Intrepid Potash Inc (IPI) 2024 Q2 法說會逐字稿

Thank you for standing by. This is the conference operator, and welcome to the Intrepid Potash Inc second quarter 2024 results conference call. As a reminder, all participants are in a listen only mode and the conference is being recorded. (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 second quarter 2024 results. With me today is Intrepid CFO and Acting Principal Executive Officer, Matt Preston. And available to have a Q&A session as our VP of Sales and Marketing, Zachary 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 differ 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 will refer to certain non-GAAP financial and operational measures. Reconciliations to most directly comparable GAAP measures are included in yesterday's press release and along with SEC filings are website at Intrepid intrepidpotash.com.

I'll now turn the call over to Matt. Please go ahead.

Thank you, Evan. Good morning, everyone. We appreciate your interest in Intrepid and attendance for our second quarter earnings call. As we announced in July, our CEO Bob Jornayvaz remains on a medical leave of absence and our Board has initiated a search process to identify his successor. While we understand your interest, we don't have any additional information to share on today's call. We will continue to issue updates on Bob status as it relates to Intrepid and the CEO search as we have them.

For our second quarter results, our adjusted EBITDA totaled $9.2 million of $1.5 million increased sequentially, but down from $15.8 million in the prior year period as lower price levels and reduced potash sales weighed on our overall results. Our Trio segment results continue to be a bright spot as increased mining rates and lower overall production costs led to a material improvements in our unit economics compared to the prior year.

Moving to the macro outlook in our agricultural markets. Although key US crop futures have softened throughout the year, growers are expected to continue their approach of maximizing crop yields with potash helping that story. US farmers remain in a solid financial position, which we believe will support steady potash demand in the second half of this year.

As for the potash market, specifically, global demand has been solid throughout 2024, and we expect relatively stable potash pricing during the fall season after a good response to the summer fill program. Additionally, settlement of key potash contracts in China and India helps more further demand in the back half of the year as pricing is right in line with current values in Brazil and US barge markets.

Moving on to our second quarter segment results in potash, our gross margin totaled $3.3 million, which compares to $12.9 million in the prior year period and $5.6 million in the first quarter. Key drivers of the declining year over year financial performance were a combination of lower pricing and sales volumes as we work to reverse our trend of declining potash production over the past few years.

That said, our second quarter potash production of 40,000 tons, which is up from 12,000 tons in the prior year period provides the first indication that our production rates are moving higher as improved brine grades at HB led to an extended spring season compared to prior year. For our full year 2024 outlook, we still expect our potash production to be approximately 15% higher than last year.

In Trio, our focus on cost improvement and operational efficiencies are materializing in our results. And we generated gross margin of $2.2 million in the second quarter, a $3.3 million improvement sequentially and a $1 million improvement from the prior year period despite a lower realized price per ton compared to last year.

Improved production and support of sulfate pricing resulted in 63,000 tons sold in the second quarter, bringing our first half sales volumes to 154,000 tons, a company record. On the cost front when compared to the prior year, our first half cost of goods sold per ton have decreased by 11% to approximately $284 per ton. And for the second quarter, this figure was even better at approximately $261 per ton or 18% lower than the second quarter of 2023.

Oilfield Solutions continues to be a steady performer with second quarter gross margin of $2.1 million and approximately $800,000 increase from the prior year and flat sequentially. Brine sales and oilfield products and services revenues continue to trend up compared to the prior year as we've been successful, increasing our price per barrel and improving our product availability while also reducing contract labor expense.

For third quarter guidance, we expect our potash sales volumes to be in the range of 45,000 to 55,000 tons at an average net realized sales price between $340 and $350 per ton with volumes varying based on the timing of fall application and truck markets. For Trio, we expect our sales volumes to be in the range of 40,000 to 45,000 tons at an average net realized sales price of $300 to $310 per ton.

Before opening up for Q&A, I will end my remarks with comments on Intrepid's current positioning and outlook. Starting with our current positioning. Intrepid has no long-term debt balance sheet, cash of $51 million and no outstanding borrowings on our $150 million revolver that matures in August 2027.

With potash prices finding their mid-cycle floor backed by a balanced global market, the key near-term priority continues to be improving our potash production and ensuring the company has enough cash to weather unforeseen downcycles. As our potash production trends higher, but more importantly, as our confidence on our two to five year production outlook improves because we've met our injection rate and brine availability goals across our solar production profile, we can take a less cautious approach.

