Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Compass Minerals First Quarter Fiscal 2025 Earnings Conference Call. 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'd like to ask a question during this time, simply press star, then the number 1 on your telephone keypad. To withdraw your question, press star 1 again. We kindly ask that you limit your questions to one and one follow-up. I would now like to turn the conference over to Brent Collins, Vice President, Investor Relations and Treasurer. Please go ahead.

Thank you, Operator. Good morning and welcome to the Compass Minerals Fiscal 2025 First Quarter Earnings Conference Today, we will discuss our recent results and update our outlook for Fiscal 2025. We will begin with prepared remarks from our President and CEO, Edward Dowling, and our CFO, Peter Feldman. Joining in for the question and answer portion of the call will be Ben Nichols, our Chief Sales Officer, and Jenny Hood, Chief Supply Chain Officer. Before we get started, I will remind everyone that the remarks we make today reflect financial and operational outlooks as of today's date, February 11, 2025. These outlooks entail assumptions and expectations that involve risks and uncertainties that could cause the company's actual results to differ materially. The 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. I will now turn the call over to Ed.

Thank you, Brent. Good morning, everyone, and thank 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-basics strategy is operational discipline and intense focus on continuous improvement. The appointments of Pat Marin and Peter Feldman as COO and CFO respectively bring two executives to Compass Minerals with proven track records of leading teams and building cultures focused on disciplined operational management. Pat will join the company officially in early March. Peter's been with the company a short time and is quickly getting up to speed. He's with us on the call today. I am excited about these additions and these two leaders to our core team and 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 room 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 we wish him well in his future endeavors. I'll start with making a few comments on the business, beginning with our salt business. Consistent with prior comments we've made, one important area of focus this year has been to flexibly manage the business and to reduce our absolute inventory levels of highway deicing salt. You'll recall that this was a key driver in a decision to curtail production at Godrich Mine in 2024. Reducing inventory obviously has the benefit of freeing cash that is hung up in working capital. It also helps remove supply-demand balance in the market that is long on supply following last year's weak winter. Salt is like any other commodity. When there's too much of it in the system, it will weigh on price, all things being equal. We're making good progress in reducing our inventory volumes. With North American Highway de-icing inventory, volumes down approximately 10% year over year, and that is despite the fact that winter began slower than we'd hoped in October and November. We typically see both pre-fill activity and replenishment early in the fiscal first quarter generated by early snow events. Unfortunately, we really didn't see any weather in our served markets early in the quarter to drive our orders, given that large parts of our customer base had adequate inventory following last year's exceptionally mild winter. December saw an increase in winter weather that was consistent with the 10-year average in our served markets and is significantly above what we saw last year. Looking outside the quarter, we saw winter weather further strengthen in January, which allowed us to claw back some of the shortfall from the first quarter. We'll see how the rest of the winter de-icing season progresses, and that will inform our production plans for the coming year. One 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 eventually 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 de-icing business, we don't expect the tariff would materially impact the current year's de-icing season as the inventory is largely forward deployed and available for our customers. It does have the potential impact next year as we will need to produce and then move salt across our deep wet network. We're evaluating options to minimize the more immediate impact such a tariff could have on our CNI chemical and when you're served SOP business. As we see, this matter will likely be very dynamic for some time we will continue to monitor it closely as the situation continues to evolve and settle out 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 at ogden this is a multi-year process that we engaged with for several years and focus is improving consistency 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 forecast in this turn is enabling us to increase guidance for this segment at portraits we continue to evaluate all options for the business, including ongoing discussions with the U.S. Forest Service regarding the evaluation and testing of the company's conditionally qualified technical-grade orthophosphate-based aerial fire retardant, Quella. With respect to guidance, we're moving the range for total adjusted EBITDA down by roughly $15 million. The main driver of this change is a lighter start in sales and our salt business tributal to the mild weather in October and November I mentioned earlier. Again, January came in better than forecast. We've included some of that outperformance into our revised guidance. Plant nutrition is up by about $4 million based on the factors previously mentioned. Corporate EBITDA is unchanged from what we guided in December. To offset this reduction in adjusted EBITDA, the company is reducing the range of capital guidance by approximately 25 million dollars when we laid out our guidance for the year in the last earnings call we noted that we had sculpted the capex program such that we could modify our spin to adjust it to how the de-icing season shaped up and we're pulling that lever as a vision i'll note that the operational initiatives are underway to improve reliability and lower cost which will have a positive impact on capex over time we're already seeing benefits and some of that work with respect to the balance sheet our plan remains to refinance our debt stack this year with the intention of restructuring in a way that better aligns with our current strategy we believe that we'll be able to move forward with 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 winners strong free cash flow during normal winners and outstanding cash flow and strong winners. We have more work to do to get there, but the company's main important strides over the past several quarters for improving areas that we have the most ability to influence. Said differently, we're doing a better job of controlling the controllables. I'll expect our progress on this front to continue and accelerate with the arrival of Pat and Peter.

