Intrepid Potash, Inc.
Q1 2014 Earnings Call Transcript

Published: 1 May 2014

[Operator:]

Thank you for standing by. This is the Chorus Call conference operator. Welcome to the Intrepid Potash 2014 First Quarter Conference Call. [Operator Instructions] At this time, I'd like to turn the conference over to Gary Kohn, Vice President, Investor Relations. Please go ahead, Mr. Kohn.

[Gary Kohn:]

Presenting on today's call are Bob Jornayvaz, Executive Chairman of the Board; Dave Honeyfield, President and Chief Financial Officer; and Kelvin Feist, Senior Vice President of Sales and Marketing. Also in the room with us today are John Mansanti, Senior Vice President of Operations; Martin Litt, Executive Vice President and General Counsel; and Brian Frantz, Vice President of Finance and our Chief Accounting Officer. I would like to remind everyone that statements made on this call that are not historical fact or that express the 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 and are based on a number of assumptions, which we believe are reasonable. Forward-looking statements involve risks and uncertainties that could cause actual results to differ from our expectations. You can find more information about these risks and uncertainties in our annual report on Form 10-K and subsequent quarterly reports on Form 10-Q as filed with the SEC. Our first quarter 10-Q will be filed later today. Also during today's call, we will refer to certain non-GAAP financial measures. Our earnings press release includes reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures. Our SEC filings and press releases are available on our website at intrepidpotash.com. With that, I will turn the call over to Bob.

[Robert P. Jornayvaz:]

Thanks, Gary. Good morning, and welcome to our conference call. Thank you so much for joining us. As the first quarter results show, we're off to a solid start to this important year for Intrepid. In 2014, we are committed to optimizing our operations, and we're beginning to see the value of the major capital project work that is coming to completion. We ended last year experiencing the convergence of lower prices and the higher costs brought about while we were building new assets and modernizing others. In the first quarter, we saw potash pricing stabilize, and we were well positioned in the marketing front to respond to our customers' needs with a product placed very close to them. We brought down our per ton cost -- operating costs from the fourth quarter. Improved operating results from our East facility and good sales levels from our Utah facilities drove most of the per ton cost reduction. Our expectation is to continue to lower costs due to the new North Compaction plant being fully operational. The positive effects of HB over the next 2 years and the capital work at the West plant delivers higher production rates starting in the second half of this year. The combination of these projects, together with a consistent delivery of low-cost, high-quality production from our Moab and Wendover facilities and ongoing improvements in the operations at East, all contribute to a stronger and more resilient company. The North facility is fully operational, with all 3 compactor lines in service. With the new North plant in service, we are manufacturing high-quality, granulated potash for delivery into the market today, and we have the capacity to granulate 100% of the potash we produce in Carlsbad. This provides us the flexibility to choose the best sales opportunity available based on margin, whether it is for the standard or granulated product, and flex our production to the market. Furthermore, by optimizing West and North as complementary systems, we are implementing recovery and process improvements not previously available to us with the old assets to lower production costs at West. The HB Solar Solution mine will lower our cash cost per ton later this year and in the future years, as the production ramps up with each of the next 2 successive harvests. The addition of these low-cost tons has the potential to bring our total company per ton cash operating costs down by more than 10% from the current levels, as the HB cash operating costs per ton are around half the blended costs of the non-HB assets. A meaningful portion of our step-down in operating costs for the second half of this year will come from our expected full year HB production of 50,000 to 100,000 tons, most of which will be produced from the harvest following the summer's evaporation season. All of these cost improvements are coming when pricing has stabilized. Our first quarter average net realized sales price was stronger than we had expected, and we believe we'll again be among the highest among North American producers. We were able to sell a large volume of potash in the quarter because of the favorable demand dynamics as buyers' moods changed. Complementing the improved confidence of buyers was our ability to deliver tons to the market in the quarter because we had tons positioned close to the markets that we serve. This allowed us to provide product and complete sales with customers during a time when rail shipments throughout the industry were hampered as the major railroad operators struggled with car availability and velocity. I'm encouraged by our trajectory this year. Our unwavering commitment to optimize our operations has set the stage for more favorable results and most notably, the ability to generate free cash flow in 2014. As I said in my opening statement, this is a very important year for us. We are well situated with distribution capabilities in key markets, we serve a diverse customer base with high-quality products, we operate at full production rates and sell what we produce and we will bring cash operating costs down in the second half of this year as HB ramps up and the other major capital projects deliver on the expected benefits of improved recovery. Now I will have Kelvin provide more color on our first quarter sales performance and the current market environment.

