Compass Minerals International - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 delivered a broad-based beat: revenue $494.6M vs consensus ~$414.0M, and adjusted EPS $0.63 vs consensus ~$0.00; EBITDA modestly ahead on S&P’s definition; guidance was raised at the total-company level, led by Salt volumes and revenue strength.
• Inventory rationalization unlocked cash: ~$150M working capital release and ~$170M (18%) sequential net debt reduction; liquidity ended at $328.6M (cash $49.5M, revolver availability $279.1M).
• Salt volumes surged on stronger winter weather; margin per ton compressed temporarily due to 2024 curtailment effects and lower average highway pricing (-5% YoY), but management expects per-ton economics to improve as production normalizes.
• Corporate cost actions and Fortress wind-down progressed; total FY25 adjusted EBITDA guidance raised to $173–$202M (midpoint +$15M vs Q1), with Corporate adjusted EBITDA improved to -$59 to -$52M and Salt revenue lifted to $975–$1,050M.
• Near-term stock narrative catalysts: constructive 2025/2026 bid season setup (low system inventories, improving pricing psychology), deleveraging trajectory, and clearer tariff backdrop (USMCA exemption for Canadian production).

What Went Well and What Went Wrong

• What Went Well

  • Working capital and deleveraging: “We realized a working capital release of nearly $150 million… reducing net total debt by approximately $170 million or 18% in the quarter.” — CEO Edward Dowling.
  • Salt volume strength: Highway deicing volumes +51% YoY; total Salt revenue +39% YoY to $432.7M as winter weather strengthened.
  • Guidance raised and tariff clarity: FY25 total adjusted EBITDA to $173–$202M; USMCA qualification exempts Canadian exports from tariffs currently.

• What Went Wrong

  • Margin compression: Adjusted EBITDA/ton -30% YoY to ~$16.75 due to prior production curtailment (higher cost inventory sell-through) and -5% highway pricing YoY.
  • Fortress-related non-cash charges: $53.0M impairment in Q2; comparability impacted across periods; adjusted EBITDA also affected by contingent consideration remeasurement.
  • Plant Nutrition profitability: Adjusted EBITDA declined to $5.6M (vs $7.3M prior year) on lower pricing (-8% YoY) and higher distribution costs per ton (+13% YoY).

Transcript

Operator (participant)

Thank you for standing by. My name is Carly, and I will be your conference operator today. At this time, I would like to welcome everyone to the Compass Minerals Second Quarter Fiscal 2025 earnings 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 would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Mr. Brent Collins, Vice President, Treasurer, and Investor Relations. Please go ahead.

Brent Collins (Treasurer and VP of Investor Relations)

Thank you, Operator. Good morning and welcome to the Compass Minerals Fiscal Second Quarter earnings conference call. Today, we will discuss our recent results and provide an update of our outlook for Fiscal 2025. 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 Pat Merrin, our Chief Operations Officer, and 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, May 8, 2025. 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. I will now turn the call over to Ed.

Edward Dowling (President and CEO)

Thank you, Brent. Good morning, everyone, and thank you for joining us on our call today. After a disappointing First Quarter, the Second Quarter was much better in terms of winter weather. This, in turn, has unlocked the benefits of the strategy we embarked upon a year ago. Last year, the company made the strategic pivot to refocus its efforts on the core business. Our goal is to improve the cash flow-generating capability of our business by optimizing business practices and structures, lowering capital intensity of our assets, and improving the efficiency of our operations. Because of the nature of our seasonal business, the steps we take to achieve these goals sometimes take Quarters to play out. I'm pleased to share that we continue to make progress on our back-to-basic strategy.

Almost exactly a year ago, we shared our plan on how we intended to rationalize the North American highway de-icing inventory levels that had grown too large after consecutive mild winters. The primary goal of this initiative was to free up cash that was hung up on working capital and use that cash to reduce debt. Additionally, we knew that salt inventories across the broader system were high, which is impact from the supply-demand balance in the market. We did not want to further exacerbate that dynamic. We decided to curtail production at Goderich Mine and, to a lesser extent, at Cote Blanche, with the view that with some help from winter, we would see a meaningful drawdown in our salt inventories and realize significant working capital release out of inventory.

As a result of that curtailment, we knew that we'd experience some short-term margin compression due to a higher fixed cost absorption, but the rate was the right business decision for the long-term success to move our business to lower inventory levels. Fast forward a year, you can see that we executed well on the plan. A few points to help that bear that out: North American highway de-icing inventory values are down 47% year over year. North American highway de-icing inventory volumes are down 59% year over year. Across our depot network, we saw a number of depots being fully depleted by the end of the highway de-icing season, and throughout the season, there were multiple media reports about shortages of salt in some of the markets, which suggests there's some tightness in the market during the winter.

The successful execution of our plan allowed us to realize approximately $145 million working capital release out of inventory alone, which in turn helped us reduce our total debt in the Quarter by more than $170 million. The drawdown in inventory across our network was significant this season. We also believe that competitors and customers saw similar drawdowns in their respective networks. Against this backdrop of low system-wide inventories, the company is well positioned to optimize production inventory levels as we approach the 2025-2026 North American highway de-icing bid season. During the Second Quarter, there is obviously a lot of noise around tariffs, and we needed to see where these things landed before firming up our production plans for the coming year. The salt and fertilizer products that we produce in Canada are qualified under the USMCA trade agreement.

