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spk00: Good morning, ladies and gentlemen. My name is Abby and I will be your conference operator today. At this time, I would like to welcome everyone to the Compass Minerals Fiscal First Quarter 2023 Earnings Call. Today's call is being recorded and all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your questions, simply press star one once again. Thank you. And I will now turn the conference over to Brent Collins, Vice President of Investor Relations. You may begin.
spk08: Thank you, Operator. Good morning and welcome to the Compass Minerals Fiscal 2023 First Quarter Earnings Conference Call. Today we will discuss our recent results and update our outlook for Fiscal 2023. We'll begin with prepared remarks from our President and CEO, Kevin Crutchfield, and our CFO, Lauren Crenshaw. Joining in for the question and answer portion of the call will be George Shuler, our Chief Operations Officer, Jamie Standen, our Chief Commercial Officer, Chris Yandel, our Head of Lithium, and Ryan Bartlett, Senior Vice President, Lithium Commercial and Technology. Before we get started, I'll remind everyone that our remarks we make today reflect financial and operational outlooks as of today's date, February 8, 2023. These outlooks entail assumptions and expectations that involve risks and uncertainties that could cause the company's actual results to differ materially. A discussion of these risks can be found in our SEC filings located online at investors.compassminerals.com. Our remarks today also include certain non-GAAP financial measures. You can find reconciliations of these items in our earnings release or in our presentation, both of which are also available online. The results in our earnings release issued yesterday and presented during this call reflect only the continuing operations of the business other than amounts pertaining to the condensed consolidated statements of cash flows or unless noted otherwise. I will now turn the call over to Kevin.
spk02: Thank you, Brent. Good morning, everyone, and thank you for joining us today on our call. We continue to make strides in our efforts to reposition Compass Minerals for accelerated growth, reduce winter weather dependency, and create sustainable value for our shareholders by expanding our essential minerals portfolio into the adjacent markets of battery-grade lithium and next-generation fire retardants. As communicated on our last quarterly call, we entered 2023 focused on achieving six strategic goals. I'll take just a few minutes to provide a status update on each of those areas. Then I'll comment on the quarter before turning the call over to Lauren to discuss our financial performance in more detail. Our first area of focus continues to be the safety and well-being of our employees. Last year was an outstanding year for safety performance across our operations. In fiscal 23, we intend to build on that strong performance and our continued drive towards zero harm across each of our facilities. We acknowledge that achieving zero harm or no reportable injuries across our entire platform will be a challenge in the complex operating environments that we operate in. However, in several of our sites, we've already proven it's possible, and we owe it to our employees and their families to strive for that goal every day so that employees go home to their families in the same condition as they left. The next goal we outlined in some detail on our last call is our aim to restore the profitability of our salt business to levels we have demonstrated in the past. As many of you know, inflationary pressures created a significant headwind in 2022 that had a direct impact on our salt segment EBITDA per ton. In an effort to mitigate those challenges and more effectively leverage our expansive Salt Depot logistics network, we approached the 2023 winter bidding season with a disciplined pricing strategy and a focus on winning sales commitments in markets that are geographically advantageous for us and relatively efficient to serve. The results of this strategy were evident in our financial performance this quarter, with salt segment EBITDA up 7% year over year to just over $17. Our goal is to continue to make progress on EBITDA per ton and get back to the levels that we've enjoyed historically. We made strides in that direction during the quarter and expect to make continued progress toward that goal through the balance of the year, despite facing some headwinds on the cost front that we'll discuss more in a moment. With our plant nutrition segment, we're deep in the process of honing and executing strategies to improve the reliability and sustainability of our SOP production. As indicated on our last earnings call, SOP production volumes are expected to be flat in fiscal 23 as the 2022 evaporation season was impacted by less than favorable weather conditions, in turn reducing the potassium levels deposited in our solar evaporation ponds. We continue to believe, however, that the steps we're taking now should enable improved production levels at our Ogden site over time. will provide relevant updates on our progress towards this objective throughout the year. I'll touch on our outlook for the plant nutrition segment in a moment, but I think it's important to note that the decline in the first quarter sales volumes was driven by lower demand, not production challenges. In fact, we were and continue to be prepared to service average customer demand if and when it improves. On the lithium front, our goal this year is to achieve several commercial and project-related milestones on our roadmap to advance phase one of our lithium development in Ogden. A key milestone we expect to reach by mid-year is to have a more robust capital cost estimate for phase one. In September, we shared an FEL1 level engineering estimate. The next major milestone for this project is to complete an FEL2 level estimate by the end of March. also known as a pre-feasibility study, or PFS. Later this calendar year, we expect to have completed an FEL-3 engineering estimate, also known as definitive feasibility study, or DFS. Each of the progressions along the FEL stage gate are expected to increase the level of engineering, tighten the accuracy of the capital spend, and