Compass Minerals International - Earnings Call - Q3 2025

Executive Summary

• Q3 FY2025 was solid on year-over-year improvements: revenue grew 5.8% to $214.6M, adjusted EBITDA rose 25% to $41.0M, and adjusted EPS improved to $(0.39) from $(1.01) a year ago, driven by lower costs in Salt and a cost-driven turnaround in Plant Nutrition.
• Results were modest beats vs S&P Global consensus: revenue $214.6M vs $208.6M estimate (+2.9%); adjusted EBITDA $41.0M vs $37.5M estimate (+9.4%); adjusted EPS $(0.39) vs $(0.13) estimate (miss) as non-operating items weighed on EPS despite better operations (consensus values marked with asterisks).
• Guidance was refined upward at the midpoint: Total FY25 adjusted EBITDA raised to $185–$201M (prior $173–$202M) on stronger Plant Nutrition and slight uptick in Salt; capex unchanged at $75–$85M.
• Strategic catalysts: refinancing closed ($650M 8.00% 2030 notes; partial redemption of 2027s) enhancing flexibility, liquidity at $388.7M, and continued deleveraging; bid season indicates +2–4% pricing and +3–5% committed volumes for the coming winter.

What Went Well and What Went Wrong

• What Went Well

  • Salt cost discipline and per‑ton margin expansion: distribution cost/ton flat YoY, all‑in product costs down 2%, raising operating earnings and adjusted EBITDA per ton (+4% and +6%).
  • Plant Nutrition operating turnaround: sales +15% YoY, per‑unit costs down 23%, operating income swung to +$5.2M from $(1.4)M; adjusted EBITDA rose to $11.4M from $7.2M.
  • Balance sheet progress and liquidity: liquidity $388.7M (cash $79.4M + revolver $309.3M) and total net debt reduction of $116M YoY; CEO underscored “back‑to‑basics” execution; CFO raised FY25 adjusted EBITDA midpoint to ~$193M.

• What Went Wrong

  • EPS optics still negative: GAAP EPS $(0.41) with loss on debt extinguishment ($7.6M) and FX loss ($8.4M) diluting bottom line despite better operations.
  • Price mix headwinds: Salt average price down ~1% YoY; Plant Nutrition ASP down 5% YoY on global potash conditions, partly offsetting cost gains.
  • Input cost risk flagged: management highlighted potential KCl price increases into next year, a key Plant Nutrition cost driver.

Transcript

Speaker 3

Thank you for standing by. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Compass Minerals International Inc. third 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. To ask a question, simply press star, followed by the number one on your telephone keypad. To withdraw your question, press star one again. It is now my pleasure to turn the call over to Brent Collins, Treasurer. You may begin.

Speaker 2

Thank you, Operator. Good morning and welcome to the Compass Minerals fiscal third quarter earnings conference call. Today, we will discuss our most recent quarterly 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, August 12, 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 available online. With that, I will now turn the call over to Ed.

Speaker 1

Thank you, Brent. Good morning, everyone, and thank you for joining us today. I'm pleased to report that we had a solid third quarter. I'll begin by commenting on the Plant Nutrition business. We talked in the past about needing to improve the cost structure at Ogden and a plan to do so. We're making good progress on that front. An added benefit of the work we've been doing in Utah is we're seeing a more consistent and higher productivity at the plant, allowing us to confidently serve businesses beyond our core market in the Western U.S. These efforts have resulted in strong sales volumes, complemented by lower production costs this quarter that more than offset lower pricing and higher per unit distribution costs. The net result is we saw improvements in the per unit operating earnings and adjusted EBITDA for the quarter.

In the Salt business, on a per ton basis, we saw distribution costs hold flat and production costs decrease by 2%. This allowed us to realize improvements in both segment operating earnings and adjusted EBITDA on a per ton basis. Bid season is a big focus for the Salt business in the third quarter. Presently, approximately 70% of the company's North America highway deicing bid process has been completed. We expect the contracted selling price through the coming season to be up 2% to 4% year over year and committed bid volumes to be up 3% to 5%. As a reminder, bid volumes establish service levels for certain customers and sales volumes will ultimately be driven by winter weather. Coming out of this year's deicing season, we expected to see increases in both price and commitments, so things are playing out generally how we thought they would.

