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Operator: Good morning, ladies and gentlemen. My name is Abby, and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Compass Minerals’ Fiscal First Quarter 2023 Earnings Call. Today’s call is being recorded and all lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session . And I will now turn the call over to Brent Collins, Vice President of Investor Relations. You may begin.

Brent Collins: Thank you, operator. Good morning. And welcome to the Compass Minerals’ fiscal 2023 first quarter earnings conference call. Today, we will discuss our recent results and update our outlook for fiscal 2023. We will begin with prepared remarks from our President and CEO, Kevin Crutchfield; and our CFO, Lorin Crenshaw. Joining in for the question-and-answer portion of the call will be George Schuller, our Chief Operations Officer; Jamie Standen, our Chief Commercial Officer; Chris Yandell, our Head of Lithium; and Ryan Bartlett, Senior Vice President, Lithium Commercial & Technology. Before we get started, I will remind everyone that our remarks we make today reflect financial and operational outlook as of today’s date, February 08, 2023.

These outlooks entail assumptions and expectations that involve risks and uncertainties that could cause the company’s actual results to differ materially. A discussion of these risks can be found in our SEC filings, located online at investors.compassminerals.com. Our remarks today also include certain non-GAAP financial measures. You can find reconciliations of these items in our earnings release or in our presentation, both of which are also available online. The results in our earnings release issued yesterday and presented during this call reflect only the continuing operations of the business other than amounts pertaining to the condensed consolidated statements of cash flows or unless noted otherwise. I will turn the call over to Kevin.

Kevin Crutchfield: Thank you, Brent. Good morning, everyone. And thank you for joining us today on our call. We continue to make strides in our efforts to reposition Compass Minerals for accelerated growth, reduce winter weather dependency and create sustainable value for our shareholders by expanding our essental minerals portfolio into the adjacent markets of battery grade lithium and next generation fire retardants. As communicated on our last quarterly call, we entered 2023 focused on achieving six strategic goals. I’ll take just a few minutes to provide a status update on each of those areas, and I’ll comment in on the quarter before turning the call over to Lauren to discuss our financial performance in more detail. Our first area of focus continues to be the safety and wellbeing of our employees.

Last year was an outstanding year for safety performance across our operations. In fiscal €˜23, we intend to build on that strong performance and our continued drive towards zero harm across each of our facilities. We acknowledge that achieving zero harm or no reportable injuries across our entire platform will be a challenge in the complex operating environments that we operate in. However, in several of our sites, we’ve already proven it’s possible and we owe it to our employees and their families to strive for that goal every day so the employees go home to their families in the same condition as they left. The next goal we outlined in some detail on our last call is our aim to restore the profitability of our salt business to levels we have demonstrated in the past.

As many of you know, inflationary pressures created a significant headwind in 2022 that had a direct impact on our salt segment EBITDA per ton. In an effort to mitigate those challenges and more effectively leverage our expansive salt depot logistics network, we approach the 2023 winter bidding season with a disciplined pricing strategy and a focus on winning sales commitments in markets that are geographically advantageous for us and relatively efficient to serve. The results of this strategy were evident in our financial performance this quarter with salt segment EBITDA up 7% year over year to just over $17. Our goal is to continue to make progress on EBITDA per ton and get back to the levels that we’ve enjoyed historically. We’ve made strides in that direction during the quarter and expect to make continued progress toward that goal through the balance of the year despite facing some headwinds on the cost front that we’ll discuss more in a moment.

With our plant nutrition segment, we’re deep in the process of honing and executing strategies to improve the reliability and sustainability of our SOP production. As indicated on our last earnings call, SOP production volumes are expected to be flat in fiscal €˜23 as the 2022 evaporation season was impacted by less than favorable weather conditions, in turn, reducing the potassium levels deposited in our solar evaporation ponds. We continue to believe, however, that the steps we’re taking now should enable improved production levels at our Ogden site over time. We’ll provide relevant updates on our progress towards this objective throughout the year. I’ll touch on our outlook for the plant nutrition segment in a moment. But I think it’s important to note that the decline in the first quarter sales volumes was driven by lower demand, not production challenges.

In fact, we were and continue to be prepared to service average customer demand if and when it improves. On the lithium front, our goal this year is to achieve several commercial and project related milestones on our roadmap to advance Phase 1 of our lithium development in Ogden. A key milestone we expect to reach by mid-year is to have a more robust capital cost estimate for Phase 1. In September, we shared an FEL-1 level engineering estimate. The next major milestone for this project is to complete an FEL-2 level estimate by the end of March, also known as a prefeasibility study or PFS. Later this calendar year, we expect to have completed an FEL-3 engineering estimate, also known as definitive feasibility study or DFS. Each of the progressions along the FEL stage gate are expected to increase the level of engineering, tighten the accuracy of the capital spin and mitigate operational risks.

