Intrepid Potash - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 was the strongest quarter since 2016 on volumes: Sales were $97.8M, net income $4.6M ($0.35 diluted EPS), and adjusted EBITDA $16.6M; Trio® drove margin strength with $10.4M segment gross margin while potash COGS per ton improved materially.
• Versus Wall Street consensus (S&P Global): EPS beat (consensus -$0.052 vs actual $0.39), EBITDA beat (consensus $13.26M vs actual $17.68M), while revenue (ex freight/warehousing) missed (consensus $82.43M vs actual $76.78M)*. Trio pricing and volumes offset lower potash pricing.
• Guidance: Q2 pricing guided higher for potash ($350–$360/ton) and Trio ($365–$375/ton), with seasonally lower volumes; FY25 capex maintained at $36–$42M; potash production guided ~285–295k tons, Trio 235–245k tons.
• Liquidity/catalysts: Cash $66M and no revolver borrowings as of May 2, positioning IPI to benefit from balanced potash markets and firm nutrient pricing; management points to constructive macro and potential future capital allocation discussions as performance and cash generation persist.

Note: Values marked with * were retrieved from S&P Global.

What Went Well and What Went Wrong

What Went Well

• Record volumes and Trio pricing: “Combined total sales volumes of 213 thousand tons [were] our highest quarterly sales volume since the first quarter of 2016,” with Trio avg net realized price up to $345/ton and gross margin of $10.4M.
• Cost/COGS execution: Potash COGS per ton improved to $313 (down ~10% YoY) and Trio COGS per ton fell to $235 (down 22% YoY), reflecting production and efficiency gains.
• Macro tailwinds and pricing: Management highlighted increases of $55/ton for potash and $40/ton for Trio during Q1 and constructive demand/supply balance; “we expect to realize a good portion of these increases in our second quarter results”.

What Went Wrong

• Potash gross margin pressure YoY from price: Segment gross margin decreased $3.1M YoY primarily due to lower average net realized price ($312 vs $395/ton), despite higher volumes and improved COGS per ton.
• Oilfield Solutions softness: Segment sales fell $0.9M YoY and gross margin decreased $0.3M on reduced water sales and lower surface/easement revenue timing.
• Inventory valuation impacts: Company recorded $1.335M lower of cost or net realizable value inventory adjustments in Q1 2025, modestly weighing on consolidated gross margin.

Transcript

Operator (participant)

Thank you for standing by. This is the conference operator. Welcome to the Intrepid Potash Inc First Quarter 2025 Results Conference Call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Evan Mapes, Investor Relations. Please go ahead.

Evan Mapes (Manager of Investor Relations)

Good morning, everyone. Thank you for joining us to discuss and review Intrepid's First Quarter 2025 results. With me today is Intrepid's CEO, Kevin Crutchfield, and CFO, Matt Preston. Also available to answer questions during the Q&A is our VP of Sales and Marketing, Zachry Adams, and VP of Operations, John Galassini. Please be advised that the remarks today include forward-looking statements as defined by U.S. Securities laws. These forward-looking statements are subject to risks and uncertainties, which could cause Intrepid's actual results to be different from those currently anticipated, are based upon information available to us today, and we assume no obligation to update them. These risks and uncertainties are described in the reports of the SEC, which are incorporated here by reference. During today's call, we will refer to certain non-GAAP financial and operational measures.

Reconciliations to the most directly comparable GAAP measures are included in yesterday's press release, and along with Intrepid's SEC filings, our website is intrepidpotash.com. On now to turn the call over to our CEO, Kevin Crutchfield.

Kevin Crutchfield (CEO)

Thanks, Evan, and good morning, everyone. We appreciate your interest and attendance for today's earnings call. I've now been with Intrepid for about six months and have been very impressed with the skill, dedication, and quality of work of our employees at all of our locations. I want to thank them for their efforts and congratulate them on helping us achieve strong safety, operational, and financial results to start 2025. In the first quarter, Intrepid generated adjusted EBITDA of $16.6 million and adjusted net income of $4.6 million, which compares to prior year adjusted EBITDA of $7.7 million and adjusted net loss of $3.1 million. The improvements in profitability are particularly impressive, given that these are our best figures since the first quarter of 2023, when potash prices were over 50% higher.

The solid performance was attributable to several factors, but I want to start by highlighting how our focus on revitalizing Intrepid's core assets has positively impacted our business. Starting in potash, the capital investments we've made over the past few years have helped us achieve our goals of increasing our potash production and improving our unit economics, and we're pleased to share that this continued into the first quarter of 2025. In the first quarter, we produced 93,000 tons, and our COGS per ton came in at $313, which represents a 17% improvement from our 2023 baseline figure and a 25% improvement from our recent COGS per ton peak in the fourth quarter of 2023.

