Thank you for standing by. This is the conference operator. Welcome to the Intrepid Potash, Inc. Third Quarter 2022 Results Conference Call. The conference is being recorded. I would now like to turn the conference over to Evan Mapes, Investor Relations. Please go ahead.

Thank you, Lisa. Good morning, everyone. Thank you for joining us to discuss and review Intrepid's third quarter 2022 results. With me today is Intrepid's Co-Founder, Executive Chairman and CEO, Bob Jornayvaz; President, Brian Stone; and CFO, Matt Preston. Also with me today and available to answer questions during the Q&A session is Vice President of Sales and Marketing, Zachry Adams. 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 currently anticipated. These statements are based on the 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 Securities and Exchange Commission, which are incorporated here by reference. During today's call, we will refer to certain non-GAAP financial and operational measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are included in yesterday's press release. Our SEC filings and press releases are available on our website at intrepidpotash.com. I will now turn the call over to Bob.

Thank you, Evan. Intrepid continues to show strong execution in what has been an exceptional year for the company. In the third quarter, we delivered adjusted EBITDA of approximately $27 million and adjusted net income of approximately $13 million. This brings adjusted EBITDA for the first 9 months of the year to approximately $119 million and adjusted net income to $69 million. When comparing both figures to total sales of $271 million for the first 9 months of the year results in respective margins of 44% and 25%, both of which are among the highest in Intrepid's history. The strong financial performance has primarily been driven by high fertilizer prices with our average net realized sales price for potash and Trio coming in at $734 per ton and $488 per ton, respectively, in the third quarter as well as $718 per ton and $482 per ton, respectively, for the first 9 months of the year. For those tracking potash, it's no surprise that we've seen a moderate pullback in pricing in the past few months with key drivers being the preference for just-in-time purchasing in the agricultural markets and seasonally higher global inventories, which in turn drove lower third quarter market transactions. While Intrepid wasn't completely sheltered from what turned out to be a slower-than-expected market in the third quarter, the strength of having diversified sales outlets into the feed and industrial markets was on full display. In the third quarter, feed and industrial sales comprised almost 40% of our total sales, helping offset delayed sales into agricultural markets. Moreover, our contracts for feed and industrial typically are longer term, which helps add stability to our company-wide average net realized sales price while the strategic geographic location of our operations also helped drive higher netbacks to Intrepid. Moving on to broader commentary on the agricultural markets. United States farmers are benefiting from crop prices not seen in almost a decade. This has held true for much of the year. As fall harvest wraps up, spot corn is trading in the high $6 per bushel range. Spot soybeans are just under $14.50 per bushel, and spot wheat is in the mid-$8 per bushel range. Even with higher input cost inflation, the resiliency of crop pricing should still drive very healthy profits. Crop pricing into the next year's harvest is also very strong with December 2023 futures for corn trading at roughly $6.25 a bushel, November 2023 soybeans in the high $13 per bushel range while September 2023 wheat futures are actually higher than current spot prices, trading at just under $9 per bushel. Looking even further out, which is critical, December 2024 futures contracts for corn are at very supportive levels, trading at just under $5.75 per bushel. Today's futures market present the potash industry with a significantly healthier and more robust outlook than was present in the 2008-2010 period, the last time we saw a large run-up in potash pricing. I urge everyone to compare today's longer-term outlook back to the 2008 situation to understand how positive our current fundamentals are. Potash is, of course, a global market. For key international crops, spot palm oil is currently trading at around MYR 4,000 per ton, up from roughly MYR 3,000 in late September with futures all the way into January 2024 still trading above the MYR 4,000 level. That said, palm oil is down about 50% from the 2020 highs but the current price level is still at the high end of the range over the past decade. Quickly, on other key international crops. Spot sugar is at roughly $0.18 a pound, down slightly from the highs seen earlier in 2022 but still the highest level since 2016 with futures into next year trading at just under $0.17 per pound. Spot coffee is trading at $1.75 per pound. While it's down about 25% from the highs, the current spot price and low end of the trading range over the past year is still the highest since 2014. Tying this back to Intrepid, we think the near- and medium-term outlook looks very positive. Farmers around the world are enjoying strong crop economics in the backdrop of a volatile global supply situation, which should help support steady potash demand and pricing. More specifically, in the United States, harvest progress for corn and beans is nearing completion at about 76% and 88%, respectively. Fall application has also started, and we expect good demand for nutrients during the fourth quarter that will draw down warehouse inventory levels and result in buyers needing to reengage on building nutrient positions for spring 2023 beginning in late Q4. With the market commentary out of the way, I will now provide some updates on our major projects that have an intense focus on increasing our solar potash tons. Intrepid's Moab cavern drilling program is expected to start within the month with a significant long lead time pieces of equipment purchased and already on site. We are on track to have brine production from the new cavern in early Q1 of 2023. This brine will be available for the 2023 evaporation season, which in turn should increase Moab's potash production. We anticipate keeping that rig and drilling additional horizontal laterals into the original Moab mine to drain high-grade potash brine from low spots or sumps, if you will, which we believe have collected significant quantities of high-grade brine ore. This too will generate brine for the production of future additional tons. At our HB Solar Solution mine, we remain on track to significantly increase injection rates into the solution mine in the first quarter of 2023. The installation of this improved pipeline system is designed to significantly increase total fluid volume and flow capacity through the pipeline to efficiently inject greater volumes of fluid into the HB Solar Solution mine. This improved system will use various water rights to meet the water demands of our HB mine while also helping to avoid historic pipeline scaling issues. More brine injected directly correlates to the future production of additional tons. At Wendover, for the first time in several years, we recently and successfully completed our first new deep brine well and we're well within budget. We are achieving the expected flow rates and brine grades that will increase overall brine availability, which will help us to better manage variability in weather and evaporation rates in the coming evaporation seasons. We further anticipate the drilling of additional wells in 2023 to sustain the expected increased production for numerous years to come. At our Intrepid South Ranch, the sand mine project which we introduced during our last call, continues to move forward with major capital items either on site or scheduled for delivery in the first quarter of 2023. Since our last call, we've drilled 65 additional core holes in multiple areas for a total of 108 core holes, which has significantly expanded the scope of the resource that we've identified in Southeast New Mexico. Initial production could be as soon as the end of the first quarter in 2023 although timing around the receipt of appropriate permits remains uncertain due to the overwhelming demand from the BLM as well as state agencies in New Mexico. As a result, our first production could be delayed into the second half of 2023. We'll be ready to start immediately upon the receipt of the necessary permits. In addition to our capital projects, we began repurchasing stock under our share repurchase program in the third quarter with approximately $2.9 million spent under our $35 million share repurchase program in the third quarter. However, through the end of October, our share repurchases have increased to approximately $5 million in total. Overall, while equity and broader markets are facing some headwinds, we think that both Intrepid and the potash industry are uniquely well positioned. I'll finish my prepared remarks by highlighting a few factors driving our sustained constructive outlook. Persistent global supply volatility should be supportive for potash prices. Farmers throughout the world are benefiting from strong crop economics and are farming for maximum yield given the historically strong futures market prices many quarters out. This should create steady demand for potash despite input cost inflation. Our debt-free balance sheet and strong cash flow give Intrepid the ability to put growth capital to use to increase our productive capacity and, in turn, lower our production cost per ton. Finally, our solid balance sheet also enables us to fund, execute, and potentially increase our share repurchase program. Again, thank you to everyone who dialed in today. I'll now pass the call to Matt to present more details on our financial performance and outlook.

