Item 7. Management’s Discussion and Analysis
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis should be read in conjunction with the accompanying consolidated financial statements and related notes contained in "Item 8. Financial Statements and Supplemental Data" of this Annual Report.
This Management's Discussion and Analysis contains forward‑looking statements that involve risks, uncertainties, and assumptions as described under the heading "Cautionary Note Regarding Forward‑Looking Statements," in Part I of this Annual Report. Our actual results could differ materially from those anticipated by these forward‑looking statements as a result of many factors, including those discussed under "Item 1A. Risk Factors" and elsewhere in this Annual Report.
A discussion of the changes in our results of operations between the years ended December 31, 2023, and December 31, 2022, has been omitted from this Annual Report on Form 10-K but may be found in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 7, 2024, which is available free of charge on the SEC's website at www.sec.gov and our corporate website (www.intrepidpotash.com).
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 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 sulfur, 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 U.S. 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 also have certain land, water rights, federal grazing leases, and other related assets in southeast New Mexico. We refer to these assets and operations as "Intrepid South." Intrepid South generates revenue from sales of various oilfield related products and services, including but not limited to, water, brine, surface use and right-of-way agreements, a produced water royalty agreement, and caliche sales.
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. For each of the years ended December 31, 2024, 2023, and 2022, a majority of our byproduct sales were accounted for in the potash segment.
Recent Developments
In April 2024, our Board of Directors (the "Board") granted Robert P. Jornayvaz III, our Executive Chairman of the Board and Chief Executive Officer (the "CEO"), a medical leave of absence, while he recovered from a non-work related accident. Our Board appointed Matthew D. Preston, our Chief Financial Officer, as principal executive officer. Our Board also temporarily delegated all responsibilities of the Chairman of the Board to Barth Whitham, Lead Director. Our Board also appointed Hugh E. Harvey, our co-founder with Mr. Jornayvaz, to serve as a Class III director on the Board. On July 10, 2024, our Board announced that it was unlikely that Mr. Jornayvaz would return from his extended medical leave of absence and it had initiated a search process to identify a successor to Mr. Jornayvaz in the CEO role.
On September 30, 2024, Mr. Jornayvaz resigned as CEO and as a member of our Board. On November 26, 2024, our Board appointed Kevin S. Crutchfield as CEO of the Company and a member of the Board as a Class III director, in each case effective December 2, 2024.
On January 14, 2025, our Board increased the size of the Board from seven directors to eight directors, and the Board appointed Gonzalo Avendano as an additional independent director to the fill the vacancy created by the expansion of the Board and to serve as a Class I director of the Company.
Significant Business Trends and Activities
Our financial results have been, or are expected to be, impacted by several significant trends and activities, including impacts from global disruptions. Given the dynamic nature of such disruptions, we cannot reasonably estimate the impacts of
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such disruptions, if any, on our financial condition, results of operations, liquidity, or cash flows in the future. We expect that any such disruptions may have a material effect on revenue growth, financial condition, liquidity, and overall profitability in future reporting periods. Please see further discussion under "Item 1A. Risk Factors."
We expect that the trends described below may continue to impact our results of operations, cash flows, and financial position.
• Potash pricing and demand. Our average net realized sales price for potash decreased to $377 per ton in 2024 compared to $466 per ton in 2023 as global potash production improved back to 2021 levels leading to a more balanced global potash market. In January 2025, a winter-fill agricultural potash program was announced decreasing the list price for agricultural potash by $20 per ton to $315 per ton during a one-week order window, before the list price increased back to $340 per ton. Subscription under the fill program was generally positive, with most customers placing orders for the entirety of their first quarter needs. After the fill program and subsequent price increase, U.S potash prices are trading in line with global prices levels, supported by improving crop prices and a positive outlook on spring planting. Our price expectations could be affected by, among other things, weather, planting decisions, rail car availability, commodity price decreases and the price and availability of other potassium products. As a smaller producer relative to the overall market, 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, tariffs, and crop commodity values and outlook, also influence pricing.
• Trio ® pricing and demand. Our average net realized sales price for Trio ® decreased to $311 per ton in 2024, compared to $321 per ton in 2023, as increasing sulfate values mostly offset declines in potassium pricing during the year. In January 2025, improving agricultural commodity prices led to strong early season demand and customers were willing to commit to the majority of their spring needs. Given the good demand and continued improvements in sulfate pricing, we increased our posted price for Trio ® by $20 per ton in late January to $375 per ton, and expect to realize the higher price levels on tons shipped in the second quarter of 2025. Our ability to realize the increased prices may be affected by, among other things, weather, planting decisions, rail car availability, commodity price decreases, and the price and availability of other potassium products.
Overall average net realized sales price per ton for Trio ® will continue to be impacted by the percentage of international sales, particularly to offshore markets. Competition from lower cost alternatives and freight costs continues to negatively impact our average net realized sales price per ton to offshore markets. We plan to continue a price-over-volume strategy internationally by focusing on those international markets where we obtain the highest average net realized sales price per ton and thus the highest margin.
