Intrepid Potash, Inc. [IPI] Filings

10-Q 1 ipi-20230630.htm 10-Q ipi-20230630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________________________________________________

FORM 10-Q

_______________________________________________________

☒

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended

June 30, 2023

☐

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ______ to ______

Commission File Number: 001-34025

INTREPID POTASH, INC.

(Exact Name of Registrant as Specified in its Charter)


Delaware		26-1501877
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
707 17th Street, Suite 4200
Denver,	Colorado	80202
(Address of principal executive offices)		(Zip Code)

(303) 296-3006

(Registrant’s telephone number, including area code)



(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act

Title of each class

Trading symbol

Name of each exchange on which registered

Common Stock, par value $0.001 per share

IPI

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.) Yes ☒No☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes

☐

☒

As of July 31, 2023, the registrant had outstanding 13,162,465 shares of common stock, par value $0.001 per share.

Table of Contents

INTREPID POTASH, INC.

TABLE OF CONTENTS


						Page
			PART I - FINANCIAL INFORMATION			1
			ITEM 1. Condensed Consolidated Financial Statements (Unaudited)			1
			Condensed Consolidated Balance Sheets			1
			Condensed Consolidated Statements of Operations			2
			Condensed Consolidated Statements of Stockholders' Equity			3
			Condensed Consolidated Statements of Cash Flows			4
			Notes to Condensed Consolidated Financial Statements			6
			ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			21
			ITEM 3. Quantitative and Qualitative Disclosures About Market Risk			39
			ITEM 4. Controls and Procedures			39
			PART II - OTHER INFORMATION			40
			ITEM 1. Legal Proceedings			40
			ITEM 1A. Risk Factors			41
			ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds			42
			ITEM 3. Defaults Upon Senior Securities			42
			ITEM 4. Mine Safety Disclosures			42
			ITEM 5. Other Information			42
			ITEM 6. Exhibits			43
			Signatures			44

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PART I - FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

INTREPID POTASH, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)


	June 30,		December 31,
	2023		2022
ASSETS
Cash and cash equivalents	$	17,158	$	18,514
Short-term investments	3,462		5,959
Accounts receivable:
Trade, net	23,819		26,737
Other receivables, net	1,690		790

Inventory, net	103,966		114,816
Prepaid expenses and other current assets	3,741		4,863
Total current assets	153,836		171,679

Property, plant, equipment, and mineral properties, net	400,627		375,630

Water rights	19,184		19,184
Long-term parts inventory, net	24,911		24,823
Long-term investments	8,614		9,841

Other assets, net	7,018		7,294
Non-current deferred tax asset, net	182,076		185,752
Total Assets	$	796,266	$	794,203
LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts payable	$	12,117	$	18,645


Accrued liabilities	14,388		16,212
Accrued employee compensation and benefits	5,921		6,975


Other current liabilities	5,798		7,044
Total current liabilities	38,224		48,876



Asset retirement obligation, net of current portion	27,634		26,564
Operating lease liabilities	1,451		2,206
Finance lease liabilities	1,629		—
Other non-current liabilities	1,227		1,479
Total Liabilities	70,165		79,125
Commitments and Contingencies
Common stock, 0.001 par value; 40,000,000 shares authorized;
12,789,326 and 12,687,822 shares outstanding
at June 30, 2023, and December 31, 2022, respectively	13		13
Additional paid-in capital	662,826		660,614

Retained earnings	85,274		76,463
Less treasury stock, at cost	(22,012)		(22,012)
Total Stockholders' Equity	726,101		715,078
Total Liabilities and Stockholders' Equity	$	796,266	$	794,203

See accompanying notes to these condensed consolidated financial statements.

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INTREPID POTASH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Sales	$	81,035	$	91,740	$	167,955	$	196,139
Less:
Freight costs	10,516		9,227		22,106		19,464
Warehousing and handling costs	2,801		2,204		5,534		4,680
Cost of goods sold	52,336		38,498		108,581		83,008


Gross Margin	15,382		41,811		31,734		88,987

Selling and administrative	7,948		7,218		16,806		14,007
Accretion of asset retirement obligation	535		490		1,070		980



(Gain) loss on sale of assets	(7)		1,066		193		1,166
Other operating (income) expense	(362)		1,242		1,023		975
Operating Income	7,268		31,795		12,642		71,859

Other Income (Expense)

Equity in earnings of unconsolidated entities	(1,059)		—		(238)		—
Interest expense, net	—		(24)		—		(57)
Interest income	76		15		161		17
Other income	43		11		56		539


Income Before Income Taxes	6,328		31,797		12,621		72,358

Income Tax Expense	(2,023)		(8,089)		(3,810)		(17,228)
Net Income	$	4,305	$	23,708	$	8,811	$	55,130

Weighted Average Shares Outstanding:
Basic	12,766		13,246		12,730		13,203
Diluted	12,855		13,620		12,865		13,690
Earnings Per Share:
Basic	$	0.34	$	1.79	$	0.69	$	4.18
Diluted	$	0.33	$	1.74	$	0.68	$	4.03

See accompanying notes to these condensed consolidated financial statements.

