Intrepid Potash - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 sales were $55.8M, gross margin $7.3M, and adjusted EBITDA $8.6M; GAAP net loss ballooned to $207.0M due to a $199.0M non-cash valuation allowance against deferred tax assets and incremental impairments, masking an operationally stronger back half of the year.
• Trio® delivered a notable turnaround: Q4 sales rose to $23.5M with positive gross margin of $2.8M, and FY 2024 set a company record at 254k tons sold; Trio pricing is now above potash for the first time since 2016, supporting margin improvement.
• Potash production inflected higher: Q4 production of 117k tons (+48% YoY) drove unit cost improvements despite lower realized prices; management guided Q1 2025 potash sales volumes of 95–105k tons at $305–$315/ton and Trio volumes of 100–110k tons at $340–$350/ton.
• Liquidity strengthened: year-end cash and equivalents were $41.3M with no revolver borrowings; capex is guided to $36–$42M for 2025, focused on sustaining capital and the ~$4.5M AMAX test well at HB (a potential production expansion lever).
• Stock narrative catalysts: new CEO Kevin Crutchfield installed (Dec 2024), operational execution in potash asset revitalization, potential pricing support from global supply balance and tariff headlines, and optionality from a prospective early $50M XTO copper payment that could reopen capital return discussions.

What Went Well and What Went Wrong

What Went Well

• Trio® margin recovery and record sales volumes: “Strong demand for Trio led to company record sales volumes of 254,000 tons and price increases… with Trio pricing currently higher than potash for the first time since 2016”.
• Potash production and unit economics improved: Q4 potash production rose to 117k tons (+48% YoY), underpinning lower per-ton costs and better gross margin despite price pressure.
• Operational delivery on revitalization projects: Phase Two HB injection pipeline commissioned, injection rates averaging ~1,900 GPM with capability to ~2,000 GPM, supporting a ~2.0x injection-to-extraction ratio—a foundation for sustaining higher production.

What Went Wrong

• Massive non-cash tax valuation allowance drove headline GAAP loss: $199.0M allowance plus impairments ($6.4M Intrepid South sand/oilfield equipment; $1.2M East facility) led to Q4 GAAP net loss of $207.0M, overshadowing operational gains.
• Potash pricing headwind: average net realized price/ton fell 20% YoY in Q4 to $347, offsetting volume gains; FY potash price/ton was down 19% to $377.
• Oilfield solutions Q4 sales dropped on timing: segment sales fell to $3.5M in Q4 vs $7.0M in Q4 2023; management reiterated timing variability tied to completion activity at Intrepid South.

Transcript

Operator (participant)

Thank you for standing by. This is the conference operator. Welcome to the Intrepid Potash Q4 2024 Results Conference Call. As a reminder, all participants are in a 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 then zero. I would now like to turn the conference over to Evan Mapes, Investor Relations. Please go ahead.

Evan Mapes (Head of Investor Relations)

Good morning, everyone. Thank you for joining us to discuss and review Intrepid's fourth quarter 2024 results. With me today is Intrepid's CEO, 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 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 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, which 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 intrepidpotash.com. I'll now turn the call over to our CEO, Kevin Crutchfield.

Kevin Crutchfield (CEO)

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 decades with and leading various management teams in the extractive industries, and most recently in a complementary role as CEO for a company operating in the specialty plant nutrition 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 and driving long-term value creation for our shareholders.

Moving on to our results, in the Q4, Intrepid generated adjusted EBITDA of $8.6 million and had an adjusted net loss of $1.4 million, which compares to prior year adjusted EBITDA of $7.1 million and adjusted net loss of $5.2 million, 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 2024. When looking at just the second half of the year, our adjusted EBITDA of $18.5 million was roughly double the same prior year figure.

Being able to improve our EBITDA by maintaining the focus on our core assets, even with a 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 $8.5 million 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 Permian, 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 decisions 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 has 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 caught shortsighted on production and then having to go through the process of 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 HB AMAX 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 million 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. Matt.

Zachary Adams (VP of Sales and Marketing)

Thank you, Kevin. Before getting into our segment results, I 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-K, which we plan to file later today.

Now for segment results. In Potash, in the Q4, 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 and 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 2025. 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. As Kevin mentioned, we expect to drill a sample well at our HB AMAX cavern in the first half of 2025 to test the brine chemistry and stay on track with the development of the HB Solution Mining Caverns.

Moving on to Trio, it was one year ago that we announced we were evaluating all options to improve our operational and financial performance at our East Mine, and we saw continued improvement throughout the year, capped off with fourth quarter gross margin of $2.8 million, a more than $5 million improvement compared to the fourth quarter of 2023.

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 langbeinite 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 costs by approximately $11.5 million, exceeding our goal of $8-$10 million in cost reduction in 2024.

Moreover, our 2024 Trio production of 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 235,000 and 245,000 tons and strengthening Trio pricing, driving bottom-line growth in the segment. In terms of first quarter guidance, we expect our Potash sales volumes to be between 95,000-105,000 tons at an average net realized sales price of $305-$315 per ton.

For Trio, we expect our sales volumes to be between 100,000-110,000 tons at an average net realized sales price of $340-$350 per ton. For our 2025 capital program, we anticipate CapEx of $36-$42 million, with most of this directed to sustaining capital, including approximately $4.5 million 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 costs of production for Potash and Trio. We look forward to continuing this progress in 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, 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. We'll pause for a moment as callers join the queue. Our first question comes from Lucas Beaumont with UBS. Please go ahead.

