Intrepid Potash Inc (IPI) 2016 Q4 法說會逐字稿

+++ Please stand by for realtimetranslation. Intrepid Potash,Inc., Conference call will beginshortly.

Operator: Thank you forstanding by. This is theconference operator. Welcome tothe Intrepid Potash, Inc. fourthquarter and year-end 2016earnings conference call. As areminder, all participants arein listen-only mode and theconference is being recorded. After the presentation, therewill be an opportunity to askquestions.(Instructions). I would now like to turn theconference over to Matt Preston,Investor Relations. Please goahead.

Thanks, (indiscernible). Good morning and welcome,everyone. I remind you thatparts of our discussion todaywill include forward-lookingstatements as defined by theU.S. securities laws. Thesestatements are not guarantees offuture performance and are basedon a number of assumptions whichwe believe are reasonable. These statements are based onthe information available to ustoday, and we assume noobligation to update them. Youcan find more information aboutrisks and uncertainties to ourfuture performance in ourperiodic reports filed with theSEC. During today's call, wewill refer to certain non-GAAPfinancial and operationalmeasures. Reconciliations ofthese non-GAAP financialmeasures to the most directlycomparable GAAP measures areincluded in this morning's pressrelease. Our SEC filings andpress releases are available onour website atIntrepidpotash.com. Presentingon the call today are BobJornayvaz, our co-founder,executive Chairman and CEO, andBrian Frantz, SeniorVice-President and ChiefAdministrative Officer. -- alsoavailable for Q&A. With that,I'll turn the call over to Bob.

Thank you, Matt. And goodmorning, everyone. -- withyear-over-year sales volumesimproving for the thirdconsecutive quarter. We havesold our remaining granularinventory from the west and eastfacilities and are fully bookedfor the spring season. Thetransition to solar-only potashproduction has allowed us tofocus on our local and regionalagricultural and industrialmarkets, both of which areexperiencing good demand andstrong fundamentals so far in2017. This transition combinedwith the realization of priceincreases announced last fall isexpected to benefit our potashaverage net realized sales pricein 2017. The spring season isnow underway for our domestictrio market, and as we haveexpected we are experiencinggood demand for the firstquarter of 2017. Domestic triopricing has firmed in early2017, providing stability tothat market. Internationally,we are Casing a wide net inour -- casting a wide net in oursales efforts since June ourinternational sales teams hasvisited over 20 countries, metwith dozens of pros protectedactive customers, continuing toexpand our global presence. These efforts have begun toconvert to sales and we arecurrently selling more productinternationally than in previousquarters. We have confirmedsales in 10 different countriesin 2017 and expect to more thandouble our internationalfootprint in the next fewquarters. This comparesfacially to 2016 in which wesold to only a few countriesoutside the United States. Although some of the individualsales volumes are modest, webelieve the early success ismeaningful and an earlyindicator of the globalpotential for this specialtyfertilizer. As we introduce andre-establish trio in theinternational market, we areoffering product at competitiveprices to engage new customersWe expect our average netrealized sales price to increaseover time as volumes increaseand we optimize our freightlines. We are still very earlyin the stages of growing ourinternational Trio market butwe're expected by the positivemomentum generated so far. Beyond our potash and Triomarkets we are increasing ourfocus on marketing byproducts. We produce and sell magnesiumindustrial salt, and a variety. Of Brians from our facilities inwe are excited about thepotential of these markets as weincrease our focus on theirprofitability. In addition, wehave extensive water rights insoutheast new Mexico, whichensure that Intrepid haslong-term supply to water tosupport our operations. Whereappropriate, we are focused onmonetizing our excess waterrights through water sales thatprimarily serve the oil and gasmarkets in the Permian basin. While water and byproduct saleshave been modest historically,when compared to productrevenue, they provide meaningfulcash flow for Intrepid and aresteadily growing. Before I wrapup, I will make a quick noteabout the progress we've made todate with our investment banker,Cantor Fitzgerald. We areevaluating the strategicalternatives available to us,though we are not in a positionyet to disclose the details ofour conversations or speculateon what the ultimate outcome ofthese conversations will be, wewill update the market at theappropriate time. We appreciateyour patience and understandingas we thoughtfully make our waythrough this process. I willnow turn the call over to Brianwho will update you on thefinancial results and outlook.