mitigate operational risks. Finally, we continue to make progress on our commercial scale DLE unit. Consistent with our prior plans, we expect commissioning and operations to begin in early calendar 2024. With respect to our other growth initiative, namely our minority ownership interest in Fortress North America, we were very pleased by the December announcement of a major milestone when the Fortress team received notice that their two primary aerial fire retardants, liquid concentrate and dry powder, had officially been added to the US Forest Service Qualified Product List, or QPL. This is an extraordinary achievement as Fortress is the first new fire retardant company in over 20 years to accomplish such a listing. And it comes as a result of a six-year development effort in order to meet and exceed the US Forest Service rigorous testing criteria within such categories as environmental effects and toxicity to aquatic and mammalian species, erosion on a variety of aircraft metals, burn retardation efficacy, and other qualifiers in the form of long-term storability, acceptable viscosity, pumpability, and finally the completion of a live wildfire operation field evaluation. Building upon this positive momentum heading into the 2023 wildfire season, the next step is for Fortress to be awarded an initial tranche of air tanker bases by the U.S. Forest Service. We're optimistic that such awards will occur ahead of the fire season this year, but in order to be conservative, we've not factored in the associated financial results of such an award into our outlook. We stand ready to continue supporting Fortress in their efforts to ramp up to full commercialization of their products with a focus on gaining measurable market share within this approximately $300 million revenue addressable market, not to mention a profit pool in excess of $90 million currently served by a single market participant. The recent QPL listing was a major hurdle to clear on our path to providing a magnesium chloride-based product that is more environmentally friendly and has a greater efficacy than the existing diammonium phosphate-based product that has dominated the market for decades. You'll recall that we increased our strategic investment in Fortress last year and currently own approximately 45% of the company. We believe Fortress has a bright future, and we look forward to the business gaining market traction in the coming months. Lastly, our final strategic objective heading into fiscal 23 was to enhance our financial standing and overall credit profile. We took a meaningful step in that direction this past October when we closed on a gross $252 million strategic equity investment by Koch Minerals and Trading, LLC. In addition to funding the first two years of our phase one lithium development, that investment by Koch also allowed us to strengthen our balance sheet by paying down some debt during the quarter. We expect to build on this momentum through the restoration of the SALT segment's profitability, which should result in additional deleveraging as our EBITDA rises. In the long term, we continue executing on our plan and are pleased with the progress being made. Unfortunately, in the shorter term, we continue to experience challenges placing negative pressure on our quarterly profitability. As a case in point, Our first quarter results reflected a mixed bag in terms of business trends. Year over year, we saw an improvement in select financial measures with consolidated revenue increasing 6% to $352 million, consolidated operating earnings up 37%, and consolidated adjusted EBITDA around $62 million, up 6%. We had a decent start to the winter de-icing season. with snow events in the first quarter in line with historical averages and significantly above last year's historically weak number of snow events. This supported higher salt sales volumes, which combined with a 12% year-over-year price increase in highway de-icing that we realized resulted in stronger salt performance. Within the plant nutrition segment, although pricing during the period held relatively firm at historically high levels, demand was deeply disappointing and well below our expectations, driven by exceptionally dry weather conditions that discouraged fertilizer application in our largest markets in the western U.S. and customers deferring purchases in anticipation of the market softening. Ironically, weather conditions in California abruptly shifted from drought conditions during the first fiscal quarter ending in December to epic flooding in January. the beginning of our second fiscal quarter, seemingly overnight. As a result, our visibility related to near-term SOP demand is currently speculative at best, as it's not clear if growers will apply at historical levels. Aside from the demand variability I just described, there's also elevated uncertainty from a global perspective to what degree both MOP and macrofertilizer pricing dynamics may amplify this pressure, resulting in the need to recalibrate our plant nutrition segment profitability outlook for the year. Despite the challenges we're encountering as the fertilizer market enters a new phase of its cycle at a higher level, nothing we see suggests a change in the long run through the cycle earnings power of our plant nutrition business. Our salt business is delivering year-over-year improvements, and our growth initiatives are advancing positively as we work to unlock the embedded value within our company. As I consider this start to our fiscal year, it's clear we've got a lot of work to do both strategically and operationally to navigate these near term challenges. As we do so, our focus remains on delivering on our 2023 strategic goals, controlling what we can control and continuing to take steps toward creating value for our stakeholders over the long term. We'll also address the challenges being caused by cost pressures across the business by executing on opportunities to reduce our cost structure where appropriate. Size of the prize is large, as measured by the combined intrinsic value of our salt, plant nutrition, lithium, and next-generation fire retardant businesses, and we remain confident in our plan and our ability to realize that value over time. With that, I'll now turn the call over to Lawrence. Thank you, Kevin.