An important step we completed in the third quarter was the refinancing that we've discussed over the last couple of quarters. That exercise improves our financial flexibility, enhances our liquidity, extends our maturity profile, all of which helps strengthen our ability to continue executing on our back to basic strategy. Our financial position was further augmented in the quarter with the sale of a majority of fortress assets and intellectual property for net proceeds of approximately $20 million. It's worth reiterating what we're fundamentally working to achieve with our back to basic strategy. Our focus is to improve cash flow generating capability of the company by optimizing business practices and structures, lowering capital intensity of our assets, and improving the efficiency of our operations. I'm pleased with the progress we are making. With disciplined execution, we'll continue to unlock intrinsic value of the company.

With that, I'll turn the call over to Peter for a review of our third quarter results.

Speaker 2

Thanks, Ed. I'll make a few comments about the quarter, and then we'll turn the call over to Q&A. For the third quarter, consolidated revenue was $215 million, up approximately 6% year over year. Operating income for the quarter was $15.9 million, which is an improvement from operating income of $5.9 million last year. Consolidated net loss was $17 million compared to a net loss of $43.6 million in the prior year period. Adjusted EBITDA for the quarter increased by 25% to $41 million, which compares to $32.8 million a year ago. In the Salt business, revenue in the third quarter was $166 million compared to $160.6 million a year ago. Pricing was down 1% year over year to approximately $108 per ton, with volumes up 4% compared to the prior year period. Net revenue per ton, which accounts for distribution costs, decreased 1% to $75.

On a per ton basis, operating earnings came in 4% higher year over year at $18.20 per ton, while adjusted EBITDA per ton increased by 6% to $29.66. The increase in per ton margins reflects the decrease in production costs compared to last year, as price and distribution costs are more or less flat year over year. In the Plant Nutrition business, revenue for the third quarter was $45 million, which is up 15% year over year from $39 million. Sales volumes increased 1% from prior year period, while pricing was down 5% for the same period. Distribution costs per ton increased 10% to around $98 per ton, and all-in production costs per ton decreased approximately 23%. Turning to the balance sheet, I'll comment on inventory and our financial position briefly. North American highway deicing inventory value and volumes increased sequentially by 28% and 27% respectively.

This is a normal seasonal build as we prepare for the coming deicing season. We remain mindful of past challenges with excess inventory and are committed to avoiding similar issues. As of the end of June, North American highway deicing inventory levels are approximately 50% lower than last year. We are taking a disciplined approach to production planning and inventory management and will continue to refine our strategy as we complete the bid season. Regarding our financial position, at quarter end, we had liquidity of $388 million, comprised of $79 million of cash and revolver capacity of around $309 million. These amounts reflect the cash from the fortress asset sale and the refinancing activity that Ed referred to in his remarks. The amendment to our credit facility that occurred contemporaneously with the new note issuance had two important changes.

First, it locked in the commitment level of the facility at $325 million through the life of the facility, and that eliminated the step-downs that were scheduled in the prior agreement. Second, it moved the leverage covenant from a total net debt calculation to a net first lien debt measure. These changes enhance our liquidity and provide additional financial flexibility. Total net debt as of June 30, 2025, was $746 million, which is down $116 million or 13% year over year. Reducing leverage is a key component to our back to basic strategy, and we're making solid progress towards that goal. It was a strong quarter for the company from a financial perspective. Despite increasing inventory levels, we were free cash flow positive, and that is before including the proceeds from the fortress assets divestiture. From a guidance perspective, we've increased our adjusted EBITDA guidance slightly for the year.

At the midpoint, we are now showing $193 million for the year, which is an increase from a midpoint of $188 million coming out of Q2 of 2025. The increase is being driven by the Plant Nutrition business, where the stronger sales and effective cost management Ed referred to are translating to better financial performance. We also have a slight uptick in our projection for Salt EBITDA. Our guidance for capital expenditures remains unchanged at a range of $75 million to $85 million. I'll now open the floor for questions. Operator?

