Compass Minerals Intl Inc

Hello everyone. Thank you for joining us and welcome to Compass Minerals Fiscal Third Quarter 2026 Earnings Conference Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Tripp Sullivan, Investor Relations. Please go ahead.

Thank you, Operator. Good morning and welcome to the Compass Minerals Fiscal Third Quarter of 2026 Earnings Conference Call. Today, we will discuss our most recent quarterly results. We will begin with prepared remarks from our President and CEO, Edward Dowling, and our CFO, Peter Fjellman. Joining in for the question and answer portion of the call will be Ben Nichols, our Chief Commercial 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, August 6, 2026. 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 on 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. And with that, I'll now turn the call over to Ed.

Thank you, Tripp. Good morning, everyone. I'll start with the plant nutrition business because it's earned the lead. At Ogden, we produce segment-adjusted EBITDA of $15 million in the quarter on improved pricing and lower per unit costs. We've again raised our full year guidance for this business. Operational improvements we put in place two years ago are compounding. The team was determined to restore the business to the 40 to 50 million adjusted EBITDA range per year and have now exceeded that level. We continue to invest in Ogden with the dryer project underway that we expect to complete by the end of next fiscal year. That investment will allow us to improve product yield, further improve production volume, and cost profile of this operation, as well as finished good product quality. We're excited about the continued momentum at our Ogden site and solidifying our position as the leading North American producer of sulfate of potash. In our salt business, the commercial story is strong. We realized meaningful price gains in the highway de-icing during the quarter and beginning to see a constructive pricing environment in our CNI product line as well. These are encouraging and I want to put them into context. When comparing the salt costs in our P&L between periods, there are a number of factors that must be considered, including production costs, logistic costs, regional and product mix. As the winter unfolds, where we sell our products, where they are produced, how it is shipped to the customer, and our production costs all have various levels of impact, particularly in a season like this past one, where inventory levels became very tight. Production tons at our mine are up year over year. That's a positive. But costs, while lower than last year as original guidance had anticipated, have not come down the way we expected. And I want to address that directly. There are three factors driving higher than anticipated production costs. First, despite the above, we're not hoisting enough tons out of Goderich at the cost we had planned. Second, we have increased our maintenance spending at both U.S. mines to improve operational uptime and stability, which has been guided by the implementation of a preventative maintenance system. Lastly, we've increased the headcount to maximize every opportunity to produce more tons out of the mines. In terms of logistics, our total cost metric was burdened by global fuel costs and increased rates due to tightening of truck capacity. We have three accelerator teams working at Godrich focused on specific operational improvements. are working on improving our cut times and rates and investing in training required to sustain those improvements, as well as overall mine design and sequencing. Our maintenance program is delivering results focused on quicker turnarounds and improved equipment availability. Let me be direct about the trade-off that we're making. We're spending incremental dollars on labor and maintenance in the current period cost for longer-term operational stability, production volumes, and profitability. This is the right decision for the business but also means that our cost metrics have not yet reflected the efficiency gains we're targeting. In addition, we have other accelerator teams working on logistics and enterprise-wide improvements, including network optimization, procurement efficiency, contract management. All of these are focused on sustainable cost improvement and risk mitigation. As we think about the future of the company and the sustainable improvement, we have made an operational leadership change. Patrick Merrin is no longer with the company and I'd like to thank Pat for his service and wish him the best. Brandon Reisner has been promoted to Chief Operating Officer. He's led impressive operational improvements in our plant nutrition segment and in the operational leadership of our CNI product line. A combination of prior mining experience and a track record of losing positive outcomes make him a natural fit to lead our operations. Turning to the bid season, The 26-27 highway de-icing bid season has been very constructive. In our core U.S. markets, we're seeing substantial price improvement year over year, in some cases well into the double digits, with consistent growth in demand tenders. North American highway de-icing markets remain structurally tight. Inventories across the industry are low following the past winter, and it is supporting both pricing and tender sizes. As we look forward into fiscal 2027, let me give a sense of what we are thinking about volume. The 2025-26 winter season trended ahead of seasonal averages with snowfall events in our key markets higher than the recent past. That strong demand, coupled with our dissonant approach to working capital and the current production constraints at Godrich, has left us and the industry with historically low inventories across the system. Given those realities, along with an assumption of more normalized winter weather, we expect to commit to a reduced man profile for fiscal 2027 relative to the past seasons. We will provide tighter guidance when we report fourth quarter results, but pricing gains we have secured for the business combined with continued focus on production increases and cost per ton improvement should position us to improve our per unit margins headed into next year. Let me address tariffs briefly. As you're aware, tariffs on Canadian goods shipped in the United States are set to take effect on August 19th. A large majority of the gross annualized exposure relates to the highway de-icing salt shipped from our Godrich mine into the United States. Through proactive measures within our commercial agreements, including pass-through provisions that are now standard in several of our key contracts, we believe we meaningfully reduce our exposure to those risks. The situation remains fluid, and we're closely monitoring it. We believe that we're in a stronger position to manage this than a year ago given our proactive measures, constructing pricing environment, and our improved balance sheet. In addition to potential impact of tariffs, we're closely monitoring the variability within the fuel market, which is incorporated into our 2026 guidance. We expect to provide clear understanding of the anticipated fuel impact and sensitivity within our detailed 2027 guidance when we report Q4, but we wanted to note are current focus on mitigation efforts moving into next year. On capital projects, as part of our ongoing investment in the future of Goderich, we have been planning to construct the new mill. Given the complexity of executing a project of the scale within an operating underground mine, we're taking additional time to evaluate the engineering, sequencing, and timing, as well as establishing appropriate project governance. We cannot afford disruption to the production during a period where we're focused on improving output and rebuilding inventory. We expect to provide more detailed update on the project timeline early next year. I'd like to take a quick moment to clarify some news that was issued earlier in the quarter about a potential Utah lithium project. To be clear, we have no plans to get back into the lithium market. This announcement that EnergyX was a non-binding MOU where we're evaluating leasing them land and brine used in our Utah operations. We would have no capital commitment or operational expenses. Nothing in these negotiations has been finalized. Turning to the balance sheet, net leverage has declined to 2.8 times from 4.3 times a year ago. Total net debt is down 13% year over year. A recent credit upgrade from S&P is a direct reflection of the work we've done to reduce debt and strengthen the business. I know there are questions about how we plan to allocate capital going forward, and I want to signal how we're thinking about it. Our near-term priorities are clear. Investment in our assets, continued debt reduction where it makes sense, as our balance sheet strengthens and our operations stabilize, the opportunity to consider other uses of capital become more real. The Board is engaged in this discussion. We expect to share more on this topic when we report full-year results. Before I hand it over to Peter, Let me step back for a moment. Two years ago, we laid out a back to basis framework on what we're going to improve this company. At Ogden, the process is delivering the results and speak for themselves. In SALT, commercial execution is strong. The market is constructive. The balance sheet is in a very different position than it was even a year ago. The work in our mining operations is taking longer than planned, and we are being direct about that. But the process is the same. The team is engaged and the work will continue. We are really excited about the future of this business and organic opportunities this work has created. Peter?

