Intrepid Potash Inc (IPI) 2024 Q1 法說會逐字稿

Thank you for standing by. This is the conference operator, and welcome to the Intrepid Potash Incorporated first-quarter 2024 results conference call. (Operator Instructions)

I would now like to turn the conference over to Evan Mapes, Investor Relations. Please go ahead.

Thank you, Michelle. Good morning, everyone. Thanks for joining us to discuss and review Intrepid's first-quarter 2024 results. With me today is Intrepid's CFO, Matt Preston. And available to answer questions during the Q&A session is our VP of Sales and Marketing, Zachry Adams; and our VP of Operations, John Galassini.

Please be advised that our remarks today include forward-looking statements as defined by US securities laws. These forward-looking statements are subject to risks and uncertainties that could cause our actual results to be materially different from those anticipated or based on information available to us today, and we assume no obligation to update them. These risks and uncertainties are described in our periodic reports filed with the SEC which are incorporated here by reference.

During today's call, we refer to certain non-GAAP financial and operational measures. Reconciliations to the most directly comparable GAAP measures are included in yesterday's press release and along with our SEC filings, are both available on our website, intrepidpotash.com.

I would now turn the call over to Matt.

Thank you, Evan. Good morning, everyone. We appreciate your interest in Intrepid and attendance for our first-quarter earnings call. As we first announced in an April press release, our CEO Bob Jornayvaz is currently on a temporary medical leave of absence. We continue to wish Bob a speedy recovery. And while we anticipate and understand your interest, we don't have any new information to share with you today. We will, however, continue to issue updates on his recovery and status as it relates to Intrepid as we have them.

Moving on to our first-quarter results, our adjusted EBITDA totaled $7.7 million, a modest improvement sequentially but down from $16.4 million in the prior-year period. The key highlight in Q1 was robust demand for our fertilizer products for spring application, and we are pleased to report that our sales volumes and average net realized sales prices came in at the upper end of our guidance.

For potash, we sold 74,000 tons at an average net realized sales price of $395 per ton. While for Trio, our volumes totaled 91,000 tons at an average price of $300 per ton. Behind the strong demand, US farmers have maintained their approach to yield maximization, even with key crop futures, corn and soybeans coming back closer to historical averages.

Also working to our advantage, potash pricing has seen relative stability over the past few months, which has been driven by several factors, including global potash demand returning to longer-term annual growth trends amidst a more balanced market; key international markets like Southeast Asia, returning to higher potash application rates; and international crops such as palm oil, rice, cocoa and coffee continue to trade well above historical averages.

As for our first-quarter segment margins in potash, our gross margin totaled $5.6 million, which compares to $14.4 million in the prior-year period. The key drivers of the declining year-over-year financial performance were a combination of lower pricing and elevated unit costs due to our reduced production in the 2023-2024 production year.

As we've emphasized on prior calls, improving our unit economics is a priority for Intrepid and spreading our fixed costs across higher production will be instrumental in achieving this goal. To that extent, the recent projects we've already commissioned and will be commissioning in the coming months gives us a higher degree of confidence that our potash production will be inflecting higher in the back half of this year with increased momentum looking into the '25 production year.

In Trio, our gross deficit narrowed sequentially in the quarter to $1.1 million, but was down compared to our gross margin of $1.5 million in the prior-year period, with lower pricing being the key driver of the delta. The 91,000 tons sold exceeded our expectations with historically strong demand being supported by a number of factors, including a tight domestic sulfate market.

In light of the strong demand, we increased our Trio price by $25 per ton in the first quarter and expect to see the continued benefits of the price increase in our Q2 realized pricing. The two new continuous miners are also driving higher operating efficiencies, which allowed us to move to a reduced operating schedule [on these], decrease our contract labor, all while maintaining our production rates. We expect to see continued benefits in our cost per ton in the second quarter as higher operating efficiencies and lower costs move through our inventory.

For the full year 2024, we expect our cash production costs at ease to decrease by approximately $8 million to $10 million or 12% to 15% when compared to 2023. While the segment outlook is improving, we will continue to limit our capital investment [entities] and further evaluate options to improve our margins going forward.

Lastly, for oilfield solutions, our segment margin of $2 million was a $1.5 million increase from the prior year as higher water and brine sales drove increased revenues while we effectively manage our costs through decreased contract labor and fewer water purchases. For second-quarter guidance, we expect our potash sales volumes to be in the range of 50,000 to 55,000 tons at an average net realized sales price in the range of $390 to $400 per ton. For Trio, we expect our sales volumes to be in the range of 55,000 to 60,000 tons at an average net realized sales price of $310 to $315 per ton.

Moving to project updates, we are excited to share that we've continued to show strong execution and after higher levels of investment over the past two years, we're close to seeing tangible improvements to our potash production. Starting with Wendover, we started to fill Primary Pond 7 with brine, with this new pond increasing our total evaporative area by about 1.5 times. We expect the pond to be full by the end of the year, which will improve our production rate starting in 2025.

