Welcome to the Intrepid Potash Inc. Third Quarter 2016 Earnings 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 to ask questions. [Operator Instructions] I would now like to turn the conference over to Jennifer Holmquist [ph], Investor Relations. Please go ahead.

Thanks, Joe. Good morning and welcome, everyone. I remind you that parts of our discussion today 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 assume no 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 this morning'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 Co-Founder, Executive Chairman, President and CEO; and Brian Frantz, Senior Vice President and Chief Accounting Officer. With that, I'll turn the call over to Bob.

Thank you, Jennifer, and good morning everyone. Before I dive into our third quarter and my thoughts on the market right now, I'd like to take a moment to address Monday's release regarding the debt as I noticed top of mind for many of you. On Monday, we announced the completion of our debt negotiations and finalization of our amended financing structure. This agreement represents the culmination of a lot of hard work from the Intrepid team as well as the various teams representing the eight separate noteholders, the past eight banks representing the old credit facility and the Bank of Montreal, our new credit facility lender. I’d like take a moment to thank each of them and their advisors for their dedication to reaching final agreements. I’d also like to thank our shareholders, employees, vendors and customers for their patients during these negotiations. I’ll let Brian hit the main financial points of the deal. Through these negotiations, we’ve been able to bring down our aggregate outstanding indebtedness by $15 million through early repayments on the notes while revising our covenants to provide us with more room and flexibility to execute on our business plan. As we work through the negotiations, we decided the time was right to evaluate the various strategic alternatives available to us at Intrepid. We will be engaging in investment banking firm by the end of the month and we will work with that firm to identify and prioritize the numerous different strategic alternatives available to us and that we believe provide the best value for shareholders. Turning to our quarterly results, the third quarter was another transition quarter for our company as we ideal the West facility in July, completed our commissioning of our East as a Trio-only facility and focused our efforts on further…

Thank, Bob, and good morning, everyone. I like to start with a review of the highlights of the debt deal we discussed on Monday. Please note that a more thorough description of the note amendments in the new facility was included in the 8-K we filed yesterday as well as within our third quarter 10-Q, which we anticipate will be filed later today. As we announced on Monday, we are pleased we have reached final agreements with our lenders, which resulted in a new revolving credit facility as well as amended terms on our senior notes. The amendments to the notes increased our current interest rates charged on each series of the notes by 450 basis points above the original coupons. These rates may adjust quarterly and are initially set at the highest point on the pricing grid. The pricing grid provides us the opportunity to lower these rates based on our financial performance. Given market conditions, we expect these rates will remain static in the near-term. The senior note amendments also provide revised financial covenants that initially include minimum levels of adjusted EBITDA and liquidity. The amendments also incorporate revised leverage and fixed charge coverage ratios, which begin in mid-2018. As Bob mentioned earlier, we believe these revised financial covenants give us the time and flexibility to execute on our business strategy. Shortly after quarter end, we paid $16 million to the noteholders, of which, $800,000 was a negotiated make-whole payment related to the $15 million early repayment of note principle. On Monday, this week, we paid the noteholders an additional $500,000 as a negotiated make-whole payment. In turn the noteholders agreed that we will not owe any further make-whole payment on the next $35 million of principal reductions, which would come from asset sales or equity raises that…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] First question today comes from Mark Conley with CLSA. Please go ahead.

Hi, hopefully you can hear me. So you warned last quarter that we were going to see Trio inventories go up so that increase shouldn't be a surprise. But with the drop you saw in sales bigger than you expected and how confident are you that the new seasonal sales pattern won’t leave you with too much product at the end of the season?

It’s a good question, Mark. I think if you go back in time you'll remember that for many, many years we had customers on allocation and those customers are no longer on allocation and then we had international customers that couldn't even get the product and we had not built out the infrastructure to deliver that product to those international customers. So while we are in the transition of a newly restructured sales team with the tremendous amount of international experience and we have new infrastructure capacities, I just think we are going to have a transition time here, I don't think it’s just clear cut. Yes, I wish we’d more sales, but we’ve got very robust data on who the customers are, who they were, what their buying averages were and we feel very comfortable that it’s much more of a timing issue than a loss of sales issue if that makes sense.

