United States Lime & Minerals, Inc. — Q2 2023 Form 10-Q Summary
Business context and reporting period
The company manufactures lime and limestone products for construction, industrial, metals, environmental, roofing, agriculture, and oil and gas customers. It operates in Arkansas, Colorado, Louisiana, Missouri, Oklahoma, and Texas and reports one operating segment: lime and limestone operations. The filing covers the three and six months ended June 30, 2023; financial statements are unaudited.
Financial performance and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $74.0 million | $60.5 million | $140.8 million | $111.4 million |
| Gross profit | $27.1 million | $16.5 million | $51.1 million | $30.9 million |
| Gross margin | 36.7% | 27.2% | 36.3% | 27.8% |
| Operating profit | $22.8 million | $12.6 million | $42.7 million | $23.5 million |
| Operating margin | 30.8% | 20.8% | 30.3% | 21.1% |
| Net income | $19.7 million | $10.2 million | $36.8 million | $18.9 million |
| Diluted EPS | $3.45 | $1.80 | $6.46 | $3.33 |
| Net cash from operations | Not separately provided | Not separately provided | $40.3 million | $22.4 million |
| Capital expenditures | Not separately provided | Not separately provided | $15.4 million | $11.5 million |
- Q2 revenue increased 22.3%, while six-month revenue increased 26.4%.
- Net income increased 92.5% in Q2 and 94.7% for the six-month period.
- Interest and other income increased to $1.9 million in Q2 and $3.5 million for six months, primarily because of higher interest rates on larger cash balances.
- Cash and cash equivalents were $156.2 million at June 30, 2023, compared with $133.4 million at December 31, 2022.
- The company had no debt outstanding and only $0.3 million of letters of credit drawn against its $75 million revolving facility. The facility also included a potential $50 million accordion feature.
- Total assets were $402.4 million and total stockholders’ equity was $357.3 million at June 30, 2023.
- The company paid $2.3 million of dividends during the first six months, or $0.20 per share in each quarter.
Material changes versus the prior comparable period
- Lime and limestone revenue increased 23.6% in Q2 and 27.6% for six months. Management attributed the increases to average selling price increases of 21.3% and 22.5%, respectively, together with volume increases of 2.3% and 5.1%.
- Demand improved principally from environmental customers and, in Q2, oil and gas services customers. Steel demand declined, and industrial demand also declined for the six-month period.
- Gross profit benefited from higher revenue and pricing, partly offset by higher energy, parts and supplies, labor, and other production costs.
- SG&A expense increased 12.2% in Q2 and 13.2% for six months, primarily because of higher personnel expense.
- Operating cash flow increased $17.9 million, or 80.2%, for the six-month period. Working capital absorbed $9.5 million, including increases of $7.1 million in receivables and $2.8 million in inventories.
- Six-month 2023 capital expenditures were $15.4 million, compared with $11.5 million in the 2022 period. The 2022 period also included the $5.6 million Mill Creek acquisition when considering total investing expenditures.
- In June 2023, the company reinstated recognition of the union representing Arkansas employees pursuant to a settlement with the National Labor Relations Board and began negotiations on a new collective bargaining agreement.
Guidance, outlook, risks, contingencies, and unusual items
- The company did not provide specific quantitative revenue or earnings guidance. Management stated that economic uncertainty and higher interest rates could adversely affect demand and pricing, particularly from steel and construction customers.
- Management believes cash on hand and operating cash flow should fund operating requirements, ongoing capital needs, potential modernization and expansion projects, liquidity needs, and regular quarterly dividends in the near term, absent a significant acquisition.
- On August 3, 2023, after the reporting date, the company amended its credit agreement. The revolving facility maturity was extended from May 2, 2024 to August 3, 2028, the accordion feature was renewed, and the benchmark changed from LIBOR to SOFR. Other principal facility amounts were unchanged.
- On August 2, 2023, the board declared a $0.20 per share quarterly dividend payable September 15, 2023.
- Key risks include customer and industry demand, pricing and competition, energy and transportation costs, labor availability and negotiations, weather and operational disruptions, supply-chain constraints, cybersecurity incidents, mine safety, environmental and permitting requirements, reserve estimates, litigation, regulatory changes, inflation, interest rates, and potential acquisitions.
- Management concluded that disclosure controls and procedures were effective as of June 30, 2023, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether higher pricing and environmental-related demand persist while steel and construction demand remain pressured.
- The outcome and economic terms of negotiations with the Arkansas employees’ union.
- The pace and nature of capital spending, modernization, expansion, or any significant acquisition.
- Compliance with the amended credit agreement, including leverage and dividend or repurchase restrictions.
- Trends in energy, labor, transportation, and other production costs and their effect on margins.
- Whether the company’s substantial cash balance continues to generate elevated interest income as rates change.
- Mine safety, permitting, environmental, operational, cybersecurity, and reclamation matters disclosed in the filing and Exhibit 95.1.