In Trio, which again was the clear standout, the higher efficiencies from our new miners, restart of our fine langbeinite recovery system, and focus on cost discipline have helped to drive sustained improvements to our production and unit economics over the past year. In the first quarter, our production totaled 63,000 tons, and our COGS per ton totaled $235, which represents a 22% improvement compared to last year's first quarter. In the first quarter, Trio also experienced positive market tailwinds as strong early season demand and a tight domestic sulfate market, and strengthening potash fundamentals led to a quarterly sales record of 110,000 tons, while our pricing increased to an average of $345 per ton. Quickly on oilfield solutions, this segment remains a consistent contributor with high-margin business lines.

We continue to prioritize growing our brine sales, while oilfield activity near our South Ranch has so far remained resilient even with the lower oil prices. As for the ranch itself, we're keenly aware of the high demand for these types of assets in the Delaware Basin. It certainly has value to us, but as I said in the last earnings call, to the extent another party sees more value in it than we do, we're always up for a conversation. Before I pass the call to Matt, I'll end my remarks with some commentary on the broader potash and agriculture markets.

Starting with potash, following January winter field programs, the combination of strong demand and relatively tight supplies led to price increases of $55 per ton for potash and $40 per ton for Trio during the first quarter, and we expect to realize a good portion of these increases in our second quarter results. As for the global market, third parties have estimated mine maintenance in Eastern Europe and a higher focus on domestic potash consumption in Russia has roughly removed 1.8 million tons from the market. On the demand side, the world market is returning to trendline growth of roughly 2% per year, and potash looks well-balanced heading into the second half of 2025. Moving on to agriculture markets, beneficial tariff treatment for USMCA goods and a weakening dollar has helped support strong U.S. agriculture exports this year.

Even with all the noise, year-to-date exports for corn are up by about 25%, while soybean exports have also been solid. This is projected to add further support for forecasts of relatively low crop inventories, and key futures are trading at higher levels compared to where they were during our last earnings call. In addition, we want to remind folks that about 70% of global potash is applied to non-corn and non-soybean crops, and key international crops like palm oil are still quite elevated compared to historical averages. Lastly, while there is concern on behalf of domestic farmers on the potential impact of tariffs, Canadian potash imports are currently exempt, and there seems to be more optimism for trade deals with key partners. Moreover, the current administration has made several comments about potentially offering extra monetary support for farmers for tariff relief, which we did see during their previous term.

Putting this all together, we think the outlook for potash and agriculture markets remains constructive. With that, I'll now turn it over to Matt.

Matt Preston (CFO)

Thank you, Kevin. Starting with our potash segment, in the first quarter, we produced 93,000 tons, an increase of 6,000 tons compared to last year. We've now had higher year-over-year production for four consecutive quarters and continue to see improvements in our unit economics. Solid demand in the first quarter, coupled with the higher production and inventory levels to begin the year, led to a 40% increase in potash tons sold, which helped partially offset the 20% decrease in our average net realized pricing when compared to last year. For 2025, we expect that our potash production will be pretty close to our 2024 results at 285,000-295,000 tons, and we look forward to seeing the benefits of our new primary pond in Wendover once our fall harvest begins later this year.

Our Wendover potash has been our highest-cost production in recent years, and improved production at this location is expected to help support our unit economics in the 2025-2026 production year. Moving on to Trio, improved production and operational efficiencies and increased pricing have helped turn Trio into a clear bright spot for Intrepid in the first quarter, where our gross margin of $10.4 million was our third-best quarterly result in Intrepid's history. As Kevin mentioned, Trio's COGS per ton have trended lower over the past year, and with about a year of producing at these rates and with an improved cost structure, the expected improvements in our unit economics are fully reflected in our cost of goods sold. Looking ahead, we expect our full-year 2025 production to be in the range of 235,000-245,000 tons, about 5% lower than our prior year figures.

Given the slightly lower production and general increase in cost levels, we do expect about a 5%-10% increase in our unit economics in the back half of 2025, but believe Trio remains well-positioned given the strength and underlying nutrient pricing. Our oilfield solutions segment was steady in the first quarter, with revenue of $4.4 million and gross margin of $1.7 million, or approximately 38% of revenue. While this business remains a solid contributor, for folks new to our story, this segment has experienced a bit of quarter-to-quarter volatility due to the timing of water sales and other oilfield-related activity. For 2025, we do not expect any significant frac activity and associated water sales like we had in the third quarter of 2024, although we could still see some quarterly variability, particularly around surface use and easement revenue.