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INTREPID POTASH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In thousands, except share amounts)


	Six-Month Period Ended June 30, 2023
	Common Stock			Treasury Stock		Additional Paid-in Capital		Retained Earnings		Total Stockholders' Equity
	Shares	Amount
Balance, December 31, 2022	12,687,822	$	13	$	(22,012)	$	660,614	$	76,463	$	715,078



Net income	—	—		—		—		8,811		8,811
Stock-based compensation	—	—		—		3,549		—		3,549


Vesting of restricted common stock, net of common stock used to fund employee income tax withholding due upon vesting	101,504	—		—		(1,337)		—		(1,337)
Balance, June 30, 2023	12,789,326	$	13	$	(22,012)	$	662,826	$	85,274	$	726,101

	Three-Month Period Ended June 30, 2023
	Common Stock			Treasury Stock		Additional Paid-in Capital		Retained Earnings		Total Stockholders' Equity
	Shares	Amount
Balance, March 31, 2023	12,759,990	$	13	$	(22,012)	$	661,323	$	80,969	$	720,293



Net income	—	—		—		—		4,305		4,305
Stock-based compensation	—	—		—		1,803		—		1,803


Vesting of restricted common stock, net of common stock used to fund employee income tax withholding due upon vesting	29,336	—		—		(300)		—		(300)
Balance, June 30, 2023	12,789,326	$	13	$	(22,012)	$	662,826	$	85,274	$	726,101

	Six-Month Period Ended June 30, 2022
	Common Stock			Treasury Stock		Additional Paid-in Capital		Retained Earnings		Total Stockholders' Equity
	Shares	Amount
Balance, December 31, 2021	13,149,315	$	13	$	—	$	659,147	$	4,243	$	663,403



Net income	—	—		—		—		55,130		55,130
Stock-based compensation	—	—		—		2,558		—		2,558
Exercise of stock options	10,718	—		—		110		—		110
Vesting of restricted common stock, net of common stock used to fund employee income tax withholding due upon vesting	105,780	—		—		(4,362)		—		(4,362)
Balance, June 30, 2022	13,265,813	$	13	$	—	$	657,453	$	59,373	$	716,839

	Three-Month Period Ended June 30, 2022
	Common Stock			Treasury Stock		Additional Paid-in Capital		Retained Earnings		Total Stockholders' Equity
	Shares	Amount
Balance, March 31, 2022	13,218,875	$	13	$	—	$	657,590	$	35,665	$	693,268



Net income	—	—		—		—		23,708		23,708
Stock-based compensation	—	—		—		1,391		—		1,391
Exercise of stock options	1,991	—		—		20		—		20
Vesting of restricted common stock, net of common stock used to fund employee income tax withholding due upon vesting	44,947	—		—		(1,548)		—		(1,548)
Balance, June 30, 2022	13,265,813	$	13	$	—	$	657,453	$	59,373	$	716,839

See accompanying notes to these condensed consolidated financial statements.

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INTREPID POTASH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
	Six Months Ended June 30,
	2023		2022
Cash Flows from Operating Activities:
Net income	$	8,811	$	55,130
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation, depletion and amortization	18,183		16,923
Accretion of asset retirement obligation	1,070		980
Amortization of deferred financing costs	151		120
Amortization of intangible assets	161		161
Stock-based compensation	3,549		2,558


Loss on disposal of assets	193		1,166



Allowance for parts inventory obsolescence	—		1,600
Equity in earnings of unconsolidated entities	238		—
Distribution of earnings from unconsolidated entities	452		—
Changes in operating assets and liabilities:
Trade accounts receivable, net	2,917		2,770
Other receivables, net	(959)		(646)

Inventory, net	10,763		(2,759)
Prepaid expenses and other current assets	906		673
Deferred tax assets, net	3,676		16,941
Accounts payable, accrued liabilities, and accrued employee compensation and benefits	(8,132)		(11,412)

Operating lease liabilities	(809)		(1,233)
Other liabilities	(2,222)		257
Net cash provided by operating activities	38,948		83,229

Cash Flows from Investing Activities:
Additions to property, plant, equipment, mineral properties and other assets	(41,934)		(22,774)

Purchase of investments	(1,415)		(10,899)
Proceeds from sale of assets	89		46

Proceeds from redemptions/maturities of investments	4,000		—
Other investing, net	508		—
Net cash used in investing activities	(38,752)		(33,627)

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INTREPID POTASH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
	Six Months Ended June 30,
	2023		2022

Cash Flows from Financing Activities:


Proceeds from short-term borrowings on credit facility	5,000		—
Repayments of short-term borrowings on credit facility	(5,000)		—
Payments of financing lease	(210)		—

Employee tax withholding paid for restricted stock upon vesting	(1,337)		(4,362)


Proceeds from exercise of stock options	—		110
Net cash used in financing activities	(1,547)		(4,252)

Net Change in Cash, Cash Equivalents and Restricted Cash	(1,351)		45,350
Cash, Cash Equivalents and Restricted Cash, beginning of period	19,084		37,146
Cash, Cash Equivalents and Restricted Cash, end of period	$	17,733	$	82,496

Supplemental disclosure of cash flow information
Net cash paid during the period for:
Interest	$	173	$	44
Income taxes	$	265	$	334
Amounts included in the measurement of operating lease liabilities	$	904	$	983
Accrued purchases for property, plant, equipment, and mineral properties	$	7,257	$	3,477
Right-of-use assets exchanged for operating lease liabilities	$	48	$	794
Right-of-use assets exchanged for financing lease liabilities	$	2,571	$	—

See accompanying notes to these condensed consolidated financial statements.