Thanks, Bob. As Bob noted, high net realized sales prices for potash and Trio helped drive another strong quarter of financial performance for Intrepid despite sales volumes being slower to ramp up than we initially expected. In our potash segment, sales volumes in the third quarter totaled 46,000 tons, down from 62,000 tons in the prior year as distributors ended the 2022 spring season with more inventory than expected and buyers continue to focus on just-in-time purchases for potash. Total potash cost of goods sold per ton increased compared to the prior period as a slow start to fall sales led to more tons being sold from our HB facility, which carry a higher relative cost of sales. As we move into Q4, we expect overall cost of goods sold per ton to improve although we continue to be hampered by persistent inflation and related labor cost increases across our sites. Third quarter potash production was similar to the prior year as we began our solar operations midway through the quarter. Year-to-date production is down compared to the same period in 2021 due to the below-average evaporation rates we experienced across our facilities last year, which shortened our spring 2022 production season. We've seen slightly better evaporation in 2022 but have experienced decreased brine grades and extraction well availability at our HB facility during the last few months, in addition to lower overall brine availability at our Wendover mine. Overall, we expect an improved production season from now through the spring of 2023 but we will not be back at the rates we saw in the 2020, 2021 production year. The good news is we are actively addressing these issues through the capital projects that Bob mentioned and the outlook for our potash facilities remains bright. Looking at the fourth quarter, buyers continue to remain mostly on the sidelines even as fall harvest wraps up across most of the country. Despite the sales timing uncertainty, we remain confident that the winter spring application season will be quite strong and tons will transact even if it looks like sales could get pushed into Q1 of 2023. For now, we expect to sell between 45,000 to 55,000 tons of potash in the fourth quarter at an average net realized sales price per ton of $665 to $675. Moving to the Trio segment. Sales volumes followed a similar trend as potash in Q3 with 39,000 tons sold, down from 46,000 tons sold in the prior year as carryover inventory and a preference for just-in-time shipments limited restock during the quarter particularly given the increased seasonality of our Trio products. Despite the slower start, we are using the opportunity to place tons in strategic locations ahead of what we expect will be another great application season in the coming months. We expect fourth quarter sales volumes to be between 35,000 and 40,000 tons at an average net realized sales price of $465 to $475 per ton. Trio production remains consistent with the prior year as we've incurred increased downtime with our current mining fleet, which has limited our process tons despite increased run days. We have two new continuous miners on order and we expect these will be on site in the first half of 2023, which should improve our efficiency and production rates. Turning to our liquidity. Our cash flow generation in recent quarters has been impressive. As Bob highlighted, we firmly believe one of the best uses of cash is to invest in our core mining and minerals business to enhance the production capabilities of our solar solution mines, assets that all have reserve lives measured in decades. Through the first 9 months of the year, we've generated cash flow from operations of approximately $69 million even after repaying the approximately $33 million customer prepayment in the third quarter and have spent approximately $37 million on CapEx. Our 2022 capital investment plan remains at $65 million to $75 million as our major projects begin to ramp up spending in the fourth quarter although cash spent on capital investments is expected to lag slightly behind given the significant activity in the last couple of months of 2022. That concludes our prepared remarks, operator, and we're now ready for the Q&A portion of the call.

