United States Lime & Minerals, Inc. — 2022 Q1 Form 10-Q
Business context and reporting period
United States Lime & Minerals, Inc. manufactures lime and limestone products for construction, industrial, metals, environmental, roofing, agriculture, and oil and gas customers. It operates plants and distribution facilities in Arkansas, Colorado, Louisiana, Missouri, Oklahoma, and Texas and reports one primary segment: lime and limestone operations. The unaudited report covers the three months ended March 31, 2022, compared with the three months ended March 31, 2021.
On February 9, 2022, the Company acquired Mill Creek, a dolomite mining and production company in Oklahoma, for approximately $5.9 million in cash, subject to adjustment. Approximately $5.4 million was preliminarily allocated to property, plant, and equipment. Mill Creek contributed $0.8 million of revenue during the quarter.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $50.9 million | $41.7 million | 22.2% |
| Gross profit | $14.5 million | $11.8 million | 22.5% |
| Gross margin | 28.4% | 28.3% | Up 0.1 percentage point |
| Operating profit | $10.8 million | $8.7 million | 24.0% |
| Operating margin | 21.3% | 20.9% | Up 0.4 percentage point |
| Net income | $8.7 million | $7.0 million | 23.3% |
| Diluted earnings per share | $1.53 | $1.24 | 23.4% |
| Net cash from operations | $8.1 million | $11.6 million | Down 30.7% |
Revenue growth was driven primarily by a 19.4% increase in lime and limestone sales volumes, reflecting stronger demand from construction, industrial, environmental, and oil and gas customers. Average selling prices increased 2.2%. Lime and limestone revenue rose 21.6% to $50.3 million.
Labor and other operating expenses increased to $31.3 million from $24.6 million, while SG&A increased 18.5% to $3.6 million, primarily due to higher personnel expenses. Depreciation, depletion, and amortization declined modestly to $5.2 million. The effective tax rate for 2022 is estimated at 19.9%, reduced from the federal statutory rate primarily by statutory depletion.
At March 31, 2022, cash and cash equivalents were $100.9 million, compared with $105.4 million at December 31, 2021. Total assets were $324.7 million and stockholders’ equity was $286.3 million. Trade receivables increased to $32.9 million and inventories increased to $16.5 million.
Capital expenditures were $5.5 million, and the Mill Creek acquisition required $5.9 million, resulting in total investing cash outflows of $11.3 million. The Company paid $1.1 million in dividends and repurchased $0.1 million of treasury shares. No debt was outstanding; $0.3 million of letters of credit reduced availability under the $75 million revolving credit facility.
Material changes versus the prior comparable period
- Revenue increased $9.2 million, or 22.2%, primarily from higher sales volumes and, to a lesser extent, higher pricing.
- Gross profit increased $2.6 million, although management reported rising production costs, particularly energy and transportation costs.
- Operating and net margins improved modestly despite cost inflation.
- Operating cash flow decreased $3.6 million because of working-capital usage, including a $5.7 million increase in trade receivables, a $1.3 million inventory increase, and a $1.0 million decrease in accounts payable and accrued expenses.
- Investing cash outflows increased substantially because of the Mill Creek acquisition and higher capital expenditures.
- The quarterly dividend increased to $0.20 per share from the prior-period dividend amount reflected in the filing of approximately $0.16 per share.
Guidance, outlook, risks, contingencies, and unusual items
Management stated that increasing energy, transportation, labor, and other input costs, together with supply-chain delays and disruptions, could adversely affect profitability. The Company is raising product prices to mitigate these pressures. Management expects cash on hand and operating cash flow, absent a significant acquisition, to fund operating needs, ongoing capital requirements, liquidity needs, and regular quarterly dividends for the near future.
The filing does not provide formal revenue or earnings guidance. Principal risks include demand and pricing conditions in construction, steel, industrial, environmental, and oil and gas markets; inflation and interest-rate changes; fuel, electricity, transportation and freight costs; availability of trucks, drivers, and rail cars; weather and natural disasters; operational interruptions; labor shortages; supply-chain disruptions; cybersecurity incidents; permitting, environmental, mine-safety and reclamation requirements; reserve estimates; acquisitions and integration; COVID-19 impacts; and geopolitical and economic uncertainty, including the Russia-Ukraine conflict.
The revolving facility matures May 2, 2024 and permits total borrowing capacity of up to $125 million, subject to lender approval for the accordion feature. It includes a maximum Cash Flow Leverage Ratio of 3.50 to 1.00. The Company was in compliance and had no funded debt at quarter-end.
The Board declared a $0.20-per-share quarterly dividend on April 27, 2022, payable June 17, 2022 to shareholders of record on May 27, 2022. Management reported effective disclosure controls and procedures and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether volume growth and higher pricing continue after the first quarter and whether Mill Creek achieves expected strategic and financial benefits.
- The effect of energy, transportation, labor, and supply-chain cost inflation on future gross margins.
- Trade receivables and inventory growth, and whether working-capital usage continues to reduce operating cash flow.
- Planned capital spending, modernization and expansion projects, and any additional acquisition activity.
- Availability and terms of the revolving credit facility, including the May 2024 maturity and leverage covenant.
- Demand exposure to construction, industrial, environmental, metals, and oil and gas customers, including impacts from economic weakness and infrastructure spending.
- Mine-safety, permitting, environmental, weather, cybersecurity, labor, and operational risks identified in the filing and related exhibits.
- The filing’s apparent MD&A typographical error referring to first-quarter 2022 net income as occurring in “first quarter 2021”; the financial statements show Q1 2022 net income of $8.7 million versus $7.0 million in Q1 2021.