Q4 2024 Compass Minerals International Inc Earnings Call
Hello, and thank you for standing by my name is Regina and I will be your conference operator today at this time I would like to welcome everyone to the compass minerals fiscal fourth quarter and full year 'twenty 'twenty four earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
If you'd like to ask a question. During this time simply press Star then the number one I never telephone keypad to withdraw your question press. The Star one again, we do ask that you. Please limit your questions to one and one follow up then reenter the queue for any additional questions that you might have.
Speaker Change: I would now like to turn the conference over to Brent Collins, Vice President Treasurer, and Investor Relations. Please go ahead.
Thank you operator.
Speaker Change: And welcome to the Compass minerals fourth quarter and full year 2024 earnings conference call.
Speaker Change: They will discuss our recent results and provide our outlook for fiscal 2025.
Speaker Change: We will begin with prepared remarks from our president and CEO, Edward Delhi, and our CFO Jeffrey Kathy.
Speaker Change: Joining in for the question and answer portion of the call will be been Nichols, our chief sales officer, and Ginnie Hood Chief supply chain officer.
Speaker Change: Before we get started I will remind everyone that the remarks, we make today.
Speaker Change: <unk> financial and operational outlook as of today's date December 17, 2024, these outlooks Intel assumptions and expectations that involve risks and uncertainties that could cause the companys actual results to differ materially a discussion of these risks can be found in our SEC filings.
<unk> online at investors Dot compass minerals Dot com.
Speaker Change: Our remarks today also includes certain non-GAAP financial measures.
Speaker Change: You can find reconciliations of these items in our earnings release or in our presentation, both of which are available online and I'll now turn the call over to Ed.
Ed: Thank you Brent.
Ed: Good morning, everyone and thank you for joining us on our call today.
Good to be speaking to you again after we've had to take a pause as we went through our restatements.
Ed: I want to begin my remarks today, providing a brief recap of the year.
Ed: To say fiscal 2024 was an eventful and transitional year for the company it would be a major understatement.
Ed: Transition began in November 2003, when we announced the suspension of our lithium project in Utah, which was formally terminated a few months later in February.
Ed: This was a significant pivot for the company that align with our renewed strategy commitment to focus efforts on improving performance in our core salt and plant nutrition businesses. We all know the different jobs require different skill sets and its only amplified when it involves a shift in strategy as the.
Speaker Change: Company reordering towards the back to basic strategy changes were made on our senior leadership team, including my appointment in January as President and CEO and across the organization to ensure they had the right team in place to execute effectively in the midst of these changes in directions of leadership, we experienced within our served.
Speaker Change: Markets one of the weakest North American highway Deicing season, so over the last quarter century.
Speaker Change: But we're very clearly financial and operations ramifications that arose from that which led us to discontinue our dividend.
Speaker Change: <unk> production at <unk> mine and other mines and to take a hard look at and take actions to improve our cost structure.
Speaker Change: He's also a pause that we had to take in the development of fortress for fire Retardants business as well as financial reporting restatement issue, we had to work our way through in the recent months.
Clearly, we had our fair share of challenges in fiscal 'twenty four.
Speaker Change: Year, we'll be happy to have behind us wherever I'm reminded of saying its darkest before the board and I think it's applicable here accomplishments.
Speaker Change: <unk> remains unchanged that we have the privilege of operating high quality advantaged.
Speaker Change: Nutrition assets with long standing established markets.
Speaker Change: Those assets are quite frankly, irreplaceable and could not be replicated today for example in Goderich, Ontario, we operate the world's largest underground salt line.
Speaker Change: <unk> <unk> thousand 800 feet below Lake Bureau, the geological attributes of this mine and the fact that it has access to a deepwater port positions <unk> should be a low cost producer for much of the great Lakes region.
Speaker Change: In Ogden, Utah, we operate the largest sulfate of potash facility of its kind in the western hemisphere.
Speaker Change: <unk> done correctly, our use of naturally occurring processes to extract essential minerals from the great Salt Lake allows us to produce a soapy.
At a lower cost and more environmentally friendly manner than other production processes.
Speaker Change: The location of our Ogden facility is also beneficial given its relative close proximity to major producing areas on the west coast of high value chloride sensitive crops, such as fruits and nuts.
Speaker Change: Our back to basic strategy is focused on maximizing the potential of these and our other assets.
Speaker Change: Through this renewed focus I'm confident that we can do a better job managing these assets to improve operational efficiency and reduce capital intensity.
Speaker Change: Efforts are already underway.
Speaker Change: An example of one of the Broadridge mine the East <unk> project, which is part of our mill relocation effort will allow for a reconfiguration of the mines operations, we expect to provide a number of benefits over time.
