Intrepid Potash Q1 2024 Earnings Report

Intrepid Potash EPS Results

• Actual EPS: -$0.14
• Consensus EPS: $0.04
• Beat/Miss: Missed by -$0.18
• One Year Ago EPS: N/A

Intrepid Potash Revenue Results

• Actual Revenue: $66.46 million
• Expected Revenue: $62.87 million
• Beat/Miss: Beat by +$3.59 million
• YoY Revenue Growth: N/A

Intrepid Potash Announcement Details

• Quarter: Q1 2024
• Date: 5/8/2024
• Time: N/A
• Conference Call Date: Thursday, May 9, 2024
• Conference Call Time: 12:00PM ET

Intrepid Potash (NYSE:IPI). is a leading U.S.-based producer and marketer of potash and related specialty fertilizer products. The company’s primary business centers on potassium chloride, a key nutrient used in agricultural applications to enhance crop yield and quality. In addition to potash, Intrepid Potash produces magnesium chloride and sodium chloride, which serve a variety of markets including de-icing, dust control and industrial chemical production.

Intrepid Potash operates through a combination of solution mining, solar evaporation and conventional underground mining techniques. Its principal operating sites are located in New Mexico (Carlsbad), Utah (Moab and Wendover) and California (Trona), where natural brine deposits are converted into crystalline minerals. The company’s logistics network leverages rail, barge and truck transportation to serve domestic agricultural regions across the Midwest and export channels to Canada, Latin America and parts of Asia.

Headquartered in Denver, Colorado, Intrepid Potash was founded in 1995 and has been publicly traded on the New York Stock Exchange (NYSE:IPI) since its inception. The company is led by President and Chief Executive Officer Paul J. H. Beazley, under whose oversight Intrepid continues to advance resource management and sustainability initiatives, focusing on water conservation and reduced energy intensity in its operations.

Intrepid Potash Q1 2024 Earnings Call Transcript

Key Takeaways

• Intrepid reported Q1 adjusted EBITDA of $7.7 million, a modest sequential improvement but down from $16.4 million a year ago.
• Robust spring demand drove potash sales of 74,000 tonnes at an average net price of $395/tonne and Trio volumes of 91,000 tonnes at $300/tonne, both at the upper end of guidance.
• Commissioning of Primary Pond 7 and the new IP30B well, plus an upcoming Phase 2 brine injection pipeline, should lift potash production in the back half of 2024 and into 2025.
• Full-year 2024 cash production costs at the East Mine are expected to decline by 12 %–15 % (approximately $8 million–$10 million) versus 2023, aided by new continuous miners and operational efficiencies.
• With about $47 million in cash and no long-term debt, Intrepid’s debt-free balance sheet and liquidity position it well as fertilizer markets enter a mid-cycle environment.

Presentation

[Operator]

Thank you for standing by. This is the conference operator. Welcome to the Intrepid Potash Incorporated first quarter 2024 Results Conference call. As a reminder, all participants are in 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, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Evan Mapes, Investor Relations. Please go ahead.

[Evan Mapes, Head of Investor Relations at Intrepid Potash]

Thank you, Rochelle. Good morning, everyone. Thank you for joining us to discuss and review Intrepid's first quarter 2024 results. With me today is Intrepid's CFO, Matt Preston, and to be able to answer questions during the Q&A session is our Vice President of Sales and Marketing, Zachry Adams, and our 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 our actual results to materially differ from those currently anticipated. Our basis is 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 will refer to certain non-GAAP financial and operational measures.

[Evan Mapes, Head of Investor Relations at Intrepid Potash]

Reconciliations and the most directly comparable GAAP measures are included in yesterday's press release, and along with our SEC filings are both available on our website at intrepidpotash.com. I'll now turn the call over to Matt.

