Q1 2025 Compass Minerals International Inc Earnings Call
Regina: 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 First Quarter Fiscals 2025 Earnings Conference Call.
Speaker Change: All lines have been placed on mute to prevent any background noise.
Speaker Change: After the speaker's remarks, there will be a question and answer session.
Speaker Change: If you'd like to ask a question during this time, simply press star, then the number one on your telephone keypad.
Speaker Change: To withdraw your question, press star 1 again. We kindly ask that you limit your questions to one and one follow-up. I would now like to turn the conference over to Brent Collins, Vice President, Investor Relations and Treasurer. Please go ahead.
Brent Collins: Thank you, Operator. Good morning and welcome to the Compass Minerals Fiscal 2025 First Quarter Earnings Conference Call.
Brent Collins: Today, we will discuss our recent results and update our outlook for fiscal 2025.
Brent Collins: We will begin with prepared remarks from our President and CEO, Edward Dowling, and our CFO, Peter Fellman.
Brent Collins: Joining in for the question and answer portion of the call will be Ben Nichols, our Chief Sales Officer, and Jenny Hood, Chief Supply Chain Officer. Before we get started, I will remind everyone that the remarks we make today reflect financial and operational outlooks as of today's date, February 11, 2025.
Speaker Change: Thank you, Brent. Good morning, everyone. And thank you for joining us on our call today.
Speaker Change: Before I begin, I want to make a few comments about the senior leadership additions we announced a couple of weeks ago. An important aspect of executing on our back-to-basics strategy is operational discipline and an intense focus on continuous improvement.
Speaker Change: The appointments of Pat Merrin and Peter Feldman as COO and CFO, respectively, bring two executives to Compass Minerals with proven track records of leading teams and building cultures focused on disciplined operational management.
Speaker Change: that will join the company officially in early March. Peter's been with the company a short time and is quickly getting up to speed. He's with us on the call today. I am excited about these addition and these two leaders to our core team. I look forward to their contributions to the company.
Speaker Change: Peter is succeeding Jeff Cathey who stepped down for personal reasons.
Speaker Change: So we will continue to benefit from his knowledge as he serves in the consulting room for the next several months.
Speaker Change: Jeff first served as our Chief Accounting Officer, and then as CFO, and he was instrumental in leading the finance of the accounting organization through a number of important matters. On behalf of Compass Minerals, I want to thank Jeff for his many contributions to the company, and we wish him well in his future endeavors.
Speaker Change: I'll start with making a few comments on the business, beginning with our salt business.
Speaker Change: Consistent with prior comments we've made, one important area of focus this year has been to flexibly manage the business and to reduce our absolute inventory levels of highway DIC salt.
Speaker Change: You'll recall that this was a key driver in a decision to curtail production at Goddard's Mine in 2024.
Speaker Change: Reducing inventory obviously has the benefit of freeing cash that is hung up in working capital. It also helps remove supply-demand balance in the market that is long on supply following last year's weak winter.
Speaker Change: Salt is like any other commodity. When there's too much of it in the system, it will weigh on price, all things being equal.
Speaker Change: We're making good progress in reducing our inventory volumes. With North American Highway de-icing inventory, volumes down approximately 10% year-over-year, and that is despite the fact that winter began slower than we'd hoped in October and November.
Speaker Change: in the fiscal first quarter generated by early snow events. Unfortunately, we really didn't see any weather in our served markets early in the quarter to drive our orders, given that large parts of our customer base had adequate inventory following last year's exceptionally cold winter.
Speaker Change: December saw an increase in winter weather that was consistent with the 10-year average in our served markets and is significantly above what we saw last year. Looking outside the quarter, we saw winter weather further strengthen in January, which allowed us to claw back.
Speaker Change: some of the shortfall from the first quarter. We'll see how the rest of the winter DI6 season progresses and that will inform our production plans for the coming year.
Speaker Change: One new factor that could influence production plan is a tariff on Canadian imports that the U.S. administration announced and then quickly paused last week. And the impact that this would have on both salt and SOP produced in Canada and sold in the U.S. should the tariff eventually be implemented.
Speaker Change: There's obviously a lot of details to work through, but I'll share a few of our initial thoughts.
Speaker Change: Regarding our highway de-icing business, we don't expect the tariff would materially impact the current year's de-icing season as the inventory is largely forward deployed and available for our customers.
Speaker Change: It does have the potential impact next year, as we will need to produce and then move fuzz salt across our deepwater network. We're evaluating options to minimize the more immediate impact such a tariff could have on our CNI, chemical, and vineyard-served SOP business.
