and the lithium impairment.
Loren: Moving onto the balance sheet at quarter end, we had liquidity of $246 million comprised of roughly $38 million of cash and revolver capacity of around $208 million net leverage stood at four three times at the end of the quarter.
Loren: Moving onto our outlook for the rest of the year.
Loren: The 2024, our adjusted EBITDA guidance for the Salt business that we rolled out on our last call depicts a bell curve showing earnings outcomes ranging from a mild winter on the low end a normal winter in the middle and a strong winter on the high end of our goal and taking this approach was to provide.
Loren: A reasonable distribution of results that could be anticipated across different weather outcomes.
Loren: With 70% of the winter is still ahead of US we continue to feel comfortable that we will fall within our guidance range and then it would be premature to make any adjustments at this point in time.
Loren: Other than to acknowledge that the odds of a strong winter are now remote.
Loren: As a quarter to date update January snow events in our service markets came in around 94% of the long term average.
Loren: And there was quite a bit of cold weather in January that generated good demand across our platform.
Loren: Overall at this point, we think the range. We provided is still a fair estimation of the potential outcomes as we continue to closely monitoring how weather during the second quarter plays out.
Loren: Shifting to plant nutrition. Unfortunately, the macro environment for fertilizers remained challenging from a price perspective recent data points within the broader MLP market indicate.
Loren: That is at least short term downward pressure on potassium based fertilizer.
Loren: Our team has done a great job maintaining what we see is a fair premium value for sop relative to MLP.
Loren: However, we see more downside than upside risk over the balance of the year.
Loren: Against that backdrop, we are adjusting our plant nutrition guidance down to reflect several risk factors over the balance of the year first MLP prices continue to face pressure as I indicated and we must manage in attempt to balance available market value versus targeted demand.
Loren: The continuing weakness in fertilizer pricing is resulting in a large number of buyers remaining inventory conscious and deflationary environments.
Loren: <unk> moved suggest in time purchasing behavior.
Loren: Further adding to the competitiveness of every time, we compete to sell in the market and.
Loren: And third.
Loren: First quarter Pond based production at Ogden tracked at the lower end of our initial projections as.
Loren: As a result of those factors, we now expect the adjusted EBITDA for the year to be in the range of $15 million to $35 million.
Loren: Moving on to corporate our corporate expense includes everything not related to salt and plant nutrition. So it includes our corporate overhead the cost of our now terminated lithium program and the positive contribution of four trades.
Loren: We're all our total corporate guidance is not changing at this time.
Loren: Lithium related expenses for the year will be at the lower end of the guidance, we provided given the elimination of the lithium function. However.
Loren: However, this reduction is being largely offset at this time by the noncash expense related to marking to market.
Loren: Fortress contingent liability that I discussed earlier.
Loren: These two items offset one another and therefore, our guidance for corporate is unchanged.
Loren: Digging in a bit more on each of these regarding lithium as a result of our lithium program termination, we will see the amount of lithium expense decline to approximately $5 million.
Loren: This reflects cost up through late January when we move forward with our head count reductions.
Loren: One time costs associated with exiting that program like severance won't.
Loren: Won't be captured in this guidance since they are an add back for adjusted EBITDA purposes.
Loren: Regarding fortress subsequent to our last earnings call, which occurred in November the U S Forest service change the solicitation contract requirement for the calendar 'twenty four contracts and this has resulted in delays in the negotiation and finalization of a contract for the 24 fire season, which starts in the April may time.
Loren: Frame we.
Loren: We continue to expect to have a finalized contract prior to deployment for the upcoming fire season. As a reminder, we do not have.
Loren: Have anything currently baked in to our 24 guidance for the calendar 'twenty four U S Forest service contract. Accordingly, we are leaving guidance unchanged with respect to what we've included in for fortress at this time once our contract is finalized we will adjust our guidance appropriately.
Loren: Finally, our corporate adjusted EBITDA guidance does not include the costs associated with certain senior executive management changes that we've announced in recent weeks such costs are expected to be in the range of $6 million to $9 million and these costs will be recognized in the second quarter and treated as an add back to adjusted EBITDA at that time.
Loren: Finally, moving on to Capex, we have lower capex slightly by $7 million at the midpoint to a range of $120 million to a $130 million consistent with edge prior remarks regarding our focus on reducing the capital intensity of the business.
