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Edited Transcript of IPI earnings conference call or presentation 2-Aug-18 2:00pm GMT

Q2 2018 Intrepid Potash Inc Earnings Call

DENVER Sep 13, 2018 (Thomson StreetEvents) -- Edited Transcript of Intrepid Potash Inc earnings conference call or presentation Thursday, August 2, 2018 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Joseph G. Montoya

Intrepid Potash, Inc. - VP, CAO & Principal Financial Officer

* Matt Preston

Intrepid Potash, Inc. - IR Officer

* Robert P. Jornayvaz

Intrepid Potash, Inc. - Executive Chairman, President & CEO

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Conference Call Participants

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* Christopher Perrella

* DeForest R. Hinman

Walthausen & Co., LLC - Research Analyst

* John Ezekiel E. Roberts

UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst, Chemicals

* Jonathan R. Evans

SG Capital Management LLC - Research Analyst

* Joshua David Spector

UBS Investment Bank, Research Division - Equity Research Associate - Chemicals

* K. Tong

Stephens Inc., Research Division - Research Associate

* Robin Fiedler

BMO Capital Markets Equity Research - Associate

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Presentation

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Operator [1]

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Thank you for standing by. This is the conference operator. Welcome to the Intrepid Second Quarter 2018 Earnings Conference Call. (Operator Instructions) The conference is being recorded. (Operator Instructions)

I would now like to turn the conference over to Matt Preston, Investor Relations. Please go ahead.

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Matt Preston, Intrepid Potash, Inc. - IR Officer [2]

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Thanks, Steve. 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 the information available to us today, and we assume no obligation to update them. You can find more information about risks and uncertainties for 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 Joseph Montoya, Vice President and Chief Accounting Officer.

I'll now turn the call over to Bob.

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Robert P. Jornayvaz, Intrepid Potash, Inc. - Executive Chairman, President & CEO [3]

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Thank you, Matt, and good morning, everyone. Our second quarter results were highlighted by another quarter of higher potash prices and increased domestic demand for Trio, a great finish to the spring application season, combined with another solid quarter from our water business to deliver cash flow from operations of over $24 million. This brings our first half cash flow from operations to $38.2 million, which is more than $30 million higher than the first half of 2017.

Potash price increased 8% compared to the second quarter of last year. Strong global potash fundamentals led to another domestic price increase, and we remain bullish on the overall potash market for the second half of the year.

For Trio, we saw strong demand during the quarter, as favorable pricing against component nutrients drove an increase in the application of Trio to non-specialty crops. In June, we matched our competitor summer-fill program, which reduced langbeinite pricing by $10 a ton for orders placed in late June, with shipments scheduled by the end of September. Following the order window, pricing was increased $20 per ton, and we expect to see the benefit of the higher pricing on Trio sales in the fourth quarter.

While this net $10 increase compared to the second quarter continues the positive pricing momentum for Trio, we still view it as undervalued when compared to other fertilizers in its nutrient components. We saw another quarter of solid water demand and cash flow, with $4.5 million in water deliveries and an additional $3.8 million in cash received from a long-term water commitment.

We saw a slight decrease in deliveries compared to the first quarter and attribute this mostly to the variable timing of oil and gas completion activities and the lack of frac crews in the region as you've read in many Wall Street Journal reports. In the first half of 2018, we have received $13.4 million of cash for water. And as of June 30, we had $5.4 million in accounts receivable related to water on our balance sheet.

Moving forward and in response to numerous investor and analyst request for cash clarity, we are modifying our water guidance calculation and language to focus on cash and expect to receive $25 million to $35 million in cash relating to water in 2018. This amount includes $15 million in cash that we expect to receive under our long-term water commitment, but a portion of that is accounted for as deferred revenue until the underlying water is delivered.

When we first gave guidance on water sales, we didn't expect a significant timing difference between cash flow, i.e. sales and water deliveries. As we started discussing last quarter and at the investment community, we are focused on cash received and believe this is a much more accurate reflection of how we track our water business. The northern portion of the Delaware Basin continues to see growth in drilling activity and drilled but uncompleted wells or what we are call in the industry, DUCs, during the second quarter. As the rig count and DUCs around our mine increases, we believe this underlies a long-term potential of our water cash flow strength. As a reminder, we have a diverse set of surface and underground water rights, both of which operate under multiple permits. Not unlike other natural resources, the use of water in New Mexico can sometimes be a contentious issue, and some of our rights have been protested by 2 irrigation groups and a stream group and some others. These protests cost nothing so far. We are working with the parties to resolve these issues and continue to believe that our legal position with respect to the validity of our water rights is solid based on supportive legal opinions, third-party documents and permits and filings from the State of New Mexico. We are able to deliver water during the protest period, and the protest process has no impact on water sales during the first half of 2018, nor do we believe it will affect our guidance for the full year.