We 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. We continue to operate our facilities at reduced production levels that approximate expected demand and allow us to manage inventory levels.
• Strategic Focus on our Solar Solution Mining Facilities. Key current and future projects include:
◦ We successfully commissioned Phase Two of the HB Injection Pipeline Project in the third quarter of 2024. Since commissioning, our brine injection rates have averaged approximately 1,900 gallons per minute, which is 30% higher than the previous gallons per minute injection rate highs achieved in 2014.
◦ We completed the construction of a new primary pond in Wendover in June 2024 and are in the process of filling the pond with brine. Similar to our caverns at the Moab and HB mines, the primary ponds at Wendover serve as the brine storage area, and adding another primary pond will help us meet our goals of maximizing brine availability, increasing brine grade, and improving production. We expect to see the production benefits of the new primary pond beginning in 2025 - 2026 production year.
◦ HB AMAX Cavern - In the third quarter of 2024, we started the permitting process to drill a sample well into the AMAX Cavern at HB in order to measure the brine chemistry of the existing cavern. AMAX is the largest cavern in the HB system and is expected to serve as an expansion area to the original HB caverns which have been in service for over ten years. We are close to completing the permitting process and expect to drill the well in the second quarter of 2025.
• Water sales. Water sales decreased in 2024 to $13.6 million, compared to $15.2 million in 2023. The majority of our water sales are from Intrepid South, where we sell water through our truck station or directly to operators. In 2024, we supplied water for one drilling program during the third quarter which accounted for approximately $5.5 million, or 40%, of our total water sales. Due to the large drilling program, we purchased $3.6 million of water for resale during 2024, a $2.2 million increase compared to 2023. Overall, we have seen a trend towards larger frac operations on Intrepid South due to the increasing length and number of laterals drilled. These operations require significant amounts
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of water for a sustained period which has resulted in us relying more on third-party water to meet the needs of operators as we are unable to provide the volumes necessary with our own wells and pond infrastructure. While oil and gas activity remains strong in southeast New Mexico and on Intrepid South, we expect continued volatility in our water sales as the amount of water required varies between frac operations and the timing of operations is difficult to predict.
• Byproduct sales. Byproduct sales decreased to $25.3 million in 2024 compared to $30.6 million in 2023, driven primarily by a $5.6 million decrease in byproduct water sales as we increased the volume of water used for injection at our HB plant and we sold fewer barrels of water from our Caprock water rights. Magnesium chloride sales decreased $2.8 million compared to 2023, as limited snowfall events in the first half of 2024, combined with customers entering 2024 with high-levels of inventory of dust control magnesium chloride, reduced sales during the year. Byproduct brine sales into oil and gas markets in southeast New Mexico increased $2.6 million during 2024 as consistent oil and gas activity near our operations led to a 17% increase in barrels sold compared to the prior year.
• Other oilfield products and services. Our revenue from brine and other oilfield products and services, excluding water, recorded in our oilfield solutions segment decreased to $11.1 million in 2024, compared to $11.7 million in 2023, mainly driven by a $1.0 million decrease in surface use and right of way revenue at Intrepid South.
In the fourth quarter of 2024, we recorded impairment charges of $6.4 million mainly related to our frac sand opportunity and other oilfield related equipment as it is unlikely we will continue to pursue this opportunity as we focus on our core business. We still hold the necessary permits for the sand operation and believe the potential for a frac sand operation increases the overall value of Intrepid South.
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Consolidated Results
(in thousands) Year Ended December 31,
2024 2023
Sales 1
$ 254,694 $ 279,083
Cost of Goods Sold $ 171,415 $ 187,278
Lower of cost or net realized value inventory adjustments $ 3,957 $ 6,492
Gross Margin $ 29,082 $ 36,846
Loss Before Income Taxes (18,512) (44,062)
Income Tax (Expense) Benefit (194,333) 8,389
Net Loss $ (212,845) $ (35,673)
Average Net Realized Sales Price per Ton 2
Potash $ 377 $ 466
Trio ®
$ 311 $ 321
1 Sales include sales of byproducts which were $25.3 million and $30.6 million for the years ended December 31, 2024, and 2023, respectively.
2 Average net realized sales price per ton is a non-GAAP measure. More information about this non-GAAP measure is below under the heading "Non-GAAP Financial Measure."
Consolidated Results for the Years Ended December 31, 2024, and 2023
Sales
Our total sales decreased $24.4 million, or 9% in 2024, compared to 2023, as potash segment sales decreased $31.1 million, partially offset by an increase of $3.2 million in Trio ® segment sales and an increase of $3.4 million in oilfield solutions segment sales.
