Intrepid Potash, Inc.
Q1 2012 Earnings Call Transcript

Published: 4 May 2012

[Operator:]

Good morning, and welcome to the Intrepid Potash 2012 First Quarter Conference Call. [Operator Instructions] I would like to remind everyone that this conference is being recorded today, May 3, 2012, at 8 a.m. Mountain Time. It is now my pleasure to turn the conference over to William Kent, Director of Investor Relations. Mr. Kent, please go ahead.

[William Kent:]

Thank you, Brock. Good morning, and thank you all for joining us for our first quarter 2012 earnings conference call. Participants from the company include Bob Jornayvaz, Executive Chairman of the Board; David Honeyfield, President and Chief Financial Officer; Martin Litt, Executive Vice President, General Counsel and Secretary; Kelvin Feist, Senior Vice President of Marketing and Sales; and John Mansanti, Senior Vice President of Operations. I would like to remind everyone that statements made on this call that are not historical fact or that express a belief, expectation or intention, including statements about our financial and operational outlook, are forward-looking statements within the meaning of the United States securities laws. These statements are not guarantees of future performance. A number of assumptions, which we believe are reasonable, were made in connection with the expectations reflected in such forward-looking statements. The forward-looking statements involve risks and uncertainties, which could cause actual results to differ from our expectations. For more information with respect to risks, uncertainties and the other factors which could cause our actual results to differ from our forward-looking statements, we direct you to the news release we issued last night and the risk factors and management's discussion and analysis of financial conditions and results of operation in our most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q as filed with the SEC. All forward-looking-statements are qualified in their entirety by such factors. Our earnings news release, which is posted on our website at intrepidpotash.com, includes a reconciliation of certain non-GAAP financial measures to the most directly comparable GAAP measures, including adjusted EBITDA, which will be used on this call. All references to tons are the short tons of 2,000 pounds. I'll now turn the call over to Bob Jornayvaz.

[Robert P. Jornayvaz:]

Thanks, Will, and thanks to those joining us today to learn more about Intrepid's accomplishments and our first quarter 2012 results. Our first quarter performance continued to demonstrate the successful execution of our business plan. We earned $0.27 per diluted share or net income of $20.6 million, and our adjusted EBITDA was $44.7 million. Our balance sheet remained debt-free with $175 million of cash and investments at the end of the first quarter 2012 while deploying $30.8 million towards the execution of our robust capital investment plan. Our strong customer relationships were an integral part of our success during the first quarter of 2012. I'm paying close attention to the diverse sales opportunities available to us. In our regional markets, we were able to sell a healthy volume of our various products. Our marketing ability, combined with our geographic advantage and diverse market profile, assisted us in remaining competitive in the markets we serve while delivering excellent margins on each ton we produce. Our consistent financial and marketing performance is an important part of the Intrepid story. However, we are equally proud of the significant progress that we are making on our numerous capital projects, which will increase our production. These projects will improve the flexibility of our operations and help to maximize the margin on each ton produced. As Intrepid brings on higher volumes of potash at lower costs, we expect to continue to expand our margins. Our margins are already the best in North America. Others focus on the presentation of their costs. However, we focus on actual margin. Let me be quite clear. On average, for the past 5 years, Intrepid generated more cash to the bottom line on the production and sale of a ton of potash than our North American competitors. Not to be overly redundant, but some talk about lower costs but after costs, royalties, taxes and higher net back sales prices, Intrepid consistently delivers more margin. We believe margin is the most important aspect of the business. Our 5-year track record of generating the highest margin is not an aberration or a fluke, it is simply value creation. The approval of the HB Solar Solution Mine and the start of construction in March is a major milestone for Intrepid. Many of you on the call today have listened patiently over the last 3 years as we have described our navigation of the permitting and Environmental Impact Statement process and the deliberate steps we have undertaken to keep the project moving forward. I'm extremely pleased that the time and effort that our people have invested in working closely with local, state and federal agencies, as well as the local community, has brought the process to a successful outcome and strengthened the relationships we have with each of the groups involved in the process. Upon receiving the Record of Decision in late March, we immediately began construction of the HB Solar Solution Mine project, utilizing the detailed plan we had assembled during the summer of 2011. First production from HB is expected in late 2013, ramping into 2014 and reaching full production in 2015. The HB Mine is expected to increase our potash production by approximately 25% and allows us to continue to capitalize on our solution mining and solar evaporation expertise. Beyond the increased production volumes of potash, which should not be overlooked, is the impact that the HB Mine will have on our overall cost profile. The HB Mine will be one of the lowest-cost potash mines in North America and will enable us to further earn a greater margin on each ton we sell. In coordination with the HB approval, we have also received the necessary permits for our North Compaction Project and have commenced construction activities during the second quarter of 2012. This facility is designed and the timing is structured to increase the capacity of the North plant to handle all of the anticipated increased production from the HB Solar Solution Mine, as well as the planned expansions from our West Facility. The North Compaction Project will enable Intrepid to deliver to our agricultural customers an even higher-quality granular product while, at the same time, improving our operating efficiency. The Langbeinite Recovery Project, or LRIP, is another important capital investment and project that we have made significant project -- progress on commissioning during the first quarter. More specifically, we continue to work on commissioning the Dense Media Separation component, and we also recently began initial commissioning activities on the granulation component of the plant. The LRIP grows our production through the use of an enhanced recovery production method and is designed to provide the ability to produce 100% of our product in granular form. This optionality is an important part of our margin-based approach to the business and will allow us to not only better serve the undersupplied Trio market but have the opportunity to evaluate the margins we can earn in different markets and produce the product in the most beneficial form. Please remember that our East plant has been operating through major construction and redesign for the past 2 years. We're attempting to transform this facility, and it is happening. To be very clear, the best is yet to come for Intrepid, and we look forward to sharing our continued success to our stockholders. Kelvin Feist will take the call from here and provide you with a brief market update.

