Docoh
Loading...

IPI Intrepid Potash

Filed: 4 May 21, 12:29pm
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 EndedMarch 31, 2021
or
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
ipi-20210331_g1.jpg
INTREPID POTASH, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware26-1501877
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
1001 17th Street, Suite 1050
Denver,
Colorado80202
(Address of principal executive offices)(Zip Code)
(303) 296-3006
(Registrant’s telephone number, including area code)
N/A
(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 classTrading symbolName of each exchange on which registered
Common Stock, par value $0.001 per shareIPINew 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 filerAccelerated filer ☒
Non-accelerated filer
Smaller reporting companyEmerging 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).YesNo

As of April 27, 2021, the registrant had outstanding 13,445,803 shares of common stock, par value $0.001 per share.


INTREPID POTASH, INC.
TABLE OF CONTENTS


i

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)
March 31,December 31,
20212020
ASSETS
Cash and cash equivalents$35,995 $19,515 
Accounts receivable:
Trade, net36,898 22,795 
Other receivables, net2,298 1,577 
Inventory, net78,919 88,673 
Prepaid expenses and other current assets2,906 3,228 
Total current assets157,016 135,788 
Property, plant, equipment, and mineral properties, net348,945 355,497 
Water rights19,184 19,184 
Long-term parts inventory, net29,359 28,900 
Other assets, net10,676 10,819 
Total Assets$565,180 $550,188 
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable$13,648 $7,278 
Accrued liabilities13,080 12,701 
Accrued employee compensation and benefits5,928 4,422 
Current portion of long-term debt, net10,000 10,000 
Other current liabilities36,264 32,816 
Total current liabilities78,920 67,217 
Advances on credit facility29,817 29,817 
Long-term debt, net14,912 14,926 
Asset retirement obligation24,313 23,872 
Operating lease liabilities1,851 2,136 
Other non-current liabilities928 961 
Total Liabilities150,741 138,929 
Commitments and Contingencies00
Common stock, 0.001 par value; 40,000,000 shares authorized;
13,065,654 and 13,049,820 shares outstanding
at March 31, 2021, and December 31, 2020, respectively13 13 
Additional paid-in capital657,566 656,837 
Accumulated deficit(243,140)(245,591)
Total Stockholders' Equity414,439 411,259 
Total Liabilities and Stockholders' Equity$565,180 $550,188 
See accompanying notes to these condensed consolidated financial statements.
1

INTREPID POTASH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Three Months Ended March 31,
20212020
Sales$71,463 $63,984 
Less:
Freight costs12,078 11,860 
Warehousing and handling costs2,632 2,904 
Cost of goods sold47,645 43,047 
Lower of cost or net realizable value inventory adjustments550 
Gross Margin9,108 5,623 
Selling and administrative5,791 6,599 
Accretion of asset retirement obligation441 435 
Litigation settlement10,075 
Loss (gain) on sale of assets(4,696)
Other operating expense (income)(11)
Operating Income (Loss)2,868 (6,779)
Other Income (Expense)
Interest expense, net(426)(792)
Interest income116 
Other income16 
Income (Loss) Before Income Taxes2,451 (7,439)
Income Tax Benefit42 
Net Income (Loss)$2,451 $(7,397)
Weighted Average Shares Outstanding:
Basic13,054 12,957 
Diluted13,297 12,957 
Earnings Per Share:
Basic$0.19 $(0.57)
Diluted$0.18 $(0.57)
See accompanying notes to these condensed consolidated financial statements.
2

INTREPID POTASH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
Three-Month Period Ended March 31, 2021
Common StockAdditional Paid-in CapitalAccumulated DeficitTotal Stockholders' Equity
SharesAmount
Balance, December 31, 202013,049,820 $13 $656,837 $(245,591)$411,259 
Net income— — — 2,451 2,451 
Stock-based compensation— — 890 — 890 
Exercise of stock options4,188 — 43 — 43 
Vesting of restricted common stock, net of common stock used to fund employee income tax withholding due upon vesting11,646 — (204)— (204)
Balance, March 31, 202113,065,654 $13 $657,566 $(243,140)$414,439 
Three-Month Period Ended March 31, 2020
Common StockAdditional Paid-in CapitalAccumulated DeficitTotal Stockholders' Equity
SharesAmount
Balance, December 31, 201912,955,351 $13 $653,080 $(218,437)$434,656 
Net loss— — — (7,397)(7,397)
Stock-based compensation— — 1,032 — 1,032 
Vesting of restricted common stock, net of common stock used to fund employee income tax withholding due upon vesting8,999 — (49)— (49)
Balance, March 31, 202012,964,350 $13 $654,063 $(225,834)$428,242 

See accompanying notes to these condensed consolidated financial statements.

3

INTREPID POTASH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three Months Ended March 31,
20212020
Cash Flows from Operating Activities:
Net income (loss)$2,451 $(7,397)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization9,481 9,586 
Accretion of asset retirement obligation441 435 
Amortization of deferred financing costs68 86 
Amortization of intangible assets80 80 
Stock-based compensation890 1,032 
Lower of cost or net realizable value inventory adjustments550 
Accrual for litigation settlement10,075 
Loss (gain) on disposal of assets(4,696)
Allowance for doubtful accounts275 
Changes in operating assets and liabilities:
Trade accounts receivable, net(14,103)(8,388)
Other receivables, net(720)(308)
Inventory, net9,293 4,976 
Prepaid expenses and other current assets358 857 
Accounts payable, accrued liabilities, and accrued employee
     compensation and benefits
7,978 8,119 
Operating lease liabilities(525)(552)
Other liabilities3,415 41 
Net cash provided by operating activities19,109 14,771 
Cash Flows from Investing Activities:
Additions to property, plant, equipment, mineral properties and other assets(2,360)(5,710)
Proceeds from sale of assets47 4,786 
Net cash used in investing activities(2,313)(924)
Cash Flows from Financing Activities:
Debt prepayment costs(2)
Repayments of long-term debt(22)
Proceeds from short-term borrowings on credit facility10,000 
Payments of financing lease(107)
Capitalized debt fees
Employee tax withholding paid for restricted stock upon vesting(204)(49)
Proceeds from exercise of stock options43 — 
Net cash (used in) provided by financing activities(292)9,951 
Net Change in Cash, Cash Equivalents and Restricted Cash16,504 23,798 
Cash, Cash Equivalents and Restricted Cash, beginning of period20,184 21,239 
Cash, Cash Equivalents and Restricted Cash, end of period$36,688 $45,037 
4

INTREPID POTASH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three Months Ended March 31,
20212020
Supplemental disclosure of cash flow information
Net cash paid during the period for:
Interest$167 $227 
Income taxes$$
Amounts included in the measurement of operating lease liabilities$583 $637 
Accrued purchases for property, plant, equipment, and mineral properties$622 $2,557 
Right-of-use assets exchanged for operating lease liabilities$340 $104 
See accompanying notes to these condensed consolidated financial statements.
5

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, 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 3 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 water rights in New Mexico under which we sell water primarily to support oil and gas development in the Permian Basin near our Carlsbad facilities. We continue to work to expand our sales of water. In May 2019, we acquired certain land, water rights, state grazing leases for cattle, and other related assets from Dinwiddie Cattle Company. 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 a customer's operations in the oil and gas industry.
We have 3 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, 2020.
Reverse Stock Split—On August 10, 2020, after receipt of stockholder approval, the Board of Directors approved an amendment to our Certificate of Incorporation to effect a reverse stock split of our common stock, par value $0.001 per share, by a ratio of one-for-10. The reverse stock split became effective August 14, 2020. Additionally, the total number of authorized shares of our common stock was reduced to 40,000,000 shares. Unless otherwise indicated, all share amounts, per share data, share prices, exercise prices and conversion rates set forth in these notes and the accompanying condensed consolidated financial statements have, where applicable, been adjusted retroactively to reflect this reverse stock split.
Recently Adopted Accounting Standards
In December 2019, the FASB issued ASU 2019-12, "Income Taxes ("Topic 740"): Simplifying the Accounting for Income Taxes," which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and amending existing guidance to improve consistent application. Most amendments within this standard were required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. We adopted this standard on January 1, 2021. The effect of the adoption of this standard was immaterial on our condensed consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - (Topic 326): Measurement of Credit Losses on Financial Instruments, which we adopted on January 1, 2020. ASU No. 2016-13 changes the way entities recognize impairment of many financial assets by requiring immediate recognition of estimated credit losses expected to
6

occur over their remaining life and required a cumulative-effect adjustment to the statement of financial position on January 1, 2020. The effect of the adoption of this standard was immaterial on our condensed consolidated financial statements.
    Reclassifications of Prior Period Presentation—Certain prior period amounts have been reclassified in order to conform to the current period presentation. These reclassifications had no effect on the reported results of operations.

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
March 31,
20212020
Net income (loss)$2,451 $(7,397)
Basic weighted-average common shares outstanding13,054 12,957 
Add: Dilutive effect of restricted stock177 
Add: Dilutive effect of stock options66 
Diluted weighted-average common shares outstanding13,297 12,957 
Basic$0.19 $(0.57)
Diluted$0.18 $(0.57)
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
March 31,
20212020
Anti-dilutive effect of restricted stock64 312 
Anti-dilutive effect of stock options outstanding158 312 
    
7

Note 4— CASH, CASH EQUIVALENTS AND RESTRICTED CASH
    Total cash, cash equivalents and restricted cash, as shown on the condensed consolidated statements of cash flows are included in the following accounts at March 31, 2021, and 2020 (in thousands):
March 31, 2021March 31, 2020
Cash and cash equivalents$35,995 $44,371 
Restricted cash included in other current assets175 150 
Restricted cash included in other long-term assets518 516 
Total cash, cash equivalents, and restricted cash as shown in the statement of cash flows$36,688 $45,037 
    Restricted cash included in other current and long-term assets on the condensed consolidated balance sheets represents amounts whose 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.