Speaker Change: These benefits will include improved access to development areas improved ventilation abandonment of higher ground cost control areas of the mine and added flexibility in our production of operations.
Speaker Change: All of those have potential to improve the profitability of Vermont, all things being equal.
Speaker Change: These and similar efforts across the platform should ultimately lower the cost structure of the company and improve the profitability of our operations, resulting in higher levels of cash generation for the company that can be used to reduce the absolute levels of debt of the company.
Speaker Change: The challenging year. We're also some positives we should not lose sight of first we continue to build on and reinforce our culture of zero harm across the operations safety is a top priority for us because it's the right thing to do for our people and it's the right thing to do for our business safety is also a leading indicator.
Speaker Change: Of operational performance.
Speaker Change: Past three years have been the safest accomplished minerals' history.
<unk> seen a significant reduction in high potential incidents and we have a number of complex operating environments here accomplishment Roseland I'm incredibly proud of our people for their focus and care they give to work every day.
<unk> that we've been able to drive our reportable and lost time accidents to these levels demonstrates the commitment of our employees the safety.
Speaker Change: In early September and the company also executed a binding voluntary agreement with the state of Utah.
Speaker Change: Outlines water and transportation commitments, we are making to benefit the sustainability of the great Salt Lake we work collaboratively with the state to arrive at an agreement that meaningful supports efforts by policymakers and other diverse stakeholders in Utah to ensure the long term health of the Lake.
Speaker Change: And that environment. This agreement is also important step towards the company.
Speaker Change: <unk> better predictability of our future water use allotment in Ogden and enables the avoidance of increased tax burden on mineral extraction enacted by the recent legislation in the state moves.
Speaker Change: Moving to our plans in fiscal 2025, I'll make a few comments on priorities for the year.
Speaker Change: In the salt business consistent with prior comments, we've made our goal will be to reduce inventory levels and harvest cash that is hung up in working capital following last year's weak winter.
Speaker Change: As I mentioned earlier last year, we curtailed production at <unk> mine to address this inventory overhang.
Speaker Change: And does that production levels for the mine in the coming months after you've had a chance to engage the highway deicing activity.
Speaker Change: And plant nutrition business, our effort will be focused on advancing restoration of the pond complex at Ogden. This has been discussed in the past. This is a multiyear process that we've engaged with for a couple of years.
Speaker Change: The team at Ogden is working on developing and implementing processes to improve consistent rate of S. O P. Raw materials going into plant. This should allow for more efficient and less costly operations are planned to supplement our produce tons with purchased potash of kcl. This year will provide a couple of benefits.
First it will ease the harvest demands on our ponds and provide them more time to recover and regenerate or.
Speaker Change: Our early efforts in implementing this are going well.
Speaker Change: Second it will improve the quality of the feedstock for the plant.
Speaker Change: We have several efficiency initiatives underway that we think will allow us to see all in product cost decline this year at.
Speaker Change: At fortress, our plan is to finalize the discussions with the U S Forest service regarding and the potential for 2025 contract for our non magnesium chloride based aerial fire retardant product.
Speaker Change: Regarding our capital allocation process after environmental health and safety.
Speaker Change: <unk> will be directed to the highest ranked projects we've organized capital plan on to flex up and down like our operations depending on how the highway Deicing season progresses. This process was implemented last year and has proven helpful. Other.
Speaker Change: Other new improvement initiatives are underway will increasingly highlight them as they progress with respect to the balance sheet, we expect to refinance the debt stack. This year with the intention of structured in a way that better aligns with our current strategy. We believe that we will be able to move into a structure that provides more flexibility around covenants.
Speaker Change: As Jeff will comment on this more in detail in a moment.
Speaker Change: Back to our second quarter call I shared my vision for the company over the coming years My goal, which is shared by our board and the senior leadership team is to gear. The company such that it generates free cash flow even in mild winters strong free cash flow than normal winters and outstanding free cash flow and strong leaders that vision.
Speaker Change: What changed and we are aggressively taking steps to achieve that goal.
With that I'll turn the call over to Jeff.
Jeff: Thanks, Ed ill begin my remarks by discussing our quarter and year end financial performance before providing perspective around our outlook for 2025.
Jeff: For the fourth quarter consolidated revenue was $209 million down 11% year over year. The weak winter we experienced in our served markets led to a decrease in pre fill activity.
Jeff: Paired to what we would typically see in the fourth quarter after average winter activity.
Jeff: Additionally, when making a comparison to our prior year results. It's important to remember that the fiscal 2023 fourth quarter included a contribution from fortress from the U S Forest service contract as a result of these and other factors we posted a consolidated operating loss of $30 million, which includes a noncash impairment.
