Q3 2024 Intrepid Potash Inc Earnings Call
Thank you for standing by, this is the conference operator.
Welcome to the Intrepid Poetash Inc. 3rd quarter, 2020 for Results Conference Call.
As a reminder, all participants are in a listen, all the modes and the conferences being recorded.
After the presentation there will be an opportunity to ask questions.
to join the question to Humay Prestar, then one on your telephone keypad. Just you need assistance during the conference call. Humay Signal and Operator by Pressing Star and Zero. I would now like to turn the conference over to Evan Mapes. In Professor Relations, please go ahead.
Evan Mapes: Good morning everyone. Thank you for joining us to discuss in review and trap its third quarter 2024 results.
Evan Mapes: with me today is in Treppe CFO and acting a principal executive officer Matt Preston.
Also available to answer questions is our VP of SEALS and Marketing, Zachary Adams, and our VP of Operations, John Gell, Senior.
Evan Mapes: Please be advised that the remarks today include for looking statements as defined by U.S. securities laws.
These four looking statements are subject to risks and incerrenties which could cause and trap its actual results to be different from those groundly anticipated. Our base upon information available to us today, and we assume no obligation to update them.
Evan Mapes: These risks and incerties are described in reports filed with the SEC, which are incorporated here by reference.
Evan Mapes: During today's call, we will also refer to certain non-gap financial and operational measures.
Evan Mapes: Reconciliation to the most direct and comparable Gat measures are included in yesterday's press release and along with intrepid's SEC filings are available at www.trepidpodish.com On Outro in the Call Over to Matt.
Matt Preston: Thank you Evan, good morning everyone. We appreciate your interest in and trap it and attendants for our third quarter earnings call.
Matt: Bob and his family remain in our thoughts, and we continue to wish him well in his recovery. The board's CEO search process is ongoing, and there are no additional updates to provide at this time.
Matt: In the third quarter, our adjusted EBITDA totaled $10 million, a slight increase sequentially, but a $7.8 million improvement compared to the third quarter of last year.
Matt: Our improved performance was driven by several factors, including positive results from our successful project execution over the past two years, evidenced by two quarters in a row of higher potash production compared to the same prior year periods.
Matt: With the successful commissioning of Phase 2 of the new HB Injection Pipeline in September, we've now completed the key projects related to our asset revitalization process, which we expect to drive improved production rates in upcoming potash production seasons.
Matt: As we stated before, producing more tons is the most effective way to improve our unit economics and margins, and this was evident in the third quarter, as our potash segment cost of goods sold per ton improved by 14% compared to the prior year.
Matt: Before getting into more segment details, I'll quickly touch on the macro outlook starting with U.S. agriculture.
Matt: Compared to the past couple of years, we've clearly moved into a different market.
Matt: Crop futures for corn and soybeans are back at historical averages, and farmers continue to be impacted by inflationary pressures. That said, the trend of yield maximization is expected to continue, and moderating costs for key inputs, including potash, should help lead to better value and steady demand for our fertilizer products.
Matt: As we've highlighted in recent earnings calls, even during the last period of decreasing farmer incomes, U.S. potash demand remained quite resilient. Furthermore, Intrepid continues to be supported by our geographic advantage and our sales diversification into specialty markets.
Matt: As for the global potash market, pricing continues to be supported by several factors.
Matt: First, we see a balanced market with global demand returning to historic levels and growth rates of 1-2% per year offsetting new supply coming online in the next few years.
Matt: Second, solid demand into Asian markets during the second half of the year has set a stable floor on global pricing and granular markets, particularly in Brazil, have started to re-engage for first-half 2025 needs.
Matt: Overall, we remain constructive on the fertilizer market as we finish the year and head into 2025.
Matt: Moving on to third quarter segment highlights. In PODASH, our segment gross margin showed modest increases both sequentially and year-over-year, which underscores the positive impacts of higher production, even with lower pricing.
Matt: For the first nine months of the year, our production totaled 178,000 tons, has improved brine grades, an above average evaporation season, and a faster start to our fall production led to higher potash production than originally anticipated.
Matt: As a result, we now expect our full-year 2024 potash production to be in the range of 280,000 to 290,000 tons.
