Intrepid Potash, Inc.
Q4 2014 Earnings Call Transcript

Published: 19 Feb 2015

[Operator:]

Thank you for standing by. This is the Chorus Call conference operator. Welcome to the Intrepid Potash Inc. Fourth Quarter and Full Year 2014 Financial Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Gary Kohn, Vice President, Investor Relations. Please go ahead.

[Gary A. Kohn:]

Good morning, and thank you. Hello, everyone, and welcome to our call today. As we begin, I will remind everyone that parts of our discussion will include forward-looking statements as defined by the U.S. securities laws. These statements are not guarantees of future performance and are based on a number of assumptions which we believe are reasonable. These statements are based on information available to us today, and we are not assuming any obligation to update them. You can find more information about risks and uncertainties to our future performance in our periodic reports filed with the SEC. 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. Presenting on the call today are Bob Jornayvaz, our Cofounder, Executive Chairman, President and CEO; and Brian Frantz, our Interim Chief Financial Officer. Kelvin Feist, our Senior Vice President of Sales and Marketing, is available for Q&A. With that, I'll turn the call over to Bob.

[Robert P. Jornayvaz:]

Good morning, and welcome, everyone. Thank you for joining us. The year end call provides us the opportunity to recap the past year and set the stage for the year ahead. We entered 2014 with very clear objectives

[Brian D. Frantz:]

Thanks, Bob, and good morning. We earned fourth quarter adjusted EBITDA of $29.4 million, more than double fourth quarter of 2013's result. Full year adjusted EBITDA totaled $95.3 million, which is down about 10% from the prior year. Adjusted net income for the quarter was $5.1 million or $0.07 a share. We had adjusted net loss in the prior year's fourth quarter of $8 million or about $0.11 a share. For the full year, adjusted net income was $8.4 million or $0.11 a share. The decrease in our full year adjusted EBITDA and adjusted net income was driven predominantly by stronger pricing environment that existed in the first half of 2013. This last quarter demonstrates the type of profitability and cash flow that we can generate when our operations are optimized. By unlocking and delivering value from the investments we have made, we generated free cash flow of $66 million in 2014. A significant contributor to this cash flow generation was selling down our inventory, which resulted in our sales volumes being in excess of production. With this positive cash flow, we finished the year with cash and investments totaling $90 million, up $25 million from a year ago. Through the actions we took in 2014 and our focus on G&A expenses, we reduced our full year G&A expenses by 20% compared to 2013. Our outlook for 2015 was provided in yesterday's press release. The key points include potash sales to approximate the level of production that we deliver in 2015. Production is expected in the range of 850,000 to 890,000 tons. Cash operating costs are expected to be between $195 and $210 a ton, which also approximates 2014's level. Both the production and cash operating cost ranges reflect the increased production we expect from HB offset by the lower production in Wendover in 2015. As a reminder, our Wendover tons are out lowest cost tons, and production is expected to be down in 2015 due to the poor evaporative conditions -- evaporative weather conditions that were in 2014. Our total cash operating costs are anticipated to trend down in the second half of the year driven by expected higher production from our solar assets in the second half of the year. Pricing looks firm through the spring application season but likely will be pressured in the second half of the year. For Trio, we anticipate another strong year of sales and production. Costs are planned to improve with the gains in production. The outlook for Intrepid in the coming years is very, very positive. Operator, with that, that concludes our prepared remarks. And we're ready to take some questions.

[Operator:]

[Operator Instructions] The first question is from Adam Samuelson of Goldman Sachs.

[Adam Samuelson:]

Maybe first, I wanted to ask -- just a little more color and commentary on the expectation for more pricing pressure in the second half of the year. Is that simply a reflection of crop prices and Agrium Vanscoy being fully ramped up and discussions you're having with the distribution chain or maybe a little bit color there will be helpful.

[Robert P. Jornayvaz:]

Well, first and foremost, we're not seeing any real reductions in application rates. So I think that's the very positive piece is that the farmers that we see are sticking with appropriate application rates to maximize yields. We're not feeling as much pressure from Agrium's Vanscoy ramping up as from the increased Russian tons that we've seen coming to the United States seeking hard currency. And so we don't know to what degree that's going to continue. So that's really the slight unknown, if you will. But from a farmer perspective, the demand perspective, in all of the markets that we're serving, we're seeing strong demand and strong application rates. So I guess, the uncertainty that we're acknowledging is from tons that will come into our market. I don't know if that helps or not.