Oilfield services and trucking continue to develop as our team of geologists, engineers and operators have succeeded in expanding our footprint through sales calls, educational seminars and industry conferences. We are taking more meetings than ever as we pivot to a company with a dedicated sales team that can educate operators on the value of KCl in certain formations while also providing the product, trucking and mixing services. Our trucking fleet is now licensed to deliver brine, building on a byproduct market, which has generated record sales of $450,000 during the second quarter, an 85% increase compared to the first quarter of 2018.

Salt sales remain consistent with prior year, as we continue to evaluate options to maximize the potential of our HB salt, the majority of which currently goes to our tailings pile. During the last 3 months, we continue to make significant progress in the organic certification of our products with our Moab potash facility joining our East Trio facility, in meeting the standards defined by the Organic Materials Review Institute, or OMRI.

Continued growth in the organic space, as highlighted for example by Amazon's acquisition of Whole Foods and its stated goal of making organic food affordable for everyone, has the potential to dramatically change the organic market in the United States. As one of the few OMRI-listed potash fertilizers and the only OMRI-listed langbeinite fertilizer in the market today, we have built a dedicated sales staff to capitalize on this growing market. We recently conducted bench-scale testing of a lithium recovery process with a third-party testing facility, and the preliminary results were encouraging regarding the profitable extraction of lithium from our Wendover brine. We expect a full report in the next few weeks as we begin to evaluate larger-scale testing and look forward to updating you on our progress next quarter.

I'll now turn the call over to Joseph who will discuss our financial results and the outlook.

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Joseph G. Montoya, Intrepid Potash, Inc. - VP, CAO & Principal Financial Officer [4]

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Thanks, Bob, and good morning, everyone. Although we recorded a net loss of $1 million for the second quarter, our quarterly results show significant improvement compared to the prior year second quarter net loss of $6 million. We did see a decrease in earnings compared to the first quarter of this year as a result of the lower water deliveries and an increase in SG&A expense.

Our potash segment had another great quarter with $6.3 million in gross margin, an increase of $2.3 million compared to the second quarter of last year and $1.3 million compared to the first quarter of this year. Sales mirrored the first quarter with strong application in the ag markets, offset by reduced demand from industrial customers.

Our solar facilities entered the summer evaporation season earlier in the second quarter, which reduced production volumes when compared to last year. Improvements in potash processing allowed us to harvest our ponds at a quicker rate, and assuming similar evaporation seasons, a longer summer season will yield more tons available for harvest during the 2018-'19 solar production year.

In addition to the benefit of a longer summer shutdown, we are also experiencing above-average evaporation rates across solar facilities and are on pace for the best evaporation season ever in Carlsbad, with more tons in our ponds at the end of July than in any previous year.

Moving on to Trio. Our Trio segment generated a gross deficit of $2.2 million in the second quarter compared to the second quarter of 2017 gross deficit of $300,000 as a result of lower pricing and increased cost due to our production -- reduced production rate. In the domestic market, we saw a year-over-year improvement in sales volumes, which more than offset the decline in international sales as we chose to continue with only select international sales to build a presence in certain specific markets that we believe have long-term potential.

Water delivered another strong quarter with $3.9 million in sales and an additional $600,000 of water deliveries that were recorded as byproducts. This brings our full year water sales to date and deliveries to $10 million, not including $7.3 million of cash received that is still recorded as deferred revenue on our balance sheet.

We incurred higher SG&A expenses in the second quarter compared to the prior year due to reinstatement of a bonus program and an increase in stock comp expense. We expect our full year SG&A expense to be $20 million to $22 million. A good first half has left us in a favorable liquidity position entering the second half of 2018. We currently have cash on hand of approximately $30 million and have no borrowing outstanding on our $35 million credit facility. Given our cash balance, we are well positioned to pay the schedule of $10 million prepayment on our debt by year-end. Although due to a prepayment penalty in the debt agreement, we are in no hurry to pay ahead of the year-end deadline, especially in an environment with rising rates.