Our total potash segment sales decreased $31.1 million during 2024, compared to 2023, driven by a decrease of $30.9 million in potash sales. Our potash sales decreased as our potash average net realized sales price per ton decreased 19%, combined with a 7% decrease in tons of potash sold. Our average net realized sales price per potash ton decreased in 2024 compared to 2023, as the available supply of potash increased in 2024. We sold fewer tons of potash in 2024, compared to 2023, as we began 2024 with less inventory of potash to sell due to lower potash production from our HB and Wendover facilities during the second half of 2023. Potash production improved at our HB and Wendover facilities during 2024 compared to 2023, but annual production at our Wendover facility remains below its historical annual production level. Potash segment byproduct sales decreased $0.1 million in 2024 compared to 2023, as decreases in magnesium chloride and byproduct water sales were mostly offset by increases in brine water and salt sales.
Our total Trio ® segment sales increased by $3.2 million during 2024 compared to 2023, driven by an increase of $8.4 million in Trio ® sales, partially offset by a decrease of $5.2 million in Trio ® segment byproduct sales. We sold 11% more tons of Trio ® in 2024 compared to 2023, partially offset by a 3% decrease in our Trio ® average net realized sales price per ton during 2024, compared to 2023. Our Trio ® byproduct sales decreased as we did not sell any Trio ® segment byproduct water in 2024, while we sold $5.3 million in Trio ® segment byproduct water in 2023.
Our oilfield solutions segment sales increased by $3.4 million in 2024, compared to 2023, driven by an increase of $4.0 million in water sales, and an increase of $0.1 million in brine water sales, partially offset by a $0.7 million decrease in other products and services. Our oilfield solutions segment water revenues increased due to the completion of a large frac on Intrepid South during the third quarter of 2024. Demand for brine water sales remained strong in 2024 due to continued oil and gas activity in the Permian Basin near Intrepid South. Sales of our other products and services decreased in 2024, compared to
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2023, due to a decrease in surface use and easement sales. Surface use and easement sales fluctuate based on the time of recognizing sales from the various performance obligations contained in the underlying agreements.
Cost of Goods Sold
Our total cost of goods sold decreased $15.9 million, or 8%, in 2024, compared to 2023. Our potash segment cost of goods decreased $13.5 million, or 14%, and our Trio ® segment cost of goods sold decreased $4.3 million, or 6%, partially offset by an increase of $1.9 million, or 13%, in our oilfield solutions segment cost of goods sold.
Our potash segment cost of goods sold decreased 14% in 2024 compared to 2023, due to selling 7% fewer tons of potash in 2024, compared to 2023. In addition to selling fewer tons of potash in 2024, we produced 32% more tons of potash in 2024 compared to 2023, which lowered our per ton production costs. A significant portion of our production costs are fixed and an increase in the number of potash tons produced decreases our per ton production costs.
Our Trio ® segment cost of goods sold decreased 6% in 2024 compared to 2023. We sold 11% more tons of Trio ® in 2024 compared to 2023, but our weighted average carrying cost per ton of Trio ® decreased as we incurred less production labor, natural gas, and depreciation expenses in 2024 compared to 2023. Trio ® segment labor costs decreased as we operated fewer shifts in 2024 compared to 2023. Trio ® segment depreciation expense decreased in 2024 compared to 2023 due to the impairment that was recorded in December 2023 for our Trio ® segment assets. Trio ® segment natural gas expenses decreased in 2024 compared to 2023, as natural gas prices spiked in early 2023 due to supply constraints in the western U.S. In addition, we produced 16% more tons of Trio ® in 2024 compared to 2023. Because a significant portion of our production costs are fixed, an increase in tons produced reduces our production costs per ton.
Our oilfield solutions segment cost of goods sold increased 13% in 2024 compared to 2023, as we purchased more third-party water for resale in 2024 compared to 2023, to meet the demand for a large frac on Intrepid South.
Lower of Cost or Net Realizable Value ("NRV") Inventory Adjustments
During 2024, we recorded lower of cost or NRV inventory adjustments of $4.0 million as our weighted average carrying costs for certain potash products exceeded our expected selling price for those products. During the year ended December 31, 2023, we recorded lower of cost or NRV adjustments of $6.5 million as our weighted average carrying costs for certain potash and Trio ® products exceeded our expected selling price for those products. As discussed above, during 2024 compared to 2023, our average net realized sales price per ton for potash and Trio ® decreased but the amount of lower of cost or NRV inventory adjustments recorded was less in 2024 compared to 2023 because our weighted average carrying costs for potash and Trio ® also decreased.
Gross Margin
Our gross margin percentage decreased to 11% in 2024, compared to 13% in 2023. The decrease was driven primarily by a decrease in sales revenue due to decreases in our average net realized sales price per ton for both potash and Trio ® .
Selling and Administrative Expense
Selling and administrative expenses increased $0.5 million or 2% in 2024 compared to 2023, as increases in severance and labor expenses were partially offset by decreases in stock compensation and legal expenses.
Impairment of Long-Lived Assets
During the year ended December 31, 2024, we recorded total impairment charges of $10.7 million. During the year ended December 31, 2023, we recorded total impairment charges of $43.3 million.
