Q3 2023 Compass Minerals International Inc Earnings Call
Participants
Brent Collins; VP of IR; Compass Minerals International, Inc.
Chris Yandell; Head of Lithium; Compass Minerals International, Inc.
James D. Standen; Chief Commercial Officer; Compass Minerals International, Inc.
Kevin S. Crutchfield; President, CEO & Director; Compass Minerals International, Inc.
Lorin James Crenshaw; CFO; Compass Minerals International, Inc.
Christopher John Kapsch; MD; Loop Capital Markets LLC, Research Division
David Cyrus Silver; Senior MD & Director of Equity Research; CL King & Associates, Inc., Research Division
David L. Begleiter; MD and Senior Research Analyst; Deutsche Bank AG, Research Division
Gregory Robert Lewis; MD & Energy and Infrastructure Analyst; BTIG, LLC, Research Division
Joel Jackson; MD & Senior Analyst; BMO Capital Markets Equity Research
Presentation
Operator
Good morning. My name is Chris, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Compass Minerals Fiscal Third Quarter 2023 Earnings Call. (Operator Instructions) Brent Collins, VP of Investor Relations. You may begin.
Brent Collins
Thank you, operator. Good morning, and welcome to the Compass Minerals Fiscal 2023 Third Quarter Earnings Conference Call. Today, we will discuss our recent results and update our outlook for the remainder of 2023. We'll 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; and Chris Yandell, our Head of Lithium.
Before we get started, I'll remind everyone that the remarks that we make today reflect financial and operational outlook as of today's date, August 9, 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 includes 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'll now turn the call over to Kevin.
Kevin S. Crutchfield
Thanks, Brent. Good morning, everyone. Thank you for joining on our call today. Before jumping on to the call for our employees that are listening in today, I want to recognize the outstanding safety performance that you continue to achieve. We make safety a top priority because it's the right thing to do for our people, and it's also the right thing to do for our business. George and his team have brought significant and focused leadership to strengthen our safety culture here at Compass Minerals to keeping ourselves and our colleagues safe as the responsibility we all share and the complex operating environment that we work in, achieving 0 harm is a difficult standard to meet, but you continue to prove it's attainable. But thank you for your efforts on this front and please keep up the excellent work.
I'll now make a few comments on our progress on a number of strategic objectives before commenting on the quarter. Lorin will then review our financial performance in more detail. Restoration of the profitability of the salt business to historic levels was an important goal for the company this year. Year-over-year, adjusted EBITDA per ton for salt increased by approximately 50% to slightly over $24.41, and we also meaningfully improved our EBITDA margin percentage. This improvement was driven by better pricing. We saw increases of 16% and 5% in average selling price for highway deicing and C&I, respectively, year-over-year. We've talked in previous calls about the importance of reclaiming $20 a ton of EBITDA within our Salt franchise. The teams have done a great job of answering that challenge by getting us back on track that we remain focused on continuing to further enhance our profitability in that segment.
Moving to our focused growth initiatives. We continue to advance our lithium project on the Great Salt Lake during the quarter. In May, we announced that we had signed a binding multiyear agreement with Ford Motor Company to provide them with up to 40% of our planned Phase 1 battery-grade lithium carbonate once production begins. Ford is a trusted leader in the automotive industry, and we appreciate their confidence in our project at Ogden serving a role within their electric vehicle strategy. With Ford in our agreement with LG Energy Solutions in place, we now have 80% of our planned production from Phase 1 committed. Initial steps to advance construction on the commercial scale DLE demonstration unit proceeded on schedule during the quarter as well. This unit, which is sometimes also referred to as the DustGard unit or the DG unit, will be the first of 4 DLE units contemplated for Phase 1.
We continue to expect to be mechanically complete with that unit by calendar year-end and that it will begin commissioning in the first calendar quarter of next year. We also pushed ahead on a number of broader Phase 1 activities during the quarter, such as additional earthwork and construction permitting. As we explained last quarter, we won't be sharing any new cost or economic projections with regards to the lithium project until we have clarity and certainty on several items that came out of the Utah legislative session earlier this year. You'll recall that on our May earnings call, we discussed how Utah House Bill 513 introduced a number of changes to the regulatory regime that will govern lithium development on the Great Salt Lake. Since that builds passage, we've been actively engaged with political and regulatory leaders in Utah as rulemaking is undertaken by the relevant state agencies.
