Intrepid Potash(IPI) - 2024 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Condensed Consolidated Financial Statements (Unaudited) The unaudited financial statements reflect a net loss for H1 2024, a decline from prior year's net income, alongside decreased sales and increased cash from a new cooperative agreement Condensed Consolidated Balance Sheets (Unaudited) | (In thousands) | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | $183,187 | $152,040 | | Total Assets | $796,991 | $768,570 | | Total Current Liabilities | $33,439 | $46,564 | | Total Liabilities | $114,743 | $84,142 | | Total Stockholders' Equity | $682,248 | $684,428 | Condensed Consolidated Statements of Operations (Unaudited) | (In thousands, except per share) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Sales | $62,055 | $81,035 | $141,342 | $167,955 | | Gross Margin | $7,624 | $15,382 | $14,058 | $31,734 | | Operating (Loss) Income | $(1,628) | $7,268 | $(5,934) | $12,642 | | Net (Loss) Income | $(833) | $4,305 | $(3,963) | $8,811 | | Diluted (Loss) Earnings Per Share | $(0.06) | $0.33 | $(0.31) | $0.68 | Condensed Consolidated Statements of Cash Flows (Unaudited) | (In thousands) | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $69,278 | $38,948 | | Net cash used in investing activities | $(16,407) | $(38,752) | | Net cash used in financing activities | $(5,275) | $(1,547) | | Net Change in Cash | $47,596 | $(1,351) | | Cash, beginning of period | $4,651 | $19,084 | | Cash, end of period | $52,247 | $17,733 | Company Background and Segments Intrepid Potash is a diversified U.S. mineral company producing potassium, magnesium, sulfur, salt, and water, operating through Potash, Trio®, and Oilfield Solutions segments - The company's business is structured into three primary segments: Potash, Trio®, and Oilfield Solutions[18] - Intrepid is the only U.S. producer of muriate of potash (potassium chloride)[18] - In addition to fertilizers, the company sells water, salt, magnesium chloride, and other oilfield products and services, primarily to support oil and gas development in the Permian Basin[18] Cooperative Development Agreement Intrepid amended its CDA with XTO, receiving an initial $50.0 million fee for oil and gas development support, to be recognized as income through February 2046 - The company received a $50.0 million initial fee from XTO, with $5.0 million paid in December 2023 and the remaining $45.0 million in January 2024[27] - An additional one-time Access Fee of $50.0 million is due upon certain conditions or within seven years, with a further Access Realization Fee of up to $100.0 million possible based on drilling activities[27] - The total transaction price of $100.0 million (Initial Fee + Access Fee) is being recognized as other operating income on a straight-line basis through February 2046, with $2.3 million recognized in the first six months of 2024[27] Revenue Disaggregation Total revenue for Q2 2024 decreased to $62.1 million from $81.0 million YoY, primarily due to lower sales in the Potash segment Revenue by Product - Three Months Ended June 30 | Product | 2024 (in thousands) | 2023 (in thousands) | | :--- | :--- | :--- | | Potash | $24,098 | $41,018 | | Trio® | $26,413 | $27,228 | | Water | $2,572 | $4,142 | | Other Byproducts/Services | $9,012 | $8,647 | | Total Revenue | $62,055 | $81,035 | Revenue by Product - Six Months Ended June 30 | Product | 2024 (in thousands) | 2023 (in thousands) | | :--- | :--- | :--- | | Potash | $56,410 | $88,072 | | Trio® | $62,697 | $56,282 | | Water | $4,741 | $6,889 | | Other Byproducts/Services | $17,494 | $16,712 | | Total Revenue | $141,342 | $167,955 | Commitments and Contingencies The company faces a significant legal proceeding regarding its Pecos River water rights, with a court order reducing rights and potential repayment liability, alongside other contingent liabilities - A court order, affirmed by the New Mexico Court of Appeals, reduced the company's Pecos River water rights from a claim of 20,000 acre-feet to 150 acre-feet per year due to findings of forfeiture and abandonment[50] - The company has appealed the water rights decision to the New Mexico Supreme Court, which agreed to review the case in February 2024[50] - A potential liability exists for the repayment of water sold between 2017-2018 under preliminary authorizations if the court's decision is ultimately affirmed, though the potential volume, timing, or form of repayment cannot be reasonably estimated[50] Business Segments Performance Potash segment gross margin sharply declined in Q2 2024, while Trio® and Oilfield Solutions segments saw improved gross margins despite varied sales performance Segment Gross Margin - Three Months Ended June 30 | (In thousands) | 2024 | 2023 | | :--- | :--- | :--- | | Potash | $3,312 | $12,876 | | Trio® | $2,182 | $1,222 | | Oilfield Solutions | $2,130 | $1,284 | | Total Gross Margin | $7,624 | $15,382 | Segment Gross Margin - Six Months Ended June 30 | (In thousands) | 2024 | 2023 | | :--- | :--- | :--- | | Potash | $8,886 | $27,304 | | Trio® | $1,043 | $2,674 | | Oilfield Solutions | $4,129 | $1,756 | | Total Gross Margin | $14,058 | $31,734 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q2 2024 sales decline to lower potash prices and volumes, with liquidity bolstered by a $45 million XTO payment supporting planned capital investments Significant Business Trends and Activities Key trends include significant