Thanks, Ed. Good morning, everyone. I'll walk through our third quarter results and the updated outlook. All comparisons are to the prior year quarter unless otherwise noted. For the third quarter, total company adjusted EBITDA was $39.9 million compared with $41 million We reported a net loss of $5.7 million compared to a net loss of $17 million in the prior year. In SALT, third-core revenue increased 5% year-over-year to $173.9 million. Segment pricing was up 9% overall, and highway pricing was up 8%, and CNI pricing was up 6%. Highway sales volumes declined 6%, while CNI volumes increased 3%. Salt adjusted EBITDA was 38.9 million for the quarter, down 15%, and operating earnings decreased 25% to 21.2 million. The decline reflects lower highway sales volumes and higher per year production and distribution costs within the segment, partially offset by the pricing gains. In plant nutrition, revenue was 37.6 million for the quarter, down 16% compared to the prior year period. The decrease is primarily driven and many more. In addition to this, there was a significant increase in sales by a 19% decrease in sales volumes attributable to the windward SOP asset sale in March 2026, partially offset by a 4% increase in average sales prices, excluding the impacts of the windward sales volumes increased approximately 4% year over year. Despite the sale, operating earnings were 7.8 million, up 50% from 5.2 million a year ago. Adjusted EBITDA improved 32% to 15 million from $11.4 million. Both product costs and distribution costs declined on a per unit basis year over year, driving the margin expansion at Ogden that Ed described earlier. Turning to cash flow in the balance sheet, operating cash flow for the first nine months was $162.8 million compared to $204.6 million in the prior year period. Capital expenditures for nine months totaled $62.1 million compared to the $53.8 million in the prior year. reflecting planned investments across our operations. Total debt as of June 30th was $716.6 million, down from $825.3 million a year ago. Net debt was $660.3 million, a reduction of $85.6 million year over year. Total liquidity was $328.1 million, consisting of $56.3 million in cash and $271.8 million of availability under our revolving credit facility. As Ed noted, our net leverage ratio improved to 2.8 times from 4.3 times a year ago. Now let me walk you through our updated fiscal 2026 outlay. We are raising our full year consolidated adjusted EBITDA guidance midpoint to $230 million, with a range of $218 million to $242 million. In plant nutrition, we're raising segment adjusted EBITDA guidance to a range of $49 million to $57 million. up from 43 to 47 million previously, primarily reflecting the continuous strength in our pricing and cost performance at Ogden. In SALT, our current adjusted EBITDA guidance range is 225 million to 236 million, narrowed from 225 to 240 million previously to reflect the mixed dynamic, inflationary pressures, and the pace of operational improvements that Ed previously discussed. Our expectations for corporate and other costs remain unchanged in the range of 51 million to 56 million for the full year, along with full year capital expenditures in the range of 90 million to 110 million. In closing, I'd like to note that we are in a stronger financial position and plant nutrition is outperforming our expectations. So pricing and demand remain very constructive and we are laser focused on converting operational work at GodRates and sustainable cost improvement across the platform. We're also continuing to deploy capital with discipline, including reducing leverage where it makes sense. That concludes our prepared remarks. Operator, we're ready to take some questions.