[Kelvin G. Feist:]

Thank you, Bob. We witnessed very profitable and stable cash crop prices through the quarter, albeit with volatile futures market. The current market condition strongly incent farmers to apply the necessary nutrients to maximize the return on their crop investment. However, it is also positive for them to be somewhat cautious in their buying decisions. Fieldwork in the key corn growing regions continues to progress earlier than normal. Indications from our dealers point to near-normal potash application rates through the spring season. The first quarter got off to a slow start from a sales perspective but improved in March due to unseasonably warm weather and increased farmer activity in a number of our end markets. On our last call, we said that we thought farmers would buy potash for spring, but the only question remaining when and how much. Farmers have applied product through the winter and into the spring due to minimal snow accumulation and warmer weather, pulling down the inventory held by dealers. The level of farmer purchasing, however, is becoming more difficult to quantify as dealer storage capacity is increasing rapidly. Dealers continue to work through inventory and will likely take a cautious approach to potash purchasing in the near-term, not unlike the cautiousness that consumers and businesses are demonstrating worldwide in the current economic environment. These purchasing behaviors bear a lot of similarities to the spring of 2010 in terms of dealer mindset. If you'll recall in 2010, dealers finished the spring season with empty bins, and were challenged to meet farmers' fall needs that year when demand was very strong. Demand in the industrial potash markets and animal feed businesses continue to be very good and outpace our temporary limited production at our East facility. Price in these markets remains firm. We are continuing to focus on responding to our customers' needs with the right product at the right time within our product offerings. Flexibility is one of our core strengths, allowing us to maximize the sales opportunities and returns available in our geographically diverse markets. As stated on previous calls, demand remains stronger than supply for all grades of Trio, and we expect demand to be strong for the remainder of 2012. The sequential $15 improvement in net realized sales price for Trio to $302 per ton in the first quarter of 2012 reflects realization of a price increase we implemented in the late January 2012. We also continue to hear from our customers that there's a growing recognition of the agronomic value of the sulfate and magnesium in our Trio, which is helping drive the demand for this product. With that, I will turn the call over to Dave Honeyfield to provide some final remarks.

[David W. Honeyfield:]

