Intrepid Potash, Inc. Price & Performance (IPI)

Good morning, everyone. Thanks for joining us to discuss and review Intrepid's fourth quarter twenty twenty four results. With me today is Intrepid's CEO Intrepid, Kevin Crutchfield and CFO, Matt Preston. Also available to answer questions is our VP of Sales and Marketing, Zachary Adams, and our VP of Operations, John Galasini. Please be advised that the remarks that include forward looking statements as defined by U. S. These forward looking statements are subject to risks and uncertainties which could cause Intrepid's actual results to be different from those currently anticipated, or based upon information available to us today, and we assume no obligation to update them. These risks and uncertainties are described in the reports filed with the SEC are incorporated here by reference. During today's call, we refer to certain non GAAP financial and operational measures, Reconciliations to most directly comparable GAAP measures are included in yesterday's press release and along with Intrepid's SEC filings, are available at intrepidpodish.com. I'll now turn the call over to our CEO, Kevin Crushfield. Thank you, Evan, and good morning, everyone. We appreciate your interest and attendance for our fourth quarter earnings call this morning. Since joining the company, I've had the pleasure of visiting all of our operating sites meeting many of our key stakeholders and speaking with a number of our investors.

But want to take this opportunity to quickly introduce myself. My background prior to Intrepid has been spent working for over three in the extractive industries. And most recently in a complementary role as CEO for a company operating in the and sodium and magnesium chloride space. I'm happy to be part of the Intrepid team and I look forward to building on recent accomplishments in driving long term value creation for our shareholders. Moving on to our results. In the fourth quarter, Intrepid generated adjusted EBITDA of $8,600,000 dollars and had an adjusted net loss of $1,400,000 which compares to prior year adjusted EBITDA of $7,100,000 and adjusted net loss of $5,200,000 respectively. This year's improvements were primarily driven by higher production, and the corresponding benefit to our unit economics. As well as from strong operational execution and cost discipline across the business. Related to these efforts, I'd like to thank our site leadership and all of our employees for their focus and encourage them to maintain the positive momentum. The positive impact from higher production and better unit economics was most pronounced in the back half of twenty twenty four. And when looking at just the second half of the year, our adjusted EBITDA of $18,500,000 was roughly double the same prior year figure.

Being able to improve our EBITDA by maintaining the focus on our core assets even with the backdrop of a lower potash price environment speaks to the importance and success of the recent asset revitalization initiatives. As for segment highlights, in potash, Our fourth quarter production of 117,000 tons was the third quarter in a row where we demonstrated higher year over year potash production. For the full year 2024, our production of 295,000 tons was the best since 2020 and represents an increase of over 30% compared to 2023. Trio was a clear standout where operational efficiencies helped to drive better production and margins And our 2024 gross margin improved by approximately $8,500,000 compared to 2023 Strong demand for Trio led to company record sales volumes of 254,000 tons and price increases throughout the year. With Trio pricing currently higher than potash for the first time since 2016. Lastly, on the back of strong oilfield activity and investment in the Oilfield Solutions remained a consistent and key contributor to our business in 2024 with segment sales and margins both showing modest improvements compared to 2023, Before passing the call to Matt, I want to reinforce the initiatives that drive our [indiscernible] Related to strategy and capital allocation.

First and foremost, it's imperative that we deliver on our established strategic priority of sustaining higher levels of production to ensure we capitalize on our unique position as the only domestic potash producer in The United States.

The corresponding logistics advantage from this position have historically led to consistently higher netbacks than our peers and our multi decade reserve lives provide for a long runway to benefit from an improving unit economics driven by higher production. Second, we'll be very disciplined in our capital spending. With our investments focused on the core fertilizer assets. One of the biggest risks to our business is getting shortsighted getting caught shortsighted on production and then having to go through the process getting it back on track. With our potash production increasing as expected, we're committed to continuing this positive momentum through timely capital investments and are on track to drill a sample well in the HV AMEX Cavern for the first half of this year. Lastly, through these initiatives, we believe that Intrepid's core assets will be more durable and consistent and help return the company to generating positive free cash flow throughout the cycle. Consistent cash flow and the ability to flex capital investment when necessary are paramount before committing to any sort of capital return program to shareholders. That said, we're quite encouraged by our progress and acknowledge that the potential to receive the second guaranteed $50,000,000 payment from XTO ahead of the seven year deadline could serve as a catalyst for capital return discussions.

I'll now pass the call to Matt to provide more details on our segment results and our outlook. [indiscernible] Thank you, Kevin. Before getting into our segment results, want to touch briefly on the valuation allowance we recorded against our deferred tax assets. Since we are projected to be at a three year pre tax book loss within the next year, largely due to the impairment we recorded at our East Mine in 2023. We recorded a valuation allowance against the balance of our deferred tax assets at year end.

You can find more information about this in our 10 ks, which we plan to file Now for segment results.

In potash, in the fourth quarter, we produced 117,000 tons, an increase of almost 50% compared to last year's fourth quarter. Driven by the higher production, our fourth quarter potash cogs per ton improved by 24% versus last year leading to a modest improvement in our gross margin even with the lower price environment.