[Matt Preston, CFO at Intrepid Potash]

Thank you, Evan. Good morning, everyone. We appreciate your interest in Intrepid and attendance for our First Quarter Earnings call. As we first announced in an April press release, our CEO, Bob Jornayvaz, is currently on a temporary medical leave of absence. We continue to wish Bob a speedy recovery, and while we anticipate and understand your interest, we don't have any new information to share with you today. We will, however, continue to issue updates on his recovery and status as it relates to Intrepid as we have them. Moving on to our first quarter results, our Adjusted EBITDA totaled $7.7 million, a modest improvement sequentially but down from $16.4 million in the prior year period.

[Matt Preston, CFO at Intrepid Potash]

The key highlight in Q1 was robust demand for our fertilizer products for spring application, and we are pleased to report that our sales volumes and average net realized sales prices came in at the upper end of our guidance. For Potash, we sold 74,000 tons at an average net realized sales price of $395 per ton, while for Trio, our volumes totaled 91,000 tons at an average price of $300 per ton. Behind the strong demand, U.S. farmers have maintained their approach to yield maximization, even with key crop futures like corn and soybeans coming back closer to historical averages.

[Matt Preston, CFO at Intrepid Potash]

Also working to our advantage, Potash pricing has seen relative stability over the past few months, which has been driven by several factors including global Potash demand, returning to longer-term annual growth trends amidst a more balanced market, key international markets like Southeast Asia returning to higher Potash application rates, and international crops such as palm oil, rice, cocoa, and coffee continue to trade well above historical averages. As for our first quarter segment margins in Potash, our gross margin totaled $5.6 million, which compares to $14.4 million in the prior year period. The key drivers of the declining year-over-year financial performance were a combination of lower pricing and elevated unit costs due to our reduced production in the 2023-2024 production year.

[Matt Preston, CFO at Intrepid Potash]

As we've emphasized on prior calls, improving our unit economics is a priority for Intrepid, and spreading our fixed costs across higher production will be instrumental in achieving this goal. To that extent, the recent projects we've already commissioned and will be commissioning in the coming months give us a higher degree of confidence that our Potash production will be inflecting higher in the back half of this year, with increased momentum looking into the 2025 production year. In Trio, our gross deficit narrowed sequentially in the quarter to $1.1 million but was down compared to our gross margin of $1.5 million in the prior year period, with lower pricing being the key driver of the delta. The 91,000 tons sold exceeded our expectations, with historically strong demand being supported by a number of factors including a tight domestic sulfate market.

[Matt Preston, CFO at Intrepid Potash]

In light of the strong demand, we increased our Trio price by $25 per ton in the first quarter and expect to see the continued benefits of the price increase in our Q2 realized pricing. The two new continuous miners are also driving higher operating efficiencies, which allowed us to move to a reduced operating schedule at East Mine, decrease our contract labor, all while maintaining our production rates. We expect to see continued benefits in our cost per ton in the second quarter as higher operating efficiencies and lower costs move through our inventory. For the full year 2024, we expect our cash production costs at East Mine to decrease by approximately $8 million $10 million or 12%-15% when compared to 2023. While the segment outlook is improving, we'll continue to limit our capital investment into East Mine and further evaluate options to improve our margins going forward.

[Matt Preston, CFO at Intrepid Potash]

Lastly, for Oilfield Solutions, our segment margin of $2 million was a $1.5 million increase from the prior year as higher water and brine sales drove increased revenues while we effectively managed our costs through decreased contract labor and fewer water purchases. For second quarter guidance, we expect our Potash sales volumes to be in the range of 50,000-55,000 tons at an average net realized sales price in the range of $390-$400 per ton. For Trio, we expect our sales volumes to be in the range of 55,000-60,000 tons at an average net realized sales price of $310-$315 per ton. Moving to project updates, we're excited to share that we've continued to show strong execution and, after higher levels of investment over the past two years, we're close to seeing tangible improvements to our Potash production.

[Matt Preston, CFO at Intrepid Potash]

Starting with Wendover, we've started to fill Primary Pond 7 with brine, with this new pond increasing our total evaporative area by about 1.5 times. We expect the pond to be full by the end of the year, which will improve our production rates starting in 2025. At HB, the new replacement extraction well, IP30B, and phase II of the new brine injection pipeline continue to progress well. In April, we successfully drilled IP30B, with commissioning expected by the end of May. This is a significant accomplishment for Intrepid and will allow us to continue to extract the already developed high-grade brine pool from the Eddy cavern through early 2025. As we extract the brine, we'll backfill this cavern to create an additional brine pool for future production years, with IP30B serving as the long-term extraction well for the Eddy cavern.