[Kelvin G. Feist:]

Thanks, Bob. Potash demand was strong in the first quarter. Buyers' overall confidence turned positive as a result of the announced price increases and the settlement of the contracts in China and India. In response, our customers made purchases in advance of the spring season. We sold 242,000 tons of potash in the first quarter, 31% more than we sold in the first quarter of last year. As our first half outlook suggests, we believe the second quarter sales volume will remain strong, assuming cooperation from the weather and the railroad's ability to meet our freight needs. Our average net realized price for potash was $317 per ton in the first quarter. While this is down 6% sequentially from the fourth quarter, potash prices have stabilized in the last couple of months. We expect to gain a few more dollars per ton on our average net realized sales price for potash in the second quarter as the broader domestic market adjusts to the previously announced reference price. As we look forward to the second half of the year, we believe the continued movement of the product by global producers will be important for maintaining price momentum as we are all aware of the supply dynamics in the market. Reiterating what Bob highlighted, our geographically advantaged assets and logistic strategy were essential to our potash sales and price performance in the quarter. We were able to deliver products from our facilities via truck to customers located in close proximity to our plants and had thoughtfully positioned product as far forward in the chain as possible last quarter. Contributing to our successful quarter was the continued strong demand for our industrial and feed customers, highlighting a benefit of the diversity of the end markets in which we sell. Looking at Trio, first quarter sales were down slightly from last year's quarter, but up from the fourth quarter. Trio pricing was down modestly 1% sequentially in the fourth quarter and 3% in the first quarter of 2013. Pricing, particularly for granular and premium products, has remained resilient relative to the trends in potash pricing. Trio demand in the second quarter will be higher than we saw in the first quarter, with deliveries from warehouses and most of the field applications occurring in the spring months. The percentage of our Trio sales into the export market in Q1 was lower than historical periods. As spring domestic Trio demand winds down, we may look to sell some of our available inventory into the export market. This is a normal sales pattern for us. It helps balance our inventory and ensure that we maintain a presence in the export market. These export channels typically carry a lower net realized price. With strong customer demand for granular and premium products, we will continue to work to increase our production levels at Trio to meet this demand. Thanks. I will now turn the call over to Dave.

[David W. Honeyfield:]

Thanks, Kelvin. We had a modest net loss in the first quarter. We successfully narrowed the loss and mitigated the price impact by delivering on the 3 keys that I highlighted in our last call as essential to returning Intrepid to profitability and positive free cash flow. First, we lowered our per ton cash operating costs from the fourth quarter by 8% for potash and 4% for Trio. In fact, despite lower prices, we grew our gross margin for potash and held the Trio gross margin flat from the fourth quarter. Excluding depreciation, we actually expanded our margin for both products from quarter-to-quarter. Second, we reduced our expense run rate with a workforce reduction and other specific cost savings measures. We brought down our SG&A expense by 13% from the fourth quarter and 29% from the comparable period last year, and we expect to have a meaningful reduction in our SG&A expense for 2014. And third, we're closely managing our capital investment level. With the completion of our major capital projects, we have reduced our capital investments significantly this year from recent years to total between $40 million and $50 million in 2014. In the second half of this year, the operational and financial benefits from our capital investment program will become even more evident. We expect to drive down our potash cash operating costs by approximately 10% per ton in the second half of this year as we produce more tons from HB and West. The progress we've made with our new HB Solar Solution mine is impressive. In the first quarter, we produced approximately 13,000 tons from HB, giving me confidence that we will hit our target of full year production of 50,000 to 100,000 tons. Overall, the start-up has gone well. We've identified and corrected the minor commissioning bottlenecks, and the mill is performing consistent with our expectations. The next harvest following the summer evaporation season will be larger, and we already have some visibility into how that will go. All the indicators we use to predict the results of that harvest are tracking with our expectations. We're injecting brine into the mine works on pace with design, we're extracting potassium-enriched brine and filling the ponds timely to take advantage of the summer evaporation season and we're seeing the KCL grades that support our predicted harvest. In simple terms, we feel good about HB today, as we're filling the mines at a strong rate and we have a mill that's running as designed. As a reminder, at full production rates of 150,000 to 200,000 tons per year, cash operating costs will be in the range of $80 to $100 per ton. The first quarter experienced what are likely to be the highest HB costs as the process is always at its least efficient during start-up and as we spread those costs over a relatively small production base. I'd characterize the $2.9 million of our lower cost for market adjustment in the first quarter that was attributed to HB really more as a start-up loss in the commissioning phase of a new operation, and I expect we'll probably have another $1 million of LCM costs associated with HB in the second quarter as we complete this initial harvest. HB cash operating costs will trend down this year and into the next as we have higher production levels with the second harvest season starting late this summer. Moving to our West plant. The final West upgrades are being constructed and installed, and we're making the adjustments in our processes to improve recoveries. Through these improvements to West and the capabilities afforded to us with the new North plant, we'll increase our West production, leading to lower per ton cash operating costs. We increased our premium Trio production again this quarter as we moved closer to meeting our original premium production target. Our net Trio production, however, was down sequentially as we incurred product losses during the process of converting standard-sized product into premium-sized product. This lower net production result led to elevated per ton cash operating costs in the quarter. The team is continuing testing and making adjustments in the plant to improve our production process of premium-sized product to allow us to meet the existing demand, as well as to improve our efficiency and lower our per ton Trio cash operating costs. Overall, I'm pleased with the first quarter progress, and I believe that our commitment to optimization is the right focus for us at this time. I see that we're setting ourselves up in a sustainable manner to deliver the margin and cash flow opportunities we expect from our investments. We are focused on the right set of objectives and on the ongoing optimization of our assets that will allow us to lower costs, increase production and strengthen Intrepid even more. Joe, at this time, we're ready for questions.

