United States Lime & Minerals, Inc. — Q3 2023 Form 10-Q
Business context and reporting period
Unaudited quarterly report for the three and nine months ended September 30, 2023, filed November 2, 2023. The company manufactures lime and limestone products for construction, industrial, metals, environmental, roofing, agriculture, and oil and gas services customers. It operates in Arkansas, Colorado, Louisiana, Missouri, Oklahoma, and Texas and reports one segment: lime and limestone operations.
Key financial metrics
| Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 |
|---|---|---|---|---|
| Revenue | $74.9 million | $66.5 million | $215.6 million | $177.9 million |
| Gross profit | $28.2 million | $22.6 million | $79.3 million | $53.5 million |
| Gross margin | 37.6% | 34.0% | 36.8% | 30.1% |
| Operating profit | $23.8 million | $19.0 million | $66.5 million | $42.5 million |
| Operating margin | 31.8% | 28.7% | 30.8% | 23.9% |
| Net income | $20.7 million | $15.7 million | $57.5 million | $34.6 million |
| Diluted EPS | $3.63 | $2.77 | $10.09 | $6.10 |
| Operating cash flow | Not separately provided | Not separately provided | $64.7 million | $43.9 million |
At September 30, 2023, cash and cash equivalents were $176.3 million versus $133.4 million at December 31, 2022. Total assets were $424.1 million and stockholders’ equity was $377.6 million. The company had no outstanding debt and only $0.3 million of letters of credit drawn against its revolving facility.
Capital expenditures were $20.5 million in the first nine months of 2023, compared with $18.1 million in the same period of 2022. Financing cash outflows were $3.4 million, primarily quarterly dividends. The company paid $0.20 per share in each quarter during the first nine months and declared another $0.20 per-share dividend payable December 15, 2023.
Material changes versus the prior comparable period
- Q3 revenue increased 12.7%; nine-month revenue increased 21.2%.
- Lime and limestone revenue increased 13.5% in Q3 and 22.3% for the first nine months. Q3 average selling prices increased 17.5%, while product volumes declined 4.0%. Nine-month volumes were essentially flat and pricing increased 22.3%.
- Management attributed volume pressure primarily to weaker construction, steel, and industrial demand, partly offset by stronger environmental and roofing demand in Q3 and stronger environmental and oil and gas services demand year to date.
- Gross profit increased 24.6% in Q3 and 48.1% year to date. Margin expansion reflected higher revenue and pricing, partly offset by higher energy, parts and supplies, and labor costs.
- SG&A increased 22.9% in Q3 and 16.3% year to date, primarily because of higher personnel expense.
- Other income increased to $2.2 million in Q3 and $5.5 million year to date, principally because higher interest rates generated more income on larger cash balances.
- Net income increased 31.8% in Q3 and 66.2% year to date. Income tax expense increased with higher pretax income; management estimates a 20.0% full-year 2023 effective tax rate, helped by statutory depletion.
Guidance, outlook, risks, contingencies, and unusual items
Management expects continued weak demand in some key markets because of inflation, higher interest rates, and geopolitical uncertainty. It believes cash on hand and operating cash flow should satisfy operating, capital, modernization, expansion, development, and dividend needs for the near future, absent a significant acquisition.
The amended credit agreement provides a $75 million revolving facility, a potential $50 million accordion feature subject to lender approval, and a $10 million letter-of-credit sublimit. The facility matures August 3, 2028 and is secured by company assets. The maximum Cash Flow Leverage Ratio is 3.50 to 1.00. The company reported no debt outstanding at quarter-end.
Principal risks include demand and pricing pressure; inflation and energy, transportation, labor, and supply costs; availability of trucks, drivers, rail cars, and utilities; weather, natural disasters, operational interruptions, cybersecurity incidents, and supply-chain disruptions; labor negotiations; environmental, permitting, mine-safety, reclamation, and regulatory matters; reserve estimates; litigation; and broader economic, geopolitical, tax, interest-rate, and government-policy changes.
In June 2023, the company reinstated recognition of the union representing Arkansas employees under a settlement with the National Labor Relations Board and was negotiating a new collective bargaining agreement. The filing does not provide a clear value for any related financial exposure.
The company’s disclosure controls and procedures were assessed as effective, with no material change in internal control over financial reporting during the quarter. Required mine-safety information is included in Exhibit 95.1.
Important facts for investors to verify
- Whether elevated pricing can continue to offset weaker construction, steel, and industrial volumes.
- The sustainability of gross-margin expansion as energy, labor, parts, supplies, and transportation costs change.
- Progress and potential costs of the Arkansas collective bargaining negotiations.
- Capital spending requirements for modernization, expansion, development projects, and potential acquisitions.
- Compliance with credit-agreement leverage and other covenants, despite the company’s current net cash position.
- Mine-safety, environmental, permitting, reclamation, litigation, and cybersecurity exposures disclosed in the full filing and exhibits.
- Whether operating cash flow remains sufficient to fund capital expenditures, dividends, and any strategic investments without borrowing.