Looking ahead, we see our first quarter results, both revenue and gross margin, as a good midpoint when modeling out the rest of the year. In terms of second quarter guidance in our potash and Trio segments, we expect another solid quarter as spring application winds down and our potash facilities enter the summer evaporation season. For potash, we expect our sales volumes to be between 60,000 and 70,000 tons at an average net realized sales price in the range of $350-$360 per ton. In Trio, we expect our sales volumes to be between 57,000 and 67,000 tons at an average net realized sales price in the range of $365-$375 per ton.

For our 2025 capital program, we have no changes to our CapEx guidance of $36 million-$42 million where most of this will be spent on sustaining capital, including the sample well at our AMAX cavern at HB. We expect the permitting process to drill the sample well to be wrapped up in the second quarter, with commissioning of the sample well complete by the end of July. Overall, it's been a good start to 2025, and we're excited to see the initiatives we put into place over the past couple of years meaningfully pay off in the form of reduced COGS per ton for both potash and Trio and improved cash flow, even with lower potash prices compared to last year.

While there's been broader market uncertainty, we think we remain very well-positioned with a debt-free balance sheet and constructive potash fundamentals, and we look forward to continuing this positive momentum into the rest of 2025. Operator, we're now ready for the Q&A portion of the call.

Operator (participant)

Thank you. We will now begin the question and answer session. To join the question queue, again, as a reminder, you may press star then one 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 keys. To withdraw your question, please press star then one. Your first question comes from the line of Lucas Beaumont with UBS Financial. Please go ahead.

Lucas Beaumont (Director and Equity Research Analyst)

Good morning. Yeah, I just wanted to start with the potash pricing expectations for 2Q. So at kind of the $355, you're going to be kind of roughly $10 above where you were in the fourth quarter. At the same time, benchmarks have kind of moved up about $60 a ton. I just kind of wanted to understand what the timing difference was there on pricing and if there's something sort of driving why you guys haven't really seen an uplift in the realization there to the same degree that the benchmarks, I guess, would have pointed to. Thanks.

Zachry Adams (VP of Sales and Marketing)

Yeah, Lucas, this is Zachry. And kind of specific to that question, one piece of that is in the fourth quarter of last year, particularly in the second half of last year, we had feed contracts that were priced at a higher differential. So those made our overall pricing be higher than it would have been necessarily if it were reflected where the ag market was at that time. And when we look at where our Q2 pricing is projected at for right now versus our Q1 pricing, with those $55 of increases we've talked about, we're showing a differential of about $43 a ton. So we're realizing almost all of that uptick that we saw during first quarter, plus we've already kind of captured a little bit of that uptick in first quarter in some of our results there.

Lucas Beaumont (Director and Equity Research Analyst)

All right. I guess just on the production volume side, I mean, this seems like it's applicable to kind of both potash and Trio this year. I mean, based on your production targets for the year and where you are to date for both of them, it's implying a year-on-year decline, basically, over 2Q to 4Q for the year. I just wanted to maybe get some context on each, I guess, on why you sort of think that'll be softer in the rest of the year, or is there maybe a degree of conservatism built in there and you think you might be able to do a little better when we sort of get to the actual results? Thanks.

John Galassini (VP of Operations)

Yeah, thanks for the question. This is John Galassini. Our production profile is based on the last couple of years' projects coming online. Also, the Wendover, as Matt mentioned earlier, the Wendover project with our primary pond, we'll see an increase in production from that facility. With mother nature, it's difficult to sometimes predict that, but we have a good handle on it and feel our forecasts are in line with the projects that we recently put in place.

Lucas Beaumont (Director and Equity Research Analyst)

No worries. Maybe I just wanted to go on to the Trio cost cut of improvement. That has obviously improved really strongly, especially this quarter, given you are coming off the high production year and you are having sort of record, looks like record sales volumes there over the past 10 years at least. I just wondered if you could kind of help us frame sort of how we should think about the cost outlook there going forward, beyond this year. I mean, you mentioned the 5%-10% improvement in the second half, so that is going to, I guess, slow down a little bit, which you would expect as the volume improvement moderates.

If you guys are kind of looking to stabilize your production and sales levels around this year, around this sort of level, should we see any further improvement into 2026, or is 2025 kind of the end of the benefits there? Thanks.

Matt Preston (CFO)

as I said in our prepared remarks, Lucas, I mean, we are really pleased with the results we have so far at $235 per ton, but that really fully reflects the improvement, not just in our production rates, but also the change in our operating schedule, and we removed roughly that $10 million-$12 million of annualized production costs that we talked about on prior quarters. Like I said, as we look forward, just general increases in price levels and cost levels, as well as some slightly lower second half production, we do expect a bit of an uptick in our cost per ton, that 5%-10% range. Yeah, the 235,000-245,000 tons of Trio production is a good steady state for us right now looking forward.