spk03: On a consolidated basis, revenue was $352 million for the first quarter, up 6% year over year. Consolidated operating earnings rose to $27.9 million, up 37%, while adjusted EBITDA from continuing operations was $61.8 million, up 6% year over year. Beginning with our SALT segment, SALT revenue totaled $308 million for the quarter, up 12% year over year. driven by 10% higher price and 2% growth in sales volumes. The highway de-icing business experienced 12% higher pricing year over year to just shy of $66 per ton and sales volume growth of 3% year over year. Delivering growth in sales volumes reflects a relatively strong result when you consider that our team deliberately took 9% fewer sales commitments as part of our value over volume commercial bidding strategy last year. A key driver of the positive volume development was weather, which improved year over year. We experienced solid winter activity on average across our markets, but lower than projected sales to commitment ratios in certain key areas such as Detroit, Milwaukee, and Chicago, where we have relatively heavy commitment levels. These areas experienced somewhat mild weather and relatively low quality events during the quarter. Across the 11 representative cities we discussed in the past, 43 snow events were reported during the quarter, up 48% year-over-year, and in line with the 10-year average. Within our CNI business, volumes declined 2% year-over-year, driven primarily by the timing of water care sales and slightly weaker consumer de-icing demand, while price rose 9% to approximately $190 per ton. Higher fuel and logistics expenses drove per unit distribution costs 14% higher compared to last year. Operating costs were higher by 6% year over year to approximately $45 per ton, reflecting the 2022 inflationary environment embedded in the cost of goods sold of our highway de-icing salt, now being sold out of inventory. Overall, this translated into higher operating earnings in EBITDA for the salt segment, with operating earnings rising 20% year-over-year to $47.1 million and EBITDA rising 10% to $61 million. As Kevin discussed earlier, a strategic objective of ours this year is to restore the profitability of the salt segment back to levels that we've historically realized. We made progress on that goal this quarter and continue to see a path towards achieving profitability in the range of $19 to $20 of EBITDA per ton Assuming normalized winter occurs the rest of the second quarter, with the second half higher than the first, reflecting the fact that our higher margin per ton C&I business makes up a greater percentage of our revenue in the second half than it does in the first. Turning to our plant nutrition segment, grower purchasing behavior had an adverse impact on sales volumes, resulting in weak revenue for the quarter, more than offsetting higher sales price. Specifically, revenue declined 24% to $41.6 million, driven by a 46% decline in sales volumes. We believe there were two significant dynamics in play here, deflation and drought conditions across our primary served markets. Regarding deflation, during the quarter, buyers appeared to defer purchases on the expectation that fertilizer prices would continue to come down from the recent highs we have seen over the past year. In our experience, during deflationary environments, especially early in the application season, it's not uncommon for customers to wait as long as possible to buy, displaying real-time purchasing characteristics, more or less. And we believe this dynamic was in play during the quarter. Regarding the second driver of lower volume, drought conditions, Our major markets for our premium SOP product are on the West Coast, which broadly speaking experienced exceptionally dry weather during the quarter. We believe this caused farmers to defer purchases as they typically want to apply fertilizer when there is sufficient moisture available to efficiently deliver SOP into the soil. Distribution costs increased 19% year over year on a per ton basis due to higher fuel rates and fewer sales volumes to absorb fixed rail fleet costs. Similarly, operating costs were up 26% year-over-year due primarily to the inflationary environment over the last year. From a profitability perspective, plant nutrition EBITDA came in at $19.3 million, up 5% year-over-year, despite lower sales volumes and higher product costs on strong pricing which rose 40% to roughly $924 per ton. In terms of cash flow, the most notable event during the quarter was closing the previously announced investment by Coke Minerals and Trading of $241 million net of fees. We've earmarked approximately $200 million of the net proceeds towards funding the first two years of spending related to phase one of our lithium development. Additionally, This transaction allowed us to reduce debt and put a meaningful amount of cash on a balance sheet, both of which improve our leverage profile, as reflected by net debt declining by approximately 24% to $686 million. Turning to our outlook for the rest of the year, beginning with SALT. On our last earnings call, we shared a modified approach to providing EBITDA guidance for SALT. shifting away from assuming normal winter weather at the beginning of each year. Instead, we're now providing a range of potential earnings outcomes that consider various winter weather scenarios, with EBITDA projected to range from a low of $175 million in the event of a mild winter to a high of $275 million in the event of a strong winter, and between $215 and $255 million in between. with that middle range reflected of profitability levels in the event we experienced no events and sales to commitment ratios in our core markets in line with long-range historical trends. The range shown for the SALT segment remains unchanged. However, four months into the year, we now believe results are more likely to come