Participants

Evan Mapes; IR Contact Officer; Intrepid Potash Inc

Kevin Crutchfield; Chief Executive Officer; Intrepid Potash Inc

Matthew Preston; Chief Financial Officer; Intrepid Potash Inc

Lucas Beaumont; Analyst; UBS

Jason Ursaner; Analyst; Bumbershoot Holdings

Presentation

Operator

Thank you for standing by. This is the conference operator. Welcome to the Intrepid Potash Inc. fourth-quarter 2024 results conference call. (Operator Instructions) I would now like to turn the conference over to Evan Mapes, Investor Relations. Please go ahead.

Evan Mapes

Good morning, everyone. Thank you for joining us to discuss and review Intrepid's 4th quarter of 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 Galicini.
Please be advised that the remarks today include forward-looking statements as defined by US securities laws. These forward-looking statements are subject to risks and uncertainties which could cause intrepid to 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-gap financial and operational measures. Reconciliation to most directly comparable GAAP measures are included in yesterday's press release, and along with Intrepid's SEC filings are available at Intrepid Pottish.com. I'll now turn the call over to our CEO Kevin Crutchfield.

Kevin Crutchfield

Thank you, Evan, and good morning everyone. We appreciate your interest and attendance for our 4th 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 3 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 fourth quarter, Intrepid generated adjusted EBITDA of $8.6 million and had an adjusted net loss of $1.4 million, which compares to prior year adjusted IBAA of $7.1 million, an 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.
And when looking at just the second half of the year, our adjusted IAA $18.5 million was roughly double the same prior year figure.
Being able to improve our IBADA 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.
It was the 3rd 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.
TRO 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 TRO led to company record sales volumes of 254,000 tons and price increases throughout the year, with TRO pricing currently higher than Potash for the first time since 2016.
Lastly, on the back of strong oil field activity and investment in the Permian, oil field 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 net backs 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 short-sighted, getting caught short-sighted 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 or 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.

Matthew Preston

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 3 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 10K which we plan to file later today.
Now for segment results in potash in the 4th quarter, we produce 117,000 tons, an increase of almost 50% compared to last year's 4th quarter. Driven by the higher production, our 4th 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.
And as Kevin mentioned, we expect to drill a sample well at our HBAEx cavern in the first half of 2025 to test the brine chemistry and stay on track with the development of the HP solution mining caverns.
Moving on to TRO, 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 1/4 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 length and night 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 $11.5 million exceeding our goal of $8 to $10 million in cost reduction in 2024.
Moreover, our 2024 TRo 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 and 245,000 tons and strengthening TRO pricing, driving bottom line growth in the segment.
In terms of first quarter guidance, we expect our potash sales volumes to be between 950 to 105,000 tons at an average net realize sales price of $305 to $315 per ton. For TRO, we expect our sales volumes to be between 100 to 110,000 tons at an average net re realize sales price of $340 to $350 per ton.
For our 2025 capital program, we anticipate CapEx of $36 to $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 cost of production for Potash and TRO. We look forward to continuing this progress in 2025. Operator, we're now ready for the Q&A portion of the call.

Question and Answer Session

Operator

Thank you. We will now begin the question-and-answer session. (Operator Instructions)
Lucas Beaumont, UBS.

Lucas Beaumont

Thank you. Yeah, so just looking at potash pricing, and 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. So just wanted to sort of get your thoughts on how you see the dynamic there, and then 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, so 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.

Kevin Crutchfield

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, and we continue to see demand in all the major consuming regions be very steady through the 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 winter winter field program. So 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 roll out as you get into our second quarter volumes.

Lucas Beaumont

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 by getting that down. So in a, 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. Or just how could you, would you frame sort of how you see the set up there on the side this year. Thanks.

Matthew Preston

Yeah, good question, Lucas. We came in 4th 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 pond 7. We'll expect to see that in the 2025, 2026 harvest season. So as we get into the 3rd and 4th quarter, particularly of 25, we expect to see another, step improvement in our in our unit cost as we get that right, facility back up in that 75 to 80,000 ton range.

Lucas Beaumont

Great, thanks. And then I just just wanted to ask you about the Canadian tariffs. So, I mean, Intrepid's one of the few companies that may actually benefit from this if, domestic prices rise if you capture the margin. Have you done any work kind of internally to work out sort of How much of a dollar impact do 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 sort of 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.

Kevin Crutchfield

Yeah, thanks, 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 really any impact we would see would be beginning in the 2nd 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 certainly as we see that we'll know more.

Lucas Beaumont

Alright, thanks very much.

Operator

Jason Ursaner, Bumbershoot Holdings.

Jason Ursaner

Hey, good afternoon. Thanks for taking the questions. 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, the total cost including the byproducts and everything, so you know we went from like 415 to $420 a ton last year to I think you're saying 315 to 320 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 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.
So I guess I'm just trying to understand, do I have that right for what's kind of reported in the cost in Q4 and if you're getting the full benefit of the extraction well. For the production year, the 2024 to 2025 production cycle, why would you, 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.

Matthew Preston

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. 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. A side see that turnover a little bit quicker, like I said, we get into the back half of 25, we'll 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 to 80,000 tons.

Jason Ursaner

Okay, and 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. And then maybe, 2026 and beyond with the injection rates that you're seeing, I guess the any anticipation on Brian grade it's kind of longer term.

Matthew Preston

Yeah, I mean, you touched on that the Eddie Shaap project was a was a great little kind of stop GAAP to, extract brine from the Eddie 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 25 and so we'll see where brine grades trend, but you'll continue to extract heavy out of our Eddy cavern from IP 30B and and really pleased with the brine grades we've seen so far.

Jason Ursaner

Okay, and then in the oil field 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.
Dignity, which is now the South ranch. So obviously I know every ranch is different, depends on proximity to, drilling activity and all of that, but I guess my perception is your proximity is As good as any, and you know this is just strictly surface acreage, so you may be fair to say the four corners strategy you know never materialized quite how we envisioned. 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 you could kind of wipe the slate clean and maybe still wind up coming out of it with a pretty significant profit.

Kevin Crutchfield

Hey, Jason, good morning. It's Kevin. I'll 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 in the in the coming weeks and quarters.

Jason Ursaner

Okay. Okay, and I guess just in terms of the capital allocation, the kind of the message was sort of want to wait on forgot exactly how you worded 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.

Kevin Crutchfield

Well, I think going back to the remarks we made, number one priority here is to reestablish our focus on the 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 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 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, 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 the board having a very earnest discussion around a capital return policy.
Okay, great.

Jason Ursaner

I appreciate all the commentary. Thanks and good luck. Yeah, thank.

Operator

You.
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

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 2025 progresses.
Thank you.

Operator

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