United States Lime & Minerals, Inc. — Q2 2022 Form 10-Q Summary
Business context and reporting period
Unaudited quarterly report for the three and six months ended June 30, 2022. The company manufactures lime and limestone products serving construction, industrial, metals, environmental, agriculture, roofing, and oil and gas customers. It operates in Arkansas, Colorado, Louisiana, Missouri, Oklahoma, and Texas and reports one primary segment: lime and limestone operations.
On February 9, 2022, the company acquired Mill Creek Dolomite, LLC for $5.6 million in cash. Mill Creek contributed $1.1 million of second-quarter revenue and $1.9 million of six-month revenue.
Financial performance and liquidity
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | $60.5 million, up 23.0% | $111.4 million, up 22.6% |
| Gross profit | $16.5 million, down 1.9% | $30.9 million, up 8.2% |
| Gross margin | 27.2%, versus 34.2% | 27.8%, versus 31.5% |
| Operating profit | $12.6 million, down 8.7% | $23.5 million, up 3.9% |
| Operating margin | 20.8%, versus 28.2% | 21.1%, versus 24.9% |
| Net income | $10.2 million, down 7.7% | $18.9 million, up 4.3% |
| Diluted EPS | $1.80, versus $1.96 | $3.33, versus $3.20 |
- Product sales volumes increased 18.0% in the quarter and 18.5% year to date; average selling prices increased 4.3% and 3.5%, respectively.
- Net cash provided by operating activities was $22.4 million versus $27.4 million in the prior-year period. Working capital reduced operating cash flow, principally through a $10.0 million increase in trade receivables and a $1.4 million increase in inventories.
- Capital expenditures were $11.5 million, and total investing cash use was $16.9 million, including the $5.6 million Mill Creek acquisition.
- Cash dividends paid were $2.3 million, or $0.40 per share, compared with $1.8 million, or $0.32 per share, in the prior-year period.
- Cash and cash equivalents totaled $108.6 million at June 30, 2022, compared with $105.4 million at December 31, 2021.
- The company had no debt outstanding and only $0.3 million of letters of credit outstanding under its $75 million revolving credit facility. The facility, with a possible $50 million accordion, matures May 2, 2024.
- Total assets were $336.7 million and stockholders’ equity was $296.2 million at June 30, 2022.
Material changes versus the prior comparable period
- Revenue growth was driven primarily by higher lime and limestone volumes, stronger construction and industrial demand, increased oil and gas services sales in the first half, the Mill Creek acquisition, and price increases.
- Second-quarter gross profit declined despite higher revenue because energy, transportation, labor, supplies, and other production costs increased faster than pricing.
- SG&A expense increased 30.1% in the quarter and 24.2% year to date, primarily due to higher personnel expense and changes in expected credit-loss estimates.
- Six-month operating cash flow declined 18.3%, mainly because of higher receivables and inventory balances.
- Property, plant and equipment, net increased to $168.6 million from $162.2 million at year-end 2021, reflecting capital investment and the Mill Creek acquisition, partly offset by depreciation and depletion.
- The quarterly cash dividend increased to $0.20 per share from $0.16 per share in the prior-year quarter.
Guidance, outlook, risks, contingencies, and unusual items
Management did not provide specific revenue or earnings guidance. It expects cash on hand and operating cash flow to fund operating requirements, ongoing capital needs, potential modernization and expansion projects, and regular quarterly dividends in the near future, absent a significant acquisition.
Management reported persistent inflation affecting production costs and longer supply-chain lead times. Additional price increases were being pursued during the second half of 2022 to protect margins. Continued or accelerated energy and transportation cost inflation could adversely affect profitability.
- Key risks include demand and pricing conditions in construction, industrial, steel, oil and gas, and other end markets; recessionary pressures; inflation and interest rates; inability to pass through cost increases; and competition.
- Operations may be affected by weather, natural disasters, mine or plant conditions, equipment and utility disruptions, supply-chain delays, labor shortages, cybersecurity incidents, and transportation availability.
- Environmental, health and safety, mine-safety, permitting, reclamation, climate-related, regulatory, litigation, and compliance risks could increase costs or restrict operations.
- The company is exposed to interest-rate risk on future borrowings, although none of the revolving facility was subject to interest-rate risk at June 30, 2022.
- Future operating lease payments totaled $3.3 million, with lease liabilities recorded at a present value of $3.2 million.
- The board declared a $0.20-per-share quarterly dividend on July 27, 2022, payable September 16, 2022.
- Management stated that disclosure controls and procedures were effective and that no material change occurred in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether subsequent price increases offset continuing energy, transportation, labor, and supply-cost inflation.
- Mill Creek’s contribution, integration progress, and expected effect on future volumes, margins, and capital requirements.
- Trade-receivable and inventory trends, including whether working-capital investment continues to constrain cash flow.
- Planned modernization, expansion, and maintenance capital expenditures and their effect on future depreciation and liquidity.
- Compliance with revolving-credit covenants and the availability of borrowing capacity through the May 2024 maturity.
- Demand trends across construction, industrial, metals, environmental, and oil and gas customers, together with the company’s ability to sustain price increases.
- Mine-safety disclosures in Exhibit 95.1 and any material regulatory, permitting, environmental, litigation, or remediation developments.