Q1 2024 Compass Minerals International Inc Earnings Call

Participants

Brent Collins; Vice President - Investor Relations; Compass Minerals International Inc

Edward Dowling; President and Chief Executive Officer; Compass Minerals International Inc

Lorin Crenshaw; Chief Financial Officer; Compass Minerals International Inc

Joel Jackson; Analyst; BMO Capital Markets

David Begleiter; Analyst; Deutsche Bank AG

Presentation

Operator

Ladies and gentlemen, good morning. 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 first-quarter fiscal 2024 earnings call. Today's call is being recorded, and all lines have been placed on mute to prevent any background noise. (Operator Instructions)
Thank you, and I will now turn the conference 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 2024 first quarter earnings conference call. Today, we will discuss our recent results and update our outlook for fiscal 2024. We'll begin with prepared remarks from our President and CEO, Edward Stanley, and our CFO, Lorin Crenshaw. Joining us for the question and answer portion of the call will be George Schuler, our Chief Operations Officer, Ben Nichols, our Chief Sales Officer, and Jamie heard our Chief Supply Chain 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, February eighth, 2020. For these outlooks entail assumptions and expectations that involve risks and uncertainties that could cause the Company's actual results to differ materially. For 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 available online.
I will now turn the call over to Ed.

Edward Dowling

Thank you, Brent, and good morning, everyone, and thank you for joining us on our call today. I look forward to engaging with you as Compass Minerals' new President and CEO.
I'll begin my remarks today by discussing some of the announcements we've made over the past several weeks yesterday, we shared within our quarterly earnings that we decided to terminate our lithium project in Utah. As I expect most of you know, this was a brownfields project that would have enabled the extraction of one additional mineral salt. In this case, lithium chloride and carbonate has a cold product within our existing SOP salt magnesium chloride production streams at the Ogden operations.
Unfortunately, the environment surrounding this project has evolved drastically from when we began to invest in this project several years ago for proposed regulatory changes have led to significantly increased uncertainty when you combine an uncertain regulatory environment with other changes that have occurred within the commercial landscape for lithium for solar project has a higher than acceptable degree of risk and uncertainty, which requires a higher return in order to justify such investment well, understood by projects like this carry risks and willing to take and manage measured risks. However, we will not invest into uncertainty. We ultimately included. So it's just too much on surveillance project.
I will note that the lithium content in the Great Salt Lake is a significant resource that's not going anywhere. We have the ability to revisit the potential to develop the resource in the future. Clearly, that's not today. We'll continue to monitor and gauge for appropriate legislative and regulatory processes and Utah, as well as watch emerging commercial developments to preserve the long-term optionality of that resource.
As a result of the decision not to move forward with the lithium project, we have disbanded the lithium development team Crescendo further, our lithium has left the Company as have another of talented individuals report to advance the program I want to thank Chris and the lithium team for their efforts over the last couple of years, wish them the best in her future endeavors. In concert with these actions, we're taking charge in this quarter reflects our decision to exit the lithium program, which includes severance costs for the employees that are leaving the company as well as impairment of certain lithium related assets and future commitments, which Loren will discuss in more detail.
Next, I'll discuss our recent CEO transition, where Kevin Crutchfield joined Compass Minerals in 2019 as mandate from the board was to address the following one fix what has been a challenging production curve at the Goderich mine and repair significantly strained relationships, labor relationships at the mine to exit South America and three determine if there's any areas of growth adjacency through the Company's core business of salt and plant nutrition, I've known Kevin for three decades, is a talented executive. The highest integrity and personal character over time.
Here, we successfully addressed all three of these challenges. As we know, a lot in the last year has been a challenging one for Compass Minerals. Ultimately, the Board and cabin agreed that a change in leadership was in the best interest of the company. This change allows employees and the investment community to refocus on our advantage assets that underpin our core salt and plant nutrition businesses as well as the emerging and exciting fire retardant business on behalf of the Board. And personally, I want to thank Kevin for his leadership over the past several years and his continued support during this transition. Looking forward, I'm excited about the opportunities ahead of us accomplish metals. I've been on the board here for just under two years.
More broadly, I spent of totality of my career in mining industry, both on executive and operating roles around the world have been fortunate to work in almost every mining environment you can imagine. And I think I bring an acute understanding of what it takes to achieve operational excellence and drive improved profitability in mining, assess it successfully led numerous cost reduction and capital-efficient outreach efforts for several companies in the past.
Given these experiences of my familiarity with the Company's advantage assets, the Board determined that it was the right person to lead the conference, but also at that point in this journey, in addition to maintaining a safe and responsible operations at Compass Minerals is known for a mandate I have is pretty set to improve free cash flow generation and returns on capital we provide to our shareholders. I'm confident that we can get there by improving production effectiveness and asset efficiencies in our salt and plant nutrition business will adopt a more stringent approach to evaluating capital requirements for execute strategies aimed at reducing working capital. Also thoughtfully build out our emergency fire retardant business. Our Company has a tremendous set of unique and proven assets that would be almost impossible to replicate today. While we must and we will take actions to maximize the performance of these assets.
During our most recent earnings call, we laid out six strategic focus areas for fiscal 2024. Those work build on our strength and performance and are continuing to strive for zero harm across each of our facilities to maintain a disciplined pricing strategy in our North American highway deicing business and focus on geographically advantageous at markets, three, execute on strategies to deliver more reliable, sustainable Ogden production, four, achieve clarity regarding Utah's regulatory regime as it relates to lithium production, again, as we've gained increased clarity on this matter, we're now pens down on lithium five, continue to scale the manufacturing and supply chain capabilities of our fire retardants business on its path of full commercialization, increased market share and six, maintain a strong balance sheet and prudent fiscal policy.
Others remain the same today, and we'll approach them using proven cost improvement and capital discipline. The tool sets and a renewed emphasis on improving the management of our operating expenditures, capital expenditures and working capital in the coming quarters. We expect to hear more from us about the progress we're making in these areas. Again, I'm extremely excited about the opportunity accomplishment also this next chapter in a great position to a great set of assets. The Company is blessed with a talented and committed group of employees. My wife and I are looking forward to relocating to the Kansas City metro area now becoming more involved in the local community here.
With that, I'll turn the call over to Lorin to review the quarter.

