United States Lime & Minerals Inc 10-Q for FY2023 Q1
United States Lime & Minerals Inc (USLM)
About this 10-Q
United States Lime & Minerals Inc filed this 10-Q on May 4, 2023, covering the quarter ended March 31, 2023 (FY2023 Q1).
Headline figures
Quarter ended March 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $66.78M
- up 31.2% from $50.91M a year earlier
- Net income
- $17.1M
- up 97.3% from net income of $8.67M a year earlier
- Diluted EPS
- $3.00
- up 96.1% from $1.53 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ........ to ........
Commission file number is
UNITED STATES LIME & MINERALS, INC.
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of | | (I.R.S. Employer |
incorporation or organization) | | Identification No.) |
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(Address of principal executive offices) | | (Zip Code) |
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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| Large accelerated filer | ☐ | | |
Non-accelerated filer | ☐ | | Smaller reporting company | |
| | Emerging growth company | ||
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date: As of May 2, 2023,
PART I. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
UNITED STATES LIME & MINERALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
(Unaudited)
| | March 31, | | December 31, | | ||
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| 2023 |
| 2022 |
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ASSETS | | | | | | | |
Current assets | | | | | | | |
Cash and cash equivalents | | $ | | | $ | | |
Trade receivables, net | |
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Inventories, net | |
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Prepaid expenses and other current assets | |
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Total current assets | |
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Property, plant and equipment | |
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Less accumulated depreciation and depletion | |
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Property, plant and equipment, net | |
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Operating lease right-of-use assets | | | | | | | |
Other assets, net | |
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Total assets | | $ | | | $ | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | |
Current liabilities | | | | | | | |
Accounts payable | | $ | | | $ | | |
Current portion of operating lease liabilities | | | | | | | |
Accrued expenses | |
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Total current liabilities | |
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Deferred tax liabilities, net | |
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Operating lease liabilities, excluding current portion | | | | | | | |
Other liabilities | |
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Total liabilities | |
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Stockholders’ equity | | | | | | | |
Common stock | |
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Additional paid-in capital | |
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Retained earnings | |
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Less treasury stock, at cost | |
| ( | |
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Total stockholders’ equity | |
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Total liabilities and stockholders’ equity | | $ | | | $ | | |
See accompanying notes to condensed consolidated financial statements.
2
UNITED STATES LIME & MINERALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
(Unaudited)
| | Three Months Ended March 31, | | | ||||||||
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| 2023 | | 2022 | |
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Revenues | | $ | |
| % | $ | |
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Cost of revenues | | | | | | | | | | | | |
Labor and other operating expenses | | | | | | % | | | | | % | |
Depreciation, depletion and amortization | |
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Gross profit | |
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Selling, general and administrative expenses | |
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Operating profit | |
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Other expense (income) | | | | | | | | | | | | |
Interest expense | |
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Interest and other income, net | |
| ( | | ( | % |
| ( | | ( | % | |
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| ( | | ( | % |
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Income before income tax expense | |
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Income tax expense | |
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Net income | | $ | | | | % | $ | | | | % | |
Net income per share of common stock | | | | | | | | | | | | |
Basic | | $ | | | | | $ | | | | | |
Diluted | | $ | | | | | $ | | | | | |
See accompanying notes to condensed consolidated financial statements.
3
UNITED STATES LIME & MINERALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(dollars in thousands)
(Unaudited)
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| Common Stock | | Additional | | | | | | | | | |
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| Shares |
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| Paid-In |
| Retained |
| Treasury |
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| | Outstanding | | Amount | | Capital | | Earnings | | Stock | | Total |
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Balances at December 31, 2022 |
| | | $ | | | $ | | | $ | | | $ | ( | | $ | | |
Stock options exercised |
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Stock-based compensation |
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Treasury shares purchased |
| ( | |
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Cash dividends paid | | — | |
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Net income |
| — | | | — | | | — | | | | | | — | | | | |
Balances at March 31, 2023 |
| | | $ | | | $ | | | $ | | | $ | ( | | $ | | |
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| | Common Stock | | Additional | | | | | | | | | |
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| Shares |
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| Paid-In |
| Retained |
| Treasury |
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| | Outstanding | | Amount | | Capital | | Earnings | | Stock | | Total |
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Balances at December 31, 2021 |
| | | $ | | | $ | | | $ | | | $ | ( | | $ | | |
Stock-based compensation |
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Treasury shares purchased |
| ( | |
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Cash dividends paid | | — | |
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| ( | |
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| ( | |
Net income |
| — | | | — | | | — | | | | | | — | | | | |
Balances at March 31, 2022 |
| | | $ | | | $ | | | $ | | | $ | ( | | $ | | |
See accompanying notes to condensed consolidated financial statements.
