Compass Minerals International, Inc. 2026 Q3 Earnings Call

Please go ahead. Thank you, operator.

Good morning. Welcome to the Compass Minerals Fiscal Third Quarter 2026 Earnings Conference Call. Today, we will discuss our most recent quarterly results. We will begin with prepared remarks from our President and CEO, Edward Dowling, and our CFO, Peter Fjellman. Joining in for the question and answer portion of the call will be Ben Nichols, our Chief Commercial Officer. Before we get started, I will remind everyone that the remarks we make today reflect financial and operational outlooks as of today's date, August 6, 2026. These outlooks entail assumptions and expectations that involve risks and uncertainties that could cause the company's actual results to differ materially. A discussion of these risks can be found 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. With that, I'll now turn the call over to Ed.

Thank you, Tripp. Good morning, everyone. I'll start with the Plant Nutrition business because it's earned the lead. At Ogden, we produced segment Adjusted EBITDA of $15 million in the quarter on improved pricing and lower per-unit costs. We've again raised our full-year guidance for this business. Operational improvements we put in place two years ago are compounding. The team was determined to restore the business to the $40 million-$50 million Adjusted EBITDA range per year and have now exceeded that level. We continue to invest in Ogden with the dryer project underway that we expect to complete by the end of next fiscal year. That investment will allow us to improve product yield, further improve production volume and cost profile of this operation, as well as finished good product quality.

We're excited about the continued momentum at our Ogden site and solidifying our position as the leading North American producer of sulfate of potash. In our Salt business, the commercial story is strong. We realized meaningful price gains in the highway de-icing during the quarter and beginning to see a constructive pricing environment in our C&I product line as well. These are encouraging, and I want to put them into context. When comparing the salt costs in our P&L between periods, there are a number of factors that must be considered, including production cost, logistics cost, regional and product mix. As the winter unfolds, where we sell our products, where they are produced, how to ship to the customer, and our production costs all have various levels of impact, particularly in a season like this past one where inventory levels became very tight.

Production tons at our mine are up year-over-year. That's a positive. Costs, while lower than last year as our original guidance had anticipated, have not come down the way we expected, and I want to address that directly. There are three factors driving higher than anticipated production costs. First, despite the above, we're not hoisting enough tons out of Goderich at the cost we had planned. Second, we've increased our maintenance spending at both U.S. mines to improve operational uptime and stability, which has been guided by the implementation of a preventative maintenance system. Lastly, we've increased the headcount to maximize every opportunity to produce more tons out of the mines. In terms of logistics, our total cost metric was burdened by global fuel costs and increased rates due to tightening of truck capacity.

We have three accelerator teams working at Goderich focused on specific operational improvements and working on improving our cut times and rates and investing in training required to sustain those improvements, as well as overall mine design and sequencing. Our maintenance program is delivering results focused on quicker turnarounds and improved equipment availability. Let me be direct about the trade-off that we're making. We're spending incremental dollars on labor and maintenance in the current period costs for longer-term operational stability, production volumes, and profitability. This is the right decision for the business, but also means that our cost metrics have not yet reflected the efficiency gains we're targeting. In addition, we have other accelerator teams working on logistics and enterprise-wide improvements, including network optimization, procurement efficiency, contract management. All of these are focused on sustainable cost improvement and risk mitigation.

As we think about the future of the company and the sustainable improvement, we have made an operational leadership change. Patrick Merrin is no longer with the company, and I'd like to thank Pat for his service and wish him the best. Brandon Risner has been promoted to Chief Operating Officer. He's led impressive operational improvements in our Plant Nutrition segment and in the operational leadership of our C&I product line. A combination of prior mining experience and a track record of leading positive outcomes make him a natural fit to lead our operations. Turning to the bid season, the 2026-2027 highway de-icing bid season has been very constructive. In our core U.S. markets, we're seeing substantial price improvement year-over-year, in some cases, well into the double digits with consistent growth in demand tenders. North American highway de-icing markets remain structurally tight.

Inventories across the industry are low following the past winter, and it is supporting both pricing and tender sizes. As we look forward into fiscal 2027, let me give a sense of what we are thinking about volume. The 2025/26 winter season trended ahead of seasonal averages with snowfall events in our key markets higher than the recent past. That strong demand, coupled with our disciplined approach to working capital and the current production constraints at Goderich, has left us and the industry with historically low inventories across the system. Given those realities, along with an assumption of more normalized winter weather, we expect to commit to a reduced mine profile for fiscal 2027 relative to the past seasons.

We will provide tighter guidance when we report fourth quarter results. Pricing gains we have secured for the business, combined with continued focus on production increases and cost per ton improvement, should position us to improve our per unit margins headed into next year. Let me address tariffs briefly. As you're aware, tariffs on Canadian goods shipped to the United States are set to take effect on August 19th. The large majority of the gross annualized exposure relates to the highway de-icing salt shipped from our Goderich mine into the United States. Through proactive measures within our commercial agreements, including pass-through provisions that are now standard in several of our key contracts, we believe we meaningfully reduce our exposure to those risks. The situation remains fluid and we're closely monitoring it.

We believe that we're in a stronger position to manage this than a year ago, given our proactive measures, constructive pricing environment, and our improved balance sheet. In addition to potential impact of tariffs, we're closely monitoring the variability within the fuel market, which is incorporated into our 2026 guidance. We expect to provide clearer understanding of the anticipated fuel impact and sensitivity within our detailed 2027 guidance when we report Q4. We wanted to note our current focus on mitigation efforts moving into next year. On capital projects, as part of our ongoing investment in the future of Goderich, we have been planning to construct a new mill. Given the complexity of executing a project of this scale within an operating underground mine, we're taking additional time to evaluate the engineering, sequencing, and timing, as well as establishing appropriate project governance.

We cannot afford disruption to the production during a period where we're focused on improving output and rebuilding inventory. We expect to provide a more detailed update on the project timeline early next year. I'd like to take a quick moment to clarify some news that was issued earlier in the quarter about a potential Utah lithium project. To be clear, we have no plans to get back into the lithium market. This announcement that EnergyX was a non-binding MoU where we're evaluating leasing them land and brine used in our Utah operations. We would have no capital commitment or operational expenses. Nothing in these negotiations has been finalized. Turning to the balance sheet. Net leverage has declined to 2.8 times from 4.3 times a year ago. Total net debt is down 13% year-over-year.

A recent credit upgrade from S&P is a direct reflection of the work we've done to reduce debt and strengthen the business. I know there are questions about how we plan to allocate capital going forward, and I want to signal how we're thinking about it. Our near-term priorities are clear. Investment in our assets, continued debt reduction where it makes sense. As our balance sheet strengthens and our operations stabilize, the opportunity to consider other uses of capital become more real. The board is engaged in this discussion, and we expect to share more on this topic when we report full year results. Before I hand it over to Peter, let me step back for a moment. Two years ago, we laid out a back to basics framework on what we're going to improve this company. At Ogden, the process of delivering the results then speak for themselves.