Speaker Change: As we see, this matter will likely be very dynamic for some time, and we will continue to monitor it closely. As the situation continues to evolve and settle out, we will update the investment community as appropriate.
Speaker Change: In the plant nutrition business, we've talked in the past about the goal of restoring the pond complex at Ogden. This is a multi-year process that we engaged with for several years and the focus is improving consistency of the grade of SOP raw materials going to the plant.
Speaker Change: Acknowledging that this has not been a quick recovery process, there are beginning to see positive results from these efforts, which are having an impact on our cost structure.
Speaker Change: The site has been focused on finding opportunities to improve operational efficiency.
Speaker Change: While pricing in the quarter was a little weaker than expected, we had stronger sales volumes and lower costs that allowed us to exceed forecast. In this turn, it's enabling us to increase guidance for this segment.
Speaker Change: At Fortress, we continue to evaluate all options for the business, including ongoing discussions with the U.S. Forest Service regarding the evaluation and testing of the company's conditionally qualified, technical-grade, orthophosphate-based aerial fire retardant, Quella.
Speaker Change: With respect to guidance, we're moving the range for total adjusted EBITDA down by roughly $15 million.
Speaker Change: The main driver of this change is a lighter start in sales that are salt business attributable to the mild weather in October and November I mentioned earlier. Again, January came in better than forecast, and we've included some of that outperformance into our revised guidance.
Speaker Change: Plant nutrition is up by about four million dollars based on the factors previously mentioned. Corporate EBITDA is unchanged from what we guided in December.
Speaker Change: To offset this reduction in adjusted EBITDA, the company is reducing the range of capital gains by approximately $25 million.
Speaker Change: When we laid out our guidance for the year in the last earnings call, we noted that we had sculpted the CapEx program such that we could modify our spend to adjust it to how the de-icing season shaped up, and we're pulling that lever as envisioned.
Speaker Change: I'll note that the operational initiatives are underway to improve reliability and lower cost, which will have a positive impact on CapEx over time. We're already seeing benefits from some of that work.
Speaker Change: With respect to the balance sheet, our plan remains to refinance our debt stack this year with the intention of restructuring in a way that better aligns with our current strategy. We believe that we'll be able to move forward with a structure that provides more flexibility around our covenants.
Our vision for Compass Minerals remains unchanged.
Speaker Change: to build a company that generates free cash flow even in mild winters.
Speaker Change: Strong free cash flow during normal winters and outstanding cash flow in strong winters.
Speaker Change: We have more work to do to get there, but the company's made important strides over the past several quarters. We're improving areas that we have the most ability to influence. Said differently, we're doing a better job at controlling the controls.
Speaker Change: I'll expect our progress on this front to continue and accelerate with the arrival of Pat and Peter. We remain focused on delivering on our back-to-basics strategy. I'm excited about the progress we're making in the organization to execute on that goal. With that, I'll turn the call over to Peter.
Thanks, Ed.
Peter: Good morning to everyone. I'm extremely excited to be joining Compass Minerals and working with the team here. My background and skill set align well with the back-to-basics strategy that the company has embarked on. I want to echo the sentiments shared by Ed earlier about Jeff. He's been incredibly helpful and generous with his time and knowledge as we transition the role.
Speaker Change: I'll comment briefly on the financial results for the quarter before turning the call over for Q&A.
Speaker Change: For the first quarter, consolidated revenue was $307 million, down 10% year-over-year. It's important to remember that the fiscal first quarter of 2024 included contributions related to fortress from the U.S. Forest Service contract we had in that year.
Speaker Change: From an operating earnings perspective, we essentially broke even in the current quarter. Consolidated net loss was $24 million, and adjusted EBITDA was approximately $32 million for the quarter.
Speaker Change: Drilling down in the segment results, in the salt business, revenue in the first quarter was $242 million, compared to $274 million a year ago.
Speaker Change: Pricing was up 1% year-over-year to approximately $97 per ton, with volumes down 13% compared to the prior year period.
Speaker Change: Net revenue per ton, which accounts for distribution costs, increased 3% to over $68.
Speaker Change: On a per ton basis, operating earnings came in lower year over year at $11.79 per ton, down 34%, while adjusted EBITDA per ton decreased 17% to $19.17.
Speaker Change: The decrease in margin reflects an increase in production costs per ton due to the curtailment of production at Goddard's mine last year.
Speaker Change: In the plant nutrition business, revenue for the first quarter was $61 million, which is up 24% year-over-year from $50 million.