Finally, we continue to make progress on our commercial scale DLE unit. Consistent with our prior plans, we expect commissioning and operations to begin in early calendar 2024. With respect to our other growth initiative, namely our minority ownership interest in Fortress, North America, we were very pleased by the December announcement of a major milestone when the Fortress team received notice that their two primary aerial fire retardants, liquid concentrate and dry powder had officially been added to the US Forest Service qualified product list or QPL. This is an extraordinary achievement as Fortress is the first new fire retardant company in over 20 years to accomplish such a listing, and it comes as a result of a six year development effort in order to meet and exceed the US Forest Service rigorous testing criteria within such categories as environmental effects and toxicity to aquatic and mammalian species, corrosion on a variety of aircraft metals, burn retardation efficacy and other qualifiers in the form of long term storability, acceptable viscosity, pumpability and finally, the completion of a live wildfire operation field evaluation.

Building upon this positive momentum heading into the 2023 wildfire season, the next step is for Fortress to be awarded an initial tranche of air tanker bases by the US Forest Service. We’re optimistic that such awards will occur ahead of the fire season this year. But in order to be conservative, we’ve not factored in the associated financial results of such an award into our outlook. We stand ready to continue supporting Fortress in their efforts to ramp up the full commercialization of their products with a focus on gaining measurable market share within this approximately $300 million revenue addressable market, not to mention a profit pool in excess of $90 million currently served by a single market participant. The recent QPL listing was a major hurdle to clear on our path to providing a magnesium chloride-based product that is more environmentally friendly and has a greater efficacy than the existing diammonium phosphate-based product that is dominated the market for decades.

You’ll recall that we increased our strategic investment in Fortress last year and currently own approximately 45% of the company. We believe Fortress has a bright future and we look forward to the business gaining market traction in the coming months. Lastly, our final strategic objective hitting into fiscal €˜23 was to enhance our financial standing and overall credit profile. We took a meaningful step in that direction this past October when we closed on a gross $252 million strategic equity investment by Koch Minerals & Trading, LLC. In addition to funding the first two years of our Phase 1 lithium development that investment by Koch also allowed us to strengthen our balance sheet by paying down some debt during the quarter. We expect to build on this momentum through the restoration of the salt segment’s profitability, which should result in additional deleveraging as our EBITDA rises.

So for long term, we continue executing on our plan and are pleased with the progress being made. Unfortunately, in the shorter term, we continue to experience challenges placing negative pressure on our quarterly profitability. As a casing point, our first quarter results reflected a mixed bag in terms of business trends. Year-over-year, we saw an improvement in select financial measures with consolidated revenue increasing 6% to $352 million, consolidated operating earnings up 37% and consolidated adjusted EBITDA around $62 million, up 6%. We had a decent start to the winter deicing season with snow events in the first quarter in line with historical averages and significantly above last year’s historically weak number of snow events. This supported higher salt sales volumes, which combined with a 12% year-over-year price increase in highway deicing that we realized resulted in stronger salt performance.

Within the plant nutrition segment, although pricing during the period held relatively firm at historically high levels, demand was deeply disappointing and well below our expectations, driven by exceptionally dry weather conditions that discouraged fertilizer application in our largest markets in the Western US and customers deferring purchases in anticipation of the market softening. Ironically, weather conditions in California abruptly shifted from drought conditions during the first fiscal quarter ending in December to epic flooding in January, the beginning of our second fiscal quarter seemingly overnight. As a result, our visibility related to near term SOP demand is currently speculative at best, as it’s not clear if growers will apply at historical levels.

Aside from the demand variability I just described, there is also elevated uncertainty from a global perspective to what degree both MOP and macro fertilizer pricing dynamics may amplify this pressure, resulting in the need to recalibrate our plant nutrition segment profitability outlook for the year. Despite the challenges we are encountering as the fertilizer market enters a new phase of its cycle, at a higher level, nothing we see suggest a change in the long run through the cycle earnings power of our plant nutrition business. Our salt business is delivering year over year improvement and our growth initiatives are advancing positively as we work to unlock the embedded value within our company. As I consider this start to our fiscal year, it’s clear we’ve got a lot of work to do, both strategically and operationally to navigate these near term challenges.