Thanks, Kelvin. Our ability to execute on capital projects becomes increasingly evident with each passing day. We've talked a lot over the last few years about major capital projects like the LRIP, the HB Solar Solution Mine and our compaction project. The nearing of completion of LRIP's construction and start of construction on the HB Solar Solution Mine demonstrate our ability to permit and construct large-scale, complex and very diverse capital projects. We continue to have many valuable projects ahead of us as shown by our recent activity to expand our existing cavern network and to create a new cavern system in Moab, Utah. Our operating and technical personnel understand that the performance of our mines and plants are key to realizing the value from the investments we have made. Our people are dedicated to achieving our production potential and delivering the returns that are expected. This statement is particularly applicable to our East plant, the facility we continue to invest in to bring its performance into line with the rest of our operations. I would ask that people have a balance of patience and confidence that the systematic approach we are taking to update, modify and transform the East plant will take some time, and it will result in variability in our production rates at East for a number of quarters. We continue to implement new techniques and technologies to address the complex mineralogy and processes that exist at East. All of our efforts are geared towards improving recoveries and throughput, which, in the end, will help us continue delivering margin. Intrepid will look much different from a production perspective 2 years from now. The LRIP will be the most immediate contributor to this shift. Based on the financial outlook we published in our press release yesterday afternoon, we expect to produce approximately 40% more Trio during 2012 than we did in 2011. And Trio production should grow even further in 2013. The HB Solar Solution Mine is expected to increase our production of potash by nearly 20% over the next 2 years and approximately 25% once we have the benefit of full pond and a couple of full evaporation seasons. These projects will increase our production, lower our operating costs, make us more competitive and most importantly, allow us to serve our customers' needs. Even with the capital investments we've undertaken, we still have many more organic opportunities to grow our business. We are constantly evaluating the next set of capital projects to create value from our long-lived reserves. Reserve acceleration is one of the best ways to accomplish this. Therefore, I expect our capital investment dollars going forward will remain focused on increasing our mining and milling capacity to take advantage of our multi-decade reserve portfolio. In closing, during the first quarter of 2012, our adjusted EBITDA of $44.7 million helped fund the significant capital investments we're making to grow the business. We remain focused on growing our production capacity and decreasing per-ton production costs while also increasing the flexibility of our production mix to support our marketing efforts. These are very good times at Intrepid, and we believe we're on a clear path to growing our business and delivering value to our stockholders. We'll now open the lines for any questions.

[Operator:]

[Operator Instructions] Your first question today comes from Bill Carroll of UBS.

[Bill Carroll:]

If you achieve the midpoints of your potash volume guidance for the second quarter and for the full year, it looks like second-half potash shipments would be up almost 30% versus last year and up about 10% versus your best second half ever in 2007. So given your comments in the press release about the unpredictability you're seeing in the ag markets currently, can you flesh out a bit more how you see the second half unfolding?

[Robert P. Jornayvaz:]

Kelvin, do you want to start on that?

[Kelvin G. Feist:]

Sure, I can start. I guess what we're seeing, Bill, is the season is very early. We anticipate at this very good historically strong commodity prices that farmers are going to farm and demand will continue to be strong. So I think what we're also seeing is the system is largely empty at the dealer level, and we expect a very strong toll at some point here in the next 60 to 90 days.

[Robert P. Jornayvaz:]

We all see -- Bill, thanks for the question, this is Bob. We also see the Canadians needing to supply some of their large international orders that they're beginning to see. So we're not seeing a tremendous amount of product coming into the United States, yet we're also seeing dealers emptying out. So we wanted to remind people of what 2010 look like, and we think it's just going to be a backloaded second half.

[Operator:]

The next question comes from Mark Connelly of CLSA. Mark W. Connelly - Credit Agricole Securities (USA) Inc., Research Division Two questions. First, can you walk us through how much the schedules for LRIP and the Dense Media Separation have actually changed? I'm struggling to align your guidance now with previous guidance, and I think it just maybe that my notes aren't that great. My understanding in November was that you said you would see production by March, and now you're saying production will actually be third quarter or do I have that wrong?

[David W. Honeyfield:]

Mark, this is Dave. I think your notes are probably pretty good notes. We've certainly seen through a lot of the work that's going on at the East that the commissioning has taken a little bit longer than we would have liked. We initially thought that some point during the second quarter, we'd be at full rates on the LRIP. We're probably seeing that move more into the early part of the third quarter. We are going to see some increase from quarter-to-quarter as we continue to move forward and we see better availability as the plant at East. And like we've touched on, we're making a lot of changes at the East facility. If you think about what's been going on there, it's been largely a construction area for the past couple, 3 years and change in processes. We made some pretty significant changes in the plant management here back in the last part of last year. And we just know that there's going to take a little bit of time to get there. But please know that there is a very detailed plan to get there that goes through each of the phases of the production cycle. And we're pretty confident in the numbers that we're putting out that this point, but we certainly needed to update them for what we're seeing relative to our plan.

[Robert P. Jornayvaz:]

The other thing that I would add to that is that along the way, we see opportunities to change other aspects of the plant, for example, brine recirculation. And so as we brought LRIP up, it showed us other opportunities to change other aspects of the plant. And so we're trying to really take a very, very long-term approach to this plant, so that at the end of the day, we've taken every opportunity to optimize it and get it working at its best. So it's a design work in progress. But I guess the message that we need you to hear is that it is working. Mark W. Connelly - Credit Agricole Securities (USA) Inc., Research Division Sure, that make sense. If I could just add one more question. A couple other quarters ago, you highlighted the weakness in demand in the Southwestern U.S. with the drought and everything as having caused the -- a material shift in where your volumes were actually going. Is that moving back to normal now or should we expect it to move back to normal in this year and will that -- would that be a net positive for your margins?