Jeff: Approximately $18 million related to the write down of certain water rights in our plant nutrition segment.
Jeff: Consolidated net loss was $48 million and adjusted EBITDA was approximately $16 million for the quarter.
Jeff: For the full fiscal year consolidated revenue was $1 1 billion.
Which was down 7% year over year again, the extremely mild winter that we experienced this past year clearly had an impact on the top line.
Jeff: Reported operating loss of $117 million includes $191 million of noncash impairments.
Jeff: Our lithium fire retardant and plant nutrition businesses, we posted a net loss of $206 million, which included the impairments I just referred to as well as the noncash gain related to the fortress contingent consideration liability and adjusted EBITDA for the year with $206 million.
Jeff: Drilling down into the segment results in the Salt business revenue in the fourth quarter was $163 million.
Jeff: Compared to $187 million a year ago.
Jeff: Pricing was up 10% year over year to $107 66 per ton, however volumes were down 21% compared to the prior year period.
Jeff: Lower highway Deicing volumes related directly to the muted pre fill program that I referred to a moment ago.
Jeff: Net revenue per tonne, which accounts for distribution costs increased 9% to a little over $78 per ton.
Jeff: On a per ton basis operating earnings came in lower year over year at $13 90 per ton down 7%, while adjusted EBITDA per ton increased 9% to $25 22.
Jeff: It's worth noting that because our company recorded depreciation on a straight line basis without regard to sales volumes the trends and low sales volume quarters for adjusted EBITDA can look a bit odd because of the significant DD&A per ton add back that you get in those quarters.
Jeff: For the full fiscal year revenue totaled $908 million down 10% year over year.
Speaker Change: As Ed and I have both referenced this past fiscal year, we experienced one of the mildest winter that we've seen in our served markets over the last 25 years, which had a meaningful impact on the segment's results.
Speaker Change: Isom volumes were down 20% year over year to $7 5 million tons and C&I volumes, which includes consumer deicing products were down 7% over the same period to $1 9 million tonnes.
Speaker Change: Total salt segment volumes were down 18% year over year.
Speaker Change: We did achieve positive pricing dynamics year over year with highway Deicing and C&I prices, both increasing by approximately 6% in 2024.
Speaker Change: Despite the significant volume declines that we navigated this past year absolute operating earnings and adjusted EBITDA were only down 4% and 1% respectively.
Speaker Change: Operating earnings for the year were $164 million and adjusted EBITDA was $228 million. Both of those measures saw margin expansion in 2024 with operating margin increasing to 18% and adjusted EBITDA margin increasing to a little over 25%.
Speaker Change: Adjusted EBITDA per ton for the fiscal year increased 20% to $24 15, moving onto our plant nutrition segment and some of you may recall calendar year 2023 saw very abnormal weather conditions that impacted sales throughout the year, which creates noise in the comparisons to the prior year period.
Speaker Change: On a positive note demand has continued to normalize compared to what we saw last year.
Speaker Change: I will speak about quarterly results for this segment for the fourth quarter volumes were up 33% from the prior year period, we had seen sequential quarterly price increases over the last year, but unfortunately that streak was broken this past quarter the pricing dynamic for Sop continues to track with global trade of potassium based firm.
Liza: Liza, which led to a 10% decrease in price per ton year over year to $623 per ton.
Liza: Net effect of higher volumes and lower sales pricing resulted in an increase in plant nutrition revenue up 20% year over year.
Liza: As a reminder, 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, which declined roughly 10% to $88 per ton year over year.
Liza: As noted in our press release yesterday, we recognized a noncash impairment of certain water rights in the plant nutrition segment of approximately $18 million during the quarter, excluding the impairment all in product costs per ton were up approximately 8% year over year.
Liza: Net impact of these drivers is that fourth quarter adjusted EBITDA declined to a loss of roughly $4 million.
For the full year volumes within the segment were 273000 tonnes, which is a 25% increase year over year average pricing for the year was down approximately 16% to $663 per ton.
Liza: Echoing what I said, a moment ago about distribution cost per ton. We saw these improved by approximately 7% year over year as there were more volumes to support the fixed costs.
Liza: All in product cost for the year include the water rights impairment mentioned earlier as well as a $51 million impairment, we recognized in the second quarter, reflecting a more tempered long term financial outlook for our plant nutrition business. While we continue the pond restoration process Ed mentioned in his remarks.
Operating loss for the year was $86 million and adjusted EBITDA was $17 million.
Liza: Next ill quickly summarize our balance sheet at quarter end, we had liquidity of $190 million comprised of $20 million of cash and revolver capacity of around $170 million.
Liza: Additionally, the consolidated total net leverage ratio was four nine times within the company's net leverage covenant of six five times.
Liza: Okay.
