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Thank you for standing by. This is the conference operator. Welcome to the Intrepid Potash Inc. First Quarter 2023 Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Evan Mapes, Investor Relations. Please go ahead.

Thank you, Julianne. Good morning, everyone. Thanks for joining us to discuss and review Intrepid’s first quarter 2023 results. With me today is Intrepid’s Co-Founder, Executive Chairman and CEO, Bob Jornayvaz and CFO, Matt Preston. Also with me today and available to answer questions during the Q&A session following our prepared remarks is our VP of Sales and Marketing,

Thank you, Evan and good morning to everyone. We appreciate your attendance and your interest in Intrepid. For the first quarter of 2023, I'm pleased to share that Intrepid was able to continue its recent run of solid quarterly performance, which was highlighted by a meaningful pickup in demand for our key fertilizer products with our sales volumes totaling 89,000 tons for potash and 65,000 tons for Trio. When compared to our full year 2022 sales volumes, these first quarter figures represent approximately 40% of our total potash sales volumes and 33% of our Trio volumes, with the strong sales continuing into the second quarter behind higher demand from agricultural customers. While our sales have been strong to start the year, our profitability was lower with our first quarter 2023 adjusted EBITDA, totaling $16.4 million and our adjusted net income totaling $4.7 million, which compares to last year's respective figures of $50.2 million and $31.5 million, with the key driver being lower pricing. For some context around the lower pricing, the first quarter of 2022 saw a significant increase in potash prices due to concerns around the supply issues related to the Belarusian sanctions and Russian's invasion of Ukraine, which led to many global distribution distributors rushed to buy potash and build inventory. However, following last year's spring lackluster application season, potash inventories weren't depleted, coupling this with buyers maintaining a just-in-time approach, pricing started to trend lower in the back half of 2022 and in 2023. That said, we do want to caution against only focusing on these year-over-year comparisons in “missing the forest for the trays”. For Intrepid, current potash price levels still provide robust netbacks and for the broader potash industry, we still have the backdrop of potential supply concerns and disruptions from issues in Eastern Europe. While the outlook for the primary end user of potash agricultural markets continues to be quite strong. Looking specifically at US agriculture, which is Intrepid's key market, farmers are projected to have a third consecutive year of very solid profitability, have strong balance sheets and their outlook continues to be supported by elevated crop futures. For corn, December '23 and '24 contracts still traded over 520 a bushel, filed for soybeans, November '23 and '24 contracts are over $12.30 a bushel. Looking back over the past decade through the end of 2020, December corn futures averaged just under $4 per barrel -- per bushel, I apologize. On November, soybean futures averaged just under $10 a bushel. So today's pricing is still a 25% to 30% improvement over this recent historical period. Moreover, farmer input costs have recently come down quite considerably, and we expect the trend of yield maximization and strong fertilizer application to continue. Going forward, we're optimistic on the outlook. And for Intrepid, our primary focus for the 2023 remains the successful execution on our potash growth projects to improve our brine grades through mining our extensive ore bodies, adding extraction wells in the non brine pools, which will increase our production, as well as our sand resource at the Intrepid South ranch. Before I dive into the project updates, I want to take a quick moment to provide some more background on our recent potash production trends. Over the past several years, our potash production has been lower than our productive capacity. For some of these years, this has been mostly due to external factors like weather and permitting delays. To name a few examples, we experienced heavy summer rainfall in Wendover in 2019, impacting production and product availability for sale in 2020 and also had a significant rain event in Carlsbad in the summer of 2021, which was the key reason for the lower production continuing into 2022. Moreover, slow permitting in New Mexico has been a key reason for recent project delays at our HB facility, resulting in a lagging effect for bringing on new projects as quickly as possible. However, we're cognizant that external factors are also to blind, most namely the extraction well failure at HP this past fall. This extraction well failure is the primary reason for our lower 2023 production guidance of approximately 260,000 tons, and we estimate this negatively impacted our 2023 production by 40,000 to 50,000 tons. Absent this issue, our 2023 potash production should have resumed an upward trajectory. That said, our potash product projects are well underway, and our production goals are first to correct and sustainably reverse the recent downward trend and then get our annual potash production back to at least levels seen in the 2018, 2019 time frame or roughly 330,000 to 350,000 tons. We have a high degree of confidence on improving our near-term potash production by initially targeting already known high-grade brine that is ready for extraction. But I want to emphasize that the potash projects, I'll soon highlight are designed to have both an immediate positive production impact, while also driving sustained higher level of production for many years. We recognize our 2022 and 2023 capital programs are higher than recent historical levels, but we want to make sure that the factors that impact our production where we have more control, namely consistent injection rates, reliable extraction wells and developing higher-grade brine are seeing the necessary investment to help ensure our future production profile meets the internal goals I just outlined. So I'll now go into each project in more detail. Starting with HB. This facility has been the key reason for our recent declining production trend and consequently is a key focus for us, where we have three primary projects in the works. The first project is a new brine injection pipeline, which is projected to roughly double our brine injection rates. With the second phase of this project, also having a pigging system on the fly continuous system, which is the infrastructure to clean the inside of the pipe and prevent scale, which will help ensure more consistent flow rates. This is a long operational life project and will be key for sustaining higher injection rates, which in turn increased production levels over the long term. We expect the pipeline to be in place by the end of the quarter, with the improved brine injection rates starting in the second half of the year. The pigging system is still being permitted with construction likely to begin by the end of the year. To target high-grade brine in the near term, we've identified a new lower capital project to extract a pool of high-grade brine from the Eddy Shaft. Permitting and construction are both underway with operations expected to commence in the fourth quarter of 2023. We've taken several measurements of the Eddy Shaft brine grade and are confident that the associated product times will have a meaningful impact on supplementing our other extraction wells for the next few years, with this production benefit starting in 2024. Lastly, we still plan to drill a replacement extraction well that will have long-term operational life to target the significant brine pool from the HB brine system. Although, this project may get pushed to early 2024 due to the Eddy Shaft project being installed and New Mexico permitting issues. Now moving on to Moab, where we have multiple projects in the works. For the first key project, we successfully drilled a new three lateral potash cavern, which will be online in the second quarter. During the drilling process, we're able to stay in the target interval for longer than any of our previously drilled horizontal caverns and the initial brine measurements show great availability of high-grade brine. After we successfully completed drilling this new cavern, we moved the rig into an area that has multiple high-grade brine pools in the lowest part of the old conventional mine, which are also referred to as sumps, as potash ore and the brine pool is part of the original conventional mine works and flooded area, where we previously used vertical wells. However, for this new effort, the key difference is that we are now using horizontal laterals to more effectively target the multiple sumps we've identified. Our goal is to have the second project complete by July 2023 to allow us to pump this brine into our ponds for the 2023 evaporation season. At Wendover, we have no major growth capital planned for this year, but I did want to mention that the deep brine wells we successfully drilled in the fourth quarter of 2022 are online and producing well. The very wet weather at Wendover this winter should be an additional boost to brine availability for the upcoming evaporation and production seasons. Quickly on the frac sand project, we continue to work through the permitting process and expect construction to begin by the end of 2023 with the eventual goal to ramp production up to 1 million tons per year once the project is operational. During the first quarter, we did start to engage with potential customers for commercial agreements and due to the strategic location of our sand resource in the Delaware Basin, which is surrounded by oilfield activity. We have seen notably strong interest from various parties. Overall, we feel very confident in the success of our growth projects and look forward to seeing the impacts of higher production and an improvement in our unit economics in the coming years. I'll now turn the call over to Matt. Please go ahead.