Until then we feel it's prudent for Intrepid to remain guarded with the backdrop of declining trailing earnings and to not lose sight of the fact that our potash cost per ton need to improve. That said, as production rates improve and we get back to 300,000 tons of annual production over the next couple of years, we believe we will see a 20% to 30% improvement in our potash cost per ton compared to 2023, which will help improve our margins and cash flow, even if potash pricing stays relatively range bound in the near term.

We will also focus on improving the smaller but meaningful portions of our business, such as brine sales, look for opportunities to reduce our SG&A expense and continue to make steady progress on the longer-term upside projects like lithium without taking resources away from our core business.

Finally, we will redirect efforts when projects are trending in the favorable direction, which we've done with our sand project. While this project is uniquely positioned as the only permitted sand operation in Southeast New Mexico with softening market conditions across all oilfield services in the Permian, we are pausing our development of this project and focusing our internal resources elsewhere, we still have the necessary permits in place for both construction and operation if market conditions improve.

To conclude, we remain optimistic on the long-term outlook for fertilizer and agriculture markets, and we are encouraged by the progress seen in our Q2 results. A constructive market and clean balance sheet will allow us to focus on what we can control, which is improving operating efficiencies, controlling costs and continuing to make the right investments at the right time to ensure the long-term success of our operations and drive value to our shareholders.

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

(Operator instructions)

Joshua Spector, UBS.

Hi, this is Lucas going on for Josh. I'm just sort of just sort of start on the potash volumes. So you guys had a really good production performance during the first half, which will save up strongly. And you've kind of kept your target of growth for the year at sort of 15%, which sort of implies that the back half is going to grow sort of about 5% a year, which is still higher, which is directed less than sort of what you're seeing in the first half.

So I just wonder if you could talk us through kind of the moving parts there and how you're thinking about that flowing through. And then you're set up looking into 2025? Thanks.

Yes, thanks for the question, Lucas. As we kind of said on a couple of calls prior, we had a goal of 10% to 15% increase in our potash production for the calendar year '24. And we're happy to be kind of on the high side of that guidance right now.

As we move towards '25, we initially indicated kind of another 15% to 20% increase in volumes. You guys all have to kind of see where evaporation ends up for not just kind of this back half of the fall and what that means for the spring season, but certainly encouraged where we are today and you're glad to be at the higher end of the '24 guidance.

And you're seeing those improve brine grades at HB and seeing the benefits of some of our mobile app projects. And so while we aren't going to give some updated guidance on '25 calendar year, just given kind of the movement between evaporation seasons and how long that spring season lasts And we're certainly encouraged by the progress so far.

Right. And then just on the Trio side, you were previously sort of expecting volumes to sort of be flattish year on year, but you've had a really strong first half, particularly on the sell side. I mean, it looks like some of that probably pull that inventory with production being a bit high, but not quite as strong as the strong sales growth that you had.

So just wanted to kind of help us frame how you're thinking about the full year now and so your production plans to keep adding similarly strong demand looks like things might be up a bit year-on-year. But just to I guess, how are you thinking about your ability to lift production to kind of meet that demand going forward as well? Thanks.

Yeah, I'll touch a little bit on the production side may pass over to Zach. As far as what we're seeing in the sales market, the certainly the IT and those new miners underground in restarting our fine langbeinite recovery. We've had great results, at least in the first half of the year lower overall costs, less contract labor and producing more tons than we did last year.

So the production side has been a great success story for us at our East Mine this year, it was just given us some more product available to sell rooms that can touch on the great spring season we had and kind of the outlook towards the back half of the year?

Yeah, I think on the first half of the year, we had a really good year there, really good engagement across all of our regions historically, getting back to what I would say, kind of more normal volumes from what we saw several years ago. And so what we continue to see, there's an engagement on the value of the sulfur and magnesium part of Trio in addition to the potassium.

As we kind of look at second half, obviously, we expect our volume in the second half to be less than we burned first half, but that's just more of a nature that Trio is more of a spring applied product versus a follow-on product. But we still think we'll see good engagement here in second half, and we just completed a field program on Trio here in the last few days and saw a good response to the effort for near term follow dates from our customers.

Thank you.

Jason Ursaner, Bumbershoot Holdings.

Hi. Thanks for taking my questions. I'm just trying it out this quarter it feels a little bit like a story of two halves, you're kind of looking backwards or forwards, optically, obviously a tough quarter from a GAAP perspective in terms of the comparison year to year and getting through this low production period and I guess continuing maybe for another quarter or two with the summer fill.

But looking forward, it sounds like everything's kind of coming together, production sounds like it's really on upswing and you're sort of stabilizing at the mid-cycle pricing. While CapEx is coming down, you kind of mentioned the cash on the balance sheet some. So I guess just do I sort of have that commentary right from you at the end there?