We remain focused on delivering on our back-to-basic strategy i'm excited about the progress we're making in the organization to execute on that goal with that i'll turn the call over to peter thanks ed 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 that the company has embarked on i want to echo the sentiments shared by ed earlier about jeff he's been incredibly helpful and generous with his time and knowledge as we transition the role. I'll comment briefly on the financial results for the quarter before turning the call over for Q&A. For the first quarter, consolidated revenue was $307 million, down 10% year over year. It's important to remember that the fiscal first quarter of 2024 included contributions related to fortress from the U.S. Forest Service contract we had in that year. From an operating earnings perspective, we essentially broke even in the current quarter. Consolidated net loss was $24 million, and adjusted EBITDA was approximately $32 million for the quarter. Drilling down into the segment results, in the salt business, revenue in the first quarter was $242 million compared to $274 million 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 an increase in production costs per ton due to the curtailment of production at Godridge mine last year. In the plant nutrition business, revenue for the first quarter was $61 million, which is up 24% year-over-year from $50 million. Sales volumes were up 36% from prior year period while pricing was down 9%. Distribution cost per ton decreased 2% to around $91.50 per ton, and all-in production costs per ton decreased 10 percent. At quarter end, we had liquidity of $126 million, comprised of $46 million of cash and a revolver capacity of around $80 million. At quarter end, the consolidated net leverage ratio was 5.9 times, within the company's net leverage covenant of 6.5 times. Last week, the company had approximately $195 million of liquidity with $65 million of cash and $130 million of revolver capacity. With that, I'll turn the call over for questions.

At this time, if you would like to ask a question, press star, then the number one on your telephone keypad. We kindly ask that you limit your questions to one and one follow-up. We'll take our first question from the line of David Begweiter with Deutsche Bank. Please go ahead.

Thank you. Ed, given the recent winter weather activity, Can you kind of frame the outlook for Highway the Icing volumes in both Q2 as well as a full year?

Well, you know, we're in the February now. January was, I mean, as we said, October and November were not good months for us. The winter really didn't materialize in our serve markets. December was a really solid month for us, you know, really being relatively equal to our 10-year average. January was really great. really mainly in our southern markets, from the storm tracks, largely in the south. And of course, now what we've been seeing more recently, the storm tracks are really into our core serve markets. And, you know, we hope that sort of continues. You know, we'll see, you know, so February is looking pretty good so far. We'll have to see how March lays out 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 end of March.

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

There's several steps that the Forest Service uses to prove products. The first step is sort of a lab-based product to conditionally qualify it. There's several really things that go into that. Once that is conditionally qualified, which it is, then you take it into the field through what's called an operational field evaluation, OFV. Jenny, you want to add anything to that?

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

And does this mean you've solved the corrosion issues you highlighted last year, what they highlighted last year it's a different base chemistry you know initially the chemistry was a magnesium chloride based chemistry and that's where you know we were all surprised about this time last year we're very close to having a contract that uh especially the airplanes found the corrosion that investigation is still going on we can't going on within the ntsb um what we're talking about with Quella, it is a different chemistry based on a phosphate type chemistry and it's been through the testing and evaluation, which is obviously getting a lot more scrutiny given where we ended up last year. So anything you want to add to that?

No, thanks, Doug.

Thank you very much.

Our next question comes from the line of Joel Jackson with BMO Capital Markets. Please go ahead.

Hi, good morning. In fact, it's been a call, Evan, team. First question, I'm surprised that you lowered your full year volume guidance, since it is snowing a fair bit. I live in Toronto, Ed, as you know. I'm shelving a lot, and we're all shelving a lot and talking about it. American Rocks all have a new issue of production, right? It seems like there's some shortages in Western New York. I understand that we started light until the beginning of the winter in December, but I'm surprised that you lowered your volume guidance, considering everything going on. Can you talk about that?

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

My second question can be two parts. The first part of the following up on that. But you gave guidance in the middle of December and it's only snowed very strongly since then. That's why I'm surprised you lowered your volume guide. And the second question is, Ed, talk about what you're doing on SG&A, because that's been a big focus of yours when you came in about a year or 15 months ago. and SG&A in the first quarter was extremely flat with SG&A in fiscal Q1 of 24. So what progress are you making and can you make on SG&A?

Yeah, you know, we have made progress at SG&A. You know, if you think about sort of the headcount, we are down, you know, probably about 80 percent, 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, things like legal costs associated with some of the class action lawsuits and things like that has been offsetting SG&A. It remains a really important focus going on with management as we speak.

And just about the front.

