Intrepid Potash Announces Second Quarter and First Half 2017 Results

Key Takeaways

• Additional principal reduction of $23.0 million on senior notes during the second quarter; total reduction of $84.0 million since September 30, 2016, bringing the outstanding balance to $66.0 million.
• Potash segment gross margin increased to $4.0 million during the second quarter of 2017, a $9.3 million improvement compared to the prior year, driven by lower cost solar production and a 22% increase in average net realized sales prices¹.
• Trio^® sales volume of 59,000 tons in the second quarter, a 79% increase compared to the previous year, mostly offset by lower Trio^® pricing.
• Cash provided by operating activities was $9.7 million in the second quarter 2017, an $8.2 million increase compared to the second quarter of 2016.
• Net loss decreased to $5.9 million, or $0.05 per share, compared with net loss of $13.4 million, or $0.18 per share, in the second quarter of 2016.
• Continued successful execution of water rights monetization strategy.

"Our strategy to shift to solar-only potash production and expand Trio^® sales paid off in the second quarter with improved potash margins and a year-over-year increase in Trio^® sales volume," said Bob Jornayvaz, Intrepid's Executive Chairman, President and CEO. "Solid results and increased visibility into the second half of the year gave us the confidence to further reduce the outstanding balance on our senior notes, utilizing remaining proceeds from our first quarter equity raise and cash from operating activities."

Jornayvaz continued, "We continue to execute on our strategy to diversify our income and have been successful in increasing sales of water and by-products. Water sales are continuing to grow and we are working to put in place a broad set of arrangements with the goal of generating a significant long-term revenue stream. We expect at least $20 million to $30 million in water sales during 2018. We believe these additional cash flow streams will allow Intrepid to better handle the normal variability of the fertilizer commodity cycle, while also creating synergies in our existing markets."

Consolidated Results

Intrepid generated a second quarter net loss of $5.9 million, or $0.05 per share, resulting in a first half net loss of $19.6 million, or $0.19 per share. These results were an improvement on the net losses of $13.4 million, or $0.18 per share, and $31.8 million or $0.42 per share, in the second quarter and first half of 2016, respectively. Improvements in year-over-year net loss per share amounts were partly driven by an increase in outstanding shares from the March 2017 secondary offering.

Consolidated gross margin increased to $3.7 million and $0.8 million in the second quarter and first half of 2017, respectively, compared to the prior year. Improvements were driven by lower cost solar potash production and higher average net realized potash pricing which offset lower average net realized sales prices for Trio^®.

Cash provided by operating activities increased year-over-year to $9.7 million and $11.5 million for the second quarter and first half of 2017, respectively. Increased cash flow was driven primarily by strong spring demand, increased potash prices, and the elimination of higher-cost conventionally mined potash tons from the production profile.

Segment Highlights

Potash

Potash production decreased 46% and 45% compared to the second quarter and first half of 2016, respectively, primarily due to the idling of the West facility and the transition to Trio^®-only production at the East facility. The reduced production profile decreased sales volumes in the second quarter and first half of 2017 by 39% and 47%, respectively, compared to the year-ago comparable periods. Average potash net realized sales price per ton increased 22% and 16%, compared to the second quarter and first half of 2016, respectively, due to more selective selling to higher-margin sales locations and customers as well as increases in the prevailing market price for potash.

During the second quarter and first half of 2017, the potash segment generated gross margins of $4.0 million and $6.3 million, respectively. When compared to the year-ago comparable periods, the gross margin improvements were the result of the lower cost profile of solar-only production and an increase in average net realized sales price per ton.

Trio^®

Strong spring demand in domestic markets and an increase in international sales, drove increases in Trio^® sales volumes of 79% and 63% in the second quarter and first half of 2017, respectively, compared with similar periods in 2016.  These increases were mostly offset by year-over-year declines in average net realized sales prices per ton. Decreased net realized sales prices were the result of domestic price decreases announced in the second half of 2016 and an increase in international sales, which have lower average net realized sales prices. First half 2017 production increased 23% compared to the first half of 2016 as a result of the second quarter 2016 transition to Trio^®-only production at Intrepid's East facility. Intrepid plans to continue its practice of matching production to expected demand.