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 March 31, 2021, and December 31, 2020 (in thousands):
March 31, 2021December 31, 2020
Finished goods product inventory$46,166 $48,961 
In-process inventory21,775 28,833 
Total product inventory67,941 77,794 
Current parts inventory, net10,978 10,879 
Total current inventory, net78,919 88,673 
Long-term parts inventory, net29,359 28,900 
Total inventory, net$108,278 $117,573 
Parts inventory is shown net of estimated allowances for obsolescence of $1.1 million as of March 31, 2021, and December 31, 2020, respectively.
As a result of routine assessments of the lower of weighted-average cost or estimated net realizable value of our finished goods product inventory, we recorded inventory charges of 0 and $0.6 million for the three months ended March 31, 2021 and 2020, respectively.

8

Note 6 — PROPERTY, PLANT, EQUIPMENT, AND MINERAL PROPERTIES
    Property, plant, equipment, and mineral properties were comprised of the following (in thousands):
March 31, 2021December 31, 2020
Land$27,263 $27,263 
Ponds and land improvements68,171 67,843 
Mineral properties and development costs144,043 143,955 
Buildings and plant81,842 81,692 
Machinery and equipment265,716 265,121 
Vehicles6,024 5,919 
Office equipment and improvements9,111 9,083 
Operating lease ROU assets9,961 9,622 
Breeding stock254 260 
Construction in progress2,466 1,710 
Total property, plant, equipment, and mineral properties, gross$614,851 $612,468 
Less: accumulated depreciation, depletion, and amortization(265,906)(256,971)
Total property, plant, equipment, and mineral properties, net$348,945 $355,497 

In March 2020, we sold approximately 320 acres of land for $4.8 million. In connection with that sale, we recorded a gain of $4.7 million.
    We incurred the following expenses for depreciation, depletion, and amortization, including expenses capitalized into inventory, for the following periods (in thousands):
Three Months Ended March 31,
20212020
Depreciation$7,495 $7,291 
Depletion1,475 1,752 
Amortization of right of use assets511 543 
Total incurred$9,481 $9,586 
Note 7 — DEBT
    Senior Notes—As of March 31, 2021, we had outstanding $15.0 million of Series B Senior Notes, due on April 14, 2023.
    In April 2020, we repaid our Series A Senior Notes ($20 million) at maturity. In July 2020, we repaid our Series C Senior Notes. As part of our Series C Senior Notes, we repaid the full $15 million of principal along with a reduced make-whole payment of $1.9 million.
    The agreement governing the Series B Senior Notes contains certain financial covenants, including the following:
We are required to maintain a minimum fixed charge coverage ratio of 1.3 to 1.0 as of the last day of each quarter, measured based on the previous four quarters. Our fixed charge coverage ratio as of March 31, 2021, was 7.5 to 1.0.
We are allowed a maximum leverage ratio of 3.5 to 1.0 as of the last day of each quarter, measured based on the previous four quarters. Our leverage ratio as of March 31, 2021, was 2.0 to 1.0.
    Fixed charge coverage ratio and leverage ratio are calculated in accordance with the agreement governing the Series B Notes, each of which includes earnings before interest, taxes, depreciation and amortization as a component. As of March 31, 2021, we were in compliance with all applicable covenants under the Series B Senior Notes.
    For the three months ended March 31, 2021, the interest rate on the Series B Senior Notes was 4.63%, which represents the lowest interest rate available under the Series B Senior Notes. The interest rates may adjust upward if we do not continue to meet certain financial covenants.
9

    We have granted to the collateral agent for the Series B Senior Notes a first lien on substantially all of our non-current assets and a second lien on substantially all of our current assets. We are required to offer to prepay the Series B Senior Notes with the proceeds of dispositions of certain specified property and with the proceeds of certain equity issuances, as set forth in the agreement governing the Series B Senior Notes. The obligations under the Senior B Notes are unconditionally guaranteed by several of our subsidiaries.
    In April 2020, we amended the agreement governing the Series B Senior Notes to allow for a $10 million loan under the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), as described further below.
    Our outstanding long-term debt, net, as of March 31, 2021, and December 31, 2020, was as follows (in thousands):
March 31, 2021December 31, 2020
Notes and Payroll Protection Loan$24,978 $25,000 
Less current portion of long-term debt(10,000)(10,000)
Less deferred financing costs(66)(74)
Long-term debt, net$14,912 $14,926 
        
Credit Facility—We maintain a revolving credit facility with Bank of Montreal. As of March 31, 2021, borrowings under the credit facility bear interest at LIBOR (London Interbank Offered Rate) plus an applicable margin of 1.25% to 2.00% per annum, based on our leverage ratio as calculated in accordance with the agreement governing the credit facility. We have granted to Bank of Montreal a first lien on substantially all of our current assets and a second lien on substantially all of our non-current assets. The obligations under the credit facility are unconditionally guaranteed by several of our subsidiaries.
    We occasionally borrow and repay amounts under the facility for near-term working capital needs or other purposes and may do so in the future. During the three months ended March 31, 2021, we made 0 borrowings and we made 0 repayments under the facility. As of March 31, 2021, and December 31, 2020, we had $29.8 million of borrowings outstanding and $1 million in outstanding letters of credit under the facility. Including the outstanding letters of credit, we had $35.0 million available to be borrowed under the facility as of March 31, 2021.
As of March 31, 2021, we were in compliance with all applicable covenants under the revolving credit facility.
    During the three months ended March 31, 2020, we borrowed $10 million under the facility and made 0 repayments.
    
10

    PPP Loan—In April 2020, we received a $10 million loan under the Paycheck Protection Program (the "PPP") under the CARES Act. The loan matures in April 2022 and bears interest at a rate of 1% per annum. We were required to begin monthly payments of principal and interest in the amount of $0.6 million in November 2020, but due to extensions of the program and delays in the forgiveness application process, we do not expect to make any payments on the loan until a decision is made on our forgiveness application. We may prepay the loan at any time prior to maturity with no prepayment penalties. We used the funds exclusively for allowed payroll and benefits expenses and expect the majority of the loan, if not all, will be forgiven. The loan contains customary events of default relating to, among other things, payment defaults, making materially false and misleading representations to the lender or breaching the terms of the loan documents.
During the second quarter of 2020, the PPP was amended to allow borrowers to choose either an eight-week or 24-week period to use the funds. We elected to use the 24-week period, which ended in October 2020. The amount eligible for forgiveness is based on the amount of loan proceeds used by us (during the 24-week period after the lender makes the first disbursement of loan proceeds) for the payment of certain covered costs, including payroll costs (including benefits), subject to certain limitations and reductions in accordance with the CARES Act. We submitted our application for forgiveness of the full $10 million loan in November 2020. No assurance can be given that we will obtain forgiveness of the loan in whole or in part. In addition, as a borrower that received over $2.0 million, we expect to be subject to an audit to review our eligibility under the PPP. The timing and scope of the audit remains unclear and as a result we are not able to forecast when we can expect a decision on loan forgiveness. We do not expect the audit will impact our eligibility for forgiveness under the PPP.
    Interest Expense—Interest expense is recorded net of any capitalized interest associated with investments in capital projects. We incurred gross interest expense of $0.4 million and $0.9 million for the three months ended March 31, 2021, and 2020, respectively.
    Amounts included in interest expense, net for the three ended March 31, 2021, and 2020, were as follows (in thousands):
Three Months Ended
March 31,
20212020
Interest on debt borrowings$365 $779 
Make-whole payments
Amortization of deferred financing costs68 86 
Gross interest expense435 865 
Less capitalized interest(9)(73)
Interest expense, net$426 $792 
    
11

Note 8 — INTANGIBLE ASSETS
    We have water rights, recorded at $19.2 million at March 31, 2021, and December 31, 2020. 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 18 years. At March 31, 2021, and December 31, 2020, these intangible assets had a net book value of $5.8 million and $5.9 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 totaled $36.0 million and $19.5 million at March 31, 2021, and December 31, 2020, 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.