Loren: Specifically, we are reducing our estimate of sustaining capex by $10 million at the midpoint to a range of $80 million to $90 million.
Loren: Lithium expenditures for the year are expected to be around $30 million, reflecting <unk> spending prior to suspending the projects.
Loren: I would note that not all of that $30 million will ultimately be reported in the cash flow statement as capital expenditures due to the timing of the impairment and when we ultimately pay for some of those in flight items. Finally, we continue to expect to invest approximately $10 million to support the continued growth.
Speaker Change: <unk>, a fortress and that guidance is unchanged that summarizes our first quarter results and our outlook for the remainder of the year with that I'll turn the call over for questions operator.
Speaker Change: Thank you.
Speaker Change: 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.
Speaker Change: To be able to answer as many of your questions as possible. We ask that you. Please limit yourself to one question and one follow up and we will pause for just a moment to compile the Q&A roster.
Speaker Change: And we will take our first question from Joel Jackson with BMO capital markets. Your line is open.
Joel Jackson: Oh, hi, Thanks for taking my questions I have a couple of I'm going to ask them one by one.
Speaker Change: <unk>.
Joel Jackson: So can you talk a little bit about the balance sheet.
Joel Jackson: Liquidity and free cash flow.
Joel Jackson: Two the fiscal Q1 cash flow burn was quite a lot should we expect a really good return to good inflow of cash in Q2, maybe you can talk about it is going to look it looked like prior years.
Joel Jackson: And then it looks like you are really pushing up against the covenants here.
Joel Jackson: Do you need to issue equity right now add to stabilize the company.
Joel Jackson: Okay.
Joel Jackson: Hey, Joel Thanks for that question, it's Lauren.
Lauren: This quarter, we did see a meaningful cash burn and there are several factors related to it that are that are unique and will not repeat one from a lithium capex perspective cash out the door.
Lauren: And actual accrued was $20 million, we will not spend $20 million on lithium going forward and so that was a onetime factor inventory was roughly flat sequentially.
Lauren: <unk> was up as you would expect.
Lauren: The big factor was accounts payables.
Joel Jackson: Our <unk> as we ended the year were abnormally high you saw them normalize this quarter.
Joel Jackson: Bottom line is this coming quarter to $3 31 quarter, you should expect a significant positive from change in working capital and I expect that this will be the.
Joel Jackson: Largest this will be the only quarter, where we have this sort of a cash burn. So you should see a major positive in terms of.
Joel Jackson: Cash flow in this quarter and there were some unique factors that drove.
Joel Jackson: The burn in the first quarter I would also add the SEC settlement payment.
Joel Jackson: Payment was made and so several unique factors in that regard.
Joel Jackson: Joe This is Ed just slight.
Ed: Complement what.
Ed: Darren just said.
Ed: Our focus.
Joel Jackson: Which has historically been around earnings has changed in the company's primary focus is cash production and it's our intention going forward.
Joel Jackson: To reduce our debt and improve the ratios that Lauren previously mentioned at the $4 three.
Joel Jackson: Net to EBITDA.
Speaker Change: We wanted to get this back into.
Speaker Change: Historical and where our peer group.
Speaker Change: And Joe the $4 three was well within the five times covenant for this quarter and so no we were well within that covenant will see substantial cash flow going forward and equity I think is not.
Joel Jackson: Not anything at all.
Joel Jackson: To even contemplate.
Joel Jackson: As it relates to our covenants, we are comfortably within those covenants and I would say the nature of our business is that we do scenario planning every year. We look at mild we look at normally we look at strong winters and we are blessed Abbvie exceptional bank group, many of which have been with us for over 20 years and.
Joel Jackson: We'll be prepared for any scenario, but no equity I think that's.
Joel Jackson: Not anything that any way should you should imagine.
Joel Jackson: Okay. My follow up question on Salt is most of your official commentary, although Lauren or at our I think it was R&D commented, but what it was Lauren what January looked like by light.
Joel Jackson: The official commentary is acting like a January one when its actually February so I'd appreciate Lauren updating on this call what's happened in the.
Joel Jackson: The last five six weeks, but the question I have for you is.
Joel Jackson: Such a mild winter anything can happen, we're getting too deep into the key winter months now just getting into March.
Joel Jackson: You have to start making decisions like customers are probably now quite below training quite below the 80% minimum.
Joel Jackson: Alright, there are minimum minimum volume commitment.