In 2023, we recorded an impairment related to our Trio ® segment assets because the net book value exceeded the estimated fair value of the assets. We engaged a third-party valuation firm to determine the fair value of our Trio ® segment assets. The fair value of our Trio ® segment assets was primarily determined using the expected proceeds received in an orderly sale of the individual assets. The carrying value of our Trio ® segment asset group exceeded its fair value, and we recorded an impairment charge of $31.9 million. For any Trio ® segment capital spending during 2024, we also estimated the fair value of those assets using the expected proceeds received in an orderly sale of those new assets and recorded an impairment of $4.4 million.
In 2024, in our Oilfield Solutions Segment we recorded impairment charges of $6.4 million mainly related to our frac sand opportunity and other oilfield related equipment. Although we still hold the necessary permits for the sand operation, it is unlikely we will continue to pursue this opportunity as we focus on our core business. In 2023, we recorded impairment charges of $1.5 million related to certain assets in our Oilfield Solutions Segment, specifically certain water recycling equipment and an investment in a non-operating interest in an oil and gas investment.
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In 2023 in our potash segment, we recorded an impairment charge of $9.9 million related to the assets at the West facility, which were placed in care and maintenance in 2016, and given the length of time since the assets were placed in care and maintenance, we engaged a third-party valuation firm to determine the fair value of the West assets. The fair value of the West assets was determined using the expected proceeds received in an orderly sale of the individual assets.
Loss on Sale or Disposal of Assets
During 2024, we recorded a $2.0 million loss on the sale or disposal of assets in the normal course of business, compared to a loss of $0.8 million during 2023. Our loss on sale or disposal of assets in 2024 resulted from the sale of excess lay flat water tubing.
Other Operating Income
In 2024, we recognized other operating income of $5.2 million compared to $1.3 million in 2023. During 2024, we recognized $4.5 million in other operating income related to the Third Amendment to the Cooperative Development Agreement we signed with XTO in December 2023 that became effective in January 2024. As discussed in further detail in Note 9- Other Long-Term Deferred Income to the Consolidated Financial Statements, we are recognizing as other operating income the estimated transaction price associated with the Amendment on a straight-line basis over the term of the Amendment. Also in 2024, we recognized $0.7 million from various miscellaneous items as other operating income.
Other Operating Expense
Other operating expense increased $2.6 million in 2024 compared to 2023, mainly due to recording an additional $1.9 million related to the potential underpayment of federal mineral royalties from 2012 through 2016.
Income Tax
We recorded income tax expense of $194.3 million in 2024 as we increased our valuation allowance against our deferred tax assets by $199.0 million as we have concluded that it is more likely than not that our deferred tax assets will not be realized. The expense associated with increasing the valuation allowance was partially offset by the income tax benefit associated with our loss before income taxes. In 2023, we recorded an income tax benefit of $8.4 million as we incurred a loss before income taxes, which was partially offset by a $1.1 million increase in our valuation allowance.
Net Income
Our 2024 net income decreased $177.2 million to a net loss of $212.8 million. The decrease is due to the increase in the deferred tax assets valuation allowance, partially offset by decreased impairment expense recorded in 2024 compared to 2023.
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Potash Segment Results
Year Ended December 31,
(in thousands) 2024 2023
Sales 1
$ 124,833 $ 155,920
Less: Freight costs 13,176 14,753
Warehousing and handling costs 6,306 5,957
Cost of goods sold 83,974 97,452
Lower of cost or net realized value inventory adjustments 3,957 2,709
Gross Margin $ 17,420 $ 35,049
Depreciation, Depletion, and Amortization Incurred 2
$ 27,955 $ 28,378
Potash Sales Volumes (tons in thousands) 240 258
Potash Production Volumes (tons in thousands) 295 224
Average Potash Net Realized Sales Price per Ton 3
$ 377 $ 466
1 Potash segment sales include byproduct sales which were $24.6 million and $24.7 million for the years ended December 31, 2024, and 2023, respectively.
2 Depreciation, depletion, and amortization incurred excludes depreciation, depletion, and amortization amounts absorbed in or (relieved from) inventory.
3 Average net realized sales price per ton is a non-GAAP measure. More information about this non-GAAP measure is below under the heading "Non-GAAP Financial Measure."
Potash Segment Results for the Years Ended December 31, 2024, and 2023
Our total potash segment sales in 2024 decreased $31.1 million, or 20%, compared to 2023, as potash sales recorded in the potash segment decreased 24% while potash segment byproduct sales were essentially unchanged.
Potash sales recorded in the potash segment decreased $31.0 million, or 24%, in 2024 compared to 2023, as our potash average net realized sales price per ton decreased 19%, combined with a 7% decrease in potash tons sold. Potash prices declined during 2024 as available global inventory increased compared to 2023. We sold fewer tons of potash in 2024 compared to 2023, as we began 2024 with less inventory of potash to sell due to lower potash production from our HB and Wendover facilities during the second half of 2023. Potash production improved at our HB and Wendover facilities in 2024 compared to 2023, but 2024 production from our Wendover facility remained below its historical production level.
