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spk04: Thank you for standing by. This is the conference operator. Welcome to the Intrepid Podash, Inc. First Quarter 2021 Earnings Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there'll be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Matt Preston, Vice President of Finance. Please go ahead.
spk00: Thanks, Ariel. Good morning, everyone. Thanks for joining us to discuss Intrepid's first quarter 2021 results. With me on the call today is Intrepid's Chief Operating Officer, Brian Stone. Also available to answer questions during the Q&A session will be our Vice President of Sales and Marketing, Zachary Adams. Our CEO, Bob Gernobis, is currently navigating the complex quarantine system in Australia to visit his newly born granddaughter and is unable to join the call today. Please be advised that our remarks today, including answers to your questions, include forward-looking statements as defined by U.S. securities laws. These forward-looking statements are subject to risks and uncertainties that could cause actual results to be materially different from those currently anticipated. These statements are based on the information available to us today, and we assume no obligation to update. These risks and uncertainties are described in our periodic reports filed with the Securities and Exchange Commission, which are incorporated here by reference. During today's call, we will refer to certain non-GAAP financial and operational measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are included in yesterday's press release. Our SEC filings and press releases are available on our website at intrepidpotash.com. I'll now turn the call over to Brian.
spk02: Thank you, Matt, and good morning, everyone. Intrepid's first quarter was highlighted by robust performance in the fertilizer segments as strong demand and increasing prices drove significant increase in bottom line results compared to the prior year. We recorded first quarter adjusted net income of $2.5 million and adjusted EBITDA of $12.9 million, an increase of $4.5 and $4 million respectively, compared with the first quarter of 2020, and much better than the pandemic-related losses from the second and third quarters. Cash flow from operations was a robust $19.1 million in the first quarter, and we expect that this will continue into the second quarter. We ended the first quarter with approximately $36 million in cash and eagerly await the SBA to give us some guidance on when the proposed PPP forgiveness process might restart, given our 100% usage directly to payroll-related expenses. Our fertilizer and nutrient business, led by strong global agricultural commodity prices and slightly weaker dollar, continued momentum from the fourth quarter as demand for potash and trio exceeded our forecast in the first quarter on both realized price and volumes. As a reminder, our posted price for potash is now $140 a ton above summer fill level, while our trio price is currently posted $80 per ton higher than summer fill value. Customers remain eager to secure volumes and we are fully booked on potash and trio through the second quarter. We are currently allocating our trio premium and trio granular deliveries and hope to see this tightness result in stronger performance. MOP pricing in Brazil has moved up $55 a ton over the last 60 days and now sits at a $15 per ton premium to U.S. NOLA barge market. This combined with the renegotiation of the standard potash Indian contract from $247 a ton to $280 a ton, supports stability and strength heading into the second half of the year. Reports from the field are that strong early season application levels and increased nutrient rates have depleted inventories on all nutrients, including potash and trio, much quicker than expected. The prospect of any product carryover after heavy buying since last fall now looks unlikely across the US market. We believe that strong commodity values will lead to good farmer income supporting another strong fall application season if weather and harvest schedules cooperate. Oil commodity pricing continues to be supportive of duct well completions and new well development. We have seen rigs, frack crews, and approved permits consistently throughout the first quarter of 2021. During the first quarter, we also sourced water from third parties to supplement our own water rights. to meet increasing water volume requirements of operators on our south ranch, which increases margin as we continue to optimize our water book. As the oil field outlook improves, we expect water sales will continue to grow through the back half of the year. We hope to have our multi-year PECOS litigation resolved in the next 120 days as the trial ended in December and all briefing was finalized in April, which will allow us a much clearer and wider runway to diversely serve our customers. We continue to pivot to ESG-friendly full-cycle water management systems that we described in our last earnings call. In the first quarter, we've invested in additional recycling equipment, infrastructure, and resources as we expand on the full-cycle water management products and services demanded by customers in the Delaware Basin. We are fully equipped for our first recycled job and have acquired major long lead time components for additional jobs number two and three. We plan to have our first unit in place hopefully anchored by a service contract with a large producer toward the end of the second quarter. This initial operation will be able to recycle approximately 75,000 barrels per day with additional recycling units in service in the third quarter. As operators, regulators, and politicians increasingly focus on environmental and sustainability goals, full cycle water management includes source water, recycled water, and produced water handling will continue to become a central focus of our oil field services segment. In addition to our source water and increasing recycled capabilities, we have significant brine water sources near our operations that have the potential to supplement the increasing needs for long lateral multistage fracts. As we first mentioned in our last call, we had hoped to have an analyst day soon after our fourth quarter call, but delayed a bit as COVID vaccinations ramped up in Colorado. We now expect to host an Analyst Day call in mid-June and we'll announce a final date and attendance information soon. And now I'll turn the call back over to Matt for review of our financial results and outlook.