As we mentioned in our last earnings call, in yesterday's earnings press release, an accelerated harvest at HB did shift about 15,000 tons into 2024 that we previously expected to produce in the first half of twenty twenty five.

Accordingly, we anticipate that our calendar year 2025 production will be roughly flat year over year right in line with the guidance we gave one year ago.

And as Kevin mentioned, we expect to drill a sample well at our HBA Amex Cavern in the first half of twenty twenty five to test the brine chemistry and stay on track with the developments of the HB solution mining CAPERMS.

Moving on to Trio, it was one year ago that we announced we were evaluating all options to improve our operational financial performance at our East Mine, saw continued improvement throughout the year.

Capped off with fourth quarter gross margin of $2,800,000 a more than $5,000,000 improvement compared to the fourth quarter of twenty twenty three.

The turnaround in performance was driven by better efficiencies from the new continuous miners which allowed us to operate at a reduced schedule as well as the restart of our fine lignite recovery system in the first quarter. When compared to the prior year, our production increased 16% and most importantly, we lowered our direct cash production cost by approximately approximately $11,500,000 exceeding our goal of $8,000,000 to $10,000,000 in cost reduction in 2024.

Moreover, our 2024 Trio production 251,000 tons was the best since 2016 and in the fourth quarter our Trio COGS per ton improved by 20% compared to the prior year. We expect to continue the momentum into 2025, with full year production estimated at between two thirty five thousand and two hundred and forty five thousand tons in strengthening Trio pricing driving bottom line growth in the segment. In terms of first quarter guidance, we expect our potash sales volumes to be 95,000 to 105,000 tons at an average net realized sales price of $305 to $315 per ton.

For Trio, we expect our sales volumes to be between 100,000 to 110,000 tons an average net realized sales price $340 to $350 per ton.

For our 2025 capital program, we anticipate CapEx of $36,000,000 to $42,000,000 with most of this directed to sustaining capital including approximately $4,500,000 related to the HB Amax well.

Overall, we're proud of Intrepid's performance in 2024 and in particular the improvements in production rates and unit cost of production for Potash and Trio. We look forward to continuing this progress in 2025. Operator, we're now ready for the Q and A portion of the call.

Thank you. Will now begin the question and answer session.

Our first question comes from Lucas Beaumont with UBS. Please go ahead. [indiscernible] looking at potash pricing, I mean, it's moved up a bit the last couple of weeks.

Potentially, that could be on the pull forward of demand.

Ahead of the tariffs that look like they're coming in or also be sort of on a stronger supply demand setup. So just wanted to sort of get your thoughts on how you see the dynamic there And then to the extent [indiscernible] the prices have sort of moved a bit higher and stay higher What sort of your order book forward sales like currently? So should we see any of that benefit in the tail end of the first quarter or into the second quarter if I could assist? Thank you. Yes. Thanks, Lucas.

The first part of your question around hot ash pricing, certainly we've seen prices globally move up the last several weeks and think that's just an indication of continued supportive dynamics in the market. There's been about 1,300,000 tons that's come off the market mainly out of Eastern Europe for first half production. And we continue to see demand in all the major consuming regions be very steady through first half of this year. So with that said, we expect price to remain firm on the potash side. As it relates to kind of where we will see that in our results, we saw a really heavy subscription to the Winterfield program.

So our first quarter volumes are are mostly contracted at that level. We would expect the recent price increases on the potash market that you've seen to be more fully realized as we get into our second quarter volumes? Great. Thanks. I guess then just you sort of mentioned that you obviously had the benefit of the production uplift in 2024, which is sort of pulled some of that forward. So looking at '25, that's going to be sort of more flat. I mean, at the same time, you made really good progress this year on the cash cost side getting that down. So production environment into 2025, I assume maybe we get a little bit more kind of leverage that sort of flows through there on the cost side. Or just how could you would you frame sort of how you see the setup there on the calc side this year?

Thanks.

Yes. Good question, Lucas. We came in fourth quarter around just under $320 per ton. We'll certainly continue to see a little bit of improvement into 2025, but largely flat year over year. I will remind you that our Wendover facility is still kind of waiting to see that uplift in their potash production due to the new primary POND7. We'll expect to see that in the 2025, twenty twenty six harvest season. So as we get into the third and fourth quarter, particularly of 2025, we expect to see another step improvement in our unit cost as we get that facility back up in that 75,000, 80,000 ton range. Great. Thanks. And then I'll just wanted to ask you about the Canadian tariffs So I mean Intrepid is one of the few companies that may actually benefit from this if domestic potash prices rise as you recapture the margin Have you done any work kind of internally to work out sort of how much of a dollar impact you think that's going to have? So is that 25% that they're going to levy What sort of a wholesale price do you think that's going to be on versus say a market price.

I was assuming it would be something below the market price of in the $300 range So I just wanted to kind of get your feel for how you guys are assessing that internally and what sort of the price impact in the market could be? Thanks.