[Operator:]

[Operator Instructions] The first question today is from Chris Parkinson of Crédit Suisse.

[Christopher S. Parkinson:]

You've mentioned some production at West was affected by lower ore grade and reduced recoveries. Can you comment on what you expect in the second quarter and also for the balance of the year? And then also from a longer-term perspective, can you also add in your expectations regarding the benefits of North now that you've started to see some of its benefits?

[David W. Honeyfield:]

Sure, Chris. A couple of things. On the ore grade, I think what we had talked about is as we've moved into just different parts of the ore body, that's really what has led to some of the capital improvements that we've put in place, which include adjustments in the crushing and grinding circuit, the screening, we're adding a new thickener. So what that does is it really creates additional capacity for us in terms of the number of tons that we can take to the mill. We're completing that thickener project here at the end of the second quarter. So really, the expectation is that the recovery percentage will start to increase really in the second half of the year, and that's when we anticipate seeing overall that the cash costs per ton will come down at that West facility. And then when we talk about North, I think the important thing to recognize is that the North plant is where we compact all the production that comes in from HB and from West. And what we've seen simply is that the equipment that was installed, it's just much more powerful. It's able to run at higher pressures and higher temperatures. So what we've been able to do out of our West plant, in particular, is we're making adjustments, frankly, to the way we size the product coming out of the plant. It allows us to have a better efficiency in our flotation cells. It allows us to look at different reagent schemes that are -- we think are going to yield a higher recovery because we can simply run that plant differently to take advantage of the power that we've installed over at the North plant. So they really do work as a system and I think add a lot of flexibility to the operation that looks pretty positive based on what we're seeing at this point.

[Operator:]

The next question is from Mark Connelly of CLSA.

[Mark W. Connelly:]

Dave, 2 things. As Bob said, you've spent the last couple of years mostly on projects and now you can shift over more towards execution. I think we've underestimated the impact of the distraction of those projects. So how do you think about where we are in that finishing-up process? Many of the projects are done. West is sort of finishing up. I guess I'm trying to figure out how much of a lingering impact of those projects is -- in the distraction is still there. And is June -- because you're talking about the second half, is June really a good breakpoint for us to be thinking about, or is there more of a -- is there more going on still that is still going to be a distraction until later in the year?

[David W. Honeyfield:]

Sure. It's a great question, Mark, and it's one that I think we really started to highlight for folks, I think, in the middle part of last summer that we just needed to take a step back and wrap up the projects that we have. And we kind of characterize it as just a beehive of activity there where we would have 300-type contractors on-site every day trying to coordinate lifts and tie-ins with the plants. So it was a recognition that we had certainly last year and one that, frankly, feels very good to allow the team to have a much more singular focus. The reason for the transition point really in the middle part of the year is that we know that the way HB is set up and the fact that you have a summer harvest -- or summer evaporation season and you're through that initial harvest, so we'll see a stronger harvest, having full ponds for a full year at HB. And that starts to happen in the fall. And then the other big piece is that we have the work completed at West. So it's nice to see the constructor -- or the construction sites getting broken down. We used to have 200 people on-site at HB, and we have 4 or 5 there just doing wrap-up work in little bits and pieces. And our guys are really zeroed in on, how do we do this. Because if you think about it, we put the new plant in at Moab, we put the new plant in at Wendover, we have the Trio plant, we've rebuilt West, North is a new facility. So getting the value out of that is key and pretty confident that we're going to see the benefits. So that really -- hopefully, it explains why that second half of the year is where that inflection point starts to come in.