At HB, the new replacement extraction well, IP30B and Phase Two of the new brine injection pipeline continued to progress well. In April, we successfully drilled IP30B with commissioning expected by the end of May. This is a significant accomplishment for Intrepid and will allow us to continue to extract the already developed high-grade brine pool from the Eddy Cavern through early 2025. As we extract the brine, we will backfill this cavern to create an additional brine pool for future production years with IP30B serving as a long-term extraction well for the Eddy Cavern.

For Phase Two of the new injection pipeline, in April, we received the final permits necessary to operate the pipeline and expect to have this commissioned in early Q3. The new injection pipeline will allow our brine injection rates into our Eddy North and South caverns to be the highest in company history resulting in overall brine injection volume that exceed our extraction volumes. This is key for increasing our brine availability and creating the necessary underground residence time to develop high-grade brine, which in turn, helps sustain higher production volumes over the longer term.

For the sand and lithium projects, we're still working with potential partners on various deal structures, but are committed in limiting Intrepid's capital towards these projects. And while we wrap up this period of higher capital spend, we still sit today with approximately $47 million in cash on the balance sheet and no long-term debt.

To end my remarks, as fertilizer and agriculture markets look to be entering more of a mid-cycle environment, Intrepid is uniquely positioned and we have catalysts on the horizon that should help drive value to our shareholders. First, we're only a few months away from seeing the first inflection to higher potash production. This will lead to better unit economics and allow us to fully capitalize on the many decade reserve lives of our potash assets.

Second, we've taken a significant first step to improve our cost structure at the East Mine with a 12% to 15% reduction in our full-year cash production costs. And lastly, our debt-free balance sheet and solid liquidity puts Intrepid in a position of strength as the broader market continues to navigate higher interest rates and inflation.

Operator, we're now ready for the Q&A portion of the call.

Thank you. We will now begin the question-and-answer session. (Operator Instructions) Joshua Spector, UBS.

Hi, yeah, this is Lucas Beaumont on for Josh. So just starting on potash. So your first-half guide is pretty similar to what you guys did last year and it lines up really well with your production from the second half '23. So I mean, you had solid production in the first quarter. I was just kind of wondering what you're expecting for production in the second quarter relative to the last couple of years that have been quite low. And then is that sort of a good proxy for us in terms of the volumes into the second half especially that 100, 110 range, something like that?

Yeah, no, thanks for the question, Lucas. I mean, certainly Q2 volumes are always down as we enter the summer evaporation season. Wendover and HB are wrapping up right now. Moab wrapped up the season a few weeks ago. So we always see the drop down in April as we just entered that season.

As far as full-year production, we had guided in the prior call 10% to 15% higher production rates in '24 compared to '23. And we're happy to report we're still really on track for that, probably towards the high end of that guidance, kind of 15% above 2023 volumes.

So we'll certainly see that benefit towards the back half of the year as we start to see those capital projects we've talked about: the Eddy Cavern, IP30B, and go back to Moab Cavern 4 last year -- really start to improve our brine grades and our production rates in the second half of '24.

Yeah, that's great. So I mean, if you -- I mean, that probably implies about 150 production in the second half then. So you should get us a good step update in your first-half sales next year. [Sort of the EBITDA 150 applies through sort of this in the 125 as I would see it].

Yeah, certainly second-half volumes can be impacted -- obviously, got to get through the evaporation season, which is underway right now and can be a little affected by timing of startup, with restart at mid-August or kind of the first week of September. But yeah, as I said, kind of 15% above those '23 rates. We feel like we're seeing the progress we hope to see here in the first quarter.

Great. And then I guess just on the pricing side, something you're expecting sort of flat pricing sequentially there. I mean, the benchmark prices have sort of started to come off a little bit. What do you guys -- I guess, what's kind of driving your order book versus where the market is and what sort of a seasonal resetting you're expecting this year? Should we see more of one in the third quarter? Or are you expecting more mild seasonality in this year?

Yeah, this is Zach here. So I think we see the global market as being very balanced and stable right now. Certainly, there's always some seasonal price movements that you see as you kind of exit the application season and you go into that period of the summer timeframe, where buyers kind of look to -- in-season empty on inventory and work on the timing of when they're going to refill their positions ahead of the fall season.

As it relates to second half, I think we're optimistic about demand there. We think the prospect of ending the spring season on inventory will continue and we think buyers will be ready to step in at some point this summer for volumes. And the crop economics today still support our customers and farmers looking to maximize yields. So we think that's a positive bellwether for volumes in the second half and stable pricing going forward.

Great, thanks. I'll get back in the queue.

Joel Jackson, BMO Capital Markets.