Thank you, Bob and goodmorning, everyone. During thefourth quarter we generated anet loss of 16.6 million aspotash pricing continued toweigh on our 2016 results. Fourth quarter potash salesvolumes improved significantlycompared to the prior year, up45,000 tons from last year'sfourth quarter, to 134,000 tonsof potash in the fourth quarterof 2016. We experienced thefirst sequential increase in ouraverage net realized potashpricing per ton in ninequarters, although we won'trealize the full benefit of thefall price increase -- of thefull price increases until thefirst quarter of 2017. Potashproduction decreased compared tothe fourth quarter of 2015 asbeginning in mid-2016, we are nolonger mining potashconventionally. Solarproduction remains on track forthis harvest season. Potashsegment generated a grossdeficit of 4.1 million in thefourth quarter as we sold potashthat was subject to orders priorto the price increases from lastfall. We expect our potashmargins to improve in the firstquarter now that we havetransitioned to sellingsolar-only potash tons. Fourthquarter Trio sales volumes wasunchanged from the previous yearas decreasing Trio prices andincreasing product -- as theyshifted to a just in timepurchasing model. As wearticulated during our thirdquarter equal, our fourthquarter Trio results began toaffect price decreases that wentinto effect last quarter. Ouraverage net realized sales priceFor trio decreased and 16%compared to the sequential thirdquarter of 2016. Our Triosegment recorded a gross deficitof 2.9 million for the fourthquarter which was 3.1 millionmore than the fourth quarter of2015. We expect our trioaverage net realized sales pricewill be lower in the firstquarter of '17 compared to thefourth quarter of '16 as therecent domestic trio pricedecreases come through and as weincrease our trio comports whichwill have lower net realizedsales prices than our domesticsales. Our fourth quarter SG&Awas $4.2 million, a -- comparedto the fourth quarter of 2015,reflecting our efforts to reducecosts. In addition, weexpensed $3.1 million of legaland professional fees associatedwith the amended and restatednote purchase agreement weannounced during the fourthquarter. Our quarter endbalance sheet reflects$4.5 million in cash andinvestments, and the outstandingprinciple on our senior notes of135 million as of December 31. I also note in the first quarterof 2017, we repaid an additional5.5 million of the notes inconnection to the sale of anasset. As a reminder we alsohad the 35 million asset-basedcredit facility with the Bank ofMontreal available to us aswell. We spent 17.9 million oncapital investments during 2016,which was at the low end of ourexpected range as we tightlymanaged cash throughout theyear. Our 2017 capitalinvestment spending will belower than 2016 due to theoverall cost to maintain oursolar facilities. We expect2017 capital investment to bebetween 13 and $18 million. Finally, I would like tohighlight the fact that ourauditors' report, which will befiled with the SEC on our Form10-K later today, contains anunqualified opinion. Thatconcludes our prepared remarksand we're ready to takequestions. Question and Answer.

Operator: We will now beginthe question and answer session. To join the question.(Instructions).We will pause for a moment ascallers join the queue.

The first question comes fromJoel Jackson with bmo. Pleasego ahead.

Hi, this is Fahad on forJoel. I wanted to talk abouttrio volumes. In the I noticedthere was a strong build-up inQ4. The highest level it's beenhistorically. Can you talk abit about if that was purposefuland if that's really -- what theintention is for the high Trioinventories that have now builtup?