[Adam Samuelson:]

It does. And maybe just along similar lines, you did call out potential for weaker oil and gas sales pressuring price realizations in 2015. I know it's about 20% of the volume. But can you help us quantify directionally with rig count as those rig counts go through your tons into the oil and gas market? Or is there destocking beyond that? And how big of an impact on price utilizations does that really have?

[Robert P. Jornayvaz:]

Well, we know the rig count is going to go down. That's a given. But the rigs that are running are still using our product, and we're not seeing a lot of pricing pressure on the tons that are going out the door right now on the industrial sales. So right now, I think it would be inappropriate for us not to recognize that we're going to see a decline in rig count. We don't know quite yet how that's going to specifically impact us because there are still a lot of wells that will be drilled. There still is going to be a significant rig count, and the rigs that are running will continue to use KCl. So I would just acknowledge that we're going to see a declining rig count, and we're going to do everything we can to service the rigs that are out there running. Kelvin, do you want to add any...

[Kelvin G. Feist:]

Yes, Adam, maybe just a couple of things. We're running a lot of scenario's around that shift, I guess. I think the one thing you got to keep in mind is that we've got tremendous flexibility built into our plants, and we're able to compact whatever we need. So that's a key piece you've got to think about. I think you also got to think about we're a very nimble small sales team, and so we've already started placing or had success in placing some of these tons that might have went into the industrial business into the Ag piece. So we're pretty comfortable with our strategy here going forward.

[Adam Samuelson:]

Okay. Then just quick final one from me on the tax rate. Any reason the book tax rate is down 20%, 25% from '15, and at what point will the company resume being a cash taxpayer?

[Brian D. Frantz:]

Adam, this is Brian. Yes, the effective tax rate in 2015, we expect that to be a little lower. You get a pronounced impact on the effective tax rate based on the depletion, the deduction that we get a take on that. So that's what's bringing that down a little bit with our income level where it is. In terms of cash taxes, I think the earliest you're going to see that is in 2017. You could see a little bit in '16, but I would expect that to be '17 or beyond at this point in time.

[Operator:]

The next question is from Brett Wong of Piper Jaffray.

[Brett William Sprinces Wong:]

Just for clarification. So the reason we're going to be expected to pay a little higher cost for potash in 2015 that you provided in guidance is the result of the difficulties in the solar mines in 2014 and the time that it takes for production in those mines to recover?

[Robert P. Jornayvaz:]

That's correct. As we pointed out in our October call, we try to be as forward-looking and specific as to the rain event that occurred back in September. And so we're working hard to ameliorate that issue, but as we've repeatedly called it out, we just want to make sure that people are adequately aware of that.

[Brett William Sprinces Wong:]

Okay. And there's nothing else in terms of a cost standpoint that leads to a concern right now?

[Robert P. Jornayvaz:]

No, not at all.

[Brett William Sprinces Wong:]

And then what's kind of the risk that those solar mines kind of don't ramp through the production that you're kind of expecting through '15, and then we start to see costs coming back down again in 2016?

[Robert P. Jornayvaz:]

Well, we're using about 40 years of weather data, and we assume that weather generally reverts to a mean. And so assuming we revert to the mean, which we have every reason to believe, we feel very comfortable that those facilities will operate at the kind of rates that they've operated for many decades.

[Brett William Sprinces Wong:]

Okay. And then you had mentioned the AMAX facility. Obviously, I'm sticking here with the solar solution stuff. But you mentioned the AMAX facility, wondering -- or of potential there, wondering if you could talk about any effects with timing or those minimal costs that you had mentioned about bringing that up?

