Thank you for standing by. This is the conference operator. Welcome to the Intrepid Potash, Inc. Third Quarter 2023 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.

Thank you, Emily. Good morning, everyone. Thanks for joining us to discuss and review Intrepid's third quarter 2023 results. With me today is Intrepid's Co-Founder, Executive Chairman and CEO; Bob Jornayvaz; and CFO, Matt Preston. Also available to answer questions during the Q&A session is our VP of Sales and Marketing, Zachry Adams, and our VP of Operations, John Galassini. Please be advised that our remarks today, including answers to your questions, include forward-looking statements as defined by U.S. securities laws. These forward-looking statements are subject to risks and uncertainties that could cause actual results to be materially different from those really anticipated and are based on information available to us today, and we assume no obligation to update them. These risks and uncertainties are described in our periodic reports filed with the SEC, which are incorporated here by reference. During today's call, we report certain non-GAAP financial and operational measures. Reconciliations to the mostly directly comparable GAAP measures are included in yesterday's press release. Our SEC filings and press releases are available on our website intrepidpotash.com. I'll now turn the call to Bob.

Thank you, Evan. Good morning, everyone, and we appreciate your interest in Intrepid and your attendance for our third quarter 2023 earnings call. Intrepid's third quarter was highlighted by strong sales with our volumes remaining well ahead of last year's pace. For potash and Trio, our respective volumes through the third quarter represent approximately 95% and 90% of the total we sold in 2022. A couple of reasons for the higher sales include, first, farmers in the United States are finding good value in potash, where U.S. demand is projected to increase by about 10% to 15% year-over-year. And second, the premium feed market remains very important for Intrepid with this market comprising just over 30% of our potash sales mix in the third quarter, while also providing the added benefit of increased netbacks. Looking ahead, we expect continued solid demand in the fourth quarter as harvested corn and soybeans is tracking ahead of the five-year average, which helps provide an open window for the fall application season. While our volumes have seen a nice rebound from 2022, owing to the impacts from last year's failed extraction well, we've had fewer tons available to sell in 2023 versus what our markets could support and correcting our potash production trend has been the key strategic priority for Intrepid. Our capital program has been directly focused on revitalizing our potash assets and owing to our strong project execution, we feel very confident that we are well on the way to increasing our production to the high end of our historical range. Before diving into project details, I wanted to provide some commentary on the outlook for the agricultural markets and potash. Starting with the agricultural markets, as we've been highlighting for several quarters, U.S. farmers are mostly in good shape. They are…

Thanks, Bob. In the third quarter, we generated adjusted EBITDA of $2.2 million and adjusted net loss of $6.8 million. Weighing on this quarter's results was again lower pricing. In Q3, our net realized sales price for potash and Trio averaged $433 per ton and $298 per ton, respectively, with both figures down roughly 40% compared to Q3 of 2022. As Bob noted, while our sales volumes have remained quite strong this year, lower fertilizer pricing as well as elevated carrying costs are proving to be headwinds for our margins in the near-term. That said, pricing for potash and Trio has seen modest increases since our last earnings call and improving our unit economics by means of higher production remains the number one priority for Intrepid. To highlight what higher production can mean for our unit economics, we estimate that returning our annual potash production to approximately 350,000 tons will improve our cost per ton by 20% to 30%. Moving on to segment highlights. In potash, our Q3 and first nine months sales volumes totaled 46,000 and 213,000 tons, respectively, with the third quarter volume being flat compared to last year, while the first nine months volumes represent an increase of just under 25% versus the prior year period. We've seen strong demand from agricultural customers throughout the year, and we've also been selling more tons into feed markets to ensure we take advantage of premium pricing when possible. Our third quarter potash production totaled 43,000 tons, and we now expect our 2023 calendar year production to come in about 10% lower than our previous guidance of 260,000 tons. As for the fourth quarter potash outlook, we expect our sales volumes to be in the range of 40,000 to 50,000 tons at an average net realized sales price in the…

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. Joshua, please go ahead. Your line is open.

Hi. Good morning everyone. It's Christopher Perrella on for Josh. With all the projects that you're doing, I know the longer-term goal is to get back up to the high end of the historical range. What are the near-term impacts on 2024 production? What's your outlook for next year in terms of volumes you'll be able to produce?

Matt, do you want to take that?