Okay, on Trio, like your Q1 volumes sales line is, I think, the best quarter you've ever done for Trio in any quarter as a public company. Pricing looks like it's rising a bit in Q2, whereas potash price looks stable. And your Trio volume guide is pretty good for Q2 as well. So could you talk about what's happening in Trio? It seems like you're getting really good uptake on it, value and volumes?

Yeah, I'll let Zach touch on the volumes. You're right. It was record domestic sales there in Q1, but Zack, go ahead.

Yeah. Now thanks, Joel. Yeah, I think what we saw on the volume side our some customers entered the year with very low channel inventories on site. And across several regions in the US, we saw an early application period. So that really led to seeing some volumes that typically might transact in April, let's call it, kind of the pull forward into March -- excuse me.

And so even with that, I mean, overall first-half volumes look strong for us. And Trio compared to potash always has a little bit more of a tail on the application season to it just because it's used in some side dress and top dress applications that go out through late May and to early June. So we expect to see good subscription really through the end of the second quarter. And certainly we've seen that quarter to date so far.

Okay. Just another potash production clarification. So not that my model is right, but I had that you were expecting about a 13% increase on production in '24 and 23% production increase in '25. You're talking about 23% increase now. Is that -- for '24, '25, is my model right? Or are things going to be better than you thought or am I wrong?

Yeah. Go back to what we said on our Q4 call, which was a 10% to 15% increase in 2024 and another 15% to 20% in '25. As I was telling Lucas, I think we're closer to the 15% increase for 2024 right now. We haven't given change really anything on 2025. It's still a ways out. But certainly 2024 volumes look very good and towards the higher end of that guidance.

Okay, I think that's my question. Thank you.

Jason Ursaner, Bumbershoot Holdings.

Hi, Matt. Thanks for taking the questions and nice to see the solid start to the year. I'm just grateful to you for deciding to stay, although wish it was obviously under better circumstances. And hoping for Bob to have a full recovery and be back soon.

On the potash side, just -- I guess, with the CapEx and IP30B, it's sounding as if it's kind of reaching a conclusion. You mentioned seeing the progress we hope to see. It feels like passed through the gauntlet with everything.

Just qualitatively, I guess at this point, what would be the biggest hurdles to getting there? Or is it just at this point slowly letting confidence build up and timing that things are all on the right track right now with the potash side?

Yeah, I mean, you're right, Jason. We are certainly getting the IP30B well drilled. We are just completing surface commissioning today. So through the bulk of that capital spend and obviously, where we ran into issues with IP30A. So great to have that behind us.

Obviously, there's variability in a lot of our evaporation seasons. We've seen that over the years. And we need to continue to control our costs and execute on the projects in front of us. We'll see how the HB -- IP30B continues as well as Moab Cavern 4 as well as the additional work we've done in Cavern 3.

But I don't want to give the impression that, hey, we can sit back and rest on our laurels now. We continue to stay focused on the project execution and this two-year plan we've been on to get our production rates back to historical levels. And so yeah, good progress so far, but still lots of work to be done, really get through this evaporation season. Hopefully, we can give some better guidance towards the back half of the year and into the spring of '25.

Okay. And then I've got a couple of questions on the, I guess, volume side of the production, just maybe on the cost side of production. If you could just remind us what you -- assuming that it continues to make the progress and what you guys have been saying, and just -- I guess at this point, with a lot of the heavier lifting behind you, is there increasing confidence that the cost side of things is lining up with where you guys were hoping?

Certainly, as we see those production volumes materialize, we will see an improvement in our unit costs. Certainly had a great first quarter for potash around $350 per ton. So that was probably a benefit a little bit from more sales out of our Utah facilities, which are at a lower per ton costs. So not sure we'll be quite there into Q2. But as we continue to see more production tons in the ponds, we still expect to see a pretty equivalent improvement in our per ton costs -- so over 10% to 15% improvement in production '24 versus '23. We'll see an equivalent improvement in our per ton costs as well.

Okay. And then just, I guess, sitting here today, obviously hope Bob is back, but I guess from your perspective, maybe you could try to frame, I guess, where the company over the next year or so might be headed. Obviously, you have the cash on the balance sheet. You already spent a pretty good portion of this year's CapEx. Sand and lithium both sound like they're kind of coming together. So I guess where -- in your mind, what's the most important kind of things besides the execution to focus on of where the company should be heading?

I mean, I think it's just that. It's the continued execution of the strategy. I mean, we've been talking about this for really the last two years now getting our potash production back to the historic levels where it needs to be. That path has been set for a while, and it's very clear what everyone needs to work on -- from the capital projects we finished to the ones we're continuing to wrap up here in Q2 that the direction has been clear and it's really unchanged going forward.

Okay, great. Appreciate the commentary. Thanks.

This concludes the question-and-answer session. I would like to turn the conference back over to Matt Preston for any closing remarks.

Thanks, everyone, for your interest and look forward to talking to everyone again soon. Have a nice day.

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.