Joel Jackson: Mine plans at <unk> and elsewhere. Thanks, Shannon Overproduce. So can you talk about what discussions are happening internally or externally start making mine plan decision customer amendment decision, whether you're going to spend it into rollovers next year that doesn't have the discussions you have to start planning for in such a mild winter.
Shannon Overproduce: Yes Joel.
Joel Jackson: Historically, we have planned for certain winners and producer that when you end up with a weak winter we ended up with too much inventory stored versus.
Joel Jackson: Cost to the balance sheet.
Joel Jackson: We're running the business differently at this point, we're building flexibility into the operations I will be reviewing where.
Joel Jackson: Where we stand going forward and adjust production side accordingly to better manage capital in the company going forward. So there's a lot of detail behind that happy to chat to you about that.
Joel Jackson: Separately, but.
Joel Jackson: So philosophically, that's where we are and were going and things are already being done.
Speaker Change: Thank you.
Speaker Change: I think it is worth adding to all that.
Speaker Change: Its funny a lot of questions several years ago around where around God rich and its production levels and.
Speaker Change: Now in times like this these are times, where you actually would consider tapping the brakes and as we look to protect our balance sheet and George can elaborate where we.
George Schuller: We're thrilled on the one hand that we have restored got rich to the levels that we have but at the same time. We're also pleased that we are in a position where we can take actions too.
George Schuller: Tap the brakes as necessary George maybe you can talk about yes sure. Thanks. Joel This is George So I just wanted to add on there a little bit and also Lauren.
George Schuller: <unk> already taken action over the last several weeks to better align our mine production to match inventory levels. So just a little bit more than what Ed said, we've already taken action to adjust that and I feel confident that that will.
Speaker Change: It will improve both our inventory levels, where they need to be but also make sure that we're maintaining our mining costs right level. Thank you.
George Schuller: Yeah.
Speaker Change: Thank you all right.
Speaker Change: We will take our next question from David Begleiter with Deutsche Bank. Your line is open.
David I. Begleiter: Thank you good morning, Ed.
David I. Begleiter: Ed.
David I. Begleiter: Sides lithium other other assets in the portfolio that you and the board or looking at or considering other options for.
David I. Begleiter: Look the lithium first was.
David I. Begleiter: Predominant in our mind.
David I. Begleiter: We want all of our assets to.
David I. Begleiter: Perform in terms of returning.
David I. Begleiter: Oh I see return on invested capital in excess of our weighted average cost of capital.
David I. Begleiter: I am Brian here three weeks now.
Brian: I haven't been able to review all my thoughts with the board yet.
Speaker Change: But that will become clearer in time.
Speaker Change: We're working really hard to see what this business can be.
George Schuller: And we'll make decisions accordingly.
Speaker Change: Got it and just the unplanned attrition given the earnings pressures. This year are you considering taking additional cost actions here for the.
Speaker Change: Either temporary or permanent on the cost side.
Speaker Change: I'm, sorry, I missed the <unk>.
Speaker Change: It's regarding plant nutrition.
Speaker Change: And David this business is $100 a ton above where it should be from a cash cost perspective half of that relates to our use of kcl. We are absolutely focused on getting those cost back in line with historical averages through a combination of fixed cost.
Speaker Change: As well as <unk>.
Speaker Change: Risk restoration of the time, so that we don't have to use as much kcl, which is burdening our results.
Speaker Change: Perfect. Thank you.
Speaker Change: Kerry we'll take our next question from Jeff Zekauskas with JP Morgan Your line is open.
Jeffrey J. Zekauskas: Thanks very much.
Jeffrey J. Zekauskas: And your.
Jeffrey J. Zekauskas: And your agricultural business your volumes were up.
Jeffrey J. Zekauskas: I don't know, 50% more than the fourth quarter, but.
Jeffrey J. Zekauskas: EBITDA wasn't really very different and I get it that prices were down a little bit but.
Jeffrey J. Zekauskas: What was the magnitude of.
Jeffrey J. Zekauskas: Cost overruns or the problems with PON production.
Jeffrey J. Zekauskas: How much did that burden you in the quarter and what exactly happened.
Jeffrey J. Zekauskas: Our approach that.
Jeffrey J. Zekauskas: Ways, and then ask Ben to comment as I look at the year over year impact to profitability. It is predominantly for the first quarter related to price. There is a $260 difference between the price a year ago and the price today, which is which is quite substantial I would say about <unk>.