12

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 abandon 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 abandonment liabilities range from 6.9% to 9.7%. Revisions to the liability occur due to construction of new or expanded facilities, changes in estimated abandonment costs or economic lives, or if federal or state regulators enact new requirements regarding the abandonment 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 March 31,
20212020
Asset retirement obligation, at beginning of period$23,872 $22,250 
Liabilities settled
Accretion of discount441 435 
Total asset retirement obligation, at end of period$24,313 $22,685 
    

13

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 to be entitled 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 March 31, 2021, and December 31, 2020, we had $33.8 million and $30.4 million of contract liabilities, respectively, which are included in "Other current liabilities" on the Condensed Consolidated Balance Sheets, primarily related to cash advances received from a customer for water purchases. 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). We will recognize the deferred revenue at the time the customer calls for water delivery, which we expect will be sourced from our existing long-term water rights. Our deferred revenue activity for the three months ended March 31, 2021, and 2020 is shown below (in thousands):
Three Months Ended March 31,
20212020
Beginning balance$30,419 $16,612 
Additions3,972 3,910 
Recognized as revenue during period(549)(3,436)
Ending balance$33,842 $17,086 

Disaggregation of Revenue: The tables below show the disaggregation of revenue by product and reconciles disaggregated revenue to segment revenue for the three months ended March 31, 2021, and 2020. 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):
Three Months Ended March 31, 2021
ProductPotash Segment
Trio® Segment
Oilfield Solutions SegmentIntersegment EliminationsTotal
Potash$37,794 $$$(62)$37,732 
Trio®
22,514 22,514 
Water1,159 984 3,343 5,486 
Salt2,039 196 2,235 
Magnesium Chloride2,028 2,028 
Brine Water558 205 763 
Other705 705 
Total Revenue$43,578 $23,694 $4,253 $(62)$71,463 
14

Three Months Ended March 31, 2020
ProductPotash Segment
Trio® Segment
Oilfield Solutions SegmentIntersegment EliminationsTotal
Potash$29,818 $$$(129)$29,689 
Trio®
21,201 21,201 
Water583 1,247 6,661 8,491 
Salt2,096 133 2,229 
Magnesium Chloride759 759 
Brine Water535 31 566 
Other1,049 1,049 
Total Revenue$33,791 $22,581 $7,741 $(129)$63,984 

15

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 2019. We have issued common stock, restricted stock, performance units, and non-qualified stock option awards under the Plan. At March 31, 2021, approximately 0.6 million shares remained available for issuance under the Plan.
    For the three months ended March 31, 2021, we granted shares 42,445 of restricted stock to executive officers and other key employees. These awards vest over three years, and in some cases, contain a market condition. As of March 31, 2021, the following awards were outstanding under the Plan (in thousands):
Outstanding as of
March 31, 2021
Restricted Shares386 
Non-qualified Stock Options288 
    Total share-based compensation expense was $0.9 million and $1.0 million for the three months ended March 31, 2021, and 2020, respectively. As of March 31, 2021, we had $5.1 million of total remaining unrecognized compensation expense related to awards, that is expected to be recognized over a weighted-average period of 1.7 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.
    During the three months ended March 31, 2021, and 2020, we incurred 0 income tax expense. Our effective tax rate for the three months ended March 31, 2021, and 2020, was 0%. Our effective tax rates differed from the statutory rate during each period primarily due to changes in the valuation allowance established to offset our deferred tax assets.

Note 14 — COMMITMENTS AND CONTINGENCIES
Reclamation Deposits and Surety Bonds—As of March 31, 2021, and December 31, 2020, we had $23.0 million of security placed principally with the State of Utah and the Bureau of Land Management for eventual reclamation of our various facilities. Of this total requirement, $0.5 million consisted of long-term restricted cash deposits reflected in "Other assets, net" on the condensed consolidated balance sheets and $22.5 million was secured by surety bonds issued by an insurer. The surety bonds are held in place by an annual fee paid to the issuer and a letter of credit.
We may be required to post additional security to fund future reclamation obligations as reclamation plans are updated or as governmental entities change requirements.
    Legal—We are subject to claims and legal actions in the ordinary course of business. Legal costs are expensed as 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 reasonable likely to have a material adverse effect on our financial condition, results of operations, or cash flows.
Mosaic Settlement
In March 2020, we entered into a definitive settlement agreement with Mosaic Potash Carlsbad Inc. ("Mosaic") related to a complaint originally brought against us and Steve Gamble in February 2015. Mr. Gamble is a former employee of Intrepid and Mosaic. Under the terms of the settlement agreement, we paid Mosaic an aggregate of $10 million in May 2020 to dismiss all current and future claims arising from this matter against us and the matter is now closed.
Water Rights
In February 2019, Pecos Valley Artesian Conservancy District, Carlsbad Irrigation District, and Otis Mutual Domestic Water Consumers & Sewage Works Association (together, the "Protestants") filed an expedited inter se proceeding against us, Henry McDonald, Select Energy Services, LLC d/b/a Gregory Rockhouse Ranch, and Vision Resources, Inc. in the Fifth Judicial District Court for the County of Chaves in the State of New Mexico ("adjudication court"). This court
16

serves as the adjudication court for the Pecos Stream System, which includes the Pecos River. The Protestants challenged the validity of our Pecos River water rights, representing approximately 20,000 acre feet per year. In August 2019, the parties stipulated to the jurisdiction of the adjudication court. To promote settlement, the adjudication court established a settlement schedule and ordered a trial date in August 2020 if the parties have not reached a settlement by that time. The trial date was subsequently rescheduled and a virtual trial began on December 8, 2020 and concluded on December 18, 2020. We expect a ruling from the adjudication court in late spring or early summer of 2021.
We were allowed to sell water associated with 5,700 acre feet per year of these water rights under preliminary authorizations issued in 2017 and 2018 by the New Mexico Office of the State Engineer ("OSE"). The preliminary authorizations allowed for water sales to begin immediately, subject to repayment if the underlying water rights are ultimately found to be invalid. Separate from the adjudication proceeding discussed above, the Protestants have protested these preliminary authorizations before the OSE. Although the OSE is required to hold a hearing relating to the protests, it had temporarily stayed the hearing process until the adjudication process is complete.
    In December 2019, the Protestants filed a Petition for Writ of Mandamus against the OSE concerning the preliminary authorizations. A hearing regarding this Petition was held in March 2020, in the Fifth Judicial District Court for the County of Eddy in the State of New Mexico ("non-adjudication court") and the non-adjudication court granted the Writ of Mandamus against the OSE and required the OSE to withdraw and cancel seven preliminary authorizations issued to Intrepid in 2017 and 2018. These seven preliminary authorizations, which allowed us to sell up to 4,700 acre feet of water annually, were cancelled by the OSE on April 1, 2020, and we are currently not allowed to sell water under these cancelled preliminary authorizations.
    A Motion for Reconsideration was filed and a hearing was held before the non-adjudication court on September 1, 2020, and was denied by the non-adjudication court on October 5, 2020. Subsequently, we and the OSE filed an appeal which is pending before the New Mexico Court of Appeals.
In March 2021, we received notice from a customer of a default under the terms of a long-term sales contract because we have not been able 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. We are working with the customer to resolve this issue. Under this contract we have 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 installment due from the customer as we continue to work to resolve the issue. If we are not able to resolve the issue, we may have to repay the $32.7 million outstanding contract liability. More detail on our contract liabilities can be found in Note 11—Revenue.

    We are also subject to other claims and legal actions in the ordinary course of business. Legal costs are expensed as incurred. While there are uncertainties in predicting the outcome of any claim or legal action, we believe that the ultimate resolution of these other claims or actions is not reasonably likely to have a material adverse effect on our financial condition, results of operations, or cash flows.
17


Note 15 — FAIR VALUE
    We measure our financial assets and liabilities in accordance with ASC Topic 820, Fair Value Measurements and Disclosures.
    As of March 31, 2021, and December 31, 2020, our cash consisted of bank deposits. Other financial assets and liabilities including accounts receivable, refundable income taxes, accounts payable, accrued liabilities, and advances on our credit facility are carried at cost which approximates fair value because of the short-term nature of these instruments.
In May of 2020, we acquired a non-controlling interest in W.D. Von Gonten Laboratories ("WDVGL") for $3.5 million. This investment is an equity investment without a readily determinable fair value and is recorded at cost with adjustments for observable changes in prices resulting from orderly transactions for the identical or a similar investment of the same issuer, or impairment (a Level 3 input), and is included in "Other assets, net" on the Condensed Consolidated Balance Sheets. We did not record any adjustments to the $3.5 million carrying value of the investment during the first quarter of 2021.
    As of March 31, 2021, and December 31, 2020, the estimated fair value of our outstanding Notes was $15.7 million and $15 million, respectively. The fair value of our Notes is estimated using a discounted cash flow analysis based on current borrowing rates for debt with similar remaining maturities and ratings (a Level 2 input) and is designed to approximate the amount at which the instruments could be exchanged in an arm's-length transaction between knowledgeable willing parties.

18

Note 16 — BUSINESS SEGMENTS
    Our operations are organized into 3 segments: potash, Trio® and oilfield solutions. The reportable segments are determined by management 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
March 31, 2021
Potash
Trio®
Oilfield SolutionsOtherConsolidated
Sales$43,578 $23,694 $4,253 $(62)$71,463 
Less: Freight costs5,700 6,440 (62)12,078 
         Warehousing and handling
         costs
1,456 1,176 2,632 
         Cost of goods sold27,749 16,148 3,748 47,645 
Gross Margin (Deficit)$8,673 $(70)$505 $$9,108 
Depreciation, depletion, and amortization incurred1
$7,178 $1,507 $688 $188 $9,561 
Three Months Ended
March 31, 2020
Potash
Trio®
Oilfield SolutionsOtherConsolidated
Sales$33,791 $22,581 $7,741 $(129)$63,984 
Less: Freight costs5,441 6,548 (129)11,860 
         Warehousing and handling
         costs
1,296 1,608 2,904 
         Cost of goods sold22,720 17,430 2,897 43,047 
         Lower of cost or net
         realizable value inventory
         adjustments
— 550 — 550 
Gross Margin (Deficit)$4,334 $(3,555)$4,844 $$5,623 
Depreciation, depletion, and amortization incurred1
$7,312 $1,508 $632 $214 $9,666 
1 Depreciation, depletion, and amortization incurred for potash and Trio® excludes depreciation, depletion and amortization amounts absorbed in or relieved from inventory.

