Thank you for your patience. This is the conference operator. Welcome to the Intrepid Potash Third Quarter 2020 Results Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity for questions. I would now like to turn the conference over to Matt Preston, Vice President of Finance. Please proceed.

Thanks, Claudia, and good morning, everyone. Thanks for joining us to discuss Intrepid's third quarter 2020 results. With me on the call today is Intrepid's Co-Founder, Executive Chairman, President and CEO, Bob Jornayvaz, also available to answer questions during the Q&A session following our prepared remarks will be our Chief Operating Officer, Brian Stone. Please be advised that our remarks today including answers to your questions include forward-looking statements as defined by U.S. Securities Laws. These forward-looking statements are subject to risks and uncertainties that could cause actual results to be materially different from those currently anticipated. These statements are based on the information available to us today, and we assume no obligation to update them. These risks and uncertainties are described in our periodic reports filed with the Securities and Exchange Commission which are incorporated here by reference. During today's call, we will refer to certain non-GAAP financial and operational measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are included in yesterday's press release. Our SEC filings and press releases are available on our website at intrepidpotash.com. I'll now turn the call over to Bob.

Thanks, Matt, and good morning to everyone. We managed well through another quarter of uncertainty and volatility and are seeing positive trends in both fertilizer and oilfield markets. We worked with the various states and their agencies to maintain our essential business status, so that we could continue to operate. As we emerge from the bottom of a down cycle in fertilizer and start to produce off a great 2020 summer evaporation year, we see numerous positives in front of Intrepid. Oilfield activity is increasing, water sales are improving, and the water market is tightening, and the outlook looks supremely good for 2021. Lawsuits are behind us. Weak partners are getting out of the way. And we're teaming up with a strong set of financial partners to embrace, transform and truly grow into 2021. 2020 has been and remains a unique year regardless of the pandemic. Over the past nine months, we decreased our overall debt by $15 million, which will increase to $25 million when we receive forgiveness of our PPP loan. We settled outstanding litigation and continued preparation for the eventual resolution of our Pecos water dispute. We incurred legal costs significantly above any normal level. These expenses and cash outflows were clearly one-time events. Over the past couple of quarters our earnings have certainly been pressured by the COVID-19 pandemic, decreased fertilizer pricing, but when we look at our debt compared to our asset base and our cash flow potential, we see a lot of upside potential for Intrepid. As with any downturn and as you may be aware, there have been numerous in my decades of commodity experience. These are the opportunities to strengthen and diversify your business. If you're willing to be quick-thinking and adjust with an ever-changing landscape to maintain a creative, optimistic culture. Companies that keep their eyes up instead of hunkering down can be rewarded and that is exactly what we have done, as we continue to expand our relationships in the Delaware Basin with strategic partners. We are thoroughly engaged with our strategic partners Select, several oil and gas operators, and a couple of midstream companies to become a powerhouse in the smart use and development of the environmentally friendly methods to utilize water, then reuse it, and finally, to innovate creative management systems for the beneficial use of oil and gas-related water. Intrepid has a laser-like focus on smart or full-cycle water management. We ask you to follow us closely as we lead the way. Our second quarter investment in the Von Gonten Laboratories is also yielding great data on the benefit of using potash or KCL, as it's known in the oilfield in certain formations. And we hope to improve our industrial potash sales significantly, as drilling and fracking activity increases in future periods in very specific areas. Our nutrients businesses ended the third quarter on a positive note, as domestic potash inventories have leveled out over the past few months, which should set us up for a good end of the year and heading into the next spring season. The post-summer fill price increase has stuck, and just last week, we announced an additional $15 to $20 increase, bringing our posted price up to $30 to $35 per tonne from the summer fill price levels, clearly calling a bottom to the potash market. This is welcome news for the market that has struggled to find its footing over the past year, and a great start to the fourth quarter, as our potash production ramps up after an above-average 2020 summer evaporation season. For Trio, we continue to maintain consistent production levels compared to prior years, as we balance existing inventory and focus sales efforts on growing domestic volume. Similar to potash, the summer fill price has been accepted, and we announced an additional $10 per tonne increase last week, effective immediately. During the third quarter, we continued to position ourselves to capitalize on the return of oilfield activity in the Delaware Basin, moving most of our transfer equipment off of generators and onto the power grid, which will continue to improve our transfer expenses going forward. Our approach to the oilfield markets today remains pragmatic, with the focus on establishing long-term relationships with operators as dependable water suppliers in the Delaware Basin that can meet the incredible demand for water delivery in a frac. They require increasingly larger volumes of water per completion at increasingly larger flow rates. We are surrounded by well-capitalized and long-term focused operators, with attractive breakeven drilling economics. Many of these operators have continued to operate albeit at reduced rates through the downturn, and are indicating plans to ramp up considerably in 2021. We acknowledge the next couple of quarters could be bumpy due to an uncertain trajectory for the COVID-19 pandemic. But the rebound in the Delaware Basin is happening as we speak. As I said last quarter, these pressures are inherently time-bound, and the attention that companies are focusing on the Permian and specifically, the Northern Delaware gives us a lot of optimism about the future. To that end, as I stated in the beginning of my comments, we've used the past six months to not just focus on improving our existing business, but to find opportunities to participate in the upside of improving oilfield demand, as we remain convinced of the value and potential of smart or full-cycle water management in the Delaware Basin. And now, I'll turn the call over to Matt for review of our financial results and outlook.