As a result, they're currently exempt from any tariffs that have been implemented or proposed. With that huge question mark seemingly addressed, the company is in the process of ramping up production, which should have a favorable impact on our per-unit cost, all things being equal. From a pricing perspective, the setup is constructive as we enter North American bid season. There's a psychological component to the highway de-icing business. It worked against us when we had mild winters for a couple of winters, and customers could look in their sheds and see that they were full of salt. The recently completed de-icing season was a good reminder that winters do, in fact, happen. It's not unreasonable to think that the pendulum could sweep back in our favor this bid season and allow for some stronger pricing.

We could see positive impact on volume commitments in the coming season as well. Our efforts over a year ago are bearing fruit. The position is well to maximize value of our highway de-icing business in the coming year. We will continue to maintain flexibility in our operations and capital plans so that we can appropriately respond to the market conditions. I'll now move to actions we took during the Second Quarter that I expect to have benefits in future periods. In March, we announced that we're eliminating over 10% of our corporate workforce. This is an extension of our efforts to align our cost structure with our current business needs. We're working on advancing additional cost improvement projects as we continue to focus on driving down costs across the platform. We also announced that we would begin to wind down the Fortress North America business. These actions simplify our business, allow the company to generate additional cash flow, and accelerate deleveraging. With that, I'll turn the call over to Peter for a review of our Quarterly results.

Peter Fjellman (CFO)

Thanks, Ed. I'll comment briefly on the financial results for the Quarter before turning the call over for Q&A. For the Second Quarter, consolidated revenue was $495 million, up 36% year over year. Operating loss for the Quarter was $3.1 million, which was an improvement from the operating loss of $39.3 million last year. Consolidated net loss was $32 million compared to a net loss of $38.9 million in the prior period. These results include impairments taken on Fortress North America in both periods, as well as the impairment in the plant nutrition business last year. Adjusted EBITDA for the Quarter was $84.1 million, which compares to $95.7 million a year ago. As noted in our press release yesterday, the treatment of the contingent consideration liability for Fortress North America impacts the comparability of adjusted EBITDA between periods.

When that is taken into account, modified adjusted EBITDA was $76.2 million in the Quarter compared to $71.9 million in the Second Quarter of 2024. In the Salt business, revenue in the Second Quarter was $433 million compared to $310 million a year ago. Pricing was down 5% year over year to approximately $85 per ton, with volumes up 47% compared to the prior period. Net revenue per ton, which accounts for distribution costs, decreased 4% to $57. On a per-ton basis, operating earnings came in lower year over year at $13.10 per ton, down 31%, while adjusted EBITDA per ton decreased roughly 30% to $16.75. The decrease in margins primarily reflects the increase in production costs per ton due to the curtailment of the production at the Goderich Mine last year and softer pricing for highway de-icing salt compared to last year.

In the plant nutrition business, revenue for the Second Quarter was $58 million, which is up 16% year over year from $50 million. Sales volumes were up 26% from prior period, while pricing was down 8% for the same period. Distribution costs per ton increased 13% to around $102 per ton, and all-in production costs per ton decreased by approximately 10% when adjusting for the impairment in the business last year. As Ed mentioned, we executed successfully on our plan to reduce North American highway de-icing inventory levels, harvest cash, and pay down debt. The value of North American highway de-icing inventory declined 47% year over year, and the volumes associated with that were down almost 60%. This allowed for a sequential decrease in total net debt of $171 million and an $81 million decline from last year's Second Quarter.

At Quarter end, we had liquidity of $329 million, comprised of $51 million of cash and a revolver capacity of around $279 million. From a guidance perspective, we increased our adjusted EBITDA guidance for the year. At the midpoint, we are now showing $188 million for the year, which is an increase from a midpoint of $173 million coming out of Q1 2025. The $188 million includes a gain related to the write-off of the Fortress contingent consideration liability of approximately $8 million. Even adjusting for that item, we're showing improvements in guidance for Salt and corporate. I would also point out that our guidance for capital expenditures was unchanged at a range of $75 million-$85 million. As we continue executing on our back-to-basic strategies, we will focus on controlling costs, managing inventory and working capital, and enhancing free cash flow. I'll now open the floor for questions. Operator.

Operator (participant)

I'd like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from David Silver with CL King & Associates.

David Silver (Managing Director and Equity Research Analyst)

Yeah, hi, good morning. Not used to being called first. Okay, thank you very much. You know, I do have a couple of questions regarding kind of the balance sheet and the cash flow statement in particular. I understand there's a number of, you know, relatively different events, kind of puts and takes. Can I just ask you, you know, unlike most March Quarters, the accounts receivable level actually rose from December to March. Overall, I mean, I think it's at a very high level relative to, you know, your sales or historical season-ending levels. Is there something going on there, or why shouldn't I think that this would be a significant source of incremental, further, you know, incremental cash going forward? Just some comment on kind of the March end, March month-end level of accounts receivable, please.