19

ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q (this "Quarterly Report") contains forward-looking statements within the meaning of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the Securities Act of 1933, as amended. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements in this Quarterly Report other than statements of historical fact are forward-looking statements. Forward-looking statements include statements about our future results of operations and financial position, our business strategy and plans, and our objectives for future operations, among other things. In some cases, you can identify these statements by forward-looking words, such as "estimate," "expect," "anticipate," "project," "plan," "intend," "believe," "forecast," "foresee," "likely," "may," "should," "goal," "target," "might," "will," "could," "predict," and "continue." Forward-looking statements are only predictions based on our current knowledge, expectations, and projections about future events.
    These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including the following:
changes in the price, demand, or supply of our products and services;
challenges to our water rights;
our ability to successfully identify and implement any opportunities to grow our business whether through expanded sales of water, Trio®, byproducts, and other non-potassium related products or other revenue diversification activities;
our ability to sell Trio® internationally and manage risks associated with international sales, including pricing pressure and freight costs;
the costs of, and our ability to successfully execute, any strategic projects;
declines or changes in agricultural production or fertilizer application rates;
declines in the use of potassium-related products or water by oil and gas companies in their drilling operations;
our ability to prevail in outstanding legal proceedings against us;
our ability to comply with the terms of our senior notes and our revolving credit facility, including the underlying covenants, to avoid a default under those agreements;
further write-downs of the carrying value of assets, including inventories;
circumstances that disrupt or limit production, including operational difficulties or variances, geological or geotechnical variances, equipment failures, environmental hazards, and other unexpected events or problems;
changes in reserve estimates;
currency fluctuations;
adverse changes in economic conditions or credit markets;
the impact of governmental regulations, including environmental and mining regulations, the enforcement of those regulations, and governmental policy changes;
adverse weather events, including events affecting precipitation and evaporation rates at our solar solution mines;
increased labor costs or difficulties in hiring and retaining qualified employees and contractors, including workers with mining, mineral processing, or construction expertise;
changes in the prices of raw materials, including chemicals, natural gas, and power;
our ability to obtain and maintain any necessary governmental permits or leases relating to current or future operations;
interruptions in rail or truck transportation services, or fluctuations in the costs of these services;
our inability to fund necessary capital investments;
the impact of the novel coronavirus (COVID-19) pandemic on our business, operations, liquidity, financial condition and results of operations; and
20

the other risks, uncertainties, and assumptions described in Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2020, as updated by our subsequent Quarterly Reports on Form 10-Q.

In addition, new risks emerge from time to time. It is not possible for our management to predict all risks that may cause actual results to differ materially from those contained in any forward-looking statements we may make.
In light of these risks, uncertainties, and assumptions, the future events and trends discussed in this Quarterly Report may not occur and actual results could differ materially and adversely from those anticipated or implied in these forward-looking statements. As a result, you should not place undue reliance on these forward-looking statements. We undertake no duty to update or revise publicly any forward-looking statements to conform those statements to actual results or to reflect new information or future events.
    Throughout this Quarterly Report, we refer to average net realized sales price per ton, which is a non-GAAP financial measure. More information about this measure, including a reconciliation of this measure to the most directly comparable GAAP financial measure, is below under the heading "Non-GAAP Financial Measure."
21

Company Overview
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, KCl 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, 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 our 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 water rights in New Mexico under which we sell water primarily to support oil and gas development in the Permian Basin near our Carlsbad facilities. We continue to work to expand our sales of water. In May 2019, we acquired certain land, water rights, state grazing leases for cattle, and other related assets from Dinwiddie Cattle Company. 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 a customer's operations in the oil and gas industry.
    We have three segments: potash, Trio®, and oilfield solutions. We account for the sale of byproducts as revenue in the potash or Trio® segment based on which segment generated the byproduct.




22

Significant Business Trends and Activities
    The novel strain of coronavirus (COVID-19) has surfaced in nearly all regions around the world. As an essential business we continue to operate through-out the COVID-19 pandemic to produce potash and Trio® and serve oil and gas markets through our oilfield solutions business. The safety and protection of our workforce is our first and foremost priority. We continue to follow various procedures we implemented to help minimize the risks to our employees, including changes in our operating procedures to accommodate social distancing guidelines, additional cleaning and disinfection procedures and requiring those employees who can work from home to do so.
    We continue to monitor the guidance from various authorities, including federal, state and local public health authorities and may take additional actions based on their recommendations. There may be developments outside our control that would require us to adjust our operating plans.
    Our 2020 results were materially impacted by the COVID-19 pandemic, particularly our oilfield solutions segment as many of the actions taken to help prevent the spread of COVID-19 decreased demand for oil. Economic activity is improving in early 2021 with most cities and states reducing restrictions when compared to the summer of 2020. However, governmental authorities may reinstate other restrictive orders due to a continued resurgence of COVID-19 related cases. Such restrictive actions may lead to further or continued decreases in the demand for oil and may impact our other operations if expanded restrictions are deemed necessary to mitigate the public health effects of the COVID-19 pandemic. Given the dynamic nature of this situation, we cannot reasonably estimate the impacts of COVID-19 on our financial condition, results of operations, liquidity or cash flows in the future. We expect that if governmental authorities increase other restrictive orders, such actions may have a material effect on revenue growth, financial condition, liquidity, and overall profitability in future reporting periods.
    Our financial results have been, or are expected to be, impacted by several significant trends and activities, including impacts from the COVID-19 pandemic, as discussed below. We expect that the trends described below may continue to impact our results of operations, cash flows, and financial position.
Potash pricing and demand. Potash sales volumes in the first quarter of 2021 increased 18% compared to the first quarter of 2020 as strong commodity prices and favorable weather drove strong demand for fertilizer products across most parts of the country. Our sales volumes into industrial markets decreased in the first quarter of 2021 compared to the prior year, due in large part to the impacts of the COVID-19 pandemic. The majority of our industrial potash sales are into oil and gas markets and correlate to drilling and completion activity, which has slowed significantly during 2020 due to the containment actions taken to help reduce the spread of COVID-19, and activity remains below pre-pandemic levels. We have been successful in shifting sales towards our growing animal feed and organic markets and also continuing to expand our sales into high-margin agricultural areas near our operations. Additional or renewed restrictions enacted in response to the COVID-19 pandemic may impact our sales if such actions affect available labor, transportation logistics, or cause supply disruptions.
Global effective capacity continues to exceed demand and larger producers have worked to balance the market through production curtailments. Domestic pricing of our potash is influenced principally by the price established by our competitors. The interaction of global potash supply and demand, ocean, land, and barge freight rates, currency fluctuations, and crop commodity values and outlook, also influence pricing.
    Our potash average net realized sales price per ton increased to $282 for the three months ended March 31, 2021, compared to $255 for the same period in 2020 due to multiple price increases announced in the fourth quarter of 2020 and another price increase announced in February 2021. We layered in first quarter sales tons at varying price levels and expect our net realized sales price per ton will increase in the second quarter of 2021. Our price expectations could be affected by, among other things, weather, planting decisions, rail car availability, commodity price decreases as a result of the COVID-19 pandemic, and the price and availability of other potassium products.
    With potash sales comprising 53% of our total sales in the first three months of 2021, potash prices continue to be a significant driver of our profitability. Pricing of our potash is influenced principally by the price established by our competitors. The interaction of global potash supply and demand, ocean, land, and barge freight rates, and currency fluctuations also influence pricing.
23

    We experience seasonality in potash demand, with more purchases historically occurring in March through May and September through November when purchasers are looking to have product on hand for the spring and fall application seasons in the United States. Various factors affect potash sales and shipments, thereby increasing volatility of sales volumes from quarter to quarter and season to season. The specific timing of when farmers apply potash remains highly weather dependent and varies across the numerous growing regions within the U.S. The timing of potash sales is also significantly influenced by the marketing programs of potash producers, as well as storage volumes closer to the farm gate. Our sales volumes into the industrial market correlate to drilling activity in the oil and gas market, which slowed significantly during 2020, due to the containment actions taken to help reduce the spread of COVID-19. While restrictions have generally relaxed over the past few months, any further containment actions taken in response to the COVID-19 pandemic may impact future fertilizer application seasons if such actions affect available labor, transportation logistics, or cause supply disruptions.
Trio® pricing and demand. Our Trio® average net realized sales price per ton increased 21% during the first quarter of 2021, as compared to the first quarter of 2020 due to price increases in domestic markets and fewer international sales. Similar to our potash sales, we layered in our first quarter 2021 Trio® sales at increasing price levels and expect our net realized price will continue to increase into the second quarter. Our ability to recognize the increased prices may be affected by, among other things, weather, planting decisions, rail car availability, commodity price decreases as a result of the COVID-19 pandemic, and the price and availability of other potassium products.
    Trio® sales volume decreased 9% during the first three months of 2021, compared to the first three months of 2020, as strong demand in domestic markets was more than offset by reduced international sales. We expect to sell limited tons into international markets as we focus on growing our domestic Trio® sales. We recognize a lower average net realized sales price per ton for international sales compared to domestic sales, due to the increased freight costs to ship Trio® to international destinations.
    We also experience seasonality in domestic Trio® demand, with more purchases coming in the first and second quarters in advance of the spring application season in the U.S. In turn, we generally have increased inventory levels in the third and fourth quarters in anticipation of expected demand for the following year. Further actions taken in response to the COVID-19 pandemic may also impact seasonal demand patterns if there is an effect on available labor, transportation logistics, or supply disruptions. We continue to operate our facilities at production levels that approximate expected demand and allow us to manage inventory levels. Certain products rely more heavily on international markets, particularly standard Trio®. Our international warehouse temporarily closed in response to the COVID-19 pandemic in the first quarter of 2020 and was reopened during the second quarter of 2020 and currently remains open, but we may see additional closures if there is a resurgence of COVID-19 related cases, which could reduce demand in future periods. We reduced the production of fine langbeinite in the second quarter of 2020 to manage inventory levels and we expect to operate at these reduced production rates for the foreseeable future to manage inventory levels.
Water sales. In the first quarter of 2021, total water sales were $5.5 million compared to $8.5 million during the same period of 2020. We continue to experience decreased demand for water and other oilfield products and services when compared to the first quarter of 2020 as a result of the COVID-19 pandemic. Rig counts, oil pricing, and oilfield activity have increased from the summer of 2020 and we expect oilfield activity will improve as the year continues, although economic uncertainty and the potential for future restrictions enacted by state and local governments resulting from the COVID-19 pandemic make forecasting future drilling activities difficult.
    An update to legal proceedings concerning our water rights is contained in Note 14 of our unaudited condensed consolidated financial statements included in "Item 1. Condensed Consolidated Financial Statements (Unaudited)" of this Quarterly Report on Form 10-Q.
Byproduct sales. We sell byproducts such as salt, magnesium chloride, brines, and water that are derived from our potash and Trio® operations. Byproduct sales were $7.0 million for the three months ended March 31, 2021, compared to $5.4 million for the three months ended March 31, 2020. The increase during the first quarter of 2021 was primarily due to a $1.3 million increase in sales of magnesium chloride and a $0.3 million increase in byproduct water sales. Wet weather in 2019 significantly limited our production of magnesium chloride and we had less product to sell in the first quarter of 2020. Magnesium chloride production returned to historic rates in the second half of 2020 and we expect that will continue in 2021 assuming average precipitation rates at our Wendover facility.
Diversification of products and services. We continue to diversify our products and services, particularly on our Intrepid South property. In addition to water sales, Intrepid South generates revenue from right-of-way agreements, surface damages and easements, caliche sales, a produced water royalty, and sales of cattle. We are also currently negotiating water transfer agreements with customers throughout the basin to utilize our existing infrastructure. As part of the Intrepid South acquisition, we acquired state grazing leases and submitted a comprehensive grazing plan which is currently pending
24

