United States Lime & Minerals, Inc. — Q1 2021 Form 10-Q
Business context and reporting period
Unaudited quarterly report for the three months ended March 31, 2021, compared with the three months ended March 31, 2020. The company manufactures lime and limestone products for construction, industrial, environmental, metals, oil and gas, roofing, and agricultural customers. It operates in one reportable segment in the United States and also holds natural gas interests.
The July 2020 acquisition of Carthage Crushed Limestone contributed $2.2 million of Q1 2021 revenue.
Key financial metrics
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $41.7 million | $38.4 million | Up 8.4% |
| Gross profit | $11.8 million | $9.9 million | Up 19.5% |
| Gross margin | 28.3% | 25.7% | Up 260 basis points |
| Operating profit | $8.7 million | $6.7 million | Up 31.2% |
| Operating margin | 20.9% | 17.3% | Up 360 basis points |
| Net income | $7.0 million | $5.5 million | Up 26.8% |
| Diluted earnings per share | $1.24 | $0.98 | Up $0.26 |
| Cash flow from operations | $11.6 million | $11.5 million | Up 1.0% |
| Capital expenditures | $4.5 million | $6.1 million | Down $1.6 million |
Revenue from lime and limestone operations increased 8.2%, reflecting a 6.8% increase in sales volumes and a 1.4% increase in average selling prices. External freight billed to customers was $7.8 million in Q1 2021 versus $6.9 million in Q1 2020.
At March 31, 2021, cash and cash equivalents were $89.7 million, compared with $83.6 million at December 31, 2020. Total assets were $285.4 million and total stockholders’ equity was $249.8 million. Trade receivables were $24.0 million and inventories were $15.4 million.
The company had no debt outstanding and $0.4 million of letters of credit outstanding under its $75 million revolving credit facility. The facility matures May 2, 2024 and includes a potential $50 million accordion feature, subject to lender approval. The company reported no outstanding balance subject to interest-rate risk.
The effective income tax rate was 19.3%, primarily reduced by statutory depletion. The company paid $0.9 million in quarterly dividends, or $0.16 per share, during the quarter.
Material changes versus the prior comparable period
- Revenue increased $3.2 million, principally from the Carthage acquisition, stronger construction demand, higher selling prices, and increased agricultural and roofing sales. These benefits were partly offset by lower oil and gas services demand.
- Gross profit increased $1.9 million, aided by higher revenue and improved operating efficiencies.
- SG&A declined to $3.1 million from $3.2 million because of lower legal and travel expenses, partly offset by higher stock-based compensation.
- Interest and other income declined to $34 thousand from $247 thousand because of lower interest rates.
- Cash flow from operations was broadly stable despite increased trade receivables and lower accounts payable and accrued expenses.
- Cash increased $6.1 million during the quarter, after $4.5 million of capital expenditures and $1.0 million of financing outflows.
Guidance, outlook, risks, contingencies, and unusual items
The filing does not provide formal revenue or earnings guidance. Management stated that, absent a significant acquisition, cash on hand and operating cash flows should be sufficient for operating needs, capital requirements, potential modernization and expansion projects, liquidity needs, and regular quarterly dividends for the near future.
Management reported that February 2021 severe winter storms briefly curtailed operations and disrupted transportation, utilities, electricity, and natural gas deliveries in the southern United States, but caused no significant plant damage.
COVID-19 restrictions continued to affect business activity. Management noted that vaccination programs were improving conditions, but the pandemic remained ongoing and could materially affect demand, pricing, costs, financial condition, cash flows, and competitive position.
- Key operating risks include fluctuations in demand and pricing, competition, construction and infrastructure activity, and weakness in oil and gas, steel, utility, or industrial markets.
- Fuel, energy, transportation, freight, truck, driver, and rail availability may increase costs or disrupt deliveries.
- Operations are exposed to mining conditions, weather, accidents, utility or information-technology disruptions, cybersecurity incidents, permitting, environmental and safety requirements, and reclamation obligations.
- As of March 31, 2021, open purchase orders for capital equipment totaled $5.0 million.
- Shareholders were scheduled to vote on increasing authorized common shares from 15 million to 30 million, which could support future stock transactions, acquisitions, equity compensation, or other corporate purposes.
- The Board declared a $0.16-per-share dividend on April 28, 2021, payable June 11, 2021 to shareholders of record May 21, 2021.
Investor verification points
- Verify the sustainability of Carthage’s contribution and the extent to which Q1 growth reflects acquisition-related volume rather than organic demand.
- Monitor construction, agriculture, roofing, and oil and gas end-market trends, as well as the company’s ability to maintain price increases.
- Assess whether operating efficiencies and expanded margins persist amid energy, freight, labor, and transportation cost pressures.
- Review the $5.0 million of open capital-equipment purchase orders and planned modernization or expansion spending.
- Confirm compliance with revolving-credit covenants and the availability of liquidity if acquisitions or major capital projects occur.
- Evaluate continuing COVID-19, severe-weather, mine-safety, environmental, permitting, cybersecurity, and operational-disruption risks.
- Consider the potential dilution or governance implications of the proposed increase in authorized common shares.