Potash segment byproduct sales decreased $0.1 million, in 2024 compared to 2023, due to a $2.8 million decrease in byproduct magnesium chloride sales, partially offset by a $2.6 million increase in byproduct brine sales. Our byproduct magnesium chloride sales decreased in 2024 compared to 2023, due to mild winter weather which decreased demand for our deicing product in the first and fourth quarters of 2024, and we saw less demand from the dedust market impacting sales in the second and third quarters of 2024. Our byproduct brine sales increased due to continuing strong oil and gas activities near our facilities in New Mexico during 2024.
Potash cost of goods sold decreased $13.5 million, or 14%, in 2024, compared to 2023, due to a 7% decrease in potash tons sold and a decrease in our per ton production costs. Our per ton production costs decreased in 2024 compared to 2023, as we produced 32% more tons of potash during 2024 compared to 2023. A significant portion of our production costs are fixed and an increase in tons produced results in lower per ton production costs.
Potash segment freight expenses decreased 11% in 2024 compared to 2023, as we sold 7% fewer tons of potash. Our freight expense is impacted by the rates charged by carriers, geographic distribution of our products and by the proportion of customers arranging for and paying their own freight costs.
We produced 32% more tons of potash during 2024 compared to 2023, as production increased at all of our facilities, with the largest increase at our HB facility. The new extraction well placed in-service in June 2024 allowed us to extract high-grade brine from the Eddy Cavern of the HB mine, improving our overall brine grade into our pond system.
During 2024, we recorded $4.0 million in lower of cost or net realizable value inventory adjustments for certain potash products as our weighted average carry cost per ton exceeded our expected net realizable value per potash ton. While our
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weighted average carrying cost per ton decreased in 2024, average potash prices also declined in 2024. We recorded $2.7 million in lower of cost or net realizable value inventory adjustments for certain potash products during 2023.
Our potash segment gross margin decreased $17.6 million in 2024, compared to 2023, due to the $31.1 million decrease in potash segment sales.
Potash Segment - Additional Information
The table below shows our potash sales mix for 2024 and 2023.
Year Ended December 31,
2024 2023
Agricultural 74 % 74 %
Industrial 3 % 3 %
Feed 23 % 23 %
Trio ® Segment Results
Year Ended December 31,
(in thousands) 2024 2023
Sales 1
$ 105,428 $ 102,182
Less: Freight costs 25,841 23,211
Warehousing and handling costs
5,169 4,875
Cost of goods sold
69,980 74,308
Lower of cost or net realized value inventory adjustments — 3,783
Gross Margin (Deficit) $ 4,438 $ (3,995)
Depreciation, Depletion, and Amortization incurred 2
$ 3,500 $ 6,288
Sales Volumes (tons in thousands) 254 228
Production Volumes (tons in thousands) 251 216
Average Net Realized Sales Price per Ton 3
$ 311 $ 321
1 Trio ® segment sales include byproduct sales which were $0.7 million and $5.8 million for the years ended December 31, 2024, and 2023, respectively.
2 Depreciation, depletion, and amortization incurred excludes depreciation, depletion, and amortization amounts absorbed in or (relieved from) inventory.
3 Average net realized sales price per ton is a non-GAAP measure. More information about this non-GAAP measure is below under the heading "Non-GAAP Financial Measure."
Trio ® Segment Results for the Years Ended December 31, 2024, and 2023
Our total Trio ® segment sales increased $3.2 million, or 3%, in 2024 compared to 2023, as Trio ® sales increased $8.4 million, or 9%, partially offset by a $5.2 million decrease, or 89%, in Trio ® segment byproduct sales.
Our Trio ® sales increased $8.4 million, or 9%, in 2024 compared to 2023, as we sold 11% more tons partially offset by a 3% decrease in our average net realized sales price per ton. Sales volumes increased in 2024 compared to 2023, as we sold more Trio ® tons into row crop markets, particularly driven by the sulfate value of Trio ® . Similar to potash prices discussed above, Trio ® average net realized sales price per ton decreased in 2024 as potassium fertilizer supplies improved in 2024 compared to 2023.
Our Trio ® segment byproduct sales decreased $5.2 million in 2024 compared to 2023, due to a decrease in Trio ® segment byproduct water sales. We sold less Trio ® segment byproduct water in 2024 compared to 2023, as we increased the volume of water used for injection at our HB plant and we sold fewer barrels of water from our Caprock water rights.
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Trio ® freight costs increased 11% in 2024 compared to 2023, related to an 11% increase in Trio ® tons sold. 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. Generally, our Trio ® freight expense is higher than our potash freight expense because we sell potash to regional customers located closer to our production facilities.
Our Trio ® segment cost of goods sold decreased 6% in 2024 compared to 2023. We sold 11% more tons of Trio ® in 2024 compared to 2023, but our weighted average carrying cost per ton of Trio ® decreased as we incurred less production labor, natural gas, and depreciation expenses in 2024 compared to 2023. Trio ® segment labor costs decreased as we operated fewer shifts in 2024 compared to 2023. Trio ® segment depreciation expense decreased in 2024 compared to 2023 due to the impairment that was recorded in December 2023 for our Trio ® segment assets. Trio ® segment natural gas expenses decreased in 2024 compared to 2023, as natural gas prices spiked in early 2023 due to supply constraints in the western U.S. In addition, we produced 16% more tons of Trio ® in 2024 compared to 2023. Because a significant portion of our production costs are fixed, an increase in tons produced reduces our production costs per ton.