That concludes our prepared remarks, operator, and we are ready to take questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Mark Connelly with Stephens.

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K. Tong, Stephens Inc., Research Division - Research Associate [2]

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(technical difficulty)

Mark Connelly. A few questions here. First off, I want to ask about the international business. It seems like you guys have been quite bullish about that business for some time. And this quarter, you talked about a little bit challenging -- sort of challenging environment. Can you just give us a little bit more color? And that would be helpful.

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Robert P. Jornayvaz, Intrepid Potash, Inc. - Executive Chairman, President & CEO [3]

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Well, I guess, first thing I would point to is freight has gone up substantially, freight costs. But as we continue to focus on certain markets, we have the opportunity to grow volumes. And if we look back at '13, '14, '15, when there was substantially more langbeinite being sold into the international market at significantly higher prices, we still believe that we have the opportunity because the significant difference in nutrient values, as we've discussed many times before, for pricing to continue to achieve higher results. I hope that answers your question. It's just part of a longer-term strategy. And when we also look at the organic market and the opportunity to build out the organic market, and given the fact that we're Food Safe and Feed Safe as well as OMRI-certified, we continue to believe, after we see acquisitions like Amazon's acquisition of Whole Foods, that, that organic market is going to continue to grow. And that as we have a focused sales team on that, we just believe that given the history, if we go back decades and look at the variability and the strength in the langbeinite market, we continue to believe in it.

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Joseph G. Montoya, Intrepid Potash, Inc. - VP, CAO & Principal Financial Officer [4]

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Joan, I would add to that, I guess. It's still relatively new for us. We still believe that the demand is out there internationally. Pricing and freight is going up, as Bob mentioned, and there's still a competitor out there who chooses not to go at market pricing -- what we believe to be market pricing. So as we've talked about in previous calls, we are still facing with that -- faced with that issue internationally.

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K. Tong, Stephens Inc., Research Division - Research Associate [5]

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Okay, got it. And then it appear to me that your running inventory for Trio has come down sequentially. Should I assume that because like the international mix is smaller and you have mentioned in the past that you need a little bit more inventory exploring the international market and the fact that it has come down, it's probably due to the mixes, it's gearing more towards the [rest proactively]?

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Robert P. Jornayvaz, Intrepid Potash, Inc. - Executive Chairman, President & CEO [6]

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Yes, our domestic sales has increased quite a bit. While we are developing the international markets, as we mentioned in the prepared remarks, our pricing domestically continues to be pretty strong. And so like any good business, we're going where we could make more money. And so we're building the domestic. We're helping to fulfill the domestic demand and re-shifting some of our products from international where we are struggling with freight and competitive lower prices to domestically where we have lower freight and higher prices.

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K. Tong, Stephens Inc., Research Division - Research Associate [7]

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Okay. And then finally, on the byproduct sales as a credit of cost, I think you have mentioned 6 -- $4 million. Can you sort of repeat that number? And I assume that most of those credit -- I'm sorry, byproduct credits is in the potash segment.

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Joseph G. Montoya, Intrepid Potash, Inc. - VP, CAO & Principal Financial Officer [8]

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For -- first let me say that we haven't ever, as far as I can recall, disclosed a dollar amount of our byproducts. What we generally disclose and have disclosed is our byproduct credit relative to our cost of goods sold, and that still remains in the 9%. As to the second part of your question, I'd say no, not necessarily. A lot of our salt is coming from our HB facility, but we also produce salt in some of our -- from the East facility as well, so it's a bit of a mix. A lot of the brine comes from the potash segment as well and the mag chloride. So a lot of the potash, you're right, Joan, a lot of the byproduct goes through the potash segment but not all of it.

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Operator [9]

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The next question comes from Christopher Perrella with Bloomberg Intelligence.

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Christopher Perrella, [10]

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Excellent work repairing the balance sheet over the last couple of quarters, it's looking strong. In terms of the recognition of the deferred revenue, is there amount of times, for example, for the deferred revenue collected in the first quarter to then be converted 4 quarters after, 6 quarters after? And then with the boost in the water cash guidance to $25 million to $35 million, is that extra $5 million or so, is that going to be recognized revenue? Or is that going to be deferred revenue?

