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Thank you for standing by. This is the conference operator. Welcome to the Intrepid Potash, Inc. Third Quarter 2024 Results Conference Call. As a reminder, all participants are in a listen-only mode. And the conference is being recorded. [Operator Instructions]. I would now like to turn the conference over to Evan Mapes, Investor Relations. Please go ahead.

Good morning, everyone. Thank you for joining us to discuss and review Intrepid's third quarter 2024 results. With me today is Intrepid's CFO and acting Principal Executive Officer, Matt Preston. Also available to answer questions is our VP of Sales and Marketing,

Thank you, Evan. Good morning, everyone. We appreciate your interest in Intrepid and attendance for our third quarter earnings call. Before getting into our commentary, I wanted to first acknowledge and thank our Co-Founder and Former Chairman and CEO, Bob Jornayvaz, for his many years of leadership. We're grateful for his contributions to Intrepid and the communities where we operate over the past 25 years. 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. 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. 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. 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. 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. Before getting into more segment details, I'll quickly touch on the macro outlook, starting with U.S. agriculture. Compared to the past couple of years, we've clearly moved into a different market. 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. 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. As for the global potash market, pricing continues to be supported by several factors. First, we see a balanced market with global demand returning to historic levels and growth rates of 1% to 2% per year, offsetting new supply coming online in the next few years. Second, solid demand in the 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 reengage for first half 2025 needs. Overall, we remain constructive on the fertilizer market as we finish the year and head into 2025. Moving on to third quarter segment highlights. In potash, 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. For the first nine months of the year, our production totaled 178,000 tons as improved brine grades and above average evaporation season and a faster start to our fall production led to higher potash production than originally anticipated. As a result, we now expect our full-year 2024 potash production to be in the range of 280,000 to 290,000 tons. 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. 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. When looking at harvest year production, which typically runs from August until mid-spring, we removed the variability of start-up timing of processing rates from our solar solution mines and we can clearly see the benefits of our recent capital projects. 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, we expect to produce approximately 280,000 to 300,000 tons, a 16% increase compared to the prior year at the midpoint. 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. 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. This helped contribute to Trio generating 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. For 2024, we also now project that our Trio cash production cost savings will be at the higher end of the $8 million to $10 million range we've previously provided when compared to the prior year. Lastly, for Oilfield Solutions, our segment margin of $3.1 million in the third quarter was more than double the prior year and up by approximately $1 million sequentially. The due primarily to increased water sales associated with a large frac at Intrepid South. 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. Although we remain encouraged by the oil field activity in Southeast New Mexico, we expect our Oilfield Solutions margins to return to first half rates in the fourth quarter of 2024. 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. 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. As for other key initiatives our discussions regarding our lithium project at Wendover continued 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 selected. We also started the permitting process to drill a test well at the AMAX cavern, which we have never mind and is the largest cavern at HB. 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. 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. In addition, the amendment to the crop 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. Overall, we're encouraged by the trajectory of our business and continue to focus on positioning Intrepid for long-term sustained success. Operator, we are now ready for the Q&A portion of the call.

Thank you. We will now begin the question-and-answer session. [Operator Instructions]. Our first question comes from the line of Joshua Spector with UBS. Please go ahead.

Good afternoon. This is Lucas Beaumont on for Josh. Thanks for taking the question. So we've sort of been hearing some concerns from growers about the income level heading into next season and the common areas that have sort of been called out for potential cost cutting instead of being crop chems and then across like P&K on the fertilizer side. 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?

Thanks for the question. This is

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 now your cash COGS so are down $12 million sort of year-to-date and down a lot on a per ton basis, which is the best sort of results you guys have had for six or seven quarters now. So it seems like the year is probably on track for about $60 million sort of in cash spending there. Obviously, your per ton costs are going to improve even more as your production volumes come back up. I just wanted to get a feel for you on where do you think there's more room to go there sort of in terms of the absolute base to over $60 million? Or is that kind of a good way to think about sort of the base to go into next year? Thanks.