Matt: Since our last call, our overall production expectations haven't changed, and we want to be clear that by processing more tons in the second half of 2024, we are essentially pulling forward tons we previously expected to produce in the first half of 2025.
Matt: As a result, we now project relatively flat production in the calendar year 2025 of between 280,000 to 300,000 tons, but remind folks that this is in line with our expectations to start the year.
Matt: When looking at harvest year production, which typically runs from August until mid-spring, we remove the variability of start-up timing or processing rates from our solar solution mines, and we can clearly see the benefits of our recent capital projects.
Matt: In our 2023-2024 harvest year, we produced 249,000 tons of potash, and looking ahead to this current year, specifically the production we expect from August 2024 through the spring of 2025,
Matt: We expect to produce approximately 280,000 to 300,000 tons, a 16% increase compared to the prior year at the midpoint.
Matt: Our trio segment again performed well in the third quarter with our sales volumes totaling 45,000 tons at a net realized sales price of $312 per ton.
Matt: Operational improvements and higher production led to a solid improvement in our unit economics, and in the third quarter, our cost of goods sold totaled $272 per ton, which compares to $341 per ton in the same prior year period.
Matt: This helped contribute to TRIO, generating a positive gross margin of about $600,000 in the quarter, which compares to a gross deficit of $4.3 million in the third quarter of last year.
Matt: For 2024, we also now project that our TRIO cash production cost savings will be at the higher end of the $8 to $10 million range we've previously provided when compared to the prior year.
Matt: Lastly, for oilfield solutions, our segment margin of 3.1 million dollars in the third quarter was more than double the prior year.
Matt: end up by approximately $1 million sequentially, due primarily to increased water sales associated with a large frac in Intrepid South.
Matt: As we've noted before, our segment margins can fluctuate due to the timing of completion operations on the South Ranch, similar to the increased water sales we reported in the fourth quarter of 2023.
Matt: As for fourth quarter 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 in the range of $340 to $350 per ton.
Matt: For TRIO, we expect our sales volumes to be in the range of 40,000 to 50,000 tons at an average net realized sales price of $315 to $325 per ton.
Matt: As for other key initiatives, our discussions regarding our lithium project at Wendover continue to progress well, although we remind investors that this would be a longer-term project with a multi-year timeline for commissioning once a partner is selected.
Matt: We also started the permitting process to drill a test well at the Amex cavern, which we have never mined and is the largest cavern at HB.
Matt: Permitting AMAX is a natural next step as we look to our longer-term production profile in the normal course of resource development, and we expect to have more to share on this in 2025.
Matt: To end my comments, I think it's worth repeating that having no long-term debt and good liquidity puts Intrepid in a position of strength.
Matt: In addition, the amendment to the Cooperative Development Agreement we completed last year with XTO has both another guaranteed $50 million payment and the potential of an additional $100 million in payments, although the timing of these payments is uncertain and not guaranteed for the latter.
Matt: Overall, we're encouraged by the trajectory of our business and continue to focus on positioning Intrepid for long-term sustained success.
Matt: Thank you for joining us.
Matt: Operator, we are now ready for the Q&A
Speaker Change: Thank you. We will now begin the question and answer session. To join the question queue, you may press star then 1 on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any
Speaker Change: To withdraw your question, please press star then 1. We will pause for a moment to compile the Q&A roster.
Speaker Change: Our first question comes from the line of Joshua Spector with UBS. Please go ahead.
Speaker Change: Good afternoon, this is Lucas Beaumont on for Josh. Thanks for taking my question.
Speaker Change: The common areas that have sort of been called out for potential cost cutting have sort of been crop chems.
Speaker Change: and then across like P and K on the fertilizer side.
Speaker Change: So, I mean, your demand outlook sounded like you're still pretty confident in things improving into next year, but I guess how would you frame any risks around getting some demand destruction for next season, despite Potash being relatively affordable again at the moment?
Speaker Change: Thanks for the question. This is Zachary. You know, global demand in 2024, as Matt mentioned, has trended back to normal levels and we expect that normalization to continue into 2025.
Speaker Change: You know, in our visits with customers as recently as last few weeks, they've commented that potash at the current price levels
Speaker Change: represent a good value to the grower and in the rates that they've been seeing applied this fall in a number of geographies.