Ben: Two thirds of the decline is attributable to price and about a third is attributable to cash costs I mentioned earlier, the kcl dynamic and I would characterize it that way, but it's predominantly related to price.
Ben: But sequentially your prices are down just a little bit right.
Ben: Can you analyze that is right.
Ben: Sequentially.
Ben: Okay.
Ben: So my answer was in regard to the year over year impact.
Ben: From a sequential.
Ben: Point of view Youre right, we only saw about a sequential decline of about 5% or so.
Ben: And the average selling price and so the impact sequentially would've been principally related to cost and.
Ben: I've said before that is principally related to the kcl.
Ben: Alright.
Ben: And then in.
Ben: And your inventories your inventories are close to $400 million.
Ben: And historically, maybe a peak inventory level for.
Ben: <unk> $300 million.
Ben: Do you have to really cut production rates.
Ben: In your asphalt business for the remainder of the year in order to get your inventories down.
Ben: I would focus on on days for two reasons.
Ben: Due to inflationary dynamics, we have.
Ben: Higher valued inventories just if you just look back over the past three or four years and the team has successfully passed through a lot of those costs, but with that said inventory days coming into this year. We're at about 200, and our focus is on reducing those days every 10 days.
Ben: Is approximately $25 million and you should expect starting this quarter and as we focus on the balance of the year that we're going to drive those days down.
Ben: They are not at acceptable levels, but they.
Ben: They are inflation adjusted at higher higher levels, and so we're going to focus on getting those days down and they are at historical highs and that's something that we're going to get our arms around it goes to George's point earlier about running these assets flexibly to reduce production to meet demand.
Ben: <unk> is.
Ben: And then lastly, you talked about some changes and requirements from the U S Forest service.
Ben: Factoring your fortress business.
Ben: But I Couldnt tell whether you thought that it actually delayed anything.
Ben: What you said as you expect it to have your paperwork in order.
Ben: For the.
Ben: 2020 for a fire season.
Ben: So if that's true.
Ben: Does the delay really makes no difference.
Speaker Change: Yeah, Hey, Jeff happy to take that question.
Jeffrey J. Zekauskas: So the delay just to give a little bit more color on that the original solicitation from the U S. Forest service was issued in late September.
Jeffrey J. Zekauskas: Look them until mid December to issue a final overbuy solicitation and the solicitation deadline was then January so.
Jeffrey J. Zekauskas: So it absolutely pushed back the contracting process in total however, we are pleased since January 10th when we were able to start the negotiations were pleased with the progress and the engagement that we're seeing from <unk> keep in mind that previously <unk> dealing with one sole source supplier.
Jeffrey J. Zekauskas: <unk> for over two decades.
Jeffrey J. Zekauskas: Thinking about how to integrate another supplier from a contractual standpoint as well as in the field has been quite challenging for that but however, we are supporting them in those efforts and again, we're pleased with the engagement that we have received since the submission deadline.
Jeffrey J. Zekauskas: And yet from an earnings perspective, you're exactly right. There's no change we entered into this year.
Jeffrey J. Zekauskas: Assuming EBITDA for 2024 for <unk> until we get the contract when we get that contract, which we fully expect you should expect us to raise our guidance to reflect the profitability and so we have been conservative and not speculating, but you should expect that we will raise our guidance and there is no change there.
Jeffrey J. Zekauskas: Just a little bit delayed.
Speaker Change: Okay, and then lastly for Ed.
Ed: What's your number one priority that you want to get done over the next six months.
Ed: Well after ensuring that we're operating.
Ed: In a responsible manner as a company it's focus on cash.
Ed: Working on the balance sheet, managing the inventory sort of appropriate level, which is this all cash management and getting the mindset.
Ed: Right.
Ed: Wishing the Accountabilities changes of plans under company that there is some subtleties that you run your business differently and making sure that we're moving ahead with that and a very quick way.
Speaker Change: Okay, great. Thank you so much.
Speaker Change: We will take our next question from David Silver with CL King Your line is open.
Ed: Okay.
David Silver: Yes, hi, good morning, Thank you.
David Silver: I have a question I guess about any lingering liabilities related to the decision to terminate the lithium project.
David Silver: So I'm sure you have a number of agreements, but the ones with Ford and LG on the supply agreements do you have an agreement with the.