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Joseph G. Montoya, Intrepid Potash, Inc. - VP, CAO & Principal Financial Officer [11]

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Well, let me clarify first that it's a modification of the unit of measure. So before, we talked about revenue, now we're talking about cash. So in answer to your first question relative to how long the deferred revenue will sit there, there isn't contractually a time limit. So it -- we believe that the water will be taken. It's the function of what's going on in the Permian Basin, as Bob alluded to in his comments, we believe that, that is -- the bottleneck there is being alleviated. And as we continue to start fracking some of those rigs and DUCs, that will be taken, so we don't expect the deferred revenue to sit there for a prolonged period of time. But a little bit of a crystal ball question, but there is no limitation on it. As to the cash, we expect to get that $25 million to $35 million this year. And maybe I'm forgetting part of your question, so feel free to repeat.

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Christopher Perrella, [12]

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Just -- yes, just the timing of when the earnings hit really because it sounds like -- well, there is deferred earnings because you can't recognize it with the delay in the delivery of the water. And I think that's sort of a missing log that's traveling through the P&L here that may be missing and could be coming down the road. So when you guided to higher cash, is that cash coming in on deferred revenue? Or is that cash coming in on revenue that's going to be recognized in the third and fourth quarter here?

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Robert P. Jornayvaz, Intrepid Potash, Inc. - Executive Chairman, President & CEO [13]

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I would say it's both. I mean, we really haven't given any guidance in terms of that, but it's an element of both. We had -- after the first quarter, we just had so many questions about how much cash can we generate from the water side of our business. And most of the investment community that we're talking to was much more interested in our ability to generate cash. And it was -- we felt like we could describe it easier than trying to focus on deferred revenues when certain water sales would hit. And as we grow our water business and grow different types of water agreements, whether they're tolling agreements, storage agreements, leasing from third parties, using our infrastructure to transfer water, there's a variety of sources where we may receive cash in all our service. The accounting, as we have described now for numerous quarters, is more complicated. And so the easiest way to describe it is the amount of cash that we think we can generate on an annual basis.

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Joseph G. Montoya, Intrepid Potash, Inc. - VP, CAO & Principal Financial Officer [14]

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And we know that you and your colleagues, Chris, like to do a lot of modeling on our numbers and our reports. And we believe that cash is a better unit of measure to model because we have -- we believe there's more consistency in the cash flow than there is in the revenue just because of the volatility of the oil and gas market in the Permian Basin.

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Christopher Perrella, [15]

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I agree, I agree. I'm just trying to bridge sort of the disconnect between the 2 over the call. So I do appreciate the color on that, and I'll pass it along.

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Joseph G. Montoya, Intrepid Potash, Inc. - VP, CAO & Principal Financial Officer [16]

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Thanks.

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Operator [17]

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

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Robin Fiedler, BMO Capital Markets Equity Research - Associate [18]

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This is Robin on for Joel. You talked about higher freight costs and competitor commentary session, continuation of a competitive environment, [and new adds for special deferreds]. And you mentioned how to, I guess, counteract [all this] to grow volumes. But I guess, from the Trio -- from a profitability standpoint for Trio, I guess what is your thoughts on, I guess, maybe the timing of when we can return to profitability? And does that largely kind of hinge on pricing which you don't necessarily have complete control over given, as you mentioned, that competitor undervaluing the product?

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Robert P. Jornayvaz, Intrepid Potash, Inc. - Executive Chairman, President & CEO [19]

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I think it's a couple of things. I think it's picking your markets right and growing the right markets that have the highest netbacks. It's developing the specific international markets where you have the opportunity to engage as far down as a farmer level, so that you're not dealing with just larger distributors. It's once again delving deep into the history of langbeinite. So if we go back to the 70-year history of the sales of langbeinite and the many times that langbeinite has sold at a premium to potash, we believe in the long-term story of langbeinite because we've looked at the history of langbeinite. And so we also understand the nutrient components and the disconnect between the value of the components and the current value of the price. So trying to predict when the market's going to turn and when that's specifically going to happen, we've just been in the commodity market way too long to try to get into the prediction business. We're just doing our best to focus on cost, focus on markets, focus on sales teams and focus on the proper diversification to try to achieve the highest margins that we can as well as continue to operate the plant because we believe in the long-term future of langbeinite.