Speaker Change: They've seen those rates be relatively normal with little to no cuts on those. So, we expect good demand in the spring of next year, and, you know, again, part of a
Speaker Change: You know, even in a weaker ag price environment, yield maximization is still a key, and potash is a part of a balanced fertilization strategy to maximize yields.
Speaker Change: Great, thanks. And then I guess just on the cost side in Potash, I mean we're really starting to see that cost leverage should have improved and come through.
Speaker Change: Now your cash cogs are sort of down 12 million sort of you to die and down a lot on a petan basis Which is the best sort of results you guys have had for
Speaker Change: six or seven quarters now. So it seems like the year's probably on track for about $60 million sort of in cash spending there. Obviously your petanque costs are going to improve even more as your production volumes come back up.
Speaker Change: I just wanted to get a feel for you on whether you think there's more room to go there in terms of the absolute base below the $60 million, or is that kind of a good way to think about the base to go into next year?
Speaker Change: Thanks.
Speaker Change: Yeah, thanks for the question, Lucas. I mean, I think we're certainly on track. You go back to some prior calls, we had talked about a 20 to 30 percent improvement.
Speaker Change: and our cost of goods sold compared to that 2023 level, which was right around $387 per ton.
Speaker Change: So we started to see the benefits. You know it'll take some time as we get through this harvest season and then of course into the next one and so we'll kind of see, I mean you'll see some bumpiness throughout the year as we have variability in where we sell.
Speaker Change: are tons from, whether it kind of in from our Wendover MOA facilities or from HB. But yeah, overall, we're on a good track. I mean, I think as we get to the second half of 2025, you know, we expect to be
Speaker Change: kind of probably at that lower end of the range of what we had guided to previously, down 20% from that $387 per ton. But yeah, we certainly already see it and encouraged by the results.
Matt: and go back to the second half of 23 where our cost of goods sold were north of $400 per ton. The quick benefits from increased production are clearly evident and we're pleased by that.
Speaker Change: Right, thanks. And then I guess just on the oil field solution side, so I mean, you had a strong step up there in both yourselves and profitability there.
Speaker Change: from the new well. So I guess with that now in place, I just sort of wanted to get your thoughts on how we should kind of think about the run rate sort of going forward in that business. Is that kind of 10 million sort of on the sales side, kind of how we should think about the new base from here or anything that's sort of, I guess, temporary in there to kind of call out from that side?
Speaker Change: Thanks.
Speaker Change: Yeah, we certainly have major fluctuations when there's completion operation on the South Ranch. I'd say, as I said in my kind of prepared remarks, the first half rates we saw are really quite steady for our business. We've seen some nice kind of moderate upticks over the past couple years on brine sales as well as freshwater sales. But those first half margins and sales rates are pretty consistent for our business.
Speaker Change: Yeah, I wish we had some better visibility into large completion operations on south into 2025, but we just don't right now. So I think a good baseline is those first half rates and certainly as we have more information and clarity on your potential large sales of water, we'll let folks know.
Speaker Change: All right. Thank you.
Speaker Change: Our next question comes from the line of Jason Ursaner with Bumpershoot Holdings. Please go ahead.
Jason Ursaner: Hey, congrats on all the progress and thanks for taking our questions.
Jason Ursaner: Just first one, a bit of a follow-up on Lucas's question there.
Speaker Change: Yeah, there's a lot of headlines Belarus president proposing cutting production with Russia obviously
Jason Ursaner: not a direct impact on you guys, but has a direct impact on the global market.
Speaker Change: So, just in terms of some of the compression in farmer income in the U.S., obviously, you know, I'm sure everyone would love the lowest prices possible with lower usage and still having great yields, but I guess at what point...
Speaker Change: Any insight into the supply demand more directly at your retail distributor level and maybe their customer in terms of inventory replenishment, fall application, because the last time some of these cuts started happening, people got
Speaker Change: Yeah, thanks for the question, Jason. I'll kind of touch on, I say, the more global view of this and let Zach tie in and talk about specific, you know, distributor inventory levels.
Jason Ursaner: I mean certainly saw the news yesterday and I mean it's still much too early to kind of
Jason Ursaner: putting any stock in that right now. I think what it does point to is a really balanced global market today from a supply-demand standpoint where even the potential cuts, call it 2.5 million tons on the high side, it would be a pretty big shake-up to the current market as it is today.