Yes, first and foremost, it'san accomplishment in that weachieved higher capacities much,much quicker than we thought wewould. So when we converted theplant last spring, it went frommaking maximum capacity around175,000 tons to where weestablished capacity at about420 to 430,000 tons. So theramp-up in capacity happenedmuch sooner than we thought. Sowe made a lot more Trio than wehad in our own budgets. At thesame time, because we wereanticipating a lower ramp-up inachieving some of our goals, ourinternational sales team hadreally gotten up to speed andstarted contacts and themovement, and moving things out. And I would say thirdly it'sdispersing that inventorythroughout the United States. Fourthly, now that product isavailable and customers are noton allocation, we're seeing muchmore just-in-time buying, whichis what we stated in our scriptabout we're now seeing a strongspring demand. So those are thereasons.

Okay, great. That's veryhelpful. Just a quickfollow-up. In the release youhad mentioned it had reducedoperating schedule out east fortrio. Can you talk a bit moreabout the magnitude of that, andhow long that's expected tolast? Thanks.

Well, I think it goes back tomy previous answer. We achieveda much higher rate of capacitymuch quicker than we thought wewould. So we've got to get oursales in line with ourproduction. So we cut back ourproduction as we ramp up. Andas you listen to our script, youheard that since June we'realready selling into 10 newcountries and we expect todouble that within the next fewquarters. So as we build upthat international effort andthe domestic effort hasincreased with an abundance ofnew warehouses that we've addedhere in the United States, thosetwo should equalize. So Ireally don't have a timeframefor you.

Great. Thank you.

Operator: The next questionis from defar tinman [phonetic]with Walt Hoffman and Company. Please go ahead.

Just building on thatquestion on underground, wascurtailment or lower rate, wasthat tied to an abnormally longholiday shut and then peoplecame back and were workingnormally, or were you runningon, like, a 2-shift versus 3shifts? Any color that you canadd there would be helpful.

Are you talking about thelanguagen ham plant [phonetic]?

Yes, underground.

Brian?

Yes, this is Brian. It goesback to what Bob was saying. Wehave just tried to match ourproduction level to where -- asthe international sales areramping up. We are having somegood early success in thatinternational market. So it'smore than just a holiday down,and we're just monitoring that,literally, each quarter as we goforward. But as Bob said, wedon't have any timeframe as faras when we expect that to comeback.

Okay. And then maybe just alittle bit more color on thelevel of the payables. Did wehave vendors asking to get paidsooner or get paid in cash? Anddoes that kind of get back to amore normalized level in 2017 aswe kind of move through the debtrestructuring?

Yes, first, we never had thatin the first place. So I don'tknow where you got thatimpression but I'll let Brianspeak to the absence of goingconcern language in the 10-K.

Yes, we have got adequatecash reserves. We've gotavailability under our line ofcredit. We're paying all of ourinvoices as they come down due,which is the same thing that wedid all the way through 2016,even as we worked through all ofthe debt issues, the goingconcern opinion that we had ayear ago. We have continued topay all of our payables on time,on schedule.

Okay. Thank you.

Operator:(Instructions). The next question comes fromChristopher Perella withBloomberg Intelligence. Pleasego ahead.

Thank you for taking thecall. A question on your cashcosts as we look out to 2017. Assuming normal production ratefrom the solar solution mines,and I guess with the movingparts around trio(indiscernible), how should Ithink about cash costs for bothof those production or productsfor 2017?

Hi, Chris, this is Brian. Thanks for that question. Youknow, as we work through 2016,we worked really hard and had tomake a lot of difficultdecisions which are centeredaround ceasing our undergroundpotash conventional miningoperations, both over at eastwhere we converted the plant toTrio only, as well as suspendingoperations at west. As youwould imagine, conventionalmining costs are higher thanwhat you have on the solarsolution mining facilities, andso now that we have sold throughall of the remainingconventionally produced potashinventories, now that we go into2017, all we have left are solarsolution mining produced tons,which are going to carry a lowercost as we go through 2017. Sowe feel good about where ourcost structure is going on thepotash side as well as on theTrio side. We're working hardto reduce those costs whereverwe can. And now that we seeimproved pricing coming through,particularly on the potash sideof things, we see some goodopportunity to increase thosemargins going through in 2017

All right. And the 4Q potashproduction of 110,000 tons, thatis all solar. How should Ithink about quarterly productionnow, for 2017? Is thereseasonality in that production? Or is it sort of 100 tons aquarter all year?