Sure. That does make sense. And related to that and my last question is does your distribution system have to change in any meaningful ways to accommodate this and for example would you be using more of a consignment type approach with Trio, the way you’ve sometimes done with potash?

Not necessarily. Domestically, it really hasn't changed at all. We’ve beefed it up, I think we've added 10 new warehouses here in the United States. I don't know the exact number, 8 to 10 new warehouses in the United States that will handle Trio. And then internationally, we've done a tremendous amount of work. I've literally been on the road since the middle of July, all over the world and we've done a lot to create infrastructure, so that we have the ability to deliver and pull back containers to a variety of customers around the world. So we’ve set that infrastructure up and that's in place. So globally, yes, we’ve made some significant changes.

Super. Thank you for your help.

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

Hi, this is Neel Kumar calling in for Vincent. This year you took some steps to reduce your SG&A expenses, I’m just curious if you have any more cuts to operating cost going forward?

Well, we are sure working on it, Neel, that’s a great idea. Everywhere that we can find a cut cost, we are going to work on it. I don’t if that’s enough of an answer, we’ve all got our sleeves rolled up and wherever we can find them, we are going to cut them.

Yeah, Neel, this is Brian. I mean we’ve made good progress over the last year, but there's still some more gains to be had as moving forward. So to tackle Bob's comments, we’re looking for those around every corner.

I see. And another question related to Trio, which other geographical markets besides for U.S. you see has been opportunities for Trio demand?

I’m just going to say, globally we see vast potential. I'll leave it at that.

Okay, great, thanks.

There is no reason to give you specifics as we have competitors.

Right.

Your next question is from Edlain Rodriguez with UBS. Please go ahead.

Thank you. Good morning, guys.

Good morning.

Just a quick follow-up on Trio. I mean prices have been declining over the past couple of quarters. What's really driving that price decline? Is it competitive pressure from Mosaic or is it something else? And how does that change going forward?

Well, I have a personal belief and so you can take it with a grain of salt that while we were down, someone took a hard run at us, they knew we're negotiating, they knew we’re negotiating a tough situation and to whatever degree they could use to their benefit, I don't blame them, to put as much pressure on us during those negotiations. That's certainly what it felt like. We didn't see customers demanding reductions. We saw producers dropping prices at vast rates at very interesting periods of time that were public about our negotiation. So while we’ve some SOP price declines, we also saw a lot of very well-timed price declines in langbeinite market. So I think that given the running room that we believe we have with our noteholders and their belief in our long-term strategy that – and my trips around the world, I think that this is a market that’s got some legs to it and I would expect to see some firming in this market.

Okay. That makes sense. And also – so now that you convert in mostly – you are going to 100% solar production in potash, can you help us gauge like what production costs would look like going forward let’s say versus like the third quarter or the second quarter of this year, like, going forward, like, what does production cost look like now that you don’t have conventional production anymore?

Edlain, this is Brian. That's a difficult one to do. I mean we’ve had such transition going on here during 2016 where we converted the East facility to Trio only during the second quarter and then we continue to ramp it up in the third quarter. We are working hard to keep all those costs under control. We’ll start to see the benefit of that on the Trio side going forward, but we’re still carrying some of that inventory that was produced during those periods where we had higher cost due to the transition. So it's going to be a little bit before we see that. On the potash side of things though, now that the conventional inventory will be – we should see the last of that sold here during the fourth quarter. By the time we get to the first quarter of 2017, we will see the benefit of just a pure solar operation going forward. So, I’m not able to give you a specific guidance around that, but hopefully that gives you a little bit of information as to how we’re thinking about it.

That makes sense. And then one last quick one on potash prices, you’ve talked about the price increases that you should see in a couple of months for the second quarter, like what price increase [indiscernible] and what should we expect to see when you finally realize them in Q1, Q2?