Lorin Crenshaw

Thank you, Ed. On a consolidated basis, revenue was $342 million for the first quarter, down 3% year over year. Our profitability this quarter was impacted by the $75 million impairment we took related to our decision to terminate our lithium project in Utah, which Ed referenced earlier. The consolidated operating loss was $55 million versus operating income of $28 million last year. We reported a net loss of $75 million for the quarter, which compares to a net loss of $300,000 last year. Adjusted EBITDA was approximately $59 million, slightly lower than the $62 million in the prior-year period.
I'll begin with the salt segment where revenue totaled $274 million for the quarter, down 11% year over year. The main thing here is that we experienced extremely light volume on account of exceptionally mild weather we saw across our core market during the first quarter. Specifically, highway de-icing volumes were down 22% year over year to 2.3 million tons at C&I volumes, which includes retail de-icing products, were down 5% over the same period to 589,000 tons. Total salt segment volumes were down 19% year over year and reflect the fact that the first quarter was the fourth worst quarter with regard to snow event activity within our served markets that we've seen over the better part of three decades.
In fact, December 23 was the worst December over that span. So despite the fact that our commercial group did a fantastic job on pricing, highway de-icing price increased 7% and C&I price increased 3%. The weather didn't cooperate the way we'd like to begin the year. While the snow data is disappointing. It is important to remember a couple of things about the weather. First, over the long term, about 7% of the snow days in our served markets occur in the second fiscal quarter. So there's a lot of winter left in this season.
Second, statistically looking at historical data, weak first quarter, one that is below the historical average, has not historically foreshadowed a below-average second quarter. Specifically, when we look back over the past couple of decades, we see that in the 10 first quarters with recorded snow days below 90% of the long-term average, 70% of the time, the second quarter of that year was at 90% or greater for a long-term second--quarter average. So again, it is simply too early to state with any confidence how the rest of the winter season will play out.
Distribution costs on a per ton basis were basically flat year over year. All-in product costs on a per tonne basis rose 9% year over year and reflect C&I salt sales representing a higher percentage of the sales mix this quarter and fewer sales tonnes to absorb cost in the period. Despite these challenges, we earn more this quarter year over year as measured by operating earnings for the segment, which were $51 million, up nearly 7% year over year. And as measured by adjusted EBITDA, which came in at $66 million, up 8% year over year.
Our adjusted EBITDA margin improved by over 400 basis points and adjusted EBITDA per ton was $23. We worked diligently over the past couple of years to control the things we can control and improve and maintain the profitability of the salt business. These effects were reflected in this quarter's results and reflect a positive takeaway during a quarter in which we didn't get any help from the weather.
Moving onto our Plant Nutrition segment, you'll recall that calendar 23 saw incredibly dry conditions early in the year and California quickly shift to historically unprecedented flooding conditions, combination of was severely impacted sales throughout last year.
From a commercial standpoint, the good news is that demand has returned as we expected in our core West Coast markets, and we had sales of 75,000 tons this quarter, which is an increase of 67% from the prior-year quarter. The pricing dynamic for SOP continues to reflect the excess supply of potassium-based fertilizer in the market, which led to a 29% decrease in price per ton year over year to $660 per ton. The net effect of higher volumes and lower pricing was an increase in plant nutrition revenue of 19% year over year. A significant portion of the plant nutrition businesses' distribution costs are fixed. So the increase in sales volumes benefited distribution cost per ton in the quarter by 11%. All-in product cost on a per ton basis were up 4% year over year.
The net impact of these drivers is that first quarter adjusted EBITDA declined from $19 million to approximately $6 million year over year as the favorable impact of higher volumes was more than offset by significantly lower pricing and higher cash costs. At Fortress. our results related to the calendar '23 contract were a little better than we expected. We recognized approximately $13 million in adjusted EBITDA during the quarter associated with the take-or-pay provisions of that contract. Also regarding Fortress, we recognized a roughly $3 million non-cash charge related to an increase in the valuation of the liability associated with the Fortress acquisition and the contingent consideration related to that transaction. As a reminder, when we purchased Fortress, approximately 50% of the purchase price was contingent with roughly half of that linked to the achievement of certain business development milestones and the other half based on volumes sold and paid over a 10-year period.
As of December 31, the net present value of this liability was approximately $47 million. Each quarter. There will be gains and losses as a liability is mark to market to reflect changes in the discount rate used in the valuation and changes in our outlook for the business because this liability was established as part of an acquisition. The accounting guidance does not allow for the non-cash mark-to-market to be added back to reported adjusted EBITDA. However, our adjusted EBITDA would have been $3 million higher if we added back that non-cash charge. That $3 million expense is captured in other operating expenses on the income statement.
Lastly, with respect to our lithium program, as Ed mentioned, we have made the decision to not move forward with that project as a result of that decision in our view that the risk-adjusted returns on capital of moving forward with the project are inadequate. We have disbanded the lithium function and are recognizing a charge of approximately $77 million related to the impairment of associated assets and future commitments as well as the severance costs of those team members that will be leaving the company before leaving the income statement.