As we do so, our focus remains on delivering on our 2023 strategic goals, controlling what we can control and continuing to take steps toward creating value for our stakeholders over the long term. We will also address the challenges being caused by cost pressures across the business by executing on opportunities to reduce our cost structure where appropriate. Size of the price is large as measured by the combined intrinsic value of our salt, plant nutrition, lithium and next generation fire retardant businesses and we remain confident in our plan and our ability to realize that value overtime. And with that, I’ll now turn the call over to Lorin.

Lorin Crenshaw: Thank you, Kevin. On a consolidated basis, revenue was $352 million for the first quarter up 6% year-over-year. Consolidated operating earnings rose to $27.9 million, up 37% while adjusted EBITDA from continuing operations was $61.8 million, up 6% year-over-year. Beginning with our salt segment, salt revenue totaled $308 million for the quarter, up 12% year-over-year, driven by 10% higher price and 2% growth in sales volumes. The highway deicing business experienced 12 % higher pricing year over year to just shy of $66 per ton and sales volume growth of 3% year over year. Delivering growth in sales volumes reflects a relatively strong result when you consider that our team deliberately took 9% fewer sales commitments as part of our value over volume commercial bidding strategies last year.

A key driver of the positive volume development was weather, which improved year over year. We experienced solid winter activity on average across our markets but lower than projected sales to commitment ratios in certain key areas such as Detroit, Milwaukee and Chicago, where we have relatively heavy commitment levels. These areas experience somewhat mild weather and relatively low quality events during the quarter. Across the 11 representative cities we’ve discussed in the past, 43 snow events were reported during the quarter, up 48% year over year and in line with the 10 year average. Within our C&I business, volumes declined 2% year over year, driven primarily by the timing of water care sales and slightly weaker consumer deicing demand, while price rose 9% to approximately $190 per ton.

Higher fuel and logistics expenses drove per unit distribution costs 14% higher compared to last year. Operating costs were higher by 6% year over year to approximately $45 per ton reflecting the 2022 inflationary environment embedded in the cost of goods sold of our highway deicing salt now being sold out of inventory. Overall, this translated into higher operating earnings and EBITDA for the salt segment with operating earnings rising 20% year over year to $47.1 million and EBITDA rising 10% to $61 million. As Kevin discussed earlier, a strategic objective of ours this year is to restore the profitability of the salt segment back to levels that we’ve historically realized. We made progress on that goal this quarter and continue to see a path towards achieving profitability in the range of $19 to $20 of EBITDA per ton, assuming normalized winter occurs the rest of the second quarter with the second half higher than the first, reflecting the fact that our higher margin per ton C&I business makes up a greater percentage of our revenue in the second half than it does in the first.

Turning to our plant nutrition segment. Grower purchasing behavior had an adverse impact on sales volumes resulting in weak revenue for the quarter, more than offsetting higher sales price. Specifically, revenue declined 24% to $41.6 million, driven by 46% decline in sales volumes. We believe there were two significant dynamics in play here, deflation and drought conditions across our primary served markets. Regarding deflation, during the quarter, buyers appear to defer purchases on the expectation that fertilizer prices would continue to come down from the recent highs we have seen over the past year. In our experience, during deflationary environments, especially early in the application season, it’s not uncommon for customers to wait as long as possible to buy, displaying real time purchasing characteristics, more or less, and we believe this dynamic was in play during the quarter.

Regarding the second driver of lower volume, drought conditions, our major markets for our premium SOP product are on the west coast, which broadly speaking, experienced exceptionally dry weather during the quarter. We believe this caused farmers to defer purchases as they typically want to apply fertilizer when there is sufficient moisture available to efficiently deliver SOP into the soil. Distribution costs increased 19% year-over-year on a per ton basis due to higher fuel rates and fewer sales volumes to absorb fixed rail fleet costs. Similarly, operating costs were up 26% year-over-year due primarily to the inflationary environment over the last year. From a profitability perspective, plant nutrition EBITDA came in at $19.3 million, up 5% year-over-year, despite lower sales volumes and higher product costs on strong pricing, which rose 40% to roughly $924 per ton.

In terms of cash flow, the most notable event during the quarter was closing the previously announced investment by Koch Minerals & Trading of $241 million net of fees. We’ve earmarked approximately $200 million of the net proceeds towards funding the first two years of spending related to Phase 1 of our lithium development. Additionally, this transaction allowed us to reduce debt and puts a meaningful amount of cash on the balance sheet, both of which improve our leverage profile as reflected by net debt declining by approximately 24% to $686 million. Turning to our outlook for the rest of the year, beginning with salt. On our last earnings call, we shared a modified approach to providing EBITDA guidance for salt, shifting away from assuming normal winter weather at the beginning of each year.