While we therefore won't be making any updated economic cost disclosures today with regard to our lithium project, I did want to provide a bit of color directionally as we understand some time has passed since we disclosed our preliminary FEL-1 estimates about a year ago. We continue to refine the engineering and the associated estimates that will allow us to eventually update our project economics from what we published last September, and I'll share a couple of observations as the plan for Phase 1 has continued to develop. First, we're still tracking very closely with our original time line, which we expect will enable us to begin operations in 2025.
Second, and this won't be a surprise to any of you that we've been following on other project developments in the lithium space, cost inflation over the past 2 years for these types of projects has been meaningful. We continue to work with our engineering partners on developing the plans that will ultimately underpin our next round of disclosures, but investors should expect that construction costs will exceed the upper end of the range that we provided in our FEL-1 estimate. We look forward to sharing more on this topic after we've reached the resolution on all critical development elements directly with the state of Utah.
Changing gears to our other primary growth opportunity, I'm pleased to be able to share some exciting updates with regard to Fortress. As we announced last quarter, we acquired the outstanding 55% in Fortress in May of this year, bringing our ownership stake to 100%. This occurred shortly after they signed a supply agreement with the U.S. for service. Using their advanced mobile units, Fortress is supporting up to 5 air tanker bases with product and associated services this 23-fire season. In June, Fortress began dropping product at an Arizona air base, marketing Fortress first commercial sales since being added to the for-service qualified product list in late '22. As expected, the feedback we've received regarding both the performance of the products and the execution by the Fortress team has been extremely positive.
Subject to quarter end, we were working on 3 additional assigned bases, one in Montana, 1 in Washington State and the U.S. Forest Service base in California. In fact, the U.S. Forest Service recently deployed an aircraft out of a base in San Bernardino, California to drop Fortress products on the Rabbit fire and Riverside County, marking our first drops in California. Most recently, Fortress has been active in combating fires in the Mojave Desert. The team at Fortress continues to work on its next generation of products. FR-105 will eventually replace FR 100 as the company's primary powder retardant offering. We expect that it will deliver improvements with regard to visibility, environmental impact. FR 105 is undergoing the continuation of operational field evaluation that began in '22 and to date has dropped approximately 65% of the required 200,000 gallons. We're well on our way to completing the required OFE volume this summer.
Looking ahead, we're currently in discussions with U.S. for service regarding the contract for 2024 and beyond. We also meet regularly with CAL FIRE, a Canadian firefighting entity, and we expect to be bidding for contracts for the 2024 season. One note on Canada. Given the recent wildfire activity there in recent months, we've received a number of questions from investors regarding our ability to compete in that geography. The U.S. for service QPL is used by their entities as well. So our products are qualified for use in Canada, and we expect to be able to sell into that market starting in 2024. We're off to a good start with Fortress, and we're excited about the counter-seasonal growth potential that the business can provide for the company. On the last quarterly earnings call, I spoke a little bit about the refinancing we completed in May. I won't rehash those details today, but that was technically a third quarter event, so I want to acknowledge that important effort, enhancing our financial position was the final strategic objective that we set for fiscal '23, and I'm pleased that we were able to achieve that despite the challenging environment.
Before turning the call over to Lorin, I'll make a couple of comments about the quarter. I discussed Salt earlier in my strategic commentary, and those results helped drive strong performance during the quarter. We deliberately chose not to pursue certain business in last year's bid season so that we can improve our profitability and that value over volume strategy has worked very well. In the C&I business, we've done a great job of leading on price. It was a very solid quarter from the salt business. In contrast, the plant nutrition business has seen a number of external headwinds this year. From a macro point of view, buyers are simply being very cautious. Fire sentiment has clearly shifted toward a fear of getting stuck with higher cost inventory, and we're seeing lots of just-in-time purchasing behavior. Whereas a year ago, growers were concerned about being able to secure supply. Today, there is no concern on that front. You can see the impact this has had on MOP prices throughout the year, which, in turn, has put pressure on SOP prices.
While SOP is a premium product and is preferable by growers in many applications, its pricing is not immune to the dynamics of the MOP market given that there is some substitution that can occur. These dynamics have been further exacerbated by the lack of demand caused by the abnormal weather in California that you've heard us talk about in previous quarters. This is frankly a rough part of the cycle, and we simply have to manage our way through it. On a positive note, we've done a good job maintaining price given what is happening with MOP prices, frankly, exceeding our internal sales price forecast despite the market pressure we're experiencing. Based on some things that we're seeing in the market, it does feel like we're close to finding a floor on MOP pricing, which would obviously be a welcome development for holding SOP price as well. While these weather-related factors have challenged our sales efforts this year, it's worth pointing out that operationally, things are going well at Ogden.