[Mark W. Connelly:]

So the contractors are down to what, overall, across the system?

[David W. Honeyfield:]

John, do you have a sense on that? I mean, I think it's -- you can count it on a couple of hands here at this point.

[John G. Mansanti:]

It's tens versus hundreds.

[Mark W. Connelly:]

Okay, that's helpful. Just one more question. When we think about the drought that we're having and the prospect for El Niño, are you planning for a different geography of sales this year?

[Robert P. Jornayvaz:]

Kelvin, do you want to?

[Kelvin G. Feist:]

Yes. I'll take that, Mark. I guess we've built a structure that we think is durable through droughts, floods, everything else because we've lived that in our Texas market here a couple of years ago. We had went [ph] through some some flooding in Missouri back in, I believe it was '11. So I think we've got a geographical footprint that we're very comfortable with today, and that just allows us to sell all the tons that we produce at a very good margin. So I would say that today, we're not changing our distribution patterns as a result of what may come in the future.

[Robert P. Jornayvaz:]

Yes, we're well positioned. If and when it rains in Texas, that market will return with -- in a very, very robust fashion. And when you see rain in the Southwest, it leads you to much larger, better hay crops, which takes you to more cattle on feed, which takes you to more corn. So drought -- you know, the last 4 years where we have managed effectively through drought in our primary truck markets, we've enabled ourselves to diversify geographically. But we're still ready to really service those markets. So I hope that answers your question.

[Operator:]

The next question is from Matthew Korn of Barclays.

[Kimberly Teller:]

This is Kimberly. This is for Matthew. Can I just get a sense of your pricing expectation for potash and whether you think that at this point we've topped out because we've hit strong seasonal demand? Or what could really help potash pricing move up from here?

[Robert P. Jornayvaz:]

Kelvin, do you want to start on that?

[Kelvin G. Feist:]

Yes, through [ph] that. I think the biggest piece is we need to see the demand internationally. I think we've seen some of that through the -- some of the contracts in India and China and most recently, in Southeast Asia. I guess that needs to continue to enable the supply-demand to be balanced. I would say, closer to home domestically, we see a pretty firm outlook. We're -- right now, there's a number of shortages in the area. It's more so because of distribution. But we've had success in a recent increase, and I guess there's a little bit of momentum behind that. So we feel as if we're -- we sort of hit the bottom and we've come off that bottom now.

[Operator:]

The next question is from Don Carson of Susquehanna Financial.

[Sandy H. Klugman:]

It's Sandy Klugman sitting in for Don. Question, when you discussed your added warehouse positions in the Midwest, how much of the tonnage in storage reflects your own product? And then to what extent have you stepped up the use of consignment sales?

[David W. Honeyfield:]

Sandy, this is Dave. Why don't I -- I'll start on that. And Kelvin, if I miss something, please don't hesitate to hop in. What we've done is we've just very strategically looked to get closer to our customers, Sandy, and I think we -- you've heard us say over the years that whether that's through a physical asset, whether it's through a contractual relationship, we just -- we acknowledge that we need to take out some of the risk that, frankly, has highlighted the second quarter with the railroads and others that if we can keep shipping product continually to get it in place, we know that the sales might be a little bit chunky. But having it close to the market is just very important. And I think as we touched on, this was our -- we bought our first warehouse last year. That's worked very well for us. It allowed us to have product in position, and cycle trains back and forth to the extent that the system would allow. And it's just one of those items that getting closer to the customer, we recognize, is really going to be a key in these types of markets where you just don't see price heading in one direction, up, and guys are always going to be fairly prudent about what their working capital requirements are at the dealer level.

[Robert P. Jornayvaz:]

Yes. And without going into a lot of details, I just -- philosophically, by purchasing our first warehouse, by participating in different types of warehouse agreements, we have a different philosophy than some of our competitors as it relates to moving product forward. And so I really don't want to go into the nuances, but we have invested our own capital and assets. And so we've tried to optimize our forward positioning without giving up a lot of control of our product.