approval with the New Mexico State Land Office. In the third quarter of 2020, we purchased a 400-head commercial cattle herd which we plan to move to our grazing leases when we receive final approval. We added a brine station at our Intrepid South property in February 2020 and are reviewing opportunities to develop a produced water facility, although uncertainties in oil and gas operations due to the COVID-19 pandemic have made the timing of this development uncertain.
In March 2020, we sold approximately 320 acres of fee land from our Intrepid South property for $4.8 million and recognized a gain on the sale of the land of $4.7 million. The terms of the sale were highly restrictive and only allow the buyer to drill Acid Gas Injection ("AGI") wells on the property to dispose of natural gas with high concentrations of hydrogen sulfide ("H2S"). No water rights were included in the land sale, we retained surface access, and we restricted the use of caliche located on the property to the acreage that was sold in order to prevent sales to third parties or decrease future sales to the buyer. 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 a customer's operations in the oil and gas industry. We may have additional strategic sales of small parcels of land in the future.
In May 2020, we acquired an 11% equity stake in the W.D. Von Gonten Laboratories ("WDVGL"), a global industry leader in drilling and completion chemistry and a strong supporter of the use of potassium chloride in oil and gas drilling and completion activities. With this investment we plan to revitalize our industrial sales and high-speed mixing service given the poor performance of clay-inhibition chemical substitutes in certain formations. Our investment in WDVGL is also part of our strategy to leverage our existing oil and gas midstream businesses in southeast New Mexico and expand into additional oil and gas midstream and upstream activities. This expansion may be through organic growth, other strategic investments, partnerships, or acquisitions of complementary businesses that expand our product and service offerings beyond our existing assets or products. Additionally, we may expand into oil and natural gas exploration and production or into new products or services in our current industry or other industries.
25

Consolidated Results
(in thousands, except per ton amounts)Three Months Ended March 31,
20212020
Sales1
$71,463 $63,984 
Cost of goods sold$47,645 $43,047 
Gross Margin$9,108 $5,623 
Selling and administrative$5,791 $6,599 
Net Income (Loss)$2,451 $(7,397)
   Average net realized sales price per ton2
Potash$282 $255 
   Trio®
$233 $193 
1Sales include sales of byproducts which were $7.0 million and $5.4 million for the three months ended March 31, 2021, and 2020, respectively.
2Average net realized sales price per ton is a non-GAAP financial measure. More information about this non-GAAP financial measure is below under the heading "Non-GAAP Financial Measure."
Consolidated Results for the Three Months Ended March 31, 2021, and 2020
Our total sales for the three months ended March 31, 2021 increased $7.5 million, or 12%, as compared to the three months ended March 31, 2020. Our potash sales increased $8.0 million, or 27%, during the first quarter of 2021 as compared to the first quarter of 2020, as we sold 18% more tons and our average net realized sales price per ton increased 11% in the first quarter of 2021. We sold 25% more tons of potash into the agricultural market in the first quarter of 2021, compared to the first quarter of 2020, partially offset by selling fewer tons of potash into the industrial market. Increases in corn, soybean and wheat prices drove our increase in tons of potash sold into the agricultural market. The majority of our industrial potash sales are into oil and gas markets and correlate to drilling and completion activity, which were still negatively affected by containment actions taken to help reduce the spread of COVID-19. Our potash average net realized sales price per ton increased 11% due to multiple price increases announced in the fourth quarter of 2020 and another price increase announced in February 2021. We layered in first quarter sales tons at varying increased price levels as compared to the first quarter of 2020.
Our Trio® sales increased $1.3 million, or 6%, in the first quarter of 2021, as compared to the first quarter of 2020, as our average net realized sales price per ton increased 21%, partially offset by a 9% decrease in tons sold. Our Trio® tons sold decreased in the first quarter of 2021, as compared to the first quarter of 2020, as we sold fewer tons into international markets, due to our continued focus on the domestic Trio® market. Our Trio® average net realized sales price per ton increased due to multiple price increases announced during the fourth quarter of 2020 and the first quarter of 2021, combined with a decrease in international sales which generally have a lower net realized sales price per ton.
Our water sales, excluding byproduct water sales, decreased $3.3 million, or 50%, in the first quarter of 2021, compared to the first quarter of 2020. We continue to experience decreased demand for water when compared to the first quarter of 2020 as a result of the COVID-19 pandemic. Rig counts, oil pricing, and oilfield activity have increased from the summer of 2020 and we expect oilfield activity will improve as the year continues, although economic uncertainty and the potential for future restrictions enacted by state and local governments resulting from the COVID-19 pandemic make forecasting future drilling activities difficult.
Our byproduct sales increased $1.6 million in the first quarter of 2021, compared to the first quarter of 2020, due to a $1.3 million increase in magnesium chloride sales and a $0.3 million increase in byproduct water sales. Magnesium chloride sales improved as we had more product to sell during the first quarter of 2021, as compared to the first quarter of 2020, due to the above average evaporation during the summer of 2020. Byproduct water sales increased in the first quarter of 2021, compared to the first quarter of 2020, as a higher percentage of our total barrels of water sold was byproduct water.
Cost of Goods Sold
Our total cost of goods sold increased $4.6 million, or 11%, during the first quarter of 2021 compared to the first quarter of 2020. Our potash cost of goods sold increased by $5.0 million, or 22%, during the first quarter of 2021 compared to the first quarter of 2020, driven mainly by a 18% increase in potash tons sold. Our Trio® cost of goods sold decreased $1.3
26

million, or 7%, for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020, due mainly to a 9% decrease in Trio® tons sold. Our cost of goods sold for the Oilfield Solutions Segment increased $0.9 million, or 29%, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020, as we had to purchase third-party water to meet the significant daily refresh rates for certain fracs on our South ranch. During the first quarter of 2021, we sold a majority of our water from water rights on our South ranch, while in the first quarter of 2020, we sold a majority of our water from our Pecos and Caprock water rights. Our water sales from our South ranch water rights generally carry a higher cost of goods sold as compared to sales from our Pecos and Caprock water rights.
Gross Margin
During the first quarter of 2021, we generated a gross margin of $9.1 million compared to a gross margin of $5.6 million during the first quarter of 2020, due to the factors discussed above.
Selling and Administrative Expense
    During the first quarter of 2021, our selling and administrative expenses decreased $0.8 million, or 12%, as compared to the first quarter of 2020. The decrease was due mainly to increased legal costs incurred in the first quarter of 2020 related to the Mosaic litigation.
Gain on Sale of an Asset
    In March 2020, we sold approximately 320 acres of fee land from our Intrepid South property for $4.8 million and recognized a gain on the sale of the land of $4.7 million. The terms of the sale were highly restrictive and only allow the buyer to drill Acid Gas Injection (AGI) wells on the property to dispose of natural gas with high concentrations of hydrogen sulfide (H2S). No water rights were included in the land sale, we retained surface access, and we restricted the use of caliche located on the property to the acreage that was sold in order to prevent sales to third parties or decrease future sales to the buyer. 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 a customer's operations in the oil and gas industry. We may have additional strategic sales of small parcels of land in the future.
Litigation Settlement
In the first quarter of 2020, we paid Mosaic an aggregate of $10 million to dismiss all claims against us. We did not incur any litigation settlement costs during the first quarter of 2021.
Interest Expense
    During the first quarter of 2021, our interest expense decreased $0.4 million as compared to the first quarter of 2020 due to the retirement at maturity of our Series A Notes in April 2020 and the early repayment of our Series C Notes in July 2020.
Net Income
    We generated net income of $2.5 million for the three months ended March 31, 2021, compared to a net loss of $7.4 million in the same period in 2020, due to the factors discussed above.
27