Lucas Beaumont (Director and Equity Research Analyst)

All right. And then just lastly for Kevin, I guess now that you've been here six months, I just wanted to sort of get your assessment of what you think's going well with the company and where your focus is going to be to drive improvement over the next one to two years. Thanks.

Kevin Crutchfield (CEO)

Yeah. Hi, Lucas. Good morning. Yeah. First, kudos to the teams out in the field for delivering a solid quarter. I think the work that Intrepid's been doing well before I got here for the last couple of years in terms of sort of renewed focus on core assets, focus on capital investment in the core assets is really starting to pay dividends. Our focus, obviously, will be to continue that level of focus on the core assets, making sure that we are resilient, we're predictable, and we keep the trends going in the right direction. What we do not want is a high beta where we're inconsistent. The focus now is being able to be very consistent, very predictable, and maintaining these trend lines.

Again, one of our primary focuses is going to be on volume is the biggest driver that we have to control cost on the trajectory that we would like. There is going to be an intense focus on that as well as maintaining our cost structure going forward. Hopefully that gives you some context.

Lucas Beaumont (Director and Equity Research Analyst)

All right. Thanks very much.

Kevin Crutchfield (CEO)

Thank you.

Operator (participant)

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

Jason Ursaner (General Partner)

Thanks for taking the question, and congratulations on a really strong quarter. Just wanted to ask, I guess, the cash figure for the end of April versus the end of the quarter is pretty significant cash flow generation in the month of April. Just wondering if maybe you could help frame some of the shape of the spring season or kind of cash conversion timing versus the accounting of the cash costs on tons and whether some of the costs kind of drop out as the season goes along, just because it's a pretty big number in April is what it seems like?

Matt Preston (CFO)

Yeah. Thanks, Jason. This is Matt. Certainly, with the spring season, it's no secret Q2 is our best cash flow generation quarter, and this year is no exception. Roughly $66 million at the start of May here. It's probably pretty close to a high point for the year, and that's really just normal with our general trend. I think we'll be pretty steady there through Q2, and then it'll pull down a bit as we continue to invest capital here in the second half of the year, and we just have a natural slowdown, certainly from our on the Trio sale side.

Jason Ursaner (General Partner)

Okay. In terms of the commentary on oilfield, kind of sounded steady as it goes in terms of what you guys do, but the activity down there sounds pretty resilient. Any update on the next tranche of money from XTO and where the BLM is in the process of evaluating some of it?

Kevin Crutchfield (CEO)

No, unfortunately, we don't really have any insight on XTO's plans. To the extent we do, we promise that you'll be the second to know, or everybody on the call will be the second to know, but we don't have any insight into Exxon's near-term drilling plans. We wish we did.

Jason Ursaner (General Partner)

Okay. And just kind of maybe following up on Lucas's question on capital allocation, just I guess with the cash balance growing, obviously, you have the CapEx spend to get through for the year, but even with that, I guess just update thoughts on where you're headed with that, given that you're going to have kind of a net cash balance sheet for the foreseeable future until you decide kind of what you want to do there.

Kevin Crutchfield (CEO)

Yeah. I think we addressed this a little bit last quarter, but it's worth reemphasizing that our goal is to buttress the core assets in such a way that they're predictable, they're resilient, they perform consistently, and generate cash flows throughout the cycle. We've got enough cash on the balance sheet to get us through difficult times, but once we establish that kind of track record, I think the capital allocation discussion becomes a very real discussion with the board on, to the extent there is excess free cash flow beyond what we can redeploy internally, then what's the right answer for that? We get lots of recommendations and thoughts on that, which we greatly appreciate, but it's something that's becoming more and more poignant for our board here with the passage of time as our performance continues to improve.

Jason Ursaner (General Partner)

Okay. Awesome. Appreciate the answers and congrats again on the quarter.

Kevin Crutchfield (CEO)

Thank you.

Operator (participant)

It seems that we have no further questions. That concludes the question and answer session. I would like to turn the conference back over to Kevin Crutchfield for any closing remarks.

Kevin Crutchfield (CEO)

Thank you. I'd like to thank our team just one more time because we can't do this without them. Thank them for their hard work and dedication over the course of the quarter and last few years. Thank you all for patching in today to listen to our comments, and we look forward to keeping you updated as the quarters progress. Have a great day, everyone.

Operator (participant)

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.