I'll make a couple of quick comments on income taxes. First, the effective tax rate for the quarter is not meaningful due to the impact of the impairment that we took in the quarter. Second, in periods like this year when our US businesses are under earning. It creates income mix issues where our worldwide income consists of foreign income driven by our salt business that is significantly offset by U.S. losses driven by our plant nutrition business these dynamics are driving the estimated tax guidance for the year, which excludes the impact of valuation allowances and the lithium impairment.
Moving on to the balance sheet. At quarter end, we had liquidity of $246 million, comprised of roughly $38 million of cash and revolver capacity of around $208 million. Net leverage stood at 4.3 times at the end of the quarter.
Moving on to our outlook for the rest of the year, the 2024 adjusted EBITDA guidance for the salt business that we rolled out on our last call depicts the bell curve showing earnings outcomes ranging from a mild winter on the low end, a normal winter in the middle and a strong winter on the high end. Our goal and taking this approach was to provide a reasonable distribution of results that could be anticipated across different weather outcomes with 70% of the winter still ahead of us, we continue to feel comfortable that we will fall within our guidance range, and it would be premature to make any adjustments at this point in time other than to acknowledge that the odds of a strong winter are now remote.
As a quarter-to-date update, January snow events in our serviced markets came in around 94% of the long-term average. And there was quite a bit of cold weather in January that generated good demand across our platform. Overall, at this point, we think the range we provided is still a fair estimation of the potential outcomes as we continue closely monitoring how weather during the second quarter plays out.
Shifting to plant nutrition. Unfortunately, the macro environment for fertilizers remains challenging from a price perspective, recent data points within the broader MOP market indicate what is at least short term downward pressure on potassium based fertilizers. Our team has done a great job maintaining what we see as a fair premium value for SOP relative to MOP. However, we see more downside than upside risk over the balance of the year. Against that backdrop, we are adjusting our plant nutrition guidance down to reflect several risk factors over the balance of the year. First, MOP prices continue to face pressure, as I indicated, and we must manage and attempt to balance available market value versus targeted demand.
Secondly, the continuing weakness in fertilizer pricing is resulting in a large number of buyers remaining inventory conscious in deflationary environments. Buyers moved to just-in-time purchasing behavior, further adding to the competitiveness of every time we compete to sell in the market. And third, first quarter pond-based production at Ogden tracked at the lower end of our initial projections. As a result of those factors, we now expect the adjusted EBITDA for the year to be in the range of $15 million to $35 million.
Moving on to corporate. Our corporate expense includes everything not related to salt and plant nutrition. So it includes our corporate overhead, the cost of our now terminated lithium program and the positive contribution of Fortress. Overall, our total corporate guidance is not changing at this time. Lithium related expenses for the year will be at the lower end of the guidance we provided given the elimination of the lithium function. However, this reduction is being largely offset at this time by the non-cash expense related to marking to market for the quarter's contingent liability that I discussed earlier, these two items offset one another, and therefore, our guidance for corporate is unchanged.
Digging in a bit more on each of these regarding lithium as a result of our lithium program termination, we will see the amount of lithium expense decline to approximately $5 million. This reflects costs up through late January when we move forward with our headcount reductions. The onetime costs associated with exiting that program like severances won't be captured in this guidance since they are an add-back for adjusted EBITDA purposes.
Regarding fortress subsequent to our last earnings call, which occurred in November. The U.S. Forest Service changed the solicitation contract requirements for the calendar 24 contract, and this has resulted in delays in the negotiation and finalization of a contract for the 24 fire season, which starts in the April-May timeframe. We continue to expect to have a finalized contract prior to deployment for the upcoming fire season as a reminder, we do not have anything currently baked in to our 24 guidance for the calendar 24 U.S. Forest Service contracts. Accordingly, we are leaving guidance unchanged with respect to what we've included in for Fortress at this time. Once our contract is finalized, we will adjust our guidance appropriately.
Finally, our corporate adjusted EBITDA guidance does not include the costs associated with certain senior executive management changes that we have announced in recent weeks. Such costs are expected to be in the range of $6 million to $9 million, and these costs will be recognized in the second quarter and treated as an add-back to adjusted EBITDA at that time.
Finally, moving on to CapEx, we have lowered CapEx slightly by $7 million at the midpoint to a range of $120 million to $130 million, consistent with Edge prior remarks regarding our focus on reducing the capital intensity of the business. Specifically, we are reducing our estimate of sustaining CapEx by $10 million at the midpoint to a range of $80 million to $90 million. Lithium expenditures for the year are expected to be around $30 million, reflecting in-flight spending prior to suspending the projects. I would note that not all of that $30 million will ultimately be reported in the cash flow statement as capital expenditures due to the timing of the impairment and when we ultimately pay for some of those in-flight items.
Finally, we continue to expect to invest approximately $10 million to support the continued growth of Fortress, and that guidance is unchanged. That summarizes our first quarter results and our outlook for the remainder of the year.
With that, I'll turn the call over for questions. Operator?