In 2024, we did not record any lower of cost or net realizable value inventory adjustments. In 2023, we recorded $3.8 million in lower of cost or net realizable value inventory adjustments.
Our Trio ® segment gross margin increased by $8.4 million in 2024 compared to 2023, due to the factors discussed above.
In the fourth quarter of 2023, given the decrease in our gross margin for our Trio ® segment we determined that sufficient indicators of potential impairment of our Trio ® segment long-lived assets existed. We performed a recoverability test and determined that the carrying value of our Trio ® segment long-lived assets was not recoverable. We engaged a third-party valuation firm to determine the fair value of our Trio ® segment assets. The fair value of our Trio ® segment assets was primarily determined using the expected proceeds received in an orderly sale of the individual assets. The carrying value of our Trio ® segment asset group exceeded its fair value of those assets, and we recorded an impairment charge of $31.9 million.
For any Trio ® segment capital spending in 2024, we also estimated the fair value of those assets using the expected proceeds received in an orderly sale of those new assets and recorded impairment charges of $4.4 million.
Trio ® Segment - Additional Information
The table below shows the percentage of total Trio ® sales that were sold internationally in the past three years.
United States Export
For the year ended December 31, 2024 85 % 15 %
For the year ended December 31, 2023 86 % 14 %
For the year ended December 31, 2022 82 % 18 %
Oilfield Solutions Segment Results
Year Ended December 31,
(in thousands) 2024 2023
Sales $ 24,685 $ 21,310
Less: Cost of goods sold 17,461 15,518
Gross Margin $ 7,224 $ 5,792
Depreciation, Depletion, and Amortization incurred $ 4,431 $ 3,849
Oilfield Solutions Segment Results for the Years Ended December 31, 2024, and 2023
Our oilfield solutions segment sales increased 16% in 2024 compared to 2023, driven by an increase of $4.0 million in water sales, and an increase of $0.1 million in brine water sales, partially offset by a $0.7 million decrease in sales of other products and services. Our oilfield solutions segment water sales increased due to the completion of a large frac on Intrepid South during the third quarter of 2024. Demand for brine water sales remained strong in 2024 due to continued oil and gas activity in the Permian Basin near Intrepid South. Our other products and services sales decreased in 2024 compared to 2023, due to a decrease in surface use and easement sales. Surface use and easement sales fluctuate based on the timing of recognizing sales from the various performance obligations contained in the underlying agreements.
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Cost of goods sold increased 13% in 2024 compared to 2023, as we purchased more third-party water for resale to meet the demand for the large frac completed on Intrepid South.
Gross margin increased $1.4 million, or 25%, in 2024 compared to 2023, due to the factors described 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. 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 consider 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 and other products and services 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.
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. Some elements of our cost structure associated with contract labor, consumable operating supplies, reagents, and royalties are variable, but such elements 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 varies with the grade of ore extracted. Our average royalty rate was 4.9%, 4.9%, and 4.8% in 2024, 2023, and 2022, respectively. In addition to royalties, we are also subject to resource and severance taxes in the state of New Mexico.
We incur costs to transfer water from our water source to our customers' facilities. Our operating costs depend on the distance and amount of water we must transfer. Additionally, water rights in New Mexico are subject to a stated point of diversion, purpose and place of use, and many of our water rights were originally issued for uses relating to our mining operations, or in the case of the water rights at Intrepid South, for agricultural uses. To sell water commercially under these rights, we must apply for a permit from the OSE to change point of diversion, purpose and/or place of use of the underlying water rights. Third parties often protest our applications and the decisions made by the OSE concerning the changes to our
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water rights permits. As we have worked to sell more water commercially, we have incurred significant legal expenses associated with defending our water rights as they proceed through adjudication and obtaining water permits and approvals.
Income Taxes
We are a subchapter C corporation and are therefore, subject to U.S. federal and state income taxes on our taxable income. We recognize deferred tax assets and liabilities for the tax effect of temporary differences between the financial statement and tax basis of recorded assets and liabilities at enacted tax rates in effect when the related taxes are expected to be settled or realized. We also reduce deferred tax assets by a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. As of December 31, 2024, we were in a cumulative three-year income position as a result of income generated during the year ended December 31, 2022. Since the 2022 income year will cease to be part of the cumulative three-year test in the next twelve months, we forecast that by the end of 2025, we will be in a three-year cumulative loss position which is significant negative evidence that is difficult to overcome when evaluating the realizability of our deferred tax assets. As a result, we have concluded a valuation allowance against our deferred tax assets of $202.2 million was required as of December 31, 2024. Our valuation allowance against our deferred tax assets was $3.2 million as of December 31, 2023.