in below the midpoint of the 2023 range for sales volume, revenue, and EBITDA. The factors shifting profitability below the midpoint relate to volume and cost. From a volume perspective, in aggregate, across our core markets, the first quarter was decent weather-wise, as I indicated earlier. But sales-to-commitment ratios in certain of our core US North markets, Milwaukee, Chicago, and Detroit, where we have a disproportionate book of commitments, were below trend, translating into and EBITDA drag versus normalized levels. We had 42 snow events in our core markets in January, which is in line with the 10 year average. It's worth pointing out, however, that while this de-icing season has tracked with the 10 year average for snow events, those have generally been what we would describe internally as lower quality snow events. Snow events that are clustered into a short time period are not as impactful as the same number of events spaced out over a longer period. Furthermore, high accumulations can actually discourage salt application. An example of this was the series of winter storms that hit the Buffalo area earlier in the season. Furthermore, snow events surrounded by periods of warm weather are considered lower quality when compared to events surrounded by cold weather. So far this season, the snow events that we've experienced have been followed by relatively warmer weather. As we look at the de-icing season to date, snow events in aggregate have been normal, but we would characterize this year's snow events, particularly within the U.S. markets where we have somewhat outsized commitments, as relatively lower quality overall. These year-to-date trends, weather-wise, are contributing to earnings power for salt trending below the midpoint of the 2023 range. We also see salt trending below the midpoint of the 2023 range, due to slightly higher cost trends year to date. We've experienced higher natural gas costs in 2023 related to the supply and demand dynamics impacting the regional gas pipeline serving our Ogden facility. Extremely cold weather drove a surge in demand from energy producers, draining already low regional inventory levels. Prices have now stabilized in the region. While our hedging program for Ogden has historically been highly effective, and reducing the volatility of natural gas costs. The dynamic in play temporarily rendered our hedges ineffective. We have since recalibrated our hedges to protect us in the event a similar episode presents itself in the future. Our full year outlook for plant nutrition from an EBITDA perspective is lower and wider versus our prior guidance. Our current view of profitability outcomes ranges from $30 to $60 million of EBITDA compared to our prior range of $55 to $70 million. Investors should interpret this widening as reflecting higher uncertainty and lower visibility than we had heading into the year. Given this reality, we developed several scenarios to inform our range. The lower end of the range reflects the prospect of volumes tracking well below the five-year average for this segment, while simultaneously pricing declines in the second half to levels approaching the 10-year average for this business. The midpoint of the range reflects a scenario where volumes are roughly three-quarters of the five-year average for this business, while second-half SOP pricing tracks near the average price we experienced in fiscal 2022. The higher end of the range reflects a scenario where our Western markets bounce back quickly volume-wise and global MOP and SOP pricing trends reversed themselves due to supply-demand dynamics, resulting in MOP pricing bottoming near current levels, then rising the second half of the year. Against this fluid and uncertain backdrop, we are preparing for each of these scenarios while maintaining a focus on agility and controlling what we can control. Cost-wise, per-unit production costs for the balance of the year in plant nutrition will be higher than expected, due in part to the same increase in natural gas costs at Ogden I described earlier. Our solar evaporation pond complex in Utah produces salt, SOP, and mag chloride. Therefore, higher production costs there impact the profitability of both the salt and plant nutrition businesses. Turning to our CAPEX guidance, In line with our lowered overall profitability outlook, we have lowered our spending plans by $10 million at the midpoint to the $165 to $220 million range. Notably, our expected spending on lithium is unchanged from our prior estimate of $75 to $120 million to be funded by proceeds from the recent Coke transaction. However, sustaining CapEx has been lowered by $10 million at the midpoint to a new range of between $90 and $100 million. As far as the mix of CapEx spending by quarter, we expect the cadence of lithium spending to be very second half weighted, with approximately 80% occurring in the second half, while sustaining CapEx is expected to show a pattern split roughly one-third first half and two-thirds second half. Kevin already outlined the positive news regarding two of Fortress' products achieving QPL status. However, I want to reiterate that we have no positive EBITDA contribution from Fortress baked into our outlook. We assume Fortress is a drag on our results this year profit-wise, but are working closely with Fortress to assist them in their efforts to be prepared to fully capitalize on their recent success upon receiving their first base allocation which could occur this wildfire season. Finally, as a reminder, whereas in the past we issued two snow reports a year, one in January and one in April, we will no longer issue standalone snow reports as press releases, but we will continue to provide perspective, as we have today, as part of our first and second quarter earnings calls. With that, I will turn it back to the operator to open the lines for Q&A. Operator?