The first question comes from the line of Joel Jackson with BMO Capital Markets.

This is Joseph Vaccaro on for Joel Jackson. We just wanted to ask on the Wall Street Journal article published earlier this week discussing how oil and gas drilling activity going on in New Mexico and your production sites are infringing on your mines. So how is this going to be impacting any of your production or expansion plans in the area going forward? And what would be your plans to mitigate those risks?

Well, we're working closely with the BLM. The Secretarial Order of 2012 gives the potash industry what I would call primacy. So it's up to the BLM to engage and enforce the regulatory roadmap that clearly exists so that oil and gas companies do not infringe on our reserves. We are fighting strenuously for that position not only to ensure the safety of our miners but to make sure that there is no destruction of our reserves.

The next question comes from the line of Vincent Andrews with Morgan Stanley.

This is Will Tang speaking on behalf of Vincent. It appears that your potash costs have risen considerably compared to the previous period. I understand that natural gas prices and the sale of more tons at a higher cost from the HB mines are factors you mentioned. However, I'm curious about how much of this increase is attributed to those reasons versus potentially not fully absorbing your fixed costs due to lower volumes, or perhaps the leftover inventory resulting from the weak evaporation rate in 2021. Additionally, could you provide insight on the extent of cost reductions you anticipate as we approach the fourth quarter? Should we expect levels more akin to the first or second quarter, or is it likely to remain somewhat elevated like in the third quarter?

Yes. A fair question and I appreciate it. Certainly, as I mentioned on the call, we've had some decreased overall brine grades and brine availability. You look back at the 2020, 2021 production year, that was roughly 330,000 tons. The '21, '22 was about 250,000 tons. This is really taking a Q3 to Q2 look when we're harvesting those tons. We'll be slightly above that we expect going forward for the 2022, 2023 year, but not back to that 330,000 level. This kind of gives you a sense of magnitude of how far we fell off in the past year due to bad evaporation. As far as overall COGS, I want to remind you that we're still carrying, obviously with higher prices, higher overall royalty expense in there, roughly 5% of our sales. As far as HB goes, we sold roughly 60% of our tons out of HB in Q3, which is above the normal, which is usually 40% of our tons come out of our HB facility. So while certainly a small contributor, I’d say overall inflation and just overall production rates are the main drivers going forward.