The Trio^® segment generated a gross deficit of $0.3 million and $5.5 million in the second quarter and first half of 2017, respectively. First half gross deficit was driven primarily by lower-of-cost-or-market adjustments in the first quarter of 2017.

Liquidity

Cash balance was $6.2 million at the end of the second quarter of 2017. During the second quarter, Intrepid repaid $23.0 million in outstanding senior note principal, utilizing remaining cash from the March 2017 secondary offering and cash from operations. As of June 30, 2017, Intrepid had $66.0 million of senior notes outstanding and $17.5 million available for borrowing under its asset-backed credit facility.

Notes

¹ Average net realized sales price per ton is a non-GAAP financial measure. See the non-GAAP reconciliations set forth later in this press release for additional information.

Unless expressly stated otherwise or the context otherwise requires, references to tons in this press release refer to short tons. One short ton equals 2,000 pounds. One metric tonne, which many international competitors use, equals 1,000 kilograms or 2,204.62 pounds.

Conference Call Information

A teleconference to discuss the quarter is scheduled for August 2, 2017, at 10:00 a.m. ET. The dial-in number is 800-319-4610 for U.S. and Canada, and is +1-631-891-4304 for other countries. The call will also be streamed on the Intrepid website, www.intrepidpotash.com.

An audio recording of the conference call will be available through September 2, 2017, at www.intrepidpotash.com and by dialing 800-319-6413 for U.S. and Canada, or +1-631-883-6842 for other countries. The replay will require the input of the conference identification number 1544.

About Intrepid

Intrepid Potash (NYSE:IPI) is the only U.S. producer of muriate of potash. Potash is applied as an essential nutrient for healthy crop development, utilized in several industrial applications and used as an ingredient in animal feed. Intrepid also produces a specialty fertilizer, Trio^®, which delivers three key nutrients, potassium, magnesium, and sulfate, in a single particle. Intrepid also sells water and by-products such as salt, magnesium chloride, and brine.

Intrepid serves diverse customers in markets where a logistical advantage exists; and is a leader in the utilization of solar evaporation production, one of the lowest cost, environmentally friendly production methods for potash. Intrepid's production comes from three solar solution potash facilities and one conventional underground Trio^® mine.

Intrepid routinely posts important information, including information about upcoming investor presentations and press releases, on its website under the Investor Relations tab. Investors and other interested parties are encouraged to enroll on the Intrepid website, www.intrepidpotash.com to receive automatic email alerts or Really Simple Syndication (RSS) feeds regarding new postings.

Forward-looking Statements

This document contains forward-looking statements - that is, statements about future, not past, events. The forward-looking statements in this document relate to, among other things, statements about the Company's future financial performance, production costs, and operating plans, and its market outlook. These statements are based on assumptions that the Company believes are reasonable. Forward-looking statements by their nature address matters that are uncertain. The particular uncertainties that could cause Intrepid's actual results to be materially different from its forward-looking statements include the following:

