Intrepid Potash Q2 2024 Earnings Report

Thank you for standing by. This is the conference operator, and welcome to the Intrepid Potash Inc. 2nd 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.

I would now like to turn the conference over to Ivan Mapes, Investor Relations. Please go ahead.

Thank you, Evan. Good morning, everyone. We appreciate your interest in Intrepid and attendance for our Q2 earnings call. As we announced in July, our CEO, Bob Jornavas 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 2nd quarter results, our adjusted EBITDA totaled $9,200,000 a $1,500,000 increase sequentially, but down from $15,800,000 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 2nd quarter segment results.

In potash, our gross margin totaled $3,300,000 which compares to $12,900,000 in the prior year period and $5,600,000 in the Q1. The key drivers of the declining year over year financial performance were 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 Q2 potash production of 40,000 tonnes, which is up from 12,000 tonnes 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 generated gross margin of $2,200,000 in the 2nd quarter, a $3,300,000 improvement sequentially and a $1,000,000 improvement from the prior year period despite a lower realized price per tonne 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 tonne have decreased by 11% to approximately $2.84 per tonne and for the 2nd quarter, this figure was even better at approximately $2.61 per tonne or 18% lower than the Q2 of 2023. Oilfield Solutions continues to be a steady performer with 2nd quarter gross margin of $2,100,000 an 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 Q3 guidance, we expect our potash sales volumes to be in the range of 45,000 to 55,000 tons at an average net realized sales price between $3.40 $3.50 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 40,000 to 45,000 tonnes at an average net realized sales price of $300 to $3.10 per tonne. Before opening up for Q and A, I will end my remarks with comments on Intrepid's current positioning and outlook. Starting with our current positioning, Intrepid has no long term debt, balance sheet cash of $51,000,000 and no outstanding borrowings on our $150,000,000 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 on our 2 to 5 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 tonnes 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 and 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 from projects aren't trending in a favorable direction, which we've done with our sand project. While this project is uniquely are pausing our development 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 and A portion of our call.

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

Yes, I think that's fair, Jason. As I said in the prepared remarks and we talked a little bit about in our last call, unfortunately, it takes time with solar evaporation and the brine residence time and availability. We really want to get a lot of confidence in that underground storage at HB or kind of how our primary ponds and what our brine storage is at Wendover, for example, and really have that increased confidence on the 2 to 5 year production outlook to get to kind of a less cautious approach. Like I said, early indications from 2024 calendar year production are great at the higher end of our guidance. And so we're seeing the benefits of those projects.

But we still have to hit those injection rate goals. And our Phase 2 of our injection project should be complete here probably end of August, early September and we hope to be up to really improved brine injection rates on a gallons per minute rate possibly hitting 2,000 GPM. And so once we hit those and get that brine availability and residence time underground, we can be more confident kind of in that outlook going forward. So yes, I mean, I think your take on kind of our approach is spot on.

Yes. No, and that's a fair comment as far as kind of the harvest year, which spans from kind of right about now through the spring versus a calendar year production. We stuck with that calendar year just because it's what we end up reporting in our annual report going from 226,000 tonnes in 2023, you up that 10% to 15% in 2024. When it comes to harvest year production, we're not going to there's so much that varies a little bit with evaporation. We're not going to kind of give those that guidance right now.

But as I said to Lucas earlier, still on track to kind of hit those targets and encouraged by our progress so far.

Yes. I mean that's certainly been the benefits we've seen so far. Going back to the Eddy Shaft project to kind of get that initial high grade brine at HB, which we did in the fall of last year and then transitioning to IP30B here this spring where we can continue to put that high grade brine in the ponds. It's really a it's a brine grade story at HB, which is really promising. So this is stuff that we've been able to accomplish with our brine availability, not just the benefit of weather.

And then in Moab, getting the new cavern in, hopefully seeing some higher brine grades as that cavern continues to mature. So it becomes a brine grade story for both HB and Moab and then at Wendover, getting the new primary pond in, filling that with brine today. That's really a brine availability story, just making sure we have the right brine availability in our primary ponds to be able to maximize evaporation during the summer and move that brine at the appropriate times. So we're certainly seeing the benefits from our projects from a brine grade standpoint and not just benefiting from what's been, I'd say, a pretty average to maybe slightly above average evaporation year so far here in 2024.

And then just last one on the cost side, I know people tend to be more focused on the price of potash, but for me at least the story of the last year is more on your own costs as you're starting to see some of these encouraging early signs. Are you I guess, maybe remind what we talked about on the cost side, but are you sort of trending in the right direction on the cost reduction efforts in terms of maybe this year, next year or kind of long term?

Okay, awesome. I'll jump back in the queue. Thanks a lot Matt.