Just to add to that, I really want to emphasize the intense focus on generating more brine at our solar evaporation facilities. We are making a significant investment, approximately a $30 million investment in our HB pipeline system that will be up and operational in the first quarter. At Moab, we are beginning an intense cavern drilling program and also a program to drain low spots or what we call sumps in the original Moab potash mine as well as at Wendover. We've already drilled deep brine wells and are on track to drill more wells to increase our brine availability. I'm stressing that focus enough that we started late in 2021 with the acquisition of all the appropriate long lead time items and equipment so that we could execute on time.

Got you. Okay. And then I believe earlier on the call, you commented that you expected fall application activity to remain pretty strong. But you guided for, I think, 45,000 to 55,000 tons of potash in the fourth quarter, which is pretty significantly below your historical levels. I'm wondering how to reconcile those two statements. Is the lower volume kind of a function of the lower production rates that you've had, the recent production season that you just mentioned? Or is it something else?

I think it's a combination of both. It's hard to tell folks to look at potash on an annualized basis. However, we definitely see farmers delaying their purchasing while being steadfast in farming for maximum yield. By definition, if you're farming for maximum yield, you're utilizing as much balanced fertilization rates as you can. I apologize for the mixed message. The fundamentals that occur in the marketplace and the volatility of supply should create a positive outlook.

The next question comes from the line of Josh Spector with UBS.

I guess just a follow-up on potash. Your comments are similar to other peers that have reported already. But curious if you could comment on what's the risk in your view of a wait-and-see attitude persisting into early next year, say, into the first quarter or into spring. Is there inventory to allow that? Or do you see this as inevitable when things turn?

When I look at first of all, I think you've got to look at farmer economics and farmer economics remain extremely robust. This informs us about farmer behavior. They will farm to the highest potential yield because their economics are historically strong. When we look at potash inventories, they are being drawn down as we speak. Given what the 2023 season looks like, I think we're going to see extremely robust demand despite farmers having a wait-and-see attitude. I don’t want to say we’re staring each other down, but I think it’s a simple analogy.

Okay. That makes sense. I just wanted to clarify your comment on the industrial and feed portion of your mix. I think of those as typically being lower priced but more stable, longer duration. I think you mentioned that they were higher priced. Is that normal? Or is that something that's shifted given the price run-ups over the last year?

Yes. Thanks for the question. Typically, we see a premium on the price point for our industrial and feed sales. So that's not unusual. And as noted, with those being 40% of our sales in the quarter, they positively impacted our overall price for the quarter on potash.

If I could just ask one more just on the oilfield? I mean a surprise in the gross margin compression given the sales were pretty strong. How should we be thinking about the performance of margins in that segment over the next, I guess, quarter or year? Do some of the pressures dissipate? Is it pricing? Is it unique? If you can expand there, that would be helpful.

Yes. I think we saw pretty steady margins in our oilfield segment going forward. As we mentioned in our Q that we'll file shortly and in some of our remarks in our press release, we did experience increased third-party water purchases. It increased overall COGS and sales in our third quarter compared to the prior year. Demand activity remains very strong. What we're generating from surface use agreements, brine sales, caliche sales, and other oilfield products and services remains pretty robust and is a strong cash flow generator for us even if the COGS that you're seeing in some of the margin can hamper depreciation and general amortization we have in our segment.

Okay. Just to clarify; when you say margin, I mean, obviously your first half gross margin was closer to 40%. This quarter, it was close to 5%. Is 40% the right run rate? Is it much less than that? What do you think about?

Yes. It really varies with third-party water purchases. A lot of that ends up being very low margins with pass-through. It adjusts, depending on how much we sell of our own water versus third party. Those can really shift around, but I look towards either higher margins at lower overall sales levels or that more compressed period if we have higher third-party water purchases, if that makes sense, Josh.

Yes. And Josh, just to clarify, when we say third-party water, we're able to use our infrastructure to run back-to-back sales that have a positive margin. We buy water that has a balanced book. The margin on that water is less than the water that we actually own. It's the ability to maximize the usage of our existing infrastructure that you're seeing the compression in those margins but more in terms of revenue.

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

I want to thank you all for your time today and your interest in Intrepid. We really appreciate it. We look forward to talking to anyone with additional questions and follow-ups. Have a great day.

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