Year-to-date, we've not had any significant production issues, and we're tracking in line with our internal production targets, which has allowed us to replenish our inventory. All in all, we don't see any structural changes with respect to SOP use and demand in California or elsewhere for that matter. Based on what we're hearing, our expectation is that demand will revert to more normal levels next year, and that would be constructive to sales volumes in 2024. All in all, we had a solid execution in the third quarter across a number of our businesses while we continue to make progress on positioning the company for accelerated growth in the coming years. Our management team is committing to growing and enhancing the value of the company and the third quarter was a successful quarter in our pursuit of that objective. I'll now turn the call over to Lorin, who will provide more detail on the quarter. Lorin?
Lorin James Crenshaw
Thank you, Kevin. As a reminder, the seasonal nature of our business becomes more obvious in the third quarter as winter subsides, and we see the impact of the decline in highway deicing sales. On a consolidated basis, revenue was $208 million for the third quarter, down 3% year-over-year. Third quarter consolidated operating loss improved to $0.6 million from a loss of $3.5 million last year, while adjusted EBITDA from continuing operations was $28.6 million, essentially flat year-over-year. We reported net income of $40 million for the quarter, driven by a $43 million tax benefit that reflects our recent acquisition of Fortress and recent changes in Canadian tax law. Specifically, the Fortress acquisition impacts our U.S. tax profile quite favorably, as we are now able to utilize net operating losses and interest deductions that our prior U.S. income outlook did not call for us to be able to utilize while also enabling us to reverse a portion of the deferred tax allowances we have taken in prior quarters.
Starting with the Salt segment. Salt revenue totaled $156 million for the quarter, which was essentially flat year-over-year despite volumes being 11% lower, reflecting strong salt segment pricing, which rose 12%. The highway deicing business saw sales volume declined 13% year-over-year. You've heard us talk about focusing our efforts on more valuable business over the last year, even if that means giving up some volume. That strategic pursuit combined with the impact of a below-average winter within the markets that we serve, explains the decline in volumes year-over-year. Pricing for highway deicing rose 16% year-over-year to approximately $74 per ton and was an important contributor to the improvement in profitability that I will speak about in a moment.
Within our C&I business, volumes declined 7% year-over-year, driven primarily by the timing of non-deicing demand. This was partially offset by higher C&I pricing, which rose by 5% to approximately $182 per ton. The C&I business has done a great job this year at maintaining positive momentum on pricing in its markets. Distribution costs and all-in product costs on a per ton basis increased 4% and 5%, respectively, year-over-year. The salt that was sold in the third quarter was produced and moved to depots in 2022, a period of time when we saw strong inflationary pressure on costs. So there's a delayed impact that you see flowing through. Operating earnings for the segment were $21.7 million in the quarter, an increase of almost 75% year-over-year. Adjusted EBITDA came in at $36.4 million, an increase of 31% year-over-year.
Adjusted EBITDA per ton was $24.41, which is in line with historical levels of profitability. As Kevin discussed earlier, restoring the profitability of the salt business was a strategic objective for this year that we are pleased to have successfully accomplished. Turning to our Plant Nutrition segment. The laddering impacts of extraordinary weather that we experienced this year continue to impact our sales. Though sales for the quarter were roughly in line with our expectations. We had hoped that applications of SOP that under normal conditions would have been applied in the first and second fiscal quarters might shift to later in the year. Unfortunately, that didn't materialize with sales volumes down 6% year-over-year. As Kevin mentioned, there has been a change in sentiment over the last several quarters that has impacted pricing. In the third quarter, the average selling price was $750 per ton, down 9% year-over-year and 6% sequentially.
The combined impact of lower volumes and lower prices was that revenue in the quarter was down 15% year-over-year to around $48 million. While that is obviously not great for the current year, our view is that it sets us up for a positive 2024 from a volume perspective. Generally, we believe that applications have not kept pace with the mining of a soil that occurs through normal growing conditions and that the extraordinary weather conditions that occurred this year seem unlikely to repeat themselves in fiscal '24. As a point of reference, California just experienced the seventh wettest year in the past 129 years, which clearly qualifies as extraordinary. One benefit of the slowdown in SOP sales is that we've been able to build and forward deploy some inventory across our warehouse network. Speaking of distribution during the quarter, we saw those costs decrease on a per ton basis by 8% year-over-year, as we saw a higher proportion of sales being picked up at our warehouses as opposed to being delivered by the company.