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INTREPID POTASH, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1— COMPANY BACKGROUND

We are a diversified mineral company that delivers potassium, magnesium, sulfur, salt, and water products essential for customer success in agriculture, animal feed and the oil and gas industry. We are the only U.S. producer of muriate of potash (sometimes referred to as potassium chloride or potash), which is applied as an essential nutrient for healthy crop development, utilized in several industrial applications, and used as an ingredient in animal feed. In addition, we produce a specialty fertilizer, Trio®, which delivers three key nutrients, potassium, magnesium, and sulfate, in a single particle. We also provide water, salt, magnesium chloride, brine and various oilfield products and services.

Our extraction and production operations are conducted entirely in the continental United States. We produce potash from three solution mining facilities: our HB solution mine in Carlsbad, New Mexico, our solution mine in Moab, Utah, and our brine recovery mine in Wendover, Utah. We also operate the North compaction facility in Carlsbad, New Mexico, which compacts and granulates product from the HB mine. We produce Trio® from our conventional underground East mine in Carlsbad, New Mexico.

We have permitted, licensed, declared and partially adjudicated water rights in New Mexico that support our mining and industrial operations. Water that is not used to support our mining and industrial operations is primarily sold to support oil and gas development in the Permian Basin in New Mexico near our Carlsbad facilities. We continue to work to expand our water business. See Note 14—Commitments and Contingencies below for further information regarding our water rights.

We also operate certain land, water rights, state grazing leases for cattle, and other related assets in southeast New Mexico. We refer to these assets and operations as "Intrepid South." Due to the strategic location of Intrepid South, part of our long-term operating strategy is selling small parcels of land, including restricted use agreements of surface or subsurface rights, to customers where such sales provide a solution to such customer's operations in the oil and gas industry.

We have three segments: potash, Trio®, and oilfield solutions. We account for sales of byproducts as revenue in the potash or Trio® segment based on which segment generates the byproduct. Intersegment sales prices are market based and are eliminated.

"Intrepid," "our," "we," or "us," means Intrepid Potash, Inc. and its consolidated subsidiaries.

Note 2— SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Financial Statement Presentation—Our unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles ("GAAP") have been condensed or omitted pursuant to those rules and regulations. In the opinion of management, all adjustments, consisting of normal recurring accruals considered necessary for a fair presentation of interim financial information, have been included. These unaudited condensed consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2022.

Pronouncements Issued But Not Yet Adopted—We believe that all recently issued accounting pronouncements from the FASB either do not apply to us or will not have a material impact on our Condensed Consolidated Financial Statements.

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Note 3— EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding during the period. For purposes of determining diluted earnings per share, basic weighted-average common shares outstanding is adjusted to include potentially dilutive securities, including restricted stock, stock options, and performance units. The treasury-stock method is used to measure the dilutive impact of potentially dilutive shares. Potentially dilutive shares are excluded from the diluted weighted-average shares outstanding computation in periods in which they have an anti-dilutive effect. The following table shows the calculation of basic and diluted earnings per share (in thousands, except per share amounts):


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Net income	$	4,305	$	23,708	$	8,811	$	55,130

Basic weighted-average common shares outstanding	12,766		13,246		12,730		13,203
Add: Dilutive effect of restricted stock	53		209		89		245
Add: Dilutive effect of stock options	36		165		46		242

Diluted weighted-average common shares outstanding	12,855		13,620		12,865		13,690


Basic	$	0.34	$	1.79	$	0.69	$	4.18
Diluted	$	0.33	$	1.74	$	0.68	$	4.03

The following table shows the shares that have an anti-dilutive effect and are excluded from the diluted weighted-average shares outstanding computations (in thousands):


	Three Months Ended June 30,		Six Months Ended June 30,
	2023	2022	2023	2022
Anti-dilutive effect of restricted stock	302	38	245	11

Anti-dilutive effect of stock options outstanding	207	—	182	—

Note 4— CASH, CASH EQUIVALENTS AND RESTRICTED CASH

We consider financial instruments with original maturities of three months or less to be cash equivalents. Total cash, cash equivalents and restricted cash, as shown on the condensed consolidated statements of cash flows are included in the following accounts at June 30, 2023, and 2022 (in thousands):


	June 30, 2023		June 30, 2022
Cash and cash equivalents	$	17,158	$	81,927
Restricted cash included in other current assets	25		25
Restricted cash included in other long-term assets	550		544
Total cash, cash equivalents, and restricted cash as shown in the statement of cash flows	$	17,733	$	82,496

Restricted cash included in other current and long-term assets on the condensed consolidated balance sheets represents amounts for which use is restricted by contractual agreements with various entities, principally the Bureau of Land Management or the State of Utah, as security to fund future reclamation obligations at our sites.

