Intrepid Potash, Inc

Thank you for standing by. This is the conference operator. Welcome to the Intrepid Pawdash, Inc. first quarter 2023 results conference call. As a reminder, all participants are in a listen only mode and the conference is being recorded. After the presentation, there will 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 stars and zero. I would now like to turn the conference over to Evan Mapes, Investor Relations. Please go ahead.

Thank you, Julianne. Good morning, everyone. Thank you for joining us to discuss and review Intrepid's first quarter 2023 results. With me today is Intrepid's co-founder, executive chairman and CEO, Bob Dronavis, and CFO, Matt Preston. Also with me today and available to answer questions during the Q&A session, following the prepared remarks, is our VP of Sales and Marketing, Zachary Adams. Please be advised that our remarks today, including answers to your questions, include forward-looking statements as defined by US 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 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 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 IntrepidPottage.com. I will now turn the call over to Bob. Please go ahead.

Thank you, Evan, and good morning to everyone. We appreciate your attendance and interest in Intrepid. For the first quarter of 2023, I'm pleased to share that Intrepid was able to continue its recent run of solid quarterly performance, which was highlighted by a meaningful pickup in demand for our key fertilizer products with our sales volumes totaling 89,000 tons for potash and 65,000 tons for TRIO. When compared to our full year 2022 sales volumes, these first quarter figures represent approximately 40% of our total potash sales volumes. and 33% of our trio volumes, with the strong sales continuing into the second quarter behind higher demand from agricultural customers. While our sales have been strong to start the year, our profitability was lower, with our first quarter 2023 adjusted EBITDA totaling $16.4 million and our adjusted net income totaling $4.7 million, which compares to last year's respective figures of $50.2 million and $31.5 million, with the key driver being lower pricing. For some context around the lower pricing, the first quarter of 2022 saw a significant increase in potash prices due to concerns around the supply issues related to the Belarusian sanctions and Russia's invasion of Ukraine, which led to many global distribution distributors rushed to buy potash and build inventory. However, following last year's spring lackluster application season, potash inventories weren't depleted, and coupling this with buyers maintaining a just-in-time approach, pricing started to trend lower in the back half of 2022 and into 2023. That said, we do want to caution against only focusing on these year-over-year comparisons and quote-unquote missing the forest for the trees. For Intrepid, current potash price levels still provide robust netbacks, and for the broader potash industry, we still have the backdrop of potential supply concerns and disruptions from issues in Eastern Europe, while the outlook for the primary end user of potash, agricultural markets, continues to be quite strong. Looking specifically at U.S. agriculture, which is Intrepid's key market, Farmers are projected to have a third consecutive year of very solid profitability, have strong balance sheets, and their outlook continues to be supported by elevated crop futures. For corn, December 23 and 24 contracts still traded over $5.20 a bushel, while for soybeans, November 23 and 24 contracts are over $12.30 a bushel. Looking back over the past decade through the end of 2020, December corn futures averaged just under $4 per barrel, per bushel. I apologize. Well, November soybeans futures averaged just under $10 a bushel. So today's pricing is still a 25 to 30% improvement over this recent historical period. Moreover, farmer input costs have recently come down quite considerably, and we expect the trend of yield maximization and strong fertilizer application to continue. Going forward, we're optimistic on the outlook. And for Intrepid, our primary focus for the 2023 remains the successful execution on our potash growth projects to improve our brine grades through mining our extensive ore bodies, adding extraction wells in the known brine pools, which will increase our production, as well as our sand resource at the Intrepid South Ranch. Before I dive into project updates, I want to take a quick moment to provide some more background on our recent potash production trends. Over the past several years, our potash production has been lower than our productive capacity. For some of these years, this has been mostly due to external factors like weather and permitting delays. To name a few examples, we experienced heavy summer rainfall in Wendover 2019 impacting production and product availability for sale in 2020. and also had a significant rain event in Carlsbad in the summer of 2021, which was the key reason for the lower production continuing into 2022. Moreover, slow permitting in New Mexico has been a key reason for recent project delays at our HB facility, resulting in a lagging effect for bringing on new projects as quickly as possible. However, we're cognizant that external factors are also to blame. most namely the extraction