spk00: Thank you. At this time, I would like to remind everyone in order to ask a question, press star then the number one on your telephone keypad. And we will pause for just a moment to compile the Q&A roster. And we will take our first question from David Silver with CL King. Your line is open.
spk11: Yeah, hi. Good morning. I have a couple of questions on the salt business and then maybe I'd like to follow up with a general question about the Great Salt Lake. But I was hoping you might provide a little bit of color on the comment in the press release regarding sales to commitment ratios. It's a term that I haven't heard too often in the past and just want to make sure I'm not missing something. But you know, I guess there's always been minimum and maximum volume commitments in your contracts. And there have been periods where, you know, the March, excuse me, the June quarter has seen some makeup volumes where the volumes are unusually low. So could you just talk about how, you know, your tracking of the sales to commitment ratios is impacting your commentary earlier about how the entire winter de-icing season might play out. Thank you.
spk02: Hi, David. Good morning, Kevin. I think maybe Jamie's probably best suited to handle your question around sales to commitment ratios.
spk07: Yeah, so David, when we say sales to commitment ratio, we're talking about when we go out and bid all of our commitments, over the history of time, we expect average weather to deliver a certain percentage of those commitments. So in some of our northern markets, it tends to be a higher sales to commitment ratio. In some of our southern markets, it can be lower. So it can be 95% in some northern markets, and average can be lower in southern markets where there's less snowfall, less activity. So you can have averages that are 75% or 80%. And so when we talk about how we're tracking toward our historical sales to commitment ratio, that's what we're talking about. So thus far this season, while the winter weather snow events in the 11 cities was, was right on average and, and, and because of the quality of some of the events. And so our actual sales to commitments have been lower than the historical average. So it varies across the, the network. Um, In the Lake Superior area, it's been actually quite strong. They've seen a lot of snow up north in the upper peninsula of Michigan, upper portions and eastern portions of Minnesota. We've also seen strong sales to commitments in some of our southern markets, on the southern mist, actually, in the western Ohio. But when you look at Michigan, when you look at northern Illinois and our eastern markets, they've experienced lower than historical sales to commitments thus far this season. Does that help?
spk11: Yeah, I think so. So it's kind of within that upper band and lower band and where it falls there. Sorry, upper band and lower band of the volume commitments and how that plays out.
spk07: But separate from the minimums and maximums concept, this is This is just really purely trying to explain and talk about how above or below we are from a historical basis.
spk11: All right. And then one other question probably for Jamie. But, you know, this has to do with maybe spot versus contract pricing for the de-icing salt business. So in the past, you know, during very heavy snowfallers, high-quality snow event-type seasons, the call or the ability to kind of supplement the contract volumes has given you some pricing flexibility, let's say. With the volatile cost situation, is it a fair question to ask if your expectations are like that the spot sales, however active they may be, are going to be priced above your typical contract volumes, or might the spot price for incremental volumes fall below what the contractual commitment delivered price is?
spk07: Thank you. Given the circumstances, you should expect them to, thus far, because winter hasn't been robust, because we haven't know outsold our commitments or gotten into fully delivering under our under our contracts once you fully deliver under your contracts spot prices come after that point so we haven't seen weather to really drive that what we have done though in our contractual negotiations through last summer when both municipality state bidding process as well as our commercial negotiations we've captured or recaptured inflationary pressures through our pricing actions, which you'll see as this winter continues to unfold and is embedded in the 12% bid season price improvement that we were able to achieve, which includes both commercial activity, commercial customers' commitments, as well as the bid commitments that we do annually.
spk02: Hey, Dave, let me add a little bit of color to Jamie's comments as well. To the extent that you experienced a season where you sold through the upper end of your committed level, which is typically 120% of the initial arrangement, that would imply that you're having a pretty tough winter or a good winter from our perspective. And thus, you could fully expect spot prices to be in excess of contract price i think it would just stand to reason and what fair market value for those that next time would be above that i think it's would be speculative but i think it's easy to say or safe to say that it would it would exceed the contract price and your ability to earn a margin on that incremental time given that fixed cost absorptions already take care of this much more powerful than under contract scenario.
spk11: Yeah, no, thank you for that color. And I agree, usually it's a question when the snowfall is quite strong. I was thinking of it a little bit more this time just related to the cost, the volatile cost elements. But thank you for all the color. Last question would be kind of a general question, really kind of about the Great Salt Lake. I am tapping in a little bit to the national headlines, but the governor of Utah recently issued an executive order kind of involving berm heights and other complicated things, but maybe to direct more water into parts of the Great Salt Lake. And, you know, I know time's limited here, but I was just wondering if you could take a couple minutes and maybe just sketch out the broad strokes of what seems to be a high priority issue for the governor there involving the management of the Great Salt Lake. And if you wouldn't mind, what is your base case and what might be a best case, worst case scenario from Compass Minerals' perspective on that? Thank you.
