United States Lime & Minerals, Inc. — FY2023 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2023. The filing is an annual report rather than a standalone fourth-quarter filing; fourth-quarter comparative data is included.
Business Context
The Company manufactures lime and limestone products for construction, industrial, metals, environmental, roofing, oil and gas services, and agriculture customers. Its primary reportable segment is Lime and Limestone Operations, with a smaller Other segment consisting principally of natural gas interests. Operations are located in Arkansas, Colorado, Louisiana, Missouri, Oklahoma, and Texas, and all 2023 sales were in the United States.
The Company had approximately 650 customers in 2023, with no customer representing more than 10% of lime and limestone sales. It employed 333 people at year-end, including 111 union employees.
Financial Performance and Metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Total revenue | $281.3 million | $236.2 million | +19.1% |
| Lime and limestone revenue | $280.2 million | $233.4 million | +20.0% |
| Gross profit | $102.9 million | $70.3 million | +46.2% |
| Gross margin | 36.6% | 29.8% | +680 basis points |
| Operating profit | $85.4 million | $54.8 million | +55.0% |
| Operating margin | 30.4% | 23.2% | +720 basis points |
| Net income | $74.5 million | $45.4 million | +64.1% |
| Diluted earnings per share | $13.06 | $8.00 | +63.3% |
| Net margin | 26.5% | 19.2% | +730 basis points |
| Cash flow from operations | $92.3 million | $64.4 million | +43.3% |
| Capital expenditures | $34.3 million | $26.8 million | +27.7% |
Lime and limestone average selling prices increased 21.1%, while sales volume decreased 1.1%. Higher prices more than offset lower volume and higher energy, labor, parts, supplies, and transportation costs. Other revenue declined to $1.1 million from $2.7 million, and the natural gas interests generated a $38 thousand gross loss compared with $1.4 million of gross profit in 2022.
Other income increased to $7.9 million from $1.8 million, primarily because of higher interest income on larger cash balances and higher interest rates. The effective tax rate was 20.2%, compared with 19.7% in 2022, with statutory depletion in excess of basis reducing the effective rate.
Liquidity, Debt, and Capital Allocation
- Cash and cash equivalents increased to $188.0 million at December 31, 2023, from $133.4 million at December 31, 2022.
- The Company had no debt outstanding at year-end. Its revolving credit facility provides $75.0 million of capacity, plus a potential $50.0 million accordion feature, and matures August 3, 2028. Letters of credit outstanding totaled approximately $0.5 million.
- Net cash used in investing activities was $32.0 million, including $34.3 million of capital expenditures and $11.0 million for real property purchases, partially offset by asset-sale proceeds.
- Financing cash outflows included $4.6 million of dividends and $1.3 million of treasury-share purchases.
- Total assets increased to $440.6 million from $367.8 million, and stockholders’ equity increased to $393.1 million from $321.1 million.
- Contractual obligations totaled $33.4 million, including $23.7 million of purchase obligations and $5.9 million of operating lease commitments.
Material Changes Versus the Prior Comparable Period
- Revenue growth was driven primarily by a 21.1% increase in average selling prices, despite a 1.1% decline in volume.
- Profitability improved substantially, with gross margin rising to 36.6% from 29.8% and operating margin rising to 30.4% from 23.2%.
- Production costs continued to rise, particularly for energy, labor, parts, supplies, and freight, but pricing and operating efficiencies more than offset these increases.
- Capital spending increased, and depreciation, depletion, and amortization rose to $23.8 million from $22.2 million.
- Cash generation enabled significant capital investment, dividends, and continued accumulation of cash without debt financing.
- Total limestone production declined to 3.897 million tons from 4.024 million tons. The Company’s plant utilization rate was approximately 66% of total annual production capacity.
- Updated technical reports did not materially change reported mineral resources or reserves. Total mineral reserves declined to 229.9 million tons from 233.1 million tons, primarily due to depletion.
Outlook, Risks, and Unusual Items
Management expects soft construction demand, particularly commercial building demand, to continue through at least the first half of 2024. Texas transportation and infrastructure funding may support future construction demand, but the timing and magnitude of any benefit remain uncertain. Management expects normal recurring capital expenditures of approximately $22.0 million annually over the next several years.
Absent a significant acquisition, management expects cash on hand and operating cash flow to fund operations, capital needs, potential modernization and expansion projects, and increased regular dividends. On February 2, 2024, the Board declared an increased quarterly dividend of $0.25 per share.
- Key operating risks include cyclical demand from construction, steel, oil and gas, and utilities; declining coal-fired utility demand; regional competition; adverse weather; equipment failures; mine and plant disruptions; and labor or supply-chain interruptions.
- Energy, fuel, diesel, freight, labor, and parts costs remain material risks. The Company has not engaged in significant energy hedging.
- Environmental and permitting requirements may increase capital and operating costs. Potentially significant matters include tighter ozone and particulate-matter standards, proposed lime-plant hazardous-air-pollutant requirements, greenhouse-gas regulation, water-use restrictions, and permitting constraints.
- The Company recorded $1.5 million of asset retirement obligations at year-end and estimated approximately $0.1 million of annual related expenditures from 2024 through 2028.
- Environmental capital expenditures were $1.5 million in 2023, while recurring environmental compliance costs were $0.9 million.
- The Company reported no material adverse legal proceedings, no impairments in the years presented, no material cybersecurity incident as of the filing date, and no critical audit matters.
- Grant Thornton issued unqualified opinions on the financial statements and internal control over financial reporting.
Investor Verification Items
- Verify the sustainability of the 21.1% price increase and whether pricing can continue to offset lower volumes and higher energy, labor, and freight costs.
- Monitor construction, commercial building, steel, oil and gas, roofing, environmental, and utility demand trends, including the timing of Texas and federal infrastructure spending.
- Review future capital expenditures, project execution, plant utilization, and the ability to sell incremental production at acceptable margins.
- Assess potential costs and operational effects from evolving air-quality, greenhouse-gas, mine-safety, reclamation, water-use, and permitting requirements.
- Review the Company’s technical report summaries and the assumptions supporting mineral reserves, including the $12.70-per-ton crushed-limestone price assumption.
- Confirm liquidity after the increased dividend and any acquisitions, modernization projects, or expansion plans.
- Reconcile an apparent filing inconsistency: one market-information disclosure refers to a share repurchase in the “fourth quarter 2024,” although the report covers fiscal 2023 and the financial-statement note reports 2023 repurchases.