Intrepid Potash, Inc

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Thank you, Krista. Good morning, everyone. Thanks for joining us to discuss and review Intrepid's fourth quarter 2023 results. With me today is Intrepid's co-founder, executive chairman and CEO, Bob Giornovis, and CFO, Matt Preston. Also available to answer questions during the Q&A session is the Vice President of Sales and Marketing, Zachary Adams, and the Vice President of Operations, John Galassini. Please be advised that our remarks today 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, are based upon 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 referred to certain non-GAAP financial and operational measures. Reconciliations with the most direct and comparable GAAP measures are included in yesterday's press release. Our SEC filings and press releases are available on the website at intrepidpotash.com. I'll now turn the call over to Bob.

Thank you, Evan. Good morning, everyone. We appreciate your interest in Intrepid and attendance for our fourth quarter earnings call. I'll be structuring my remarks today beginning with a high-level overview of the quarter, our market outlook, and production updates, and then dive into more details of the recent XTO deal and takeaways for Intrepid's equity. In the fourth quarter, our adjusted EBITDA totaled $7.1 million, bringing our 2023 figure to $41.6 million. Significantly higher production costs from our lower production as well as moderating potash prices drove down the decline in profitability this year. While our results continue to be negatively impacted by our current production profile, primarily due to the failure of our HB IP30A well in the fourth quarter of 2022. Fortunately, the replacement well has been fully permitted and is being constructed as we speak. This individual well failure created a major impact to our unit economics, so correcting our mistake as well as our overall potash production trend remains the number one strategic priority for Intrepid. Before getting into the highlights, also included in our fourth quarter results were approximately $43 million of non-cash impairment charges, which were primarily directed at our East Langmanite mine in the Trio Saiga. During the fourth quarter, we saw continued strong demand for our fertilizer products, and for 2023, our potash and trio sales volumes were both up 16% compared to the prior year. Market potash pricing has also recently stabilized at levels that are about 35 percent higher than the previous cycle, and we expect our sales to remain steady ahead of spring application. Longer term, we will remain constructive on the outlook for agriculture and fertilizer markets, even with pricing for key crops recently coming down over the past few months. As we discussed in our earnings call in August, following the last period of moderating U.S. farmer incomes off peak years, which we saw back in 2012 and the period thereafter. Annual U.S. potash demand still averaged roughly 5% growth rate through 2017. And given the significant profits generated by U.S. farmers over the past three years, they're currently in a very solid financial position. Putting this together, we expect the trend of yield maximization to continue past the upcoming spring application season, which of course is positive for fertilizer demand. Moving on to our potash production, the number one strategic priority at every level within the company has been to correct our declining production trend. To that extent, I'm excited to share that our recent production execution has put us on the path for a meaningful increase in production starting in the second half of the year. We've included comprehensive project updates in yesterday's earnings release. But for a quick summary on the key takeaway, we'll forecast that our total potash production will be up at least 10% to 15% in 2024 compared to 2023, with an additional 15% to 20% increase expected the following year and higher upside looking long term. In mid-December, we announced the third amendment for our cooperative development agreement with XTO. For some background, XTO is one of ExxonMobil's subsidiaries that has a very large acreage position in the Delaware Basin, and more specifically, within the designated potash area, or DPA. For many years, we've been successful in co-developing our respective interests within the DPA, and this amendment helps ensure that this continues while also formalizing several items. For Intrepid, what this amendment stipulates is that in exchange for us agreeing to support and not oppose XTO's development and operation of their oil and gas interest within the DPA, Intrepid receives certain payments from XTO. To date, we've received the initial $50 million with $50 million more guaranteed by the seventh year anniversary of the amendment. but possibly received sooner if XTO receives approval for a new or expanded drilling island within the specific area. Intrepid could also receive up to an additional $100 million with the amount of that payment and timing being dependent on certain drilling activities by XTO. We feel we are now more properly aligned with XTO and the code development in the area. We can't emphasize enough the importance of this transaction. with the cash infusion significantly bolstering our liquidity position and helping de-risk our outlook. Our current balance sheet cash is close to fully funding our 2024 capital program, providing a solid cash runway until we see the positive impacts to our unit economics associated with the higher potash production expected later this year. Overall, we think Intrepid is extremely well positioned, but when looking at where the equity is trading, We're close to being priced for worst-case scenarios, which is certainly not the case, and I want to clarify several key points. Our potash production will be inflecting higher follow the summer's evaporation season, so we're only a few quarters away from seeing those results. We also want to be clear that as we progress through the commodity cycle, we'll be focusing on measures that protect our balance sheet and enhance our margins and cash flow. And accordingly, we'll be evaluating our options for TRIO. Our primary business of selling a product that supports crops is forecast to see steady growth, and we're seeing price support for potash. We have long live reserves and resources that can support many decades of production, which significantly helps reduce our terminal value risk. The non-potash growth projects already underway, namely sand and lithium, offer attractive returns and upside. For these projects, Intrepid won't be committing significant upfront capital and owning all of the risk. So we are currently negotiating with various parties in pursuit of a JV partnership structure for each of those commodities. We have a very strong balance sheet, no long-term debt, a cash position of $35 million and $150 million revolver with maturity of August of 2027. Moreover, we'll have another $50 million guaranteed from our XTO deal, the possibility of an additional $100 million in payments from XTO over time. And this is the most important point. No one has a more important stake or greater stake in wanting to see Intrepid succeed and have this translate to the price of our common stock than myself as the largest shareholder. I firmly believe that for the items we can control, our outlook is the best we've had in many years, and I'm excited in the direction we're going. I'll now turn the call over to Matt. Please go ahead.