spk00: Thanks, Brian. As Brian noted earlier, potash demand exceeded our expectations in the first quarter with 117,000 tons of potash sold at an average net realized sales price of $282 per ton, supported by rising commodity pricing and continued strength in our specialty feed and OMRI markets. Strong demand has continued into the second quarter, and we expect to sell between 85 and 90,000 tons of potash in the second quarter, bringing our first half volumes to over 200,000 tons and well above prior year levels. With good demand continuing, we have booked more tons at current posted prices and now expect a second quarter average net realized sales price of between $300 and $310 per ton. We expect continued robust demand through the second half of the year as a combination of strong commodity pricing, rising potash prices in international markets, and limited supply likely set a solid floor in the U.S. market for the next couple quarters. Our trio segment saw equally great early season demand. Total sales volume was 69,000 tons, was down slightly from the year-ago period, but our first quarter 2021 sales were heavily weighted in domestic markets as we see the benefits of our expanding warehouse footprint and reliable supply. Our posted price is up $80 per ton compared to the summer fill levels, and we are fully booked through the second quarter. Accelerated demand increased our first quarter average net realized sales price for TRIO to $233 per ton. and we now expect second quarter average net realized sales price of between $235 and $245 per ton. Total water sales were similar to the fourth quarter of 2020, with $5.5 million of sales, including byproduct water. As we noted on our last call, record cold weather slowed us down a bit in the first quarter, although we continue to see strong demand and increasing rigs, crews, and permits in the northern Delaware basin. First quarter margins were pressured as the majority of our sales were on our south ranch, which generally has a lower margin than our other water sources, and we also required a significant amount of third-party water to meet the refresh rate requirements of FRAX and Q1. Our debt position remains at $55 million outstanding, of which $10 million relates to the PPP loan. With improving earnings, the availability under our credit facility increased to $35 million at the end of the first quarter. Cash flow from operations improved to 19.1 million, and capital investment was $2.4 million. We still estimate 2021 capital investment of between $25 to $35 million, of which $12 to $15 million will be sustaining capital, with the remainder as potential opportunity capital projects. We continue to have significant discretion over our opportunity capital investments in 2021, and we may adjust our investment plans as the year progresses. With a strong early start to the spring season, Our cash position today is $48 million with no change in our outstanding debt from quarter end. That concludes our prepared remarks for today. Operator ready to take questions.
spk04: Thank you. We will now begin the question and answer session. To join the question queue, you may press star then 1 on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star, then 2. Once again, to join the question queue, please press star, then 1 now. Our first question comes from Joel Jackson of BMO Capital Markets. Please go ahead.
spk03: Hi, this is Brie Murphy. I'm for Joel. Thanks for taking my question. Can you just talk about what drove the higher third-party water purchases in the quarter?
spk00: Sure. It's kind of what I said in my prepared remarks. You know, we're seeing significant refresh rates for certain fracks and, you know, in the 200,000 and potentially up in the 300,000 barrel refresh rates per day. And we just don't have the capacity to serve that with all of our JMA waters. We defined some third party water. The nice thing about this is it really extends just our season, our ability to serve more operators. So we still think we're going to be sold out of our JMA water by year end. So really what we're doing now is just being able to expand our sales to more operators than we otherwise would have. Brian, I don't know if there's anything else you want to add to that.
spk02: No, I think you put that very well, Matt. I think it's about exploiting the optionality that's in the water book. We think of the JMA water as base load. We think of third-party water that we're bringing in to meet spot demand on these high refresh rates that Matt referred to.
spk03: Okay, thanks. And then just, I guess, following up on water sales in general, they're obviously still lagging somewhat. How long before you think water sales can reach pre-pandemic levels again?
spk00: Yeah, it's always a tough question to answer. We've certainly seen a lot of improvement over Q2 and Q3, and You know, Q1 is always a pretty slow quarter just in general in the oil and gas markets as guys start to ramp things up for the year. You know, I think towards the back half of the year is where we could potentially see, you know, sales getting back to those kind of pre-pandemic levels. But we'll wait and see here. All signs point to things continuing to ramp up and a lot of positive news here over the next couple quarters.
spk03: Okay, great. Thanks. And the last one, For me, just on TRIO, I guess, when can we expect TRIO to return to positive gross margin? Obviously, we've been pressured for, I think, five or six consecutive quarters now. So, when are you expecting an improvement?
spk00: Well, we certainly had quite a bit of improvement in our Q1 numbers. We don't give exact margin guidance for our TRIO facilities, but with another quarter of increased pricing and another quarter of solid domestic demand, Outlook remains improving for TRIO going forward, and I'll leave it at that.
spk03: Okay, thank you.
spk04: Once again, if you have a question, please press star, then 1. Our next question comes from John Roberts of UBS. Please go ahead.
spk01: Thank you. And maybe another question on TRIO. It seems like you've been reducing TRIO exports for a long time. How much export do you still have, and does it go to near zero?
spk00: No, it doesn't go to near zero, but we really have cut back on kind of the abroad sales. You know, most of our international sales are now into Mexico and Canada. I want to say it represented about 10% of our overall TRIO sales in the first quarter. And there will be a little bit of seasonality to that, but that's probably a pretty standard run rate volume-wise going forward.
spk01: Okay. Is the Delaware Basin drilling activity recovering ahead of the other basins? I'm not an oil expert, but I thought oil drillers in general were keeping a lid on spending since the spike down that we had in oil back in 2023.
spk02: Yeah, this is Brian. I think, John, that's right. I think the Delaware Basin has seen a quicker response to WTI price bounce back, and so we're certainly seeing that on the water demand side.
spk01: Thank you.
spk04: Once again, if you have a question, please press star, then 1. This concludes the question and answer session. I would like to turn the conference back over to Brian Stone for any closing remarks.
spk02: Ariel, thank you, and thank everyone for taking the time to join the call today. We appreciate your interest in TREPID, and we look forward to speaking with everybody in the near future. Thank you.
spk04: This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
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