Speaker Change: Ed mentioned, our intention to refinance our debt in calendar 2025, I'll provide some thoughts on how we're thinking about that the.
Speaker Change: The structure that we have in place with an Rps and term loan a is a little unusual it was put in place and the company was pursuing the lithium program.
Speaker Change: Idea was that there would be a more comprehensive reordering of the capital stack as the lithium project is closer to completion.
Speaker Change: Clearly, we're in a different position today postal lithium.
Where the company is today, we think we need a structure that provides more flexibility around covenants to accommodate our back to basic strategy. Recognizing we operated business is highly seasonal with variability around weather.
Speaker Change: As we've spoken to credit investors and banks. We think there are a number of options that would allow us to move into a more covenant light structure early in calendar 2025.
Speaker Change: Finally, moving to our outlook for fiscal 2025.
Speaker Change: Starting with salt despite a decrease in commitments, we are expecting an increase in sales volumes year over year based on trailing historical sales that commitment ratios.
Note that those ratios take into account the recent week winters that we've experienced.
Speaker Change: At the midpoint of our guidance, we are expecting an increase in sales volumes of around 9%.
As a result, we are forecasting adjusted EBITDA somewhere between 225 and $250 million.
Speaker Change: As Ed mentioned during his comments our key focus this year is right sizing our inventory levels and realizing the positive working capital release associated with drawing down inventory.
Speaker Change: Concurrently we will continue to closely monitor winter activity and adjust our production schedule Accordingly, as we progress through the de icing season.
Speaker Change: Shifting to plant nutrition the outlook for plant nutrition adjusted EBITDA is in the range of 14% to $20 million.
Speaker Change: Given the obvious declining prices are not conducive to improving profitability and unfortunately that is what we are seeing this year based on the current MLP market dynamics. There are however positive developments in the business. We are expecting sales volumes to increase by approximately 8% year over year, and we are expecting all in product costs.
Ed: Down roughly 9% in 2025 Ed.
Speaker Change: Ed mentioned, our plans to utilize kcl to help restore the ponds out in Ogden, which is important for the long term health of those assets.
Speaker Change: Moving on to corporate.
Speaker Change: Our corporate expense includes everything not related to our salt and plant nutrition segments. So it does include our corporate overhead deep store and fortress, both cost and any expected revenue.
Speaker Change: We are continuing to work with the U S Forest service on a contract for this coming fire season.
Speaker Change: Those discussions are ongoing for guidance purposes, we have not included any revenue from fortress in our fiscal 2025 outlook. Although there is a small amount of G&A related to that business, we will update the market as appropriate when we have concluded those discussions.
Total capital expenditures for the company in fiscal 2025 are expected to be within a range of $100 million to $110 million. This includes nonrecurring amounts of 10 million to $15 million for larger capital projects, including preparation work for the mill relocation at Goderich mine and refurbishment.
Speaker Change: Of silos that object and preparing our capital program for this fiscal year, we scheduled that investment in a manner that would allow scaling back of expenditures in the back half of the year as needed in the event of a mild winter.
Speaker Change: To Echo Ed's comments it was clearly a challenging year for our company and we are focused on taking the necessary actions to set ourselves up for improved performance moving forward with that I'll turn the call over for questions.
Speaker Change: At this time I would like to remind everyone in order to ask a question simply press star followed by the number one on your telephone keypad. We ask that you. Please limit your questions to one and one follow up and you may re enter the queue for any additional questions that you might have we will take our first question from the line of Joel Jackson with BMO capital markets. Please go ahead.
Joel Jackson: Hi, good morning.
Joel Jackson: So did you say one question one plus one sorry I missed the instructions.
Joel Jackson: Well first of all one Joel Okay perfect. Okay.
Joel Jackson: Question I want to ask is.
Joel Jackson: Thanks to a 25 outlook can you.
Joel Jackson: Let's talk about so if I look at your guidance of 25, youre, suggesting that salt EBITDA margins will contract by about 100 basis points and 25 can you roll through sort of when you compare 'twenty four 'twenty five some of the drag that's causing that and then if we normalize in 'twenty six.
Joel Jackson: With things that Youre doing.
Joel Jackson: Assuming the never happening average winter what could 2006 margins like if we do get a normal winter in normal situations as you as you work.
Joel Jackson: Propagates down to margins.
Joel Jackson: Yeah. Joel This is Jeff I think the big driver. When you are looking at 2025 EBITDA margin vis vis 2024, that's really being reflected by the curtailment of the <unk> mine, resulting in higher cost of inventory as we move into fiscal year 2025, and that's largely the big driver there.
And with 2020, obviously that will be impacted by decisions that we make around production based on what we see in terms of winter weather here as we progress throughout the balance of the year.