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Joseph G. Montoya, Intrepid Potash, Inc. - VP, CAO & Principal Financial Officer [20]

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I was going to interject but Bob picked up what I was going to say, it's not necessarily all about factors beyond our control such as freight and pricing. I think cost is a big element, as Bob just mentioned, and we continue to do things operationally within the plant that work to bring either our production up or our cost down which are terms that work hand in hand. And so we continue to focus on that. It's simply not a throw our hands up and hope the price goes up or hope the freight goes down.

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Robin Fiedler, BMO Capital Markets Equity Research - Associate [21]

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Right. And forgive me for going back to water here, but I mean the previous sales guidance were $20 million to $30 million, and I know we're switching to cash in the door now, but has that sales outlook changed for this year? Or isn't it just more uncertain because you -- now that we're getting more accustomed to how the business works with timing, we're just more uncertain with actual sales?

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Joseph G. Montoya, Intrepid Potash, Inc. - VP, CAO & Principal Financial Officer [22]

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It's not uncertainty as to what we're going to deliver, it's just uncertain as to when. And so again, that's really why we're focusing more on the cash than on the revenue piece.

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Robin Fiedler, BMO Capital Markets Equity Research - Associate [23]

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Okay. So maybe you could just talk about the outlook then for next year from a growth standpoint, I guess, with cash earned.

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Robert P. Jornayvaz, Intrepid Potash, Inc. - Executive Chairman, President & CEO [24]

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Well, we're working on several transactions, as we've said in many calls and specific calls with you, is that we have a dedicated water sales team that's working on a variety of transactions to help us increase our ability to increase not only our volumes but focus on pricing as well. So I think we have a lot of different levers to pull, that we're very focused on pulling those. And I think we've done a good job of starting this business from 0 to $25 million to $35 million in cash in 2018. And I think it's got a lot of room to grow. So I'm not going to get any more specific than that other than I think our track record speaks for itself.

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Joseph G. Montoya, Intrepid Potash, Inc. - VP, CAO & Principal Financial Officer [25]

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I would just also add and remind you what we've talked about in previous quarters relative to our water rights. We've got a diverse set of water rights, not only surface but groundwater. And so to Bob's point, we're continuing to work on other projects that will help to maximize the rights that are available to us.

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Robin Fiedler, BMO Capital Markets Equity Research - Associate [26]

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Right. If I can just sneak one more last in. I may have missed this, what was the contribution in Q2 from the newer streams, the oilfield services and the trucking initiatives? And what's the outlook for Q3 and maybe the full year?

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Joseph G. Montoya, Intrepid Potash, Inc. - VP, CAO & Principal Financial Officer [27]

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I guess I'm reluctant to give any specific guidance there. We talked about our brine sales, and that continues to be very, very strong, $0.5 million, I think, in the quarter, more or less. We're continuing to develop that, build out that line of business, so we're getting a lot of traction. And as Bob mentioned in terms of sales calls and meetings and we've got our next mixing job lined up already, just really still too soon to start talking about what that's going to look like in terms of guidance.

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Operator [28]

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The next question is from Josh Spector with UBS.

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Joshua David Spector, UBS Investment Bank, Research Division - Equity Research Associate - Chemicals [29]

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Hey, guys, just a quick question on potash and specifically the industrial market. So when you talked about that being down year-over-year, I'm just trying to think, is that market more seasonal? So would 2Q be stronger or weaker than other quarters? And does that have any meaning as we think about the rest of the year? I know it's small in the grand scheme but just trying to see if the size we should be looking at.

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Robert P. Jornayvaz, Intrepid Potash, Inc. - Executive Chairman, President & CEO [30]

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No, I think we're seeing the oilfield change in certain basins. So when we look at the Permian Basin, Permian Basin from a technological basis, while they've gotten extremely technically proficient at drilling longer laterals, what we're seeing them do is go to longer laterals, more horsepower in their fracs as -- if you follow the sand business at all, they're not going to 100 mesh sand, whereas they used to have resin-coated sands and proppants and gels, a very complicated set of chemistry. And so we're seeing the oil business go to longer laterals, more horsepower in their fracs and not as much concern in terms of the proppant that's going in the fracs. Now in the Rocky Mountains, in certain areas, we're seeing, because of Cretaceous formations, the need for KCl for clay inhibition, and we continue to see that. So -- but those basins aren't as active as other basins that don't have the same clay inhibition needs. So it's interesting to watch and be a part of seeing where the oil and gas business is going technologically. I don't think it's as seasonal as it is the oil and gas industry trying different things and coming back to things that work.