David Silver: Technology provider et cetera.
David Silver: Should we expect any lingering costs or cash requirements to.
David Silver: Any of the Counterparties related to the lithium project going forward. Thank you.
David Silver: As it relates to the technology provider any expenses associated with our potential liabilities associated with the technology provider have been included in our write down and so any expenses. There had been included in that write down as it relates to the.
David Silver: The Oems there were no financial obligations that were not contingent on us advancing this project and so.
David Silver: We have <unk>.
David Silver: <unk> them appropriately, but there are no financial obligations, yeah, there is no take or pay or any.
David Silver: Requirement to deliver associated with those agreements more relationship based but when and if it got going we had a customer base establish that's it.
David Silver: Okay.
David Silver: Okay. So from an earnings per share perspective, the charges you took this quarter.
David Silver: Our sufficient but is there any estimate of the cash impact that will.
David Silver: Slow from the decisions, that's maybe how much of that $77 million, let's say will be.
David Silver: Will be addressed via cash payment as opposed to just the write down of things you've already paid for.
David Silver: Sure. This is Lauren and so as you can see in our guidance for Capex for lithium it Hasnt changed we said that we would spend about $30 million for lithium.
David Silver: As it relates to in flight.
Lauren: Capital that we could not stop even after we suspended and so as you do your model you should assume that we will be around that that level and only that level are not anymore than that level now when we get to the end of the year not all of that $30 million will show up as Capex because.
Lauren: We have written down the asset.
David Silver: Some of it will just be.
David Silver: Liabilities that we pay off but that $30 million is a good number and theres nothing more nothing more than that.
David Silver: And I would also say that the preponderance of the cash has already been been paid and so that will it will be behind us. After this 331 quarter.
David Silver: Okay.
Speaker Change: Okay, great. Thank you for that.
Speaker Change: I have a question about.
Speaker Change: Strategies for operational strategies on your salt business, so and.
Speaker Change: You were very clear.
Speaker Change: Discussing your priority on cash generation.
Speaker Change: And Theres a couple of things when I think about your salt business.
Speaker Change: But firstly there is the underground mine plan that.
Speaker Change: <unk> is underway.
Speaker Change: And to me, that's something where.
Speaker Change: You would have to invest a little more to generate a certain amount of efficiency incremental efficiency from that.
Speaker Change: And then so I'm wondering about should we expect the.
Speaker Change: Underground mine development program to take a little longer or to be conducted at a more measured pace going forward and then secondly on your marketing strategy I did note that you talked about maintaining.
Speaker Change: The <unk>.
Speaker Change: Product pricing.
Speaker Change: As far as I guess bid season.
Speaker Change: The strategies are concerned, but I'm, just wondering I mean, along with Kevin's departure.
Speaker Change: <unk> commercial officer did depart as well.
Speaker Change: Some people.
Speaker Change: Might interpret cash flow generation and per ton margins.
Speaker Change: It's a bit of a trade off there.
Speaker Change: Could you just reiterate I mean, what is the plan.
Speaker Change: <unk> spending to further progress the underground mine development.
Speaker Change: And then what if anything might change going forward with the value over volume approach to your upcoming bid season for Deicing Salt. Thank you George George and I will address the.
Speaker Change: First half for your question and then Ben will speak to the marketing commercial side of that.
Speaker Change: There are variety are numerous.
Speaker Change: <unk> efforts underway not just at goderich, but all of our operations.
Speaker Change: This is not just the mines, but at the plants.
Speaker Change: And our distribution centers all focused on cash.
Ben: You go to a mine like God rich, our priority will be to be driving through the east on the mains that are up on the north side of the mine really tied into the.
Ben: Got it into the infrastructure better than what.
Ben: Existing infrastructure as we have to haul through to Bayer or other means the product all the way around.
Speaker Change: The shaft basically gone three quarters away around her many miles more than.
Speaker Change: The direct shot through would be so that's really the priority.
Speaker Change: We'll continue to prioritize that and move forward and as we ramp up or down we will flex our production.
Speaker Change: From other parts of the mind for example.
Speaker Change: We're also looking at alternative mining methods looking at some of the most expensive.
Speaker Change: Equipment, we have we're looking at different alternatives on that we need to do better with our our way that we manage those in terms of maintenance and other things and improve or you might call. Our general systems in the company. When we're trying to say there is a variety of levels and timing of these activities are going on at Goderich, which you.