Thanks, Bob. We managed well through the uncertainty caused by the COVID-19 pandemic and the down cycle in fertilizer during the third quarter, highlighted by solid demand across our nutrients segments and a great end to the 2020 summer evaporation season, which will lead to lower per tonne potash production costs in the coming months. Total company water sales were up 42% from the second quarter of 2020, as oilfield activity steadily improved over the past three months. For potash, we saw good engagement during the quarter and believe we've hit the bottom of the down cycle for fertilizer, heading into a winter and spring season in which we will have above-average volumes to sell due to the good evaporation during the summer. Strong growth in specialty segments helped to offset some of the decline in industrial markets. And our third quarter results started to see the benefit of a good evaporation season, as our cost of goods sold improved compared to the prior year. Margins compared to the prior year were pressured by price decreases over the past year, and reduced byproduct water and brine sales to the oilfield. For Trio, another quarter of steady demand in the domestic markets led to similar results compared to the prior year. Sales volume was down compared to the third quarter of 2019, as we continue to narrow our international focus, while production remains consistent as we manage inventory levels. Similar to the potash market, we have seen good subscription at post-summer fill values, which we expect will improve pricing in the fourth quarter and into the spring season. Byproduct water sales improved significantly compared to the second quarter of 2020, and we are seeing good demand for water in the fourth quarter. Our oilfield solution segment continued to be impacted by reduced oil and gas activity compared to the prior year, as reduced demand for water has also pressured pricing on South Ranch. On a positive note, activity has steadily increased over the past few months as operators focused their attention on the great resource in the Delaware Basin, and operators are forecasting continued increases in completions over the coming months. Turning to our debt and liquidity, we recently applied for forgiveness on our $10 million CARES Act Paycheck Protection loan. We used the entire loan amount to fund eligible payroll expenses and expect the loan will be forgiven, although, the timing of a response remains uncertain. As a reminder in July, we made a voluntary early repayment of the remaining $15 million outstanding on our Series C Senior Notes, along with a reduced make-whole payment. We now have $15 million remaining on our Series B Senior Notes which mature in 2023. And as of September 30th, we have $30 million borrowed under our revolver which matures in 2024, with $30 million of availability remaining. Capital expenditures during the first nine months of the year were $14 million. We continue to manage our capital plans through the cycle and expect to be near the low end of our previous $15 million to $20 million range for the full year. Although the trajectory of the COVID-19 pandemic remains uncertain, the proactive steps we've taken to reduce our debt and diversify our revenue from our long-lived assets have us optimistic about the potential of our business. That concludes our prepared remarks for today. Operator, we're ready to take questions.

Thank you. We will now begin the question-and-answer session. Our first question is from Joel Jackson with BMO Capital Markets. Please go ahead.

Hi, this is Bria Murphy on for Joel. Thanks for taking my questions. So, some of your fertilizer peers are also reporting today and they spoke about the strength of the U.S. fall application season. Is this consistent? Or what you are seeing? And what kind of incremental volume could we expect in Potash and Trio in Q4 compared to Q4 '19?

I'll take the first part of that and let Matt speak to the incremental volumes. We're just seeing price acceptance across the board. As you know we had an early harvest. We've seen recent strength in wheat, soybeans, corn prices. Sugar has rebounded in South America. As we look at cocoa we look at a variety of commodities that impact the usage of a global product potash production. We're seeing here in the United States strengthen the fall application market, and very, very solid acceptance of the price increases. I'll let Matt speak to any potential for incremental year-over-year demand that we anticipate soon.

We certainly continue to see very good demand in the potash market and just with our production profile. And we are really focused our tonnes into the spring season into go truck markets West Texas area and California in the PNW. So the winter isn't normally or Q4 isn't normally our biggest sales season, and some of the tonnes we're going to see from improved evaporation during the 2020 season, it will hold off for higher and better margins in the first half of 2021. So, don't expect a whole lot of change year-over-year for our potash volumes in Q4.

Okay, thanks. That's helpful. And then, can you just talk about the expected trajectory of water sales in 2021? And how should we think about 2021 sales relative to 2019 levels?

I think they should be at least to 2019 levels depending on permits that we've had under dispute getting resolved, COVID. We've got several permits that are up for administrative approval that are going through the hearing process. And unfortunately, COVID has created a bumpy administrative schedule, if that makes sense. So any additional water that we see receiving the approved permits on, we see full utilization going in 2021. So we would see total sales in excess of 2019.

Okay. Thank you. And then just one last quick one. Is your 2020 CapEx guidance still for $15 million to $20 million?

Yes. We think we'll be at the low range of that previous guidance of $15 million to $20 million.