Speaker Change: Who knows the likelihood of that happening, but I think certainly it just points to that we're in a nice balanced market, and Zach, I'll let you touch on sort of the U.S. implications and where we are today.
Speaker Change: Yeah, Jason, kind of in regards to your question just around distributors, you know, we saw a good subscription to the summer fill period, but, you know,
Zach: You know, as we saw in the spring and last fall, we saw that subscription really specific to just what anticipated fall needs were. So, what we continue to see is really a focus on not to carry over any tons from one application season to another by distributors or retailers.
Zach: And that's not driven right now as much by what I would call a fear of any price downside, but just more of an intentional decision for those distributors and retailers to manage their available capital amid a constrained environment. So we continue to, you know, talk with retailers as we visit with them and our customers. I mean...
Speaker Change: They continue to project good potash demand out into spring of next year, and we think that, you know, once the winter fill program, you know, comes out, whether that's late in fourth quarter or early first quarter, we think we'll see good subscription again for what they anticipate their fall needs, or their spring needs to be.
Speaker Change: Okay, thanks. And on the cost side of things...
Speaker Change: I guess, how is the byproduct sales...
Speaker Change: working in some of the projections just because you've had a pretty
Speaker Change: nice benefit in the cash costs, at least the old way. It was calculated, so I guess I'm wondering any outlook on the continuation of strength in the byproduct sales, and then how does that, you know, play into the update on the production costs with the inflection in production that you're seeing kind of sitting here today.
Speaker Change: Yeah, we certainly break out our various byproducts, both in our earnings pressure leases and our Qs and Ks. You know, they've been pretty steady markets. I'd say as production increases, certainly we'll have a little more byproduct, you know, tons to sell. But I don't expect significant changes in our byproduct outlook.
Speaker Change: you know, going forward with an increase in potash production. You know, when it comes to production costs, you know, we've made a change. This was many years ago. There's really no change in our potash production costs with the production of byproducts. It's split out now and separate.
Speaker Change: And so we're not taking that as a credit against our potash production like we did many years ago.
Speaker Change: But so when you talk about the improvement in cost, you're not talking, it's not, that's not helping to benefit. It's just purely, it's not what you're benefiting out of.
Speaker Change: This is proof of clearly more potash production over, you know, what's a very large fixed cost basis.
Speaker Change: And the commentary on the production, just to kind of make sure I understood it, so what you're trying to say from August this year through spring of next year, you're kind of right in that midpoint still of the 15% improvement in production, but so it's really the pull forward.
Speaker Change: kind of the flat-out look year-to-year is that this year is next year sort of because you're pulling forward the tons now that you're going to sell next year.
Speaker Change: Yeah, that's exactly right. You know, if you go back to.
Speaker Change: Kind of the early guidance we gave in early 2024, we were coming off 224,000 tons of potash.
Speaker Change: in calendar year 23, and we projected a 10 to 15 percent increase off that number.
Speaker Change: which, due to the reasons I mentioned, improved brine grade, an above-average evaporation season, but also pulling some tons forward.
Speaker Change: you know, we've kind of blown that out of the water here from a calendar year basis and wanted to be very clear on the call that, yeah, while we have seen good results, you know, some of that is just some tons pulling forward from 25. Right. And so I just want to be very clear on that, but yeah, you've got it exactly right.
Speaker Change: And when do you think you might be in a position to talk about, I guess, 2026 or August 2025 through spring of 2026 and kind of, you know, a continuation of improvement or, like, when do you expect to see sort of the full benefit of some of the project?
Speaker Change: Yeah, you know, it's a good question. I mean, we're always hesitant when it comes to the evaporation season to give any sort of harvest year guidance, and so certainly a little too soon right now. I mean, as we start to really ramp up extraction rates and in the spring of 2025, I think we'll have a better indication and start to highlight that, you know, at that time.
Speaker Change: Okay, awesome. I think that's it for me. Congrats on all the progress.
Speaker Change: Thanks, Chief.
Speaker Change: This concludes the question and answer session. I would like to turn the conference back over to Matt Preston for any closing remarks.
Matt Preston: Thanks everyone for your interest in Intrepid and hope you have a great day.
Speaker Change: This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
Speaker Change: [music]