Our effective tax rate for the years ended December 31, 2024, 2023, and 2022 was (1,049.8)%, 19.0%, and 25.2%, respectively. Our effective income tax rates are impacted primarily by changes in the underlying tax rates in jurisdictions in which we are subject to income tax, the need for a valuation allowance or release, and permanent differences between book and tax income for the period, including the benefit associated with the estimated effect of the percentage depletion deduction and the expense for the estimated effect of the disallowed deduction for officers' compensation.
The effective tax rate for the year ended December 31, 2024, differs from the U.S. federal statutory rate primarily due to the change in the valuation allowance. The effective tax rate for the year ended December 31, 2023, differs from the U.S. federal statutory rate primarily due to the change in the valuation allowance.
During the year ended December 31, 2024, we recognized $146.5 million of deferred federal tax expense, $47.8 million of deferred state tax expense, and $0.1 million of current state income tax expense. During the year ended December 31, 2023, we recognized $8.5 million of deferred federal tax benefit, $0.1 million of deferred state tax expense and $0.1 million of current state income tax expense. For the year ended December 31, 2022, we recognized $19.4 million of deferred federal tax expense, $3.9 million of deferred state tax expense and $1.0 million of current state income tax expense.
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 the balance sheet and impact the corresponding deferred tax benefit or deferred tax expense on the income statement.
Liquidity and Capital Resources
Our operations have primarily been funded from cash on hand, cash generated by operations, and proceeds from financing activities, primarily debt offerings. During 2024, we generated $72.5 million in cash flows from operating activities, which included a $45 million cash payment received in January 2024 under the Third Amendment to the Cooperative Development Agreement with XTO, and we ended the year with $41.3 million of cash and cash equivalents, compared with $4.1 million at December 31, 2023.
As of December 31, 2024, we had $150.0 million available to borrow under our credit facility, no outstanding borrowings, and no outstanding lette rs of credit. With the remaining availability under our credit facility and expected cash generated from operations, we believe we have sufficient liquidity to meet our obligations for the next twelve months.
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We continue to monitor our future sources and uses of cash and anticipate that we will adjust our capital allocation strategies, as 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 revolving credit agreement. We may also 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.
The following summarizes our cash flow activity for the years ended December 31, 2024, and 2023:
Year ended December 31,
2024 2023
(In thousands)
Cash flows provided by operating activities $ 72,495 $ 43,229
Cash flows used in investing activities $ (29,531) $ (59,554)
Cash flows (used in) provided by financing activities $ (5,717) $ 1,892
Our revolving credit agreement contains restrictions on our ability to declare and pay dividends. The terms of our credit facility prohibit us from declaring and paying a dividend unless availability under the credit facility after giving effect to the dividend and during a specified period before the dividend is more than $15 million.
Operating Activities
Total cash provided by operating activities for the year ended December 31, 2024, was $72.5 million, an increase of $29.3 million compared with the year ended December 31, 2023. The increase was mainly driven by a $45 million cash payment received in January 2024 under the Third Amendment to the Cooperative Development Agreement with XTO, partially offset by decreased potash and Trio ® net realized sales prices.
Investing Activities
Total cash used in investing activities decreased $30.0 million in 2024, compared to 2023, primarily a result of a $26.4 million decrease in additions to property, plant, equipment, and mineral properties compared to the prior year. Proceeds from the sale of property, plant, and equipment increased $4.7 million primarily due to proceeds received from the sale of water recycling equipment. Proceeds from the redemption/maturity of investments decreased $3.0 million in 2024, compared to 2023. In 2023, we invested $1.4 million of cash in investment grade, short-term debt instruments.
Financing Activities
Total cash used in financing activities increased $7.6 million in 2024, as compared to 2023. Payments on borrowings on the credit facility (net of borrowings) increased $8.0 million compared to the prior year. Payments on financing lease obligations increased $0.3 million in 2024 compared to the prior year. Employee tax withholding paid for restricted shares upon vesting decreased $0.7 million in 2024 compared to the prior year.
Share Repurchase Program
In February 2022, our Board of Directors approved a $35 million share repurchase program. Under the share repurchase program, we may repurchase shares from time to time in the open market or in privately negotiated transactions. The timing, volume and nature of share repurchases is at our sole discretion and is dependent on market conditions, liquidity, applicable securities laws, and other factors. We may suspend or discontinue the share repurchase program at any time. We made no repurchases of shares for the twelve months ended December 31, 2024, and 2023. For the twelve months ended December 31, 2022, we repurchased 608,657 shares with a total cost of $22.0 million, or a weighted average price per share of $36.17. As of December 31, 2024, we have approximately $13.0 million of remaining availability under the share repurchase program.