[Matt Preston, CFO at Intrepid Potash]

For phase II of the new injection pipeline, in April, we received the final permits necessary to operate the pipeline and expect to have this commissioned in early Q3. The new injection pipeline will allow our brine injection rates into our Eddy, North, and South caverns to be the highest in company history, resulting in overall brine injection volumes that exceed our extraction volumes. This is key for increasing our brine availability and creating the necessary underground residence time to develop high-grade brine, which in turn helps sustain higher production volumes over the longer term. For the sand and lithium projects, we're still working with potential partners on various deal structures but are committed in limiting Intrepid's capital towards these projects. While we wrap up this period of higher capital spend, we still sit today with approximately $47 million in cash on the balance sheet and no long-term debt.

[Matt Preston, CFO at Intrepid Potash]

To end my remarks, as fertilizer and agriculture markets look to be entering more of a mid-cycle environment, Intrepid is uniquely positioned and we have catalysts on the horizon that should help drive value to our shareholders. First, we're only a few months away from seeing the first inflection to higher Potash production. This will lead to better unit economics and allow us to fully capitalize on the many decade reserve lives of our Potash assets. Second, we've taken a significant first step to improve our cost structure at the East Mine with a 12%-15% reduction in our full-year cash production costs. And lastly, our debt-free balance sheet and solid liquidity puts Intrepid in a position of strength as our broader market continues to navigate higher interest rates and inflation. Operator, we're now ready for the Q&A portion of the call.

[Operator]

Thank you. We will now begin the question-and-answer session. To join the question queue, you may press star then one 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 one, and we will pause for a moment as callers join the queue. Your first question comes from the line of Joshua Spector with UBS. Your line is open.

[Lucas Beaumont, Director and Equity Research Analyst at UBS]

Hi, yeah, this is Lucas Beaumont. I'm for Josh. Just starting on Potash, so your first half guide is pretty similar to what you guys did sort of last year, and it lines up really well with your production from the second half 2023. So, I mean, you had solid production in the first quarter. I was just kind of wondering what you're expecting for production in the second quarter relative to the last couple of years that have been sort of quite low. And then is that sort of a good proxy for us in terms of your volumes into the second half, so sort of that 100, 110 range, something like that?

[Matt Preston, CFO at Intrepid Potash]

Yeah, no, thanks for the question, Lucas. I mean, certainly Q2 volumes are always down as we enter the summer evaporation season. Wendover and HB are wrapping up right now. Moab wrapped up the season a few weeks ago, so we always see the drop down in April as we just enter that season. As far as kind of full-year production, we had guided on the prior call 10%-15% higher production rates in 2024 compared to 2023, and we're happy to report we're still really on track for that, probably towards the high end of that guidance, kind of 15% above 2023 volumes.

[Matt Preston, CFO at Intrepid Potash]

So we'll certainly see that benefit towards the back half of the year as we start to see those capital projects we've talked about, the Eddy cavern, IP30B, and go back to Moab cavern 4 last year, really start to improve our brine grades and our production rates in the second half of 2024.

[Lucas Beaumont, Director and Equity Research Analyst at UBS]

Yeah, that's great. So, I mean, if you—I mean, that probably implies about 150 production in the second half then, so you should get a sort of good step up then in your first half sales next year, sort of be sort of if that 150 flows through sort of versus the 120 for either service year.

[Matt Preston, CFO at Intrepid Potash]

Yeah, certainly second half volumes can be impacted. Obviously, you got to get through the evaporation season, which is underway right now, and it can be a little affected by timing of startup, whether we start up mid-August or kind of the first week of September. But yeah, as I said, kind of 15% above those 2023 rates. We feel like we're seeing the progress we hope to see here in the first quarter.