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Your first question comes from the line of Joel Jackson with BMO Capital Markets. Your line is open. Please go ahead. A gentle reminder to unmute locally.

Sorry, I was muted. Thanks for taking my question. Just talking about your guidance around bid season early in 27 here, when you think about how well sell bid season is going, how well bid season is going here, does that imply when you think about your entire business, maybe high single digit, price growth next year, maybe mid to high? It seems like you're saying that base volumes might be a little bit lower if you get normalized weather, what you're actually going to sell. And then what are costs looking like in 27?

should we see costs up a little it's really thinking about more you know net back expansions here we think about price versus cost things hey good morning Joel um nice to hear your voice um when you're unmuted the um appreciate the question you know the bid season's been really great um really based on um the previous winner and really the inventory management discipline have been established in the market the um Most of the bids, of course, are transparent, and we see a wide range of outcomes depending on where you are. Our focus has really been to really dive in and really try to serve those markets who we maximize our margin with, and not trying to serve everything everywhere, albeit we do try to spread it out just because you never know exactly where It would be safe to say overall, we're kind of around double digits in price increase. With regard to looking at costs, et cetera, going forward, this is an important point. We're working really hard on our mine costs. We've got this fantastic mine, Godrich Mine, the world's largest underground salt mine. And the cost production is up. costs are down. These are unit costs are down. On the logistics side, we're battling fuel and truck carrier a bit, but we're laser focused on this. We'll provide guidance in the fourth quarter.

Okay.

It seemed like in your prepared remarks you were speaking about you would expect with normal weather that 27 volume could be lower based on the leads you gave. And then just also, you know, Ed, there's been a lot of churn at the CEO level at Compass the last number of years, and you have a lot of objectives, Ed, that you came in with, right? Lower costs, you had a lot of things to do, working capital management, inventory management, things weren't great when you took over a few years ago, and you've got some aggressive targets on cost. But like I said, you've had a lot of churn at the CEO level, and you're talking about delaying some of the decisions on the mill project, not getting the cost as fast as you wanted, I can't help but think it's all tied together. Can you sort of speak about your journey here and what has to get done to achieve what you want to do?

Yeah, look, appreciate the question. First of all, let me just say we're very grateful for Pat and his service and wish him the best in the future. This is Pat Merrin. But we're really pushing hard and we need to have an organization that's really fit for purpose. And we're really focused on our costs Brandon Reisner. Joel, I don't know whether you've had a chance to meet him yet, but we'll make sure you do. But Brandon has been leading the efforts with plant nutrition, which is a fantastic story for the company. In addition, he's been our operational leader in our CNI product line and also done a really good job in increasing the earnings from that part of our business. Just even before he brings a history of success, whether it was accomplished. He's the guy that started, really, the way we look at capital allocation for capital investment, project capital investment. And even before that with Peabody, it's a great track record of operational improvements. And that's what we need right now. And so as much as I like Pat, the needs of the company are more important than any individual. So that's what we're doing. With regard to the project, You know, it'd be one thing if we were building this mill in a parking lot and it'd be pretty easy. But given the fact that we're doing this in an operating underground mine and with all materials, everything coming down the same shaft as our operating people and our operating materials, it's very complex. And so we need to make sure that we have a very high degree of front end loading in terms of our engineering, our project execution plan, all of the logistics that go around that. We have a rock solid owner's team and we really need to put this all in place before I'm ready to take it to the board of directors. I think I hit your points, Joel. Thank you.