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Note 5— INVENTORY AND LONG-TERM PARTS INVENTORY

The following summarizes our inventory, recorded at the lower of weighted-average cost or estimated net realizable value, as of June 30, 2023, and December 31, 2022 (in thousands):


	June 30, 2023		December 31, 2022
Finished goods product inventory	$	55,091	$	74,777
In-process inventory	30,315		24,767
Total product inventory	85,406		99,544
Current parts inventory, net	18,560		15,272
Total current inventory, net	103,966		114,816
Long-term parts inventory, net	24,911		24,823
Total inventory, net	$	128,877	$	139,639

Parts inventory is shown net of estimated allowances for obsolescence of $1.2 million as of June 30, 2023, and December 31, 2022.

Note 6 — PROPERTY, PLANT, EQUIPMENT, AND MINERAL PROPERTIES

Property, plant, equipment, and mineral properties were comprised of the following (in thousands):


	June 30, 2023		December 31, 2022
Land	$	24,136	$	24,136
Ponds and land improvements	89,039		73,501
Mineral properties and development costs	147,097		146,333
Buildings and plant	90,119		89,014
Machinery and equipment	302,864		288,345
Vehicles	7,990		7,399
Office equipment and improvements	10,726		10,436
Operating lease ROU assets	5,742		5,908
Breeding stock	333		329
Construction in progress	56,355		47,188
Total property, plant, equipment, and mineral properties, gross	$	734,401	$	692,589
Less: accumulated depreciation, depletion, and amortization	(333,774)		(316,959)
Total property, plant, equipment, and mineral properties, net	$	400,627	$	375,630

We incurred the following expenses for depreciation, depletion, and amortization, including expenses capitalized into inventory, for the following periods (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Depreciation	$	8,327	$	7,344	$	16,054	$	14,532
Depletion	170		286		1,347		1,430
Amortization of right of use assets	394		395		782		961
Total incurred	$	8,891	$	8,025	$	18,183	$	16,923

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Note 7 — DEBT

Revolving Credit Facility—In August 2022, we and certain of our subsidiaries entered into the Second Amended and Restated Credit Agreement with a syndicate of lenders with the Bank of Montreal, as administrative agent, which provides for a revolving credit facility. The agreement amended our existing revolving credit facility to, among other things, increase the amount available under the facility from $75 million to $150 million, extend the maturity date to August 4, 2027, and transition from London Interbank Offered Rate ("LIBOR") to Secured Overnight Financing Rate ("SOFR") as a reference rate for borrowings under the credit agreement. Borrowings under the amended credit facility bear interest at SOFR plus an applicable margin of 1.50% to 2.25% per annum, based on our leverage ratio as calculated in accordance with the amended agreement governing the revolving credit facility. Borrowings under the revolving credit facility are secured by substantially all of our current and non-current assets, and the obligations under the credit facility are unconditionally guaranteed by several of our subsidiaries.

We occasionally borrow and repay amounts under the revolving credit facility for near-term working capital needs or other purposes and may do so in the future. During the three months ended June 30, 2023, we made no borrowings and made $5.0 million in repayments under the revolving credit facility. During the six months ended June 30, 2023, we made $5.0 million in borrowings and we made $5.0 million in repayments under the revolving credit facility. During the three and six months ended June 30, 2022, we made no borrowings and we made no repayments under the revolving credit facility. As of June 30, 2023, we had no borrowings outstanding and no outstanding letters of credit under this facility. As of December 31, 2022, we had no borrowings outstanding and $1.0 million in outstanding letters of credit under this facility.

As of June 30, 2023, we were in compliance with all applicable covenants under the revolving credit facility.

Interest Expense—Interest expense is recorded net of any capitalized interest associated with investments in capital projects. We incurred gross interest expense of $0.2 million and $0.1 million for the three months ended June 30, 2023 and June 30, 2022, respectively, and $0.3 million and $0.2 million for the six months ended June 30, 2023 and June 30, 2022, respectively.

Amounts included in interest expense, net for the three and six months ended June 30, 2023, and 2022 were as follows (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Interest expense on borrowings	$	53	$	—	$	75	$	—
Commitment fee on unused credit facility	56		22		112		43
Amortization of deferred financing costs	76		60		151		120
Gross interest expense	185		82		338		163
Less capitalized interest	(185)		(58)		(338)		(106)
Interest expense, net	$	—	$	24	$	—	$	57

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Note 8 — INTANGIBLE ASSETS

We have water rights, recorded at $19.2 million at June 30, 2023, and December 31, 2022. Our water rights have indefinite lives and are not amortized. We evaluate our water rights at least annually on October 1 for impairment, or more frequently if circumstances require.

We account for other intangible assets as finite-lived intangible assets and amortize those intangible assets over the period of estimated benefit, using the straight-line method. The weighted average amortization period for the other intangible assets is approximately 15.8 years. At June 30, 2023, and December 31, 2022, these intangible assets had a net book value of $5.1 million and $5.2 million, respectively, and are included in "Other assets, net" on the Condensed Consolidated Balance Sheets.

Note 9— FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS OF POSSIBLE FUTURE

PUBLIC DEBT

Intrepid Potash, Inc., as the parent company, has no independent assets or operations, and operations are conducted solely through its subsidiaries. Cash generated from operations is held at the parent-company level as cash on hand and cash equivalents and totaled $17.2 million and $18.5 million at June 30, 2023, and December 31, 2022, respectively. If one or more of our wholly-owned operating subsidiaries guarantee public debt securities in the future, those guarantees will be full and unconditional and will constitute the joint and several obligations of the subsidiary guarantors. The assets and liabilities of our other subsidiaries are immaterial. There are no restrictions on our ability to obtain cash dividends or other distributions of funds from the subsidiary guarantors, except those imposed by applicable law.