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Joshua David Spector, UBS Investment Bank, Research Division - Equity Research Associate - Chemicals [31]

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Okay, got it. So it's more the activity in the various basins versus the seasonality. All right, I think that's it.

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Operator [32]

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(Operator Instructions) The next question is from DeForest Hinman of Walthausen & Co.

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DeForest R. Hinman, Walthausen & Co., LLC - Research Analyst [33]

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The commentary around solar production in the potash side was kind of interesting. It seems that there's been some reports, it's real hot, it's really, really dry out there, which is really good for us, for contacts, what's the highest ever we had production-wise on that, on the solar mines?

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Joseph G. Montoya, Intrepid Potash, Inc. - VP, CAO & Principal Financial Officer [34]

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Hoo, that's a tough one to answer because we've been evolving our footprint. As you know, we started out just in Wendover and in -- and then Moab and then brought the Carlsbad ponds online in 2013, 2014. I'm dancing around because I don't know the number, and I'm going to get back to you on that, but it's really -- it's still really evolving, I guess.

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DeForest R. Hinman, Walthausen & Co., LLC - Research Analyst [35]

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Okay, I look forward to hearing that information because it's interesting. And just thinking out loud, if we have record production, possibly, do we have record-low cash cost as well? I mean, is that the right line of thinking or not?

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Joseph G. Montoya, Intrepid Potash, Inc. - VP, CAO & Principal Financial Officer [36]

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Absolutely, absolutely. Because our cost is not increasing at all, we're producing more tons with the same inputs.

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DeForest R. Hinman, Walthausen & Co., LLC - Research Analyst [37]

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Okay. I look forward to hearing more on that.

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Joseph G. Montoya, Intrepid Potash, Inc. - VP, CAO & Principal Financial Officer [38]

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That being said -- just in fairness, that being said, it's still relatively early in the year, and we'll be watching, as well you and the rest of the world, as to what happens with the monsoon season, which happens here at the end of the month and the beginning of next month. So just that one caveat, I'll throw that out.

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DeForest R. Hinman, Walthausen & Co., LLC - Research Analyst [39]

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Okay, that's fair. And different line of questioning, there's some step-up in the SG&A. You talked about adding some people. You talked about maybe there's some legal costs in there. Is that number, can you help us parse that out?

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Joseph G. Montoya, Intrepid Potash, Inc. - VP, CAO & Principal Financial Officer [40]

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I would say, as we mentioned, the biggest piece is the stock comp and the bonus program as we're going through struggles with our going concern opinion in 2015 and that we did a lot to curtail our SG&A expenses. We cut out the bonus program. There was very little stock comp. We cut personnel. And a lot of us took salary reductions. So I guess, I would say, it's really more to do with that and returning to operation of a normal business environment. Bob, I don't know if you have anything to add there?

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Robert P. Jornayvaz, Intrepid Potash, Inc. - Executive Chairman, President & CEO [41]

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No, I think that covers it.

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DeForest R. Hinman, Walthausen & Co., LLC - Research Analyst [42]

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So that $6 million range, is that something we should be looking at on a go-forward basis?

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Joseph G. Montoya, Intrepid Potash, Inc. - VP, CAO & Principal Financial Officer [43]

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The $20 million to $22 million is probably the better way to look at it. The other thing we've talked about in previous quarters, especially in light of entering the international market as well as the oil and gas market, we're recording some allowance for doubtful accounts, which we've not had in the past. We had a little bit more recorded of that this quarter. But I would hesitate to give guidance on that because, obviously, you just don't do that. You don't expect any or want any. So not necessarily, I guess, on a quarter-over-quarter basis, I don't think we should start looking at it as a $24 million run rate, I guess, is the answer to your question.

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DeForest R. Hinman, Walthausen & Co., LLC - Research Analyst [44]

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Okay. And I don't think anyone else asked about this, so I will. But on the lithium project, there's some interesting numbers when you kind of, I guess, do some of the math on the paper and then depending on how you want to enter that market. But can you kind of just give us high-level thoughts on what that opportunity could be. If we do pursue this, how much capital would it entail? And then, if we were selling it, would we be doing any value-add to the brine? Or are we just focusing on selling a brine that has some lithium in it?