well failure at HB this past fall. This extraction well failure is the primary reason for our lower 2023 production guidance of approximately 260,000 tons, and we estimate this negatively impacted our 2023 production by 40 to 50,000 tons. Absent this issue, our 2023 potash production should have resumed an upward trajectory. That said, our potash product projects are well underway, and our production goals are first to correct and sustainably reverse the recent downward trend, and then get our annual potash production back to at least levels seen in the 2018-2019 timeframe, or roughly 330,000 to 350,000 tons. We have a high degree of confidence on improving our near-term potash production by initially target targeting already known high-grade brine that is ready for extraction. But I want to emphasize that the potash projects I'll soon highlight are designed to have both an immediate positive production impact while also driving sustained higher levels of production for many years. We recognize our 2022 and 2023 capital programs are higher than recent historical levels, But we want to make sure that the factors that impact our production where we have more control, namely consistent injection rates, reliable extraction wells, and developing higher-grade brine, are seeing the necessary investment to help ensure our future production profile meets the internal goals I just outlined. So I'll now go into each project in more detail. Starting with HB, this facility has been the key reason for our recent declining production trend. and consequently is a key focus for us. We're with three primary projects in the works. The first project is a new brine injection pipeline, which is projected to roughly double our brine injection rates. With the second phase of this project, also having a pigging system on the fly continuous system, which is the infrastructure to clean the inside of the pipe and prevent scaling. which will help ensure more consistent flow rates. This is a long operational life project and will be key for sustaining higher injection rates, which in turn increase production levels over the long term. We expect the pipeline to be in place by the end of the quarter with the improved brine injection rates starting in the second half of the year. The pigging system is still being permitted with construction likely to begin by the end of the year. To target high-grade brine in the near term, we've identified a new lower capital project to extract a pool of high-grade brine from the Eddy shaft. Permitting and construction are both underway with operations expected to commence in the fourth quarter of 2023. We've taken several measurements of the Eddy shaft brine grade and are confident that the associated product times will have a meaningful impact on supplementing our other extraction wells for the next few years, with this production benefit starting in 2024. Lastly, we still plan to drill a replacement extraction well that will have long-term operational life to target the significant brine pool from the HB brine system. Although this project may get pushed to early 2024 due to the eddy shaft project being installed and New Mexico permitting issues, Now moving on to Moab, where we have multiple projects in the works. For the first key project, we successfully drilled a new three lateral potash cavern, which will be online in the second quarter. During the drilling process, we were able to stay in the target interval for longer than any of our previously drilled horizontal caverns, and the initial brine measurements show great availability of high grade brine. After we successfully completed drilling this new cavern, We moved the rig into an area that has multiple high-grade brine pools in the lowest parts of the old conventional mine, which are also referred to as SOMPs. This potash ore in the brine pool is part of the original conventional mine works and flooded area where we previously used vertical wells. However, for this new effort, the key difference is that we are now using horizontal laterals to more effectively target the multiple SOMPs we've identified. Our goal is to have the second project complete by July 2023 to allow us to pump this brine into our ponds for the 2023 evaporation season. At Windover, we have no major growth capital plan for this year, but I did want to mention that the deep brine wells we successfully drilled in the fourth quarter of 2022 are online and producing well. The very wet weather at Windover this winter should be an additional boost to brine availability for the upcoming evaporation and production seasons. Quickly, on the frac sand project, we continue to work through the permitting process and expect construction to begin by the end of 2023 with the eventual goal to ramp production up to a million tons per year once the project is operational. During the first quarter, we did start to engage with potential customers for commercial agreements, and due to the strategic location of our sand resource in the Delaware Basin, which is surrounded by oil field activity, we've seen notably strong interest from various parties. Overall, we feel very confident in the success of our growth projects and look forward to seeing the impacts of higher production and an improvement in our unit economics in the coming years. I'll now turn the call over to Matt. Please go ahead.