Potash Segment
Three Months Ended March 31,
(in thousands, except per ton amounts)20212020
Sales1
$43,578 $33,791 
Less: Freight costs5,700 5,441 
         Warehousing and handling
         costs
1,456 1,296 
         Cost of goods sold27,749 22,720 
Gross Margin$8,673 $4,334 
Depreciation, depletion, and amortization incurred2
$7,178 $7,312 
Potash sales volumes (in tons)117 99 
Potash production volumes (in tons)113 137 
Average potash net realized sales price per ton3
$282 $255 
1 Sales include sales of byproducts which were $5.8 million and $4.0 million for the three months ended March 31, 2021, and 2020, respectively.
2 Depreciation, depletion, and amortization incurred excludes depreciation, depletion, and amortization amounts absorbed in or (relieved from) inventory.
3Average net realized per ton sales price per ton is a non-GAAP financial measure. More information about this measure is below under the heading "Non-GAAP Financial Measure."
Three Months Ended March 31, 2021, and 2020
Potash segment sales in the first quarter of 2021 increased compared to the same period in 2020, due to an 18% increase in sales volume, an 11% increase in our average net realized sales price per ton and a $1.8 million increase in byproduct sales. Agricultural sales volumes increased in the first quarter of 2021 compared to the first quarter of 2020, as good weather and strong commodity prices spurred very strong early season demand for fertilizer. Our industrial potash sales were negatively impacted by the COVID-19 pandemic and the resulting decrease in oil and gas activity. Average net realized sales price per ton was higher due to price increases announced in the fourth quarter of 2020 and the first quarter of 2021. Magnesium chloride sales improved $1.3 million compared to the first quarter of 2020 as good evaporation during the summer of 2020 improved product availability compared to the prior year in which production was significantly reduced due to wet weather during the 2019 evaporation season.
Potash segment freight expense increased $0.3 million, or 5%, in the first quarter of 2021, compared to the first quarter of 2020 as a result of increased sales volume of potash. Our freight expense is impacted by the geographic distribution of our potash and byproduct sales and by the proportion of customers arranging for and paying their own freight costs.
Our potash segment cost of goods sold increased 22% in the first quarter of 2021, compared to the same period in 2020, due to an 18% increase in potash sales volume.
Potash production decreased 18% compared to the first quarter of 2020 due to lower brine grade at our HB facility and reduced run days at our Moab plant as we increased salt production to meet first quarter demand.
Our potash segment gross margin increased $4.3 million in the first quarter of 2021, compared to the same period in 2020, due to the factors discussed above.
Additional Information Relating to Potash
The table below shows our potash sales mix for the three and nine months ended March 31, 2021, and 2020:
Three Months Ended March 31,
20212020
Agricultural86%81%
Industrial2%5%
Feed12%14%
28

Trio® Segment
Three Months Ended March 31,
(in thousands, except per ton amounts)20212020
Sales1
$23,694 $22,581 
Less: Freight costs6,440 6,548 
         Warehousing and handling
         costs
1,176 1,608 
         Cost of goods sold16,148 17,430 
         Lower of cost or net
         realizable value inventory
         adjustments
— 550 
Gross (Deficit) Margin$(70)$(3,555)
Depreciation, depletion, and amortization incurred2
$1,507 $1,508 
Sales volumes (in tons)69 76 
Production volumes (in tons)56 50 
Average Trio® net realized sales price per ton3
$233 $193 
1 Sales include sales of byproducts which were $1.2 million and $1.4 million for the three months ended March 31, 2021, and 2020, respectively.
2 Depreciation, depletion, and amortization incurred excludes depreciation, depletion, and amortization amounts absorbed in or (relieved from) inventory.
3Average net realized per ton sales price per ton is a non-GAAP financial measure. More information about this measure, is below under the heading "Non-GAAP Financial Measure."
Three Months Ended March 31, 2021, and 2020
Trio® segment sales increased 5% for the three months ended March 31, 2021, as compared to the same period in 2020. The increase was primarily due to a 21% increase in average net realized sales price per ton, partially offset by a 9% decrease in Trio® tons sold. Sales volumes decreased as we continued to sell fewer tons into international markets as we focus on the higher priced domestic market. Our Trio® average net realized sales price per ton increased due to higher pricing announced during the fourth quarter of 2020 and the first quarter of 2021 and a decrease in international sales which generally have a lower net realized sales price per ton.
Trio® freight costs decreased 2% in the first quarter of 2021, compared to the first quarter of 2020, due to the decrease in total sales volumes. Our freight expense is impacted by the geographic distribution of our Trio® sales and by the proportion of customers arranging for and paying their own freight costs.
Our Trio® cost of goods sold decreased 7% in the first quarter of 2021, compared to the first quarter of 2020, due mainly to a 9% decrease in sales volumes.
In the first quarter of 2020, we recorded a $0.6 million lower of cost or net realizable value of inventory adjustments due to reduced production rates that increased our per-ton cost of production combined with lower overall price levels.
    Our Trio® production volume increased 12% in the first quarter of 2021, compared to the first quarter of 2020, as we converted more tons of work-in-process inventory to premium Trio®.
    Our Trio® segment generated a negative gross margin of $0.1 million in the first quarter of 2021, compared to a negative gross margin of $3.6 million in the first quarter of 2020, due to the factors discussed above.
    Additional Information Relating to Trio®
    The percentage of Trio® tons sold into the export market decreased during the three months ended March 31, 2021, compared to the same period in 2020, due to our increased focus on domestic shipments and variability in the timing of shipments to international customers.
United StatesExport
For the Three Months Ended March 31 202194%6%
For the Three Months Ended March 31, 202070%30%

29

Oilfield Solutions Segment
    
Three Months Ended March 31,
(in thousands)20212020
Sales$4,253 $7,741 
         Cost of goods sold3,748 2,897 
Gross Margin$505 $4,844 
Depreciation, depletion, and amortization incurred$688 $632 
Three Months Ended March 31, 2021, and 2020
    Our oilfield solutions segment sales decreased $3.5 million in the first quarter of 2021, compared to the same period in 2020, mainly due to a $3.3 million decrease in water sales. Our oilfield solutions water sales and sales of other oilfield products and services decreased as the COVID-19 pandemic reduced oilfield activity from year-ago levels. Water that we sell that was used in the production of potash and Trio® is accounted for as byproduct water sales in the potash or Trio® segments.
    Cost of goods sold increased 29%, or $0.9 million for the three months ended March 31, 2021, compared to the three months ended March 31, 2020, primarily a result of increased third-party water purchases to meet the significant daily refresh rates for certain fracs on our South ranch. During the first quarter of 2021, we sold a majority of our water from water rights on our South ranch, while in the first quarter of 2020 we sold a majority of our water from our Pecos and Caprock water rights. Our water sales from our South ranch water rights generally carry a higher cost of goods sold as compared to sales from our Pecos and Caprock water rights.
Gross margin for the three months ended March 31, 2021, decreased $4.3 million compared to the prior year, due to the factors discussed above.
    
Specific Factors Affecting Our Results
Sales
    Our gross sales are derived from the sales of potash, Trio®, water, salt, magnesium chloride, brine water and various other products and services offered to oil and gas producers. Total sales are determined by the quantities of product we sell and the sales prices we realize. For potash, Trio® and salt, we quote prices to customers both on a delivered basis and on the basis of pick-up at our plants and warehouses. Freight costs are incurred on most of our potash, Trio® and salt sales, but some customers arrange and pay for their own freight directly. When we arrange and pay for freight, our quotes and billings are based on expected freight costs to the points of delivery. When we calculate our potash and Trio® average net realized sales price per ton, we deduct any freight costs included in sales before dividing by the number of tons sold. We believe the deduction of freight costs provides a more representative measure of our performance in the market due to variations caused by ongoing changes in the proportion of customers paying for their own freight, the geographic distribution of our products, and freight rates. Freight rates have been increasing, and if we are unable to pass the increased freight costs on to the customer, our average net realized sales price per ton is negatively affected. We manage our sales and marketing operations centrally and we work to achieve the highest average net realized sales price per ton we can by evaluating the product needs of our customers and associated logistics and then determining which of our production facilities can best satisfy these needs.
    The volume of product we sell is determined by demand for our products and by our production capabilities. We operate our potash and Trio® facilities at production levels that approximate expected demand and take into account current inventory levels and expect to continue to do so for the foreseeable future.
    Our water sales and other products and services offered through our oilfield solutions segment are driven by demand from oil and gas exploration companies drilling in the Permian Basin. As such, demand for our water is generally stronger during a cyclical expansion of oil and gas drilling. Likewise, a cyclical contraction of oil and gas drilling may decrease demand for our water and the other products and services offered through our oilfield solutions segment. The COVID-19 pandemic has caused an unprecedented decrease in the demand for oil, resulting in lower prices and significant decreases in oil and gas activity, and our total water sales, including byproduct water sales, decreased 35% in the first quarter of 2021 compared to the first quarter of 2020. Rig counts, oil pricing, and oilfield activity have increased from the summer of 2020 and we expect oilfield activity will improve as the year continues, although economic uncertainty and the potential for future restrictions enacted by state and local governments resulting from the COVID-19 pandemic may negatively impact oilfield activity.
30