Our next question is from John Roberts with UBS. Please go ahead.

Great, thank you. I'm not expecting you to purchase any more water rights near-term. But has the downturn allowed a lot more rights to become available for purchase? And what's going on with the asking price for water rights?

If you break the year into COVID-related periods, you'll see the second and third quarter were lacking, so to speak. I'd say we're seeing the fourth quarter strengthen dramatically in terms of water demand, and then pricing power going into 2021, we're definitely seeing. New Mexico is a unique state and then it's an appropriation state. And so the Office of State Engineer has begun to have investigations into water being imported from Texas into New Mexico. And as an appropriation state, the water coming up has historically not been permitted, accounted for, taxed, regulated, et cetera. And the Office of State Engineer in New Mexico in the third quarter initiated a pretty intensive investigation into the water that's coming across from Texas, that's on an unregulated basis. So, it's going to be interesting to see what the State Engineer does with the data that they are collecting from the various operators and pipeline companies that are bringing water across, those operators that are choosing to use Texas Water.

And any estimates on how much potash unit cost will decline due to the favorable evaporation conditions?

It's a good question, John. We don't have the estimates right now, as that we're going to share, but you'll certainly see some improvements year-over-year.

Our next question is from Vincent Andrews with Morgan Stanley. Please go ahead.

Hi. I have a quick question about potash inventories and where you expect those inventories to be at the end of the fall season.

Matt, you want to take that?

Yes, I think we're in a really good place here at the end of the third quarter. It started in November compared to where we were just three or four months ago. You've seen it through increased price both on potash and Trio that we announced last week, and it looks like things are clearing up nicely along the river and we really expect a solid first half of 2021.

Thank you.

Our next question is from Matt Farwell with ROTH Capital. Please go ahead.

Hi, good morning. I was just wondering if you can comment on the margin outlook for the oilfield solutions business, given the negative gross margin in the quarter? How that might trend in the fourth quarter and then 2021?

I believe we will see ongoing improvement in the fourth quarter. You should think of 2021 as resembling 2019 or the early months of 2020, with a steady enhancement in margin performance. I certainly don't anticipate any regression. We need to acknowledge the challenges experienced during the latter part of the first quarter and the last six months, particularly concerning the fluctuations in demand. Frequently, we prepare for a frac operation, only for there to be a change in plans. This indicates that we are experiencing inconsistencies both in acquiring water and finalizing water sales on both sides. We are collaborating closely on the operational level to mitigate these discrepancies, understanding that the past six months have been quite unique.

Great. Thanks for taking my question.

Our next question is from Jason Ursaner with Bumbershoot Holdings. Please go ahead.

Good afternoon. Bob, you sound very optimistic about 2021. Obviously, investors don't want to try to annualize the past three months results, as it was a rough quarter, and you talked about being hopefully at the bottom of a cyclical downturn. You're also not really providing any guidance for next year, though. So, I guess how do you reconcile those things? And how should investors be framing 2021 from a financial perspective, either in terms of earnings, cash flow, or just direction of the company? Where do you see it headed in terms of any more specifics on that?

Well, Jason, thank you for the question. Again, I'm trying to direct people back to what 2019 looked like. And I just made the comment that margins should be better than they were in 2019. Volumes for sales should be at a greater level, given the permits that are up for administrative approval, assuming that the administrative process continues despite COVID. So it's very hard to give guidance around whether or not the Office of State Engineer will be open or not, given the COVID restrictions in New Mexico to actually process approved permits. So that's why it's hard to give guidance. When the Office that actually approves the permit doesn't give you guidance on whether or not they're going to be open or closed to sign a permit. I hope you can appreciate that then funnels back into the financial guidance that you're asking for. So I'm trying to give you the appropriate color as to what we face in the field. I'll let Matt handle the rest of this answer.

Yes, I mean, we've been pretty open about where we think price is trending year-over-year, and with potash volumes increasing, I think we've done the best we can right now, given the COVID environments streaming on the waterside to try and lead folks to where we think the first half of 2021 is going to look. But we haven't been issuing guidance for a while now. And so it shouldn't come as a surprise that we're not putting out specific numbers. But hopefully, we've given enough color, given what we know today to help folks model this going forward.

Sure, that's fair. And when do you expect to have a resolution on the PPP funds? I didn't hear what the comment you'd mentioned on? You applied for it, but what do you think the actual timeline is on that?

So we just really don't know.

In our discussions with the SBA, they will not give any guidance. With our discussions with BMO, they will not give any guidance. So Jason, I would love to give you guidance, but when the government tells you they have no clue what to expect, and BMO has the same response, it's very difficult for me to answer your question.

Sure. And in terms of the CapEx outlook for next year, how are you guys thinking of maintenance CapEx versus the current year?

So on the sustaining capital side very similar to 2020 in that $12 million to $15 million range.

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

We just want to thank everyone for taking the time to dial in today. We really appreciate your interest in Intrepid, and look forward to speaking with everybody in the near future. Thank you.

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