I'd note that this dynamic can also influence price and that we will often take a lower sales price if we don't have to assume responsibility for delivering the product. Distribution costs per ton also benefited from a shift in the regional sales mix during the quarter. All-in product costs on a per ton basis were up 6% year-over-year, driven by operational steps that we took following the subpar 2022 evaporation season, including the use of KCL to bolster production yields and the impact of the natural gas spike from earlier in the year on our inventory costs. The net impact of these drivers is that third quarter adjusted EBITDA declined from $19 million to approximately $12 million year-over-year. As Kevin highlighted, Orchards had its first sales in the third quarter. So we enjoyed a small positive contribution from the business to revenue, operating earnings and adjusted EBITDA this period. We are excited with the quick traction that the Fortress team is gaining in the marketplace.
At quarter end, we had liquidity of $418 million, comprised of roughly $58 million of cash and revolver capacity of around $360 million. Net debt to adjusted EBITDA stood at 3.1x at the end of the quarter. As noted previously, we were pleased to successfully execute a refinancing in May of our $250 million of notes due in July 2024. Our focus as we work through that refinancing centered on 4 objectives: refinancing on reasonable pricing turns, pushing out our debt maturity profile, bolstering our liquidity and creating flexibility within the credit agreement to accommodate a wide range of potential non-debt financing sources to fund our lithium efforts in the coming years. I believe that we achieved each of these objectives as part of the refinancing. Moving on to our outlook for the remaining of the year. In our press release yesterday, we announced the narrowing of our guidance range to reflect the fact that we are now 3 quarters of the way through the year.
In Salt, we now expect EBITDA in the range of $220 million to $235 million. As you know, we did not adjust our Salt segment guidance throughout the year until now as we approach the final few months of the fiscal year. Our original guidance given at the beginning of the year implied a midpoint for EBITDA of $235 million and assumed average winter weather. The fact is we had a below-average winter deicing season, resulting in the midpoint of volumes, revenue and EBITDA, all moving down to reflect that fact. At the midpoint of our original guidance is still within striking districts, despite a winter that was 80% of average reflects very favorable sales mix within the highway deicing business and strong C&I pricing. For reasons that we've discussed today and on previous calls, this has been an exceptionally challenging year to forecast our plant nutrition business. Despite these challenges, we have managed the business throughout the year in such a way that even though we expect to see fewer volumes for the year compared to our original expectations, the midpoint of our EBITDA guidance for this business remains unchanged at $45 million.
The commercial teams in our salt and plant nutrition businesses have done a great job managing price this year and have played a big role in helping the company successfully navigate a year of profit restoration on the salt side of the business and of challenging weather conditions and demand dynamics on the plant nutrition side. At Fortress, we still expect that business to contribute EBITDA in the low double-digit millions of dollars with nearly all of that expected to be recognized in the fiscal fourth quarter. That business rolls up into the corporate and other expense net line item which we are forecasting will come in at $65 million to $70 million for the year, unchanged from our prior guidance at the midpoint. CapEx is moving down slightly to a range of $130 million to $150 million. This is the result of moving lithium development CapEx down to a range of $40 million to $50 million from our prior range of $60 million to $75 million, reflecting a shift in timing that will result in capital being spent early next quarter pushing into the fiscal 2024 year rather than late during the current quarter.
Our sustaining CapEx guidance of $90 million to $100 million remains unchanged from our prior guidance. At this time, I'll share a few thoughts about the '23, '24 bid season. As we noted in yesterday's press release, we're about 65% of the way through the current North America deicing bid season. Based on the results that we've seen to date, we are expecting an approximate 3% increase in price for highway deicing salt next year. Committed did volumes are coming in roughly 5% lower than what we saw last year, which is not entirely surprising given the below average de-icing season we just had. Throughout the '23 bidding season, we have continued disciplined adherence to our value over volume commercial strategy with an emphasis on building a book of commitments biased towards markets that are most natural geographically for us to serve and therefore, most profitable. As usual, we will true up our projected salt price and volume on our November earnings call when the bidding season is behind us. However, 65% of the way through the season, we view the results to date as highly constructive, particularly against the backdrop of a relatively sluggish winter this year.
Briefly turning to the cost rationalization efforts we have undertaken. On our last earnings call, we discussed the first phase of our cost savings program. It is expected to ultimately result in an annual cost reduction of corporate-related expenses of $17 million to $18 million by fiscal '25 compared to fiscal '22. These cost savings are split roughly equally between product cost and SG&A. The second phase of this initiative relates primarily to production and packaging operations. And last week, we notified the impact of personnel. Costs related to the impacted operations are generally inventoriable. And as a result, the expected benefit of the Phase 2 cost rationalization efforts will be recognized through the income statements when those products are sold out of inventory, which is expected to begin in the middle of fiscal '24 for the Plant Nutrition business and late in 24 for the Salt business, subject to the impact of winter weather in the upcoming year. The key takeaway is that the combined impact of Phases 1 and 2 is expected to result in meaningful savings that all else equal, should lower our cost structure and improve our profitability in the coming years.
