Compass Minerals International, Inc. Price & Performance (CMP)

The discussion of these risks can be found in our SEC filings located online at investors.compassminerals.com Compass. Our remarks today also include certain non GAAP financial measures. Can find reconciliations of these items in our earnings release in our presentation, both of which are also available online. I will now turn the call over to Ed. Thank you, Brent. Good morning, everyone, and you for joining us on our call today. 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 basic strategy is operational discipline and intense focus on Compass into this improvement. The appointments of Pat Merritt and Peter Feldman as COO and CFO respectively bring 2 executives at Compass Minerals with proven track records of leading teams and building cultures focused on disciplined operational management. That will join the company officially in Peter has been with the company short time and is quickly getting up to speed. He's with us on the call today. I am excited about these additions and these 2 leaders to our core team. I look forward to their contributions to the company.

Peter is succeeding Jeff Cathy, who stepped down for personal reasons. Though we will continue to benefit from his knowledge as he serves in the consulting realm for the next several months, Jess first served as our Chief Accounting Officer and then as CFO and he was instrumental in leading the finance and 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 I wish him well in his future endeavors. I'll start with making a few comments on the business beginning with our soft business. Consistent with prior comments we've made, 1 important area of focus this year has been to flexibly manage the business and to reduce our absolute inventory levels of highway deicing salt You'll recall this was a key driver in our decision to curtail production at Gladrich Mine in 2024. Reducing inventory obviously has the benefit of freeing cash that is hung up in working capital it also helps renew supply demand balance in the market that is long on supply following last year's sold as like any other commodity, when there's too much of it in the system, will weigh on price.

All things being equal. We're making good progress in reducing our inventory volumes. With North American highway deicing inventory volumes down approximately 10% year over year and that is despite the fact that winter began slower than we had hoped in Oct. 0 and Nov. 0. We typically see both pre fill activity and replenishment early in the 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 mild winter. Dec. 0 saw an increase in winter weather that was consistent with the ten year average in our served markets and is significantly above what we saw last year. Looking outside the quarter, we saw winter weather further strengthened in Jan. 0 which allowed us to claw back some of the shortfall from the We'll see how the rest of winter de icing season progresses, and that will inform our production plans for the coming year. 1 new factor that could influence production plan is the 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 potentially be implemented, There's obviously a lot of details to work through but I'll share a few of our initial thoughts. Regarding our highway deicing business, we don't expect the tariff would materially impact the current years de icing season as the inventory is largely forward deployed, and available for our customers. It does have the potential impact next year as we will need to produce and then move salt across our deepwater network. We're evaluating options to minimize the more immediate impact of such a tariff could have on our C and I chemical and vineyard served SOP business. As we see this matter will likely be very dynamic for some time. And we'll continue to monitor it closely. As the situation continues to evolve, we will update the investment community as appropriate. In the Plant Nutrition business, we've talked in the past about the goal of restoring the pond complex This is a multiyear process that we engaged with for several years and focus is improving consistently of the grade of SOP raw materials going to the plant.

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. The site has been focused on finding opportunities to improve operational efficiency. While pricing in the quarter was a little weaker than expected, we had stronger sales volumes and lower costs that allowed us to exceed In this turn, it's enabling us to increase guidance for this segment At Fortress, we're continuing 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 ortho phosphate based aerial fire retardant with respect to guidance, we're moving the range for total adjusted EBITDA down by roughly $15,000,000 The main driver of this change is the lighter start in sales in our salt business attributable to the mild weather in Oct. 0 and Nov. 0 I mentioned earlier, again, Jan. 0 came in better than forecast We've included some of that outperformance into our revised guidance. Plant Nutrition is up by about $4,000,000 based on the factors previously mentioned. Corporate EBITDA is EBITDA unchanged from what we guided in Dec. 0.

