Intrepid Potash, Inc

Thank you for standing by. This is the conference operator. Welcome to the Intrepid Potash Inc. 3rd 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 0. I would now like to turn the conference over to Evan Mapes, Investor Relations. Please go ahead.

Good morning, everyone. Thank you for joining us to discuss and review Intrepid's third quarter 2024 results. With me today is Intrepid's CFO and Acting Principal Executive Officer, Matt Preston. Also available to answer questions is our VP of Sales and Marketing, Zachary Adams, and our VP of Operations, John Galassini. Please be advised that the remarks today include forward-looking statements as defined by U.S. securities laws. These forward-looking statements are subject to risks and uncertainties, which could cause intrepid actual results to be 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 reports filed with the SEC, which are incorporated here by reference. During today's call, We will also refer to certain non-GAAP financial and operational measures. Reconciliations to the most directly comparable GAAP measures are included in yesterday's press release and along with Intrepid's SEC filings are available at IntrepidPottage.com. I'll now turn the call over to Matt.

Thank you, Evan. Good morning, everyone. We appreciate your interest in Intrepid and attendance for our third quarter earnings call. Before getting into our commentary, we wanted to first acknowledge and thank our co-founder and former chairman and CEO, Bob Gernobis, for his many years of leadership. We're grateful for his contributions to Intrepid and the communities where we operate over the past 25 years. Bob and his family remain in our thoughts, and we continue to wish him well in his recovery. The board's CEO search process is ongoing, and there are no additional updates to provide at this time. In the third quarter, our adjusted EBITDA totaled $10 million, a slight increase sequentially, but a $7.8 million improvement compared to the third quarter of last year. Our improved performance was driven by several factors, including positive results from our successful project execution over the past two years, evidenced by two quarters in a row of higher potash production compared to the same prior year periods. With the successful commissioning of phase two of the new HB injection pipeline in September, We've now completed the key projects related to our asset revitalization process, which we expect to drive improved production rates in upcoming potash production seasons. As we stated before, producing more tons is the most effective way to improve our unit economics and margins, and this was evident in the third quarter as our potash segment cost of goods sold per ton improved by 14% compared to the prior year. Before getting into more segment details, I'll quickly touch on the macro outlook, starting with U.S. agriculture. Compared to the past couple years, we've clearly moved into a different market. Crop futures for corn and soybeans are back at historical averages, and farmers continue to be impacted by inflationary pressures. That said, the trend of yield maximization is expected to continue, and moderating costs for key inputs, including potash, should help lead to better value and steady demand for our fertilizer products. As we've highlighted in recent earnings calls, even during the last period of decreasing farmer incomes, US potash demand remained quite resilient. Furthermore, Intrepid continues to be supported by our geographic advantage and our sales diversification into specialty markets. As for the global potash market, pricing continues to be supported by several factors. First, we see a balanced market with global demand returning to historic levels and growth rates of 1% to 2% per year, offsetting new supply coming online in the next few years. Second, solid demand into Asian markets during the second half of the year has set a stable floor on global pricing, and granular markets, particularly in Brazil, have started to reengage for first half 2025 needs. Overall, we remain constructive on the fertilizer market as we finish the year and head into 2025. Moving on to third quarter segment highlights, in potash, our segment gross margin showed modest increases both sequentially and year over year, which underscores the positive impacts of higher production, even with lower pricing. For the first nine months of the year, our production totaled 178,000 tons as improved brine grades and above average evaporation season and a faster start to our fall production led to higher potash production than originally anticipated. As a result, we now expect our full year 2024 potash production to be in the range of 280,000 to 290,000 tons. Since our last call, our overall production expectations haven't changed. And we want to be clear that by processing more tons in the second half of 2024, we are essentially pulling forward tons we previously expected to produce in the first half of 2025. As a result, we now project relatively flat production in the calendar year 2025 of between 280 to 300,000 tons, but remind folks that this is in line with our expectations to start the year. When looking at harvest year production, which typically runs from August until mid-spring, We remove the variability of startup timing or processing rates from our solar solution mines, and we can clearly see the benefits of our recent capital projects. In our 2023-2024 harvest year, we produced 249,000 tons of potash. And looking ahead to this current year, specifically the production we expect from August 2024 through the spring of 2025, we expect to produce approximately 280,000 to 300,000 tons, a 16% increase compared to the prior year at the midpoint. Our trio segment again performed well in the third quarter, with our sales volumes totaling 45,000 tons at a net realized sales price of $312 per ton. Operational improvements and higher production led to a solid improvement in our unit economics, and in the third quarter, our cost of goods sold totaled $272 per ton, which compares to $341 per ton in the same prior year period. This helped contribute to TRIO generating a positive gross margin of about $600,000 in the quarter, which compares to a gross deficit of $4.3 million in the third quarter of last year. For 2024, we also now project that our TRIO cash production cost savings will be at the higher end of the $8 to $10 million range we've previously provided when compared to the prior year. Lastly, for oilfield solutions, our segment margin of $3.1 million in the third quarter was more than double the prior year and up by approximately $1 million sequentially, due primarily to increased water sales associated with a large frack at Intrepid South. As we've noted before, our segment margins can fluctuate due to the timing of completion operations on the South Ranch, similar to the increased water sales we reported in the fourth quarter of 2023. Although we remain encouraged by the oil field activity in Southeast New Mexico, we expect our oil field solutions margins to return to first half rates in the fourth quarter of 2024. As for fourth 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 in the range of $340 to $350 per ton. For TRIO, we expect our sales volumes to be in the range of 40 to 50,000 tons at an average net realized sales price of $315 to $325 per ton. As for other key initiatives, our discussions regarding our lithium project at Wendover continue to progress well, although we remind investors that this would be a longer-term project with a multi-year timeline for commissioning once a partner is selected. We also started the permitting process to drill a test well at the AMEX cavern, which we have never mined and is the largest cavern at HB. Permitting AMACs is a natural next step as we look to our longer-term production profile in the normal course of resource development, and we expect to have more to share on this in 2025. To end my comments, I think it's worth repeating that having no long-term debt and good liquidity puts Intrepid in a position of strength. In addition, the amendment to the cooperative development agreement we completed last year with XTO has both another guaranteed $50 million payment and the potential of an additional $100 million in payments, although the timing of these payments is uncertain and not guaranteed for the latter. Overall, we're encouraged by the trajectory of our business and continue to focus on positioning Intrepid for long-term sustained success. Operator, we are now ready for the Q&A portion of the call.