Speaker 3

Thank you. At this time, I would like to remind everyone to ask a question, simply press star followed by the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Our first question comes from the line of Joel Jackson with BMO Capital Markets. Please go ahead.

Speaker 5

Hi, good morning, everyone. I'm going to ask a few questions, maybe one by one if that's okay. Can you help us understand, you know, if you get 2% to 4%, so a few percentage points of higher highway deicing pricing, gross pricing, you know, and when you factor in inflation, does that suggest your net backs for next winter or the upcoming winter are going to be the same, higher, or lower on this result out of bid season?

Speaker 1

Yeah, good morning, Joel. This is Ed. How are you? I appreciate the question. Our focus on the sales side for the upcoming season is really consistent with our back to basic strategy, where it's value over volume. What you're really asking is, does the net margin of the plan result in better or worse financial results? As you know, we're in the middle of our budgeting season, working hard. You see that our costs are coming down. I think that's an important thing. We do guidance once our budgets are done and through our board and do that guidance generally on November call.

Speaker 5

Okay. Maybe following up on that, I think there were a lot of, you know, people out there that thought that this could be a very strong bid season. Results came in 2% to 4%, which, as you probably appreciate, is a pretty average historical result. There is never an average bid season in winter, but pretty average, 2% to 4%. Can you talk about, as the bid season has played out, what happened versus maybe what you might have thought? Might you have thought you'd get higher prices? Did you think you might win more share from Cargill or American Rock Salt because of the issues they have? It seems like there wasn't that much volume shift between the major players. Can you talk about, you know, how the market's been playing out in deicing, pricing, how it played out there?

Speaker 1

The volumes are up across the board. The pricing, as you know, is transparent. All these bids are public documents, so you can take a look at that. Our big back to basic strategy is value over volume and competing where we can drive value into the business. You can take a look at what some of the competitors are doing, but that's really not our business. That's their business in terms of what they're setting out to accomplish. Generally, coming into a season like this, it generally takes, when you go back and look at history, two years to really clear the market to really see sort of the full impacts of a year like we had last year. Ben, you want to add anything to that?

Speaker 0

Sure, Ed. Yeah, good morning, Joel. I think what Ed is alluding to as well is the last season, while stronger than the prior two, which were quite light, was really just a return to more average weather. To the degree that that impacted the overall supply and demand picture, maybe wasn't as great as people had hoped moving into the bid season. That may have played out a bit in the dynamics with the competition. We stayed focused to our strategy. I was proud of the way the team moved through a very dynamic situation. I think we're delivering the type of value we committed to.

Speaker 5

Okay, final question. It looks like your Plant Nutrition costs on a per ton basis were very good in Q3. You had some decent volumes. It looks like maybe your best per ton quarter, per ton costs in years. When I look at your guidance, though, it looks like then costs go back in Q4 to kind of where they've been, maybe even higher than the first half of the year. Were there some unique things, and then volumes that are similar in Q3 versus Q4? Were there some unique things going on in Q3 and/or Q4? How should we think about it for Plant Nutrition?

Speaker 1

No, not really. Plant Nutrition, and you know, we've been talking about this for a year or so, is a multi-year recovery plan, starting with the ponds and, you know, ultimately working our way through improvements in the dry plant. The good news here is that our recovery on the ponds is ahead of where we thought it would be. There's a number of things that are contributing to that. One is management of the solutions, and two, really having, you know, hot and dry weather out in Utah, we've been able to deposit more. Achieving our production and really at the right rate, remember we talked about the harvest production ratio, has worked out really quite well for us. We're trying to take advantage of that going forward. We're doing some things in the wet plant to improve overall recovery.

We'll talk about that at some point in the future. Ultimately, the capital project in the dry plant. I think the outlook is really just, you know, we had a good quarter. I think we would expect to see something similar in the fourth quarter. Now, the plant's down right now. The volume of, you know, that's planned and scheduled. What you're probably seeing a little bit is compression on that. I'll turn, maybe Pat would have some comments on that as well.