spk02: Good question, David. Thanks for bringing that up. We've obviously reviewed the governor's executive order, and it probably wouldn't come as any surprise to you that we've worked closely along with the government agencies in Utah as it relates to the executive order and what will ultimately become the burn management plan. We've been an active operator out there for 50 years and working proactively with both the DNR and the DEQ as it relates to this berm management plan. So again, kind of point number one, unanswered questions yet until the berm management plan is decided upon and gets put in place. The second point I would make is based on what we know right now, we expect a temporary short-term raising of the berm height to have a de minimis impact on our operations in 2023. And that's largely a function of the above average rainfall that we've experienced out there over the last few months. And additionally, the snowpack that the governor referenced in his executive order is kind of running above average. So we point two we don't expect any um or the minimus impact in 2023 and then the third point i'd make is you know we'll continue to work very closely with the regulatory authorities out in utah as it relates to the uh the development of this berm management plan but as a public company we have stakeholders that have interests that we will protect up to and including pursuit of legal action if necessary. We certainly wouldn't expect that to happen and certainly hope that that doesn't happen, but we certainly preserve all of our rights in that regard to protect our mineral and water rights interests out in the Great Salt Lake, which are very valuable. Hopefully that gives you some background. Thank you for that question.
spk11: Much appreciated. Thanks for all the color. Thank you.
spk00: We will take our next question from David Begweiter with Deutsche Bank. Your line is open.
spk04: Thank you. Good morning. Kevin, just on highway de-icing pricing in the quarter, up 12%. Why was it below the 15% you have, I guess, contracted in for the full year?
spk02: I think maybe Jamie could add a little further, but I think part of that is a function of just timing.
spk07: Yeah, I'll jump in there, Kevin. This is Jamie. There's always customer mix. When we complete our bid season, we analyze the average price across the entire portfolio. If we get stronger weather or weaker weather in a region that happens to have higher prices or lower prices, that will manifest itself as a variance from our bid season expected pricing outcome.
spk04: Understood. And just on the EBITDA guidance for SALT, I guess below the midpoint of the range, but given where we are today in the winter and given the long-term forecast, is there the potential for this to be a mild winter and even down close to the bottom end of that range you've articulated? Thank you.
spk03: So what we shared today, David, is that based on the winter to date, I would say through January, due to the sales to commitment dynamic that Jamie referenced, We believe we'll be below that midpoint, which is 235. The balance of the winter is before us. And like I always say in terms of the bell curve, there's no reason for us to believe that it won't be a normal winter for February and March. And so we could very well fall closer to the right side of that page than the left. It just depends on how the winter transpires. Jamie, anything?
spk02: That's exactly right. Yeah, you know, we've got 10, 12 weeks of winter left, and, you know, it seems like if history is any indication that seasons are a little delayed, and I'm not projecting that, you know, it's going to be a strong remaining part of the season, but it seems like events progress well into March and sometimes even April. So I would say that, you know, we've got 10, 12 weeks of winter left, which will drive where we fall on that bell curve. David.
spk04: Understood. Thank you very much.
spk00: As a reminder, just star one if you would like to ask a question, and we will take our next question from Joel Jackson with BMO. Your line is open.
spk10: Hi, everyone. This is Joseph on for Joel. Just first, in terms of Fortress, is it still going to be a negative $5 billion EBITDA contribution for fiscal 2023? And also, what would a reasonable contribution range look like for fiscal 2024 and what would have to happen to reach the high and low ends of that range?
spk03: Yeah, as our base case heading into this year, on the order of magnitude of that $5 million is what we've got baked in. And the extent to which that improves is a function of the timing of when Fortress receives its first base allocation. And so to the extent that that happens this side of the wildfire season and we're able to execute, then you could see that drag, I would say, diminish. As you think about the future, I go back and say, we think the overall profit pool here is in that 90 to $100 million range. And so in as much as it is our objective to get a very substantial portion of this market whether it be a third, 40, 50%, you can do the math on the implications of that on our EBITDA, which is pretty substantial. And so we won't speculate about base allocations and our success, but the size of the prize is pretty significant.
spk01: Okay, thanks for that.
spk10: And then could you also please just explain what's going on with the higher tax rate this year and what would a normalized tax rate look like for 2024?
spk03: So in terms of taxes, our tax rate is higher despite our profitability being lower. And that's a result of really our earnings mix. If you think about our guidance today or our outlook today, we're really not taking down salt very much. And a lot of that profitability happens in Canada where we have some of our higher tax rates. What we're taking down largely is plant nutrition. which a lot of that profitability occurs in the united states where we project that we'll have losses in the united states and as a result we won't be able to take those losses as a deduction and so that's why the numerator there is sticky and despite the profitability going down so on a normalized basis from a cash tax perspective i would say Something in that 25% range is a good number to use from a cash flow perspective on a normalized basis.