And I mean, it just sounds a little bit like a tough balancing act right now because you're kind of head down in the short term kind of getting through this period versus more head up looking ahead to where things might be headed over the next year or so, but we're kind of not there yet. Is that kind of the commentary?

Yeah. I think that that's fair Jason, as I said in the prepared remarks, and we talked a little bit about in our last call, and unfortunately, it takes time with solar evaporation and the brine resonance time and availability. We really want to get a lot of confidence in that underground storage at HB or kind of how are our primary ponds and what our brine storage is at Wendover, for example, and really have that increased confidence on the two to five year production outlook to get to kind of a less cautious approach.

Like I said, early indications from 2024 calendar year, production are great at the higher end of our guidance and so we're seeing the benefits of those projects, but we still have to hit those injection rate goals and our Phase two of our injection project should be complete here, probably end of August, early September, and we'll hope to be up to we've really improved brine injection rates on a gallons per minute rate, possibly hitting 2000 GPM. And so once we hit those and get that brine availability and residence time underground we can be more confident kind of in that outlook going forward. So yes, I mean, I think your take on the on kind of our approach is spot on.

And just on the full year production outlook. Can you maybe it's kind of a follow-up on Lucas question, but just to clarify a little bit, because I guess as I understand that the production season doesn't really span a calendar year in terms of I guess when you then harvest the production and then that's the selling cycle for the next year for those tons produced.

So maybe just kind of in context to the brine in the ponds now with the shaft, that's kind of a stop gap for this year to give you the added brine availability as for the evaporation currently and then moving into next year on the kind of what you had given is the 15% to 20% on top of this year is what it sounds like. Just maybe like trying to map from a timing perspective, the production increases for a season versus the calendar year and then eventually moving into 2026 and beyond where we are relative to some of the nameplate capacity?

Yeah. That's a fair comment as far as kind of the harvest year which spans from kind of right about now through the spring versus a calendar year production, you'll be stuck with that calendar year just because it's what we end up reporting to her in our annual report going from 226,000 tons in [23], you up that 10% to 15% and '24. When it comes to harvest year production and we're not going there's so much they've kind of varies a little bit with evaporation. We're not going to kind of give those that guidance right now.

But as I said to Lucas earlier, still on track to kind of hit those targets and encouraged by our progress so far.

And the encouragement, though, is the brine that's in the pond in terms of availability, the grade of the brine or that you've actually just had pretty good weather so far?

Yeah. I mean, that's certainly been the benefits we've seen so far, going back to the Eddy shaft project to kind of get that initial high grade, brine at HB, which we did in the fall of last year, then transitioning to IP 30 b here this spring, where we can continue to put that high-grade brine in the ponds. It's really a it's a brine great story at HB, which is really promising. So this is stuff that we've been able to accomplish with our brine availability, not just the benefit of weather and then a mode of getting the new cavern and hopefully seeing some higher brine grades of that cavern continues to mature.

So it becomes a brine, great story for both HB and [Moab] and at Wendover, getting the new primary pond infilling that with brine today, that's really a brine availability story, just making sure we have the right brine availability in our primary ponds to be able to maximize evaporation during the summer and move that brian at the appropriate times. So we're certainly seeing the benefits from our project summer, brian grade standpoint and not just benefiting from what's been, I'd say, a pretty average, maybe slightly above average evaporation year so far here in 2024.

Okay. And then just last one on the cost side, I know people tend to be more focused on the price of potash, but for me, at least the story the last year is more on your own costs as you're starting to see some of these encouraging early signs or I guess maybe remind what we have talked about on the cost side, very sort of trending in the right direction on the cost reduction, our efforts were in terms of maybe this year next year or kind of long term?

Yeah, and so it's a good time to highlight just sort of what the progress has been. I think I said in our first quarter call, we can certainly see some quarter to quarter variability just depending on where we're selling our product. The roughly $349 per ton was our Q1 potash cost of goods sold.

It was increased in Q2 to three 86, that's really just a function of sort of where we were selling product from higher costs that have HB in Wendover compared to Moab, really bring folks focused kind of looking at second half of '23 versus first half of '24 going from a $411 per ton down to three $65 per ton. So you we've really seen that cost improvement, our potash and kind of over the the evaporation season and continue to expect that to trend in a favorable direction here as we continue to improve our brine grades and brine availability across our our silver production profile.

Okay. Also I'll jump back into queue. Thanks a lot, Matt.

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 joining the call and interest in Intrepid, and hope you have a great day.

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