Edward Dowling (President and CEO)

Hi, David, this is Ed. Sometimes it's good to be first, but anyway, good to hear your voice. Let me pass this off to Peter Fjellman to address your question about the balance sheet.

Peter Fjellman (CFO)

Sure, this is Peter. There are a couple of insurance settlement matters within the AR and both the AP balances. You will see a slight gross up to both for the accounting, as well as as we continue to have a good Quarter, and we see those AR balances will continue to come down slightly related to just the natural flow of the inventory.

David Silver (Managing Director and Equity Research Analyst)

Okay, very good. Maybe a business question, but, you know, I'm sure your team, this has to do with the upcoming bid season, and I'm sure your team is very proficient at kind of reading the tea leaves, I guess. What can you say, or what can you divine, I guess, from the early requests for bids? In other words, have the volume commitments, you know, that the customers are seeking, have they noticeably increased versus the past year or two? Are the delivery points indicating, you know, areas of maybe the depot, you know, depletion, Ed, that maybe you cited in your remarks? Just I know it's early, but the bidding does start pretty early, or at least the bid process starts pretty early. What can you divine from what's available to you at this point?

Edward Dowling (President and CEO)

David, I'll make some general comments up front and then pass it off to Ben here. It is very early in the bidding season. We do think that the market, based on the difference between a year ago and now in terms of inventories in the winter that we served last year, is much more constructive than we've seen over the past several years. You know, so that by itself gives an indication of potential price increases and potential volume increases, but recognize that not all areas are the same, that some areas experience more snow than others. Those sort of things will be different depending on the sort of current situation and the different locales. It's a setup that we understand reasonably well. Pass that off to Ben Nichols here to see what else you might want to add.

Ben Nichols (Chief Commercial Officer)

Yeah, good morning, David. This is Ben. I think what Ed alluded to, the regional nature of that, is important to understand. I would also say we have some early data points on tender sizes, which, you know, is the municipal and state level indications of what they see their needs for the upcoming season. I would tell you that those are ranging to slightly up to significantly up in some regions. You know, all things being equal, we think the dynamic's going to be positive year over year moving forward. I would tell you our team is very excited about that opportunity.

David Silver (Managing Director and Equity Research Analyst)

Okay, great. I'm just going to sneak in one more, but this would be related to your SOP business. And, you know, I just, just as a note, I mean, to me, that business is still, you know, has a lot of potential to kind of improve the margins there, especially, you know, given the pretty two consecutive Quarters, I think, of pretty high shipment levels. You know, Ed, you know, I understand the salt segment and particularly the icing inventories was job one here. What do you see over the next few Quarters or next year or so in terms of restoring kind of that cash cost or cash production cost performance level to, I don't know, more historical levels and maybe driving some incremental cash flow from that part of your business?

Edward Dowling (President and CEO)

Yeah, it's an important objective for us, David. We outlined efforts that we were initiating a year ago, and it's a multi-year effort. It really starts with the brine chemistries and controlling the brine chemistries better as we go into our evaporation ponds to sort of repair and restore these ponds back towards sort of historical levels. You know, we talked about sales to harvest ratios and, you know, the harvest to production ratios, excuse me, and other things. The early indications are very good in that regard. You see that through the increased volumes that we're now producing in Utah. That's really just the first step. That will continue for some period of time, but it really is just the first step.

The other big end of this is sort of the back end of the SOP production, which is related to what we call the dryer plant or the compaction plant, which requires a capital project and modification. That engineering work is well advanced. We want to make sure that we're really spot on and able to manage this really well. You know, between those different efforts, we believe that we will be able to materially reduce the costs of our SOP production. I'll hand this off to Pat Merrin a little bit, see if he'd like to add some additional comments there.

Pat Merrin (COO)

Thanks, Ed. Hi, David. This is Pat. I've had a chance to get to Ogden a couple of times now, and certainly we have a fantastic team there and a very unique asset. You know, on top of the projects that Ed has talked about, we certainly see some opportunities for us to drive improvements in how we run the business. That is going to be incremental over time. You know, the two big projects that Ed has spoken about, the restoration of the ponds and the capital projects, will give us a step function going forward while we continue to drive improvements at the business.

David Silver (Managing Director and Equity Research Analyst)

Okay. Thanks very much. I'm going to get back in too. Appreciate it.

Edward Dowling (President and CEO)

Thank you, David.

Operator (participant)

Again, if you would like to ask a question, press star, followed by the number one on your telephone keypad. There are no further questions at this time. I'll now turn the call back over to Edward Dowling, President and CEO.

Edward Dowling (President and CEO)

Thank you, Carly, for the moderation here. Appreciate that. Thank you all again for your interest in Compass Minerals. We are focused on delivering on our back-to-basic strategy. We're making good progress in that regard. I'm excited about the steps the company is making. Please do not hesitate to reach out to Brent if you have any follow-up questions. We look forward to speaking to you in the next Quarter.

Operator (participant)

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.