price and volume declines in potash and Trio®, with strategic projects underway to enhance solar solution mining facilities for future production Average Net Realized Sales Price per Ton (YoY) | Product | Q2 2024 | Q2 2023 | 6M 2024 | 6M 2023 | | :--- | :--- | :--- | :--- | :--- | | Potash | $405 | $479 | $399 | $485 | | Trio® | $314 | $333 | $306 | $339 | - Potash sales volume declined 30% in Q2 and 23% in the first six months of 2024 compared to 2023, due to less inventory available for sale[70] - Strategic projects are underway to enhance solar solution mining, including a new extraction well at the HB mine (commissioned June 2024) and a new primary pond at Wendover (completed June 2024), with production benefits expected in fall 2025[70][72] Consolidated Results of Operations Q2 2024 sales fell 23% to $62.1 million, resulting in a net loss, primarily due to a 36% drop in potash segment sales from lower prices and volumes - Q2 2024 sales decreased by $19.0 million (23%) YoY, primarily due to a $17.2 million (36%) decrease in potash segment sales[74] - Gross margin for Q2 2024 was $7.6 million, down from $15.4 million in Q2 2023, impacted by lower prices, reduced potash sales volume, and a $1.4 million inventory adjustment[78] - For the six months ended June 30, 2024, the company recorded an asset impairment of $2.2 million related to capital spending in the Trio® segment[89] Segment Results Potash segment gross margin plummeted in Q2 2024 due to price and volume declines, while Trio® and Oilfield Solutions segments saw improved gross margins Potash Segment Performance - Q2 2024 vs Q2 2023 | Metric (in thousands, except per ton) | Q2 2024 | Q2 2023 | | :--- | :--- | :--- | | Sales | $30,034 | $47,264 | | Gross Margin | $3,312 | $12,876 | | Sales Volumes (tons) | 55 | 79 | | Avg. Net Realized Price/ton | $405 | $479 | Trio® Segment Performance - Q2 2024 vs Q2 2023 | Metric (in thousands, except per ton) | Q2 2024 | Q2 2023 | | :--- | :--- | :--- | | Sales | $26,522 | $28,748 | | Gross Margin | $2,182 | $1,222 | | Sales Volumes (tons) | 63 | 63 | | Avg. Net Realized Price/ton | $314 | $333 | Oilfield Solutions Segment Performance - Q2 2024 vs Q2 2023 | Metric (in thousands) | Q2 2024 | Q2 2023 | | :--- | :--- | :--- | | Sales | $5,539 | $5,111 | | Gross Margin | $2,130 | $1,284 | Liquidity and Capital Resources Cash increased to $51.7 million at June 30, 2024, primarily from a $45 million XTO payment, with planned $40-50 million capital investments for 2024 - Cash and cash equivalents increased to $51.7 million at June 30, 2024, primarily driven by a $45 million cash payment from XTO[116] - The company plans capital investments of $40 million to $50 million in 2024, focusing on sustaining capital and opportunity projects like the HB injection pipeline and a new Wendover pond[115] - There were no borrowings outstanding under the $150 million revolving credit facility as of June 30, 2024, with the company repaying $4.0 million during the first six months of the year[121] Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes to its market risk exposure since December 31, 2023 - There have been no material changes to the company's market risk exposure since December 31, 2023[129] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2024, with no material changes to internal control over financial reporting - The company's principal financial officer and acting principal executive officer concluded that disclosure controls and procedures were effective as of June 30, 2024[130] - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[131] PART II - OTHER INFORMATION Legal Proceedings The company refers readers to Note 15 of the financial statements for details on its legal proceedings, primarily concerning water rights and other contingencies - For details on legal proceedings, the report refers to Note 15 - Commitments and Contingencies in the financial statements[134] Risk Factors A new risk factor highlights the extended medical leave of CEO Robert P. Jornayvaz III, with leadership transition potentially disrupting operations and harming the business - A new risk factor has emerged regarding the extended medical leave of CEO Robert P. Jornayvaz III, who is not expected to return to his role[136] - The Board of Directors has started a search for a successor CEO, with the Chief Financial Officer, Matthew D. Preston, serving as acting principal executive officer during the transition[136] - The company warns that disruption from these leadership changes could have a material adverse effect on its business, financial condition, and results of operations[136] Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase shares under its $35 million program in Q2 2024, with approximately $13.0 million remaining available for future repurchases - No shares were repurchased under the company's share repurchase program during the second quarter of 2024[138] - Approximately $13.0 million remains available for future repurchases under the existing program[138] Mine Safety Disclosures The company affirms its commitment to a safe work environment and compliance with MSHA regulations, with required disclosures provided in Exhibit 95.1 - The company collaborates with MSHA and the New Mexico Bureau of Mine Safety to implement accident prevention techniques[139] - Information regarding mine safety violations as required by SEC rules is included as Exhibit 95.1 to the 10-Q report[139]