Yes. Thanks, Lucas. I think it's early at this point as to kind of what that impact would be specific to us. As I mentioned, previously, most of our first quarter volume is already contracted at this point. And so So really any impact we would see would be beginning in second quarter. We're like everyone else right now gathering information on this and trying to understand what that means and what the market reaction is going to be and And certainly as we see that, we'll know more.

All right. Thanks very much.

Your next question comes from the line of Jason Youssaintre with Bumbershoot Holdings. Please go ahead. Good afternoon. Thanks for taking the question. One probably more for Matt, but to follow-up on the unit economics.

I guess just looking at the way you guys are kind of presenting it now, the total costs including the byproducts and everything. So we went from like $4.15 to $4.20 a ton last year to I think you're saying $3.15 to $3.20 this year. So it's kind of a 20% to 25% improvement, which I guess from my perspective is based on the tail end of 2020.

Four's production cycle, which benefited a lot from access [indiscernible] the brine pool and the Eddy shaft and maybe a little bit of the early commissioning from the IP30B well So I guess I'm just trying to understand, do I have that right for what's kind of reported in the costs in Q4 And if you're getting the full benefit of the extraction well, for the production year, the 2024 to twenty twenty five production cycle, I guess you're saying kind of flat production, but on a production year, not a calendar year, still improving. So I guess why would that kind of be trending flat versus continuing to drop out Yes. I mean, I think the good we've got the capital investments right. I mean, I think important thing to remember there is we put laid those tons down in the pond and the summer of twenty twenty four. So we started to see that benefit in Q3 and Q4 We're not carrying a lot of inventory. So we kind of certainly the potash side see that turnover a little bit quicker. As we like I said, we'll get into the back half of 2025. We'll think we'll see that kind of another step change down as Wendover starts to really contribute to our improving COGS.

They get back up to that productive capacity of 75,000 to 80,000 tons. Okay. And just in terms of the brine grades that [indiscernible] are seeing or expected to put in thought where are those sort of trending at this point? Versus where they had been? And then maybe 2026 and beyond with the injection rates that you're seeing, I guess the any anticipation on brine grades kind of longer term?

Yes. I mean, you touched on it, the Eddie Shaft project was a great little kind of stopgap to extract brine from the Eddie Cavern. Until we could get IP30B drilled. So we really got the benefit of higher brine grade really all throughout the entirety of the 2024 evaporation season. We're just starting off kind of the spring evaporation here in 2025. And so we'll see where Brian Grade trend, but continuing to extract heavy out of our Eddy Cavern from IP30 and really pleased with the brine grades we've seen so far.

Okay. And then in the Oilfield segment, obviously, the operational results bounce around and maybe this quarter didn't hit quite like Q3 or last year, but maybe just in terms of the asset itself, not so much what's reported in the numbers, but there have been a few transactions of surface acreage at pretty substantial premiums to where you acquired Dinwiddie, which is now the South Ranch. So obviously, I know every ranch is different, depends on proximity to to drilling activity and all that. But I guess my perception is your proximity is as good as any and this is just strictly surface acreage. So maybe fair to say the Four Corners strategy never materialized quite how we envision. So I guess just what do you make of those asset sales Is this a sign that maybe we'll start to show up more in the numbers or is there also a potential where could kind of wipe the slate clean maybe still wind up coming out of it with the pretty significant profit.

Hey, Jason. Good morning.

It's Kevin.

I'll I'll take that one. There to your point, there's an extraordinary amount of interest down in that neck of the woods, both in on the New Mexico side and West Texas side and we're looking at that asset It certainly has value to us, but to the extent that another party sees more value in it than we do, we're always up for a conversation. So given the level of interest that's occurred down there over the past few months even prior to my arriving here, It's something that's certainly on our radar screen and more to come on that. The coming weeks and quarters.

Okay.

Okay.

And I guess just in terms of the capital allocation kind of the message was sort of want to wait on forgot exactly how you word it, but wait on kind of seeing various things before doing things on capital side. I guess between the cash on the balance sheet maybe some of the different assets you have, all that. I guess what is the thought process of waiting versus kind of being more active at this point?

I think going back to the remarks we made, the number one priority here is to reestablish our focus on core fertilizer assets. And get those assets performing at their either previous potential or current potential and get in a position of being a steady free cash flow generator. And then in my opinion, and again, I don't want to front run the Board here because this is ultimately a Board discussion, but in order to have any sort of capital return plan in place, that is the first order of business. And so that is our goal is to establish a These are durable long term sets of assets and there's no reason why we can't optimize the production and the cost side so that these assets routinely and predictably generate free cash flow. And at that point, that's when I think you could envision Board having a very earnest discussion around a capital return policy. Okay, great. Appreciate all the commentary. Thanks. Thank you.

This concludes the question and answer session. I would like to turn the conference back over to Kevin Crutchfield for any closing remarks.

Thanks for everybody's participation today. I just wanted to reiterate how excited I am to be part of the team and look forward to meeting more of our investors as the as 2025 progresses. Thank you.

You may disconnect your lines. Thank you for participating and have a pleasant day.