[Lucas Beaumont, Director and Equity Research Analyst at UBS]

Great. Now, I guess just on the pricing side, so I mean, you're expecting sort of flat pricing sequentially there. I mean, the benchmark prices have sort of started to come off a little bit. What are you guys I guess what's kind of driving your order book versus sort of where the market is, and what sort of a seasonal reset are you expecting this year? Should we see sort of more of one in the third quarter, or are you expecting sort of more mild seasonality this year?

[Zachry Adams, VP of Sales and Marketing at Intrepid Potash]

Yeah, this is Zach here. So I think we see the global market as being very balanced and stable right now. Certainly, there's always some seasonal price movements that you see as you kind of exit the application season and you go into that period of the summer time frame where buyers kind of look to end season, empty on inventory, and kind of work on the timing of kind of when they're going to refill their positions ahead of the fall season. As it relates to kind of second half, I think we're optimistic about demand there. We think the prospect of ending the spring season empty on inventory will continue, and we think buyers will be ready to step in at some point this summer for volumes.

[Zachry Adams, VP of Sales and Marketing at Intrepid Potash]

The crop economics today still support our customers and farmers looking to maximize yield, so we think that's a positive bellwether for volumes in the second half and stable pricing going forward.

[Lucas Beaumont, Director and Equity Research Analyst at UBS]

Great. Thanks. I'll get back in the queue. Thanks.

[Operator]

The next question comes from Joel Jackson with BMO Capital Markets. Your line is open.

[Joel Jackson, Analyst at BMO Capital Markets]

Good audible there on the name. Okay. On Trio, your Q1 volume, sales volume is, I think, the best quarter you've ever done for a Trio in any quarter as a public company. Pricing looks like it's rising a bit in Q2, whereas Potash price looks stable. And your Trio volume, guys, pretty good for Q2 as well. So if you talk about what's happening in Trio, it seems like you're getting really good uptake on it, value, and volume.

[Matt Preston, CFO at Intrepid Potash]

Yeah, I'll let Zach touch on the volumes. I mean, you're right. It was record domestic sales there in Q1, but Zach, go ahead.

[Zachry Adams, VP of Sales and Marketing at Intrepid Potash]

Yeah. No, thanks, Joel. Yeah, I think what we saw on the volume side was our customers entered the year with very low channel inventories on site. And across several regions in the U.S., we saw an early application period. So that really led to seeing some volumes that typically might transact in April, let's call it, kind of be pulled forward into March, excuse me. And so even with that, I mean, overall, first half volumes look strong for us. And Trio, compared to Potash, always has a little bit more of a tail on the application season to it just because it's used in some side dress and top dress applications that kind of go out through late May into early June. So we expect to see good subscription really through the end of the second quarter, and certainly, we've seen that quarter to date so far.

[Joel Jackson, Analyst at BMO Capital Markets]

Okay. Just on that Potash production clarification, so not that my model's right, but I have that you were expecting about a 13% increase in production in 2024 and 23% production increase in 2025. You're talking about a 23% increase now. Is that for 2024, 2025? Is my model right, or are things going a bit better than you thought, or am I wrong?

[Matt Preston, CFO at Intrepid Potash]

Yeah, I'll go back to what we said on our Q4 call, which was a 10%-15% increase in 2024 and another 15%-20% in 2025. As I was telling Lucas, I think we're closer to the 15% increase for 2024 right now. We haven't changed really anything on 2025. That still plays out. But certainly, 2024 volumes looked very good and towards the higher end of that guidance.

[Joel Jackson, Analyst at BMO Capital Markets]

Okay. I think that's my question. Thank you.

[Matt Preston, CFO at Intrepid Potash]

Thanks, Joel.

[Operator]

The next question comes from the line of Jason Ursaner of Bumbershoot Holdings. Your line is open.