Speaker Change: Sales volumes were up 36% from prior year period while pricing was down 9%.
Speaker Change: Distribution costs per ton decreased 2% to around $91.15 per ton and all-in production costs per ton decreased 10%.
Speaker Change: At quarter end, we had liquidity of $126 million, comprised of $46 million of cash and revolver capacity of around $80 million. At quarter end, the consolidated net leverage ratio was 5.9 times, within the company's net leverage covenant of 6.5 times.
Speaker Change: Last week, the company had approximately $195 million of liquidity with $65 million of cash and $130 million of revolver capacity.
With that, I'll turn the call over for questions.
Speaker Change: At this time, if you would like to ask a question, press star, then the number one on your telephone keypad. We kindly ask that you limit your questions to one and one follow-up. We'll take our first question from the line of David Begleiter with Deutsche Bank. Please go ahead. Thank you. Good morning.
Speaker Change: Ed, given the recent winter weather activity, can you kind of frame the outlook for high wavy icing volumes in both Q2 as well as the full year?
Speaker Change: Well, you know, we're in the February now, January was, I mean, as we said,
Speaker Change: October-November were not good months for us, winter really didn't materialize in our surf markets. December was a really solid month for us.
Speaker Change: You know, really being relatively equal to our 10-year average. January was really great.
Speaker Change: really mainly in our southern markets, remember the storm tracks largely in the south. And of course now what we've been seeing more recently, the storm tracks are really into our core sort of markets. And we hope that sort of continues.
Speaker Change: You know, the, we'll see, you know, so February's looking pretty good so far. We'll have to see how March lays out and we'll, and that effect on inventory. And we'll do our production planning based on really how we sort of wrap up the season kind of at the end of March.
Speaker Change: Very good. And just on Fortress, when you say conditionally qualified, what does that actually mean?
Speaker Change: There are several steps that the Forest Service uses to approve products.
The...
Speaker Change: You know, the first step is sort of a lab-based product to conditionally qualify it. There's several, really, things that go into that. Once that is...
a conditionally qualified, which it is.
Speaker Change: Then you take it into the field through what's called an Operational Field Evaluation, OFE.
Speaker Change: And that's what we're talking to the Forest Service about right now. Jenny, you wanna add anything to that? I'll just add, as part of the field evaluation, the OFE that Ed just mentioned, during that process, they'll also be doing integration testing with the legacy retardants that are in the market. Thanks.
Speaker Change: And does this mean you've solved the corrosion issues you highlighted last year, what they highlighted last year?
Speaker Change: It's a different base chemistry, you know, initially the chemistry was a magnesium chloride base chemistry.
Speaker Change: And that's where, you know, we were all surprised about this time last year.
Speaker Change: to learn when we were very close to having a contract that the inspection of the airplanes found the corrosion. That investigation is still going on. We can't comment on it.
because it's going on within the NTSB.
Speaker Change: What we're talking about with Quella, it is a different chemistry based on...
Speaker Change: and it's been through the testing and evaluation which is obviously getting a lot more scrutiny given where we ended up last year. So anything you want to add to that? No, thanks Ed.
Speaker Change: Our next question comes from the line of Joel Jackson with BMO Capital Markets. Please go ahead.
Joel Jackson: Hi, good morning. Thanks for doing the call, Ed and team. First question.
Joel Jackson: surprised that you lowered your full year of volume guidance and it is snowing a fair bit
Speaker Change: I live in Toronto, Ed, as you know. I'm shuffling a lot, and we're all shuffling a lot and talking about it. American Rock Salt is having an incredible production, right? It seems like there's some shortages in Western New York. I understand that we started light at the beginning of the winter in December, but I'm surprised that you lowered your volume guidance considering everything going on. Can you talk about that?
Speaker Change: Well, it's just what we've done is you know, we're not weather forecasters It can't project going forward what we're doing, you know in the past you'll recall we were using more of a distribution
Speaker Change: a distributed approach to guidance. What we're doing is, as we've talked about in the past, a little different approach to it now, where we're given the shortfall in the first quarter.
Speaker Change: We've taken that, and we've added a little bit back in January, and that's kind of what we're saying right now. Now, if we have knockout February and knockout March, we'll probably adjust it back up, but we're just being careful about it.
Speaker Change: Okay, my second question is going to be two parts. The first part will be following up on that. But you gave guidance...
in the middle of December.
and it's only snowed very strongly since then.