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Note 10 — ASSET RETIREMENT OBLIGATION

We recognize an estimated liability for future costs associated with the abandonment and reclamation of our mining properties. A liability for the fair value of an asset retirement obligation and a corresponding increase to the carrying value of the related long-lived asset are recorded as the mining operations occur or the assets are acquired.

Our asset retirement obligation is based on the estimated cost to close and reclaim the mining operations, the economic life of the properties, and federal and state regulatory requirements. The liability is discounted using credit adjusted risk-free rate estimates at the time the liability is incurred or when there are upward revisions to estimated costs. The credit adjusted risk-free rates used to discount our reclamation liabilities range from 6.9% to 9.7%. Revisions to the liability occur due to construction of new or expanded facilities, changes in estimated closure costs or economic lives, or to reflect new federal or state rules, regulations, or requirements regarding the closure or reclamation of mines.

Following is a table of the changes to our asset retirement obligation for the following periods (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Asset retirement obligation, at beginning of period	$	27,399	$	27,514	$	26,864	$	27,024



Accretion of discount	535		490		1,070		980
Total asset retirement obligation, at end of period	$	27,934	$	28,004	$	27,934	$	28,004
Less current portion of asset retirement obligation	$	(300)	$	—	$	(300)	$	—
Long-term portion of asset retirement obligation	$	27,634	$	28,004	$	27,634	$	28,004

The current portion of the asset retirement obligation is included in "Other current liabilities" on the Condensed Consolidated Balance Sheet as of June 30, 2023.

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Note 11 — REVENUE

Revenue Recognition—We account for revenue in accordance with ASC Topic 606 Revenue from Contracts with Customers ("ASC 606"). Under ASC 606, we recognize revenue when control of the promised goods or services is transferred to customers in an amount that reflects the consideration we expect in exchange for those goods or services. The timing of revenue recognition, billings, and cash collection may result in contract assets or contract liabilities.

Contract Balances: As of June 30, 2023, and December 31, 2022, we had a total of $2.2 million and $2.4 million of contract liabilities, respectively, of which $0.9 million and $0.9 million were current as of June 30, 2023, and December 31, 2022, respectively, and included in "Other current liabilities" on the condensed consolidated balance sheets. Customer advances received before we have satisfied our performance obligations are accounted for as a contract liability (sometimes referred to in practice as deferred revenue).

As of June 30, 2022, our contract liability balance primarily consisted of prepayments from a customer for future water deliveries under the terms of a water sales agreement. In August 2022, our customer notified us that they were terminating the water sales agreement and in September 2022 we refunded the customer's prepayment balance of $32.6 million. See Note 14—Commitments and Contingencies below for additional information regarding our water rights and repayment of this customer's prepayment balance.

Our deferred revenue activity for the three and six months ended June 30, 2023, and 2022 is shown below (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Beginning balance	$	2,274	$	34,023	$	2,374	$	33,788
Additions	169		241		314		590

Recognized as revenue during period	(275)		(154)		(520)		(268)
Ending Balance	$	2,168	$	34,110	$	2,168	$	34,110

Disaggregation of Revenue: The tables below show the disaggregation of revenue by product and reconciles disaggregated revenue to segment revenue for the three and six months ended June 30, 2023, and 2022. We believe the disaggregation of revenue by products best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic conditions (in thousands):

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	Three Months Ended June 30, 2023
Product	Potash Segment		Trio® Segment		Oilfield Solutions Segment		Intersegment Eliminations		Total
Potash	$	41,106	$	—	$	—	$	(88)	$	41,018
Trio®	—		27,228		—		—		27,228
Water	100		1,474		2,568		—		4,142
Salt	3,278		46		—		—		3,324
Magnesium Chloride	1,667		—		—		—		1,667
Brine Water	1,113		—		1,001		—		2,114
Other	—		—		1,542		—		1,542
Total Revenue	$	47,264	$	28,748	$	5,111	$	(88)	$	81,035

	Six Months Ended June 30, 2023
Product	Potash Segment		Trio® Segment		Oilfield Solutions Segment		Intersegment Eliminations		Total
Potash	$	88,261	$	—	$	—	$	(189)	$	88,072
Trio®	—		56,282		—		—		56,282
Water	180		2,522		4,187		—		6,889
Salt	6,321		218		—		—		6,539
Magnesium Chloride	2,804		—		—		—		2,804
Brine Water	2,195		—		1,823		—		4,018
Other	—		—		3,351		—		3,351
Total Revenue	$	99,761	$	59,022	$	9,361	$	(189)	$	167,955

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	Three Months Ended June 30, 2022
Product	Potash Segment		Trio® Segment		Oilfield Solutions Segment		Intersegment Eliminations		Total
Potash	$	43,885	$	—	$	—	$	(66)	$	43,819
Trio®	—		34,687		—		—		34,687
Water	363		724		3,692		—		4,779
Salt	2,658		56		—		—		2,714
Magnesium Chloride	1,199		—		—		—		1,199
Brine Water	722		—		648		—		1,370
Other	—		—		3,172		—		3,172
Total Revenue	$	48,827	$	35,467	$	7,512	$	(66)	$	91,740