Credit Facility
In August 2022, we and certain of our subsidiaries entered into the Second Amended and Restated Credit Agreement with a syndicate of lenders with the Bank of Montreal, as administrative agent, which provides for a revolving credit facility. The agreement amended our existing revolving credit facility to, among other things, increase the amount available under the facility from $75 million to $150 million, extend the maturity date to August 4, 2027, and transition from LIBOR (London Interbank Offered Rate) to SOFR (Secured Overnight Financing Rate) as a reference rate for borrowings under the credit agreement. Borrowings under the amended credit facility bear interest at SOFR plus an applicable margin of 1.50% to 2.25% per annum, based on our leverage ratio as calculated in accordance with the amended agreement governing the revolving credit
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facility. Borrowings under the revolving credit facility are secured by substantially all of our current and non-current assets, and the obligations under the credit facility are unconditionally guaranteed by several of our subsidiaries.
We occasionally borrow and repay amounts under the facility for near-term working capital needs or other purposes and may do so in the future. For the year ended December 31, 2024, we made no borrowings and $4.0 million in repayments under the facility. For the year ended December 31, 2023, we made $9.0 million in borrowings and made $5.0 million in repayments under the facility. As of December 31, 2024, we had no borrowings outstanding and no outstanding letters of credit under the facility. As of December 31, 2023, we had $4.0 million in borrowings outstanding and no outstanding letters of credit under the facility. We had $150.0 million available under the facility as of December 31, 2024.
We were in compliance with the applicable covenants under the facility as of December 31, 2024.
Capital Investments
During 2024, we paid cash of $38.7 million to acquire property, plant, equipment, and mineral properties.
We expect to make capital investments in 2025 of $36 million to $42 million with the majority of this spending being sustaining capital projects. We anticipate our 2025 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.
Critical Accounting Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in our financial statements. Actual results could differ from our estimates and assumptions, and these differences could result in material changes to our financial statements.
Our significant accounting policies are further described in Note 2 to our audited consolidated financial statements included in "Item 8. Financial Statements and Supplemental Data" of this Annual Report. We believe the following accounting policies include a higher degree of subjective and complex judgments in their application and are most critical to aid in fully understanding and evaluating our reported financial condition and results of operations.
Recoverability of Long-Lived Assets
We evaluate our long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amount may not be recoverable. An impairment is potentially considered to exist if an asset group's total estimated net future cash flows on an undiscounted basis are less than the carrying amount of the related asset. An impairment loss is measured and recorded based on the excess of the carrying amount of long-lived assets over its estimated fair value.
In 2024, we recorded impairment charges for long-lived assets in our Trio ® and oilfield solutions segments. The impairment charge equals the difference between the carrying value of the assets or asset group and the estimated fair value of the assets or asset group. We estimated the fair value of the assets using estimated proceeds received in an orderly sale of these assets. Estimated proceeds received in an orderly sale of an asset have a high degree of subjectivity and actual proceeds received in an orderly sale of assets may vary from the estimates used, which may result in further impairment charges.
Reserves and Resources
We prepare our reserves and resources estimates in accordance with SEC requirements. We have prepared these reserve and resources estimates and they have been reviewed and independently determined by mine consultants. We express tons of potash and langbeinite in resources and reserves in terms of expected finished tons of product to be realized, net of estimated losses. Market price fluctuations of potash or Trio ® , as well as increased production costs or reduced recovery rates, could render resources and reserves containing relatively lower grades of mineralization uneconomic to exploit and might result in a reduction of resources and reserves. We updated our mineral reserves and resources as of December 31, 2024, for our HB facility and we updated our mineral reserves and resources as of December 31, 2023, for all our other facilities. We determined we do not have any mineral reserves at our East facility because the mineral deposit could not be economically extracted. All mineral deposits at our East facility are categorized as a mineral resource. A mineral reserve is defined as that part of a mineral deposit which can be economically and legally extracted. A mineral resource refers to a concentration or occurrence of material deposits of economic interest.
We deplete our mineral properties using the units-of-production method. Under this method, we determine a depletion rate for one ton of finished product by dividing the total mineral properties net balance by the number expected finished tons of product, which is obtained from the resources and reserve estimates. Depletion expense is calculated by multiplying the number of tons of product produced by the depletion rate per ton.
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Income Taxes
We are a subchapter C corporation and therefore are subject to U.S. federal and state income taxes. We recognize income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured 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. We record a valuation allowance if it is deemed more likely than not that our deferred income tax assets will not be realized in full; such determinations are subject to ongoing assessment.
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 provides useful information to investors for analysis of our business. 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.
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 for potash and Trio ® to the most directly comparable GAAP measure for the years ended December 31, 2024, and 2023 (in thousands, except per ton amounts):
Potash Segment
2024 2023
Total Segment Sales $ 124,833 $ 155,920
Less: Segment byproduct sales 24,634 24,714
Potash freight costs 9,675 10,911
Subtotal $ 90,524 $ 120,295
Divided by:
Potash tons sold (in thousands) 240 258
Average net realized sales price per ton $ 377 $ 466
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Trio ® Segment
2024 2023
Total Segment Sales
$ 105,428 $ 102,182
Less: Segment byproduct sales 655 5,838
Trio ® freight costs
25,841 23,211
Subtotal
$ 78,932 $ 73,133
Divided by:
Trio ® Tons sold (in thousands)
254 228
Average net realized sales price per ton $ 311 $ 321