Q1 2022 Intrepid Potash Inc Earnings Call
Thank you for standing by this is the conference operator, welcome to the Intrepid Potash, Inc. Q1, 2022 results conference call. As a reminder, all participants are in listen only mode and the conference is being recorded after.
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 call you may signal, an operator by pressing star zero.
I'd now like to turn the conference over to Evan meets Investor Relations. Please go ahead.
Good morning, everyone. Thank you for joining us to discuss <unk> first quarter 2022 results.
With me on the call today are <unk> co founder executive Chairman and CEO , Bob <unk>, and Intrepid CFO , Matt Preston.
Also available to answer questions. During the Q&A session. Following our prepared remarks will be our president, Brian Stone and our vice president of sales and marketing Xactly Adams.
Please be advised that our remarks today, including answers to your questions include forward looking statements as defined by U S Securities laws.
These forward looking statements are subject to risks and uncertainties that could cause actual results to materially different from those currently anticipated.
These statements 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 periodic reports filed with the Securities and Exchange Commission, we're trying to calibrate it here by reference.
Today's call refer to certain non-GAAP financial and operational measures.
Conciliation of each non-GAAP financial measures to the most directly comparable GAAP measures are included in yesterday's press release.
<unk> filings and press releases are available on our website at Intrepid potash Dot com.
With that I'll now turn the call over to Bob Kevin. Thank you very much and good morning to everyone for joining us and we really appreciate the attendance on the call and interest in Intrepid.
First I want to apologize in advance for any coughing snips linger sneezing is just about everything is blooming in Denver, and we've all got allergy, so I apologize I'd.
I'd like to start with some commentary on the markets before diving into the first quarter and the outlook for intrepid.
As everyone is aware, we currently have a multitude of macro supply chain and geopolitical events helped driving commodity prices to near decade highs.
And even record high prices in certain cases.
<unk> West, Texas Intermediate started 2022 price to just over $75, but now is well above $100 a barrel.
In mid April natural gas futures eclipsed $8 per M M Btu, which previously hadn't occurred since 2008.
Looking at key crops in North America corn is currently trading at roughly $8, a bushel a price not seen since 2012.
Soybean prices show similar trends with weak trading just over $10 a bushel the highest price since 2008, while.
While soybeans are at almost $17 bowsher.
Which is the highest price since 2012.
Prices for all agricultural commodities.
Still support extremely strong margins for farmers the.
The December corn contract is trading at just under 750 September week is just under 11 and November beans or about $15.
Further to that key international commodities that also use significant amounts of potash are showing significant strength.
More prices reached a record high of over $9900 per ton in early March.
And currently remain close to all time high levels.
Coffee is at roughly $2 20, a pound does.
It was at the highest level seen since 2011, while the price of cocoa of just over $2600 per ton.
Is towards the upper boundary of the last five year trading.
Lastly, cotton is trading at roughly $1.50, a pound, which is an 11 year high and has more than tripled since March 2020.
Fertilizer prices are higher than we've seen in quite some time.
And we're seeing what I would call a bit of demand thoughtfulness, some I'd call. It destruction, owing both to high prices, but also due to certain borrowers simply not being able to source their needed product. We think the underlying crop economics still support the application of fertilizers.
Moreover, and we think this is key if we do see lower demand unless shoes to fertilizer. This year, a light the likely outcome would be lower crop yields which would be negative for supply and offer support for crop prices, which in turn help ensure solid demand for fertilizers and quarters ahead.
With that out of the way in the first quarter of 2022, the trend of higher prices certainly across most fertilizer products continue and.
And we delivered an average net realized price.
Which was $703 per ton for potash and $469 per ton for trio, which represent respective increases of.
Of approximately 150%.
[laughter], Skus me and 100% compared to the first quarter of 2021.
In our potash segment, our Q1 sales totaled just over $56 million, a 30% increase compared to the prior year quarter and.
And gross margin totaled $29 million.
Our trio segment, our sales totaled $41 million, a roughly 73% increase compared to the prior year quarter and gross margin totaled $16 $1 million.
On a consolidated basis in the first quarter.
<unk> revenue of approximately $104 million was 46% higher than the first quarter of 2021 with the higher revenue, primarily driven by higher net realized sales prices for potash and trio.
Intrepid generated adjusted EBITDA of approximately $50 million.
While net income totaled approximately $31 million for diluted earnings per share of $2.31 per share. This was intrepid is most profitable quarter since the third quarter of 2012.
During the first quarter cash provided by operations came in at $34 million or cash used in investing activities was only $7 $7 million.
As of April 30, our balance sheet.
Short term investments balance stood at just over $80 million.
A roughly $44 million improvement from December 31.
Quickly on oilfield solutions. This segment continues to be a steady performer with the gross.
First quarter gross margins of about $2 million.
Performance in this segment is closely tied to activity in the Permian basin.
As of last week, the Permian has added over 40 rigs since the start of the year, while the Permian DUC count of just over 1300 wells is about 65% lower than the July 2020 peak, indicating the need for more drilling.
Permian drilling and completions continues to increase we will keep looking for opportunities to increase our own activity and capture additional margin.
We're all Intrepid <unk> first quarter results clearly demonstrate a very strong start to 2022.
And we expect positive momentum to continue.
Global potash supply will likely remain quite tight for the duration of 2022.
As we've seen a superior severe supply shock that has impacted 30% to 40% of global potash production.
Moreover, swing production capacity in North America and worldwide is quite limited.
The demand side global markets.
Demand wise remained quite steady.
<unk> has been particularly strong with Brazilian potash prices of just under $200 per metric ton today.
Literally being a very attractive market for the international supply.
Versus the United States, where NOLA potash prices are currently about $800 per short ton.
In summary, we think the U S market is tight on supply while demand remained solid and driven by strong commodity economics.
Now looking ahead for intrepid fertilizer prices continue to remain elevated which we believe they will.
Intrepid will clearly continue to be a key beneficiary that said, we won't be complacent in this market and I quickly want to highlight some of our key initiatives to improve our per ton economics and increase our production.
Starting with our East mine in the first quarter, we continued to operate extra production shifts to increase production.
And we have added two new continuous miners, which are on order for delivery in the next few quarters.
The HB solar solution mine weather last summer led to 2021 potash have only production of about 117000 tons.
We're about 35 to 50000 tons lower than previous averages.
Although the double harvest of seven ponds helped offset the impact of lower production.
We're adding a new injection pipeline in the works at HB and a more normal summer should help drive much higher.
Volumes available for sale in the 2022 to 2023 fertilizer year.
Now looking at our Utah facilities, we are permitted engineered and are preparing to drill another cavern at Moab, which will also increase the production there.
Further while we fully expect that upgraded wells at our wind over facility will add production volume as early as the spring of 2023 and continue to increase production in conjunction with the existing cavern system.
In summary, Intrepid delivered very strong results in the first quarter, we expect the positive trend of high margins cash flow generation and improving cost per ton to continue.
I'll now turn the call over to Matt for a review of our financial results in more details on the outlook.
Thanks, Bob.
As Bob said, we had an outstanding quarter with $50 million of EBITDA and $31 million of net income or $2 31 per diluted share for those modeling future results I will note. Our first quarter tax rate was a bit lower due to a couple of state tax adjustments and we still expect quarterly tax rates of about 26% going forward.
On the nutrient side the pricing outlook remains very positive and we expect to be sold down to minimal inventories by the end of the summer across our potash facilities from now until August and September when we restart potash production, we will have all the tons necessary to meet our historic customers' needs, but also the inventory space and flexibility.
To move tons into other markets if necessary.
During the first quarter, we ran into some wet weather in the Midwest and east and extremely dry weather in Texas in the west. Despite the challenging spring, we expect to be close to a 130000 tons sold for the first half.
Spot pricing moved up again in April with a $50 per ton increase which we have realized on spot sales and restock tons, so far in the quarter.
Second quarter average net realized sales price for potash is expected to increase to $720 to $730 per ton.
We wrapped up our spring potash production season, a couple of weeks ago, we've seen a good start to the evaporation season, particularly at our HB facility as record dry weather continues to affect many parts of the southwest. It remains early in the year, but we are encouraged by results. So far and we are on track to return to normal production rates with them.
Much improved cost per ton in the second half of 2022.
The trio side, we delivered consistent volumes compared to last year, while expanding sales into key areas as farmers continue to increase their focus on proper fertilization, particularly for secondary nutrients such as sulfur and magnesium.
We expect to be near the middle of our previous trio guidance of 130000 to 140000 tons sold in the first half of 2022 and expect an average net realized sales price per ton of $480 to $490 in the second quarter.
Our liquidity position continues to improve as we generate cash flow from operations of roughly $34 million and currently have approximately $154 million of liquidity.
Given the positive outlook, we plan to accelerate some capital spend during the year on the key projects Bob discussed along with some sustaining capital items to get ahead of potential supply chain issues and inflation additional.
Additional capital. This year includes a second continuous miner at our east facility, which we had previously expected to purchase next year and some replacement pipe casing and other long lead time items, we can proactively purchased in store off site until needed. We now expect capital spending of between $50 million to $60 million for the full year 2022.
This concludes our prepared remarks, and 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'll hear a tone acknowledging your request is there anything a speakerphone. Please pick up your handset before pressing any keys to withdraw your question. Please press Star then two.
We will pause for a moment as Colin has joined the queue.
Okay.
The first question is from Joel Jackson from BMO capital markets. Please go ahead.
Hi, This is Alex Chen on for Joel Jackson, Thanks for taking my questions.
My first question given more cash on the balance sheet in a better liquidity position quarter over quarter can.
Can you elaborate on how that cash might be allocated and if you can remind us of the expected.
Pace of buyback and.
And how that might have changed.
For my second question can you. Please maybe provide us some color on how much of the Q3 potash order book, our sales has been locked in and how intrepid might expect prices to move throughout 2022.
Alex Thanks for the question I'll address the the pace of buyback as you know as soon as we announce that buyback program the market pretty much took off ahead of us.
So we're in the stages of formalizing our policy and how we're going to start to act on that and put that in place.
Literally within days of our last earnings call. The market took off and is where it is.
I can only tell you that we've got.
<unk> Thats put together formal process and.
We hope to.
Continue updating as that goes on as to the balance of your question I'll, let Matt take that.
Sure.
As far as the Q3 order book I'll flip that to Zach for any additional color, but we haven't taken any orders for Q3 at this points and really expect prices to remain relatively in line with first half as we look towards the back half of the year Zach anything else to add yeah, I would just add that.
And that's what Matt was saying, we expect crop prices to remain strong.
To support good application through second half of the year.
Did that answer your question.
Yeah, just just a quick follow up.
So do you expect the current prices in this environment to kind of flow into Q3.
Because you mentioned pricing staying relatively flat.
<unk>.
Similar to first half so I would assume in the 727 30 range.
Yeah.
We don't see a situation where prices.
Lighten up or come down.
We think that there is there is a tremendous amount of strength in this market for at least a couple of quarters.
We assume that prices will remain pretty darn stable.
There's just nothing out there on the say.
Say 12 to 18 month horizon that would give rise to prices coming back down.
So happy to continue to discuss that if you'd like or our thoughts on that.
No problem. Thank you thanks for answering my questions.
Okay.
The next question is from Vincent Andrews from Morgan Stanley . Please go ahead.
Hi, guys. This is will hang on for Vincent Thanks for taking my question.
Yes.
I guess, just as a follow up to Alex's question.
I mean, how are you guys thinking about kind of your summer fill program I guess, particularly given the high prices that we're seeing right now and possibly a inventory risk for distributors that they decided to hold.
Any potash over the summer.
We don't really see a need for a fill program.
<unk>.
Obviously, we don't drive the market.
But.
We're basically selling as much as we can or need to so there's really no reason for a typical fill program.
I'll, let I'll, let zack elaborate but I'd be surprised to see a fill program this year.
That I don't know if you see it differently.
Yes, I would kind of echo what Bob said I think if you look over the last quarter last several quarters.
We really haven't seen what I would call traditional fill program.
Pushed by the producers here in North America. So people are just continuing to kind of layer in times as they need them and thats, what we expect kind of going into the second half of the year.
Got it Okay, and then I guess.
Going back well.
Going back well I, just don't think we've seen a situation.
<unk> got such a widely used commodity globally.
That is used by so many different people around the globe, where approximately 30% to 40% of the capacity has been removed from the market.
So theres really nothing on.
On the horizon.
That would cause anyone to to utilize a fill program.
Because of the capacity that's that's.
Just actually come off the market I mean, I can't think of another commodity that are so widely used where we've seen 30% to 40% I mean, most commodities are priced around the margin.
With 3% to 5% of potential markets coming off.
Think of a commodity like potash, where we where it's in such wide usage globally.
We're such a significant percentage has been removed from the market.
Okay. That's helpful and then I.
I guess just on the potash cost side I mean, it looks like you guys are kind of began to work through some of that higher cost.
Leftover from last year, how quickly could we return to the.
The cost level comparable to 2019, and 2020 is that like a feasible.
Goal for the second half of this year or would that be more like a 2023 type story there.
Yeah no good question.
The late 19 2020 cost levels, Mrs sort of all in what you see in the segments. We show really were on the $2 30 to $2 40 per ton on potash, which has obviously grown here into the low three hundreds given the poor evaporation from 'twenty, one we'll see that come down pretty quickly as we start harvesting tons.
The 2022 summer evaporation season, so I think you'll see a pretty big step down for Q4, and then into Q1, we expect to be back at those those normalized levels, obviously inflation has impacted us a touch but it'll be pretty quick for Q4 and Q1 of next year.
Got it thank you.
The next question is from Josh Spector from UBS. Please go ahead.
Yeah, Hi, Thanks for taking my question.
Just you've got a few projects under way across potash and trio to expand production and some of that goes to the previous question about reducing the cost to produce just curious if there's a way to get an early thought about where production could be based on the projects you have underway.
For potash and trio in 2023.
Yes, it's still very early Josh I. Appreciate the question certainly we've done caverns in Moab before and so you drill that cavern will start to put some some very strong you have very high grade K brine into our ponds and really start to see that benefit towards the back half of 2023.
For HB and in Wendover, we'll start to see that a little bit sooner.
As to overall production increases you know I don't have specific numbers for you right now, but I certainly think we will do two things one we'll get back up towards kind of the numbers. We saw a little earlier for the HB facility. When we first came online and then also also help limit the downside of any poor evaporation seasons, we have because we'll have additional Brian and additional high grade K.
So it does two things for us one theres higher production potential, but two it really limits the downside of a bad evaporation year.
Overall in our system.
Okay that makes sense I appreciate that and I guess, Bob earlier, you feel offered to opine a bit on some of your thoughts about the potash outlook I'd be curious in hearing that just from the stance of any kind of <unk>.
You did mention that there is nothing that can really change the near term outlook, our medium term outlook in your view and I guess, if we get the question a lot about it globally become more concerned about food supply and food costs.
Can it be some intervention or change your approach to how the world views fertilizers and perhaps separate those from others sanctions that concerns going on I guess do you think thats something that could play out or what are your thoughts at this point.
Yeah.
You know I guess I would compare it to.
I apologize for my terminology when I look at the energy business.
I think theres a lot of people that would like to go to what I call energy Disneyland, but they haven't shown you the bridge to get there and so it's the same way with the fertilizer market. When you look at the nitrogen products phosphate and potash.
We've all seen the potash holidays, 2009, and 2010, but we also saw yield destruction in.
And given our current.
Supply situation and all of these major commodities agricultural commodities it.
It's very hard to see that if you reduce your fertilizer usage that youre going to be able to stay on the same yield trajectory.
So when you look at.
Tech, Brazil for example, 20% decrease or a 15% decrease in potash consumption is going to definitely reduced soybean yields and yields on other commodities, which keep farmer economics extremely strong.
I get your question of how does that affect consumers at the grocery store.
I think there is a point at which.
Consumers have become so used to extremely plentiful cheap food at the grocery store.
And we're now part of the National discussion if you will.
We spent a couple of days in D C last week and.
You know we're beginning the gas.
Whereas questions. So we've never been asked before about food security and how people should think about it.
<unk>.
I think what we're going to see is just very strong call them inflationary markets. If you choose to use that word.
I would say strong markets.
For several quarters ahead of us.
I keep telling our group around here that we believe this situation will last at least 18 months to two years after the Russian Ukrainian situation is completed it.
Let's be honest theres sort of a forgiven forget mentality around the world. So this won't go on forever.
The hand of Adam Smith will come back to work at some place. We just don't know when that's going to be.
We've got really good clarity on the next 12 to 18 months call. It 24 months and that's what we're focused on.
I do think that that even after that it's going to be hard to get back to normal. So once again, that's just one man's opinion.
I don't know if I answered your question or if that was helpful or not.
No. That's helpful. I appreciate your thoughts thanks.
Yeah.
Yeah.
As a reminder, it is star one to ask a question.
The next question is from Jason Your Center from Bumbershoot Holdings. Please go ahead.
Good afternoon, Thanks for taking my question.
Just kind of following up on the last one there were a lot of questions and focus on price and I guess not the length of the cycle.
I think the term you used was demand thoughtfulness and I think nutrient on their call. This morning to demand rationalization, rather than the idea of destruction.
Just can you walk through a little more of the the underlying crop.
Op economics and.
How do you see the length of the cycle playing out.
In terms of being multi year.
When some of this could get resolved.
You know over the next 234 years.
I think I think the good news is I would suggest that history repeats itself and.
If we go back when we look at 2007 2008 2009 2010.
Okay.
We didn't have the overall.
Entire agricultural sector trading at the kind of.
Margins that it was trading in.
But much more importantly.
We had the Canadians.
That's still felt like they had the old Bill Doyle potash style and they can dial up tonnage.
I would suggest that we're right back where we were in a way that if the Canadians have the tons that are out there selling them as we speak.
We do know that the eastern European tonnes. The belarussian tons. Those mines are actually shut down and we do know that your Kim has put a hold on every expansion project that was ongoing.
And then your Kimpton production has been redirected to different parts of the world.
So what is different this time and I hate using those words because as soon as you say it's different this time it turns out to be the same.
But I would suggest that the Russian you cant Ukrainian situation has changed things for some period of time.
While in the midst of extremely strong farmer margins on everything from palm oil to coffee to Coco to corn cotton.
We didn't see that in a wait and Illinois.
People and nine and 10.
Could afford to call, we'd never heard before tech potash holiday and they did let's be honest the price of potash should have come down because we had more capacity come on the market in one nine.
And it was available but.
But prices did not come down and that led to the new concept of a holiday.
But where we are today is just about everyone that we're aware of is really tapped out I mean, we've talked to several customers that can't physically get potash that wasn't the case in a way in Illinois.
They were making very specific choices not to box they were making a specific choice to take a holiday.
So.
I don't know if we use rationing destruction.
Thoughtfulness I don't know what the word is but when you take 30% to 40% off such a widely used commodity off the market. It has impacts and we're seeing it today.
So Jason on them right off of that.
Maybe more so that's how we're looking at.
It ends as I guess it seems like people are very focused on.
Price in the short term versus the lane that it could last with.
Everyone's, saying global demand I guess will be down this year, which you were talking about less demand was.
Fertilizer less yield higher crop prices that kind of linked to that.
Yeah, I think that that gets what I'm asking I guess with that is there any strategic or regulatory encouragement or maybe even financial incentive to try to reopen west is there like a cash level you'd get to where you feel maybe more comfortable to take a swing on opening it where you know.
Honestly with the risk of supply coming back online at some point.
From Russia that it would still makes sense financially to try to reopen it.
It's a great question, we've got a small team looking at it.
I don't want to give you any false hope.
<unk>.
I think it's a long shot for us to reopen that in the short term.
I think we're going to see how some of this plays out a little bit more.
It's nice to have it.
It's a great work zone, and it's an ore zone that is definitely available for solution mining. So we've looked at it in a variety of ways.
I'll just put that out there as it.
It was mined in the first ore zone, which was.
One of the best ore zones at Carlsbad, New Mexico, So right. It's a great question. It shows your knowledge of our company. So thank you for that Jason.
<unk>.
All I can say is we're looking at a lot of different ways.
Okay and on the HB mine.
In terms of the cost per ton.
I guess.
I guess, how are you looking at the cost in terms of the charges that you took when you sort of knew there was a weather issue I think that was in Q4 versus what actually got it.
Expense or just can't get spread around as well that you would have taken the hit on <unk>.
Now as you are actually selling the tons because I guess the charge you took was to get into like a reasonable level of price.
But it's still I am assuming elevated relative to getting on track hoard normal production and that without the new injector system I'm not sure if that question makes sense, but.
I'm trying to get at what how elevated our prices at H B that are coming through now even with the charges you took.
Yeah, So certainly a little more elevated elevated compared to normal and kind of goes back to one of the previous questions.
Just looking at our cost of goods sold by buyer sales tons you were at $3 19.
For Q1, and like I said, we expect that to come down pretty significantly here. Once we start production back up and kind of stair stepped down in Q4 and Q1.
Back into the range of that 19 in 'twenty. When we were trade. When we were our cost of goods sold was in the $2 30 to $2 40 range pretty consistently.
Okay, and then do it still having is still having a significant impact I guess is may.
Maybe the quick answer to your question sorry, Jason.
And then the HB Green project now it had been set for.
To start.
<unk>.
Trial, but I forgot the phrase you used in the second half from last quarter I didn't see any update are here any update on that so far is that still tracking.
Slightly on progress you know Brian in yesterday.
Jason Brian sitting here next to me I apologize.
We basically covered as many things could but I'll have Brian give you an update on some of the things that they are actually ongoing in boxes that are getting checked yeah. Brian . Thanks, Jason for asking that question. So we are progressing towards a pilot project I think thats. The word you were looking for which is.
Being overseen by the New Mexico Environmental Department in the.
In the produced water consortium, where we're in the process of doing design work laboratory tests on produced water. So we're.
We're on track with what we told you in the last earnings call. It's an interesting project and its moving towards.
Towards a pilot project.
And don't forget we're doing that in conjunction with the with the state. If you will the new Mexico produced water consortium, which is part of the NME D.
In the state so we don't get to run on Trepid time whipped run on states time.
Got you Okay I appreciate all the all the answers.
Okay.
This concludes the question and answer session I would like to turn the conference back over to Bob <unk> for any closing remarks.
I want to thank everyone for their time this morning, and their interest in Intrepid wish everybody a great day and look forward to talking to you next quarter. 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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