• the Company's ability to successfully identify and implement any opportunities to expand sales of water, by-products, and other non-potassium related products;
• the Company's ability to expand Trio^® sales internationally and manage risks associated with international sales, including pricing pressure;
• the Company's ability to comply with the terms of its senior notes and its revolving credit facility, including the underlying covenants, to avoid a default under those agreements;
• changes in the price, demand, or supply of potash or Trio^®;
• the costs of, and the Company's ability to successfully construct, commission, and execute, any strategic projects;
• declines or changes in agricultural production or fertilizer application rates;
• further write-downs of the carrying value of assets, including inventories;
• circumstances that disrupt or limit production, including operational difficulties or variances, geological or geotechnical variances, equipment failures, environmental hazards, and other unexpected events or problems;
• changes in reserve estimates;
• currency fluctuations;
• adverse changes in economic conditions or credit markets;
• the impact of governmental regulations, including environmental and mining regulations, the enforcement of those regulations, and governmental policy changes;
• adverse weather events, including events affecting precipitation and evaporation rates at the Company's solar solution mines;
• increased labor costs or difficulties in hiring and retaining qualified employees and contractors, including workers with mining, mineral processing, or construction expertise;
• changes in the prices of raw materials, including chemicals, natural gas, and power;
• the Company's ability to obtain and maintain any necessary governmental permits or leases relating to current or future operations;
• declines in the use of potash products by oil and gas companies in their drilling operations;
• interruptions in rail or truck transportation services, or fluctuations in the costs of these services;
• the Company's inability to fund necessary capital investments; and
• the other risks, uncertainties, and assumptions described in the Company's periodic filings with the Securities and Exchange Commission, including in "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2016, as updated by its subsequent Quarterly Reports on Form 10-Q.

In addition, new risks emerge from time to time. It is not possible for the Company to predict all risks that may cause actual results to differ materially from those contained in any forward-looking statements the Company may make.

All information in this document speaks as of the date of this release. New information or events after that date may cause our forward-looking statements in this document to change. We undertake no duty to update or revise publicly any forward-looking statements to conform the statements to actual results or to reflect new information or future events.

Contact:
Matt Preston, Investor Relations                   
Phone:  303-996-3048
Email: matt.preston@intrepidpotash.com

INTREPID POTASH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2017 AND 2016
 (In thousands, except share and per share amounts)

INTREPID POTASH, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
AS OF JUNE 30, 2017 AND DECEMBER 31, 2016
(In thousands, except share and per share amounts)

INTREPID POTASH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2017 AND 2016
(In thousands)

INTREPID POTASH, INC.
SELECTED OPERATING AND SEGMENT DATA (UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2017 AND 2016

⁽¹⁾  Average net realized sales price is a non-GAAP financial measure.  See the non-GAAP reconciliations set forth later in this press release for additional information.
⁽²⁾  Depreciation, depletion and amortization incurred for potash and Trio^® excludes depreciation, depletion and amortization amounts absorbed in or (relieved from) inventory.

INTREPID POTASH, INC.
UNAUDITED NON-GAAP RECONCILIATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2017 AND 2016
(In thousands, except per share amounts)

To supplement the Company's condensed consolidated financial statements, which are prepared and presented in accordance with GAAP, the Company uses several non-GAAP financial measures to monitor and evaluate its performance. These non-GAAP financial measures include adjusted net loss, adjusted net loss per diluted share, adjusted EBITDA, and average net realized sales price per ton. These non-GAAP financial measures should not be considered in isolation, or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.  In addition, because the presentation of these non-GAAP financial measures varies among companies, the Company's non-GAAP financial measures may not be comparable to similarly titled measures used by other companies.

The Company believes these non-GAAP financial measures provide useful information to investors for analysis of its business. The Company uses these non-GAAP financial measures as one of its tools in comparing performance period over period on a consistent basis and when planning, forecasting, and analyzing future periods. The Company believes these non-GAAP financial measures are widely used by professional research analysts and others in the valuation, comparison, and investment recommendations of companies in the potash mining industry.  Many investors use the published research reports of these professional research analysts and others in making investment decisions.

Below is additional information about the Company's non-GAAP financial measures, including reconciliations of the Company's non-GAAP financial measures to the most directly comparable GAAP measures:

Adjusted Net Loss and Adjusted Net Loss Per Diluted Share

Adjusted net loss and adjusted net loss per diluted share are calculated as net loss or loss per diluted share adjusted for certain items that impact the comparability of results from period to period, as set forth in the reconciliation below. The Company considers these non-GAAP financial measures to be useful because they allow for period-to-period comparisons of the Company's operating results excluding items that the Company believes are not indicative of its fundamental ongoing operations.