Thanks, Bob. In the first quarter of 2023, Intrepid generated total sales of $87 million, adjusted EBITDA of $16.4 million and adjusted net income of $4.7 million. As Bob noted, the key difference compared to the prior year's first quarter was lower pricing, although this was partially offset by higher potash sales volumes. In the first quarter of 2023, our average net realized sales prices for potash and Trio were $45 per ton and $3.44 per ton, respectively, which compares to last year's respective figures of $703 per ton and $4.69 per ton. With the spring season well underway and the announcement of a key international potash contract in early April, we've seen modest potash price increases over the past few weeks as in-season demand has exceeded nearby supply. We still expect buyers to remain cautious as the spring season winds down and anticipate that most buyers will plan to have minimal carryover inventory heading into summer. Moving on to segment highlights. In potash, our first quarter 2023 sales volumes totaled 89,000 tons, and our production totaled 90,000 tons, which compares to year-ago figures of 69,000 tons and 103,000 tons, respectively. We saw agricultural customers drive most of the increase in demand with this market comprising 82% of our potash sales in the quarter. Feed markets remained steady, and we still saw the benefit of higher pricing from the longer-term contracts that were set in previous quarters. Given the high fixed cost nature of our business and last year lower production, we're experiencing a negative impact of higher carrying cost per ton as well as continued inflationary pressures. Second quarter of 2023, we expect Q2 potash sales volumes in the range of 65,000 to 70,000 tons with an average net realized sales price of $4.60 to $4.70 per ton. In our Trio segment, our first quarter 2023 sales volumes totaled 65,000 tons, down from 71,000 tons in the prior year period, while our production totaled 49,000 tons, down from 65,000 tons in the first quarter of 2022. During the first quarter, our Trio plant experienced net unplanned downtime of approximately eight days related to a brine steep in our tailings pile, although we were able to move forward some of our normal planned maintenance days, which allow us to make up some of the lost time in future periods. Overall, we estimate this downtime negatively impacted our production by approximately 9,000 tons in the quarter. On a positive note, the first of two new continuous miners is now underground and delivery of the second miner is expected in the third quarter of 2023, which should lead to improved efficiencies in production once in service. Looking towards the second quarter for Trio, we expect second quarter 2023 sales volumes will fall in the range of 45,000 to 55,000 tons with prices trending slightly lower in the range of $3.25 to $3.35 per ton. In our Oilfield Solutions segment, our sales decreased $2.8 million in the first quarter of 2023 compared to the prior year, which was driven by a $2.6 million decrease in water sales. We sold less water primarily due to timing of sales related to completion activity. Although in early April, we did start a new frac job on our South branch, which should help second quarter sales. Reduced sales were partially offset by lower cost of goods sold as we do not purchase any third-party water in the first quarter. As we've discussed previously, this segment should see relatively steady performance on an annual basis, although there can be quarter-to-quarter variability related to timing reasons. Moving to our capital program. In the first quarter of 2023, we incurred $21 million in capital expenditures and still expect our full year capital spend to be in the $60 million to $75 million range. The exact level will be dependent on market conditions and project timing, which is also impacted by the permitting process, where we've recently seen several delays, particularly in New Mexico. Bob did a great job of providing more details and updates on our capital projects, but I'll again quickly remind everyone that given the cycle of brine injection, residence time underground, and the summer evaporation and harvest seasons. These growth projects do take time before we see the investments pay off in the form of higher production. We are encouraged by our progress so far and look forward to seeing the benefits of these projects in upcoming evaporation seasons. Operator, we're now ready for the Q&A portion of the call.

