United States Lime & Minerals, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. The filing is an annual report; fourth-quarter data is included but the filing does not represent a standalone Form 10-Q.
Business context
The Company manufactures and distributes pulverized limestone, aggregate, quicklime, hydrated lime and lime slurry through operations in Arkansas, Colorado, Louisiana, Missouri, Oklahoma and Texas. Customers primarily serve construction, industrial, metals, environmental, roofing, agriculture and oil and gas markets. The Company also has smaller natural gas interests. Approximately 650 customers purchased lime and limestone products in 2021, with no customer representing more than 10% of sales.
Operations are highly regionalized and seasonal, with typically stronger shipments and revenues in the second and third quarters. The Company mined approximately 3 million tons of limestone in 2021, 2020 and 2019, and operated at approximately 63% of aggregate plant capacity in 2021.
Financial performance and condition
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Total revenue | $189.3 million | $160.7 million | +17.8% |
| Lime and limestone revenue | $187.4 million | $159.7 million | +17.3% |
| Gross profit | $59.3 million | $47.6 million | +24.5% |
| Gross margin | 31.3% | 29.6% | +1.7 points |
| Operating profit | $46.4 million | $33.9 million | +37.0% |
| Operating margin | 24.5% | 21.1% | +3.4 points |
| Net income | $37.0 million | $28.2 million | +31.3% |
| Diluted EPS | $6.54 | $5.00 | +30.8% |
| Cash flow from operations | $55.7 million | $58.6 million | -4.9% |
| Capital expenditures | $29.9 million | $17.1 million | +74.6% |
| Cash and equivalents | $105.4 million | $83.6 million | +26.1% |
| Debt outstanding | None | None | No change |
Sales volume for lime and limestone products increased 16.4%, while average selling prices increased 0.9%. Gross profit benefited from higher revenue and operating efficiencies, partially offset by higher energy costs. SG&A was $12.8 million, or 6.8% of revenue, versus 7.6% in 2020. The effective tax rate increased to 20.4% from 17.2%, primarily because of higher pretax income.
The Company paid $3.6 million of dividends and repurchased $0.7 million of treasury shares in 2021. Stockholders’ equity increased to $278.2 million from $243.2 million. Total assets increased to $316.2 million from $279.1 million.
Material changes versus the prior comparable period
- Demand improved across construction, steel, environmental, industrial, roofing and agriculture customers following the 2020 economic slowdown associated with COVID-19.
- Revenue growth was driven primarily by a 16.4% increase in product volumes, with a smaller contribution from pricing.
- Margins expanded despite higher energy and supply costs, reflecting improved operating efficiency and the absence of a 2020 natural gas asset impairment charge.
- Operating cash flow declined despite higher earnings because working capital used $6.0 million, including a $3.7 million increase in trade receivables.
- Capital investment rose to $29.9 million, including $14.0 million for development of the Love Hollow Quarry and its connection to the Batesville plant.
- The Company had no debt at year-end but maintained a $75.0 million revolving credit facility, with an additional $50.0 million accordion feature. Letters of credit outstanding were $0.3 million.
- On February 9, 2022, the Company acquired Mill Creek Dolomite, LLC, in Oklahoma for $5.9 million cash, subject to adjustment. The acquisition was not included in 2021 operating results.
Guidance, outlook, risks and unusual items
Management expects normal recurring capital expenditures of approximately $14.0 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, dividends and the Mill Creek acquisition. The Company increased its regular quarterly dividend to $0.20 per share, payable March 18, 2022.
Management expects continued construction demand from Texas highway and infrastructure funding, including the Infrastructure Investment and Jobs Act, but cautions that the timing and magnitude of demand remain uncertain. The Company is increasing prices to mitigate rising energy, freight and supply costs; its ability to pass through those costs remains important to profitability.
- COVID-19 variants, labor availability, supply-chain disruptions and operating restrictions could reduce production, shipments and demand.
- Energy, fuel, diesel, transportation and freight costs are volatile; the Company has not engaged in significant energy hedging.
- Demand is cyclical in steel, oil and gas services and construction, while coal-fired utility retirements reduce demand for flue-gas treatment products.
- Environmental, greenhouse-gas, air-quality, water, mine-safety and reclamation requirements may increase operating and capital costs. The EPA is expected to undertake additional Lime MACT rulemaking, potentially imposing more stringent hazardous-air-pollutant limits.
- Weather, equipment failures, mine conditions, accidents, labor disruptions, rail or trucking constraints and cybersecurity incidents could interrupt operations.
- Environmental capital expenditures were $0.5 million in 2021, recurring environmental costs were $0.7 million, and asset-retirement obligations were $1.6 million at year-end.
- The Company reported no legal proceedings expected by management to have a material adverse effect. It had $2.2 million of open equipment and construction contracts at December 31, 2021.
- Natural gas interests generated $1.9 million of revenue and $0.6 million of gross profit in 2021. No new wells have been completed since 2011, and related long-lived assets had a $1.5 million carrying value at year-end.
Grant Thornton issued unqualified opinions on the financial statements and internal control over financial reporting. The auditor reported no critical audit matters.
Investor verification checklist
- Verify the sustainability of 2021’s volume growth and the Company’s ability to implement announced price increases amid higher energy and freight costs.
- Assess utilization and returns on expanded capacity, including the Love Hollow development and the Mill Creek acquisition.
- Review the timing, cost and permitting implications of environmental and Lime MACT requirements.
- Confirm cash generation after approximately $14.0 million of recurring annual capital spending, planned development expenditures and dividends.
- Monitor customer exposure to construction, steel, oil and gas, utilities and other cyclical end markets.
- Reconcile the reported $105.4 million cash balance, zero debt, $75.0 million revolver and $0.3 million of letters of credit.
- Evaluate mineral reserve assumptions, including the aggregate reported 236.2 million tons of reserves and estimated reserve lives of approximately 25 to 80 years at the principal properties.