Okay. Thanks, So there was some headlines a month or so ago backs there maybe compass might be in play you guys might be looking to sell the company or people are interested I realize you are sensitive topics, but.
Joel Jackson: Where are you right now on <unk>.
Joel Jackson: Working through the company trying to improve or do you think you've got enough improvement.
Joel Jackson: It's ready for sale.
Joel Jackson: How do you see your you guys as the stewards of this company longer term.
Joel Jackson: Well, Joe Hi, Joe This is Ed.
Joel Jackson: As a policy, we don't really comment on market speculation or rumors.
Joel Jackson: As pointed out that our management and board are confident regularly evaluate tactical and strategic matters.
Joel Jackson: Public company, we're for sale every day.
Joel Jackson: Somebody wants to invest in the company.
Yes.
Joel Jackson: So what we're really doing is working hard to make this a better business.
That's expanding our margins and our profitability number of activities going on that some of which we've been transparent about in the past others that are new and we will be speaking more about as we start bringing some of these benefits to bear over the course of this year.
Speaker Change: Okay. Thank you.
Speaker Change: Once again, Brian a question press Star followed by the number one on your telephone keypad and we will take our next question from the line of David Begleiter with Deutsche Bank. Please go ahead.
Speaker Change: Thank you good morning, Ed.
Speaker Change: Ed on highway Deicing can you help us with the committed committed volumes are down 9%.
The forecasting volumes to be sold being up 9% and I know this is the average sales to commemorate Joe's, but can you help bridge that gap between down 9% on the commitments, but up nine on the actual sales.
Yes, we use what we call sales the commitment.
Speaker Change: Calculation.
Speaker Change: That number is sort of a moving average based on sort of past performance and because we've really had to kind of a weak one particularly weak winners that number is much lower so when we.
Speaker Change: When we look at what that means so thats really the answer that pops out when you.
Speaker Change: You look at it because it's basically using a different divisor.
Speaker Change: In our calculation. So that's really what it is I would just say that.
Speaker Change: We are very focused and see the bidding season of course was competitive but we're all about value over volume and.
Speaker Change: We think we've got great assets, and we're not going to be chasing tons at any price okay.
And David This is Dan I would just point to the fact that the 'twenty three 'twenty four season was the lightest winter within the last 25 years and so when you do a year over year comparison against what is kind of an artificially low number thats, where youre seeing the growth.
Speaker Change: Got it and then just on fortress has a team been able to develop a new formulation that.
Speaker Change: Solve the problems with the prior formulation has that been fully is that being has that been tested out.
Speaker Change: David So we're not going to speak about our magnesium chloride based products. That's of course undergoing evaluation by the NTSB and so we're not going to see those products.
Speaker Change: But we can gather that since negotiations are continuing there has been some progress made on your part is that fair.
Yes, so we do have an alternate product.
Speaker Change: <unk> development and under consideration and that is what we're talking about.
Speaker Change: This morning.
Speaker Change: Okay and would you expect some resolution on these negotiations in the first half of 'twenty five.
Speaker Change: It's too soon for me to comment on that.
Speaker Change: Fourth our process, we're following their process and as we said in the script, we'll update everyone as that process continues to evolve.
Speaker Change: Understood. Thank you.
Our next question will come from the line of David <unk> with C. L. King. Please go ahead.
Okay.
Speaker Change: Yes. Thank you.
Speaker Change: Couple of questions.
Speaker Change: Just to start with the plant nutrition segment.
Speaker Change: I would like to maybe kind of as pose this question from a longer term perspective, but.
You harvest, Brian in year, one and two to three year production or evaporation and separation process.
So keeping that in mind I mean, when I look at the fourth quarter results and I strip out the pricing change and whatnot.
Speaker Change: It does look like there is.
A meaningful shift I guess in the overall.
Speaker Change: Production cost structure.
And I'm, just wondering about the path back from.
From your perspective and plant nutrition in other words is it as simple as you know, making sure that the original Brian that you pump out is.
Speaker Change: Yes.
Speaker Change: Is appropriately I don't know.
Saturated with the the rate minerals or is there something more that that needs to be done in other words, maybe just a thought on.
Speaker Change: The path back for.
Speaker Change: The plant nutrition, I guess, the cost structure or economics.
Speaker Change: Back to where it has been in the past.
Speaker Change: Okay I'll start out here. This is Ed and then spend the comment as well.
Speaker Change: We're working hard on the restoration efforts at Ogden, there's really sort of two fronts of that the first of which you would call the pond restoration.
Speaker Change: That's that's.
Speaker Change: Occurring we are adding.
Speaker Change: Dash to the mix, which helps with the <unk>.