	Six Months Ended June 30, 2022
Product	Potash Segment		Trio® Segment		Oilfield Solutions Segment		Intersegment Eliminations		Total
Potash	$	95,507	$	—	$	—	$	(161)	$	95,346
Trio®	—		74,303		—		—		74,303
Water	1,137		1,926		7,880		—		10,943
Salt	5,292		290		—		—		5,582
Magnesium Chloride	2,014		—		—		—		2,014
Brine Water	1,319		—		1,387		—		2,706
Other	—		—		5,245		—		5,245
Total Revenue	$	105,269	$	76,519	$	14,512	$	(161)	$	196,139

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Note 12 — COMPENSATION PLANS

Equity Incentive Compensation Plan—Our Board of Directors and stockholders adopted a long-term incentive compensation plan called the Intrepid Potash, Inc. Amended and Restated Equity Incentive Plan (the "Plan"). The Plan was most recently amended and restated in May 2022. We have issued common stock, restricted stock, performance units, and non-qualified stock option awards under the Plan. At June 30, 2023, approximately 1.0 million shares remained available for issuance under the Plan.

In March 2023, the Compensation Committee granted an aggregate of 225,117 shares of restricted stock to executive officers and other key employees. These awards vest over three years, and in some cases, contain a market condition. In May 2023, the Compensation Committee granted an aggregate of 22,226 shares of restricted stock to members of our Board of Directors. These awards vest over one year. In March 2022, the Compensation Committee granted an aggregate of 104,039 restricted shares to executive officers and other key employees. These awards vest over three years, and in some cases, contain a market condition. In May 2022, the Compensation Committee granted an aggregate of 6,635 restricted shares to members of our Board of Directors. These awards vest over one year.

As of June 30, 2023, the following awards were outstanding under the Plan (in thousands):



						Outstanding as of June 30, 2023
Restricted Shares						375

Non-qualified Stock Options						273

Total share-based compensation expense was $1.8 million and $1.4 million for the three months ended June 30, 2023, and 2022, respectively, and $3.5 million and $2.6 million for the six months ended June 30, 2023, and 2022, respectively. As of June 30, 2023, we had $8.8 million of total remaining unrecognized compensation expense related to awards that is expected to be recognized over a weighted-average period of 1.5 years.

Note 13 — INCOME TAXES

Our anticipated annual tax rate is impacted primarily by the amount of taxable income associated with each jurisdiction in which our income is subject to income tax, permanent differences between the financial statement carrying amounts and tax bases of assets and liabilities, and the benefit associated with the estimated effect of the percentage depletion deduction.

A summary of our provision for income taxes is as follows (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Current portion of income tax expense	$	8	$	148	$	134	$	287
Deferred portion of income tax expense	2,015		7,941		3,676		16,941
Total income tax expense	$	2,023	$	8,089	$	3,810	$	17,228

Our effective tax rate for the three months ended June 30, 2023, was 32.0%. Our effective tax rate for the six months ended June 30, 2023 was 30.2%. Our effective tax rate differed from the statutory rate during this period primarily from the estimated permanent difference between book and tax income for the first half of 2023 for the percentage depletion deduction and the officers' compensation deduction. Additionally, because small changes in projected income may produce significant variations in our estimated annual effective tax rate, we have determined that we are unable to reliably estimate an annual effective tax rate to apply to our income for the six months ended June 30, 2023, as described in ASC 740. Therefore, we have elected to apply the actual effective tax rate for this period to our income since we believe that this is the best estimate of our annual effective tax rate. Our effective tax rate for the three and six months ended June 30, 2022, was 25.4% and 23.8%, respectively, which differed from the statutory rate primarily from the estimated permanent difference between

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book and tax income for 2022, for the percentage depletion deduction as well as the effect of state income tax law changes enacted during the first half of 2022.

Note 14 — COMMITMENTS AND CONTINGENCIES

Reclamation Deposits and Surety Bonds—As of June 30, 2023, and December 31, 2022, we had $26.5 million and $24.6 million, respectively, of security placed principally with the State of Utah and the Bureau of Land Management for eventual reclamation of our various facilities. As of June 30, 2023, $0.5 million consisted of long-term restricted cash deposits and $26.0 million was secured by surety bonds issued by an insurer. As of December 31, 2022, $0.5 million consisted of long-term restricted cash deposits and $24.1 million was secured by surety bonds issued by an insurer. The restricted cash deposits are included in "Other assets, net" on the condensed consolidated balance sheets and the surety bonds are held in place by an annual fee paid to the issuer.

We may be required to post additional security to fund future reclamation obligations as reclamation plans are updated or as statutory and regulatory requirements change.

Legal—We are subject to claims and legal actions in the ordinary course of business. We expense legal costs as they are incurred. While there are uncertainties in predicting the outcome of any claim or legal action, except as noted below, we believe the ultimate resolution of these claims or actions is not reasonably likely to have a material adverse effect on our financial condition, results of operations, or cash flows.