[Kelvin G. Feist:]

Mark, it's Kelvin here. I'll take that one. I guess when we look at it, we expanded our geographical footprint last year in light of some of the challenges we had in various markets. We have seen some of that come back. I don't know what -- that we're fully back to where we want to be there. We're still seeing some dryness in West Texas in a number of areas. We're also seeing some very good conditions in areas in East Texas and other regions. So I think we're most of the way back to getting back to normal on our higher-return markets. But we'd love to see the whole thing come back and get some more moisture in the West, so Texas.

[Robert P. Jornayvaz:]

I'd also say we're seeing improvements in our industrial and feed the markets that were also a little weak. And so once again, as we continue to build the various compaction facilities, the optionality that we're creating for ourselves has allowed us to rightsize our product stream for the right demand profile.

[Operator:]

The next question comes from Joel Jackson of BMO Capital Markets.

[Joel Jackson:]

In looking at some of your cost guidance that you've changed for LRIP or excuse me for Trio this year, and obviously, you're in a transition year bringing up LRIP, I was wondering, have any of your expectations changed now that you're sort of seeing the plant start to commission on what your longer-term cost improvements will be?

[David W. Honeyfield:]

Joe, this is Dave. No, they haven't. I think the -- Bob touched on it right at the end of the other comment, I think the important part to recognize is that all the individual components of LRIP are working. The DMS is working great. We're seeing terrific separations of the product. It's just -- it's putting all the pieces together, and we may see a little bit of a deferral there that -- it's probably what your -- that's definitely what you're seeing in the numbers. But in terms of where we expect those per-unit operating cost to come in, I think the numbers that you see out there for the full year start to really show the story that each quarter, those numbers are going to get better and better and better. And our overall expectations have not changed on that front.

[Joel Jackson:]

Can you describe that deferral in terms of months or quarters?

[David W. Honeyfield:]

Let's put it on a quarter.

[Joel Jackson:]

Okay. Staying on Trio a little bit, obviously, you're getting a better selling price for Trio in the last couple of quarters relative to your average selling price for potash, how much of the incremental relative gains here on Trio is from improved value here on the magnesium sulfur component of Trio versus something else going on?

[Kelvin G. Feist:]

Joel, it's Kelvin here. It's hard to measure the exact number what people place as value on sulfate magnesium. It really depends on which crop they're applying that product to. I think what we see is that there really a decoupling of some of the potash pricing that used to be a direct comparison between potash and Trio. And today, we're definitely seeing that differential. So I think some of it is the tight supply of that material is creating some of that demand and some of it is caused by the sulfate magnesium.

[Robert P. Jornayvaz:]

The other thing is we've gone out and worked hard to grow this market. I mean I'd say that at our biggest frustration is that we've grown the market through showing the benefits of Trio. And we haven't been able to supply as well as we'd like to this market that we've helped create. And so the good news there is that we never went out and bought market share, we grew a market. And we're seeing it now that there's very, very solid demand for our product. And as the LRIP project comes up and produces more, we expect prices to stay very firm because we've created the demand out there for a very, very high-quality product.

[Joel Jackson:]

One of the things I've noticed in the last few quarters is the SOP over MOP spread in the U.S. has compressed. And from your results, the difference to potash between potash and Trio has compressed for your benefit. I mean is there anything at all that we can talk about to show why we've seen these different performance in these different non-chlorate, especially potash fertilizers?

[David W. Honeyfield:]

Joel, this is Dave. I think Kelvin really hit it on the head there that the market has an awareness of the agronomic value of the magnesium and the sulfate. You see it used on very high-returns crops like oil palm, like sugarcane, like citrus. And when you put those things together with the demand, the recognition of the agronomic value, the fact that there's more awareness in the market, that's why you're starting to see some of those historical relationships, like you pointed out, turn towards our benefit, and we really see that continuing.

[Operator:]

The next question comes from Ivan Marcuse of KeyBanc Capital Markets.

[Ivan M. Marcuse:]

If you look at the HB Solar, if it comes online in the timeframe that you're expecting in late '13, how would you expect the volume to step up to be in '14 and '15? And then on top of that, is there a possibility or expectation that initially, maybe it grows, the production is above $200,000 just based off of looking at past historical mines in the beginning?