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Robert P. Jornayvaz, Intrepid Potash, Inc. - Executive Chairman, President & CEO [45]

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I think we can give you a lot better color in the third and fourth quarter. The good news is that, as you know, as a lithium business has increased around the world, lithium -- there's been numerous lithium recovery technologies that have been improved upon. And so we've had great results in our bench-scale lab testing. And so I hate to say it, but I would just say stay tuned. We continue to have positive results, and we'll be able to give you a lot more color in the third and fourth quarters.

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DeForest R. Hinman, Walthausen & Co., LLC - Research Analyst [46]

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Okay, I'm going to ask a stupid question. What was the bench-scale test? I don't know what that means. Did you guys make a mini pond and just see how you could get some concentrations in like a smaller gallon pool, like a hypothetical pool, would be as the evap environment?

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Robert P. Jornayvaz, Intrepid Potash, Inc. - Executive Chairman, President & CEO [47]

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No, we hired a reputable third-party lithium recovery expert company, if you will, to try a couple of different technologies to see what the potential operating -- recoveries would be, which would then give you a gauge of potential operating cost. And then we're doing our modeling of significantly lower prices than lithium prices are today to get to the conclusion that the bench-scale testing or the lab testing, if you will, is potentially profitable to keep moving forward. So I don't know if I'm answering your question.

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DeForest R. Hinman, Walthausen & Co., LLC - Research Analyst [48]

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No, that's helpful.

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Robert P. Jornayvaz, Intrepid Potash, Inc. - Executive Chairman, President & CEO [49]

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You turn it over to an independent third party that does this for a business, so that it's not just our work.

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DeForest R. Hinman, Walthausen & Co., LLC - Research Analyst [50]

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And just very high level, is it an evap process? Or is it some sort of capital and equipment in front and then it's an evap process. I mean, I -- maybe I just don't understand what we're trying to do.

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Robert P. Jornayvaz, Intrepid Potash, Inc. - Executive Chairman, President & CEO [51]

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Well, as we've mentioned, there's several different forms of recovery, and we don't want to go into the specific recovery methodology that we're looking at. So we would be building an add-on to our existing pond. We know we have lithium in our ponds, so we would be running that lithium through the new plant to recover that lithium from the brine that we know exists in that brine. I really don't want to go with the technology that we're looking at, and so I'm just going to leave it there.

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Joseph G. Montoya, Intrepid Potash, Inc. - VP, CAO & Principal Financial Officer [52]

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And to be clear, I don't think Bob's being evasive or trying not to answer the question. We're in very early stages. And this third-party company that we hired is not only assessing what we have, but then the next step would be how to monetize that asset. And as Bob mentioned, there are various ways to do that. And so certainly, way too premature for us to start talking about how we would do it.

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DeForest R. Hinman, Walthausen & Co., LLC - Research Analyst [53]

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Okay, maybe it's something I can talk more offline with when we get the production numbers.

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Joseph G. Montoya, Intrepid Potash, Inc. - VP, CAO & Principal Financial Officer [54]

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Thank you for the questions.

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Operator [55]

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The next question is from Jon Evans with SG Capital.

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Jonathan R. Evans, SG Capital Management LLC - Research Analyst [56]

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So just to reiterate on SG&A, you said basically the range for the full year is $20 million to $22 million. Is that right?

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Joseph G. Montoya, Intrepid Potash, Inc. - VP, CAO & Principal Financial Officer [57]

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That's correct.

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Jonathan R. Evans, SG Capital Management LLC - Research Analyst [58]

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Okay. And then, the question that I have for you relative to water, I guess, did you see any of your customers pushing out water for delivery because of the takeaway problem in the Permian where they weren't fracking the wells?

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Robert P. Jornayvaz, Intrepid Potash, Inc. - Executive Chairman, President & CEO [59]

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Yes. I mean, we -- there's clearly a takeaway problem. But the good news for us is that we're seeing a substantial increase in the DUCs that surround us. So those wells will get fracked. And so anyone can look up the drilling activity in Lea...