Finally, I wanted to share a couple of thoughts on valuation. Notwithstanding the recent rally in our share price, a classic sum of the parts valuation buildup of our company's valuation. Where you sign reasonable multiples to the long-run earnings power of our core Salt and Plant Nutrition businesses, we believe continues to support a stock price higher than where we are trading today. If one then contemplates the earnings potential of the growth opportunities that we have at Fortress and with our planned lithium development, it's clear why we're excited about the opportunity to create shareholder value by accelerating our earnings growth and reducing our weather sensitivity by advancing into new adjacencies that align with our core competencies as a company. With that, I will turn it back to the operator to open the lines for Q&A. Operator?
Question and Answer Session
Operator
(Operator Instructions) The first question is from David Begleiter with Deutsche Bank.
David L. Begleiter
Kevin, on the highway deicing bid season, volumes being down 5%. Are you seeing a greater competitive intensity in this season this year? And with volumes down in the last 2 years, or you risk running your operations at below optimal levels of production?
Kevin S. Crutchfield
Good question. There were air pockets, I would say, kind of in this bid season, we had a few areas that experienced an outsized winter where bid volumes were up and prices were up considerably than other areas that kind of the inverse of that happened. But on balance, we're kind of characterizing the winter as 80%. And I would say for the most part, David, in that color, but most part, our competitors in the marketplace behaved in a relatively disciplined fashion and everybody is kind of settling into their natural geographies, and there was definitely a view to promote value in the marketplace this year. We'd like to see more, obviously. But given the fact that it was an 80% winter, the fact that we're up 3% on price is actually a pretty big win at the end of the day. And then with respect to volumes, look, as I've said before, we'll do whatever it takes to keep the market balanced if we need to tweak our production volumes. We'll do it to manage inventories and manage working capital. But we need to let kind of the next season begin to unfold before we'd be able to make that call.
David L. Begleiter
Very good. And just on lithium and the state, Utah, it's been about 4 months, I think, since the role the law was since a law. What the time frame do you think to get this regulatory clarity you referenced in your remarks?
Kevin S. Crutchfield
I wish I could stick a pin in that. I think it will be done when it gets done. I don't mean to be cute, David, but it's processed, the roll making process is ongoing. We remain very active in that rule-making process and that plane will get landed when it gets landed, hopefully sooner than later, obviously, because we need the kind of -- we need that certainty to be able to advance our FEL-3 estimate, make a final investment decision, that sort of thing. So hopefully, the state of Utah will get that plane landed sooner rather than later.
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Operator
The next question is from David Silver with CL King.
David Cyrus Silver
I would like to maybe start off with a question on lithium or actually 2 questions. But firstly, regarding the reduction in the fiscal '23 CapEx to $40 million to $50 million. I did hear your comments about that. I would just kind of come back and say that I think this is the second reduction in that projected spend through fiscal year '23 now. And I was just hoping you could talk about maybe what the reduction in spending this year might be for the ultimate timeline to completion? And then secondly, this is very speculative, very early. But with the binding multiyear agreements for Phase 1 volumes. What happens if you're a little bit behind schedule 3 to 6 months or whatever of your planned start-up or alternatively ahead? I mean under the agreement, are you committed to supplying a certain amount of volume by a certain start date? You may have to go out in the open market or something. But how does the multiyear binding agreement handle deviations, I guess, from the planned start-up schedule.
Kevin S. Crutchfield
Let's start with question 2 first. I mean, our agreements with LG and Ford provision for a lot of flexibility in terms of start-up timing. So there's no scenario that we can contemplate where we never have to go to the market to fulfill our obligations under those agreements. They give us plenty of flexibility to get these operations mechanically complete, get them optimized and performing as advertised. So I think we're good there. And then in terms of the capital, we're just pushing out the longer lead items into the -- probably the next couple of quarters, which has taken some pressure off of the capital expense during fiscal year '23. But Chris, any color you'd like to add to that?
Chris Yandell
Yes, Kevin, just real quick. So with regards to the longer lead items that Kevin spoke about, is actually related to the broader project on the entire East side. So what we've been doing is we continue to optimize that schedule and look at what that drop debt date is for having to spend on those long lead items. So fortunate for us, those have been able to be pushed out a little bit. Additionally, what I would say is coming into the beginning of the year, we had a search estimate associated with what it would cost to build the DustGard commercial demonstration unit. And as we've continued to refine that, we've been able to reduce that cost. So that's been a benefit that you heard in the last quarter in the reduction of CapEx. And as Lorin also mentioned, what we've also seen now is we've also been able to get really good terms with our vendors, and that's allowed us to have an ability to push out those payments into the next fiscal year. So all in all, it's a good story from a CapEx perspective. And as we heard in the opening comments, we're still on schedule for mechanical completion by the end of this year. So DustGard is well on its way to be improving.