As a final reminder, If you would like to ask a question, please press star 1. We'll now go to David Silver of Freedom Capital Market. Your line is open. Please go ahead.

Questions here. Maybe let's just start with the progress at plant nutrition. So, you know, first of all, I mean, congratulations. I mean, especially most recently, there's been a significant kind of step down in cash costs, I'll call it. But, you know, to achieve those, I had a couple of questions. To what extent, you know, is the plan there to just rely on pond-based tons? and how much of maybe the bottom line progress to date has been from supplementing with purchased potash. And then maybe bigger picture, again, my models go back more than a decade here, but is the progress to date maybe, would you say it reflects kind of getting back to the operating environment that was in effect, let's say, in the late 2010s or very early 2020s? Or is there something qualitatively different being done to kind of significantly boost the per ton economics, production economics?

David, thanks. Great question. Look, it's been a fantastic story for the company in terms of the restoration of that business to where it really should be. and recognize that before when we reported plant nutrition also included our our vineyard vine up in Canada. And so it's really a great story for our Utah partners and our colleagues out there in terms of restoring this business. And there's more to go. because we're, as you know, we're executing the dryer compaction plant where we lose, we have a lot of yield loss there. We're executing a project there, which will be done about this time next year to really make a better product. So we'll see additional yield come from that. Well, that'll happen at a lower cost. Basically, it's an incremental cost We either put the product in today, put the product into what we sell or blows away as dust. And that's not quite the right way to say it, but we lose it. But we'll capture that going forward, and we'll produce a much higher quality product for our customer base. So the improvement, we expect that to continue to improve, at least through, and we should start seeing that about this time next year. Let's see, in terms of the last part of your question, you know, I wasn't here 10 years ago, but we restored the outcomes to that. But they're all, it's really, the answer to that is if you've got that back to where it was, the answer to that is yes. But are you doing anything different? The answer to that is yes, too. And it's a way that we manage our harvest, the tons. Brandon, for example, led that. It's a way that we manage that from a stockpile into the plant. really reducing variability in the plant. It's some things that we've done within the plant itself to improve recovery beyond sort of historical level. So it's really a number of things that we've done to make this improvement over and above the success the company had in the past.

And then maybe just a comment on you know, the plan to supplement pond-based tons with purchased potash or just, yeah, thank you.

Thanks, Dave. Yeah, we are, thanks for reminding me of that, that we are supplementing this year with KCL and we would, we've never really guided on this, but I think from your thinking, you know, we'll be, our plan is to do about the same amount next year, okay?

Yeah, David, this is Ben, and just to add to what Ed said, the utilization of MOP in our process is always going to be a part of what we do. I think Ted's point what we're doing differently is we better understand understand the leading indicators on the chemistry of the pond and so our ability to flex that utilization and that cost profile is much tighter than it has been historically and so that's you know hence the confidence in where we're headed.

Okay great. I'd like to ask you I guess maybe more of a I don't know, philosophical question about the bid season results to date. But you know, I always assume that, you know, your company probably has pretty much, you know, encyclopedic knowledge of, you know, your marketing areas and bid histories and, you know, competitor tendencies and things like that. And, you know, based on the, you know, mostly qualitative You know, discussion thus far. I mean, it seems like, you know, you've identified some pockets where either volume or price or both, you know, can be pushed a little more. And further, last point, my assumption is that to a certain extent, you are responding to what you see, you know, in the bid season results to date. In other words, competitor behavior. So for the balance of the bid season, you know, which should be mostly done, I guess, next by September, you know, is this the case where, you know, you'll be able to bid a little more aggressively for the balance of the season or, you know, are you maybe altering or what's the word? Structuring your bidding profile, both tons and price, you know, based on your mining plan. In other words, what's what's going into, you know, your kind of virtual or, you know, in-season kind of bidding strategy?