Question and Answer Session

Operator

(Operator Instructions) Joel Jackson, BMO Capital Markets.

Joel Jackson

Thanks taking my questions. I have a couple. I'm going to ask them one by one. So can you talk a little bit about the balance sheet and liquidity and free cash flow to the fiscal Q1 cash flow burn was quite a lot. Should we expect a really good return to a good inflow of cash in Q2? Maybe you could talk about it's going to look, it looked like prior years and then, you know, it looks like you're really pushing up against the covenants here just directly right now and to stabilize the Company.

Lorin Crenshaw

Joe, thanks for that question. It's line this quarter, we did see a meaningful cash burn and there are several factors related to it that are that are unique and will not repeat one from a lithium CapEx perspective, cash out the door in actual accruals was 20 million. We will not spend 20 million on lithium going forward. And so that was a one-time factor. Inventory was roughly flat sequentially. Our AR was up as you would expect, that big factor was accounts payables where DPOs, as we ended the year, were it normally high, you saw them normalize up this quarter. The bottom line is this coming quarter, the three 31 quarter, you should expect a significant positive from change in working capital. And I expect that this will be the up large is this will be the only quarter where we have this sort of a cash burn. So you should see a major positive in terms of cash flow in this quarter. And there were some unique factors that drove the burn in the first quarter and also at the SEC settlement payment was made. And so several unique factors in that regard.

David Begleiter

I told this is Ed, that just like the stock complement what Laurence said inside our focus, which has historically been around earnings, has changed in the Company and primary focus is cash production and it's our intention going forward on to reduce our debt and improve the ratios that Loren previously mentioned at the 4.3 net debt to EBITDA, we want to get this back into on a historical and where our peer group, dark and NGL, the 4.3 was well within the five times covenant for this quarter.

Joel Jackson

And so now we are well within that covenant. We'll see substantial cash flow going forward. And equity, I think is not anything at all to to even contemplate as it relates to our covenants, we are comfortably within those covenants.

Brent Collins

And I would say the nature of our business is that we do scenario planning every year.

Joel Jackson

We look at miles, we look at normal. We look at strong winters. And we are blessed to have a exceptional bank group, many of which have been with us for over 20 years and some will be prepared for any scenario but with no equity, I think that's not anything that anyone should have to imagine.

No.