Lucas Beaumont (Director Equity Research Analyst)

Thank you. Yeah, just 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 could also be sort of on a stronger supply-demand setup. Just wanted to sort of get your thoughts on how you see the dynamic there. To the extent that the prices have sort of moved a bit higher and stay higher, what's sort of your order book forward sales like currently? Should we see any of that benefit in the tail end of the first quarter or into the second quarter, if they persist? Thank you.

Matt Preston (CFO)

Yeah, thanks, Lucas. The first part of your question around Potash pricing, certainly we've seen prices globally move up the last several weeks, and we think that's just an indication of continued supportive dynamics in the market. There's been about 1.3 million tons that's come off the market, mainly out of Eastern Europe, for first-half production.

We continue to see demand in all the major consuming regions be very steady through first half of this year. 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 winter field program. Our first quarter volumes 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.

Lucas Beaumont (Director Equity Research Analyst)

Great. Thanks. I guess then just you sort of mentioned that you obviously had the benefit of the production uplift in 2024, which has sort of pulled some of that forward. Looking at 2025, 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. In a flat production environment into 2025, I'd assume maybe we get a little bit more kind of leverage that sort of flows through there on the cost side. How could you, would you frame sort of how you see the setup there on the cost side this year? Thanks.

Matt Preston (CFO)

Yeah, good question, Lucas. We came in Q4 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 Pond 7. We'll expect to see that in the 2025-2026 harvest season. As we get into the third and fourth quarter, particularly of 2025, we expect to see another step improvement in our unit costs as we get that facility back up in that 75,000-80,000 ton range.

Lucas Beaumont (Director Equity Research Analyst)

Great. Thanks. I just wanted to ask you about the Canadian tariffs. I mean, Intrepid's one of the few companies that may actually benefit from this if domestic Potash prices rise as you sort of capture 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? 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 in the $300 range. 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.

Zachary Adams (VP of Sales and Marketing)

Yeah, 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. 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. Certainly, as we see that, we'll know more.

Lucas Beaumont (Director Equity Research Analyst)

All right. Thanks very much.

Operator (participant)

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

Jason Ursaner (Portfolio Manager)

Hey, good afternoon. Thanks for taking the question. This 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, it's the total cost, including the byproducts and everything. We went from like $415-$420 a ton last year to.

I think you're saying, $315-$320 this year. It's kind of that 20%-25% improvement, which I guess from my perspective is based on the tail end of 2024's production cycle, which benefited a lot from access to the brine pool and the Eddy Shaft and maybe a little bit of the early commissioning from the IP-30B well. I guess I'm just trying to understand, do I have that right for what's kind of reported in the cost in Q4?

If you're getting the full benefit of the extraction well for the production year, the 2024 to 2025 production cycle, why would I guess you're saying kind of flat production, but on a production year, not a calendar year, still improving. I guess why would that kind of be trending flat versus continuing to drop out?

Matt Preston (CFO)

Yeah. I mean, I think the good, you've got the capital investments, right? I mean, I think the important thing to remember there is we laid those tons down in the pond in the summer of 2024. We started to see that benefit in Q3 and Q4. We're not carrying a lot of inventory. We kind of certainly on the Potash side see that turnover a little bit quicker. As we said, as we get into the back half of 2025, we think we'll see that kind of another step change down as Wendover starts to really contribute to our improving COGS as they get back up to that productive capacity of 75,000-80,000 tons.

Jason Ursaner (Portfolio Manager)

Okay. Just in terms of the brine grades that you are seeing or expected to put in pots, where are those sort of trending at this point versus where they had been? Maybe 2026 and beyond with the injection rates that you're seeing, I guess, any anticipation on brine grades kind of longer term?

Matt Preston (CFO)

Yeah. I mean, you touched on that the Eddy Shaft project was a great little kind of stopgap to extract brine from the Eddy Cavern until we could get IP-30B 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 brine grades trend, but continue to extract heavy out of our Eddy Cavern from IP-30B and really pleased with the brine grades we've seen so far.

Jason Ursaner (Portfolio Manager)

Okay. In the oilfield segment, yeah, obviously the operational results bounced around, and maybe this quarter did not hit quite like Q3 or last year, but maybe just in terms of the asset itself, not so much what is 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.

Obviously, I know every ranch is different. It depends on proximity to drilling activity and all of that, but I guess my perception is your proximity is as good as any, and this is just strictly surface acreage. Maybe fair to say the Four Corners strategy never materialized quite how we envisioned. 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 you could kind of wipe the slate clean and maybe still wind up coming out of it with a pretty significant profit?

Kevin Crutchfield (CEO)

Hey, Jason, good morning. It's Kevin. I'll take that one. To your point, there's an extraordinary amount of interest down in that neck of the woods, both on the New Mexico side and West Texas side. 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. 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 in the coming weeks and quarters.

Jason Ursaner (Portfolio Manager)

Okay. Okay. I guess just in terms of the capital allocation, kind of the message was sort of want to wait on—I forgot exactly how you worded it—but wait on kind of seeing various things before doing things on the 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?

Kevin Crutchfield (CEO)

I think going back to the remarks we made, 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. In my opinion—and again.

I don't want to front-run the board here because this is ultimately a board discussion—in order to have any sort of capital return plan in place, that is the first order of business. That is our goal, to establish 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. At that point, that's when I think you could envision the board having a very earnest discussion around a capital return policy.

Jason Ursaner (Portfolio Manager)

Okay. Great. Appreciate all the commentary. Thanks. Good luck.

Matt Preston (CFO)

Yeah. Thank you.

Operator (participant)

Once again, if you have a question, please press star, then one. This 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)

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 2025 progresses. Thank you.

Operator (participant)

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