Reconciliation of Net Loss to Adjusted Net Loss:

Reconciliation of Net Loss per Share to Adjusted Net Loss per Share:

(1)  As a result of the temporary suspensions of production at Intrepid's East facilities, Intrepid determined that approximately $1.1 million and $1.7 million of production costs for the three and six months ended June 30, 2016, respectively, would have been allocated to additional potash tons produced, assuming the facility had been operating at normal production rates. Accordingly, these costs were excluded from Intrepid's inventory values and instead directly expensed as period production costs. Intrepid compares actual production levels relative to what it estimated could have been produced if it had not incurred the temporary production suspensions and lower operating rates in order to determine the abnormal cost adjustment.

(2) Intrepid recorded restructuring expense of $0.3 million in the second quarter of 2017, related to a scheduling change at its East facility. Restructuring expense in 2016 related primarily to severance payments as a result of the idling of the West facility.

(3) During the second quarter of 2016, Intrepid recorded into income $1.1 million in compensation taxes previously received in 2013.

(4) During the second quarter of 2016, Intrepid received insurance proceeds related to damages caused by a snowstorm in Carlsbad, New Mexico in December 2015.

(5) During the second quarter of 2017, Intrepid made an early repayment of $23.0 million of principal on its senior notes. As a result of this action, Intrepid wrote off a portion of the financing fees that had previously been capitalized related to the senior notes. In the first and second quarters of 2016, Intrepid wrote off a portion of previously capitalized financing fees related to the Company's previous unsecured credit facility as a result of amendments to the facility. The write-offs of deferred financing fees are reflected in the Company's financial statements as interest expense.

(6) During the second quarter of 2017, Intrepid made an early repayment of principal on its senior notes. The payment totaled $24.8 million, of which $1.8 million related to an additional make-whole payment, which was reflected on the income statement as interest expense.

(7) Intrepid had an effective tax rate of 0% for the three and six-month periods ended June 30, 2017, and 2016.

Adjusted EBITDA

Adjusted earnings before interest, taxes, depreciation, and amortization (or adjusted EBITDA) is calculated as net loss adjusted for certain items that impact the comparability of results from period to period, as set forth in the reconciliation below. The Company considers adjusted EBITDA to be useful because the measure reflects the Company's operating performance before the effects of certain non-cash items and other items that the Company believes are not indicative of its core operations. The Company uses adjusted EBITDA to assess operating performance.
               
Reconciliation of Net Loss to Adjusted EBITDA:

(1)  As a result of the temporary suspensions of production at Intrepid's East facilities, Intrepid determined that approximately $1.1 million and $1.7 million of production costs for the three and six months ended June 30, 2016, respectively, would have been allocated to additional potash tons produced, assuming the facility had been operating at normal production rates. Accordingly, these costs were excluded from Intrepid's inventory values and instead directly expensed as period production costs. Intrepid compares actual production levels relative to what it estimated could have been produced if it had not incurred the temporary production suspensions and lower operating rates in order to determine the abnormal cost adjustment.

(2) Intrepid recorded restructuring expense of $0.3 million in the second quarter of 2017, related to a scheduled change at its East facility. Restructuring expense in 2016 related primarily to severance payments as a result of the idling of the West facility.

(3) During the second quarter of 2016, Intrepid recorded into income $1.1 million in compensation taxes previously received in 2013.

(4) During the second quarter of 2016, Intrepid received insurance proceeds related to damages caused by a snowstorm in Carlsbad, New Mexico in December 2015.

Average Net Realized Sales Price per Ton

Average net realized sales price per ton is calculated as sales, less freight costs, divided by the number of tons sold in the period. The Company considers average net realized sales price per ton to be useful because it shows average per-ton pricing without the effect of certain transportation and delivery costs. When the Company arranges transportation and delivery for a customer, it includes in revenue and in freight costs the costs associated with transportation and delivery. However, many of the Company's customers arrange for and pay their own transportation and delivery costs, in which case these costs are not included in the Company's revenue and freight costs. The Company uses average net realized sales price per ton as a key performance indicator to analyze sales and pricing trends.

Reconciliation of Sales to Average Net Realized Sales Price per Ton: