Q1 2024 Intrepid Potash Inc Earnings Call
Thank you for standing by this is the conference operator, welcome to the Intrepid potash incorporated first quarter 'twenty 'twenty four results conference call. As a reminder, all participants are in listen only mode Endo conference is being recorded.
After the presentation, there will be an opportunity to ask questions.
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I'd now like to turn the conference over to Yvonne made Investor Relations. Please go ahead.
Yvonne: Thank you Michelle good.
Yvonne: Everyone. Thank you for joining us to discuss and review Intrepid is first quarter 2024 adults.
Yvonne: With me today is intrepid CFO, Matt Preston.
Yvonne: We're able to answer questions. During the Q&A session is our VP of sales and marketing Xactly Adams senior VP of operations John Garcia.
Please be advised that our remarks today include forward looking statements as defined by securities laws.
Yvonne: We're looking statements are subject to risks and uncertainties that could cause our actual results to materially different from those kind of anticipated are based upon information available to us today, and we assume no obligation to update them.
Yvonne: These risks and uncertainties are described in our periodic reports with the SEC, which are incorporated herein by reference.
Yvonne: During today's call, we'll refer to certain non-GAAP financial and operational measures.
Yvonne: Reconciliations to most directly comparable GAAP measures are included in yesterday's press release.
Yvonne: Our SEC filings are both available on our website at Intrepid potash Dot Com I'll now turn the call over to Matt.
Matthew D. Preston: Thank you Evan.
Matt: Everyone. We appreciate your interest in Intrepid and attendance for our first quarter earnings call.
Matt: As we first announced in April press release, our CEO, Bob Doorknob 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.
Matt: As we have them.
Matt: Moving onto 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.
Matt: <unk> came in at the upper end of our guidance.
Matt: For potash, we sold 74000 tons at an average net realized sales price of $395 per ton.
Matt: For trio, our volumes totaled 91000 tons at an average price of $300 per ton.
Matt: Behind the strong demand U S. Farmers have maintained their approach to yield maximization, even with key crop futures corn and soybeans coming back closer to historical averages.
Matt: 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.
Matt: Key international markets like Southeast Asia, returning to higher potash application rates and international crops, such as Palm oil rice, cocoa and coffee continued to trade well above historical averages.
Matt: As for our first quarter segment margins and potash are gross margin totaled $5 6 million, which compares to $14 4 million in the prior year period.
Matt: Key drivers of the declining year over year financial performance were a combination of lower pricing and elevated unit cost due to our reduced production in the 2023 2024 production here.
As we've emphasized on prior calls improving our unit economics as a priority for intrepid and spreading our fixed cost across higher production will be instrumental in achieving this goal.
Matt: To that extent the recent projects, we've already commissioned and will be commissioning in the coming months gives us a higher degree of confidence that our potash production will be inflicting higher in the back half of this year with increased momentum looking into the 25 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.
Matt: The 91000 tons sold exceeded our expectations with historically strong demand being supported by a number of factors, including a tight domestic sulfate market.
Matt: 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 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.
Matt: For the full year 2024, we expect our cash production costs at east to decrease by approximately $8 million to $10 million are 12% to 15% when compared to 2023.
Matt: While the segment outlook is improving we will continue to limit our capital investment into east and further evaluate options to improve our margins going forward.
Matt: Lastly for oilfield solutions, our segment margin of $2 million was a $1 $5 million increase from the prior year as higher water and Brian sales drove increased revenues, while we effectively manage our costs through decreased contract labor and fewer water purchases.
Matt: For second quarter guidance, we expect our potash sales volumes to be in the range of 50 to 55000 tonnes at an average net realized sales price in the range of $3 90 to $400 per ton.
Matt: For trio, we expect our sales volumes to be in the range of $55 to 60000 tons at an average net realized sales price of $3 10 to $3 15 per ton.
Matt: 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: Starting with Wendover, we started to fill primary pond seven with Bryan 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.
Matt: At HB, the new replacement extraction, well IP <unk> and phase two of the new Brian injection pipeline continued to progress well in April we successfully drilled IP 30 D 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 Brian.
Matt: Pool from the Eddie Cavern through early 2025 as.
Matt: As we extract to Brian will backfill this cavern to create an additional Brian Poole for future production years with IP <unk>, serving as the long term extraction well the Eddie Kathryn.
Matt: For phase two 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.
Matt: The new injection pipeline will allow our Brian injection rates into our Eddie North and south caverns to be the highest in company history, resulting in overall, Brian injection volumes that exceed our extraction volumes. This is key for increasing our Brian availability and creating the necessary underground residents time to develop high grade brine, which in turn helps sustain higher.
Matt: Production volumes over the longer term.
Matt: For the standard lithium projects, we're still working with potential partners on various deal structures, but are committed and limiting intrepid capital towards these projects.
Matt: 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.
Matt: And 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 are 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.
Matt: Lies on the many decade reserve lives of our potash assets.
Matt: 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 a broader market continues to navigate higher interest rates and inflation.
Speaker Change: Operator, we're now ready for the Q&A portion of the call.
Speaker Change: Thank you we will now begin the question and answer session.
Speaker Change: And our question queue. You May Press Star then one on your telephone keypad, you will hear a tone acknowledging your request.
Speaker Change: If you are using a speaker phone please pick up your handset before pressing any key.
Speaker Change: Your question. Please press Star one Andrew.
Matt: And we will pause for a moment as callers join the queue.
Matt: Your first question comes from the line of Joshua Spector with UBS. Your line is open.
Joshua David Spector: Hi, yes.
Joshua David Spector: With a solid on for Josh.
Joshua David Spector: Just starting on potash.
Joshua David Spector: So your.
Joshua David Spector: First.
Joshua David Spector: Todd.
Joshua David Spector: It is pretty.
Joshua David Spector: Similar to what you guys did set of last year and it lines up really well with your production for the second half point grey.
Joshua David Spector: I mean, you had solid production in the first quarter I was just kind of wondering what youre expecting for production in the second quarter.
Joshua David Spector: Relative to the last couple of years that have been sort of quite low.
Joshua David Spector: Does that sort of a good proxy for us.
Joshua David Spector: In terms of the volumes into the second half set of 110 range.
Joshua David Spector: Like that.
Speaker Change: Yeah no. Thanks for the question Lucas certainly Q2 volumes are always down as we enter the summer evaporation season.
Speaker Change: Wendover and HP are wrapping up right now Moab wrapped up this season, a few weeks ago, we always see the drop down in April just enter that season as far as kind of a full year production, we have guided on the prior call, 10% to 15% higher production rates in 24 compared to 23 and you will have report, where we're still really on track for that probably towards the high end of that guide.
Speaker Change: <unk> kind of 15% above 2023 volumes. 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 deity caviar and IP <unk> and go back to Moab, Catherine for last year really start to improve or Brian grades and our production rates in the second half of 'twenty four.
Speaker Change: Yes, that's correct.
Speaker Change: I mean that probably implies about 150 <unk> production in the second half then.
Speaker Change: You should get a good step up getting its first half sales.
Speaker Change: Our next gene therapy.
Speaker Change: 750, <unk>, surpassing the 120, so either side this year.
Speaker Change: Yes, certainly second half volumes can be impacted obviously got to get through the evaporation season, which is underway right now and it can be a little affected by timing of startup with restart up mid August or kind of the first week of September.
Speaker Change: This as I said, 10% to 15% above those 'twenty three rates.
Speaker Change: Like where we are seeing the progress we hope to see here.
Speaker Change: In the first quarter.
Speaker Change: Alright, and then I guess just on the pricing side.
Speaker Change: So I mean, you're expecting sort of flat pricing sequentially there.
Speaker Change: I mean, the benchmark prices have started to come off a little bit.
Speaker Change: What are you guys, what's I guess, what's kind of driving your order book versus set of where we're at.
Speaker Change: Where the market is and what sort of a seasonal reset and youre expecting this year should we say set up more of one in the third quarter.
Speaker Change: Are you expecting sort of more mob seasonality this year.
Speaker Change: Okay.
Speaker Change: Yes. This is zach here. So I think we see the global market has been very balanced and stable right now.
Zach: Certainly there is always some seasonal price movements that.
Zach: What you see as you kind of exited the application season and you go into that now.
Zach: Period of the Summertime framework.
Zach: Buyers kind of look to in season inventory and kind of work on the timing of kind of when theyre going to refill their positions all season is.
Zach: As it relates to kind of second half I think we're we're optimistic about demand there.
Zach: We think the.
Zach: The prospect of entering the spring season inventory will continue and we think.
Zach: <unk> will be ready to step in at some point this summer for volumes and the crop the crop economics today still support.
Zach: Our customers and farmers looking to maximize yields. So we think thats a positive bellwether for volumes in the second half and stable pricing going forward.
Speaker Change: Alright, Thanks, I'll get back in the queue.
Zach: The next question comes from Joel Jackson, with BP or capital BMO capital markets. Your line is open.
Joel Jackson: Good audible there on the name.
Joel Jackson: Okay, Ontario, like a Q1 volume sales line.
Joel Jackson: Quarterly average for trio in any quarter as a public company.
Joel Jackson: Pricing looks like it's rising a bit in Q2, whereas potash price stable.
Joel Jackson: And your trio volume guys pretty good for Q2 as well so.
Zach: What was happening in <unk>. It seems like you are getting really good uptake on it value and volume.
Speaker Change: Yes, I'll, let Zack touch on the volumes of Youre right. It was record domestic sales there in Q1, but go ahead, yes. Thanks, Joe Yeah, I think what we saw on the volume side was our customers entered the year with very low channel inventories on Si and.
Zack: Across several regions in the U S. We saw an early application period, so that really led to <unk>.
Zach: <unk>.
Zack: Typically might transact in April let's call it kind of the pull forward into the March excuse me and so.