Water Rights and Other Legal Contingencies

In February 2019, an expedited inter se proceeding commenced to determine the validity of our Pecos River water rights, representing approximately 20,000 acre feet per year. On December 17, 2021, the adjudication court entered its findings of fact and conclusions of law, which held that our predecessors in interest had forfeited all but approximately 5,800 acre feet of water per year, and that of the remaining 5,800 acre feet of water that had not been forfeited, all but 150 acre feet of water had been abandoned prior to 2017. On March 17, 2022, the adjudication court entered the subfile order and partial final judgment and decree, which adopted the court's December 17, 2021 findings of fact and conclusion of law and specifies our right to 150 acre feet per annum of water for industrial-salt processing use. On April 15, 2022, we filed a notice of appeal of the adjudication court's ruling on the validity of our water rights. The appeal is currently before the New Mexico Court of Appeals and the matter has been fully briefed.

In 2017 and 2018 the New Mexico Office of the State Engineer ("OSE") granted us preliminary and emergency authorizations to sell approximately 5,700 acre-feet of water per year from our Pecos River Water rights. The preliminary and emergency authorizations allowed for water sales to begin immediately, subject to repayment if the underlying water rights were ultimately found to be invalid. If our appeal of the adjudication court's ruling is unsuccessful, we may have to repay for the water we sold under the preliminary and emergency authorizations. Repayment of this water can be up to two times the amount of water removed from the river. Repayment is customarily made in-kind over a period of time but can take other forms including cash repayment. If we are not able to repay in-kind due to the lack of remaining water rights or logistical constraints, we may need to purchase water to meet this repayment or be subject to a cash repayment. We cannot reasonably estimate the potential volume, timing, or form of repayment, if any, and have not recorded a loss contingency in our Condensed Consolidated Statement of Operations related to this legal matter.

In March 2021, we received notice from a customer of a default under the terms of a long-term sales contract because we have been unable to deliver water to diversion points specified in the contract. We have relied primarily upon our Pecos River water rights to deliver water under this contract, the majority of which are currently unavailable due to the factors discussed above. Under this contract we had previously received quarterly installments of approximately $3.9 million for the future delivery of water to the customer. In April 2021, we agreed to suspend the second quarter 2021 and future quarterly installments due from the customer as we continued to work to resolve the issue. In December 2021, we amended our long-term sales agreement with the customer due to our inability to deliver water. Under the amendment, we agreed to suspend all rights and obligations of both parties under the agreement until July 1, 2022. During the suspension period, we had no obligation to deliver water and our customer had no obligation to take water, if available, or make quarterly payments to us. In August 2022, the customer notified us that they were terminating the long-term sales contract and in September 2022, we refunded the $32.6 million outstanding contract liability we had with this customer. See Note 11—Revenue above for additional information.

We have estimated contingent liabilities recorded in "Other current liabilities" on the condensed consolidated balance sheets of $2.1 million as of June 30, 2023, mainly related the potential underpayment of royalties from 2012 to 2016. As of December 31, 2022, we had $4.2 million in contingent liabilities mainly related to a trespass issue at Intrepid South and

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the potential underpayment of royalties in 2012 to 2016. During the six months ended June 30, 2023, we resolved the contingent liability related to the trespass issue at Intrepid South.

Note 15 — FAIR VALUE

We measure our financial assets and liabilities in accordance with ASC Topic 820, Fair Value Measurements and Disclosures. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are classified using the following hierarchy, which is based upon the transparency of inputs to the valuation at the measurement date:

Level 1 - Quoted market prices in active markets for identical assets or liabilities.

Level 2 - Inputs, other than Level 1, that are either directly or indirectly observable.

Level 3 - Unobservable inputs developed using estimates and assumptions which reflect those that market participants would use.

The classification of fair value measurement within the hierarchy is based upon the lowest level of input that is significant to the measurement.

Other financial instruments consist primarily of cash equivalents, accounts receivable, refundable income taxes, investment securities, accounts payable, accrued liabilities, and, if any, advances under our credit facility. With the exception of investment securities, we believe cost approximates fair value for our financial instruments because of the short-term nature of these instruments.

Cash Equivalents—As of June 30, 2023, and December 31, 2022, we had cash equivalents of $2.7 million and $1.7 million, respectively.

Held-to-Maturity Investments—As of June 30, 2023, we owned debt investment securities classified as held-to-maturity because we have the intent and ability to hold these investments to maturity. Our held-to-maturity debt investment securities consist of investment grade corporate bonds and U.S. government issued bonds. These debt securities are carried at amortized cost and consist of the following (amounts in thousands):


	As of June 30, 2023
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Short-term
Corporate bonds	$	1,496	$	—	$	(16)	$	1,480
Government bonds	1,966		—		(24)		1,942
Total	$	3,462	$	—	$	(40)	$	3,422
Long-term
Corporate bonds	$	486	$	—	$	(9)	$	477
Government bonds	1,918		—		(26)		1,892
Total	$	2,404	$	—	$	(35)	$	2,369

Our long-term held to maturity investments are recorded in "Long-term investments" on the Condensed Consolidated Balance Sheets. As of June 30, 2023 and December 31, 2022, we had $5.9 million and $8.4 million in held-to-maturity debt investment securities, respectively. Our long-term held-to-maturity investments mature in less than 2 years.

