United States Lime & Minerals, Inc. — Form 10-Q Summary
Business context and reporting period
Unaudited quarterly report for the three and six months ended June 30, 2015. The Company operates two U.S. segments: Lime and Limestone Operations, its principal business, and Natural Gas Interests. It had 5,599,704 common shares outstanding as of August 3, 2015.
Financial performance and liquidity
| Metric | Three months ended June 30, 2015 | Three months ended June 30, 2014 | Six months ended June 30, 2015 | Six months ended June 30, 2014 |
|---|---|---|---|---|
| Revenue | $32.5 million | $38.7 million | $62.5 million | $75.4 million |
| Gross profit | $7.0 million; 21.6% margin | $10.4 million; 27.0% margin | $12.9 million; 20.6% margin | $19.0 million; 25.2% margin |
| Operating profit | $4.6 million; 14.2% margin | $8.0 million; 20.7% margin | $8.1 million; 12.9% margin | $14.4 million; 19.1% margin |
| Net income | $2.6 million | $5.7 million | $4.9 million | $10.2 million |
| Diluted EPS | $0.46 | $1.02 | $0.88 | $1.83 |
| Cash flow from operations | Not separately provided | Not separately provided | $13.8 million | $15.9 million |
| Capital expenditures | Not separately provided | Not separately provided | $6.3 million | $5.5 million |
Revenue declined 16.1% in the second quarter and 17.1% year to date. Net income declined 55.3% and 51.8%, respectively. Cash and cash equivalents were $47.8 million at June 30, 2015, compared with $58.3 million at December 31, 2014. The Company had no debt outstanding, other than $0.7 million of letters of credit under its new revolving facility.
On May 7, 2015, the Company repaid $15.4 million of term loans and paid $0.5 million to repurchase related interest-rate hedges. It established a secured $75 million revolving credit facility, maturing May 7, 2020, with an accordion feature for up to an additional $50 million subject to lender approval.
The Company paid quarterly dividends of $0.125 per share during the first two quarters. A further $0.125 per share dividend was declared on July 29, 2015, payable September 18, 2015.
Material changes versus the prior comparable period
- Lime and limestone revenue decreased 14.8% in the quarter and 15.5% year to date, primarily due to approximately 15% lower sales volumes. Construction, oil and gas services, industrial and steel demand weakened.
- Lime and limestone gross margin declined to 21.4% in the quarter and 20.5% year to date, from 26.0% and 24.0%, respectively.
- Natural Gas Interests revenue fell 50.5% in the quarter and 54.2% year to date, reflecting lower commodity prices and declining production from existing wells. Year-to-date average realized gas prices were $3.70 per MCF versus $6.93 per MCF in 2014.
- SG&A was essentially flat in the quarter but increased 4.3% year to date; as a percentage of revenue, it rose because of lower revenue.
- Interest expense increased because of the hedge repurchase, including approximately $0.3 million of additional expense. Debt repayment and hedge termination are expected to reduce second-half 2015 interest expense by approximately $0.5 million.
- The Company terminated the Corson defined-benefit plan, making a $0.2 million cash payment and recording a $0.9 million expense, or $0.6 million net of tax. No future contributions to that plan are expected.
Outlook, commentary, risks and unusual items
Management expected construction demand to improve in the second half of 2015 if weather conditions improved, while steel and oil and gas services demand was expected to remain below prior-year levels. Management expressed concern about uncertainty over long-term Highway Trust Fund funding, which could affect construction demand after the then-current authorization expired on October 29, 2015.
Management believed cash on hand and operating cash flow would be sufficient for operating requirements, capital needs, potential modernization or expansion projects, debt service and regular dividends in the near future. The filing does not provide formal earnings or revenue guidance.
Key risks include economic and industry demand, construction funding, steel production, oil and gas drilling activity and prices, weather, energy and transportation costs, mining and operational interruptions, permitting and regulatory compliance, mine safety, environmental and climate-related requirements, cybersecurity and information-technology disruptions, project cost overruns, acquisitions, interest rates and liquidity.
The financial statements were prepared without independent audit and do not necessarily indicate full-year results. Management concluded that disclosure controls and procedures were effective as of June 30, 2015, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether construction demand recovered in the second half of 2015 and whether Highway Trust Fund uncertainty affected customer orders.
- The sustainability of lime and limestone volumes, pricing and margins amid weaker steel, industrial and oil and gas demand.
- Natural gas production declines, realized commodity prices and the outlook for the Company’s Barnett Shale interests.
- Availability and terms of the new revolving facility, including secured collateral, financial covenants, letters of credit and accordion borrowing capacity.
- Actual cash generation relative to capital expenditures, dividends and any future modernization, expansion or acquisition spending.
- Mine safety disclosures in Exhibit 95.1 and any related regulatory actions, penalties or operating restrictions.