This is Brian. There were some increases that came in late in the quarter. Our prices are obviously impacted by where we are shipping, when those orders were made. As we sell down the red inventory, what you are going to see is we will have less product and so we can be more selective around where that product goes, which will enable us to capture more of those increases that come along. So we’re continuing to work our way through that process and again we will start to see the benefit. The third quarter should be the low point and then we should – we are going to see an increase in the fourth quarter with hopefully more that in early 2017.

Thank you very much.

The next question is Joel Jackson with BMO Capital Markets. Please go ahead.

A few questions. So your potash price realizations versus kind of benchmark pricing have been quite low last few quarters. Is that because you’ve been selling a higher mix of red, is that because you’ve been aggressive on putting out volume in Q3 much more than production as you are drawing down inventory? And then how would you kind of your price realization versus the benchmarks to prove that you have a more of wide mix? Thanks.

I think you hit the nail on the head. As we were going through these negotiations, the primary motivating factor was not necessarily to run the business in the best way as we are negotiating with these bankers, it was to generate liquidity and so we did that. So I think that that had a big impact on it and we successfully did that. Now that things are resolved, settled, we can get back to running our business. It feels like for the last eight months, we have not been able to run our business in a meaningful way and we’ve got that ability now. So, I don’t have a clear answer for you other than to give you two timeframes before and after and you run it one way on the before and you run it in a historical way in the after. And so we now have our evaporation facilities with very nice natural geographic markets. Those are geographic markets that we have historically done very well in. We know how to market in those and we have the time and the inventory, the customer base, the logistic know-how to maximize margins in those areas.

That’s helpful. And also on your CapEx guidance, you said $18 million to $22 million for this year, is that what we should expect going forward as a run rate maintenance capital and would there be any – it’s a little lower than I think you’ve talked about before, is there any kind of capital spend you might be differing from maintenance perspective to, I don’t know, a couple years from now?

Well, you got to remember at the solar facilities, the CapEx at the solar facilities is just a lot less because you don't have underground mining equipment operating, you’ve just got a very different mill on the surface because they are flotation plants, so the nature of the mining in the mill, so you're paying for pumping costs. So when you look at maintenance CapEx, you are talking about pump costs, well costs, things that are very different than when you have the East mill, for example, and the West mill, those are very, very different maintenance kinds of numbers. So a solar evaporation facility just by definition is going to have a lower maintenance CapEx cost and then when you get the [indiscernible] plant, it’s a very, very simple plant. And so, I think it's reasonable that we can continue to try to bring those numbers down because of the simplicity of just the operations themselves.

Okay. And this might be essentially a question but I mean – if what kind of level – what kind of increases in potash to your price levels would you need to be a sustainable positive free cash flow level and then what you guys model?

Yeah, Joel, this is Brian. We’re watching that all the time and obviously we’re working toward that goal and with our solar operation going to be providing 100% of our production beginning in 2017, we believe that we’re going to have a good opportunity and should be achieve that goal at that point. Our 2016 results have been impacted by a lot of the conventional stuff and a lot of the transition stuff, but we believe on the 2017 – once we get to 2017, we’re going to be where we need to be.

Plus we now the ability with having a right-sized production stream to focus on how much goes into the feed market. Believe it or not, there is still an industrial market. We’re focused on our byproduct markets. So there is a whole variety of things that go into our cost structure and then our price structure in terms of the markets that we really target. So – and as you well know each of those potash markets have different pricing components.

Maybe I will sneak one more in. Thanks for that. Strategic alternative, I mean, Bob, how borad in that are you looking here, are you willing to not to be operating these assets anymore, [indiscernible] I mean broad in that are you casting here?

Joel, that’s just a premature question. We've agreed to talk to investment bankers during the month of November and that’s what we are going to do.

Fair enough. Thank you.

Your next question Tyler Etten with Piper Jaffray. Please go ahead.

Good morning, guys. And thanks for taking my question. Obviously we’ve seen a lift in potash prices in the near-term. What’s your confidence that we can see these prices stay at this bottom or not decline further in the spring given the weak ag fundamentals?