spk01: Okay, thanks for that. And one more if I can.
spk10: Just seeing that GM is now willing to pay up front in terms of premium payments and equity stakes and U.S. lithium assets, does that make Compass want to reassess its current MOUs or does the DLE process need to be proven out a little bit more before the company could pursue some upfront capital.
spk02: I'm sorry. I missed the very first part of that question. Would you mind repeating it? Apologies.
spk10: Sure. Sure. No worries. So, just seeing that GM is now willing to pay upfront for prepayments and equity stakes in U.S. lithium assets, does that make Compass want to reassess its current MOUs, or does the DLD process just need to be proven out a little bit more?
spk02: Yeah, good question. I mean, you know, I think the bottom line around that investment is that's quite compelling news. And I think it's just a testament to how much people want North American sourced lithium in the future. And it's a testament that one of the iconic car brands in the U.S. is willing to write a check of that size. But as it relates to our offtake agreements, I mean, we're certainly open to various structures You know, we have one that's in the bag already with LGES that we've talked about, and we continue to prosecute the second one with another iconic car brand here in the U.S., and we hope to have that resolved in the next few weeks. But I think the agreements that we're working on, and Ryan and Chris are in the room, they could add some additional color. But I think we're pleased with our agreements, the way they're structured and the potential profit pool that that will create for us in the future. Would you want to add anything to that, Ryan?
spk12: Yeah, I can add to that just a little bit, Joseph. So I think as Lauren has iterated before, prepaid offtake agreement type of arrangement isn't necessarily off of the table for Compass, but we do believe that it's important for us to prove out the DLE technology with this commercial scale unit which we think gives us a more attractive, let's say, cost of capital, as opposed to giving that up front when perhaps the potential investor may perceive higher risk in the project due to DLE. So as Kevin said, we're open to any form of arrangement, but we feel it's prudent for us to hit the next milestones before we would engage in a prepaid offtake.
spk01: Thank you, guys.
spk00: And we will take our next question from Vincent Anderson with Stifel. Your line is open.
spk06: Yeah, thanks, everyone. So if you're able to, I just kind of wanted to reset the stage a bit as we get ready for the FDL-2. The FDL-1 had very wide confidence ranges. I think it was like plus or minus 30% across everything. But if we were to just look at your modeling on things like reagents and absorbent polymers, Are you able to maybe just speak to your relative level of confidence in those values versus other parts of the engineering and design? Or just, you know, if the FDL-1 is simply mandated to have that confidence range kind of regardless of what the reality might be?
spk01: Yeah, I'm going to ask Chris to address that, Vincent.
spk13: Thank you. Hey Vincent, this is Chris. So you're correct, the FDL-1 had a wide range. It was a minus 30 to a plus 40. And if you recall, kind of the middle of that range was the 262 million. So if you look at that plus 40, you get somewhere to around 367 million with regards to overall CapEx. Typically what you see is projects do increase from an FDL-1 to an FDL-2. Part of that is just the engineering aspect and the refining of the process, and that kind of answers the question as well around the OPEX. So in the SEL1, you're around 2%, 3% engineering, and you're looking at utilization of reagents. As you progress to an SEL2, you get more defined in that. You find things in that process that you have to take care of through product specifications, and you have to put unit equipment in to do that. So we expect that the cost per ton of reagents probably stays about the same, maybe a little bit more due to inflationary aspects, which we would also expect to impact the overall FDL2. I think you could recall the FDL1 was done in that early 2022 timeframe. And so the full year of inflationary aspect did not hit in that cost estimate, which we expect to manifest in the FDL-2. Does that answer your question, Vincent?
spk06: Yeah, that's helpful. I guess maybe what I was getting at a little bit more specifically is on the utilization from a volume perspective when it comes to unit costs. Just you mentioned that there's – it sounds like there's maybe a little bit of capex creep from FVL1 to FVL2, but do you see something similar on the engineering around the reagent use, or is it very much down to, you know, what they find and we'll just have to wait for the report?
spk13: I think it's better to wait for the report, but what I would say is what we would expect is to see probably a different utilization, but not materially different than what we announced in FVL1.
spk06: Okay. That's helpful. Thank you. And then, you know, if we're thinking about Fortress, now that we're getting a bit closer to revenues here, or well, earnings, can you just talk about the relevance of the tankers that are used in fire suppression? You know, what kind of influence they could have on the adoption of your product if they had concerns or consternations over, you know, change over time between your product and Perimeter's product or mixing trace amounts of one product with the other? They're just kind of a gray area in the whole process. I was hoping you could speak to their influence.