Speaker Change: That's why I'm surprised you lowered your volume, Guy. And the second question is, Ed, talk about what you're doing on SG&A because that's been a big focus of yours when you came in about a year or 15 months ago, and SG&A in the first quarter was extremely flat with SG&A in fiscal quarter of 20, fiscal Q1 of 24. So what progress are you making and can you make on SG&A?
Speaker Change: Yeah, you know we are we have made progress at SG&A, you know if you think about sort of the headcount
Speaker Change: We are down, you know, probably about 80% running with a team of about 80% of the number of people that we had here not too distant past.
Speaker Change: things, you know Like legal costs associated with some of the class action lawsuits and things like that has been all setting sort of SG&A It remains a really important focus board. It's a very active discussion going on with management as we speak
Speaker Change: and just and just about the front yeah look and that's it's just the other things
Speaker Change: Yeah, I was just going to say, in the middle of December, to kind of follow up on that, you know, we really was, you know, we did that in mid-December, and we'd only closed in October.
Thank you.
Speaker Change: Our next question comes from the line of Jeff Zekoskis with JP Morgan. Please go ahead.
you know, where you
Speaker Change: expect that to go. And likewise, do you have targets for where you want to bring your inventories down to?
Speaker Change: Yeah, well, we can tell you that we talk to inventories a lot, we are bringing them down. We'll bring them down to lower than historical norms that liberate the cast.
Speaker Change: associated with that. Ben, do you want to add anything to that?
Ben Nichols: No, I think that's right, Ed. Just where the winner is tracking all things being equal. And if you kind of take the midpoint of our guidance.
Ben Nichols: You know, that's relative to last year. That's roughly a half million tons alone on the demand profile. So, you know, we're also taking actions at the mine that you've seen published and.
We anticipate to draw the inventories down significantly.
Ben Nichols: Yes, you know, we continue to run Godrich at the curtailed rate and we won't ramp it back up until we've got a better level on our inventory.
Speaker Change: Do you want to talk to A.R.? Yeah, Jeffrey and Brent. So, A.R., that's just sales. So, as we talked about in the prepared remarks,
Speaker Change: October and November were pretty light, but December was a strong month. So that's just the cash conversion cycle, things coming out of inventory, going up into accounts receivable, and then we'll start collecting that here in the second quarter.
Thank you for joining us. Thank you.
Speaker Change: And then it looks like you're, I don't know if you're deferring $25 million in CapEx or
Speaker Change: canceling 25 million in CapEx. Can you talk about what it is that you're not spending?
and whether you'll see that in the future.
Speaker Change: Let me remind everybody that last year we installed a more disciplined approach to capital where we rank projects.
based on really the risk.
Speaker Change: associated with kind of not doing the project and we're not going to cut environmental health or safety.
Let's just say that
Speaker Change: And we still get emergency capital requests that come through that we have to have a provision for. What we're talking about are projects that we've ranked.
Speaker Change: from kind of higher risk to lower risk that are in the capital plan for 2025. And what we're planning at this point is not doing
Speaker Change: about $25 million worth of that with the lower end of those projects which would have scored lower in terms of that risk profile. Now, they'll probably show back up.
in 2026, and we'll go through that process again.
Speaker Change: So we put the process in place last year. What we've done this year is organize our capital plan so that we could ramp it up or ramp it down, depending on how the year went. Given the first quarter was behind plan, we've ramped it down accordingly.
Great. Thank you.
Brent Collins: Hey Jeff, this is Brent. I did want to clarify one thing on the accounts receivable that I was thinking about. So on the on the product recall that we announced that was disclosed last quarter, the way the accounting for that works is that we expect that to be covered by insurance.
Brent Collins: The way that you have to handle that from an accounting perspective is you have to do a gross up of the claim and then the receivable. So that could be something that you're seeing there is that there's just a gross up on the balance sheet to reflect that. How much is that?
$35 million grossed up.
Okay, thanks.
Speaker Change: Our final question will come from the line of David Silver with CL King & Associates. Please go ahead.
Thank you. Thank you.
Speaker Change: Yeah, hi, thank you. I do have a couple of questions.
Speaker Change: So, the first one would be about managing your salt business through the balance of the winter season.
in reading through the...
Speaker Change: press release a couple of words that I don't usually see their toggle and tariffs
Speaker Change: And when I think about it, I'm guessing officially the tariffs would not kick in until, I don't know, March 3rd or 4th, in a worst case scenario.