Speaker Change: Movement of the quality and the volumes, which should improve over time and then there is some capital projects, we need to do in the dry plant in terms of a dryer and dust collector.
Speaker Change: We're working on the engineering on that it's too early really speak about that.
Speaker Change: What I would say is that we.
Speaker Change: We're seeing good progress on this restoration plan our volumes are improving.
Speaker Change: Costs are improving but remain too high.
Speaker Change: These are really critical to get back to our short profitability pricing is a little lower year over year ill ask Ben to speak about that.
We are.
Speaker Change: Moving along according to plan when do you want to comment.
Speaker Change: Yes, I think the pricing dynamic.
Speaker Change: What Ed said, it's moved back to more historical norms. Following a run up with the Ukraine, Russia impact a couple of years ago.
Speaker Change: So we.
Speaker Change: We really believe in this business, we have a very established customer base I think youre seeing that in the volumes returning over the last couple of quarters and so.
Speaker Change: Working hard to return the cost profile to where it should be.
Speaker Change: That's how we deliver the profitability we believe this business can generate year over year.
Speaker Change: Okay. Thank you.
Speaker Change: My next question relates to the 2025 guidance I guess from an overall perspective than I am.
Speaker Change: Thinking ultimately about free cash flow so.
Speaker Change: If we take the midpoint of.
Speaker Change: The company EBIT da maybe $1 89 and layer in.
Speaker Change: 110 per Capex and 74.
Speaker Change: Interest you know there is some room there.
Speaker Change: And of course.
Speaker Change: Contingencies based on kind of winter Deicing volume, but.
Speaker Change: That's kind of the starting point and I'm kind of scratching my head and I'm thinking about.
Speaker Change: Interest, but I think maybe more and more on the tax line.
Speaker Change: Can you remind me.
Speaker Change: Apart from the nominal rate can you.
Speaker Change: Talk about what the cash tax liability might look like.
Speaker Change: If you were to hit the midpoint of your guidance ranges for 2025.
I noticed in the fourth quarter, there was a small credit, which I wasn't expecting but.
Speaker Change: Assuming that you do hit.
Sure.
Speaker Change: <unk>.
Speaker Change: Guidance mid points under that scenario.
Speaker Change: What happens on the tax line will you be able to maybe get some credits there or is this the case, where the valuation allowances and other things mean that that there will be a cash tax liability.
Speaker Change: Yes, so I would say how the cash taxes play out will ultimately depend on kind of the mix, but what I will say from the 2025 perspective Youre right based on our base case guidance, we do anticipate delivering free cash flow.
Speaker Change: Coming here and maybe I'll touch a little bit on the effective tax rate because it does look a little bit nonsensical in I think you hit on it a little bit there, but to remind everyone.
Speaker Change: We have book losses on the U S side that are being offset by growing income in our foreign jurisdictions, and so as that spread narrows and the aggregate book loss become closer and closer to zero any increase in income tax in those foreign jurisdictions throws off a pretty nonsensical answer on the effective tax rate.
Speaker Change: Okay.
Speaker Change: So I guess, what youre, saying is it depends right.
Okay, I know, it's pretty complicated.
Multiple jurisdictions.
Speaker Change: Thank you I'll get back in the queue.
Speaker Change: Once again to ask a question simply press star followed by the number one on your telephone keypad.
Speaker Change: We have a follow up question from the line of David Silver with CL King. Please go ahead.
Speaker Change: Okay.
Speaker Change: Okay, just one more and apologies if I'm, making you repeat yourself, but.
Speaker Change: I have noted the strength in the salt margins over the.
Speaker Change: Past year or so and.
Speaker Change: I believe just in my records.
Speaker Change: The margin per ton in the fourth quarter here was the.
Speaker Change: The highest I think going back to at least 2016, not not sure about that.
Speaker Change: But.
Speaker Change: And I'm also aware that solid certainly on the Deicing side can be a very volume sensitive.
Speaker Change: High fixed cost low variable cost operation.
Speaker Change: So to me I mean, it's interesting that the volumes are lower but the.
Margins have actually improved.
Speaker Change: Yes, just a couple of things, but firstly you are still doing some things underground at Goderich and I would like maybe if you could comment on give us an update on that and what you're expecting.
Speaker Change: The impact of relocating some equipment some facilities and equipment underground could do to your.
Speaker Change: Cost position there.
Speaker Change: And then secondly, I mean.
Speaker Change: Yes.
Speaker Change: I do not mean this in a glib way, but what are you what is the current team at compass doing correctly or rate that may be.
Speaker Change: <unk> was not done or was done differently.
Speaker Change: Maybe over the past three to five years in other words.
Speaker Change: What were you able to find or what were you able to innovate.
Speaker Change: Through your production and delivery system that that has.