Lorin Crenshaw

And then my follow-up question on salt is most of your official commentary, although Lauren or add or I think Lauren did comment about what it was, Lauren, what January looked like by Larry official commentary is acting like a January first when it's actually February eighth, I did appreciate, Lauren, updating on this call what happened in snow for the last five, six weeks. But the question I have for you is it's such a mild winter. I think it happened. We're getting to it. We're deep into those are the key winter months now and it's getting into March. You have to start making decisions like customers are probably now quite below trending quite below the 80% minimum. Are there minimum spend minimum volume commitments to make mine plans at Goderich and elsewhere sanction and overproduce? So can you talk about what discussions are happening internally or externally. Certainly mine plan decisions, customer minimum decisions, whether you're going to spin them into rollovers next year, that does not the discussions you have to start planning for in such a mild winter?

David Begleiter

Yes, Joe, we're on starkly. We've planned for certain winters and producer that when you end up with a weak winter, we end up with too much inventory stored, which versus a bit our cost to the balance sheet. We're running the different the business differently at this point, we're building flexibility into the operations. I will be reviewing some where we stand going forward and adjust production side accordingly to better manage capital in the company going forward. So there's a lot of detail behind that. Happy to chat to you about that and separately. But philosophically, that's where we are and we're going and things are already being done well, rather than what you say.

Joel Jackson

I think it is worth adding our job. That is funding a lot of questions several years ago around were around Goderich and its production levels. And now in times like this, these are times where you actually would consider tapping the brakes. And as we look to protect our balance sheet and George can elaborate, we are thrilled on the one hand that we have restored Goderich to the levels that we have. But at the same time, we're also pleased that we're in a position where we can take actions to tap the brakes as necessary.

Edward Dowling

George maybe you could talk about.

Lorin Crenshaw

Yes, sure. Thanks, Joel. Wish, George, I just want to add on a little bit, like Ed said, and also Lorne, we've already taken action over the last several weeks to better align our mine production to match these inventory levels.
So just a little bit more than what Ed said. We've already taken action to try to adjust that. And I feel confident that that will improve both our inventory levels where they need to be, but also make sure that we're maintaining our mine costs the right level.

Operator

Thanks and after that, we will take our next question from David Begleiter with Deutsche Bank. Your line is open.
Thank you.

David Begleiter

Good morning.
Are besides lithium, are there other assets, the portfolio that you and the Board are looking at or considering other options for look on?
The lithium, of course, was a predominant in our mine. We want all of our assets to perform in terms of returning very high ROIC return on invested capital in excess of our weighted average cost of capital. As you know, I'm joined here three weeks now, and I haven't been able to review all my thoughts with the Board yet, but that will become clearer in time. We're working really hard to see what this business can be, and we'll make the decisions accordingly.

Brent Collins

Okay, got it. And just on penetration, given the earnings pressures this year, are you considering taking additional cost actions here for the either temporary or permanent on the cost side, I'm sorry, I missed the upper.

Joel Jackson

It's regarding plant nutrition, Jan and David, this business is $100 a ton above where it should be from a cash cost perspective, half of that relates to our use of KCl. We are absolutely focused on getting those costs back in line with historical averages through a combination of fixed cost reductions as well as up risk restoration of the ponds so that we don't have to use as much KCL, which is burgeoning our results.

Brent Collins

Perfect. Thank you.

Operator

And we'll take our next question from Jeff Zekauskas with JPMorgan. Your line is open.

Brent Collins

Thanks very much. And you're on in your agricultural business, your volumes were up, I don't know, 50% more than the fourth quarter, but the EBITDA wasn't really very different and I get it that prices were down a little bit. But what was the magnitude of the cost overruns are the problems with pond production, how much did that burden you in the quarter and what exactly happens, our approach that two ways and then ask Ben to comment.

Joel Jackson

As I look at the year-over-year impact to profitability. It is predominantly for the first quarter related to price. There's a 200, CAD60 difference between the price a year ago and the price today, which is, which is quite substantial. I would say about two thirds of the decline is attributable to price and about a third is attributable to cash cost. I mentioned earlier the KCL dynamic and I would characterize it that way, but it's predominantly related to price, but sequentially your prices are down just a little bit.

Brent Collins

Right.

Lorin Crenshaw

Can you analyze?

Brent Collins

That's right sequentially at home.

Joel Jackson

So my answer was in regard to the year-over-year impact from a sequential up point of view, you're right, we only saw about a sequential decline of about 5% or so in the average selling price. And so the impact sequentially would have been principally related to cost.

Brent Collins

And I've said before that that is principally related to the KGL right on and then on your inventories, your inventories are close to 400 million and historically may be a peak inventory level for for campuses, 300 million on you have to really cut production rates in your salt business for the remainder of the year in order to get your inventories down?

