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, Zachry 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, 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 filed with the SEC, which are incorporated here by reference. During today's call, we will also 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 are available at intrepidpotash.com. I'll now turn the call over to Matt.

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…

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 Zachry. Global demand in 2024, as Matt mentioned, has trended back to normal levels, and we expect that normalization to continue into 2025. In our business with customers as recently as the last few weeks, they commented that potash at the current price levels represent a good value to the grower and in the rates, so they've been seen applied this Fall in a number of geographies, they've seen those rates to be relatively normal with little to no cuts on those. So we expect good demand in the Spring of next year. And again, part of -- even in a weaker ag price environment, yield maximization is still a key and potash is a part of a balanced fertilization strategy to maximize yields.

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 Zach to talk about specific distributor inventory levels. But I mean we certainly saw the news yesterday and I mean it still much too early to kind of put any stock in that right now. I think what it does point to is a really balanced global market today from a supply-demand standpoint, where even the potential cuts of, call it, 2.5 million tons on the high side. it would be a pretty big shakeup to the current market as it is today. So who knows the likelihood of that happening, but I think certainly, it just points to that we're in a nice balanced market, and Zach will let you touch on sort of the U.S. implications and where we are today.

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.

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