Yeah, I was just going to say in the middle of December, to kind of follow up on that, you know, we really was, you know, we did that in mid-December. We'd only closed in October before that, right?

Okay, thank you.

Our next question comes from the line of Jeff Zakaskis with J.P. Morgan. Please go ahead.

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

Yeah. Well, we can tell you that we talk to inventories a lot. We are bringing them down. uh we'll we'll we'll bring them down to lower than historical norms uh that liberate the cast associated with that uh then you want to add anything to that i think that's right ed just where the winner is tracking all things being equal if you kind of take the midpoint of our guidance um you know that that's relative to life on the demand profile um so you know we're also taking actions at the mine that you've seen published and we anticipate to draw the yes you know we continue to run godrich at the uh curtailed rate um and we won't ramp it back up

until we've got a better uh level on our inventory you want to talk ar yeah jeff brant so uh ar that's that's just sale so as we talked about in the the remarks uh october and november were pretty light but December was a strong month so that's just the the cash conversion cycle things coming out of inventory uh going up into accounts receivable and then we'll we'll start collecting that here in the second quarter and then it looks like you're I don't know if you're deferring 25 million in capex or canceling 25 million in capex can you talk about what it is that you're

not spending and whether you'll see the um let me remind everybody that we last year we installed a more disciplined approach to capital where we rank projects uh 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 um and we do 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 kind of higher risk to lower risk five and what we're planning at this point is not doing about 25 million dollars worth of that with the lower end of those projects which would have scored lower in terms of that risk profile. Now, they'll probably show back up in 2026, and we'll go through that process again. So we put the process in place last year. What we've done this year is organize our capital plan so that we could ramp it up or ramp it down, depending on how the year went. Given the first quarter was behind plan, we've ramped it down accordingly. Great.

Thank you. Hey, Jeff, this is Brent. i i did want to clarify one thing on the accounts receivable that i was thinking about so on the on the product recall that we announced that was disclosed last quarter the way the accounting for that works is that you we we expect that to be covered by by insurance the way that you have to handle that from the accounting perspective is you have to do a gross up of uh the claim and then the receivable so that that could be something that you're seeing there is that there's just a growth up on the balance sheet reflect that how much is that uh 35 million dollars growth up our final question will come from the line of david silver with cl king and associates

please go ahead yeah hi thank you um i do have a couple of questions so first one would be about your managing your salt business through the balance of the winter season you know in in reading through the press release, a couple 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 3rd or 4th in a worst case scenario. And in the meantime, I'm guessing that you are leveraging, you know, the Cote Blanche production to kind of meet the needs in your target market area, marketing radius to the greatest extent possible. But could you just kind of talk through, you know, why would the tariffs, at least for this winter, be an issue in kind of a worst case scenario? In other words, between now and March 4th, 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 kind of a, what do you fear, I guess, at least in terms of the current winter season, you know, through March 31st or April?

My assumption is you should be able to get through unscathed, but but is there kind of a worst case scenario there thank you yeah thanks um jacob the in terms of the highway da icing we don't really see much risk associated with tariffs for the this fiscal year um as we said most of our our inventory is already forward you know from godrich in canada is already forward deployed so that the customers can access it this year 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 you need to be prepared for that you mentioned one potential contingency and this would be really more for next year not this year but some flexibility associated with coat blanche to serve some of our historical markets and but there would be over time a reordering that would happen within the serve markets for all the salt producers we just have to see what happens and there's a many many many potential scenarios we did mention that um made from um like our sop product and cni product made in canada and imported into the us could be affected uh through uh tariffs this year and um there's scenarios where that could be both negative obviously but it could you know, 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 pons 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 million out of the capex budget i i mean are the are the efforts or are the steps you're taking you know at ogden on the sop business are are those capital projects or is the spending that you're doing they're actually flowing flowing through the income statement by quarter so just you know maybe a comment on what most recently you've done at uh ogden and the sop ponds that are generating better results and then you know how does that kind of play into uh the the the capital budget that

you've established you know as of this quarter okay yeah jake thanks for the question um we've been working for some time to restore the uh 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 the prudent 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, this is a multi-year cycle. We're seeing the benefits of that. What we're seeing is higher grade SOP in the material that we mine and send to the plant now there's two 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 and then less optimal less than optimal feeding compaction. And we suffer losses associated with that. So we're seeing benefits now to operating costs just by managing our business better. That's more just operating costs. In the future, we will have capital costs. And this is not something that we want to defer. There are really two really critical sort of business projects that we want to do on the capital side. You know, one, as I mentioned, the dry plant, which will help us reduce our costs even more. The second, which is really a sustainability project, is the real relocation at Godrich 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. 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 call 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 to have any follow-up questions we look forward to speaking you in the next quarter thanks very much that will conclude today's call thank you all for joining and you may now disconnect.