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Vincent Andrews from Morgan Stanley. Please go ahead. Your line is open.

Hi guys. This is Will Tang on for Vincent. Thanks for taking my question. Have you guys completely sold out of that higher priced inventory from the 2021-2022 evaporation season yet? And then as we look at the 250,000 tons of 2023 production guidance for potash that you guys gave, how do we think about that impact on cost maybe, I guess, if you could benchmark that to what you guys realized from 2021, 2022 season? Thank you.

Sure, yeah. This is Matt. I'll try and reiterate some of the comments we made before. Going back to some previous calls, we certainly -- we're looking forward some improved cost of goods sold. But this has since changed, as we've mentioned, with the IP 30A [ph] extraction well that failed in Q4. And so our production year-over-year has been unfortunately pretty consistent in the $260 range and so those improvements really haven't materialized. So that improved product that we were selling down has been replaced with other products kind of a similar nature, obviously, updated a little bit with the inflationary pressures and the like. So we're not seeing that improvement in our cost of goods sold just yet. Certainly, the projects we're undertaking today, accessing some of those sums that Bob talked about, we should have some immediate impact and benefits to our brine here in the mid to late portion of our evaporation season should help. But that narrative has changed a little bit since Q4 with the extraction piece.

Will, I just want to clarify your question. Were you asking about 2021 product inventory?

Yeah, the product, like, the inventory from that evaporation season.

Yeah. I mean, certainly, that's turned over by now. But like I said, that was impacting our COGS for a bit. But given some of the trends in production, weather downtime of extraction wells, et cetera, we haven't seen the benefit to COGS that we'll see once some of our current capital projects are complete and operational.

And then, I guess, as a follow-up, I mean, if I look at the projects you have underway at HB and Moab, how material will that be from like a cost improvement standpoint versus, I think, if my calculations are right, you guys are seeing something around the $300 per ton cost of production in the first quarter. Just to kind of give me a sense of, I guess, what kind of cost improvement that will look like when that's all up and running?

Yes, it's a good question. We certainly haven't provided any specific guidance on there. But if you look back to the 2018, 2019 timeframe, the 330,000 to 350,000 tons compared to the 270,000, 260,000 we've mentioned and our fixed cost nature, and there's a material benefit to our per ton cost, and we can get back to those levels. So, those are by far our cheapest tons will produce. I won't give you a number today just given some of the external factors, inflationary pressures, et cetera. We expect a material benefit to our cost of goods sold once we see these projects come online and kind of have that time to get ramped up and see their full potential over a couple of years.

Got it. Thank you.

Our next question comes from Joshua Spector from UBS. Please go ahead, your line is open.

Hi, this is Lucas Beaumont on for Josh. So, just on your potash pricing guide, I'm not sure if I caught this correctly, but it sounds like you're expecting it to only be down $20 sequentially quarter-on-quarter. So, if that's right, it's going to be quite a bit more positive versus what competitors are expecting kind of down more like 125 to 150 and just kind of where spot prices are as well. So could you kind of help us understand why you're kind of expecting to kind of outperform there? Is that based on the timing of the sales, or sort of what's driving that for you?