Speaker Change: <unk> created a much greater margin.
Speaker Change: Margin performance and then I would ask you what you think.
Speaker Change: Maybe the potential is if you look out a year or two.
Speaker Change: What else that on a more normalized.
Speaker Change: Winter volume year for instance, thank you.
Speaker Change: Okay.
Speaker Change: Out of a three part question here the first is going to salt margins in.
Speaker Change: Some of that is things are better than other part of it is related to timing, Jeff talk about that a second yes. It flows through inventory.
We touched on this this is Jeff we touched on this a little bit in our prepared remarks, but the one thing that we wanted to point out and make sure that was understood is the impact that the DD&A had add back has in low volume quarters, which is what youre seeing early in the fourth quarter. The company recorded a depreciation on a straight line basis, and what gets added back to EBITDA.
Speaker Change: Current year depreciation inclusive of amounts that are capitalized to inventory on the balance sheet and so what you get in a low volume quarter is a higher DD&A add back per tonne pushing that number up a little bit.
Speaker Change: Okay.
Speaker Change: David you were asking about the <unk> mill relocation.
Speaker Change: It was first folks to say.
<unk> is underway.
Speaker Change: What we're doing is we're going to be relocating the mill right now were doing the reinforcement areas in terms of ground control, making sure thats stable for the decades of foreseeable future set us.
Speaker Change: Particular areas of the mine Thats, particularly stable, we're starting a bit of the excavation work we've got the equipment on site excavation work for storage.
Speaker Change: Storage et cetera engineering is moving ahead, well, we're looking at a couple of different sort of ways to skin. The cat so to speak will be more transparent on that once we've had a chance to thinking that or.
More deeply that'd probably be some point in the spring.
Speaker Change: So the advantages that the springs are.
There are quite a few.
Speaker Change: First of all it's going to be.
Speaker Change: Once the east main drive ties into the shops.
I'll have a couple of things that that helps.
Speaker Change: It helps us with one us quicker access to the working areas rather than going all the way around the mine showing people in and out materials in and out around the mine to really the working areas. The mills located.
Speaker Change: Between that and.
Speaker Change: Exited other mines I think importantly ventilation.
Speaker Change: I'll be able to be managed better at the mine that allows us some flexibility to look at different sorts of mining methods at a kind of a combination perhaps between continuous mining and some drilling and blasting.
Speaker Change: Behavior.
Speaker Change: Well.
Speaker Change: We will ultimately abandon the complete south side of the mine, where we have a lot of ground control expenses.
Speaker Change: And capital that we spend invest really to keep the roof up I think I don't know what the exact number was for.
Speaker Change: Fiscal year 2004, yet, but it's probably.
Speaker Change: Probably approaching $2 a ton in terms of ground control costs, just from that part of the mine.
Speaker Change: So we abandoned that mine all these things together, we're going to have a much simpler.
Speaker Change: Lower cost mine, so we will.
Speaker Change: We're not going to stick a stake in the ground or make any promises about what that is but I think you could see that's going to be.
Speaker Change: Much better.
Speaker Change: The question here the last question is.
Speaker Change: No.
Speaker Change: What's happened well.
Speaker Change: First of all I think the company was headed off in a different direction.
Speaker Change: Looking at lithium and other sort of downstream.
Speaker Change: Diversification strategy in the past so that may have diverted some focus from really back to the basic.
Speaker Change: Which is really what we're our strategy is now we've changed the team out a lot.
Speaker Change: This occurred at a number of levels. We continue to work up for example.
Speaker Change: Ill get.
Speaker Change: Get that in place, we're being very careful about that.
Speaker Change: What were.
Speaker Change: I think I think.
Speaker Change: Really the benefit but what you are seeing the differences is thats really focus on what's important to you right now where maybe management and I'm just speculating on this might have been a bit distracted on some of these other things that were going on so.
Speaker Change: David Hope that helps.
Speaker Change: We have a very clear focus about what were out four okay.
Speaker Change: Yeah, No I appreciate.
Speaker Change: Appreciate all you shared there are lot of great color.
Speaker Change: Okay. Thank you very much that's it for me I appreciate it.
Speaker Change: Our next question will come from the line of Joel Jackson with BMO capital markets. Please go ahead.
Joel Jackson: Just trying to think about compass sort of normalization over time I think your guidance is a little over 8 million tons for highway Deicing Salt line this year.
What is that a normal what should be normal volume is it kind of $9 5 million ton highway deicing.
Speaker Change: I'm trying to look over different averages and what do you guys think is sort of normal.
Joe are you asking on a demand basis, yeah, yeah exactly.
Speaker Change: Asking about guidance capacity I'm asking.
Speaker Change: When I look back historically.