Equity Investments without a Readily Determinable Fair Value—In May 2020, we acquired a non-controlling equity investment in W.D. Von Gonten Laboratories ("WDVGL") for $3.5 million. We account for this investment as an equity investment without a readily determinable fair value and elected to measure our investment, as permitted by GAAP, at cost plus or minus any adjustments for observable changes in prices resulting from orderly transactions for the identical or a similar investment of the same issuer or impairment. As of June 30, 2023, and December 31, 2022, we had not recorded any adjustments to the carrying value of this investment since the purchase in May 2020. We include this investment in "Long-term investments" on the Condensed Consolidated Balance Sheets.

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In July 2022, WDVGL entered into a purchase agreement with another company (“Acquiror”), a foreign issuer whose shares are traded on the Nasdaq Capital Market (“Nasdaq”). Under the terms of the purchase agreement, WDVGL would be combined with the consulting business owned by W.D. Von Gonten (“Consulting”) to form a new entity, W.D. Von Gonten Engineering, LLC (“Engineering”), and Acquiror would then purchase Engineering in a majority stock transaction at an agreed upon selling price.

Acquiror delivered equity shares and a nominal amount of cash to WDVGL for purchase of Engineering in July 2022, with the number of shares equal to the selling price divided by an assumed $10 share price. Under the terms of the purchase agreement, if Acquiror was current in its SEC filing on June 30, 2023, the actual number of shares to be delivered as part of the purchase price would be adjusted to equal the agreed upon purchase price divided by the average closing price of Acquiror’s stock for the ten trading days prior to June 30, 2023, and the stock received from the sale of Engineering would be distributed to the investors in WDVGL and Consulting.

In March 2022, Acquiror disclosed that it had discovered errors in its financial statements for the fiscal years ended December 31, 2018, 2019 and 2020, and was working to file restated financial statements with the SEC. On April 27, 2023, Acquiror disclosed it had not been able to file its Annual Report on Form 20-F for the fiscal year ended December 31, 2021 with the SEC by April 25, 2023, which was the deadline set by the Nasdaq Hearings Panel in connection with a delisting proceeding, and Acquiror’s shares were subsequently delisted from Nasdaq. Acquiror also disclosed on April 27, 2023 that it has shifted its focus to filing audited financial statements with the SEC for the fiscal years ended December 31, 2020, 2021 and 2022 to regain compliance with Nasdaq listing standards before the end of 2023. Pursuant to the purchase agreement with Engineering, if the Acquiror did not file current financial statements with the SEC by June 30, 2023, Engineering had the option to terminate the purchase agreement, beginning on July 1, 2023. Although Acquiror did not file current financial statements by June 30, 2023, Engineering intends to proceed with the purchase agreement and allow Acquiror additional time to file updated financial statements.

We have not impaired our investment in WDVGL because our share of the estimated selling price exceeds the carrying value of our investment in WDVGL. We will continue to monitor the investment for impairment. If Acquiror is unable to file restated financial statements by the end of 2023 and the purchase transaction is not finalized, we may need to impair our investment in WDVGL.

Equity Method Investments—We have committed to invest up to $4.0 million in cash as a limited partner for a 16% interest in PEP Ovation, LP ("Ovation"), of which we had invested $3.2 million of cash as of June 30, 2023, and December 31, 2022. This investment is accounted for under the equity method whereby we recognize our proportional share of the income or loss from our investment in Ovation on a one-quarter lag. This investment is included in "Long-term investments" on the Condensed Consolidated Balance Sheets. For the three and six months ended June 30, 2023, our proportional share of Ovation's net loss was $1.1 million and $0.2 million, respectively.

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Note 16 — BUSINESS SEGMENTS

Our operations are organized into three segments: potash, Trio® and oilfield solutions. We determine reportable segments based on several factors including the types of products and services sold, production processes, markets served and the financial information available for our chief operating decision maker. We evaluate performance based on the gross margins of the respective business segments and do not allocate corporate selling and administrative expenses, among others, to the respective segments. Intersegment sales prices are market-based and are eliminated in the "Other" column. Information for each segment is provided in the tables that follow (in thousands).


Three Months Ended June 30, 2023	Potash		Trio®		Oilfield Solutions		Other		Consolidated
Sales	$	47,264	$	28,748	$	5,111	$	(88)	$	81,035
Less: Freight costs	4,338		6,266		—		(88)		10,516
Warehousing and handling costs	1,609		1,192		—		—		2,801
Cost of goods sold	28,441		20,068		3,827		—		52,336


Gross Margin	$	12,876	$	1,222	$	1,284	$	—	$	15,382
Depreciation, depletion, and amortization incurred1	$	6,429	$	1,405	$	915	$	223	$	8,972

Six Months Ended June 30, 2023	Potash		Trio®		Oilfield Solutions		Other		Consolidated
Sales	$	99,761	$	59,022	$	9,361	$	(189)	$	167,955
Less: Freight costs	9,343		12,952		—		(189)		22,106
Warehousing and handling costs	3,089		2,445		—		—		5,534
Cost of goods sold	60,025		40,951		7,605		—		108,581


Gross Margin	$	27,304	$	2,674	$	1,756	$	—	$	31,734
Depreciation, depletion, and amortization incurred1	$	13,482	$	2,611	$	1,822	$	429	$	18,344

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Three Months Ended
June 30, 2022

Potash

Trio®

Oilfield Solutions

Other

Consolidated

Sales

48,827

35,467