Intrepid Potash, Inc

Thank you for standing by. This is the conference operator. And welcome to the Intrepid Podash, Inc. Second Quarter 2024 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 1 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 Ivan Mates, Investor Relations. Please go ahead.

Thank you, Rochelle. Good morning, everyone. Thank you for joining us to discuss and review Intrepid's second quarter 2024 results. With me today is Intrepid's CFO and Acting Principal Executive Officer, Matt Preston, and available during the Q&A session is 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 U.S. securities laws. These forward-looking statements are subject to risks and uncertainties that could cause our actual results to be totally 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 were deferred to certain non-GAAP financial and operational measures. Reconciliation is the most directly comparable gap measures are included in yesterday's press release, along with the SEC filings are available on the website at IntrepidPottage.com. I'm now going to 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 Gernobis, 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's 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, a $1.5 million increase 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 U.S. crop futures have softened throughout the year, growers are expected to continue their approach of maximizing crop yields with potash helping that story. U.S. 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 should help spur further demand in the back half of the year as pricing is right in line with current values in Brazil and U.S. 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. The key drivers of the declining year-over-year financial performance or 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 generate a 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 supportive 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 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 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 a 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 down cycles. As our potash production trends higher, but more importantly, as our confidence in 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 aren't trending in a 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 oil field 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.