[David W. Honeyfield:]

Ivan, this is David. What we've described in some of our IR presentations is that we see that initial production coming on really in the fall of 2013. And the reason that is, is that we'll go through with the initial product we have circulating in the mines and then we bring to surface in the ponds. We'll get that first of evaporation season over the summer of '13. Then when we move into '14, we should see that production increase to that 150,000- to 200,000-ton range. And then in '15, once you get the benefit of a couple of full evaporation cycles with ponds that have more product in them, that's when we start to expect to see production actually over that 200,000-ton mark. So it should be a fairly steady ramp-up, providing we've got good evaporation seasons, and we continue to look at other things we can do out there and just figure out ways to enhance that project even more.

[Robert P. Jornayvaz:]

Once again just to remind you, we're only flooding about 25% to 30% of the mine with the initial Phase 1 of HB. And so as we begin to look at this project, there are certainly -- there's a lot of room there to keep adding to the flooded area.

[Operator:]

The next question comes from Ben Isaacson of Scotiabank.

[Ben Isaacson:]

Just a quick question on the industrial and feed market. What percentage of your volumes in Q1 was the ag market versus the industrial and feed? And how do you see that playing out over the rest of the year? And then maybe just as a follow-up to that, can you talk a little bit about the price delta between the various markets?

[Kelvin G. Feist:]

Ben, I'll take that. It's Kelvin here. We are right around that 80% on the ag side of the business. So the industrial feed is the remainder of that. And it's probably a little bit stronger than that, but we've had some challenges at our Carlsbad East facility in supplying all that we wanted to out of there. And so if we can get back on track, we'll probably see a shift upward in some of the non-ag shipments. In terms of the Delta, we're probably seeing a little bit of price pressure on the ag side of the business and some strength with the other 2 or at least flat on the industrial and feed businesses. So the fact that we're not compacting that, the industrial and feed material in terms of the return, it's very good on the industrial and feed side.

[Ben Isaacson:]

Great. And then maybe just one more question on Trio cash costs. Last quarter, you had talked about 120 to 140. Now you're looking to 140 to 155. I understand why your rate's that average. But do you expect that 2013, you'll be back in that 120 to 140 area?

[David W. Honeyfield:]

Ben, this is Dave. We really do. Like I said, it's probably about a quarter deferral. And as we've -- as I look at the kind of quarter-by-quarter progression of that, we really anticipate seeing those rates increase to where the design capacity was built. And the economies of scale that come with that are pretty darn significant. So like I said, [indiscernible] on the core, I would really just shift that out a little bit, and it should be a pretty representative story going forward.

[Operator:]

The next question comes from Don Carson, Susquehanna Financial.

[Donald Carson:]

A question on your second quarter potash shipment guidance. I guess I'm having trouble reconciling why the shipments are so weak relative both the first quarter and last year given your positive comments and the obvious comments about the attractiveness to growers of applying potash at $5 plus December corn. Is this an issue of more import competition that some of your competitors have talked about? By that, I mean offshore import competition. And one of your peers has even talked about how they thought farmers were mining the soil in North America, which sounds strange given the high corn prices we're seeing right now. So what's driving this weak, in your term, demand outlook that you see?

[Robert P. Jornayvaz:]

I think it's just -- Don, this is Bob. Thanks for the question, and then I'll let Kelvin add a little more color. We're seeing caution. I mean -- and we see -- if you look at the difference between the cash markets and corn as compared to the volatility in the futures market, if you look at the high diesel costs that we're seeing and basically, the volatility on farmers' margins, while solid, we're still seeing volatility that does create caution. And so we're also seeing dealers taking their bins down as low as they can without coming back and refilling, yet they're talking about how they want to fill back up. So the good news is, is that we're hearing and having those conversations about the needs and demands, yet we're also seeing caution, which makes a lot of sense when you look at all the outside forces that would create caution. I mean there's a tremendous amount of volatility in the ag markets today, so you just can't ignore that volatility. We've also seen volatility because of poor USDA reporting. So there's just a whole litany of events that have occurred that created that futures volatility, yet we're seeing extreme strong cash markets.

[Kelvin G. Feist:]

Don, I'll just add to that a little bit, it's Kelvin. We went through a very early spring. We saw some corn going in the ground in March, which is absolutely, well, very unprecedented. Typically, you'll ship some in the spring, and then you'll have a fill season after the end of the spring. What we're seeing is we believe that the -- our competitors are going to focus on some of the large contracts that they have in the export market. And I guess we don't expect that we're going to see a fill -- too much fill activity in June. So I guess, it really depends on when that happens will drive whether it's a Q2 number or a Q3 number. To your point on the declining K values in the soil, that's true. And all this technology with the hybrid season-whatnot is driving higher yields, and yet we're not seeing a significant increase on the application rates of potassium. So we need to see that to continue to achieve higher yield levels in the U.S.