4
UNITED STATES LIME & MINERALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(Unaudited)
| | Three Months Ended March 31, | | ||||
| | 2023 | | 2022 | | ||
OPERATING ACTIVITIES: |
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Net income | | $ | | | $ | | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | |
Depreciation, depletion and amortization | |
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Amortization of deferred financing costs | |
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Deferred income taxes | |
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Gain on disposition of property, plant and equipment | |
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Stock-based compensation | |
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Changes in operating assets and liabilities: | | | | | | | |
Trade receivables, net | |
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Inventories, net | |
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Prepaid expenses and other current assets | |
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Other assets | |
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Accounts payable and accrued expenses | |
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Other liabilities | |
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Net cash provided by operating activities | |
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INVESTING ACTIVITIES: | | | | | | | |
Purchase of property, plant and equipment | |
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Acquisition of a business, net of cash acquired | | | — | | | ( | |
Proceeds from sale of property, plant and equipment | |
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Net cash used in investing activities | |
| ( | |
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FINANCING ACTIVITIES: | | | | | | | |
Cash dividends paid | | | ( | | | ( | |
Proceeds from exercise of stock options | |
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| — | |
Purchase of treasury shares | |
| ( | |
| ( | |
Net cash used in financing activities | |
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Net increase (decrease) in cash and cash equivalents | |
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Cash and cash equivalents at beginning of period | |
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Cash and cash equivalents at end of period | | $ | | | $ | | |
See accompanying notes to condensed consolidated financial statements.
5
UNITED STATES LIME & MINERALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The condensed consolidated financial statements included herein have been prepared by United States Lime & Minerals, Inc. (the “Company”) without independent audit. In the opinion of the Company’s management, all adjustments of a normal and recurring nature necessary to present fairly the financial position, results of operations, comprehensive income and cash flows for the periods presented have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the period ended December 31, 2022. The results of operations for the three-month period ended March 31, 2023 are not necessarily indicative of operating results for the full year.
2. Organization
The Company is a manufacturer of lime and limestone products, supplying primarily the construction (including highway, road and building contractors), industrial (including paper and glass manufacturers), metals (including steel producers), environmental (including municipal sanitation and water treatment facilities and flue gas treatment processes), roof shingle manufacturers, agriculture (including poultry producers), and oil and gas services industries. The Company is headquartered in Dallas, Texas and operates lime and limestone plants and distribution facilities in Arkansas, Colorado, Louisiana, Missouri, Oklahoma and Texas through its wholly owned subsidiaries, Arkansas Lime Company, ART Quarry TRS LLC (DBA Carthage Crushed Limestone), Colorado Lime Company, Mill Creek Dolomite, LLC (“Mill Creek”), Texas Lime Company, U.S. Lime Company, U.S. Lime Company-Shreveport, U.S. Lime Company-St. Clair, and U.S. Lime Company-Transportation. In addition, the Company, through its wholly owned subsidiary, U.S. Lime Company-O & G, LLC, has royalty and non-operated working interests in natural gas wells located in Johnson County, Texas, in the Barnett Shale Formation.
On February 9, 2022, the Company acquired
3. Accounting Policies
Revenue Recognition. The Company recognizes revenue for its lime and limestone operations when (i) a contract with the customer exists and the performance obligations are identified; (ii) the price has been established; and (iii) the performance obligations have been satisfied, which is generally upon shipment. The Company’s returns and allowances are minimal. Revenues include external freight billed to customers with related costs accounted for as fulfillment costs and included in cost of revenues. External freight billed to customers included in 2023 and 2022 revenues was $
Trade Receivables. The majority of the Company’s trade receivables are unsecured. Payment terms for all trade receivables are based on the underlying purchase orders, contracts or purchase agreements, and are generally fixed, short-term and do not contain a significant financing component. The Company estimates credit losses relating to trade receivables based on an assessment of the current and forecasted probability of collection, historical trends, economic conditions and other significant events that may impact the collectability of accounts receivables. Due to the relatively homogenous nature of its trade receivables, the Company does not believe there is any meaningful asset-specific differences within its trade receivables portfolio that would require the portfolio to be grouped below the consolidated level for review of credit losses. Credit losses relating to trade receivables have generally been within management expectations and historical trends. Uncollected trade receivables are charged-off when identified by management to be
6
unrecoverable. The Company maintains an allowance for credit losses to reflect currently expected estimated losses resulting from the failure of customers to make required payments.