Yes, Chris, that's a goodquestion. Thanks for askingthat. So as we havetransitioned now to solar-onlyproduction from the potash sideof things, you're exactly right. You're going to see someseasonal production there wherewe essentially harvest potash --produce potash from aroundmid-August to early September. And that will go through, callit the end of march, maybe intoApril, depending upon schedulesand how much potash is in theponds. And then from thatmid-April timeframe throughmid-August again, we won't haveany potash production goingforward. On the. Trio side,however, you should see prettynormalized production throughthat as we go through 2017.

All right. And then onequick follow-up: Other than theCapEx, is there any other cashpayments that are hitting thecash flow statement this year?

No, we think we're beyond allof those. We are pleased thatwe have our debt agreement inplace. We were pleased to beable to sell one of the assetsthat came out of shutting downour facilities. We generatedproceeds there of 5.5 millionwhich we were able to use toreduce debts. But no other bigcash payments that we foresee onthe horizon.

What asset was that, that yousold?

It was one of the ones -- aswe transitioned away fromconventionally produced potashwe had an asset that we were nolonger going to be using, so wewere able to sell that.

Okay. Thank you.

Operator: The next questionis from Don Carr withSusquehanna Financial.

Yes, Bob, a question on yourpotash realizations, both inyour fourth quarter which youare expecting this quarter, ifyou had not presold some of yourpotash, what would realizationshave been like? And what areyour realizations this spring? I assume with your much lowervolumes that you're selling moreinto premium-priced truckloadmarkets? Is that accurate?

It is. We still have someholdover agriculturalcommitments that we're going tohonor, but we have a lot moreflexibility, and with the rigcount picking up in all of theareas where we have facilitiesand our feed business is goingstrong, we're very focused onour local markets, truckmarkets, regional markets, ifyou will.

And what would -- if you sortof separate those two differentmarkets, what was the pricing inyour ongoing markets in thefourth quarter and current buds?

You know, it's really allover the board. As prices beganto move, we saw industrialpricing maintain its premiumthat it's generally had, as wellas the feed market achieve itspricing; and then the ag market,depending upon where we were,was different. So I don't thinkthe rule of using the -- I thinkhistorically we've said that youcould use the western cornbelt --

Yes, 58% of that.

-- 85% of that.

Yes, Don, this is Brian. You've got a combination of acouple of things going on. Wehave, just as you spoke, we'rereducing some of the geographicfootprint that we're going, sowe're incurring less freightwhich has the benefit ofincreasing our net realizedprices. Despite -- or evenwithout a price increase, sothen you would take the priceincreases on top of that. Andthen further as Bob wasspeaking, what's going onparticularly in Permian and theoil and gas basin, we're able tosell more of that premium stuff. So it's difficult to separatethe impact of those. I thinkthe short way to say it ispricing in Q1 of '17 will behigher than it was in Q4 of '16.

Thank you.

Operator: The next questionis from Chris de mass with(indiscernible) --

Yes, Hi. Could you give somecolor on where you're exportingtrio --

No.

Was it this q or last q,38,000 tons isn't that much.

I'm sorry?

You said you were exportingto 20 countries?

We said we visited 20countries. We have made salesinto 10 and we expect to doublethat within the next fewquarters.

Okay. Well, could you giveme a little color? Are yourailing it to long beach andexporting it to ship? Is itAsia? Or is it Mexico? I hopenot.