[Kelvin G. Feist:]

Sandy, maybe I can just touch on a couple of things. I think what we've got to recognize is that the farmer capability out there today is much stronger than it was 10 years ago. So they can get their crop in the ground probably within 10 days now, whereas it used to take a better part of the month. I think beyond the warehouses, we look to things like whole tracks [ph] to get us into various markets so we can quickly serve the needs of the customer. I think also, investing in transloads where we're not able to access certain geographies, that helps us as well. So there's a number of things that we're employing from a logistics or distribution point of view that have helped us this spring and I think will help us in the future.

[Sandy H. Klugman:]

Okay. And just to follow up on the pricing outlook. Your domestic realizations were about 20% higher than one of your large Canadian competitors. I know some of that price strength resulted from tight marketing conditions resulting from rail-related shipment delays. But I know it's a bit early. But as you think about Summerfield pricing, what are your expectations for whether or not prices could soften as some of these logistical constraints ease?

[Robert P. Jornayvaz:]

Well, I'm going to take the first part of that. I think our diversification of products and the diversification of markets, especially in the industrial markets, and as we see the feed market -- I don't want to say recovering, but strengthening a bit, I think that diversification is a huge element that just sometimes gets forgotten. I think we're seeing good, firm discussions. And so I really want to use that word firm because that's how the market feels right now. And so with that, I'll let Kelvin add to that.

[Kelvin G. Feist:]

Yes. I think also, there's -- I mean, I think farmers and our customers see good value in where we're at on price today. So I mean, I personally don't see a significant decline in the near future. I think there's some strength there, as Bob suggests. So we believe we're kind of at a level here that warrants some pretty good value for our products. So I mean, I guess I believe that we're going to see it fill at levels like today's reference price.

[Operator:]

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

[Joel Jackson:]

Talking about Trio, very strong Trio pricing in the quarter. Maybe you can talk about the premium now expanding over potash. What happens to mix in terms of -- you obviously were a little production-constrained in the quarter. So maybe went after some higher-margin opportunities and in particular, had a bigger shift towards domestic versus offshore. So how that affected sort of the premium, and where you see that going in Q2 and the second half?

[Robert P. Jornayvaz:]

Well, the first part of that, that I really want to make sure we understand is that our new pellet plant is still being commissioned. And so as we are able to take our standard and find Trio and pelletize it is -- I hate to use the word art, but we're learning it is an art and not so much of a science. But we're seeing sequential month-over-month improvements in our ability to create a premium product, which we can then market very readily. We're also seeing certain of those markets expand. We're seeing growth in those markets. We're not having to go out and in any way, shape or form buy those markets. So we believe because of the value of the Trio product, the diversification of the minerals inside the Trio, we see great value and our customers see value. And it's so clearly reflected in the price resilience. I mean, I just -- I can't emphasize enough how the resiliency in the Trio pricing indicates the value that the customers see in it. Kelvin, you want to add to that?

[Kelvin G. Feist:]

Well, maybe I'll just touch on it. Granular has been somewhat limited for us, so I guess the advent of additional premium supplies helped us a bunch. We've kind of tried to segregate those 2 a little bit. I would say that the premium tends to go into the blending and spreading and more into the Midwest and the other blend markets like the Pacific Northwest, so -- and Texas as well. So I think we've had pretty good success in keeping or supplying what the customer wants. And some of them prefer premium to granular, some prefer granular to premium. So we've had good success with both products.

[Joel Jackson:]

Okay. And on the potash, obviously, your domestic shipments were quite strong, year-over-year up. We've seen the industry data say that domestic shipments and domestic producers were very strong. Maybe you could talk about the part of that, that comes embedded overall consumption versus some logistical challenges that would've impacted production down from Canada or up on the River [ph]. And then the second question would be, you talked about maybe having some more price momentum in potash. In the last couple of years, we've seen $20 to $25 reductions in Summerfield prices. Would you not expect that this year?

[David W. Honeyfield:]

Joel, this is Dave. I think on the -- how strong the first quarter was and was that driven by some of the logistic constraints out of the North, I think more than anything, it was driven by the fact that fall last year was really skinny. And it took a little bit of confidence on the buyer side to start getting product in position for the spring. And when we saw that price announcement come out in the first part of February, that was really the trigger point. So like we touched on, we were fortunate that we had product in position. We tend to be able to move a little bit more quickly than our competitors in taking advantage of price announce -- announcements of price increase. And we were able to pull a little bit of that into this quarter. So when I -- Kelvin touched on it in his comments that really, we expect pricing to be a few dollars higher next -- or in the second quarter here. And I think for the reasons we've touched on, you kind of have to put it in perspective that the potash price today is $100 less, give or take, than it was a year ago. And a year ago, farmers weren't -- we weren't hearing pushback on pricing. So Kelvin's comments earlier that there's good value out there and people understand it and there's a perception of a firm market, I think those are the reasons why we're expecting that we'll see pricing through the fill at today's reference price.