spk07: Hey, Vincent. This is Jamie. Yeah, I'll address that one. So co-mingling is what you're referring to when you perhaps have an aircraft that's going from one base to another and would be using our product after having used Perimeter's product. Exactly. There are standard protocols around how to rinse the tank, how to prevent any issues. I first like to mention the Fortress products have passed with flying colors, any corrosion testing. So that's a non-issue. When you have some commingling, you end up with some residue in a tank. So it's simply a rinse process and a reload. So we don't view it as an issue. We think it's very, very manageable by base operations for tankers coming into, you know, um competitor bases and and competitor uh tankers coming into into fortress bases so very manageable and uh you know we're on the qpl and uh we've passed all the tests so uh it should not be an issue okay excellent um i'll leave it there and uh turn it over as a reminder it is star one if you would like to ask a question
spk00: And we will take our next question from Chris Shaw with Monis Crespi. Your line is open.
spk09: Hey, good morning, everyone. I'm trying to figure out the higher production cost, the nat gas at Ogden. You kind of made it sound like that was a spike that's kind of over now, but it seemed like that factored into the lower guidance for both segments for the full year. And I know, obviously, the impact of the quarter, but... Are those higher production costs going to continue through the year, or is there something else that's creeping up in production that I didn't understand, or maybe I just misunderstood it completely?
spk03: Sure, Chris. No, that was a relatively temporary sort of episode, but it will flow through our cost as inventory is sold. And because our Ogden asset produces products that benefit both our C&I business as well as our plant nutrition business, you will see commentary regarding natural gas costs for both businesses. I would say it's probably 80% skewed towards plant nutrition in terms of the dynamic. But you'll see that flow through as our inventory turns. And that episode is now behind us. And we also have hedges that we expect providers with good protection.
spk09: Got it. That makes sense. salt, highway de-icing salt, it seems like, I thought when I was looking at some of the data, that the snow was particularly heavy in areas like, in both Toronto and Montreal, and Montreal might have had record snows in January. Are those markets smaller for you nowadays, or was it a sales commitment level issue there, or I remember that in the past, I think they might have had some longer term contracts, so have their pricing not caught up to maybe where you would want it to be? Is that why we're not seeing an impact from, I think, the snow that Canada's getting?
spk07: No, I would say, you know, in Ontario, snow year-to-date has been pretty average. In Quebec, it's actually been a little bit below average. That's an area where it typically has strong weather. You've noted that it was particularly good. There were a good couple of weeks in January for sure, but You know, you have to look at the entire portfolio and the mix of weather across all of it. So that's always going to cause some volatility. Like I said, it was particularly strong year to date in the southern, along the Mississippi generally, the western Ohio, even the Tennessee River. So our southern markets have had a bit more weather than normal. And so those sales commitments are higher. Canada in general is is pretty close to average, a little bit below with Ontario, kind of right on average sales commitments.
spk09: Okay. And then just turning to Fortress for a sec also, you know, you characterized the profit market or the profit potential there, the whole market's 90 to 100. Is that including... I know you'll be selling mag chloride to them. Is there... Does that include sort of that estimate of the market include what you could do, sell, or the profits you would get from selling more mag chloride, or will you not be selling more mag chloride, you're just redirecting it from another customer?
spk02: No, we have mag chloride capacity at Ogden, so it would be supplemental or incremental to that. And I don't want you to read too much into the profit pool because you're talking about margins, et cetera. So don't imply that our cost structure would be the same as our competitors. So we're just trying to provide sort of a scope of the size of the prize in terms of revenues, gallons, and what the profit pool is. But I think when you look at our cost structure relative to our competitors, we would expect our profit margins to be pretty healthy as well.
spk09: Just specifically about the mag chloride, though, like if you were to get half the market, I mean, is that a significant amount of mag chloride you're selling relative to what you sell now? I don't know what the sort of volumes are.
spk02: I mean, if we were to achieve half market share, it represents less than 10% of the mag chloride that we're currently producing at Ogden. So it's not difficult for us to be able to handle that kind of incremental capacity. Got it.
spk01: That's what I was wondering. All right. Thanks a lot. Thank you.
spk00: And there are no further questions at this time, so I will now turn the call back to Mr. Kevin Crutchfield for any additional or closing remarks.
spk02: We appreciate everyone's interest in Compass Minerals. We look forward to keeping you updated, and please don't hesitate to reach out to Brent in the interim if you have questions. Thank you so much for attending today.
spk00: And ladies and gentlemen, this concludes today's conference call, and we thank you for your participation. You may now disconnect.
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