Speaker Change: and in the meantime I'm guessing that you are leveraging you know the Cote Blanche production to kind of meet meet the needs in your
Speaker Change: target market area, marketing radius to the greatest extent possible. But could you just kind of talk through, you know, why would the tariffs, at least for this winter,
Speaker Change: be an issue in kind of a worst case scenario. In other words, between now and March 4th, you can produce and position.
Speaker Change: And then you can run Cote Blanche or toggle, I guess, running Cote Blanche a little harder and moving product up the river.
Speaker Change: Between the toggles and the tariffs, what do you fear, I guess, at least in terms of the current winter season, you know, through March 31st or April? My assumption is you should be able to get through
Speaker Change: unscathed, but is there kind of a worst-case scenario there? Thank you.
Speaker Change: Thanks, Jacob. In terms of the highway day icing, we don't really see much risk associated with tariffs for this fiscal year.
Speaker Change: As we said, most of our inventory is already forward, you know, from Godrej in Canada is already forward deployed so that the customers can access it this year.
Speaker Change: We're going to have to see what happens with an in and if.
Speaker Change: The tariffs are reinstated here in a month or so, so we need to be prepared for that. You mentioned one potential contingency.
And this would be really more for...
next year, not this year.
but some flexibility associated.
with Cote Blanche to serve some of our historical markets.
Speaker Change: But there would be, over time, a reordering that would happen within the serve markets for all the salt producers. We just have to see what happens.
Speaker Change: and there's many, many, many potential scenarios that come out of that. We did mention that...
Speaker Change: products made from like our SOP product and C&I product made in Canada and imported into the U.S.
could be affected.
Speaker Change: through tariffs this year. And there's scenarios where that could be both negative, obviously, but it could, you know, ironically, it could end up being positive for SOP produced in Utah. So we'll just have to see how it goes.
Speaker Change: Okay, thank you for that. Next question would be maybe a follow-up on a certain extent to the CapEx question, but then also about your SOP business in particular.
Speaker Change: The wording in the press release indicated that, I don't know, remediation or
repair efforts, and I apologize, I forget the exact term.
Speaker Change: But, you know, you're doing things with the SOP ponds and whatnot that are, you know, generating some better results. You also talked about, you know, optimizing the use of KCL.
Speaker Change: I'm kind of scratching my head, but within the context of knocking or taking $25 million out of the CapEx budget.
Speaker Change: I mean are the efforts or are the steps you're taking, you know, at Ogden on the SOP business?
Speaker Change: Are those capital projects, or is the spending that you're doing, they're actually flowing through the income statement by quarter? So, just, you know, maybe a comment on...
Speaker Change: What most recently you've done at Ogden and the SOP ponds that are generating better results, and then you know how does that kind of play into
Speaker Change: the capital budget that you've established, you know, as of this quarter.
Speaker Change: Jake, thanks for the question. We've been working for some time to restore the, that's the word we're using, restore the health of the ponds that we mine, basically scrape up the material, and to really control the brine chemistry more properly, along with a prudent use of KCL, which does help that restoration.
That's really the first step.
Speaker Change: in terms of restoring this business to its historical level of business performance.
Speaker Change: And what we're really pointing out is after a year of work, and of course, remember, this is a multi-year cycle.
Speaker Change: We're seeing the benefits of that. What we're seeing is what we expected to see is higher grade SOP in the material that we mine and send to the plant.
Now there's two plans.
There's a wet plant where we separate
Speaker Change: SOP for magnesium chloride, then the SOP then goes over to the dry plant. There will be some capital projects in that dry plant in the future to get the water, really the moisture, and the SOP right for compaction.
Speaker Change: have been operating that plant for some period of time in a less than optimal condition.
Speaker Change: process in terms of the moisture feeding compaction, and we suffer losses associated with that. So we're seeing benefits now to operating costs just by managing our business better. That's more just operating costs.
Thank you very much.
You know, one, as I mentioned, the dry plant.
Speaker Change: at Ogden, which will help us reduce our costs even more. The second...
which is really a sustainability project, is the goal relocation.
Speaker Change: at Godrich Mine, which will occur probably in 2027. So we're preparing to do those projects.
Speaker Change: doing the engineering and doing the engineering right. We are spending capital on those, but those projects themselves will be coming in the future.
Speaker Change: And that will conclude our question and answer session. And with that, I'll turn the call back over to Ed Dowling for closing remarks.
Brent Collins: Thank you for your interest in Compass Minerals. Please don't hesitate to reach out to Brent if you have any follow-up questions. We look forward to speaking with you next quarter. Thanks very much.
Brent Collins: That will conclude today's call. Thank you all for joining. You may now disconnect.
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