[Robert P. Jornayvaz:]

Joel, let me just comment again. Last year, we were not really having price discussions until the Russians came in and did what they did. And the Russians -- and the Belarusian situation created tremendous buyer doubt and reticence to get in the market. Even though they were already in there and purchasing at significantly higher prices compared to this year, we weren't having price discussions with our domestic consumers. The other thing I'd say in the first quarter is that we, too, had logistical problems. We, too, had the opportunities to potentially ship more tons and had our own logistical problems. So that's why we continue to believe that we're going to see a firm market because there's -- there really is good, strong demand out there. We had good, strong demand domestically last year until the doubt that was created by the Russian situation. So I hope that gives you just a little bit more color.

[Operator:]

The last question for today would be from Andrew Wong of RBC Capital Markets.

[Andrew D. Wong:]

I just wanted to go talk about the inventory levels. They look a little bit high for the last few quarters relative to historical levels. Is that a function of trying to place tons closer to dealers and some of your consignment tons? And is this a new level that we can expect going forward?

[David W. Honeyfield:]

Andrew, this is Dave. I'll touch on it and Kelvin, certainly, can add some specific detail as to levels. But I think what we've recognized is -- keep in mind how skinny the fall was last year. So without a doubt, there was a little bit of a buildup in inventory. We have seen potash inventory come down even with a good production quarter, given the strength of the market. But yes, without a doubt, we're going to try to make sure that we level out some of the shipping peaks that exist in our business so that, frankly, we mitigate the risk of freight and logistic issues. So you're going to see us moving product closer to the field. Some of those are just -- we're moving our inventory into our warehouse, some of it is in moving our inventory into a contractual warehouse that we have. So I think that's fair. And certainly, John Mansanti and Kelvin work very closely in this -- on the sales and marketing side to make sure that we have an adequate level of inventory in the barn. Because trying to run with 5,000 tons of buffer just really creates some operational challenges. So I think we recognize that there's a level that we'd like to have in the warehouse system. You can respond to near-term surges that come. And we always want to make sure we've got tons available for our truck market because those tend to be our highest-margin tons. So, Kelvin, anything to add to that?

[Kelvin G. Feist:]

Yes. I think that -- just the biggest thing. It's just, being a reliable supplier, you need to have inventory. And so we've -- we're carrying a little bit more, but that allows us to be that reliable supplier to our customer. And I think, previously, we were in an uncomfortable position because we were so low on inventory. So I would say that we're able to better manage our business with a little bit of inventory.

[Andrew D. Wong:]

Okay. And then, I guess, just as a follow-on. So how do you evaluate the return that you get from using some additional capital to make sure you have products in place?

[David W. Honeyfield:]

Andrew, this is Dave. We're very -- we're just margin driven as a company. So in terms of moving product forward into a location, a big part of it is, if your product's there, it's going to be your ton that sells. That's -- that one is pretty binary. I think in terms of our decision, are we going to invest in a warehouse location, are we going to invest in loadout, that becomes a question of, frankly, what's the bottleneck that exists? And the bottleneck oftentimes is freight logistics. So if we can derisk that, then, frankly, for the same investment dollars, you get a more predictable and more reliable stream. And overall, those are some of the key considerations in terms of where we're making that investment, in terms of getting warehousing loadout, trade-offs, et cetera. So hopefully, that answers the question you asked. If not...

[Robert P. Jornayvaz:]

Also, when you try to calculate the rate of return on the warehouse that you've purchased, you clearly have the income levels from throughput charges that generate a rate of return. But I just can't emphasize the abstract or intrinsic values of being able to loadout when you want to loadout, to move tons when you want to move tons so that you're not having to invest additional capital in loadout facilities. The timing benefits, the ability to work with a railroad, those are all intrinsic or abstract income benefits that also add to the return on capital when you make those -- when you make an investment like that. So there's both the income piece which allows you to achieve hurdle rates, but there's also innumerable abstract cost -- abstract benefits that go along with that.

[David W. Honeyfield:]

Well, we really appreciate everybody taking time to dial in. We appreciate your thoughtful questions and your interest in Intrepid. So we look forward to speaking to everybody in the near future here. Thank you.

[Operator:]

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