Speaker 4

Hi, Joel. It's Pat. One other thing to keep in mind is KCl is a big input factor for us, and our costs are driven by the cost of KCl on the open market. That also can impact what our overall costs are going forward. We're projecting into that as opposed to what we've seen in the past.

Speaker 5

Could I be greedy and just sneak in a question on that? Does that mean that maybe in Q3, your mix was more straight harvest and Q4 the mix shifts a little more towards augmented with purchased KCl?

Speaker 4

No, I wouldn't say that. As Ed spoke about, the improvement in health of the ponds, which then improves the input into the plant over time, allows us to use less KCL. There is going to be some impact of that. The long-term trend, some of the cost is just what we have to purchase KCL at. I think we see leading into next year, higher KCL prices based on what the market is telling us they expect those prices to be.

Speaker 5

Thank you.

Speaker 3

Again, to ask a question, simply press star followed by the number one on your telephone keypad. Your next question comes from the line of Patrick Goff with JPMorgan.

Speaker 0

Hi guys, thanks for taking the question. I missed part of the prepared remarks, and I had a question or a clarification question on your comment regarding North America highway deicing inventories down 50% relative to last year. I assume that's your inventory levels, or that's industry inventory levels?

Speaker 1

Yeah, Pat, good morning. This is Ed. I mean, that's our inventory levels. Peter, you want to add more to that?

Speaker 2

No, again, back to basics. It's just managing those through.

Speaker 1

Yeah, we will be managing that, our working capital, very carefully going forward. It will flex up and down depending on what happens at any given year. We will manage the business flexibly as we have talked about in the past. We are not going to find ourselves in a circumstance like we did a year ago, you know, where we are just way too much inventory coming into a season and just produce to make earnings look good, but basically putting cash in the inventory. We are not going to do that anymore.

Speaker 0

That makes sense. You guys did. Can I follow on a couple of quick ones?

Speaker 1

Sure.

Speaker 0

Do you have a sense, and I guess I'll put them both in there, do you have a sense as to where broader industry inventory levels are? I guess the other question would be, just when you think about your balance sheet, where are you trying to get to with regard to, you know, leverage on maybe a normalized EBITDA basis going forward?

Speaker 1

Yeah, Patrick, I'll have Ben address the first thing in terms of industry-wide inventories, and I'll address, you know, sort of balance sheet targets.

Speaker 0

Good morning, Patrick. It's Ben. It would be a bit of speculation. I think it's prudent to say that industry inventories would be down year over year, being that going into last season, we were coming off of two very light winters, and I think it was widely known that inventories were pretty heavy. To the degree that they're down with our competitors, I would be speculating, so I won't speak to that.

Speaker 1

In terms of our balance sheet, Patrick, ultimately, we'd like to work ourselves to the investment-grade, which implies a debt-to-equity ratio or EBITDA ratio of, you know, between 2 and 3, you know, kind of roughly 2.5. You know, I've talked about that in the past. You know, how we manage cash and working our way down, and you know, pleased that our debt is coming down. That's the plan, is make cash and retire debt. You know, as we move our way through there, we'll, you know, start thinking more and more about the potential capital returns and things like that in the future, but no decision at this point. You know, we need to get our debt down a bit more before we start thinking about that.

Speaker 0

Sorry, one last one. Would the thought with the stub of the 2027s be to pay that down with cash flow or to refile that?

Speaker 1

Yeah, I was 100%. We've announced our intention is to use cash flow to pay down the stub leftover on the 2027 bonds.

Speaker 0

Got it. Thank you so much. I appreciate it.

Speaker 1

You bet. Thanks, Pat.

Speaker 3

Again, to ask a question, press star one on your telephone keypad. With no further questions in queue, I will now hand the call back over to Ed Dowling for closing remarks.

Speaker 1

Okay, thank you, Operator. Really appreciate it. Thanks everybody for joining the call today. We've got some events coming up here over the next sort of two months and look forward to seeing you then.

Speaker 3

Thank you again for joining us today. This does conclude today's conference call. You may now disconnect.