Joel Jackson

You know, I would focus on on days of OR for two reasons due to inflationary dynamics, we have higher valued inventories. Just if you just look back over the past three or four years and the team has successfully passed through a lot of those costs. But with that said, inventory days coming into this year were at about 200 and our focus is on reducing those days. Every 10 days is approximately 25 million. And you should expect starting this quarter. And as we focus on the balance of the year that we're going to drive those days down, they are not at acceptable levels, but they they are inflation adjusted are at higher higher levels. And so we're going to focus on getting those days down and they are at historical highs. And that's something that we're going to get our arms around. It goes to George's point earlier about running these assets flexibly to reduce production to meet where demand is thin.

Brent Collins

And then lastly, you talked about some changes and requirements from the U. S far, sir, affecting your fourth trust. But I couldn't tell whether you thought that is actually delayed anything what you said is you expected to have your paperwork in order before that 2020 for a fire season.

Lorin Crenshaw

So if that's true, does the delay really make no difference?

Yes.

Brent Collins

So I think that it's getting her having to take that question back to the sort of July.

Operator

Just to give a little bit more color on that. The original solicitation from the U.S. for service was issued in late September. It puts them until mid December to issue. A final revised solicitation is limitation. Deadline was then January 10th. So it absolutely pushed back the contracting process in total. However, we are pleased since January 10th, when we were able to start the negotiations were pleased with the progress and the engagement that we're seeing from you.

Brent Collins

As for service.

Operator

Keep in mind that previously fee-for-service was dealing with one sole source supplier for over two decades. So thinking about how to integrate another supplier, both from a contractual standpoint as well as in the field has been quite challenging for them. But however, we are supporting them in those efforts.

Brent Collins

And again, we're pleased with the engagement that we've received since the submission deadline and you are from an earnings perspective, you're exactly right.

Joel Jackson

There's there's no change we entered into this year, not assuming EBITDA for 2024 for forgers until we get the contract when we get that contract, which we fully expect, you should expect us to raise our guidance to reflect the profitability. And so we have been conservative and not speculating, but you should expect that we will raise our guidance and there's no change. There is just a little bit delayed.

Okay.

Brent Collins

And then lastly for Ed, what's your number one priority, but you want to get done over the next six.

David Begleiter

So after ensuring that we're operating in a responsible manner as a company, it's focus on cash working on the balance sheet, managing the inventory sort of appropriate level, which is to solve cancer management and getting the mindset. And you know what right is establishing the accountabilities and the changes of plans at a company that there's some subtleties that you run your business differently and making sure that we're moving ahead with that and a very quick way.

Brent Collins

Okay, great. Thank you.

So much.

Operator

We will take our next question from David Silver with LK. Your line is open.

Yes, hi, good morning. Thank you. I have a question, I guess about any lingering liabilities related to the decision to terminate the lithium project. So I'm sure you have a number of agreements, but the ones with Ford and LG on the supply agreements that you have an agreement with the technology provider, et cetera, on should we expect any lingering costs or cash requirements to any of the counterparties, you know, related to the lithium project going forward?

Brent Collins

Thank you.

Joel Jackson

Whereas as it relates to the technology provider, any expenses associated or potential liabilities associated with the technology provider have been included in our write down. And so any expenses there have been included in that write-down. As it relates to the OEM.s, there were no financial obligations that were not contingent on us advancing this project and so on we have notified them appropriately, but there is no financial obligation.

David Begleiter

There's no take-or-pay or of any requirement to deliver associated with those agreements more relationship based. But when and if it kept going. We have a customer base established.

That's it.

Brent Collins

Okay.

So from an earnings per share perspective, you know the charges you took this quarter are sufficient, but is there any estimate of the cash impact that will, you know, slow from the decisions?
Yes, that's maybe how much of that 77 million, let's say will be will be addressed via a cash payment as opposed to just a write down of things you've already paid for?

Brent Collins

Sure, is Lorne.

Joel Jackson

And so as you can see in our guidance or CapEx for lithium, it hasn't changed. We said that we would spend about $30 million for lithium as it relates to in-flight and capital that we could not stop even after we suspended. And so as you do your model, you should assume that we will be around that, that level and only that level not anymore than that level. Now when we get to the end of the year. Not all of that 30 million will show up as CapEx because we have written down the asset and some of it will just be liabilities that we pay off, but that 30 million is a good number and there's nothing more nothing more than that. And I would also say that the preponderance of the cash has already been been paid. And so that will it will be behind us after this three, 31 quarter.

Okay, great. Thank you for that. I have a question about some strategies for operational strategies. On your salt business. So you know, you were very clear discussing your priority on cash generation and there's a couple of things when I think about your salt business. But firstly, there is the underground mine plan that is underway and you have to me that's something where you would have to invest a little more to generate a certain amount of efficiency incremental efficiency from that? And then yes, so I'm wondering about should we expect the underground mine development program to take a little longer or to be conducted at a more measured pace going forward?
And then secondly, on your marketing strategy, I did note that you talked about maintaining of the product pricing as far as I guess, bid season and strategies are concerned. But I'm just wondering, I mean, along with Kevin's departure, you know, the Chief Commercial Officer did depart as well and done some people might interpret cash flow generation and per-ton margins, you know, a bit of a trade-off there. So could you just reiterate, I mean, what is the plan for spending to further progress the underground mine development? And then what if anything might change going forward with the value-over-volume approach to your upcoming bid season for de-icing salt up?

Brent Collins

Thank you, George.

David Begleiter

George and I'll address the first half of your question and then Ben will speak to the marketing commercial side of that on the horizon are numerous improvement efforts underway, not just at Goderich, but at all of our operations and that dispatches to mines, but at the plants and at our distribution centers, all focused on cash when you go to a mine like Godrej in our priority will be to be driving up to the east on the mains that are up on the north side of the mine to really tied into the site into the infrastructure better than what the existing infrastructure is we have to haul through conveyor or other means the product all the way around the love of the shaft, basically gone three quarters away around our many miles more and some of the direct shot through would be. So that's really the priority. So we will continue to prioritize that move forward. And as we ramp up and down will flex our production come from other parts of the mine, for example. And we're also looking at alternative mining methods looking at some of the most expensive, our equipment we have, we're looking at different alternatives on that. We need to do better with our our way that we manage those in terms of maintenance and other things and improve or you might call our general systems in the Company that when we're trying to say there's a variety of levels and timing for these activities are going on at Goderich, which you reference but and really, but everywhere. I think that as we get a little further down the road, we'll plan to do on some analyst days investor days up at the mines and we could show you what we're doing our first half, and I hope you would participate in that.

Brent Collins

I'll let George make a few comments as well and then turn it over to Ben and Thanks Dan, this is George Miller and good to hear from me, and I'll just add a little bit.

Lorin Crenshaw

Like Ed said, our strategic focus hasn't changed one bit in Doddridge in regards to the East development that we're doing there. And keep in mind, it had been around on our board 1.5 to 2 years now, and he was fully versed on that, if anything, I would say in the short time, he's been here probably asked the questions a little bit more around. Can we do it quicker, faster, better? Those kind of things that are all necessary. So again, the highlight, we're looking at some some potential at ways we can attack it in different directions and how we can actually move that forward so I would say anything other than the delay, it's how we can continue to move that report. Thank you.

Yes, good morning. This is Ben. I appreciate the question about our pricing strategy, and I wouldn't see any fundamental change in our approach. We're focused on seeking the appropriate value of our product in the market from now, I can appreciate the undertone of how price and volume play together to generate cash. And frankly, it would be a little premature even to comment on where we're headed in the next season because we need to see how this one plays out. So fundamentally no change.

David Begleiter

But I'd just close that some with the departure of while some of our senior executives covenant, Jamie, for example, on please don't think there's something nefarious going on in the background. There are these are all made for a different decisions. They're not and they're not related to one another. And that for example of we have two high potential executives now on the commercial side, and we've delayered the organization of. So that's the kind of the focus and the kind of a perfect example of kind of the things that are going on and that you'll continue to see.

Okay, thank you very much.

Operator

As a reminder, if you would like to ask a question, press star one on your telephone keypad. And we will take our next question from Seth Goldstein with Morningstar. Your line is open.

Lorin Crenshaw

Gloria, thanks for taking my questions or can you help us understand the 10 million sustaining CapEx decrease? And are you risking long-term underinvestment by cutting this similar to what happened that led to the need for batteries to be fixed several years ago?

David Begleiter

No is the quick answer. I mean we give you the details associated with the bridge when I talk about that a little bit.

Lorin Crenshaw

Yes, you have to look at asset, this is George chiller. Just to kind of build on what it highlighted. I would also say no one of the areas that we're going into as we talked about the East Bay development. What we're doing around with that mill, we're looking at utilizing many of the components we have, which in fact, which when you go back and look at them or actually new or refurbished in what we're trying to do is optimize that whole process. That in itself is drove quite a bit of a change in the.
Yes, in the sustaining capital. So when you look at the rest of the platform, whether it be, you know, our plants, our facilities are bagging facilities, those types of things in our other operations. There's not a substantial change there at all. So the vast majority is coming directly from that thinking of how we're going to how we're going to redevelop the the Goderich mine. But again, it's a it's still a high priority for us.