Instead, we’re now providing a range of potential earnings outcomes that consider various winter weather scenarios with EBITDA projected to range from a low of $175 million in the event of a mild winter to a high of $275 million in the event of a strong winter, and between $215 million and $255 million in between. With that middle range reflected profitability levels in the event we experience snow events and sales to commitment ratios in our core markets in line with long range historical trends. The range shown for the salt segment remains unchanged. However, four months into the year, we now believe results are more likely to come in below the midpoint of the 2023 range for sales volume, revenue and EBITDA. The factors shifting profitability below the midpoint relate to volume and costs.

From a volume perspective, in aggregate, across our core markets, the first quarter was decent weather wise, as I indicated earlier. But sales to commitment ratios in certain of our core US north markets, Milwaukee, Chicago and Detroit, where we have a disproportionate book of commitments, were below trend, translating into an EBITDA drag versus normalized levels. We had 42 snow events in our core markets in January, which is in line with the 10 year average. It’s worth pointing out, however, that while this deicing season has tracked with the 10 year average for snow events, those have generally been what we would describe internally as lower quality snow events. Snow events that are clustered into a short time period are not as impactful as the same number of events spaced out over a longer period.

Furthermore, high accumulations can actually discourage salt application. An example of this was the series of winter storms that hit the Buffalo area earlier in the season. Furthermore, snow events surrounded by periods of warm weather are considered lower quality when compared to events surrounded by cold weather. So far this season, the snow events that we’ve experienced have been followed by relatively warmer weather. As we look at the deicing season to-date, snow events in aggregate have been normal. But we would characterize this year’s snow events, particularly within the US markets where we have somewhat outsized commitments, as relatively lower quality overall. These year-to-date trends, weather wise, are contributing to earnings power for salt trending below the midpoint of the 2023 range.

We also see salt trending below the midpoint of the 2023 range due to slightly higher cost trends year-to-date. We’ve experienced higher natural gas costs in 2023 related to the supply and demand dynamics impacting the regional gas pipeline serving our Ogden facility. Extremely cold weather drove a surge in demand from energy producers, draining already low regional inventory levels. Prices have now stabilized in the region. While our hedging program for Ogden has historically been highly effective in reducing the volatility of natural gas costs, the dynamic in play temporarily rendered our hedges ineffective. We have since recalibrated our hedges to protect us in the event a similar episode presents itself in the future. Our full year outlook for Plant Nutrition from an EBITDA perspective is lower and wider versus our prior guidance.

Our current view of profitability outcomes ranges from $30 million to $60 million of EBITDA compared to our prior range of $55 million to $70 million. Investors should interpret this widening as reflecting higher uncertainty and lower visibility than we had heading into the year. Given this reality, we developed several scenarios to inform our range. The lower end of the range reflects the prospect of volumes tracking well below the five year average for this segment, while simultaneously pricing declines in the second half to levels approaching the 10 year average for this business. The midpoint of the range reflects a scenario where volumes are roughly three quarters of the five year average for this business, while second half SOP pricing tracks near the average price we experienced in fiscal 2022.

The higher end of the range reflects a scenario where our western markets bounce back quickly, volume lines, and global MOP and SOP pricing trends reverse themselves due to supply demand dynamics, resulting in MOP pricing bottoming near current levels, then rising the second half of the year. Against this fluid and uncertain backdrop, we are preparing for each of these scenarios while maintaining a focus on agility and controlling what we can control. Cost wise, per unit production cost for the balance of the year in plant nutrition will be higher than expected due in part to the same increase in natural gas cost at Ogden I described earlier. Our solar evaporation pond complex in Utah produces salt, SOP and mag chloride. Therefore, higher production costs there impact the profitability of both the salt and plant nutrition businesses.

Turning to our CapEx guidance. In line with our lowered overall profitability outlook, we have lowered our spending plans by $10 million at the midpoint to the $165 million to $220 million range. Notably, our expected spending on Lithium is unchanged from our prior estimate of $75 million to $120 million to be funded by proceeds from the recent Koch transaction. However, sustaining CapEx has been lowered by $10 million at the midpoint to a new range of between $90 million and $100 million. As far as the mix of CapEx spending by quarter, we expect the cadence of lithium spending to be very second half weighted with approximately 80% occurring in the second half, while sustaining CapEx is expected to show a pattern split roughly one third first half and two thirds second half.

Kevin already outlined the positive news regarding two of Fortress’ products achieving QPL status. However, I want to reiterate that we have no positive EBITDA contribution from Fortress baked into our outlook. We assume Fortress is a drag on our result this year profit wise, but are working closely with Fortress to assist them in their efforts to be prepared to fully capitalize on their recent success upon receiving their first base allocation, which could occur this wildfire season. Finally, as a reminder, whereas in the past we issued two snow reports a year, one in January and one in April, we will no longer issue standalone snow reports as press releases, but we will continue to provide perspective as we have today as part of our first and second quarter earnings calls.