Well, as you know, we onlyhave one competitor in thismarket, and we have chosenreally not to walk through theintricacies of where we'rewe're -- we do have a warehouse. It's public knowledge, down inGalveston that we rail down toand then we load vessels andship out of there. And we'reable to go globally fromGalveston. So in terms of whatcountries we're going into, it'spretty logical our SouthAmerican presence, our centralAmerican presence, and then ourfar eastern presence.

Great. Great. And secondly,it's been a very warm spring --early spring in the con mentalUnited States. Has --continental United States. Hasthat accelerated the applicationfor hay and forage. I'mthinking Texas. What's going onthere?

Well, the great news aboutTexas, number one, it's gotgreat soil moisture content. Soas a local truck market, if youlook at the price of hay,especially the price of cottonwhich has done extremely well,the cotton growers are literallyright out our back door. We'reseeing good demand for Trio inthat market. So we're seeingthe Texas market begin todevelop early, because of theweather.

Great. And one last one: Now that things are finallylooking slightly better with thefirst sales price increase innine quarters, why are welooking at strategicalternatives? Was that inresponse to a particularinvestor? Why are we -- what dowe expect to hope from this, youknow, given that we've severedthrough a few years of a down --suffered through a few years ofa downturn?

Well, part of our negotiationwith the note-holders was thatwe would look into it. And sowe're in the process of runningthat process and completing thatprocess. And it's -- if youread our previous pressreleases, it's very welldescribed as to what ourobligations were under the noteagreement. And we feel like weare very close to havingsatisfied all those. So I don'tknow if that answers yourquestion, but if you just -- Idon't have the press release infront of me, but --

No, it's okay. I'm negligentthat I haven't kept up with someof these, given the ongoing(indiscernible).

We have an obligation. Wefeel like we're meeting thatobligation. So I don't reallyknow what else to say.

Okay. Thanks.

Operator: The next questionis from Jason (indiscernible)with bomber shoot holdings(indiscernible). Please goahead.

Good morning. Thank you verymuch for taking my questions. Just going back to the questionon cash costs, obviously there'sa lot going on, going into 2017where you're no longer going tohave the traditional assetproduction. But as you look atthe solar tons specifically,Brian, I think you mentionedkind of the production cycle. When we think about matching thecosts of production to when yousell it, can you maybe walkthrough that timeline again andthen, just in terms of the solarproduction, can you maybe talkabout brine quality and theweather just year to year forthat production specifically aswe think about heading into 2017and beyond?

Yes, Jason, it's Brian. Without getting too deep intoit, obviously when we producetons we take the costs that areassociated with those and we put'em up on the balance sheet aspart of our inventory. So eventhough production will besuspended during the summerevaporation season, as we selltons during that period of time,you still will have cost ofgoods sold related to those tonsthat will come through on theproduction side of things. Soobviously still matching salesdollars with production dollarsas those occur. Does thatanswer that question?

Sort of. I guess then juston the weather, especially atthe HB mine, I guess the crucialSeptember, there was some rainand just walking through maybehow that works from a brineperspective?

You know, it's interesting. Right now our brine qualitiesare pretty good on average. Aswe look across the facilitiesthere. So we don't have anysignificant concerns right nowin terms of how those productionvolumes will come off of thesolar facilities. You know,obviously we have goodvisibility here into the springseason. And then with his we gothrough the summer evaporationseason, we'll hope for hot, dryweather during that timeframe. And assuming things go up toaverages, historical averages,we should be just fine to hitsome of the productive capacitynumbers that you will see in ourK later today.

Okay, great. Appreciate thequestion. Thanks.

Operator: This concludesthe question and answer session. I would now like to turn theconference back over to BobJornayvaz for any closingremarks.

I just want to thank everyonefor taking the time and fortheir interest in Intrepid, andwe look forward to talking toyou more in the future. Thankyou.

Operator: This concludestoday's conference call. Youmay disconnect your lines. Thank you for participating andhave a pleasant day.et).