Well, it depends on which ag fundamentals you are talking about. If you go around the world and you look at the palm oil business, you look at the sugar business, you look at the coffee business, we tend to look at just the corn and the soybean business and so if you are willing to look around the world at a variety of crops, there are some crops that are doing extremely well. So I think you're also saying with some consolidation occurring in the marketplace, I'm not quite sure how that’s going to play out in terms of stabilized pricing. But I would not say that all commodity pricing is as negative as people talk about because they just focus on corn and soybeans. So I don’t know if I’m answering your question, but it's a much, much more diverse market and we are seeing impact of the curtailments that were announced late last year and early this year as those producers have reduced their own production. You’re starting to see a reduction in inventory, which should be supportive of what we talked about as well.

And those curtailments are the same type of curtailments that we've seen over the last 40 years in the potash industry, so it’s nothing new.

Yes, fair enough. And I guess through the solar production, could you talk about the degree which production is made in first and fourth quarter compared to the second and third quarter just for modeling purposes.

The way we look at – obviously over the summer when you got most of the evaporation season occurring that's when you need to have those hot dry days and we had a good summer across our average release across our solar facilities this year. So at that point in time between roughly September to the end of March or April, we got pretty good visibility of where that's going to be. And then as you go through the following evaporation season, there you get some uncertainty looking forward. Obviously we have good historical data as to what those averages are and that’s kind of the way we run our business, always believing that things will revert to the norm over time. But in terms of how that breaks down between Q4 and Q1, we run it more overseas than anything else.

All right. Thank you.

[Operator Instructions] The next question is from David Steinberg with DLS Capital. Please go ahead.

Hi guys, you covered my questions. Thank you very much.

Thank you for listening, David.

Joe, do we have any other questions online? I think we’ve --

The next question sir is from Christopher Perrella with Bloomberg Intelligence. Please go ahead.

Hi guys, question on the accounts receivable, did you expect to see a positive cash flow from Accounts Receivable in the fourth quarter? Or has the low-price environment changed the seasonality there?

Chris, the receivables are only the function of volume in the period right before that. So it will depend on those fourth quarter volumes where they shake out and not only that but the timing of those. So as we wind up the fall season, you may see a little bit but it always depends on the timing of those sales at the end of the quarter.

Alright and to refresh my memory, are you still working with the PCS to ship Trio overseas or what was the relationship with them for a marketing or shipping Trio?

No, about a year ago, we terminated the Trio part of that relationship and so we are doing all of that marketing ourselves. We have different marketing representatives, and when I was talking about restructuring our sales group we have different marketing representatives in different parts of the world now that are helping us to make sales. So we have a Director of International Sales and then variety of sales agents throughout the world.

Okay. How does that cost wise, the cost improvement on this new structure then?

I would say, yes, especially. Some of them are on a small retainer with a commission, so there are all a little different and I’ll just leave it at that given their difference.

Alright. And then one final question, what do you see is a good cash level for running the business now on the new smaller footprint?

It is a great question. We are working through it now. Obviously you don't have the kind of catastrophic things that can go wrong in a solar operation that you do in a conventional mining operation. So we are really working hard to determine what is the right level of not only working capital but cash on hand. So it's a very different number than it is when you're running two significant underground mines. So it's a great question, we hope to answer in future calls but it's something that we are very, very aware of and we do know that it is a significantly lower number.

Alright. And then last one, why explore strategic alternatives now, you’ve just got everything worked out with the debt of the noteholders, the company is resized at this point. Why pursue or why discuss strategic alternatives at this point?

Well I guess I would turn and say why not. There's a tremendous amount of capital out there. We’ve been pinged in a lot of different ways. We’ve got groups that would like to partner, joint venture – there is just a whole variety of idea of opportunities out there substantially grow our business even further. So I think we would be foolish not to listen to people who want to come talk to us, it's been an opportune time given the trouble that we went through with the noteholders for people to ping us incessantly a desire to come in and participate. So this gives us a very organized way to listen to what the capital markets have to say and capital markets how they want to participate.

Alright, thank you guys and good luck.

Thank you very much.

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

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