With that, I will turn it back to the operator to open the lines for Q&A. Operator?

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Operator: And we will take our first question from David Silver with CL King.

David Silver: I have a couple of questions on the salt business and then maybe I’d like to follow up with a general question about the Great Salt Lake. But I was hoping you might provide a little bit of color on the comment in the press release regarding sales to commitment ratios. It’s a term that I haven’t heard too often in the past, and just want to make sure I’m not missing something. But I guess there’s always been minimum and maximum volume commitments in your contracts. And there have been periods where the March — the June quarter has seen some makeup volumes where the volumes are unusually low. So could you just talk about how your tracking of the sales to commitment ratios is impacting your commentary earlier about how the entire winter deicing season might play out?

Kevin Crutchfield: I think maybe Jamie’s probably best suited to handle your question around sales to commitment ratios.

Jamie Standen: So David, when we say sales to commitment ratio, we’re talking about when we go out and bid all of our commitments over the history of time, we expect average weather to deliver a certain percentage of those commitments. So in some of our northern markets, it tends to be a higher sales to commitment ratio. In some of our southern markets, it can be lower. So it can be 95% in some northern markets and average can be lower in southern markets, where there’s less snowfall, less activity, so you can have averages that are 75% or 80%. And so when we talk about how we’re tracking toward our historical sales to commit more ratio, that’s what we’re talking about. So thus far this season, while the winter weather snow events in the 11 cities was right on average and because of the quality of some of the events and so our actual sales to commitments have been lower than the historical average.

So it varies across the network. In the Lake Superior area, it’s been actually quite strong. They’ve seen a lot of snow up north in the upper Peninsula of Michigan, upper portions and eastern portions of Minnesota. We’ve also seen strong sales to commitments in some of our southern markets on the southern Miss actually and the western Ohio. But when you look at Michigan, when you look at Northern Illinois and our eastern markets, they’ve experienced lower than historical sales to commitments thus far this season. Does that help?

David Silver: Yes, I think so. So, it’s kind of within that upper band and lower band, and where it falls there — upper band and lower band to the volume commitments and how that plays out

Kevin Crutchfield: But separate from the minimums and maximums concept, this is just really purely trying to explain and talk about how above or below we are from a historical basis.

David Silver: And then one other question probably for Jamie. But this has to do with maybe spot versus contract pricing for the deicing salt business. So in the past during very heavy snowfall or high quality snow event type number seasons, the call or the ability to kind of supplement the contract volumes has given you some pricing flexibility, let’s say. With the volatile cost situation, could you — is it a fair question to ask if your expectations are like that the spot sales, however active they maybe are going to be priced above your typical contract volumes or might the spot fall — the spot price for incremental volumes fall below, what the contractual commitment delivered price is?

Jamie Standen: Given the circumstances you should expect them to — thus far, because winter hasn’t been robust, because we haven’t outsold our commitments or gotten into fully delivering under our contracts, once you fully deliver under your contracts, spot prices come after that point. So we haven’t seen weather to really drive that. What we have done though in our contractual negotiations through last summer, in both municipality state bidding process as well as our commercial negotiations, we’ve captured or recaptured inflationary pressures through our pricing actions, which you’ll see as this winter continues to unfold and is embedded in the 12% bid season price improvement that we were able to achieve, which includes both commercial activity, commercial customers, commitments as well as the bid commitments that we do annually.

Kevin Crutchfield: Let me add a little bit of color to Jamie’s comments as well. I mean, to the extent that you experienced a season where you sold through the upper end of your committed level, which is typically 120% of the initial arrangement, that would imply that you’re having a pretty tough winter from a — or a good winter from our perspective. And thus, you could fully expect spot prices to be in excess of contract price. I think, it would just stand to reason and what fair market value for those, that next ton would be above that, I think, it would be speculative. But I think it’s easy to say or safe to say that it would exceed the contract price. And your ability to earn margin on that incrementals, given that fixed cost absorption is already taken care of, it’s much more powerful than under contract scenario.

David Silver: Thank you for that color. And I agree, usually, it’s a question when the snowfall is quite strong. I was thinking of it a little bit more this time just related to the cost — the volatile cost elements. But thank you for all the color. Last question would be kind of a general question. Really kind of about the Great Salt Lake. So I am tapping in a little bit to the national headlines. But the Governor of Utah recently issued an executive order kind of involving berm heights and other complicated things, but maybe to direct more water into parts of the Great Salt Lake. And I know time is limited here. But I was just wondering if you could take a couple of minutes and maybe just sketch out the broad strokes of what seems to be a high priority issue for the Governor there involving the management of the Great Salt Lake?