OK, let me try to field that and I'll have Ben help me out as well. You know, we do have a deep understanding of our markets and really the distribution network really looking at Our focus in terms of our, every year we come up with a bid strategy. Part of our strategy this year was to really maximize the margins, recognize that the market was really tight. Where do we really want to serve that we can maximize our margins? And that's really what we've been doing. So that's sort of delivered costs, subtracted from the price. and so you know that's that's worked out well and you know we'll see what winter does and how we're able to bring that home as you know that we have the variability due to uh mix and and regional um sales but um the uh our focus at this point we're largely through our big state contracts albeit there's still some states that are coming back and rebidding areas that they weren't weren't able to fill um there shouldn't be any surprise about that the um and largely our focus right now are really our commercial customers, which we should be wrapping up in the next couple of weeks. Ben, you want to add something to that?

No, yeah, thanks, Ed, and David, thanks for the question. I think, you know, going into this bid season, our overwhelming focus was the value of our product in the market, and coming off of a big winter like the last season, we were excited to see the market, you know, had a renewed understanding of how important our product is relative to public safety. And so, you know, focus number one was value of every ton that we sell. In addition to that, you know, we've spent a lot of time working with our key customers on our terms and ensuring that the way we operate our business fits the terms that we need specifically around minimum takes and having a higher level of confidence in what we commit and what's going to move through the pipeline. So we're really excited about the results we've seen. The market has a lot of momentum and we're looking forward to the next season.

Okay, and then one last one, maybe kind of a clarification on how you're thinking about the looming tariffs on Canadian shipments to the US. But I don't know, I guess a little over a year ago, there was another round of tariffs that were going to impact, you know, cross border trade Canada in the US and it turned out, I guess, because of the essential nature of the products or other steps that you or others took. You know, those tariffs were kind of negated. They didn't apply to Goderich shipments to the U.S. Is there something qualitatively different about this round of tariffs? You know, in other words, what has to happen for, you know, a repeat, in other words, the cross-border trade from Goderich not being impacted by this latest announced, you know, round of tariffs?

Yeah, the real difference from a year ago to today, from the tariff standpoint, is the USMCA, the United States-Mexico-Canada Trade Agreement, where certain cross-border materials, et cetera, were exempted from tariffs and things like that. So once that was clarified a year ago, or like more than a year ago, a year and a quarter ago, we really just started up the ramp up at Godrich Mine. What's also different is recognize that potential exposure, our commercial team and the company here has been working on How do we minimize the impact on the company if something like that happens again? And so, you know, Ben and his team have been really looking at contract terms. You just mentioned in terms of the market, how, you know, we're trying to tighten up min-maxes and those sort of things and having success on that. But really being able to pass through costs like this to customers has really been the focus. And so we understand the exposure. We look at... We've looked at ways to mitigate that, and a big part of that has been mitigated. We continue to work to try to really underscore the message to the government about, we have this great, amazing asset in Ontario, which is critical to interstate commerce, public safety in the United States, and the market in the United States cannot be served without God rich mind, fully served without God rich mind. And that it is a truly essential and critical mineral for our economies. And we're highly engaged in that effort right now.

Okay, great. And I'm just gonna sneak one last one in if that's okay. But this relates to the outlook and guidance for the salt segment in particular for 2026. and I'll just say for the highway de-icing volumes, you did bump up the low end of your guidance range by 150,000 tons. Should I assume that that's all just going to be pre-buy or pre-season shipment increases from your did season customers or is there some chemical volume in there or something else but just you know kind of unusual for the the salt volume the highway salt volumes to move up you know third quarter to fourth quarter just just to comment on that please you know we don't really talk about uh that sort of stuff generally but you know what we're doing is is remember our warehousing

were many of them were scraped clean last year. You know, been a long time since that's happening. And so we're really quite a normal course of business here. We're working very hard to reestablish inventories where they need to be to serve the contracts that we've committed to. And so there's really nothing unusual about that in our plan here. Okay, great.

Thank you very much. Appreciate it. Yeah, you too, David.

There appear to be no further questions. I will now turn the call back to Ed Dowling for closing remarks.

Okay, thank you all for joining us. And we're excited about the future here at Compass Minerals. And we look forward to speaking to you again, you know, when we have a chance to catch up. And we have a number of investor calls coming up. I'm sure we'll be chatting with many of you here over the next couple of days. Thanks very much.

This concludes today's call. Thank you for attending. You may now disconnect.