To offset this reduction in adjusted EBITDA, the company has reducing the range of capital guidance by approximately $45,000,000 When we laid out our guidance for the year, our last earnings call, we noted that we had sculpted the CapEx program such that we could modify our spend to adjust to how the deicing season shaped up and we're pulling that lever [indiscernible] I'll note that the operational initiatives are underway to improve reliability, lower cost which will have a positive impact on CapEx over time. We're already seeing benefits from some of that work. 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 the structure that provides more flexibility around our covenants. Our vision for Compass Minerals remains unchanged. To build a company that generates free cash flow even in mild winters strong free cash flow during normal years an outstanding cash flow and strong winners. We have more work to do to get there the Compass has 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 controlling the controllables. I'll expect our progress on this front to continue and accelerate with the arrival of Compass Peter, We remain focused on delivering on our back to basic strategy I'm excited about the progress we're making in the organization execute on that goal. With that, I'll turn the call over to Peter. Thanks, Ed. 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 basic strategy 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.

I'll comment briefly on the financial results for the quarter before turning the call over for Q and A. For the consolidated revenue was $3.00 $7,000,000 down 10% year over year It's important to remember that the included contribution related to Fortress from the U. S. Forest Service contract we had in that year. From an operating earnings perspective, we essentially broke even in the current quarter.

Consolidated net loss was 24,000,000 and adjusted EBITDA was approximately $32,000,000 for the quarter.

Drilling down into the segment results, in the salt business, revenue in the was $2.42,000,000 dollars compared to $2.74,000,000 dollars a year ago. Pricing was up 1% year over year to approximately $97 per ton. With volumes down 13% compared to the prior year period. Net revenue per ton which accounts for distribution costs, increased 3% to over $68 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 The decrease in margin reflects the increase in production cost per ton due to the curtailment of production at Goderich Mine last year.

In the Plant Nutrition business, revenue for the was $6.1,000,000 dollars which is up 24% year over year from 50,000,000 Sales volumes were up 36% from prior year period, while pricing was down [indiscernible] Distribution cost per ton decreased 2% to around $9,1.5 per ton and all in production cost per ton At quarter end, had liquidity of $126,000,000 comprised of $46,000,000 of cash and a revolver capacity of around 80000000 At quarter end, the consolidated net leverage ratio was 5.9 times.

Within the company's net leverage covenant of 6.5 times.

Last week, the company had approximately $195,000,000 of liquidity with $65,000,000 of cash and $130,000,000 of revolver capacity. With that, I'll turn the call over for questions. We'll take our first question from the line of David Begleiter with Deutsche Bank.

Thank you. Good morning. Ed, given the recent kind of frame the outlook for highway deicing volumes in both as well as the full year? Well, we're in the Feb. 0 now. Jan. 0 was a I mean, as we said, Oct. 0, Nov. 0 were not good months for us. The winter really didn't materialize in served markets. Dec. 0 was a really solid month for us. Really being relatively equal to our ten year average Jan. 0 was really great. And really mainly in our southern markets where 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 our core served markets and we hope that sort of continues. We'll see so Feb. 0 is looking pretty good so far. Have to see how March 0 lays out and we'll and that effect on inventory We'll do our production planning based on really how we sort of wrap up the season kind of at the March,.

Very good. And just on Fortress, when you say conditionally qualified, what does that actually mean?

There are several steps that the Forest Service uses to prove products. [indiscernible] The first step is sort of a lab based product to conditionally qualify it. There are several really things that go into that. Once that is conditionally qualified, which it is, then you take it into the the field through what's called an operational field evaluation, OFE. And that's what we're talking to the force service right now. You want to add anything to that?

I'll just add as far as the field evaluation of the OFE that adds a mentioned, during that process, they'll also be doing integration testing with the legacy retardants that are in the market.

Does this mean you've solved the corrosion issues highlighted last year, what they highlighted last year?

