Thank you for standing by. 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 to ask questions. [Operator Instructions] I would now like to turn the conference over to Matt Preston, Vice President of Finance. Please go ahead, sir.

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,…

Thanks, Bob. We managed well through the uncertainty caused by the COVID-19 pandemic and 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 into 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 and 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 remain 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 continue to be impacted…

Thank you. We will now begin the question-and-answer session. [Operator instructions] 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 on 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.

Okay, thank you.

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.

Thank you.

[Operator Instructions] Our next question is from Vincent Andrews with Morgan Stanley. Please go ahead.

Hi. This is actually [Indiscernible] on for Vincent. I just wanted to ask a quick question on potash inventories and kind of where you see those inventory exiting 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 think you're going to see a continued improvement in the fourth quarter. You just got to think of 2021 is looking much more like 2019 or January and February of 2020, with a continued improvement on the margin pace. So, I definitely don't see it going backwards. I think you just have to -- unfortunately, we have to accept what the last part of the first quarter and the last six months have been like, as it relates to the volatility and bumpiness in demand. Many times we will stage a frac for somebody, and then there'll be a change of mind. So I think we're just seeing both practices on the acquisition of water and our sale of water in terms of actually making that sale a final sale on both sides of the equation. So we're trying to -- we're both working with each other on the operational side, and the operator side to take the bumpiness out of it, acknowledging that it's just been a unique six months.

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 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.

Okay, great. Thanks.

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.