Sure. Thanks for the question, Christopher. We're continuing to pull that high-grade Eddy Shaft Brine into our ponds right now, and we just started kind of the 2023, 2024 harvest season. I mean, quick summary, Chris, we're not ready to give guidance on 2024 calendar year production just yet, but we certainly think we'll see a nice bump year-over-year as we continue to see the effects of this high-grade brine, get the effects of the Moab projects we completed in the summer of 2023 and start to see that in the back half of 2024. So given the variability in weather and evaporation, not ready to put a number out there yet, but we certainly think we'll take a big step towards that 350,000 tons as we move forward into the next evaporation season.

As a follow-up, as I think about Eddy, and you sized that is 85 to 100 kt of potash product or incremental potash tons. Does about half of that hit in 2024? And where do costs go from here given the higher production rates or the potential higher production rates next year?

Yes. So as far as half of it hitting in 2024, we'll put this 85,000 to 110,000 tons of potash into our ponds for the 2024 evaporation season. We'll start harvesting in the fall of 2024 there, which we expect will be a much higher feed grade into our mill. That brine will be mixed with brine from the other portions of already – of our –excuse me, our HB potash mine and caverns, so we'll see just a general increase every month as we mill a higher-grade feedstock into our HB mill. And so kind of the timing of which ponds we're in at certain times is variable and can't say what exact grade will be in the fall of 2024, but we'll kind of see that benefit all the way throughout the 2024 and 2025 harvest season.

All right. And then one quick follow-up on Trio. You had higher costs in the third quarter from the unplanned downtime. How much were they? And did they all reverse out in the fourth quarter here?

Yes. From a cost per ton standpoint in the third quarter, I think we were right about $340 per ton. We certainly think we'll see some marginal improvement into the fourth quarter, anywhere maybe in the 5% range. We have a pretty big inventory of Trio and so kind of that weighted average cost does take some time to turn over in our COGS. So you won't see that impact immediately in Q4, but we think we'll see some incremental improvement in the fourth quarter compared to the third quarter.

All right. Thank you very much. Appreciate the time.

Our next question comes from Joel Jackson with BMO Capital Markets. Joel, please go ahead. Your line is open.

Hi. Good morning. A few questions for me. I'll do one at a time. I've noticed like in the last few years, like Trio, Trio's price as a percentage of kind of potash prices have kind of gone together. It seems like the Trio value relative to potash has been quite stable, relatively wise for years when maybe it's been more volatile. Can you explain the value of Trio and potash that sort of really trade together care for the last few years, maybe different than prior cycles? Does that make any sense?

Zach, do you want to take a stab at that first?

Yes. Thanks for the question, Joel. I think part of that could be related to our Trio sales today and certainly over the last year have been a higher percentage for our domestic markets. And those typically carry a higher price point than international sales. So that could be related to what you're seeing there as far as it tracking closer to potash with all of our potash sales being domestic markets as well.

Okay. Thank you for that. Now if you can get a big chunk, so you have a goal to get to 350,000 potash sales with all the operational expansions you're doing improvements. If you get a big chunk of the way towards 350,000, what can we do for costs? Like you say you can get 20% to 30% cost improvement, do you think you can get half the distance to the goal line in 2024? Or what should we think about it?

Yes. It's like I said, Joel, it's certainly hard to say. We've seen some really good results from the Moab project so far. And the brine grade we're pulling out into our ponds. Obviously, the Eddy shaft has been very strong so far. We have no expectations for that decreasing here as we continue to pump out of that and then start pumping out of the IP30B, the replacement extraction well towards the spring and early summer. That being said, I think kind of just take it to the midpoint. If we can get kind of halfway there, we'll get half of those cost benefits in the 2024, 2025 season. And then kind of that full 20% to 30% when we're back towards the 350,000-ton range.

Okay. Then I mean you've seen a lot of your peers, your potash – your peers over the last week to an earnings season really boost up now expectations for 2024 potash demand 3, 4, 5 million tons. A lot of questions about who's going to supply the extra 3, 4, 5 million tons globally and people definitely assumptions around what Belarus and Russia can do and what CapEx can do with some of the logistics constraints. You're obviously a smaller player in the market, but you – and I see the lost strength in North America, nutrient based list prices. How do you see the market right now in potash? Anything open question and how are you seeing more exports come on the river from the FSU? Are you seeing anything in the last couple of months making you more excited about the outlook for next year? And maybe talk about demand, supply, anything you want within a very broad question.