    Cost of Goods Sold
    Our cost of goods sold reflects the costs to produce our products. Many of our production costs are largely fixed and, consequently, our cost of sales per ton on a facility-by-facility basis tends to move inversely with the number of tons we produce, within the context of normal production levels. Our principal production costs include labor and employee benefits, maintenance materials, contract labor, and materials for operating or maintenance projects, natural gas, electricity, operating supplies, chemicals, depreciation and depletion, royalties, and leasing costs. There are elements of our cost structure associated with contract labor, consumable operating supplies, reagents, and royalties that are variable, which make up a smaller component of our cost base. Our costs often vary from period to period based on the fluctuation of inventory, sales, and production levels at our facilities.
    Our production costs per ton are also impacted when our production levels change, due to factors such as changes in the grade of ore delivered to the plant, levels of mine development, plant operating performance, and downtime. We expect that our labor and contract labor costs in Carlsbad, New Mexico, will continue to be influenced most directly by the demand for labor in the local region where we compete for labor with another fertilizer company, companies in the oil and gas industry, and a nuclear waste processing and storage facility.
    We pay royalties to federal, state, and private lessors under our mineral leases. These payments typically equal a percentage of sales (less freight) of minerals extracted and sold under the applicable lease. In some cases, federal royalties for potash are paid on a sliding scale that vary with the grade of ore extracted. For the three months ended March 31, 2021, and 2020, our average royalty rate was 4.9% and 4.4%, respectively.
    Income Taxes
We are subject to federal and state income taxes on our taxable income. Our effective tax rate for the three months ended March 31, 2021 and 2020, was zero percent. Our effective tax rate differed from the statutory rate during each period primarily due to the valuation allowance established to offset our deferred tax assets.
Our federal and state income tax returns are subject to examination by federal and state tax authorities.
For the three months ended March 31, 2021 we incurred no income tax expense and for the three months ended March 31, 2020 we recognized an immaterial amount of income tax benefit.
We evaluate our deferred tax assets and liabilities each reporting period using the enacted tax rates expected to apply to taxable income in the periods in which the deferred tax liability or asset is expected to be settled or realized. The estimated statutory income tax rates that are applied to our current and deferred income tax calculations are impacted most significantly by the states in which we conduct business. Changing business conditions for normal business transactions and operations, as well as changes to state tax rate and apportionment laws, potentially alter our apportionment of income among the states for income tax purposes. These changes in apportionment laws result in changes in the calculation of our current and deferred income taxes, including the valuation of our deferred tax assets and liabilities. The effects of any such changes are recorded in the period of the adjustment. These adjustments can increase or decrease the net deferred tax asset on our condensed consolidated balance sheet. However, any resulting impact to the deferred tax benefit or deferred tax expense would be offset by a corresponding adjustment to the valuation allowance and would have no income statement effect.
As of March 31, 2021, we were in a near break-even cumulative three-year income position. Additionally, general uncertainty in the business markets we operate makes it difficult to forecast sustained amounts of future income. These circumstances are significant negative evidence when evaluating the realizability of our deferred tax assets. This negative evidence continues to outweigh the positive evidence of profitability in 2018, and 2019, thereby requiring us to maintain the full valuation allowance as of March 31, 2021. However, we continue to evaluate the need to maintain the valuation allowance against the deferred tax assets and to the extent positive evidence trends continue and our future long-term forecasts show sustained profitability, our conclusion regarding the need to maintain a full valuation allowance could change.

31

Capital Investments
    During the first three months of 2021, cash paid for property, plant, equipment, mineral properties, intangible and other assets was $2.4 million.
We expect to make capital investments in 2021 of $25 million to $35 million, although the trajectory of the COVID-19 pandemic and the recent volatility in oil and gas markets make this number difficult to estimate. We anticipate spending approximately $12 million to $15 million on sustaining capital projects in 2021, with the remainder of our estimated spending on opportunity projects. We have significant discretion over our opportunity capital investments in 2021 and we may adjust our investment plans as our expectations for 2021, particularly those expectations affected by the COVID-19 pandemic, change. We anticipate our 2021 operating plans and capital programs will be funded out of operating cash flows and existing cash. We may also use our revolving credit facility, to the extent available, to fund capital investments.

Liquidity and Capital Resources
As of March 31, 2021, we had cash of $36.0 million, compared with cash of $19.5 million at December 31, 2020. In April 2020, we received a $10 million loan under the CARES Act Paycheck Protection Program (the "PPP"). The loan matures on April 18, 2022 and bears interest at a rate of 1% per annum. We were required to begin monthly payments of principal and interest in the amount of $0.6 million in November 2020, but due to extensions of the program and delays in the forgiveness application process, we do not expect to make any payments on the loan until a decision is made on our forgiveness application. We may prepay the loan at any time prior to maturity with no prepayment penalties. We used the funds exclusively for allowed payroll, benefits and other expenses and expect the majority of the loan, if not all, will be forgiven. During the second quarter of 2020, the program was amended to allow borrowers to choose either an eight-week or 24-week period to use the funds. We elected to use the 24-week period, which ended in October 2020. The amount eligible for forgiveness is based on the amount of loan proceeds used by us (during the 24-week period after the lender makes the first disbursement of loan proceeds) for the payment of certain covered costs, including payroll costs (including benefits), subject to certain limitations and reductions in accordance with the CARES Act. We submitted our application for forgiveness of the full $10 million loan in November 2020. No assurance can be given that we will obtain forgiveness of the loan in whole or in part. In addition, as a borrower that received over $2.0 million, we expect to be subject to an audit to review our eligibility under the PPP. The timing and scope of the audit remains unclear and as a result we are not able to forecast when we can expect a decision on loan forgiveness. We do not expect the audit will impact our eligibility for forgiveness under the PPP. The loan contains customary events of default relating to, among other things, payment defaults, making materially false and misleading representations to the lender or breaching the terms of the loan documents.
Our operations have primarily been funded from cash on hand, cash generated by operations, borrowing under our revolving credit facility, and proceeds from debt and equity offerings. We continue to monitor our future sources and uses of cash and anticipate that we will adjust our capital allocation strategies when, and if, determined by our Board of Directors. We may, at any time we deem conditions favorable, attempt to improve our liquidity position by accessing debt or equity markets in accordance with our existing debt agreements. We also may raise capital in the future through the issuance of additional equity or debt securities, subject to prevailing market conditions. However, there is no assurance that we will be able to successfully raise additional capital on acceptable terms or at all. With the remaining availability under our credit facility, the proceeds of our loan pursuant of the Paycheck Protection Program under the CARES Act and with expected cash generated from operations, we believe we have sufficient liquidity to meet our obligations for the next twelve months.
The following summarizes our cash flow activity for the three months ended March 31, 2021, and 2020 (in thousands):
Three Months Ended March 31,
20212020
Cash flows provided by operating activities$19,109 $14,771 
Cash flows used in investing activities$(2,313)$(924)
Cash flows (used in) provided by financing activities$(292)$9,951 

Operating Activities
Total cash provided by operating activities through March 31, 2021, was $19.1 million, an increase of $4.3 million compared with the first three months of 2020 due to increased potash and Trio® sales.
32

Investing Activities
    Total cash used in investing activities increased by $1.4 million in the first three months of 2021, compared with the same period in 2020. Cash used for capital investments decreased by $3.3 million compared to the first quarter of 2020 as we continue to prudently manager cash flow in light of economic uncertainty caused by the COVID-19 pandemic. The first quarter of 2020 also benefited from $4.8 million in proceeds from a land sale from our Intrepid South ranch.
Financing Activities
Total cash used in financing activities increased by $10.2 million as we did not make any additional borrowings under our credit facility during the first quarter of 2021, as compared to $10 million in additional borrowings under our credit facility during the first quarter of 2020.
Senior Notes—As of March 31, 2021, we had outstanding $15 million of Series B Senior Notes, due on April 14, 2023.
    The agreement governing the Series B Senior Notes contains certain financial covenants, including the following:
We are required to maintain a minimum fixed charge coverage ratio of 1.3 to 1.0 as of the last day of each quarter, measured based on the previous four quarters. Our fixed charge coverage ratio as of March 31, 2021, was 7.5 to 1.0.
We are allowed a maximum leverage ratio of 3.5 to 1.0 as of the last day of each quarter, measured based on the previous four quarters. Our leverage ratio as of March 31, 2021, was 2.0 to 1.0.
    Fixed charge coverage ratio and leverage ratio are calculated in accordance with the agreement governing the Series B Senior Notes, each of which includes earnings before interest, taxes, depreciation and amortization ("EBITDA") as a component. As of March 31, 2021, we were in compliance with all applicable covenants under the Series B Senior Notes.
    For the three months ended March 31, 2021, and the three months ended March 31, 2020, the interest rates on the Series B Notes was 4.63%. This rate represents the lowest interest rate available under the Series B Senior Notes. The interest rate may adjust upward if we do not continue to meet certain financial covenants.
    We have granted to the collateral agent for the noteholders a first lien on substantially all of our non-current assets and a second lien on substantially all of our current assets. We are required to offer to prepay the Series B Senior Notes with the proceeds of dispositions of certain specified property and with the proceeds of certain equity issuances, as set forth in the agreement governing the Series B Senior Notes. The obligations under the Notes are unconditionally guaranteed by several of our subsidiaries.
    Our outstanding long-term debt, net, as of March 31, 2021, and December 31, 2020, was as follows (in thousands):
March 31, 2021December 31, 2020
Notes and Payroll Protection Loan$24,978 $25,000 
Less current portion of long-term debt(10,000)(10,000)
Less deferred financing costs(66)(74)
Long-term debt, net$14,912 $14,926 

Credit Facility—We maintain a revolving credit facility with Bank of Montreal. As of March 31, 2021, borrowings under the credit facility bear interest at LIBOR (London Interbank Offered Rate) plus an applicable margin of 1.25% to 2.00% per annum, based on our leverage ratio as calculated in accordance with the agreement governing the credit facility. We have granted to Bank of Montreal a first lien on substantially all of our current assets and a second lien on substantially all of our non-current assets. The obligations under the credit facility are unconditionally guaranteed by several of our subsidiaries.
    We occasionally borrow and repay amounts under the facility for near-term working capital needs or other purposes and may do so in the future. During the three months ended March 31, 2021, we made no borrowings and we made no repayments under the facility. As of March 31, 2021, and December 31, 2020, we had $29.8 million of borrowings outstanding and $1 million in outstanding letters of credit under the facility. Including the outstanding letters of credit, we had $35.0 million available to be borrowed under the facility as of March 31, 2021.
As of March 31, 2021, we were in compliance with all applicable covenants under the revolving credit facility.
33