[Robert P. Jornayvaz:]

You know, as we've said repeatedly throughout the years, HB Phase I represents about 20% to 22% of the -- of what we have in place in just the permitted HB facilities in terms of the reserves that are available to us. AMAX has additional reserves. And so as we continue to go down the permitting, as we've learned over the years, has been the obstacle or the barrier to entry, if you will. And the great news about having built a mill that has excess capacity and ponds that have additional capacity is that as we begin to simply drill injection wells and withdrawal wells, we're talking bite-size pieces anywhere from $2 million to $8 million kind of individual expenses. We've got the ability to ramp up, stabilize, and as those numbers become clearer to us, we're going to share them with this, but we're also going to share with you the bigger vision that we have a lot more area that we want to continue to solution mine. So one is the bigger vision piece and as the details become more apparent, we've got numbers that you can plug into models, we'll certainly share them with you.

[Operator:]

The next question is from Sandy Klugman of Vertical Research Partners.

[Sandy H. Klugman:]

Question on how you're thinking about the impact of Belarusian tonnage in the domestic market. Do you expect it to add to domestic supplies? Or would you expect it back out tonnage from other regions that will now have to find a home in other geographies?

[Robert P. Jornayvaz:]

That's a great question. My expectation is that it might not continue. As to the Belarusian tons, in terms of what it's replacing, it's really hard to tell to the degree to which the Russians and the Belarusians are fighting over potential market share. So I really don't have a lot of clarity for you on specifically whose tons those are going to potentially replace if they continue. So I apologize for not having a better answer for that. Kelvin, do you want to...

[Kelvin G. Feist:]

Maybe, I'll just add a little bit, Sandy. I think that most of the tonnage that comes in as import on the river has a finite distribution circle to it. So it really -- I mean, you're talking about Russian, Israeli, Chilean and potentially BPC [ph] if it continues or happens. So I think there is a finite amount of volume that can go in there in the time that's required. And I guess what we're looking at is potentially maybe an earlier season here and could put pressure on some of the logistics going forward. So yes, I would say that the impact might be smaller, and it will be of those 3 or 4 folks that are importing. We obviously -- as the only U.S. potash producer, we compete with all the imports and all the rest that comes here is imports. So it's a competitive business, and we feel like we're pretty comfortable in position to supply all the volume that we produce.

[Sandy H. Klugman:]

Okay. Great. And follow-up question on logistics. Logistical constraints from some of your Canadian competitors in 2014 definitely provided benefits to Intrepid. How do you see the current outlook for logistics unfolding? And how've you adapted the company strategy to account for any potential future disruptions?

[Robert P. Jornayvaz:]

Well, in terms of future disruptions, I think the railroad has definitely made slight improvements. The -- there's no question that frac sand haulage is down and falling pretty rapidly, which is freeing up space into the basins where we are. So we feel like we're working with the railroads quite well. We've developed the markets to handle -- that we serve very well. So we think we're logistically advantaged. There's no question that in 2014, the Canadians were logistically disadvantaged. So we feel like we're well prepared for any situation. We've got a decade-long history of a significant net-realized price advantage. We've got a great customer base. It's very diverse, and we feel like we can continue to service that in a manner that reflects a decade-long history of a net-realized price advantage. Kelvin, you want to add any color to that?

[Kelvin G. Feist:]

I think the only thing that I'd add, Sandy, is that we really did develop a bigger -- took a bigger piece of our business through the truck motor transport, and that's one flexibility we got with how close we are to market. So between that and our distribution strategy that was very successful in '14, and I guess we don't have any plans of changing that, so we expect the same success in 2015.

[Operator:]

The next question is from Mark Connelly of CLSA.

[Mark W. Connelly:]

Just 2 things. How important is California to Trio? And if that market ends up being in a period of secular decline, how important -- how much is that going to matter to you? And then the second question is just about -- with the moving parts of fracking and all that, what is happening to the relative spreads between standard and granular for -- well for both Trio and potash, I guess, and what do you see happening in the next year with those spreads?

[Robert P. Jornayvaz:]

Well, that's a bunch of different issues. I don't think the California market for Trio is -- it's a good market for us, but we've got plenty of other places where we could easily place those tons at the same kind of pricing advantage. Having spent a lot of time with California farmers, those that continue to use Trio, it's very much in the California market and the type crops that we're servicing aren't as water intensive as some other crops that are using the Trio. As to the standard and granular, are you really talking about the spread differential between industrial pricing and agricultural granular pricing? Was that really the question?