And if you wouldn’t mind, what is your base case and what might be a best case, worst case scenario from Compass Minerals’ perspective on that?

Kevin Crutchfield: Thanks for bringing that up. We obviously would use the Governor’s executive order. And it probably wouldn’t come as any surprise to you that we have worked closely along with the government agencies in Utah as it relates to the executive order and what will ultimately become the berm management plan. We have been an active operator out there for 50 years and working proactively with both the DNR and the DEQ as it relates to this berm management plan. So again, that’s kind of point number one, unanswered questions yet until the berm management plan is decided upon it gets put in place. The second point I would make is based on what we know right now, we expect a temporary short term raising of the berm height to have a de minimis impact on our operations in 2023, and that’s largely a function of the above average rainfall that we’ve experienced out there over the last few months.

And additionally, the snow pack that the Governor referenced in his executive order is kind of running above average. So we would expect a very efficient spring runoff. So that’s kind of point two. We don’t expect any de minimis impact in 2023. And then the third point I’d make is we will continue to work very closely with regulatory authorities out in Utah as it relates to the development of this berm management plan. But as a public company, we have stakeholders that have interests that we will protect up to and including the pursuit of legal action, if necessary. We certainly wouldn’t expected that to happen and certainly hope that that doesn’t happen. But we certainly reserve all of our rights in that regard to predict our mineral and water rights interest out in the Great Salt Lake, which are very valuable.

Hopefully that gives you some background. Thank you for that question.

Operator: We will take our next question from David Begleiter with Deutsche Bank.

David Begleiter: Kevin, just on highway deicing pricing in the quarter, up 12%. Why was it below the 15% you have, I guess, contracted in for the full year?

Kevin Crutchfield: I think, maybe Jamie could add a little color. But I think part of that is a function of just timing

Jamie Standen: Yes, I’ll jump in here, Kevin. There’s always customer mix. When we complete our bid season, we analyze the average price across the entire portfolio. If we get stronger weather or weaker weather in a region that happens to have higher prices or lower prices that will manifest itself as a variance from our bid season expected pricing outcome.

David Begleiter: And just on the EBITDA guidance for salt below the half, below — and I guess below the midpoint of range, but given where we are today in the winter and given the long term forecast. Is there a potential for this to be a mild winter and EBITDA close to the bottom end of that range you’ve articulated?

Kevin Crutchfield: So we shared today, David, is that based on the winter to date, I would say through January due to the sales to commitment dynamic that Jamie referenced, we believe will be below that midpoint, which is 235. The balance of the winter is before us. And like I always say in terms of the bell curve, there’s no reason for us to believe that it won’t be a normal winter for February and March. And so we could very well fall closer to the right side of that page than the left. It just depends on how the winter transpires. Jamie, anything

Jamie Standen: That’s exactly right. We’ve got 10, 12 weeks of winter left. And it seems like, if history is any indication that seasons are a little delayed, and I’m not projecting that it’s going to be a strong remaining part of the season, but it seems like events progress as well into March and sometimes even April. So I would say that we’ve got 10, 12 weeks of winter left, which will drive where we fall on that bell curve, David.

Operator: We’ll take our next question from Joel Jackson with BMO.

Unidentified Analyst: This is Joseph on for Joel. Just first, in terms of Fortress, is this still going to be a negative $5 million EBITDA contribution for fiscal 2023? And also, what would a reasonable contribution range look like for fiscal 2024 and what would’ve to happen to reach the high and low ends of that range?

Kevin Crutchfield: As our base case heading into this year on the order of magnitude of that $5 million is what we’ve got baked in. And the extent to which that improves is a function of the timing of when Fortress receives its first base allocation. And so to the extent that that happens this side of the wildfire season and we’re able to execute then you could see that drag, I would say, diminish. As you think about the future, I go back and say, we think the overall profit pool here is in that $90 million to $100 million range. And so — and as much as it is our objective to get a very substantial portion of this market, whether it’d be 30%, 40%, 50%, you can do the math on the implications of that on our EBITDA, which is pretty substantial. And so we won’t speculate about base allocations and our success, but the size of the prize is pretty significant.

Unidentified Analyst: And then could you also please just explain what’s going on with the higher tax rate this year and what would a normalized tax rate look like for 2024?