Yes. Thanks for the question. This is

So I guess for the portion there that's on those long-term contracts, what would you say the reset period is generally where we would see it kind of correct to market levels?

Yes, there are fee contracts, midyear is probably -- they're certainly layered in throughout the year. But after the spring season year starting in Q3, we'll see a reset on a lot of those contracts. -- to kind of get more in line with -- we do get a premium compared to some of our ag sales, but those will reset here probably mid-year

Yes. If you go back and look at our earnings calls over the last 12 years, you'll see that those have always had a premium, and we expect that multiyear premium to continue to exist.

Great. Thanks. And then maybe just one on the volume side. So, I mean, you kind of got in at the upper end of the expectations in the first quarter, and you're looking to the potash you're looking like you're going to do 160 here in the first half -- so does it sort of makes sense now that we maybe look at our expectations for the full year a bit, maybe $270 million to $280 million instead of the $260 million we talked about previously.

Yes. And we talked about this on previous calls. I mean, trying to predict third quarter, fourth quarter demand is just kind of sometimes not a beneficial exercise. And so we don't have full year numbers but certainly encouraged by the demand we've seen here in the spring, and we'll just see how the back half of the year plays out and what buyer incentives look like in the fourth quarter. of the year, and that will certainly drive that number up or down 10,000, 15,000 tons.

Great. Thank you.

Our next question comes from Joel Jackson from BMO Capital Markets. Please go ahead, your line is open.

Hi. Good morning. Across the NPK dynamic and other crop influence, it seems like there's maybe another commodity, too. There seems like there's definitely a reticence by distribution by retailers to hold volumes here do more just in time, high interest rate environment, all of that. Are you seeing that in your world? And how might that change your business, how you sell and other things like that?

No, I think it's a great observation, and it's true. We're very fortunate that we've got a very high percentage of sales that are truck sales, where we're not sending out unit trains. We've also got our feed and industrial businesses, which are much more localized sales. So I don't know if I'm answering your question, Joel, but we believe because of our strategic location and the geography that we service, we're going to have the benefit of that continued stronger pricing that we've always seen for years

You touched on this a little bit across the call in some of the prepared remarks, but when I look at costs, for potash and Trio. Can you just elaborate a little more how costs might sale across the year -- or the cadence of cost across the year? Like should we expect the types of costs we saw in the second half of 2022 to come back here in the next few quarters, or maybe help me out takes? Thanks.

Yes. I mean certainly, it will be dependent on our summer evaporation season, which can be variable, but looking at Q1, I mean, we'll be pretty consistent for the year given our current pond inventories, expectations of extraction grades, and it's not going to factor in some of the inflationary pressures compared to last year, and it will be pretty consistent throughout the year.

Sorry, consistent from Q1 levels or…

Yes. Sorry, that wasn't clear.

No, no, I think it was. And just one more question. I know Bob, maybe a few months ago, you talked about Russian products been out in the Midwest since June and July of last year. Talk about what you're seeing for competition on the river, tons from importers coming in. Is there still -- is the Russian product still coming in as normal, or have they that slowed down?

Yes, I think there's a lot more Russian product in the United States than most people in D.C. realize. And so there's been, I think, there's a perception that there's very little Russian fertilizer product in the United States when the exact opposite is true. If we go back and we look at the Russian imports, there's quite a bit of Russian product in the system. So I will say, it's unannounced people and a lot of people in DC. I don't know if I'm answering your question or not, but I think there is a perception that the Russians didn't bring sons in or that there were sanctions against the Russians, and they are clearly not sanctions against the Russians. And they continue to bring in significant amounts of product through their distribution assets.

And maybe I'll sneak another one in. Just sticking longer term about sort of chloride 3 potassium fertilizers like Trio, SOP, polysulphate, things like that. There's been a lot of hopes over the last decade that we see maybe more demand from that more fruits and vegetables or things like that. I know it's a tough season for almond, a tough year, so for almond and other crops, California is dry, where a lot of some of these fertilizers go, but tell me what the market, where it's growing versus the potash market, future opportunities, future challenges. Thanks.

Yes. I would say that the -- it's a great product, but Mosaic's Camec [ph] product and our Trio product are stellar fertilizers. Have we seen the increase in demand because of the lack of chloride. I don't think we've seen the demand that we had hoped would continue to grow. I'll let

Yes, I think the key there, Joel, is there continues to be a broader focus on just balanced fertilization in general. And obviously, with Trio containing magnesium and sulfur, that's a big part of that. And so we see growth with our Trio products in regions where the low chloride component of it may not be the selling factor. It's more the magnesium and the sulfur component that's really moving the volumes there.

Thank you.

This concludes the question-and-answer session. I would like to turn the conference back over to Bob Jornayvaz for closing remarks.

I just want to thank everyone for their interest in Intrepid, and we appreciate your time. Have a great day. Thank you.