David Cyrus Silver
I appreciate the detail. I'd like to shift over to Salt and I'd like to pick up on Lorin's comments about, I guess, accounting costs this quarter relative to what we might see going forward. The past year or 18 months has been -- had been one of significant cost inflation. As you look ahead to the next winner, is it possible for you to kind of give a quick rundown of how you see, let's say, barge rates or plastic prices or pallet prices, whatever key elements that you can maybe lease or lock in prices for ahead of time. But any thoughts about where the plus the puts and the takes, the pluses and the minuses on your overall deicing salt cost elements shake out here now?
Lorin James Crenshaw
Yes. Let me just touch on inventory days and just the way that they transition through our P&L, and then I'll ask Jamie to talk about kind of supply chain effects, et cetera. But when you look at our inventory days, on average, if you look over the past several years, they're sort of in that 125, 130-day mark. And so that tells you, you have a 4-month turn. However, you can produce salt that in a relatively weaker winter, you don't sell for quite some time. You take a March salt production and then you take a 80% winter, you could be selling salt from 2022 inflationary environment for some period of time. And so, looking at our inventory days and seeing how they flow through our P&L, kind of is a function of winter that you experienced. But Jamie, any thoughts on just supply chain effects you want to share?
James D. Standen
Yes. David, you mentioned a couple of items. Pallets continue to be fairly expensive and inflated. We don't see that coming down. Polypropylene has come down. It's obviously related to oil prices. So if Brent stays in this area, we'd look to see some benefit there in the C&I business. On the freight side, we've actually seen lower truck and fuel rates through 2023. Those probably creep up. Those are going to mostly be related to the C&I business on the dry vans that those prices tend to go up. But we've done a lot of great work the team has on the pricing front to really get ahead of that to recapture some of the inflation we saw last year and continue to push price through '23 and even into '24. So we are cognizant of those truck freight rates rising in '24, but we think we can stay ahead of it with pricing and really see some margin improvement in 2024.
On the highway side, most of our material is shipped via vessel and barge. Our vessel rates are locked in through 2028. Our barge rates are locked in through next summer, summer of 2024. So we'll be renegotiating those rates later this year or early in 2024. On the vessel side, we've got inflation in a CPI type inflationary adjustments in -- on the vessel side. So we feel good about the long-term aspect there. Those are the primary kind of supply chain inputs that I'd be able to talk about right now ahead of our full year discussion later this year for 2024.
David Cyrus Silver
Yes. I appreciate it. It's early days, but very, very helpful.
Operator
The next question is from Chris Kapsch with Loop Capital Markets.
Christopher John Kapsch
Yes. Follow-up on the Salt business, piggybacking on some of the discussion already. Just curious the notion that roughly 65% of the negotiations are complete. Just wondering if that against this backdrop of 80% winter, are those discussions do they align with -- in any way with the geographies that sort of had a stronger winter, whereas the unsettled negotiations might have been geographies where there is a lighter winter? I'm just curious if, in other words, if on average 80% winter, but clearly, it was mixed across North America. Just curious if that has any influence on the discussions with the municipalities and your ability to contract.
Lorin James Crenshaw
Not really. I think -- so like Kevin mentioned a little bit earlier, there were pockets of success. We had stronger winter weather activity and higher sales on the upper Mississippi. It was weaker along the Ohio River Valley. We would typically be 65% to 75% complete with our bid season sitting here in early August. A lot of the states and municipal bids are finished and the latter half of the season is commercial business. So it would be rare that the full year mid-season pricing ends up different than the 65% mark. So that -- I hope that answers most of your question. I would also note that, that 65% really applies to about 75% of the overall highway deicing business. So outside of this North American bid season, we've got our U.K. highway deicing business. We've got our mag chloride business, and we've got our chemical business as well. And we are pushing significant price increases on those fronts as well because the market allows it, and we're pricing to value. So that bid season data is just part of the picture as it relates to the highway business in general. I just wanted to make that point.