[Ian Bennett:]

Yes. Yes, that's what I'm trying to get at. I'm just trying to get a sense of what the differences in your mix are going to mean overall to your spreads?

[Robert P. Jornayvaz:]

Well, right now we're planning on seeing a reduction in our industrial volume. We've not yet seen that. And we've not yet seen a lot of pricing pressure on our industrial product. Now having said that, I think we'd be foolish not to expect with a lower rig count that we're going to see some elasticity in the pricing. And so trying to give you guidance around that, I think it's premature. So there will continue to be a -- the rig counts down approximately 30%. But let's not forget that those other -- that 70% of rigs is still running. And so we have every intention of trying to service that as best we can while acknowledging a reduction in the rig count. So it's a little early in the process to really give you color as to how it's going to impact us. The great news is based on the investments that we've made over the last several years, we've got the ability to compact anything that might not go into the industrial market. So we're ready for it. We're prepared for it. We've got strategy around it. I don't know how to better answer your question at this specific point in time.

[Operator:]

The next question is from Don Carson of Susquehanna Financial.

[Donald Carson:]

I want to go back to your pricing comments about the second half. You said that the Russians are more of an issue than Agrium. But I'm just wondering what direct retail exposure you have with Agrium. What's at risk as they try and displace third-party product? And then I know in the past you've sort of been hit by the Canadians ramping up production, improving runs, then try to place that in the market. So are you concerned about the Canadians kind of jockeying for market share. And again, what's your net exposure to Agrium retail?

[Robert P. Jornayvaz:]

Well, fist I'd remind you, Don, and you know this better than anybody, is that the market has been -- "had overcapacity or oversupply for 30-plus years." And so this isn't a new phenomenon. This is something that we've dealt with at least in the 15, 16 years that we've been in the for potash business. So it's by no means a new phenomenon. We've dealt with it before, and we'll continue to deal with it in a very positive way as we've always done. So whether or not we're seeing them from, which Canadian producer, doesn't really have that big an impact. In terms of Agrium trying to supply their entire retail chain, it doesn't make sense from a freight standpoint for them to try to take tons on multiple switches across the entire United States. So there are still specific retail opportunities that we've got simply because we're very freight advantaged. And we're seeing those -- we're continuing to make those sales and those commitments. So I guess that's as much color as I can give you. This isn't a new phenomenon.

[Donald Carson:]

And can you comment at all on your Agrium exposure or care to quantify that?

[Robert P. Jornayvaz:]

Quite frankly, I don't really understand the question in that Agrium is producing more tons. The retail exposure buys from us where it is appropriate, and where it make sense from a freight standpoint, and they continue to do so. So we're just not seeing it as being as big an issue as you might think.

[Donald Carson:]

Okay. And just to follow up on your order book. You mentioned that you're sold out for the first quarter. What kind of demand are you seeing into the second quarter. And overall, did you see much of a shift in demand from Q4 because of a shortened application window into Q1? And does that help the demand picture this year in your markets?

[Robert P. Jornayvaz:]

Well, the first part, I'll let Kelvin answer with specificity, is that the biggest concern and the noise around going into lower commodity prices was that we were going to see reduced application rates. And that's the one thing that we're not seeing. So those that are farming, now we may see -- I think the USDA came out with some lower acreages this morning. I think they came out with 89 million for corn and was it 80 -- 83 million and change or 84 million acres for beans. I think they were talking about overall planted acreage potentially down 2 million and change. I saw it right before the call started. So -- but the good news is on whatever acreage we're seeing utilized in our Texas market, our backyard market, which has now gotten very significant rainfall and is a highly robust market right now. We're not seeing any reduction in application rates. In fact, on the hay crops, we're seeing people maximizing yields there. So once again, the benefit of our geographic location and the diversity of the customers that we're serving is continuing to benefit us in terms of first quarter versus fourth quarter demand. Kelvin, you want to give some color on that?