Speaker Change: <unk>.
Speaker Change: Reference.
Speaker Change: But everywhere I think that.
Speaker Change: As we get a little further down the road, we'll plan to do some analyst days Investor days up at the mines and we can show you what we're doing firsthand and I hope you would participate in that I'll, let George I'll make a few comments as well and then turn it over to Ben sure. Thanks, David This is George good.
George Schuller: Keep in mind to date has been around on our board a year and a half two years now and he was fully versed on that if anything I would say it's in the short time. He's been here probably asked the question a little bit more around when we do it quicker faster better those kind of things that are all necessary. So again as the highlight we're looking at.
Speaker Change: Some potential ways, we can attack it in different directions, and how we can actually move that forward. So I would say anything other than the delay how we can continue to move that evercore. Thank you.
Speaker Change: Yes. Good morning. This is Ben I appreciate the question about our pricing strategy and I wouldn't see any fundamental change in our approach.
Ben: We're focused on seeking the appropriate value of our product in the market.
Ben: I can appreciate the undertone of how price and volume play together to generate cash and frankly, it would be a little premature to even to comment on where we're headed in the next season, because we need to see how this winter plays out so fundamentally no change.
Speaker Change: Let me just close that.
Ben: With the departure of.
Ben: Some of our senior executives, Kevin and Jamie for example.
Speaker Change: Please don't think Theres something nefarious going on in the background. There. These are all made for differ.
Speaker Change: Different decisions theyre, not theyre not related to one another.
Speaker Change: The organization.
Speaker Change: So thats the kind of the focus of that.
Speaker Change: An example of kind of the things that are going on in that Youll continue to see.
Speaker Change: Okay. Thank you very much.
Speaker Change: And as a reminder, if you would like to ask a question press star one on your telephone keypad.
Speaker Change: And we will take our next question from Seth Goldstein with Morningstar. Your line is open.
Seth Goldstein: Good morning, and thanks for taking my question can you help us understand the $10 million sustaining Capex decrease and are you risking long term underinvestment by cutting this similar to what happened that led to the need for <unk> to be fixed several years ago.
Speaker Change: No. It was a quick answer I mean, we give you the details associated with it.
Speaker Change: So would you want to talk about that a little bit yes, yes book.
Speaker Change: Seth This is George Chiller, just to kind of build on what Ed highlighted I would also say no.
George Chiller: One of the areas that we're doing is as.
George Chiller: As we talked about the East mine development, what we're doing around with that Neal we're looking at utilizing many of the components, we have which in which when you go back and look at them.
George Chiller: Actually new or refurbished and what we're trying to do is optimize that whole process that in itself is drove quite a bit of a change in the yard.
George Chiller: In our sustaining capital so when you look at the rest of the platform.
George Chiller: Either.
George Chiller: Our.
George Chiller: Plants are facilities are bagging facilities those types of things in our other operations. There is not a substantial change there at all so the vast majority is coming directly from that thinking of how we're going to how we're going to redevelop the <unk> fine, but again, it's still a high priority for us what George is saying is that when <unk>.
George Chiller: <unk> looked at.
George Chiller: Putting the mill to the north side of the mine are relative to the west side on that corner.
George Chiller: But.
George Chiller: From where it is a couple of miles to the south.
George Chiller: Looking initially to build a new mill correct.
George Chiller: We're editor now is because we think we have the flexibility to establish status to relocate or what we have and that would cut the.
George Chiller: Estimated capital.
George Chiller: Hi.
George Chiller: Very large percentage point, probably about two thirds correct.
George Chiller: Thats flowing through in fiscal year 2020 for us what youre actually seeing in here so anyway.
George Chiller: Yes.
George Chiller: A big part of what Youre seeing there.
Speaker Change: Okay. That's really helpful. Thank you and what's the lead time from when you buy kcl to when it's sold as SLP and.
George Chiller: Would we expect to see your input costs coming down from buying kcl for a longer lead time.
George Chiller: So.
Speaker Change: I'd say that initially George Tiller, I think Ben and I will tackle that together I think a couple of comments there we cannot depend on what we gave we do have some longer term contracts on kcl, but we also buy some on a shorter term spot, which lets us optimize our our fiscal 2020 for fiscal year 2020.
George Chiller: For budget, so with that said there is some there is some opportunity from.