Speaker Change: It seemed like maybe nine 5 million tonnes highway deicing as kind of a normal run rate in a normal winter again those are very elusive goal a normal winter whenever happened.
Speaker Change: And just here you'll be about eight for reasons, we know I'm just trying to figure out when you guys plan get the mine Youre looking at working capital Union.
Speaker Change: Union, what do you plan what are the normal sales portfolio looking for highway Deicing. If winter is winter weather was normal inventories are normal.
Speaker Change: Yes, I think we think about our served markets in that seven five to $8 5 million tonnes.
Speaker Change: Obviously pending any prior seasons, but.
Speaker Change: I hate to give you today a arrangement 758.
Speaker Change: On a half on a big area is probably appropriate.
Speaker Change: Yes, let me follow up on that in terms of planning or.
Speaker Change: Planning that's different is we're planning on operating this business much more flexibly and focusing on cost.
Speaker Change: So that we can expand margins.
Speaker Change: The.
Speaker Change: Yes.
Speaker Change: Highway Deicing will flex up or down dip.
Joel Jackson: Depending on the season, so we kind of have a base load and over time, you can look at averages and things like that Joel.
Joel Jackson: Any given year, that's going to be what it is so it was really our ability to control the things that we can control, which is sort of cost and operating the mines flexibly. So we've demonstrated the ability to be able to do that at goderich.
Joel Jackson: And a quick.
Joel Jackson: <unk> really tried to attack the fixed costs as we ramp things down a bit.
Organize our capital structure now this year, they will flex that up or down depending on how the all the season goes and we're prepared to do that.
Joel Jackson: <unk>.
Joel Jackson: If we need to so I think that's the important thing to take away from here, we're going to focus on cost and operations effectiveness and we'll be talking more about that as year goes on but.
Joel Jackson: Building flexibility in this business to meet our served markets is what's key.
Mark is going to be what it is and Joel I should clarify the number I gave you was the North American Highway Deicing business. We obviously also service our chemical business and then you would have to include kind of an average for our UK business. So just a quick clarification.
Joel Jackson: Okay, right because I'm looking at highway Deicing of the segments. So if you said.
Speaker Change: 808, five and then chemical south of about two and a half something like that.
Speaker Change: So roughly $10 million.
Speaker Change: Yes.
Speaker Change: <unk>.
Roughly $1 million for chemical and then UK is.
Speaker Change: Hello, everyone.
Speaker Change: 600 700.
Okay. So when I said nine a half of a full business your guidance by about 10 cracks that sound about right.
Speaker Change: Okay, which makes sense and makes my next follow up question not necessarily buy the other.
The other question I want to ask kind of a nuance question I was actually looking at this morning I was looking at.
Speaker Change: What capacities to south of highway Deicing volumes to reacting to go a decade ago I was looking at what <unk>, what you've sold the last bunch of years and what I've noticed is that theres, a very clear downward trend in average.
Speaker Change: Q December December quarter volumes, So March quarter volumes look similar at 20 years ago is there something going on with health industry. The last 10 years, where our December quarter sales. Just are lower is that we had lower average winter weather. So you got a lowered pre buying or pre buying season or.
Like is there something going on with December quarters are weaker than historical versus March quarters, you get what I'm getting at.
Speaker Change: Yes, Joel I think.
Speaker Change: Tom a question as we look at that and also as we discussed forecasting with our customers.
Speaker Change: We see that same trend.
Speaker Change: But we're not trying to overreact to that obviously, but.
Speaker Change: There is a feeling that has winter shifted a little bit more towards calendar Q1.
Speaker Change: Q2 timeframe.
I don't think we would make a definitive statement on that but we monitor that data as well.
Speaker Change: Winter has shifted so not.
Speaker Change: Blake.
Speaker Change: So you are seeing like December move to April something like that or there's more snowfall in early April is that we.
We're getting that.
There is there is some sense that that may have happened.
Speaker Change: I wouldn't I would tell you that there is not a definitive change in behavior or communication from the market around that type of.
Speaker Change: Shift, but if you just look at the trend on a monthly basis.
Speaker Change: Youre seeing the same thing we are.
Speaker Change: Okay. Thanks for that.
Speaker Change: And that will conclude our question and answer session I'll turn the call back over to <unk>, President and CEO for closing remarks.
Speaker Change: Okay. Thank you.
Speaker Change: Very much Regina.
Speaker Change: Thank you all for your interest in Compass minerals.
Speaker Change: Please don't hesitate to reach out.
Speaker Change: Brent if you have any follow up questions. We look forward to speaking to you.
Speaker Change: And the next quarter, thanks very much.
Speaker Change: And that concludes our call today. Thank you all for joining you may now disconnect.
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