United States Lime & Minerals, Inc. — Q2 2021 Form 10-Q
Business context and reporting period
Unaudited quarterly report for the three and six months ended June 30, 2021, filed July 30, 2021. The company manufactures lime and limestone products for construction, industrial, metals, environmental, roofing, agriculture, and oil and gas customers. It operates in one reportable segment in the United States and also holds natural gas interests.
The July 1, 2020 acquisition of Carthage Crushed Limestone contributed $2.5 million and $4.7 million of revenue in the 2021 second quarter and first six months, respectively.
Financial performance and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $49.2 million | $37.5 million | $90.8 million | $76.0 million |
| Gross profit | $16.8 million | $10.4 million | $28.6 million | $20.2 million |
| Gross margin | 34.2% | 27.6% | 31.5% | 26.6% |
| Operating profit | $13.8 million | $7.5 million | $22.6 million | $14.1 million |
| Operating margin | 28.2% | 19.9% | 24.9% | 18.6% |
| Net income | $11.1 million | $6.1 million | $18.1 million | $11.6 million |
| Diluted EPS | $1.96 | $1.08 | $3.20 | $2.07 |
| Cash flow from operations | Not separately provided | Not separately provided | $27.4 million | $27.1 million |
| Capital expenditures | Not separately provided | Not separately provided | $17.8 million | $10.6 million |
Cash and cash equivalents were $91.3 million at June 30, 2021, compared with $83.6 million at December 31, 2020. The company had no debt outstanding and only $0.4 million of letters of credit drawn against its $75 million revolving credit facility. The facility matures May 2, 2024 and includes a potential $50 million accordion feature, subject to approval.
Total assets were $297.1 million and stockholders’ equity was $260.6 million at June 30, 2021. The company paid $1.8 million of dividends during the first six months and declared an additional quarterly dividend of $0.16 per share payable September 10, 2021.
Material changes versus the prior comparable period
- Second-quarter revenue increased 30.9%; six-month revenue increased 19.5%.
- Lime and limestone revenue increased 30.5% in the quarter and 19.2% year to date, driven principally by volume increases of 28.3% and 17.4%, respectively, higher demand from construction, steel, roofing, environmental, and oil and gas customers, and average selling-price increases of 2.2% and 1.8%.
- Gross profit increased 62.2% in the quarter and 41.3% year to date, reflecting higher revenue and improved operating efficiencies.
- Net income increased 81.8% in the quarter and 55.6% year to date. SG&A was broadly stable, while prior-year SG&A included higher legal expenses related to the Carthage acquisition.
- Capital expenditures increased to $17.8 million year to date, including $7.0 million for development of the Love Hollow Quarry and transportation infrastructure in Arkansas.
- Trade receivables increased to $27.5 million from $23.0 million at year-end 2020, primarily reflecting increased sales. Inventories declined modestly to $14.6 million from $15.2 million.
Guidance, outlook, risks, and unusual items
Management did not provide specific revenue or earnings guidance. Management expects cash on hand and operating cash flow, absent a significant acquisition, to fund operating requirements, current and possible future modernization, expansion and development projects, liquidity needs, and regular quarterly dividends for the near future.
COVID-19-related restrictions had generally been lifted or curtailed, and normal business activity had largely resumed. Management nevertheless reported lower availability and rising costs for labor, supplies, and services and expects these challenges to continue for a period of time. New COVID-19 variants or outbreaks could adversely affect demand, costs, operations, cash flow, and competitive position.
- Key operating risks include changes in mining conditions, weather, natural disasters, accidents, utility or IT disruptions, cybersecurity incidents, supply-chain disruptions, labor shortages, and regulatory requirements.
- Fuel, energy, transportation, freight, truck, driver, and rail availability and costs may pressure margins.
- Demand and pricing are exposed to competition, economic conditions, infrastructure spending, and conditions in construction, steel, environmental, utility, industrial, and oil and gas markets.
- Modernization, expansion, development projects, acquisitions, permitting, reserve estimates, mine safety, reclamation, environmental matters, litigation, and regulatory enforcement could create additional costs or delays.
- The company’s revolving facility is subject to leverage and other covenants; future borrowings would expose the company to floating interest-rate risk.
The effective 2021 income tax rate was estimated at 19.7%, primarily reduced by statutory depletion. The filing reports no material open purchase-order commitments at June 30, 2021. The Dallas corporate-office lease was amended and extended through November 2028 on July 12, 2021.
Important facts for investors to verify
- Whether the strong volume recovery versus the COVID-affected 2020 period is sustained and whether price increases offset rising labor, fuel, freight, and supply costs.
- The operating and financial contribution of Carthage and the execution, costs, and returns associated with the Love Hollow Quarry project.
- Current availability under the revolving facility, compliance with leverage covenants, and the company’s capacity to fund capital projects, acquisitions, and dividends.
- Future demand from construction, steel, roofing, environmental, and oil and gas customers, including exposure to economic or industry-specific downturns.
- Potential effects of COVID-19 variants, labor and supply shortages, permitting, mine-safety requirements, environmental regulation, and other contingencies.
- The filing’s Mine Safety Disclosures exhibit and any citations, orders, penalties, or other mine-safety matters reported therein.