[Kelvin G. Feist:]

Let me just back up and talk to Q2 real quick. We're starting to position Q2, so it's a bit early for that. I guess I would say that based on our customer forecasts and conversations we've recently had with most of our customers, they're very comfortable with going into Q2. And so we feel like we've placed the tons forward, and we're very well positioned to meet the needs of our customer across the board. I think your question about Q4 and the shorter fall versus how that's shaping up going forward. We did see a little bit of a slower fall mostly because of weather. I would say that a lot of that got caught up through application in December and January here, which were quite strong from a potash application point of view to the field. So going into spring, it looks to be a pretty normal spring for us, and we're well positioned to be successful in that.

[Operator:]

Next question is from Ben Isaacson of Scotiabank.

[Ben Isaacson:]

I apologize, I'm going to ask another question about imports. So with a lot of growing imports into the U.S. Gulf, really I have 2 questions. First, what is the actual bottleneck? Is it warehousing space along the river? And are we seeing kind of new investment there?

[Robert P. Jornayvaz:]

Kelvin, you want to try to...

[Kelvin G. Feist:]

To my knowledge, there's not a significant amount in newbuild on the river for imports. So...

[Ben Isaacson:]

But is that what the bottleneck is?

[Kelvin G. Feist:]

That's certainly some of it. I think that customers tend to be more hand-to-mouth in terms of when the farmer is telling them to take a position. So I would say it's a shorter time line from when the farmer says he wants it to when our customer actually purchase it today. So it's a little bit more challenging to have a long distribution chain coming from somewhere offshore.

[Ben Isaacson:]

And then I guess, just part of that, with lower seaborne shipping costs, is the U.S. price or perhaps the U.S. premium just simply too high right now relative to other markets?

[Robert P. Jornayvaz:]

Well, it is what it is, and it continues to be what it is. It's by far and away the best market in the world, and people would like to participate in this market. But it is a just-in-time market. It's a market that requires a product that has really strong shelf life. It's a market that demands the highest-quality product that's available. And so it is in a very attractive market that we're very glad that we're right in the middle of it because it's clearly the best market in the world. So producers would like to be here. But it's a challenging market to get to and serve on a just-in-time basis as significantly or as adequately as Intrepid is able to do so.

[Operator:]

Next question is from Chris Parkinson of Crédit Suisse.

[Christopher S. Parkinson:]

Can you further elaborate on your netback maximization strategies, particularly any additional opportunities that have presented themselves within your core truck market? And also whether or not the shift from industrial to agricultural affects us?

[Robert P. Jornayvaz:]

Yes, I guess the answer to your first question is no. We're pretty good at marketing, and we know why we're good at marketing, and to share it in this public of fashion I don't think is appropriate. So I apologize for not going into all the details of our strategy for you. What was the second part of your question?

[Christopher S. Parkinson:]

Whether or not the shift from industrial to agricultural affects us and whether or not that's going to shift the maximization strategy a little bit.

[Robert P. Jornayvaz:]

Well, if we end up granulating more, yes, it will affect our net-realized price, and it will affect some of our margin. But once again, it depends on which markets we put those tons into. So the very simple answer to your question of if we sell fewer industrial tons and granulate those and sell them into the Ag market, it will have an impact.

[Christopher S. Parkinson:]

Perfect. And just a quick follow-up. Can you also highlight the rough production potential to shift -- the potential to shift from more Trio versus potash given your Carlsbad assets versatility production?

[Robert P. Jornayvaz:]

Go ahead.

[Brian D. Frantz:]

That's -- it's something we strive to that premium, and granular market for Trio is very strong. And so we continue to work really hard to produce as much of that as we can. We've had some good success improving some of our palletizer premium production over the last quarter. And so we -- that's our strategy is to continue to produce as much of that as we can as that market is very strong.

[Operator:]

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

[Joel Jackson:]

I thought I also would follow-up on the import just because some of the comments I think you made earlier that you're not necessarily expecting Belarusian tons or not sure. I know there's been a bit of pushback from the industry to try to lobby, to try to have sanctions maybe reinstated or some dialogue around that. Looking at some of your customers that have been buying some of these tons, I mean, do you get the sense that they don't have really any issues buying from Belarus? Or maybe you could talk about that.