Christopher John Kapsch
Okay. And then the follow-up on -- again, on Salt, if you're -- at this point, the commitments that you have for down 5% volumes up 3% pricing. By no means are you suggesting that the guidance for '24 would be down 5% volume. We just don't know. I'm only saying that because of the reaction to the stock price this morning. I'm curious, though, if in a scenario where you were down 5% volumes and up 3% pricing, it seems and given -- notwithstanding some of the inventory costs are flowing through your P&L. In that scenario, would Salt EBITDA be up in 2024? It seems like it would be.
Kevin S. Crutchfield
That's a great point. So remember, the winter was mild, and we're experiencing that in our current period results. So we sold less material than we would have expected. When we roll out our view on 2024, it will assume average winter weather. So while the commitments are a little bit lower, the recovery of normalization or average winter weather kind of offsets that actually more than would offset that decline in commitments. And then you take into account the price, the portfolio improvements that we're making in the business. Remember, GSP is only part of the picture. We're focused on netback. We might be shipping something with a lower GSP gross sales price, but we make more money on it because it has a lower transportation cost or it's closer to the mine. So we're only giving you part of the picture for competitive purposes, but certainly feel like we can see improvement in the salt business, highway and C&I in 2024.
Operator
The next question is from Greg Lewis with BTIG.
Gregory Robert Lewis
I appreciate the comments around the 65% in the municipalities and the now the shift to more industrial. I realize we can't comment on pricing, but is a fair way to think about as we look at the back or the remaining kind of the stated number that's out there kind of serves as an anchor in a boy to pricing, like just as we think about previous years, is the upside downside. I don't know, is it -- I mean, how tight is that range are we -- is it basically this is the price? Or is there upside or downside?
Kevin S. Crutchfield
It is -- there isn't -- there is typically not a lot of movement between what we say now around price and commitments and how we finish the bid season. Again, we are now in really commercial negotiations with independent contractors and landscapers and deicing guys who resell this material for parking lot clearing and whatnot. So we are pushing price across the board. I think you're right, there's not a huge amount of upside, but there's very limited downside as well as we go through the remainder of this season.
Gregory Robert Lewis
Okay. That's great to hear. And then just as I think about Fortress, I mean it seems like this is just getting -- just continuing to be a nice driver for the company and realizing there's a major existing competitor. I guess the question is, what needs to happen for the company to really scale up this business? And I know as we were talking in the last couple of months, is there a way to accelerate that scaling up to kind of -- to take advantage of just really the demand for that?
Kevin S. Crutchfield
Yes. We're well on our way in doing that. We are engaging with the U.S. Forest Service for a multiyear agreement, 2024 and beyond. Those discussions will really get into details in this month and in September. So I think we're going to have a lot more visibility on what the next few years look like within the next 60 to 90 days. So there's nothing that we can do beyond kind of nailing that arrangement as we go into '24 and '25. But also we're talking about entering the California market with CAL FIRE. That is dependent on the completion of our IFOE that we talked about in the prepared remarks around our FR105. And then when we think about Canada, British Columbia and Saskatchewan and Alberta. Those are opportunities in Western Canada as we go into 2024 as well.
Operator
The next question is from Joel Jackson with BMO Capital Markets.
Joel Jackson
A few questions. Just on 2024, is the 3% gross price increase in highway deicing salt, is that enough to have margins in 2024 itself be higher? Or what would you need to have margins be higher in 2024? And then second part of that question is, I understand that for some of your competitors, maybe yourselves, barge rates are going to go up on some of the contracts maybe as of January 1, Mississippi. Can you talk about that, how barge rates might go up and how that might affect costs and margins in '24?
Lorin James Crenshaw
I won't address it specifically. We've not started our discussions on beyond kind of July 2024 with our barge carriers. Yes, there is talk of those going up for sure. Remember, we are the backhaul. They need us. We'll go through that process. And the good news about the barge rates and the timing is that we'll be well into our discussions, let's call it, in February or March before we even start our bid season. So we'll have good line of sight during our bid season on what those barge costs will be in 24 in a multiyear agreement through perhaps 26 or something like that. So I don't have specific comments on what that will -- how that would impact. It would have very little impact on 24 because of the timing.
And Joel, in terms of profitability, from an EBITDA per ton perspective, we're tracking towards in excess of $20 of EBITDA per ton. And we see no reason why we should not be able to hold that. I like to talk in terms of the middle of the bell curve to the point we made earlier, there's no reason that we can't see improvement in Salt next year at a comparable EBITDA per ton with the pricing that we're sharing.
Joel Jackson
That's helpful, Lorin Okay. And then finally for me, you may have said on the call earlier, I know this is pushing back timing your CapEx reduction of $20 million or something like that, is that just pushing back to long lead time items on some of your lithium opportunity? Is that what you said?