George Chiller: Because of the lower priced right now I'd say, some potential upside, but again as we start to look at this longer term is that we are looking to <unk>.
George Chiller: Again, a longer term contract with an MLP provider as we start to go forward I do think it bodes well for us in the future.
George Chiller: Again, I know, it's always tough to sit here and tell you exactly where that is but you've heard you've heard Loren say this multiple times.
George Chiller: Yes.
George Chiller: I'm confident that we're going to continue to see our Sop price.
George Chiller: Our cost of sites continue to go down with our efforts that we have around upon process.
George Chiller: And the Kcl combined Ed.
Speaker Change: Yes, I might just add.
Speaker Change: Fair to say that any <unk> purchases and input is monetize within that given fiscal year is just a kind of a broad statement, we're turning inventories consistently.
Speaker Change: Okay, great. Thanks for taking my questions.
Speaker Change: And we'll take our final question from Vincent Anderson with Stifel. Your line is open.
Vincent Alwardt Anderson: Yes. Thanks for squeezing me in here I just had two hopefully quick ones. So I understand everything that's been said about refocusing on cash generation as it's been mentioned parting ways with Kevin and Jamie is quite a bit of experience out the door or unless you have a very high conviction level that the business is already moving in the right direction and fairly quickly.
Speaker Change: Yes, basically changed Jackie's mid race here. So I'm wondering if that's a fair assessment that these comments on further <unk> optimization pushing the <unk> market. Those were really mostly established plans and most of the pieces for achieving your cash generation goals are really already well in place.
Speaker Change: Yes, I would say that.
Speaker Change: A.
Speaker Change: A large percentage of the things that.
Speaker Change: You are aware of where pre existing from a board perspective, we were involved in that as well.
Speaker Change: <unk> and <unk>.
Vincent Alwardt Anderson: As George said.
Vincent Alwardt Anderson: I've been out to the operations and consulting essentially with our operating team to make there.
Vincent Alwardt Anderson: Suggestions on things that we need to do I would say theres a number of other things that are underway. Now for example, some of the changes that we've made already.
Vincent Alwardt Anderson: Others that we're looking at with an overall.
Vincent Alwardt Anderson: Our outlook really managing cash.
Vincent Alwardt Anderson: There's going to be other future changes coming in the way we do business in.
George Chiller: So really.
George Chiller: Generate improved cash flows for sure.
Speaker Change: Understood Thanks and.
Speaker Change: Yes, I don't know how fair. This question is but edge or coming down off of the board. So I figured I'd <unk> anyways.
Speaker Change: Just trying to understand yes.
Speaker Change: Yes.
Speaker Change: Well, what's the conviction level right now that the public equity markets are ever going to properly value of your assets are special either before or after you hit these cash flow targets because I don't know if there is an internal timeline right, but is there anything off the table for achieving that fair valuation.
Speaker Change: Yes, the only thing off the table is doing business in a responsible way other than that we're looking at everything.
Speaker Change: I would just say that my Crystal ball is no better than years, so how the market values things through.
Speaker Change: Efforts in communication and showing you.
Speaker Change: What we're doing are going to be doing I believe that the market could get confidence in.
Speaker Change: However, moving ahead I think there's been uncertainty on how the business has looked at it versus growth versus yield I want to make it clear that we're out to develop a yield type company.
Speaker Change: Lithium has also been a big question Mark.
Speaker Change: Doing a project with a technology that hasnt been.
Speaker Change: Successfully deployed yet.
Speaker Change: It's inherently in the regulatory environment Thats really uncertain.
Speaker Change: I would if I was in your shoes I'd hire I had added higher discount rate to us just on that so I think with clarity of what we're doing.
Speaker Change: The direction that we're headed.
Speaker Change: The market is efficient.
Speaker Change: Alright, well I appreciate the candor. Thank you.
Speaker Change: With no further questions at this time I will now turn the call back to President and CEO, Mr. Ed <unk> for closing remarks.
Ed: Well look thank you all for joining us today.
Ed: Look forward to engaging with you going forward.
Ed: And.
Ed: Please feel free to reach out.
Ed: To contact us if you have additional questions or things that you would like additional clarity.
Ed: Have a great day.
Speaker Change: And ladies and gentlemen, this concludes today's call and we thank you for your participation you may now disconnect.
Ed: [music].
Ed: Yes.
Ed: [music].
Ed: Yes.
Ed: Okay.
Ed: [music].