David Begleiter

What George is saying is that when we initially looked at from putting the mill to the north side, of the mine, but really to the West over in that corner yet on. But from where it is a couple of miles to the south, it was looking initially to build a new mill crack. And what we're headed to now is through because we think we have the flexibility, established status to relocate all what we have is that would cut the estimated capital by a very large percentage point by about two thirds ForEx in some that's flowing through in our fiscal year 2020 fours, what you're actually seeing intersect. So anyway, that's some that's a big part of what you're seeing there.

Okay.

Edward Dowling

That's really helpful.

Brent Collins

Thank you.

Lorin Crenshaw

And what's the lead time from when you buy KCl to when it's sold as SOP? And what would we expect to see your input cost coming down from buying KCl?
Al, for a longer lead time, so up, but I'd say yes, I said initially, George, Miller?
I think, Ben, I'll tack that together. I think a couple of comments there. We can not dependent what we do. We do have some longer-term contracts on KCl, but we also buy some on a shorter term spot, which lets us optimize our fiscal 2020 for fiscal year 2020 for budget.
So with that said, there is some there is some opportunity from our because of the lower MOP prices right now, I'd say some potential upside. But again, as we start to look at this longer term is that we are looking to us to gain a longer-term contract with an MOP provider as we start to go forward. I do think it bodes well for us in the future. Again, it's I know, it's always tough to sit here and tell you exactly where that is. But you've heard you've heard Loren say this multiple times, but I'm confident that we're going to continue to see our SOP price, are your costs to sites continue to go down with our efforts that we have around upon process and the KCL combined.

Then I might just add you know, it's probably fair to say that any key. So we purchases and input is monetized within that given fiscal year is just a kind of a broad statement. We're turning inventories consistently.

Brent Collins

Okay, great. Thanks for taking my questions.

Operator

We'll take our final question from Vincent Anderson with Stifel. Your line is open.

Brent Collins

Yes, thanks for squeezing me in here. I just had two, hopefully quick ones. So I understand everything that's been said about refocusing on cash generation. And as it's been mentioned, parting ways with Kevin and Jamie is quite a bit of experience out the door unless you have a very high conviction level. But the business is already moving in the right direction and fairly quickly, yes, to basically change Jackie's, mid race here. So I'm wondering if that's a fair assessment that these comments on further Godrej optimization pushing the Godrej Market East, those were really mostly established plans and most of the pieces for achieving your cash generation goals are really already well in place?

David Begleiter

Yes, I would say that the a large percentage of the things that are you are aware of, we're pretty existing. Of course, from a Board perspective, we were involved in that as well on and as George said, was that out of the operations and consulting essentially with our operating team to make different suggestions on things that we need to do. I'd say there's a number of other things that are underway now, for example, some of the changes that we've made already and others that we're looking at with an overall firm, our outlook really managing cash that there's going to be other future changes coming in the way we do business and to really generate improved cash flows per share.

Edward Dowling

Understood.

Brent Collins

Thanks.
And yes, I don't know how fair This question is, but as you're coming down off of the Board, so I figured I had why, but I anyways, I'm just trying to understand that they can say, well, what's the conviction level right now that the public equity markets are ever going to properly value your assets, especially either before or after you hit these cash flow targets because, yes, I don't know if there's an internal time line.
Right.

Lorin Crenshaw

But is there anything off the table for achieving that fair valuation?

Yes.

David Begleiter

The only thing off the table is doing business in a responsible way. Other than that, we're looking at everything and I'll just say that my crystal ball is no better news on how the market values things. But through one, our efforts in communication and showing you what we're doing are going to be doing I believe that the market could get confidence and not and how we're moving ahead. I think there's been uncertainty on how the businesses looked adverse growth versus yield. I want to make it clear that we're out to develop a yield type company. And some lithium has also been a big question, Mark. And you know, you're doing a project with a technology that hasn't been up successfully deployed yet. That's inherently in a regulatory environment. That's really uncertain. I would if I was in your shoes, I'd hire I'd add at a higher discount rate to us just on that. So I love I think with clarity of what we're doing on the direction that we're headed, I think the market is efficient.

Lorin Crenshaw

And I appreciate the candor.

Brent Collins

Thank you.

Operator

With no further questions at this time. I will now turn the call back to President and CEO, Mr. Ed Dowling for closing remarks.

David Begleiter

We'll look, thank you all for joining us today, or we'll look forward to engaging with you going forward. And please feel free to reach out to contact us if you have additional questions or things that you'd like additional clarity on. Have a great day.

Operator

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

Brent Collins

I mean, I mean we need more money.