Kevin S. Crutchfield
Yes. Yes, for the most part, Joel, it's that coupled with Chris and the team have been able to skinny down the expectation around the discard unit as well. So it's a combination, but it's largely made up of longer lead time items that we've been able to push into the next quarter and the quarter after that.
Joel Jackson
Maybe I'll come back to the barge rate question. Do you have some history when barge rates have gone up, how that has worked out through the following bid season, has the price been passed through to the different tenders? I understand it's a bidding process. But generally, or have margins come down in the year afterwards, a bit of an adjustment period, what typically has happened when markets have gone up between you and competitors?
Lorin James Crenshaw
I don't have that history off the top of my head. But remember, we would be equally impacted. Cargill and the Stone Canyon asset would be equally impacted by any change in barge rates. Again, the good thing is, so you would assume that disciplined market competitors would recapture that value through pricing as they go through those bid season. Again, the good thing for us is that the timing is that it is a July renewal of 2024, and we'll be -- we'll have really good line of sight on what that looks like for the 2024, '25 winter, and we'll embed that in our bidding analysis as we... Next summer.
Joel Jackson
Just maybe one more for me. Typically, you have some working capital needs in September and December quarters. Looking at your balance sheet right now, are you comfortable? Are there any actions you don't want to take to give you more flexibility with the balance sheet?
Kevin S. Crutchfield
Well, our leverage just hit 3.1x. And so we are happy with the progress that we've made to deliver. We ran it. Some portion of that relates to the court proceeds, but a lot of it relates to the restoration of the EBITDA of this business. And so 3x is a very comfortable level for a company with our credit profile. And we will see what we always see in terms of seasonal dynamics around the final quarter of the year. But we feel very good about our leverage position as we continue to drive it down.
Operator
The next question is from Chris Kapsch with Loop Capital Markets.
Christopher John Kapsch
Yes. So it's a little detailed question on the lithium business, but it's really against the context of -- Lorin mentioned valuation and investors can probably debate whether or not there's much of any value being ascribed to your franchise right now for the prospective value from the lithium resource at the Great Salt Lake. But my question addresses the visibility and/or perceived risk associated with banning up that project right now. So directionally, you suggested -- I know we're going to wait until the conversations with Utah are complete, I understand that. But directionally, you suggested that CapEx might be higher than what the original FEL-1 engineering plan had been scoped out at. And as you're looking forward, though, I'm just curious as a way to maybe contain costs. In Phase 2, the plan is to stand up a lithium hydroxide conversion facility where Phase 1 is carbonate. And that adds presumably more cost per capita per se, more complexity, therefore, maybe more risk. So I'm wondering if -- could you just remind us why the strategic rationale is there for the carbonate and then hydroxide, it might be -- it seems like there might be a pathway for less perceived risk, less CapEx, if both phases were carbonate. Is there any thinking along these lines?
Chris Yandell
This is Chris Yandell. With regards to looking at Phase I and Phase II, Phase I is that the lithium carbonate that we're talking about. Phase 2 on the west side would be that hydroxide component. As we've talked about progressing our CapEx and our FEL-1, our FEL-2, FEL-3 detailed engineering, what we're referring to is really our base point. So it's the carbonate side. And that's -- when we talk about the CapEx is higher than what we saw in the FEL-1, we're specifically speaking to the carbonate perspective. If you look at the market dynamics and what customers are looking for, you see a split really between the LFP and OMC type batteries. And so from an LFP standpoint, we're producing that carbon or intend to produce carbonate. The customers are also looking for the hydroxide piece as well. So hopefully, that then provides some detail to your question.
Christopher John Kapsch
Right. But one of the offtake agreements with Ford, they have, obviously, this early stage but commitment with partnership with CATL, which presumably is focused on LFP, which require carbonate. So I'm just wondering as this evolves, if there's any consideration on your part to just do both phases in carbonate, which might derisk the overall project and maybe even rein in a little bit of the CapEx. That's what I'm asking.
Kevin S. Crutchfield
Sure, Chris. That's a great point, and we'll continue to look at that. Right now, we're hyper-focused on getting Phase 1 up and running and executing there. And as we progress through that, we'll certainly take a look at Phase II and whether that's carbonate or hydroxide. So a great point.
Operator
And it appears that we have no further questions at this time. I'll turn it back to the presenters for any closing remarks.
Kevin S. Crutchfield
Thank you for joining the call today, and thank you for your continued interest in Compass Minerals, and we'll continue to keep you posted in subsequent quarters. Thanks, everybody. Have a great day.
Operator
This concludes today's conference call. You may now disconnect. Thank you.