[Donald Carson:]

Okay. And just as a follow-up, looking out to as HB comes online, where do you anticipate placing that product? Because that's a fair bit of product coming online just assuming your competitors in the North are going to have a lot more capacity they're trying to put into the marketplace as well. So how do you see the market unfolding in '14 and '15 with this new capacity in North America?

[Robert P. Jornayvaz:]

Don, this is Bob again. We're working very hard within our natural kind of geographic and regional markets to make sure that we have the opportunity to sell into that diverse market. A lot of the -- a lot of what makes us -- makes that opportunity available is the compaction that we've built, so that we have the ability to rightsize our product stream to take it into the right market. Let's not forget that this is a 9 million- to 10 million-ton domestic market, and we're seeing a very significant market that has the opportunity to absorb the additional tons that we're going to produce. I mean we work strategically on where those tons are going to go and do a variety of relationships that we're in the process of creating, warehousing agreements and warehousing opportunities that we're beginning to participate in. So we are -- we're looking out forward in terms of how we're going to put those tons into the market in a very thoughtful way.

[Operator:]

The next question comes from Ted Drangula of Morgan Stanley.

[Ted Drangula:]

I guess a couple of follow-ups on what people have covered so far. I know you mentioned that there's been some pricing pressure in the ag market. I mean how do you guys look at price realization as we go through may be 2Q end of the second half versus that sort of high-470s number on potash that you had in the 1Q? Is that -- is this something that's will probably going to see prices head down in the near-term or how are you guys looking at that?

[Robert P. Jornayvaz:]

Well, the good news, we always try to look out to the international market and see what's going on. And we're seeing good strength in demand worldwide. And so I think that, that strength and the fact that there's a lot of product now getting shipped to various ports around the world at solid pricing, we think is something that we look forward to in terms of keeping the market firm. Once again, we're not having significant and serious price discussion in terms of seeing a significant loosening in the pricing. We're just seeing people not wanting to tie up working capital and take risk on inventory. And so I would say that we see firmness to possibly a very, very, very slight degradation in pricing, but we're not seeing anything significant in terms of a very significant slide. So we think if there's a slide, it's going to be counted into a few dollars. So we're just -- we're not looking forward to anything significant because of the strength we're seeing on the international markets.

[Ted Drangula:]

Okay. And I guess, just one follow-up. I guess more on the volume and people have already probed on the volume being down for the second quarter sequentially and year-over-year. Is that -- is there -- are there things going on in the Texas environment, other Southwestern environments that are factors for that or maybe production from the East mine that's a factor for that number being lower? Or is it -- is that just generally the way the industry is looking overall from North America that we're going to be in a -- we're going to be in feed-stock pressured situation for the second quarter?

[Robert P. Jornayvaz:]

Well, let me be clear. Had we had more industrial product to sell, we would have sold it. Unfortunately, we were product-constrained at our East facility in terms of having standard available to sell into that market. So as we continue to look at our non-ag markets, we think there are opportunities for that, and we're seeing firmness in those markets. So we look at reduced ton, part of it is because we simply didn't produce the ton because of the LRIP commissioning that's ongoing at the East plant. So we see additional firmness, demand and people asking for that product, but we didn't really have an opportunity to produce it and then sell it. So that's why you saw some of the guidance come down as it relates to that. And Dave, you want to add some additional comments?

[David W. Honeyfield:]

Well, I was just going to say, Ted, I think you actually touched on it as well, and we see it in a lot of the research notes that every person that's asked questions on this call has written is that people understand that there is a de-risking at the dealer level, and that's really part of the near-term domestic reduction in activity that we expect to see. I think what's really important is to keep in mind, and Kelvin, certainly jump in here too, is farmers need product in the fall, and we're not that far away from it. The summer fill is really going to be built around gearing up for that replenishment. And just look back to the fall of 2010, those are pretty darn good period of time, And at the same time, some of the larger producers out there were having a really a challenging time, getting their orders to market on time. So I think you just have to put it all together and recognize that on an annual basis, we don't expect to see too much of a difference. But the timing of that has become a little bit less predictable.