[Robert P. Jornayvaz:]

Well, the first thing I would say is the sanctions never ended. And so if you were to contact the Treasury Department or the State Department, they would confirm that sanctions never ended. And so they don't take a position -- a clear position. I would direct you to the TFI memo that tells customers to proceed with extreme caution because the penalties are so severe. Quite frankly, we don't know of many customers that have actually bought Belarusian tons because of the severity of the penalties, and they're outlined quite clearly in the TFI memo, which I guess, I would refer you to. So...

[Joel Jackson:]

That was because I've seen the memo, and I've seen the Treasury statement, so that was why my question was have you actually seen on the customer side them taking the that type of document serious or not.

[Robert P. Jornayvaz:]

Yes, we have.

[Joel Jackson:]

Okay. I also want to ask you a question on this. So you talked a little bit about looking at maybe capital allocation decisions in the second half of the year. You gave some ideas of where you may go. You are building cash as you say. It looks like from your guidance that you don't expect to repay a fair bit of debt this year. You don't have anything on a dividend right now. You don't have any material capital projects that you've committed to. When you look at where you're going to spend your money, maybe talk about the trade-off of doing some of the efficiency projects in some of your conventional mines or expanding solar solution or returning cash to shareholders.

[Robert P. Jornayvaz:]

Well, Joel, as you adequately pointed out in your first question, the Belarusian issue wasn't even an issue until the time period between Christmas and New Years. And so balance sheet flexibility provided us with a lot of flexibility to react to a situation that was heretofore not even imagined before Christmas. So as we continue to look forward, we recognize it. We're looking out as far as we can. But as you so adequately pointed out, there are things that have occurred that we're trying to take in and understand and appreciate the potential impacts. So unfortunately, between the time that we had a Russian mine flood in November and had 2.5 million tons taken off the market, we also then have the Belarusians come in, which we believe are under sanction. So we've also seen some pretty significant wild currency swings where the Russians were trying to come get hard currency. So there are a lot of moving parts right now that we're trying to pay very close attention to, acknowledge, not run away from, but at the same time, recognize it. It's our strong balance sheet that allows us to very, very adequately and profitably weather any potential storm.

[Joel Jackson:]

This is my last question. Actually, it would be on some of your efficiency projects that you could pursue to maybe bring down costs on some of your conventional mines. Can you give a little bit of color of what some of the projects in the pipeline could be?

[Robert P. Jornayvaz:]

Yes, one is at West as we continue to move to a much higher ore grade in the 10th ore zone. It's going to have a little bit higher clay content. And so we're working on new technologies that have been successful for us in terms of how do we ramp that up to produce and gain the benefits from the higher ore grade while at the same time deslime and deal with the removal of clay at our West Mine as we begin to, month-by-month, increase our pelletization rates at our Trio plant as we work on the fine line recovery at our Trio plan and make month-by-month improvements there as HB continues to ramp up and ramp up quite successfully and have better and better production days, and that mine -- that plant has -- was built with excess capacity. We're going to try to run more capacities through that. So that's just a flavor of the few of the projects that are out there, that we have that really drop money to the bottom line. That's just a few examples of the low-hanging fruit.

[Operator:]

The next question is from Christopher Perrella of Bloomberg Intelligence.

[Christopher Perrella:]

Could you comment on the market dynamics in the New Mexico market with the competitor mine shutdown at this point? Has that eased some of the pressure with the potential slowdown in rig counts?

[Robert P. Jornayvaz:]

Very much so. More on the -- they didn't sell a lot of industrial product out of that facility. And so it's helped the truck market. They've built up a pretty significant inventory in anticipation of closing that mine down. So they're still working through some of the inventory. We anticipate that, that will be done in the next few months. So we're seeing benefits from the numerous employees that they laid off that we've seen a very talented workforce. We've seen reduced pressure from the oil and gas industry on that area. We've seen reduced pressure on the highway system, on the electrical grid system, on the water system. So there continue to be benefits in Carlsbad that we're seeing from the shutdown of that MLP facility.

[Christopher Perrella:]

All right. And my other question would be, in your assumptions, is the Wendover mine then back at full production rates for 2016? And how many tons are you expecting to produce from HB in 2015?

[Robert P. Jornayvaz:]

Brian, you want to go through the guidance again?