It's a different base chemistry Initially, the chemistry was a magnesium Alright. Base chemistry and that's where we were all surprised about this time last year to learn when we were very close to having a contract that especially airplanes found the corrosion That investigation is still going on. We can't comment on it. Because it's going on within the NTSB. What we're talking about with Quella it is a different chemistry based on on a phosphate type chemistry and has been through the testing and evaluation which is obviously giving a lot more scrutiny. Given where we ended up last year. So anything you want to add to that? No, thanks, Russ.

Thank you very much. Our next question comes from the line of Joel Jack Jackson with BMO Capital Markets. Please go ahead.

Hi, good morning. Texting the call, Ed and team. First question, surprised that you lowered your full year volume guidance and it is snowing a fair bit. I live in Toronto. As you know, I'm shoveling a lot and we're all shoveling a lot and talking about it.

American Rock Cell is having an issue with production. It seems like there's some shortages in Western New York.

Understand that we started light but I'm surprised that you lowered your volume guidance considering everything going on. Can you talk about that?

Well, it's just what we've done is we're not weather forecasters that can't project going forward. What we're doing in the Compass, you'll recall, we were using more of a system a distributed approach to guidance, what we're doing is, as we've talked about in the past little different approach to it now. Where we're given the shortfall in the we're really we've taken that We've added a little bit back in Jan. 0. And that's kind of what we're saying right now. Now if we have knockout Feb. 0 and knock out March 0, probably adjusted back up. But we're just being careful about it.

My second question can be 2 parts. The first part, at least following up on that. But you gave guidance in the December, and it's only snowed very strongly since then That's why I'm surprised you lowered your volume guide.

The second question is, Ed, talk about you're doing on SG and A because that's been a big focus of yours when you came in about a year or fifteen months ago.

And SG and A in the was extremely flat with SG and A in what progress are you making and can you make on SG and A?

Yes. We have made progress in SG and A. If you think about sort of the headcount we are down Probably about 80% running with a team of about 80% of the number of people that we had here not too distant past, What's been offsetting us are things like legal costs associated with some of the class action lawsuits that things like that has been offsetting through SG and A. It remains a really important focus for us, a very active discussion going on with management as we speak.

And just about [indiscernible] Right. Yes. I was just going to say in the December,, to kind of follow-up on that, we really was we did that We'd only closed in Oct. 0.

Before that, right?

Okay. Thank you. Our next question comes from the line of Jeff Zekauskas with JPMorgan.

Please go ahead. Thanks very much. Can you talk about what's going on in your accounts receivable line? And where you expect that to go And likewise, Do you have targets for where you want to bring your inventories down to?

Yes. Well, we can tell you that we talk inventories a lot We are bringing them down. We'll bring them down to lower than historical norms. [indiscernible] associated with that Ben, you want to add anything to that? No, I think that's right, Ed. Just where the winter is tracking all things being equal. And if you kind of take the midpoint of our guidance, that's relative to last year, that's roughly 500000.0 tons alone on the demand profile. So we're also taking actions at the mine that you've seen published and we anticipate that probably inventory is down significantly.

Yes. We continue to run [indiscernible] And we won't ramp it back up. Until we've got a better level on our inventory You want to talk to AR? [indiscernible] AR, that's just sales. So as we talked about in the the prepared remarks, Oct. 0 and Nov. 0 were pretty light, but Dec. 0 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 And then it looks like you're I don't know if you're deferring $25,000,000 in CapEx or canceling $25,000,000 in CapEx. Can you talk about what it is that you're not spending and whether you'll see that in the future?

Let me remind everybody that we last year we installed a more disciplined approach to capital where we rank projects based on really the risk associated with kind of not doing the project. And we're not going to cut environmental health or safety. Let's just say that.

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 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 about $25,000,000 worth of that was 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. So what the so we put the process in place last year. What we've done this year is organized our capital plan so that we could ramp it up or ramp it down depending on how the year went. Given the was behind plan, we've ramped it down accordingly.