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Jonathan R. Evans, SG Capital Management LLC - Research Analyst [60]

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I got the DUCs numbers, I know what they are. Can I ask you one other question then? The DUCs that are around you that are -- that you've seen, is that primarily from your customer where you have a contract with? Or...

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Robert P. Jornayvaz, Intrepid Potash, Inc. - Executive Chairman, President & CEO [61]

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No, there's a wide variety of operators that have DUCs that we have the opportunity to serve. So I mean, that's the great part. And we have a 3,600 mile foot -- square mile footprint in terms of our ability to service water, and we've stated that a couple of times in our earnings calls. And so when you look at the magnitude of our water delivery footprint, there are numerous operators that we have the opportunity to serve, so it's not just one operator.

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Jonathan R. Evans, SG Capital Management LLC - Research Analyst [62]

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No, I understand that. And then, the other question, the last question that I have just relative to the water, have you gotten any new or big customers that you can talk about? Or are there any other contracts coming? Or just can you give us any kind of sense of the pipeline?

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Robert P. Jornayvaz, Intrepid Potash, Inc. - Executive Chairman, President & CEO [63]

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It's an extremely active market with a lot of people chasing water -- water deals. It's very much in demand. And so as we've said before, we've got a dedicated sales team that's working on just a whole host of deals. And I'm just going to leave it at that. And all you have to do is look at the activity. And if you're aware of the DUCs, then you're aware of the number of operators, then you're aware of how different each of those operators have a procurement process, so you're just aware. And so for us to tell you exactly who we're talking to and what those might look like, I just don't think is appropriate until we have those deals closed.

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Jonathan R. Evans, SG Capital Management LLC - Research Analyst [64]

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And then, the last question just relative to water, have you seen -- initially, you were getting into this business and you were getting your foothold, some of your contracts are coming up for renewal, et cetera. Can you talk about the pricing dynamic? And have you started to change pricing at all?

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Robert P. Jornayvaz, Intrepid Potash, Inc. - Executive Chairman, President & CEO [65]

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We have not. We're having those discussions with various people that we're talking to that are -- where we have a water service delivery company. As to operators, we have not tried to raise the price significantly in our area. So the answer is I think we've got pricing potential, but I think once we get more infrastructure in place -- you clearly are aware of the articles that have been in The Wall Street Journal about the takeaway issues, the infrastructure issues, the frac crew issues. And so I think when a lot of that gets settled out is when we're going to see a steadier stream, if you will, or a more reliable frac schedule that's going to give us more pricing power. But right now when we see the variability and as confirmed by numerous Wall Street Journal articles and The Economist and numerous magazines, I think that's when you get the pricing power is that when the infrastructure is replaced that was there in 2014 because we're nowhere near the staffing where we were in 2014.

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Operator [66]

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The next question is from John Roberts with UBS.

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John Ezekiel E. Roberts, UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst, Chemicals [67]

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Can you hear me?

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Joseph G. Montoya, Intrepid Potash, Inc. - VP, CAO & Principal Financial Officer [68]

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Sounds okay.

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John Ezekiel E. Roberts, UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst, Chemicals [69]

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I know Trio was used on a lot of niche crops, so it's sort of very hard to track the in-market crops. But the tariffs that are going in on some of the U.S. crop exports or on some of the niche crops like almonds and we think there are some other things, is there anything in it that's affected the [important] Trio users?

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Robert P. Jornayvaz, Intrepid Potash, Inc. - Executive Chairman, President & CEO [70]

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Sorry, we just lost you. Could you repeat that?

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Joseph G. Montoya, Intrepid Potash, Inc. - VP, CAO & Principal Financial Officer [71]

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Yes. After almonds, we didn't get much after that.

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John Ezekiel E. Roberts, UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst, Chemicals [72]

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Specialty Trio users that are affected in this tariff situation?

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Robert P. Jornayvaz, Intrepid Potash, Inc. - Executive Chairman, President & CEO [73]

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Right now, we're not seeing any pushback. And so -- but let's see what's happen in the fall season. And so it's a great question. It's -- I really don't have a good answer for you in terms of which markets we're going to be impacted by. When I think about our larger markets, I don't see any impact. On some of the smaller markets like almonds, I could see a few thousand tons being impacted.

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Operator [74]

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

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Robert P. Jornayvaz, Intrepid Potash, Inc. - Executive Chairman, President & CEO [75]

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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. Thank you so much.

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Operator [76]

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