United States Lime & Minerals, Inc. — Form 10-Q Summary
Business Context and Reporting Period
Unaudited quarterly report for the period ended September 30, 2014, filed October 31, 2014. The company operates two U.S. segments: Lime and Limestone Operations, its principal business, and Natural Gas Interests in the Barnett Shale formation.
Key Financial Metrics
| Metric | Three Months 2014 | Three Months 2013 | Nine Months 2014 | Nine Months 2013 |
|---|---|---|---|---|
| Revenue | $39.1 million | $36.9 million | $114.4 million | $103.7 million |
| Gross profit | $9.9 million | $9.1 million | $28.9 million | $24.4 million |
| Gross margin | 25.3% | 24.7% | 25.3% | 23.5% |
| Operating profit | $7.5 million | $6.9 million | $21.9 million | $17.7 million |
| Net income | $5.4 million | $4.8 million | $15.6 million | $12.2 million |
| Diluted EPS | $0.97 | $0.86 | $2.80 | $2.19 |
| Operating cash flow | Not separately provided | Not separately provided | $23.3 million | $24.2 million |
| Capital expenditures | Not separately provided | Not separately provided | $8.7 million | $6.7 million |
At September 30, 2014, cash and cash equivalents were $58.3 million, compared with $49.5 million at December 31, 2013. Total debt was $17.9 million, consisting of $10.8 million under the Term Loan and $7.1 million under the Draw Term Loan. The company had no borrowings under its $30 million revolving facility, other than $0.7 million of outstanding letters of credit. Total stockholders’ equity was $151.4 million, compared with $136.8 million at year-end 2013.
The company paid $2.1 million in dividends during the first nine months and declared an additional quarterly dividend of $0.125 per share payable December 18, 2014. The estimated 2014 effective income tax rate is approximately 24.7%.
Material Changes Versus the Prior Comparable Period
- Third-quarter revenue increased 5.9%; nine-month revenue increased 10.4%.
- Lime and Limestone revenue increased 6.6% in the quarter and 11.0% year to date, driven primarily by higher sales volumes and approximately 1.5% average product-price increases.
- Lime and Limestone sales volumes increased approximately 5.1% in the quarter and 9.5% year to date. Some year-to-date volume growth reflected sales to another lime producer that ceased in August 2014.
- Natural Gas revenue declined 13.1% in the quarter and 2.4% year to date. Third-quarter production fell approximately 12.5% because of normal well declines, while year-to-date production declined approximately 16.7%; higher year-to-date gas prices partly offset lower production.
- Net income increased 13.3% in the quarter and 28.5% year to date. Diluted EPS increased to $0.97 and $2.80, respectively.
- Operating cash flow declined 3.6% year to date, primarily because of a $5.6 million increase in trade receivables. Capital expenditures increased by $2.0 million year to date.
- Interest expense declined 16.3% year to date as average debt decreased. Debt outstanding declined $3.8 million from December 31, 2013.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
Management stated that available cash and expected operating cash flow should be sufficient for near-term operating requirements, capital needs, potential modernization or development projects and acquisitions, debt service, liquidity needs, and regular dividends. No formal revenue or earnings guidance was provided.
- Management remains concerned about truck availability because of increased industry demand and Department of Transportation hours-of-service rules.
- Construction demand may be affected by continued uncertainty over long-term funding for the Highway Trust Fund, despite legislation funding the program through May 31, 2015.
- Key risks include demand and pricing for lime and limestone products, construction and steel-sector conditions, fuel and freight costs, operational interruptions, weather, regulatory and mine-safety requirements, project delays or cost overruns, acquisitions, natural-gas production declines and pricing, interest rates, liquidity, and counterparty performance under interest-rate hedges.
- Debt carries floating-rate exposure, substantially mitigated by interest-rate hedges. Hedge liabilities were $0.9 million at September 30, 2014, compared with $1.5 million at December 31, 2013.
- The company reported no material open capital commitments outside current liabilities. Credit facilities are secured and may be accelerated upon an event of default; significant final principal payments are due December 31, 2015.
- The company adopted no material new accounting change during the period. It is evaluating the impact of revenue-recognition standard ASU 2014-09, effective for the company January 1, 2017. The company does not expect ASU 2014-15 regarding going-concern disclosures to have a material effect.
- Management concluded that disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Investor Verification Checklist
- Verify the sustainability of volume-driven growth in Lime and Limestone Operations after the temporary producer-related sales ended in August 2014.
- Assess truck availability, freight costs, and construction demand in light of Highway Trust Fund uncertainty.
- Review debt maturities and required payments due in 2015, along with compliance with credit-facility covenants.
- Monitor natural-gas well production declines, commodity prices, and the absence or timing of additional drilling activity.
- Evaluate capital-expenditure requirements, potential modernization or acquisition spending, and their effect on cash available for debt repayment and dividends.
- Review Exhibit 95.1 for detailed mine-safety citations, orders, penalties, and other MSHA matters.