United States Lime & Minerals, Inc. — FY2020 Form 10-K Summary
Business context and reporting period
The filing reports results for the fiscal year ended December 31, 2020, with comparative information for 2019 and 2018. The Company primarily manufactures and distributes lime and limestone products for construction, industrial, metals, environmental, roofing, agriculture, and oil and gas customers. It operates in six states through one reportable segment: Lime and Limestone Operations. Natural gas interests are reported as Other.
On July 1, 2020, the Company acquired Carthage Crushed Limestone in Missouri for approximately $8.4 million in cash. Carthage contributed $4.6 million of 2020 revenue.
Key financial metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Total revenue | $160.7 million | $158.3 million | Up 1.5% |
| Lime and limestone revenue | $159.7 million | $157.0 million | Up 1.7% |
| Gross profit | $47.6 million | $41.7 million | Up 14.2% |
| Gross margin | 29.6% | 26.4% | Up 3.2 percentage points |
| Operating profit | $33.9 million | $29.2 million | Up 15.8% |
| Operating margin | 21.1% | 18.5% | Up 2.6 percentage points |
| Net income | $28.2 million | $26.1 million | Up 8.3% |
| Diluted EPS | $5.00 | $4.64 | Up 7.8% |
| Net cash from operating activities | $58.6 million | $47.0 million | Up 24.6% |
| Capital expenditures | $17.1 million | $27.1 million | Down 36.8% |
| Cash and cash equivalents | $83.6 million | $54.3 million | Up $29.3 million |
| Debt outstanding | None | None | No change |
Income before tax was $34.1 million, and income tax expense was $5.8 million, producing a 17.2% effective tax rate. Total assets were $279.1 million and stockholders’ equity was $243.2 million at year-end. The Company paid $3.6 million in dividends and repurchased $0.6 million of treasury shares, primarily for employee equity-plan tax withholding.
Material changes versus the prior comparable period
- Revenue growth reflected the Carthage acquisition, higher construction-related sales volumes, and a 3.6% increase in average lime and limestone selling prices. These benefits were partly offset by lower demand from oil and gas services, environmental, and steel customers.
- Gross profit improved primarily because of higher prices, lower fuel costs, and improved operating efficiency from the St. Clair fuel-efficient kiln. COVID-19 response costs partially offset these benefits.
- Operating results included a $1.6 million impairment charge related to natural gas interests, compared with a $0.9 million charge in 2019. The impairment reflected continuing low natural gas and natural gas liquids prices.
- Interest and other income declined to $0.5 million from $1.9 million because of lower interest rates on cash balances.
- Cash generation increased while investing outflows included $8.4 million for Carthage and $17.1 million for property, plant and equipment. The Company ended the year with materially higher cash and no debt.
- Capacity utilization for Lime and Limestone Operations was approximately 57%, indicating that available production capacity was not fully utilized.
Liquidity, debt, and capital commitments
The Company has a $75.0 million revolving credit facility, plus a potential $50.0 million accordion feature, maturing May 2, 2024. No borrowings were outstanding at December 31, 2020, although $0.4 million of letters of credit reduced availability. Management expects cash on hand and operating cash flow to fund normal operations, approximately $14.0 million of annual recurring capital spending, dividends, and potential projects, absent a significant acquisition.
Contractual obligations totaled $14.7 million, including $9.2 million of purchase obligations, $2.3 million of operating leases, $1.8 million of limestone mineral leases, and $1.5 million of other liabilities. Open equipment and construction contracts totaled approximately $5.0 million.
Guidance, outlook, risks, and unusual items
- Management expects regular capital spending of approximately $14.0 million annually over the next several years, but provided no formal revenue or earnings guidance.
- The Company expects construction demand could benefit from Texas highway funding and potential federal infrastructure investment, although timing remains uncertain.
- Management expects COVID-19-related restrictions, demand volatility, pricing pressure, and higher operating costs could continue until vaccination programs and economic activity normalize.
- Key industry risks include cyclical demand from steel and oil and gas customers, declining coal-fired utility activity, competition and pricing pressure, weather, fuel and freight costs, equipment failures, supply-chain disruptions, and labor interruptions.
- Environmental, greenhouse-gas, air-quality, water, mine-safety, permitting, reclamation, and remediation requirements could increase costs or restrict operations. Environmental capital expenditures were $0.7 million in 2020, and the asset-retirement obligation was $1.5 million at year-end.
- A nonprofit organization challenged the EPA’s 2020 Lime MACT rule in September 2020. The ultimate impact of the petition and litigation was uncertain.
- The Company reported no material legal proceedings expected to adversely affect its financial position, results, cash flows, or competitive position.
- On January 29, 2021, the Board declared a regular quarterly dividend of $0.16 per share, payable March 12, 2021.
- Grant Thornton issued unqualified opinions on the financial statements and internal control over financial reporting; no critical audit matters were identified.
Most important facts for an investor to verify
- Whether post-pandemic demand from construction, environmental, steel, and oil and gas customers supports further volume and price growth.
- Whether the Carthage acquisition and related facilities are integrated effectively and generate returns consistent with expectations.
- Whether the Company can maintain the 2020 margin improvement as fuel, freight, labor, and environmental compliance costs change.
- The sustainability of approximately 57% capacity utilization and the ability to sell incremental production at acceptable prices.
- The impact of future greenhouse-gas, Lime MACT, air-quality, mine-safety, permitting, and reclamation requirements.
- Whether operating cash flow remains sufficient to fund recurring capital expenditures, dividends, acquisitions, and other growth projects without drawing on the revolving facility.
- The effect of continued low natural gas prices and further impairment risk for the remaining $2.0 million carrying value of natural gas assets.