Kevin Crutchfield: So in terms of taxes, our tax rate is higher despite our profitability being lower. And that’s a result of really our earnings mix. If you think about our guidance today or our outlook today, we’re really not taking down salt very much. And a lot of that profitability happens in Canada where we have some of our higher tax rates. What we’re taking down largely is plant nutrition, which a lot of that profitability occurs in the United States where we project that we’ll have losses in the United States, and as a result, we won’t be able to take those losses as a deduction. And so that’s why the numerator there is sticky and despite the profitability going down. And so on a normalized basis, from a cash tax perspective, I would say something in that 25% range is a good number to use from a cash flow perspective on a normalized basis.

Unidentified Analyst: And then one more if I can. Just seeing that GM is now willing to pay upfront in terms of pre and payment and equity stakes and US lithium assets, does that make Compass want to reassess its current MOUs or does the DLE process need to be proven out a little bit more before the company could pursue some upfront capital?

Lorin Crenshaw: I missed the very first part of that question. Would you mind repeating it?

Unidentified Analyst: So just seeing that GM is now willing to pay upfront for prepayments and equity stakes in US lithium assets, does that make Compass want to reassess its current MOUs or does the DLE process just need to be proven out a little bit more?

Lorin Crenshaw: I mean, I think the bottom line around that investment is that’s quite compelling news, and I think it’s just a testament to how much people want North American sourced lithium in the future. And it’s a testament that one of the iconic car brands in the US is willing to write a check of that size. But as it relates to our, I’ll take agreements. I mean, we’re certainly open to various structures. We have one that’s in the bag already with LGES that we’ve talked about, and we continue to prosecute the second one with another iconic car brand here in the US, and would hope to have that resolved in the next few weeks. But I think the agreements that we are working on, and Ryan and Chris are in the room, they could add some additional color. But I think we’re pleased with our agreements the way they’re structured and the potential profit pool that that’ll create for us in the future. Would you want to add anything to that, Ryan?

Ryan Bartlett: Yes, I can add to that just a little bit, Joseph. So I think as Lauren has iterated before, offtake — prepaid offtake agreement type of arrangement isn’t necessarily off of the table for Compass. But we do believe that it’s important for us to prove out the DLE technology with this commercial scale unit, which we think gives us a more attractive, let’s say, cost of capital as opposed to giving that upfront when perhaps the potential investor may perceive higher risk in the project due to DLE. So as Kevin said, we’re open to any form of arrangement. But we feel it’s prudent for us to make the — hit the next milestones before we would engage in a prepaid offtake.

Operator: And we will take our next question from Vincent Anderson with Stifel.

Vincent Anderson: So if you’re able to, I just kind of wanted to reset the stage a bit as we get ready for the FEL-2. The FEL-1 had very wide confidence ranges, I think it was like plus or minus 30% across everything. But if we were to just look at your modeling on things like reagents and absorbent polymers. Are you able to maybe just speak to your relative level of confidence in those values versus other parts of the engineering and design, or just if the FEL-1 is simply mandated to have that confidence range kind of regardless of what the reality might be?

Kevin Crutchfield: I’m going to ask Chris to address that, Vincent.

Chris Yandell: So you are correct. The FEL-1 had a wide range. It was a minus 30% to a plus 40%. And if you recall kind of middle of that range was the $262 million. So if you look at that plus 40%, you get somewhere at around $367 million with regards to overall CapEx. Typically, what you see is projects do increase from an FEL-1 to an FEL-2. Part of that is just the engineering aspect and the refining of the process, and that’s kind of answers the question as well around the OpEx. So in the FEL-1, you are around 2%, 3% engineering and you are looking at utilization of reagents. As you should progress to an FEL-2, you get more defined, and you find things in that process that you have to take care of through product specifications and you have to put unit equipment in to do that.

So we expect that the cost per ton of reagent probably stays about the same, maybe a little bit more due to inflationary aspects, which we would also expect to impact the overall FEL-2. I think if you recall, the FEL-1 was done in that early 2022 timeframe. And so the full year of inflationary aspects did not hit in that cost estimate, which we expect to manifest in the FEL-2. Does that answer your question, Vincent?

Vincent Anderson: I guess maybe what I was getting at a little bit more specifically is on the utilization from a volume perspective, when it comes to unit costs. You mentioned that there is — it sounds like there is maybe a little bit of CapEx creep from FEL-1 to FEL-2. But do you see something similar on the engineering around the reagent use, or is it very much down to what they find and we’ll just have to wait for the report?

Chris Yandell: I think it’s better to wait for the report. But what I would say is, what we expect is to see probably a different utilization, but not materially different than what we announced in that field.