Zack: Even with that I mean overall first half volumes looks strong for us in <unk>.
Zack: Compared to potash always has a little bit more of a tail on the on the application season to adjust the calls at Houston, some side dress and top dress applications that kind of go out through late May and 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.
Speaker Change: Okay and just on that.
Zack: Duction clarification, so not that my model is right, but I had that you were expecting about a 13% increase in production in 'twenty, four and 23% production increase of 25 talking about 20% increase now is that for 'twenty four 'twenty five as my motto right or.
Zack: You want that better than your thoughts or am I wrong.
Speaker Change: Yes, I'll go back to what we said on our Q4 call, which was a 10% to 15% increase in 2024, and another 15% to 20% and 25%.
Speaker Change: As I was telling Lucas I think we're closer to the 15% increase for 2024 right now.
Speaker Change: We haven't given change really anything on 2025 is still a ways out but.
Speaker Change: Certainly 2024 volumes look very good in towards the higher end of that guidance.
Speaker Change: Okay. So I guess my question. Thank you.
Lucas: Thanks, Joe.
Lucas: The next question comes from the line of Jason Urethane or.
Jason Urethane: Bumbershoot Holdings your line is open.
Jason Urethane: Hi, Matt Thanks for taking the questions and nice to see the solid start to the year and just grateful to you for deciding to stay although wish it was obviously under better circumstances, and hoping for Bob that the whole recovery and be back soon.
Jason Urethane: On the potash side.
Jason Urethane: I guess, what the Capex and IP 30 be sounding as if it is kind of reaching a conclusion.
Jason Urethane: You kind of mentioned seeing the progress we hope to see it feels like kind of pass through the gauntlet with that everything just qualitatively I guess at this point.
Jason Urethane: What would be.
Speaker Change: The biggest.
Speaker Change: Hurdles to getting there or is it just at this point kind of slowly letting competence buildup in timing.
Speaker Change: Yes things are on the right track right now with the potash side.
Speaker Change: Yes, I mean, you're right, Jason we certainly getting the IP <unk> well drill 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 IV <unk>, so great to have that behind us.
Speaker Change: Obviously, there is variability in a lot of our evaporation seasons, we've seen that over the years and we need to continue to.
Speaker Change: Control, our costs and execute on the projects in front of us.
Speaker Change: We'll see how the at HB.
Speaker Change: But if you were to be continues as well as my wife, Catherine for as well as the additional work, we've done and Kathryn three but I.
Speaker Change: I don't want to give the impression that I think we can sit back and sort of rest on our laurels now we continue to stay focused on the project execution kind of this two year plan, we've been on to get our production rates back to historical levels and so yes, good progress so far but still lots of work to be done.
Speaker Change: Get through this evaporation season, and hopefully we can give some some better guidance towards the back half of the year and into the spring of 'twenty five.
Speaker Change: Okay, and then got a couple of questions on the volume side of the production.
Speaker Change: Maybe on the on the cost side of production. If you could just remind us what you.
Speaker Change: 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.
Speaker Change: Heavier lifting behind you is there increasing confidence that.
Speaker Change: The cost side of things is kind of lining up with where you guys were hoping.
Speaker Change: Yes, certainly as we see those production volumes materialize, we will see an improvement in our unit costs certainly had a great first quarter for potash around $350 per ton. So that was probably benefited a little bit for more sales out of our Utah facilities, which are at a lower per ton costs. So not sure we'll be quite there into Q2, but as we continue to see.
Speaker Change: More production tons in the ponds, we still expect to see a pretty equivalent in improvement in our per ton cost. So if we're 10% to 15% improvement in production.
Speaker Change: <unk> four versus 'twenty, three we will see an equivalent improvement in our per ton cost as well.
Speaker Change: Okay, and then just I guess sitting here today.
Speaker Change: Obviously hope Bob is back, but just from I guess from your perspective, maybe you could try to frame.
Speaker Change: I guess, where the company over the next year.
Speaker Change: Year, or so might be headed obviously have the cash on the balance sheet. We already spent a pretty good portion of this year's capex.
Speaker Change: Then lithium well it sounded like they're kind of coming together.
Speaker Change: So I guess, where.
Speaker Change: In your mind, what is the most important kind of thing besides the execution.
Speaker Change: Focus on of where the company should be heading.
Speaker Change: 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 of 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.
Speaker Change: The ones, we're continuing to wrap up here in Q2.
Speaker Change: The direction has been clear and it's really unchanged going forward.
Speaker Change: Okay, Great I appreciate the commentary thanks.
Speaker Change: This concludes the question and answer session.
Speaker Change: I'd like to turn the conference back over to Matt Preston for any closing remarks.
Matthew D. Preston: Thanks, everyone for your interest and look forward to talking to everyone again soon.
Matthew D. Preston: Have a nice day.
Speaker Change: This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a blast.
Matthew D. Preston: [music].
Matthew D. Preston: Yes.
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Matthew D. Preston: Sure.