[Kelvin G. Feist:]

Yes, Ted, if I can just add one piece. I think what we're seeing is the dealer side of the business is adding a significant amount of storage. We continually hear from various people that there's a unit train spot over here, a unit train spot over there. So there's a lot of build going on in terms of inventory at the field level. And so the traditional spikes of a spring and fall demand is changing. And I think now we see more of a spike in the summer fill period and other times of the year after they finish their fall season, to be honest. So farmers don't need the product until they harvest the crop in most areas. So you're looking at a number of months away. And I think in whenever you see some volatility in the marketplace, they're saying, "I'm going to go a little closer to the time when I actually need it and it's a little more hand to mouth." So I think that's the scenario that we're in today.

[Operator:]

[Operator Instructions] The next question comes from Lindsay Drucker Mann of Goldman Sachs.

[Lindsay Drucker Mann:]

Not to beat a dead horse here, but when you initially gave full year guidance, I don't think the expectation was that we would have any material dealer bills, and we've been in sort of a risk-cost environment and it just feel, and I guess, you can tell by all the questions, like something else fundamental has changed in terms of whether it's farmer application rates are actually a bit lower than we thought heading in or maybe we got more displaced U.S. product or North American product from offshore tons coming in. So is there any other color you can add as far as what the delta is versus when you had your full year shipment guidance out a few months ago?

[Robert P. Jornayvaz:]

You want to start with that one, Kelvin?

[Kelvin G. Feist:]

Let me start with the farmer application rates, Lindsay. We've got a lot of feedback from our dealer segment, and they're really telling us that in certain areas, the rates were off. In certain areas, the rates were up, really dependent on if there was more corn acres going to certain areas and, et cetera. But, I guess, we can't find a significant change in terms of the overall rates. So we don't see that -- the feedback we're getting from our dealer, that's not where we're seeing the challenge.

[Robert P. Jornayvaz:]

I think the other piece too that you touched on, Kelvin, was the growth in in-field storage of the dealers, and that was probably a piece that may have been estimated to be a little bit lower than it was, Lindsay. But overall, like Kelvin said, we continue to hear that, on average, we're going to see pretty normal application rates. You're seeing guys continue to plant soybeans. The economics are very strong on that, a little bit later in the planting season. So I don't think we see anything that's fundamentally different. I think there is just a recognition that second quarter is probably just going to be a little bit slower than we anticipated. But we do see the shift that was pointed out earlier into the back-end of the year.

[Kelvin G. Feist:]

Lindsay, the one thing that I would say that is a fundamental difference, if you want to go back and look at 10 or 15 years, is that when a farmer's buying $100 potash versus $500 potash, that's a work -- that's a different working capital decision from a farmer. So he's not going to lay out that working capital as quickly. He's going to be more cautious in that approach. And so if you want to look for a fundamental piece, I would say that higher cost of potash does cause a slower buying decision, but it doesn't eliminate that buying decision. It doesn't change that decision. They also have such strong balance sheets that they've got the ability -- they've had 3 years of record income. They've got more ability to sit on the sidelines and try to wait and/or negotiate, if you will, to try to get a better deal. So we're seeing a very, very sophisticated farmer. We're seeing a farmer that has -- that is strong financially. We're seeing a farmer that this also cautious. We're seeing a farmer that has experienced a tremendous amount of volatility this year, the difference between cash markets and futures markets. So when we look at the big picture, there's every reason that farmers are still going to apply at approximately the same rates. So we don't see a fundamental difference, but we do see light changes in thinking and behavior in terms of how they purchase.

[Lindsay Drucker Mann:]

Okay. So I guess just on the dealer in-field storage maybe the -- maybe there's been more product just -- that's been sitting out there that was unallocated for us, so we do have a little bit of extra inventory relative to what you had thought in that. That could be one piece of it, is that what you're saying in part?

[Kelvin G. Feist:]

Yes, Lindsay, I think -- it's Kelvin here. I think you got it. When you look at inventory today, you got to look at more than just the producer inventory. You got to look at the dealer and reseller level. You got to look in all those areas, and it's more challenging to get the accurate number. Today, producers probably have more inventory than they want to have. But the other side of it is the dealers have much less or almost empty today. So you got to look at that balance overall. And I would say that you're correct, in last fall, we saw a lot of surge bins or spare bins being filled with potash because the price was moving up rapidly. So I think if you look at the fill from last year, there was probably much more than what -- what a number of the producers thought would be in the system.