Joel, thanks for the question. I think the previous earnings calls, you've heard the same story. We expect a pretty robust demand, especially at these values. We continue to see fertilizer imports out of Russia in all fertilizer products, which is somewhat surprising given the magnitude of the imports we're seeing from Russia, but they're there. We agree with the demand figures that you threw out. We anticipate robust demand. And that's why we are so laser-focused on getting our production back to the high end of our historical ranges. Zach, I don't know if you want to add any color, but we did see a robust 2024.

Yes, I would just echo that, Bob. All signs fall application has been good across the geographies that we participate in that. And our expectation is we'll see that continue into the spring. And obviously, the crop commodity prices, they incentivize growers to maximize yields and not only those, Joel, a lot of our markets, we provide nutrients to forage and grass markets and cattle processing is at historical highs as well. And so we see really good demand on the pasture and hay ground across those markets as ranchers look to kind of reinvest in their grass and their acres there as well.

Okay. Finally for me, that...

Did that answer your very broad question?

Yes, it did. I know, Bob, you talked about – I can’t remember what forums, whether it was print media or on these conference calls about being surprised. I don't want to put words in your mouth about Russian imports into the States. So yes, I guess one more question for me on Oilfield Solutions. What kind of expectations directionally like should we expect in 2024 from that business? Is it a little higher or a lot higher, maybe can give us some of the puts and takes to expect in 2024 from that business?

Most of that business – I would say the large majority of that business is centered in New Mexico. And so the fundamentals of servicing the oil and gas industry are very strong, but we continue to navigate the regulatory environment. So for example, our [sand mine] project, we're still waiting on one more permit that we should have had months ago. So we continue to navigate the continuing complexity of the New Mexico regulatory environment. So it's really hard to give really solid guidance based on the number of projects that we have teed up and ready to go that we just continue to wait on permitting. So it's hard to give specific guidance when we can't get specific answers as to when certain permits will come out of regulatory agencies. So I hate to make excuses, but that's the reality of life in Southeast New Mexico right now.

So if you were – like someone like me asked about your company, would you then assume kind of a similar like base case balancing all the risks, kind of a similar profitability or similar business size in 2024 versus 2023?

Yes. I mean I think that's a good place to start, Joel. We certainly have some opportunities there from the sand project Bob mentioned, continue to look to increase the high margin sales we have around freshwater and 10-pond brine that we've had great success selling and kind of growing that business over the last couple of years. So I think it's a good place to start. It's pretty consistent. You do see, and we've talked about this on past calls, some quarter-to-quarter variabilities, particularly in our South Ranch where we sell 1 or 2 large fracs a year. And so that variability and timing of sales can cause some of the quarterly fluctuations. But from a calendar year perspective, it's a good place to start is being consistent with prior year as activity continues to be strong down there.

Thank you very much.

Thanks, Joel.

[Operator Instructions] We have a follow-up question from Joshua Spector with UBS. Please go ahead.

Yes. Just a quick one. With all the moving parts here in the fourth quarter, is there incremental EBITDA that you're expecting to generate in 4Q here?

I mean, Chris, do you mind maybe rephrasing that? When you say incremental to what?

I'm sorry, yes. So sequentially, I mean, with better pricing here and volumes looking a little bit better and maybe cost coming down a little bit, I mean what's a reasonable range for EBITDA for the fourth quarter expectations?

Yes, we're not going to give guidance as far as quarterly EBITDA. But certainly, Q3 historically is a low point, sales pickup from just a volume standpoint in the fourth quarter. We had some LCM we took in the third quarter roughly $3.4 million, and we expect it to increase kind of quarter-to-quarter, but I'm not going to provide a number there.

All right. Okay. No, that's fair. I was just looking for any other onetime items that maybe as I think about modeling this thing – modeling profitability sequentially you would call out or should be aware of?

No, there's certainly no onetime items that we expect right now. And I just kind of reiterate, certainly, sales, we expect we'll pick up here in Q4 a little bit, given kind of the rough guidance on pricing and volumes, hopefully, that kind of can help get you there.

Appreciate that. Thank you very much.

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

I want to thank everyone in your interest in Intrepid and appreciate your interest, and thank you, and have a great day.

Thank you, everyone, for joining us today. This concludes our call, and you may now disconnect your lines.