Vincent Anderson: And then if we’re thinking about Fortress, now that we are getting a bit closer to revenues here or earnings. Can you just talk about the relevance of the tankers that are used in fire suppression, what kind of influence they could have on the adoption of your product if they had concerns or consternations over change over time between your product and Perimeter’s products or mixing trace amounts of one product with the other? Is there just kind of a gray area in the whole process, I was hoping you could speak to their influence?

Jamie Standen: So comingling is what you’re referring to when you perhaps have an aircraft that’s going from one base to another and would be using our product after having used Perimeter’s product, there are standard protocols around how to rinse the tank, how to prevent any issues. I first like to mention the Fortress products have passed with flying colors, any corrosion testing. So that’s a non-issue. When you have some comingling, you end up with some residue in a tank. So it’s simply a rinse process and a reload. So we don’t view it as an issue. We think it’s very, very manageable by base operations for tankers coming into competitor bases and competitor tankers coming into Fortress basis. So very manageable. And we’re on the QPL and we’ve passed all the tests, so it should not be an issue.

Operator: And we will take our next question from Chris Shaw with Monness Crespi.

Chris Shaw: I’m just trying to figure out the higher production costs the nat gas in Ogden. You’ve kind of made it sound like that was spike that’s kind of over now, but it seemed like that is factored into the lower guidance for both segments for the full year. And I know obviously it impacted the quarter, but is it going to — is that — are those higher production costs going to continue through the year or is there something else that’s creeping up in production that I didn’t understand, or maybe I just misunderstood it completely?

Jamie Standen: No, that was a relatively temporary sort of episode, but it will flow through our cost as inventory is sold. And because our Ogden asset produces products that benefit both our C&I business as well as our plant nutrition business, you’ll see commentary regarding natural gas costs for both businesses. I would say it’s probably 80% skewed towards plant nutrition in terms of the dynamic, but you’ll see that flow through as our inventory turns. And that episode is now behind us and we also have hedges that we expect to provider us with good protection.

Chris Shaw: And then salt, highway deicing salt. It seems like — I thought when I was looking at some of the data that — the snow was particularly heavy in areas like in both like Toronto and Montreal and what Montreal might have had record snows in January. Are those markets smaller for you nowadays, or was it a sales commitment levels issue there? Or — I remember that in the past, I think they might have had some longer term contracts. So have their pricing not caught up to maybe where you would want it to be, is that why we’re not seeing an impact from I think, the snow that Canada’s getting?

Kevin Crutchfield: No, I would say, in Ontario, snow, year to date, has been, been pretty average. In Quebec, it’s actually been a little bit below average, that’s an area where typically has strong weather. You’ve noted that it was particularly good. There were a good couple of weeks in January for sure. But you have to look at the entire portfolio and the mix of weather across all of it. So that’s always going to cause some volatility. Like I said, it was particularly strong year to date in the southern — along the Mississippi generally, the western Ohio, even the Tennessee River. So our southern markets have had a bit more weather than normal. And so those sales commitments are higher. Canada, in general, is pretty close to average, a little bit below with Ontario kind of right on average sales commitments.

Chris Shaw: And then just turning to Fortress for a sec also. You characterized the profit market or the profit potential there, the whole market’s 90 to 100. Is that including — I know you’ll be selling mag chloride to them. Is there — does that include sort of that estimate of the market including what you could do sell or the profits you would get from selling more mag chloride, or will you not be selling more mag chloride, you’re just redirecting it from another customers?

Kevin Crutchfield: No, we have mag chloride capacity at Ogden, so it would be supplemental or incremental to that. And I don’t want you to read too much into the profit pool, because you’re talking about a competitor’s margins, et cetera. So don’t imply that our cost structure would be the same as our competitors. So we’re just trying to provide sort of a scope of the size of the price in terms of revenues, gallons and what the profit pool is. But I think when you look at our cost structure relative to our competitors, we would expect our profit margins to be pretty healthy as well.

Chris Shaw: Just specifically about the mag chloride though, like if you were to get half the market, I mean, is that a significant amount of mag chloride you’re selling relative to what you sell now? I don’t know what the sort of volumes are.

Kevin Crutchfield: I mean, at half, if we were to achieve half market share, it represents less than 10% of the mag chloride that were currently produced at Ogden. So it’s not difficult for us to be able to handle that kind incremental capacity.

Operator: And there are no further questions at this time. So I will now turn the call back to Mr. Kevin Crutchfield for any additional or closing remarks.

Kevin Crutchfield: We appreciate everyone’s interest in Compass Minerals. We look forward to keeping you updated, and please don’t hesitate to reach out to Brent in the interim if you have questions. Thank you so much for attending today.

Operator: And ladies and gentlemen, this concludes today’s conference call, and we thank you for your participation. You may now disconnect.