United States Lime & Minerals, Inc. — Form 10-Q Summary
Business context and reporting period
Unaudited results cover the three and nine months ended September 30, 2022, compared with the corresponding 2021 periods. The company manufactures lime and limestone products serving construction, industrial, metals, environmental, roofing, agriculture, and oil and gas customers. It operates facilities in Arkansas, Colorado, Louisiana, Missouri, Oklahoma, and Texas and reports one primary segment: lime and limestone operations.
On February 9, 2022, the company acquired Mill Creek, a dolomite mining and production business in Oklahoma, for $5.6 million in cash. Mill Creek contributed $1.3 million of third-quarter revenue and $3.1 million of nine-month revenue.
Key financial metrics
| Metric | Q3 2022 | Q3 2021 | 9M 2022 | 9M 2021 |
|---|---|---|---|---|
| Revenue | $66.5 million | $52.3 million | $177.9 million | $143.1 million |
| Gross profit | $22.6 million | $17.3 million | $53.5 million | $45.9 million |
| Gross margin | 34.0% | 33.1% | 30.1% | 32.1% |
| Operating profit | $19.0 million | $14.2 million | $42.5 million | $36.8 million |
| Operating margin | 28.7% | 27.1% | 23.9% | 25.7% |
| Net income | $15.7 million | $11.3 million | $34.6 million | $29.4 million |
| Diluted EPS | $2.77 | $1.99 | $6.10 | $5.19 |
- Net cash provided by operating activities was $43.9 million for the first nine months, compared with $44.1 million in 2021.
- Capital expenditures and the Mill Creek acquisition used $23.8 million of cash in the first nine months, including $18.1 million of property, plant, and equipment purchases and $5.6 million for the acquisition.
- Cash and cash equivalents increased to $122.7 million at September 30, 2022, from $105.4 million at December 31, 2021.
- The company had no outstanding debt and only $0.3 million of letters of credit outstanding under its $75 million revolving credit facility. The facility includes a potential $50 million accordion feature and matures May 2, 2024.
- Total assets were $355.9 million and stockholders’ equity was $311.4 million at September 30, 2022.
- Cash dividends paid during the first nine months totaled $3.4 million, or $0.60 per share. The board declared an additional $0.20 per-share quarterly dividend payable December 16, 2022.
Material changes versus the prior comparable period
- Third-quarter revenue increased 27.0%; nine-month revenue increased 24.2%. Lime and limestone sales volumes increased 12.3% in the quarter and 11.7% for the nine months, while average selling prices increased 14.7% and 7.4%, respectively.
- Growth was driven primarily by stronger demand from construction, agriculture, roofing, and oil and gas services customers. Dry weather in Texas benefited third-quarter construction demand.
- Third-quarter gross profit increased 30.3%, while nine-month gross profit increased 16.5%. Third-quarter gross margin improved, but nine-month gross margin declined because of higher transportation, energy, labor, and supplies costs.
- SG&A expense increased 12.7% in the quarter and 20.3% for the nine months, primarily because of higher personnel costs, including stock-based compensation.
- Net income increased 39.1% in the quarter and 17.7% for the nine months. Interest and other income increased because of higher interest rates on larger cash balances.
- Operating cash flow was essentially flat year over year as higher earnings and noncash expenses were offset by increased trade receivables and inventories.
Guidance, outlook, risks, contingencies, and unusual items
Management stated that, absent a significant acquisition, cash on hand and operating cash flow are expected to fund operating requirements, ongoing capital needs, potential modernization and expansion projects, liquidity needs, and regular quarterly dividends for the near future. The filing does not provide formal revenue or earnings guidance.
- Management reported that production-cost inflation moderated during the third quarter but remains a risk, particularly for energy, transportation, labor, supplies, freight, and rail service.
- Other identified risks include weaker demand or pricing, recessionary pressures, inflation and interest-rate changes, competition, customer credit risk, supply-chain disruption, labor shortages, severe weather, natural disasters, cyber incidents, utility interruptions, mine safety, permitting and environmental requirements, reclamation obligations, reserve estimates, and pandemic-related effects.
- The company expects increased capital costs to result in higher depreciation, depletion, and amortization expense in future periods.
- The revolving facility is secured by company assets and contains leverage and dividend restrictions. Although the company had no funded debt at quarter-end, future borrowings would expose it to floating interest-rate risk.
- The effective income tax rate for 2022 is estimated at 19.7%, primarily reduced by statutory depletion deductions.
- Management concluded that disclosure controls and procedures were effective as of September 30, 2022, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether volume and pricing momentum continues after the strong third quarter and whether construction, agriculture, roofing, and oil and gas demand remains durable.
- Whether transportation, energy, labor, supplies, and other inflationary costs continue to pressure nine-month margins.
- The performance and integration of Mill Creek and the company’s future acquisition and capital-spending plans.
- Cash conversion, particularly the effect of receivables and inventory growth on operating cash flow.
- Availability and covenant capacity under the revolving credit facility as it approaches its May 2024 maturity.
- Operational, permitting, environmental, mine-safety, weather, supply-chain, and cybersecurity developments that could disrupt production or increase costs.