Yes. Thanks for the question, Lucas. I mean, I think we're certainly on track. When you go back to some prior calls, we had talked about a 20% to 30% improvement in our cost of goods sold compared to that 2023 level, which was right around $387 per ton. So we started to see the benefits. It will 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 our tons from, whether it's kind of in from our Wendover Moab facilities or from HB. But yes, overall, we're on a good track. I mean, I think as we get to the second half of 2025, we expect to be 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 yes, we're certainly already see it and encouraged by the results. I mean 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.

Great. Thanks. And then I guess just on the oilfield solutions side. So I mean, you had a strong step up there in both your sales and profitability there 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 on that side? Thanks.

Yes. We certainly have major fluctuations when there is completion operation in 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 of years on brine sales as well as freshwater sales, but those first half margins and sales rates are pretty consistent for our business. Yes, 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 potential large sales of water, we'll let folks know.

Okay, thank you.

Our next question comes from the line of Jason Ursaner with Bumbershoot Holdings. Please go ahead.

Hi, Matt, congrats on all the progress and thanks for taking my questions. Just first one, a bit of a follow-up on Lucas' question there. There's a lot of headline, Belarus' President proposing cutting production with Russia. Obviously, not a direct impact on you guys, but has a direct impact on the global market. So just in terms of some of the compression in farmer income in the U.S., obviously, I'm sure everyone would love the lowest price as possible with lower usage and still having great yields. But I guess at what point, any insight into the supply/demand kind of more directly at your retail distributor level and maybe their customer in terms of inventory replenishment, all application because the last time some of these cuts started happening, people got -- everyone wanted to cut, but really didn't see that at all and kind of went the other way.

Yes. Thanks for the question, Jason. I'll kind of touch on, I say, the more global view of this and let

Yes, Jason, kind of in regards to your question just around distributors, we saw a good subscription to the summer fill period. But as we fall 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 I really focus on not to carry over any times from one application season to another by distributors or retailers. 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 talk with retailers as we visit with them and our customers. I mean they continue to project good potash demand out into Spring of next year. And we think that once the winter fill program 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.

Okay. Thanks. And on the cost side of things, I guess how is the byproduct sales working in some of the projections just because you've had a pretty 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 play into the update on production costs with the inflection in production that you're seeing kind of sitting here today.

Yes. To really break out our various byproducts both in our earnings press releases and our Qs and Ks. They've been pretty steady markets. I'd say as production increases, certainly, we'll have a little more byproduct tons to sell. But I don't expect significant changes in our byproduct outlook going forward with an increase in potash production, when it comes to production costs, we've made a change many years ago. There's really no change in our potash production costs with the production of byproducts. It's split out now in separate. And so we're not taking that as a credit against our potash production like we did many years ago.

So when you talk about the improvement in costs, you're not taking -- it's not -- that's not helping to benefit. It's just purely -- it's not what you're benefiting on.

Purely more potash production over what's a very large fixed cost basis.

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 kind of the flat outlook 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.

Yes, that's exactly right. If you go back to kind of the early guidance we gave in early 2024, we were coming off 224,000 tons of potash in calendar year '23 and we projected a 10% to 15% increase off that number, which, due to the reasons I mentioned, improved brine grade at above average evaporation season, but also pulling some tons forward, we've kind of blown it out of the water here from a calendar year basis. I wanted to be very clear on the call that while we have seen good results, some of that is just some tons pulling forward from '25. I just want to be very clear on that. But yes, you've got it exactly right.

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 a continuation of improvement? Or like when do you expect to see sort of the full benefit of some of the projects?

Yes. 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. So certainly, a little too soon right now. I mean as we start to really ramp up extraction rates and then the spring of 2025, I think we'll have a better indication and start to highlight that at that time.

Okay, awesome. I think that's it for me. Congrats on all the progress.

Thanks, Jason.

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

Thanks, everyone, for your interest in Intrepid, and hope you have a great day.