    During the three months ended March 31, 2020, we borrowed $10 million under the facility and made no repayments.
    As of April 30, 2021, we had $29.8 million of borrowings, $1.0 million in outstanding letters of credit under the facility, and approximately $46.0 million in cash. Including the outstanding letters of credit, we had $35.0 million available to be borrowed under the facility.
PPP Loan—In April 2020, we received a $10 million loan under the Paycheck Protection Program (the "PPP") under the CARES Act. The loan matures on April 18, 2022 and bears interest at a rate of 1% per annum. We were required to begin monthly payments of principal and interest in the amount of $0.6 million in November 2020, but due to extensions of the program and delays in the forgiveness application process, we do not expect to make any payments on the loan until a decision is made on our forgiveness application. We may prepay the loan at any time prior to maturity with no prepayment penalties. We used the funds exclusively for allowed payroll and benefits expenses and expect the majority of the loan, if not all, will be forgiven. The loan contains customary events of default relating to, among other things, payment defaults, making materially false and misleading representations to the lender or breaching the terms of the loan documents.
During the second quarter of 2020, the PPP was amended to allow borrowers to choose either an eight-week or 24-week period to use the funds. We elected to use the 24-week period, ended in early October 2020. The amount eligible for forgiveness is based on the amount of loan proceeds used by us (during the 24-week period after the lender makes the first disbursement of loan proceeds) for the payment of certain covered costs, including payroll costs (including benefits), subject to certain limitations and reductions in accordance with the CARES Act. We submitted our application for forgiveness of the full $10 million loan in November 2020. No assurance can be given that we will obtain forgiveness of the loan in whole or in part. In addition, as a borrower that received over $2.0 million, we expect to be subject to an audit to review our eligibility under the PPP. The timing and scope of the audit remains unclear and as a result we are not able to forecast when we can expect a decision on loan forgiveness. We do not expect the audit will impact our eligibility for forgiveness under the PPP.
Off-Balance Sheet Arrangements
As of March 31, 2021, we had no material off-balance sheet arrangements aside from the bonding obligations described in Note 14 to the condensed consolidated financial statements.

Critical Accounting Policies and Estimates
    Our Annual Report on Form 10-K for the year ended December 31, 2020, describes the critical accounting policies that affect our more significant judgments and estimates used in the preparation of our consolidated financial statements. We have not made any significant changes to our critical accounting policies since December 31, 2020.


34

Non-GAAP Financial Measure
    To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, from time to time we use "average net realized sales price per ton," which is a non-GAAP financial measure. This non-GAAP financial measure should not be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. In addition, because the presentation of this non-GAAP financial measure varies among companies, our presentation of this non-GAAP financial measure may not be comparable to similarly titled measures used by other companies.
    We believe average net realized sales price per ton, when used in conjunction with GAAP financial measures, provides useful information to investors for analysis of our business and operating results, enhances the overall understanding of past financial performance and future prospects, and allows for greater transparency with respect to the key metric we use in our financial and operational decision making. We use this non-GAAP financial measure as one of our tools in comparing period-over-period performance on a consistent basis and when planning, forecasting, and analyzing future periods. We believe this non-GAAP financial measure is used by professional research analysts and others in the valuation, comparison, and investment recommendations of companies in the potash mining industry. Many investors use the published research reports of these professional research analysts and others in making investment decisions.     
Average Net Realized Sales Price per Ton
    We calculate average net realized sales price per ton for each of potash and Trio®. Average net realized sales price per ton for potash is calculated as potash segment sales less potash segment byproduct sales and potash freight costs and then dividing that difference by the number of tons of potash sold in the period. Likewise, average net realized sales price per ton for Trio® is calculated as Trio® segment sales less Trio® segment byproduct sales and Trio® freight costs and then dividing that difference by Trio® tons sold. We consider average net realized sales price per ton to be useful, and believe it to be useful for investors, because it shows our potash and Trio® average per-ton pricing without the effect of certain transportation and delivery costs. When we arrange transportation and delivery for a customer, we include in revenue and in freight costs the costs associated with transportation and delivery. However, some of our customers arrange for and pay their own transportation and delivery costs, in which case these costs are not included in our revenue and freight costs. We use average net realized sales price per ton as a key performance indicator to analyze potash and Trio® sales and price trends.
    Below is a reconciliation of average net realized sales price per ton to the most directly comparable GAAP financial measure for the three months ended March 31, 2021, and 2020:
Three Months Ended March 31,
20212020
(in thousands, except per ton amounts)Potash
Trio®
Potash
Trio®
Total Segment Sales$43,578 $23,694 $33,791 $22,581 
Less: Segment byproduct sales5,784 1,180 3,973 1,380 
          Freight costs4,809 6,440 4,540 6,534 
   Subtotal$32,985 $16,074 $25,278 $14,667 
Divided by:
Tons sold117 69 99 76 
   Average net realized sales price per ton$282 $233 $255 $193 



35

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    Part II, Item 7A., "Quantitative and Qualitative Disclosure About Market Risk," of our Annual Report on Form 10-K for the year ended December 31, 2020, describes our exposure to market risk. There have been no significant changes to our market risk exposure since December 31, 2020.

ITEM 4.CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
    We maintain "disclosure controls and procedures as defined in Rule 13a-15(e) of the Exchange Act." Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Our disclosure controls and procedures are also designed to ensure that this information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Under the supervision and with the participation of management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures as of March 31, 2021. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of March 31, 2021, at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
    There were no changes in our internal control over financial reporting that occurred during the three months ended March 31, 2021, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
    Our management, including our principal executive officer and principal financial officer, do not expect that our disclosure controls or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Intrepid have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

36

PART II - OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
    For information regarding litigation, other disputes and regulatory proceedings see Part I - Item1. Financial Statements, Note 14 - Commitments and Contingencies.

37

ITEM 1A.RISK FACTORS
    Our future performance is subject to a variety of risks and uncertainties that could materially and adversely affect our business, financial condition, results of operations, and the trading price of our common stock. These risks and uncertainties are described in Part I, Item 1A. "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2020. There have been no material changes to these risks and uncertainties described in our Annual Report on Form 10-K for the year ended December 31, 2020.





38

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
Period
(a)
Total Number of Shares Purchased1
(b)
Average Price Paid Per Share
(c)
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
(d)
Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plan or Programs
January 1, 2021 through January 31, 2021— — N/A
February 1, 2021 through February 28, 2021— $— N/A
March 1, 2021, through March 31, 20215,468 $37.15 N/A
Total5,468 $37.15 N/A
1 Represents shares of common stock withheld by us as payment of withholding taxes due upon the vesting of restricted stock held by our employees.

ITEM 3.DEFAULTS UPON SENIOR SECURITIES
None.

ITEM 4.MINE SAFETY DISCLOSURES
    We are committed to providing a safe and healthy work environment. The objectives of our safety programs are to eliminate workplace accidents and incidents, preserve employee health, and comply with all safety- and health-based regulations. We seek to achieve these objectives by training employees in safe work practices; establishing, following, and improving safety standards; involving employees in safety processes; openly communicating with employees about safety matters; and recording, reporting, and investigating accidents, incidents, and losses to avoid recurrence. As part of our ongoing safety programs, we collaborate with the Mine Safety and Health Administration (“MSHA”) and the New Mexico Bureau of Mine Safety to identify and implement accident prevention techniques and practices.
    Our East, West, and North facilities in New Mexico are subject to regulation by MSHA under the Federal Mine Safety and Health Act of 1977 and the New Mexico Bureau of Mine Safety. MSHA inspects these facilities on a regular basis and issues various citations and orders when it believes a violation has occurred under federal law. Exhibit 95.1 to this Quarterly Report on Form 10-Q provides the information concerning mine safety violations and other regulatory matters required by SEC rules. Our Utah and HB facilities are subject to regulation by the Occupational Health and Safety Administration and, therefore, are not required to be included in the information provided in Exhibit 95.1.


ITEM 5.OTHER INFORMATION
    None.

39

ITEM 6.EXHIBITS    
Exhibit No.Description
Certificate of Amendment to the Certificate of Incorporation of Intrepid Potash, Inc. (incorporated by reference to Exhibit 3.1 of our current Report on Form 8-K filed on August 14, 2020).
Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a), as amended.*
Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a), as amended.*
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
Mine Safety Disclosure Exhibit.*
101.INSXBRL Instance Document.*
101.SCHXBRL Taxonomy Extension Schema.*
101.CALXBRL Extension Calculation Linkbase.*
101.LABXBRL Extension Label Linkbase.*
101.PREXBRL Extension Presentation Linkbase.*
101.DEFXBRL Extension Definition Linkbase.*
104Cover page Interactive Data File (formatted as Inline XBRL and contained in exhibit 101)
*        Filed herewith.
**    Furnished herewith.

40

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
INTREPID POTASH, INC.
(Registrant)
Dated: May 4, 2021/s/ Robert P. Jornayvaz III
Robert P. Jornayvaz III - Executive Chairman of the Board, President, and Chief Executive Officer
(Principal Executive Officer)
Dated: May 4, 2021/s/ Matthew D. Preston
Matthew D. Preston - Vice President - Finance
(Principal Financial Officer and Principal Accounting Officer)
41