Q1 2021 Intrepid Potash Inc Earnings Call
Thank you for standing by this is the conference operator welcome to the Intrepid Potash, Inc. First quarter 2021 earnings Conference call. As a reminder, all participants are in listen only mode and the conference is being recorded.
After the presentation there'll 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 call you may signal of the operator by pressing star and zero I would now like to turn the conference over to Matt Preston Vice President of Finance. Please go ahead.
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Thanks, Carol good morning, everyone. Thanks for joining us to discuss Intrepid is first quarter 2021 results.
With me on the call today and trip as Chief Operating Officer, Brian Stone also available to answer questions. During the Q&A session will be our vice president of the sales and marketing Zachary items, our CEO Bob Your novice is currently navigating the complex quarantine system and Australia to visit his newly born granddaughter and is unable to join the call today.
Please be advised that our remarks today, including the answers to your questions include forward looking statements as defined by U S Securities laws the.
These forward looking statements are subject to risks and uncertainties that could cause actual results to be materially different from those currently anticipated.
These statements are based on the 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 Securities and Exchange Commission, which are incorporated herein by reference.
During today's call, we will refer to certain non-GAAP financial and operational measures reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are included in yesterday's press release.
Our SEC filings and press releases are available on our website at Intrepid potash Dot Com I will now turn the call over to Brian.
Thank you, Matt and good morning, everyone. Intrepid is first quarter was highlighted by robust performance and the fertilizer segment as the strong demand and increasing prices drove significant increase and bottom line results compared to the prior year. We recorded first quarter adjusted net income of $2 $5 million and adjusted EBITDA of $12 $9 million and increase.
The four and a half and $4 million, respectively, compared with the first quarter of 2020 and much better than the pandemic related losses from the second and third quarters.
Cash flow from operations was a robust $19 $1 million and the first quarter and we expect that this will continue into the second quarter. We ended the first quarter with approximately $36 million and cash and eagerly await the SBA to give us some guidance on when the proposed P. P. P forgiveness process might restart given our 100% usage directly to payroll.
Related expenses.
Our fertilizer and nutrient business led by strong global agricultural commodity prices and slightly weaker dollar continued momentum from the fourth quarter as demand for potash and trio exceeded our forecast and the first quarter on both realized price and volumes as a reminder, our posted price for potash is now $140 a ton above.
Summer fill level, while our trio price is currently posted $80 per ton higher than summer fill value customer.
Customers remain eager to secure volumes and we are fully booked on potash and trio through the second quarter. We are currently allocating our trio premium and trio granular deliveries and hope to see this tightness result, and stronger performance M.
MLP pricing and Brazil has moved up $55 of tone over the last 60 days and now sits at a $15 per ton premium to U S. NOLA barge market.
This combined with the renegotiation of the standard potash Indian contract from $247, a ton to $280 a ton supports stability and strength heading into the second half of the year.
Reports from the field are the strong early season application levels and increased nutrient rates have depleted inventories on all nutrients, including potash and trio much quicker than expected the.
And the prospect of any product carryover after heavy buy and since last fall now looks unlikely across the U S market. We believe the strong commodity values will lead to good farmer income supporting another strong fall application season, if weather and harvest schedules cooperates.
Oil and commodity pricing continues to be supportive of DUC, well completions and new well development.
We have seen.
Rigs frac crews and approved permits consistently throughout the first quarter of 2021 during the first quarter. We also sourced water from third parties to supplement our own water rights to meet increasing water volume requirements of operators on our South ranch, which increases margin as we continue to optimize our water book.
As the oilfield outlook improves we expect water sales will continue to grow through the back half of the year, we hope to have our multiyear Peco's litigation resolved and the next 120 days as the trial ended in December and I'll briefly was finalized in April which will allow us a much clearer and wider runway to diversely serve our.
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We continue the pivot to ESG friendly full cycle of water management systems that we described in our last earnings call and the first quarter, we've invested and additional recycling equipment infrastructure and resources as we expand on the full cycle of water management products and services demanded by customers and the Delaware Basin.
We are fully equipped for our first recycle job and of acquired major long lead time components for additional jobs number two and three we plan to have our first unit and place hopefully anchored by the service contract with the large producer towards the end of the second quarter.
This initial operation will be able to recycle approximately 75000 barrels per day with additional recycling units and service and the third quarter.
And as operators regulators and politicians increasingly focus on environmental and sustainability goals.
The full cycle water management and include source water recycled water and produced water handling will continue to become a central focus of our oilfield services segment. In addition to our source of water and increasing recycled capabilities. We have significant Brian water sources near our operations that have the potential to supplement the increasing needs for <unk>.
Long lateral multi stage fracs.
And we first mentioned and our last call we'd hope to have an analyst day soon after our fourth quarter call.
The delayed a bit as COVID-19 vaccinations ramped up and Colorado, We now expect to host an analyst day call in mid June and will announce the final date and attendance information soon.
And now I'll turn the call back over to Matt for a review of our financial results and outlook.
Thanks, Brian.
And as Brian noted earlier potash demand exceeded our expectations and the first quarter with 117000 tons of potash sold at an average net realized sales price of $282 per ton and supported by rising commodity prices and continued strength of our specialty feed and omni markets strong demand has continued into the second quarter.