[Lindsay Drucker Mann:]

Okay, got it. And then just thinking about your guidance for the back half, Bob, and some of the things that you mentioned. Certainly, the working capital requirement of $500 potash is not something that we expect to change, and the volatility dynamic is not something that we necessarily expect to change, and if anything, whatever your view maybe if you just look at the futures curve, your farmer looking at the curve, you're looking at a less favorable profitability scenario for the next crop. So why would you expect to see a better underlying demand trying to materialize in the back half?

[Robert P. Jornayvaz:]

Well, there's no question that we're seeing a lower-margin opportunity for say, December corn, but we're still seeing solid margins. So just because it's not the best margin of all time doesn't mean that farmers aren't going to plant. We also look at our industrial and our feed markets as we get our East facility working better. Those are bigger markets that we're able to serve right now. And so we literally were unable to service all the orders that we had. So when we combine all of the different products that we see demand for, we see every reason to feel like we can make the numbers that we're putting out for the second half.

[Lindsay Drucker Mann:]

Okay, got it. And then just lastly, as far as your CapEx guidance is concerned, can you just remind us what your liquidity buffer is? And at what point you would consider dialing back on those projects in the event cash flows aren't as strong as you expect them to be this year?

[David W. Honeyfield:]

Lindsay, this is Dave. The CapEx guidance for this year remains at that $ 225 million to $300 million range. I don't expect to see us slowing down on that. With the balance sheet, we've got about $175 million in cash and investments. There's a reason we built that on the balance sheet, and that was really to make sure that if we did see some softness on the cash flow side that we could continue to move forward those projects that do exactly what we've described, which is to bring on more tons that are lower cost per ton and grow the margins. So frankly, they all make us more competitive. And that's why they are such important projects for us. Getting the recorded decision on HB, we have the air-quality permit on the North plant that we touched on. So some of that -- there's a lot of activity going on down in Carlsbad right now around those items. And then the other piece we touched on was the decision to move forward with an additional well system in our Moab facility. All this comes on the heels of just wrapping up the compactor project in Wendover that was a very successful project. So I don't really see us slowing those things down with any change in market conditions.

[Robert P. Jornayvaz:]

We also have our credit facility, which we're very happy to dip into if we need it. And so these projects will make us a lower-cost producer and really expand on margin opportunity. So I can't see us putting on the brakes on any of these projects.

[Lindsay Drucker Mann:]

Okay. And just remind me what the capacity is on that facility?

[David W. Honeyfield:]

Which one, Lindsay. I'm sorry?

[Lindsay Drucker Mann:]

Sorry, the credit facility that you'd be happy to...

[David W. Honeyfield:]

The credit facility. Yes, it's an unsecured facility. That's $250 million size on that.

[Operator:]

The next question comes from Edlain Rodriguez of Lazard Capital Markets.

[Edlain Rodriguez:]

Just one quick question on the first quarter. I mean you're price volume up 4% year-over-year was so much better than your competitors. I mean those guys reported like a 60% decline in North America. I mean can you talk about what exactly -- I mean what explain that disconnect? I mean were there like some forward sales made? I mean it couldn't just be that your geographic markets was so much better than they there were, so what was going on there?

[Robert P. Jornayvaz:]

Edlain, this is Bob. Being a smaller producer that's located right in the middle of the market makes a big difference. And we saw demand in our industrial markets, in our feed markets and we saw demand return in our more localized truck markets. And so that ability to service that geographic diverse market that we talked about is a very real thing. It was very evident. The other thing is that we work very hard on establishing very, very solid customer relationships and try to service them as best we can. And so we had strong pricing, as you saw in the first quarter, so we certainly were not there discounting and trying to buy any market share. I would just tell you that it's being in a diverse market that has diverse products, that has diverse crops and a marketing team that is very, very aware of how it needs to take advantage of that diversity, and it's reflected in our numbers. I think it couldn't be more appropriately reflected in the numbers. And Kelvin, do you want to add any color to that?

[Kelvin G. Feist:]

Yes. No, I think just touch on that customer relationships. We have lots of opportunities that we don't always accept. So in this case, in this quarter, we were accepting more of those opportunities, and that's the nice thing of having those type of relationships where you get the last look at some of that business that maybe others don't always get. So being a reliable supplier is another key piece, and we've been that to our partners or our customers. So those are the things, those intangibles, that make a difference in times when maybe the market's a little bit softer.

[Operator:]

This concludes the time allocated for questions on today's conference call. I'll now turn the conference back over to David Honeyfield for any closing remarks.

[David W. Honeyfield:]

Thank you, everyone, for your questions and for the interest you expressed in Intrepid. And at this time, I think we're wrapped up. So thanks again, and appreciate all your interest. Have a great rest of the day.