Intrepid Potash, Inc. (NYSE:IPI) Q1 2024 Earnings Call Transcript

Intrepid Potash, Inc. (NYSE:IPI) Q1 2024 Earnings Call Transcript May 9, 2024

Intrepid Potash, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

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 a listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask question. [Operator Instructions] I would now like to turn the conference over to Evan Mapes, Investor Relations. Please go ahead.

Evan Mapes: Thank you, Michelle. Good morning, everyone. Thanks 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 VP of Sales and Marketing, Zachry Adams; and our VP of Operations, John Galassini. Please be advised that our remarks today include forward-looking statements as defined by US securities laws. These forward-looking statements are subject to risks and uncertainties that could cause our actual results materially different from those anticipated 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 with the SEC, which are incorporated herein by reference.

During today’s call we 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 our SEC filings are both available on our website at intrepidpotash.com. I’ll now turn the call over to Matt.

Matt Preston: 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 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. 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, US farmers have maintained their approach to yield maximization even with key crop futures, corn and soybeans coming back closer to historical averages. 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, coco and coffee continued to trade well-above historical averages.

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Q&A Session

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. As we’ve emphasized on prior calls, improving our unit economics as 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 commissioned in the coming months gives 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. 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, 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 ease to decrease by approximately $8 million to $10 million or 12% to 15% when compared to 2023. While the segment outlook is improving, we’ll continue to limit our capital investment entities and further evaluate options to improve our margins going forward. 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 manage 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 to 55,000 tons at an average net realized sales price in the range of $390 to $400 per ton.

For Trio, we expect our sales volumes to be in the range of 55,000 to 60,000 tons at an average net realized sales price of $310 to $315 per tonne. 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. Starting with Wendover. We 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 rate starting in 2025. At HB, the new replacement extraction well IP30B and Phase 2 of the new brine injection pipeline continued 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 a long-term extraction well for the Eddy cavern. For Phase 2 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. 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. And 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. 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% to 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 the 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. [Operator Instructions] Joshua Spector with UBS. Your line is open.

Lucas Beaumont: Hi, yes, this is Lucas Beaumont on for Josh. just starting on potash, so your first half guide is pretty similar to what you guys did last year, 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 the volumes into the second half session of that 100, 110 range something like that?