[Brian D. Frantz:]

Yes. On the HB side of things, I mean, that facility continues to -- we're looking at that effective capacity of 160,000 to 200,000 tons in 2016. We had 98,000 tons that went through that in 2014. So as we've spoken, we're on track to meeting those goals as we've talked about. So everything there seems to be, as Bob said, moving in the right direction with returns of production. In terms of the Wendover facility, as we highlighted earlier in the call and back in October, given some of the evaporative conditions we saw in 2014, we believe that 2015 numbers will be down. But then again, as Bob spoke to, we have decades of weather data out there. We expect the weather information and weather conditions to revert back to the norm. And so as those things revert back to the norm, you'll continue to see some increases in Wendover in the latter half of '15 and probably into '16 as well.

[Operator:]

The next question is from Vincent Andrews of Morgan Stanley.

[Neel Kumar:]

This is Neel Kumar calling in for Vincent Andrews. We just had a question about your inventory levels. Can you just talk about how much was drawn down last year, and how much do you expect needs to be refilled this year?

[Robert P. Jornayvaz:]

Kelvin, you want to...

[Kelvin G. Feist:]

Sure. Well, you're right. We had a great sales year in 2014. We broke a number of sales and shipping records as you've heard already today. We have managed our inventory down at all plants, both in Utah and Carlsbad. So this coming year, you can see our guidance is matching our production with our sales numbers. So there's no magic to that. We're managing very tightly between those 2 entities, the production and the sales volumes.

[Operator:]

The next question is from Andrew Wong from RBC Capital Markets.

[Andrew D. Wong:]

So just from the commentary on demand this year, it sounds like pretty positive for the first half and then challenges in the second half. But when looking at the guidance, you have higher sales in the second half versus the first. Could you just reconcile that? Is it mostly based on the production ramp and the expectation that whatever you produce, you can sell?

[Robert P. Jornayvaz:]

That's the first and kind of easy answer. But in terms of demand, we see strong demand in the areas where there -- where we're operating. So if you look at all the areas that we're selling into, we're still seeing good solid significant demand. So we're not really forecasting a true softening in demand. Kelvin, if you want to give some color around that.

[Kelvin G. Feist:]

Maybe we'll just back up to this upcoming spring season, and I would say we're encouraged by farmers being engaged, application rates being strong, all the things that are indicating a very positive upcoming spring season. The southern markets right now are too wet to actually get going. So that's encouraging as well because when they go, they will go and they'll apply necessary rates. I think it's more of a unknown in the back half, more so than -- we can have a pretty good -- or clear crystal ball for the first half. The second half is a little bit more cloudy, if you will.

[Andrew D. Wong:]

Okay. And then I mean -- it sounded also from your comments that it was more on the supply side that was causing some challenges maybe on pricing. So is the expectation if you have more sales in the back half that you can gain a little bit of share. Is that really -- is that what you're putting into your estimates?

[Robert P. Jornayvaz:]

I guess, we're just looking at our historical ability to sell what we produce. And I'll just remind you that the market has been in overcapacity for well over 30 years. And this is an environment that we've just always dealt with. So it's not a new phenomenon. It's something that we've dealt with year-over-year-over-year. And so we feel like we know our markets. We know the diversity of our markets. We know the products and the customers, and we have every anticipation that we'll continue to sell what we produce.

[Andrew D. Wong:]

Okay. That's fair. And just longer term, I understand the desire to have more lower-cost production from the solar solution projects. Is it envisioned that whatever you bring on from the solar solution longer term, it could be an expansion of capacity? Or does it replace some of the higher-cost conventional production? Are there any plans for that?

[Robert P. Jornayvaz:]

Right now, we see it as expansion. And so in the markets we serve, we see the demand for those tons. So in our very natural geographic markets, we see good solid demand that we feel like we can serve as well.

[Gary A. Kohn:]

At this point, seeing no other questions, I'm going to turn it over to Bob for conclusion.

[Robert P. Jornayvaz:]

I want to thank everybody for taking the time to dial in. We really appreciate your interest in Intrepid. We look forward to speaking with everybody in the near future. Thank you very much again.

[Operator:]

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