Great.

Thank you.

Hey, Jeff, this is Brent. I did want to clarify 1 thing on the receivable that I was thinking about. So on the the product recall, we advanced that was disclosed last quarter The way the accounting for that works is that you we expect that to be covered by insurance. The way that you have to handle that from an accounting perspective is you have to do a gross up 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 reflect that?

How much is that?

Dollars 35,000,000 grossed up. Okay.

Thanks. Our final question will come from the line of David Silver with C. L. King and Associates. Please go ahead.

Yes. Hi. Thank you. I do have a couple of questions.

So first 1 would be about your managing your salt business through the balance of the winter season. In reading through the press release, Compass of words that I don't usually see there, toggle and tariffs. And when I think about it, I'm guessing officially the tariffs would not kick in until, I don't know, March '4. In a worst case scenario. And in the meantime, I'm guessing that you are leveraging the Cote Blanche production to kind of meet meet the needs in your target market area, marketing radius, to the greatest extent possible. But could you just kind of talk through why would the tariffs at least for this winter be an issue in kind of a worst case scenario? In other words, between now and March '4, you can produce and position and then you can run Cote Blanche or Toggle, I guess running Cote Blanche a little harder and moving product up the river. But between the toggles and the tariffs, what is [indiscernible] what do you fear, I guess, at least in terms of the current winter season through March 31 or April 0. My assumption is you should be able to get through unscathed, but is there kind of a worst case scenario there?

Thank you. [indiscernible] Jacob. In terms of the highway day icing, we don't really see much risk associated with tariffs for this fiscal year. As we said, most of our inventory is already from Godrich in Canada is already forward deployed so that the customers can access it to share. We're going to have to see what happens with an end and if the tariffs are reinstated here, in a month or so. So if you need to be prepared for that, You mentioned 1 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, and 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. And there's many, many, many potential scenarios that come out of that We did mention that product [indiscernible] like our SOP product and C and I product made in Canada and imported into The U. S. Could be affected through tariffs this year. And are scenarios where that could be both negative obviously but it could ironically could end up being positive for SOP produced in Utah.

So we'll just have to see how it goes.

Okay. Thank you for that.

Next question would be maybe a follow-up to on a certain extent to the CapEx question, but then also about your SOP business in particular. So the wording in the press release indicated that I don't know, remediation or repair efforts and I apologize, I forget the exact term. But you're doing things with the SOP ponds and whatnot that are generating some better results. You also talked about optimizing the use of KCL. So I'm kind of scratching my head, but within the context of knocking or taking $25,000,000 out of the CapEx budget, I mean, are the are the efforts or are the steps you're taking at Ogden on the SOP business? Are those capital projects or is spending that you're doing there actually flowing flowing through the income statement by quarter. So just maybe a comment on What most recently you've done at Ogden and the SOP ponds that are generating better results and then then how does that kind of play into the capital budget that you've established as of this quarter? 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 approved use of KCL, which does help that restoration.

That's really the first step in terms of restoring this business to its historical level of business performance. And what we're really pointing out is after a year of work and of course remember this is a multiyear cycle, 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 2 plants. There's a wet plant where we separate SOP from 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 in the SOP right for compaction. When operating that plant for some period of time in a less optimal less than optimal process in terms of the moisture feeding Compass. 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. In the future, we will have capital costs And this is not something that we want to defer. There are really 2 really critical sort of business projects that we want to do on the capital side. 1, as I mentioned, the dry plant at Ogden which will help us reduce our costs even more, The second which is really a sustainability project [indiscernible] at Goderich Mine which will occur probably in 2027.

So we're preparing to do those projects doing the engineering and doing the engineering right. We are spending capital on those. But those projects themselves will be coming in the future.

And that will conclude our question and answer session. And with that, I'll turn the back over to Ed Dowling for closing remarks. Okay. 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 to you in the next quarter. Thanks very much.