[Jason Ursaner, General Partner at Bumbershoot Holdings]

Hi, Matt. Thanks for taking the questions, and nice to see the solid start to the year. Just grateful to you for deciding to stay, although wish it was obviously under better circumstances and hoping for Bob to have a full recovery and be back soon. On the Potash side, I guess with the CapEx and IP30B sounding as if it's kind of reaching a conclusion, you kind of mentioned seeing the progress we hope to see. It feels like kind of passed through the gauntlet with everything. Just qualitatively, I guess at this point, what would be kind of the biggest hurdles to getting there, or is it just at this point kind of slowly letting confidence build up and timing that things are all on the right track right now with the Potash side?

[Matt Preston, CFO at Intrepid Potash]

Yeah, I mean, you're right, Jason. We're certainly getting the IP30B well drilled. We're just completing kind of surface commissioning today. So kind of through the bulk of that capital spend and obviously where we ran into issues with IP30A, so great to have that behind us. Obviously, there's variability in a lot of our evaporation seasons. We've seen that over the years, and we need to continue to control our costs and execute on the projects in front of us. We'll see how the HB IP30B continues as well as Moab cavern 4, as well as the additional work we've done in cavern 3. But I don't want to give the impression that we can sit back and sort of rest on our laurels now.

[Matt Preston, CFO at Intrepid Potash]

We continue to stay focused on the project execution and kind of this two-year plan we've been on to get our production rates back to historical levels. And so, yeah, good progress so far, but still lots of work to be done. Really get through this evaporation season, and hopefully, we can give some better guidance towards the back half of the year and into the spring of 2025.

[Jason Ursaner, General Partner at Bumbershoot Holdings]

Okay. And then got a couple of questions on the, I guess, volume side of the production. Just maybe on the cost side of production, if you could just remind us what you assuming it continues to make the progress, what you guys have been saying. And just, I guess, at this point, with a lot of the heavier lifting behind you, is there increasing confidence that the cost side of things is kind of lining up with where you guys were hoping?

[Matt Preston, CFO at Intrepid Potash]

Yeah, certainly, as we see those production volumes materialize, we'll see an improvement in our unit costs. Certainly, had a great first quarter for Potash, around $350 per ton. That was probably a benefit a little bit for more sales out of our Utah facilities, which are at a lower per-ton cost. So not sure we'll be quite there into Q2, but as we continue to see more production tons in the ponds, we still expect to see a pretty equivalent improvement in our per-ton cost. So if we're 10%-15% improvement in production, 2024 versus 2023, we'll see an equivalent improvement in our per-ton cost as well.

[Jason Ursaner, General Partner at Bumbershoot Holdings]

Okay. And then just, I guess, sitting here today, obviously, hope Bob is back, but just, I guess, from your perspective, maybe could try to frame, I guess, where the company over the next year or so might be headed. Obviously, have the cash on the balance sheet. You already spent a pretty good portion of this year's CapEx. Sand and lithium both sound like they're kind of coming together. And so, I guess, in your mind, what's the most important kind of things besides the execution to focus on of where the company should be heading?

[Matt Preston, CFO at Intrepid Potash]

I mean, I think it's just that. It's the continued execution of the strategy. I mean, we've been talking about this for really the last two years now, getting our Potash production back to the historic levels, where it needs to be. That path has been set for a while, and it's very clear what everyone needs to work on, from the capital projects we finished to the ones we're continuing to wrap up here in Q2. The direction has been clear, and it's really unchanged going forward.

[Jason Ursaner, General Partner at Bumbershoot Holdings]

Okay. Great. Appreciate the commentary. Thanks.

[Operator]

This concludes the question-and-answer session. I would like to turn the conference back over to Matt Preston for any closing remarks.

[Matt Preston, CFO at Intrepid Potash]

Thanks, everyone, for your interest, and look forward to talking to everyone again soon. Have a nice day.

[Operator]

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.

Participants

Executives

• Evan Mapes, Head of Investor Relations
• Matt Preston, CFO
• Zachry Adams, VP of Sales and Marketing

Analysts

• Jason Ursaner, General Partner at Bumbershoot Holdings
• Joel Jackson, Analyst at BMO Capital Markets
• Lucas Beaumont, Director and Equity Research Analyst at UBS