Intrepid Potash, Inc. — Fiscal 2021 Form 10-K Summary
Business context and reporting period
Intrepid Potash is a U.S.-based diversified minerals producer with three reportable segments: potash, Trio® specialty fertilizer, and oilfield solutions. It produces potash at solution mines in New Mexico and Utah, Trio® at its East Mine in Carlsbad, New Mexico, and sells water, salt, magnesium chloride, brines, and other oilfield-related products and services. The filing covers the fiscal year ended December 31, 2021, with comparisons primarily to 2020.
Key financial metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Sales | $270.3 million | $197.0 million | +37% |
| Gross margin | $55.8 million | $10.5 million | +430% |
| Gross margin percentage | 20.6% | 5.3% | +15.3 points |
| Operating income (loss) | $32.3 million | $(23.2) million | Improved |
| Net income (loss) | $249.8 million | $(27.2) million | Improved |
| Operating cash flow | $79.1 million | $31.1 million | +$47.9 million |
| Capital expenditures | $19.8 million | $16.4 million | +$3.3 million |
| Cash and cash equivalents | $36.5 million | $19.5 million | +$17.0 million |
- Potash segment sales were $151.8 million, with gross margin of $35.8 million. Potash sales volume increased 4% to 331,000 tons, while average net realized price increased to $353 per ton from $250.
- Trio® segment sales were $96.1 million, with gross margin of $16.4 million versus a $8.5 million gross deficit in 2020. Sales volume increased 4% to 239,000 tons, and average net realized price increased to $295 per ton from $195.
- Oilfield solutions sales were $22.8 million, up 20%, but gross margin declined to $3.5 million from $7.5 million because of higher third-party water purchases and other operating costs.
- Total production was 287,000 tons of potash and 228,000 tons of Trio®, compared with 308,000 and 213,000 tons, respectively, in 2020.
- The reported $249.8 million net income included a $208.9 million income tax benefit, principally from releasing $215.9 million of valuation allowance against deferred tax assets. Excluding this release, management stated that net income would have been approximately $33.9 million.
- The company recognized a $10.1 million gain from forgiveness of its Paycheck Protection Program loan and accrued interest.
- At December 31, 2021, total assets were $766.9 million, total liabilities were $103.5 million, and stockholders’ equity was $663.4 million.
Debt and liquidity
- The company repaid the remaining $15.0 million of Series B Senior Notes in June 2021, including approximately $0.5 million of make-whole premium, and repaid $29.8 million drawn under its revolving credit facility.
- At year-end, the company had no revolving-credit borrowings, $1.0 million of outstanding letters of credit, and $74.0 million of available capacity under its $75 million secured revolving facility.
- The facility is secured by substantially all company assets, contains financial covenants, expires in 2024, and uses LIBOR-based pricing. The company reported compliance with its covenants at year-end.
- Management believes cash on hand, operating cash flow, and available revolver capacity are sufficient for obligations over the following twelve months.
Material changes versus the prior comparable period
- Fertilizer pricing improved substantially as crop prices strengthened and supply remained tight. Potash and Trio® average net realized prices rose 41% and 51%, respectively.
- Economic activity and oilfield demand recovered from the COVID-19-related downturn, increasing water, brine, and other oilfield sales.
- Wet weather, higher humidity, and cooler temperatures reduced evaporation and HB Mine production. The company recorded $6.0 million of abnormal production costs in 2021 and expects near-term HB production to remain below average.
- Cost inflation increased labor, energy, maintenance, royalty, and third-party water costs. Cost of goods sold rose 19%, slower than the 37% increase in sales.
- Trio® sales shifted toward the higher-margin domestic market: 92% of 2021 Trio® sales were domestic versus 85% in 2020.
- Inventory declined to $108.1 million, including long-term parts inventory, from $117.6 million. No finished-goods lower-of-cost-or-net-realizable-value charge was recorded in 2021, compared with $4.0 million in 2020.
Guidance, outlook, commentary, risks, and unusual items
- Management expects 2022 capital investment of $40 million to $60 million, including approximately $25 million to $35 million of sustaining capital; the balance is expected to fund opportunity projects.
- Management announced potash and Trio® price increases in early 2022 and reported strong first-quarter order subscription. Actual realized prices remain sensitive to agricultural demand, weather, freight, competing products, and global supply.
- The company acquired mobile recycling units in late 2021 and plans to enter the produced-water recycling market in 2022. It also expects a potential treated-produced-water pilot project for HB Mine injectate as early as the third quarter of 2022.
- Belarusian potash sanctions were expected to take effect in April 2022. Management expects alternative suppliers to increase imports, but the timing and market impact were uncertain.
- Water-rights litigation presents material uncertainty. An amended 2021 adjudication ruling could substantially reduce certain Pecos River water rights. If an appeal is unsuccessful, the company may have to repay water previously sold under preliminary authorizations, potentially up to twice the amount removed.
- A customer contract was suspended through July 1, 2022. If unresolved, the company may need to repay approximately $32.5 million of outstanding contract liabilities for undelivered water.
- NGL Energy Partners sued in August 2021 seeking termination of the joint marketing agreement and damages. The company is defending the matter and cannot reasonably estimate a potential loss.
- Environmental and reclamation obligations remain significant. The discounted estimated reclamation liability was approximately $27.0 million, and the company expects $1 million to $3 million of environmental-related capital and reclamation spending in both 2022 and 2023.
- The company authorized a $35 million share repurchase program in February 2022. Timing and volume of repurchases are discretionary and were not reflected in 2021 results.
Most important facts for investors to verify
- Whether higher potash and Trio® prices persist and offset inflation, freight, royalty, and energy costs.
- The extent and duration of HB Mine production reductions and any additional abnormal production costs from weather conditions.
- The outcome of the Pecos River water-rights adjudication and appeal, including potential repayment exposure and the $32.5 million customer contract liability.
- The potential financial and operational effect of the NGL litigation and joint marketing agreement dispute.
- Whether planned 2022 capital spending, water recycling initiatives, and oilfield-service expansion generate expected returns.
- The sustainability of the deferred-tax-asset realization assumptions supporting the $208.9 million tax benefit and $209.1 million net deferred tax asset.
- Exposure to potash supply-demand shifts, Belarusian sanctions, agricultural conditions, oilfield activity, climate and evaporation patterns, permitting, reclamation, and water-rights regulation.