And we expect to sell between 85, and 90000 tons of potash and the second quarter, bringing our first half volume to over 200000 tons and well above prior year levels with good demand continuing we have booked more tons of current posted prices and now expect the second quarter average net realized sales price of between 300 and $310 per ton.
We expect continued robust demand through the second half of the year is a combination of strong commodity pricing rising potash prices and international markets and limited supply likely set of solid floor and the U S market for the next couple of quarters.
Of our trio segment saw equally great early season demands total sales volume of 69000 tons was down slightly from the year ago period, but our first quarter 2021 sales were heavily weighted in domestic markets as we see the benefits of our expanding warehouse footprint and reliable supply.
Our posted price is up $80 per ton compared to the summer fill levels and we are fully booked through the second quarter accelerated demand increased our first quarter average net realized sales price for trio to $233 per ton and we now expect second quarter average net realized sales price of between $2 35 and $245 per ton.
Total water sales were similar to the fourth quarter of 2020 with $5 5 million of sales, including byproduct water as we noted on our last call record cold weather slowed us down a bit and the first quarter. Although we continue to see strong demand and increasing rigs crews and permits in the northern Delaware Basin.
First quarter margins were pressured as the majority of our sales were on our South ranch, which generally has a lower margin than our other water sources and we also required a significant amount of third party water to meet the refresh rate requirements of Fracs and Q1.
Our debt position remains at 55 million outstanding.
Outstanding of which $10 million relates to the P. P. P low was.
With improving earnings the availability the availability under our credit facility increased to $35 million at the end of the first quarter cash flow from operations improved to $19 1 million and capital investment was $2 $4 million.
We still estimate 2021 capital investment of between $25 million to $35 million of which 12 to 15 million will be sustaining capital with the remainder as potential opportunity capital projects. We continue to have significant discretion over our opportunity capital investments in 2020, one and we may adjust our investment plans.
As the year progresses with the strong early start to the spring season, our cash and cash position today is $48 million with no change and our outstanding debt from quarter end.
That concludes our prepared remarks for today, operator, we're ready to take questions.
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 and 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 then two.
Once again to join the question queue. Please press Star then one now.
Our first question comes from Joel Jackson of BMO capital markets. Please go ahead.
Hi, This is Brian Murphy on for Joel Thanks for taking my question.
And can you just talk about what drove the higher third party water parks and of course.
Sure.
Sure, it's kind of what I, what I said in my prepared remarks, we're seeing significant refresh rates for certain fracs and.
And you know and the 200000.
And potentially up on the 300000 barrel of refresh rates per day, and and we just don't have the capacity to serve that with all of our J M. A water as we defined some third party water. The nice thing about this is it really extends just our season and our ability to serve more operators. So we still think we're going to be sold out of our J M. A water by year end and so really what we're doing now.
Just being able to expand our sales to.
The more operators and we otherwise would have and Brian I don't know if theres anything else you want to add to that no. I think you put debt very well, Matt I think it's it's about exploit and the Optionality, that's and the water book, we think of the J M. A water is baseload, we think of third party water that we're bringing in to meet meet spot demand on these these high refresh rates and that referred to.
Yeah.
Okay. Thanks, and then just I guess following up on water sales in general the obviously still lagging from launch and how long before you think water sales can reach pre pandemic levels again.
Oh.
Yeah, and it's always a tough question to answer yes, when we certainly seen a lot of improvement over Q3, and Q4 or Q2, and Q3 and Q1 is always a pretty slow quarter just in general on the oil and gas markets as guys start to ramp things up for the year.
Think towards the back half of the year is where we could potentially see.
Sales getting back to those kind of pre pandemic levels.
But we'll wait and see here and all signs point to things continuing to ramp up and a lot of positive news here over the next couple of quarters.
Okay great.
On.
From me just on trio I guess, when and when can we expect trio to return to positive growth margin, obviously been pressured for I think.
And five or six consecutive quarters, and so when you're expecting an improvement there.
Well, we certainly had quite a bit of improvement on our Q1 numbers.
We don't give you exact margin guidance for our trio facilities, but with another quarter of increased pricing and another quarter of solid domestic demand.
Outlook remains improving for trio going forward and I'll leave it at that.
Yeah.
Okay. Thank you.
Once again, if you have a question. Please press Star then one.
Our next question comes from John Roberts of UBS. Please go ahead.
Thank you and then maybe another question on trio it seems like you've been reducing trio exports for a long time, how much export do you still have and does it go to near zero.
So no it doesn't go to near zero, but we really have cut back on kind of the the abroad sales you know most of our international sales are now into Mexico, and Canada, What day. It represented about 10% of our overall trio sales and the first quarter and.
And there'll be a little bit of seasonality to that but that's probably a pretty standard run rate volume wise going forward.
Okay and is the.
Delaware Basin drilling activity of recovering ahead of the other basins and I'm not and oil expert, but I thought oil drillers in general we're keeping a lid on spending and despite that we had and what <unk>.
And down that we had and oil back in 2020.
Yes. This is Bryan I think John that's right I think the Delaware basin and seen a quicker response to two two.
And the WTO price bounce back and and so we're certainly seeing that and on the water demand side.
Thank you.
Yeah.
Once again, if you have a question. Please press Star then one.
This concludes the question and answer session I would like to turn the conference back over to Brian Stone for any closing remarks.
Area of thank you and thank everyone for taking the time to join the call. Today. We appreciate your interest Intrepid and we look forward to speaking with the with everybody in the near future. Thank you.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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