4. Reportable Segment
The Company has identified
Operating results and certain other financial data for the three months ended March 31, 2023 and 2022 for the Company’s lime and limestone operations segment and other are as follows (in thousands):
| Three Months Ended March 31, | | |||||
Revenues | | 2023 | | 2022 | | ||
Lime and limestone operations | | $ | | | $ | | |
Other | |
| | |
| | |
Total revenues | | $ | | | $ | | |
Depreciation, depletion and amortization | | | | | | | |
Lime and limestone operations | | $ | | | $ | | |
Other | |
| | |
| | |
Total depreciation, depletion and amortization | | $ | | | $ | | |
Gross profit (loss) | | | | | | | |
Lime and limestone operations | | $ | | | $ | | |
Other | |
| ( | |
| | |
Total gross profit | | $ | | | $ | | |
Operating profit (loss) | | | | | | | |
Lime and limestone operations | | $ | | | $ | | |
Other | |
| ( | |
| | |
Total operating profit | | $ | | | $ | | |
Identifiable assets, at period end | | | | | | | |
Lime and limestone operations | | $ | | | $ | | |
Other | | | | | | | |
Total identifiable assets | | $ | | | $ | | |
Capital expenditures | | | | | | | |
Lime and limestone operations | | $ | | | $ | | |
Other | |
| — | |
| — | |
Total capital expenditures | | $ | | | $ | | |
| | | | | | | |
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5. Income and Dividends Per Share of Common Stock
The following table sets forth the computation of basic and diluted income per common share (in thousands, except per share amounts):
| | Three Months Ended March 31, | | ||||
|
| 2023 |
| 2022 |
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Net income for basic and diluted income per common share | | $ | | | $ | | |
Weighted-average shares for basic income per common share | |
| | |
| | |
Effect of dilutive securities: | | | | | | | |
Employee and director stock options(1) | |
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| | |
Adjusted weighted-average shares and assumed exercises for diluted income per common share | |
| | |
| | |
Basic net income per common share | | $ | | | $ | | |
Diluted net income per common share | | $ | | | $ | | |
| (1) | Excludes |
The Company paid $
6. Inventories, Net
Inventories are valued principally at the lower of cost, determined using the average cost method, or net realizable value. Costs for raw materials and finished goods include materials, labor, and production overhead. Inventories, net consisted of the following (in thousands):
| | March 31, | | December 31, | | ||
| | 2023 | | 2022 |
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Lime and limestone inventories: |
| |
|
| |
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Raw materials | | $ | | | $ | | |
Finished goods | |
| | |
| | |
| | | | | | | |
Service parts inventories | |
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| | |
| | $ | | | $ | | |
7. Banking Facilities and Debt
The Company’s credit agreement with Wells Fargo Bank, N.A. (the “Lender”), as amended as of May 2, 2019 and November 21, 2019, provides for a $
Interest rates on the Revolving Facility are, at the Company’s option, LIBOR (or a replacement rate as determined by the Lender and the Company) plus a margin of
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dated August 25, 2004, the Revolving Facility is secured by the Company’s existing and hereafter acquired tangible assets, intangible assets and real property. The maturity of the Revolving Facility and any incremental loans can be accelerated if any event of default, as defined under the credit agreement, occurs. The Company’s maximum Cash Flow Leverage Ratio is
The Company may pay dividends so long as it remains in compliance with the provisions of the Company’s credit agreement, and it may purchase, redeem or otherwise acquire shares of its common stock so long as its pro forma Cash Flow Leverage Ratio is less than
As of March 31, 2023, the Company had
8. Leases
The Company has operating leases for the use of equipment, corporate office space, and some of its terminal and distribution facilities. The leases have remaining lease terms of
The components of lease costs for the three months ended March 31, 2023 and 2022 were as follows (in thousands):
| | | | Three Months Ended March 31, | | ||||
|
| Classification |
| 2023 |
| 2022 |
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Operating lease costs(1) | | Cost of revenues | | $ | | $ | | ||
Operating lease costs(1) | | Selling, general and administrative expenses | | | | | | ||
Rental revenues | | Interest and other income, net | | | ( | | | ( | |
Net operating lease costs | | | | $ | | | $ | | |
| (1) | Includes the costs of leases with a term of |
As of March 31, 2023, future minimum payments under operating leases that were either non-cancelable or subject to significant penalty upon cancellation, including future minimum payments under renewal options that the Company is reasonably certain to exercise, were as follows (in thousands):
| | | | |
| | | | |
2023 (excluding the three months ended March 31, 2023) | | $ | | |
2024 | | | | |
2025 | | | | |
2026 | | | | |
2027 | | | | |
Thereafter | | | | |
Total future minimum lease payments | | | | |
Less imputed interest | | | ( | |
Present value of lease liabilities | | $ | | |
Supplemental cash flow information pertaining to the Company’s leasing activity for the three months ended March 31, 2023 and 2022 is as follows (in thousands):
| | | | | | |
| | Three Months Ended March 31, | ||||
| | 2023 | | 2022 | ||
Cash payments for lease liabilities included in operating cash flows | | $ | | | $ | |
Right-of-use assets obtained in exchange for operating lease obligations | | $ | | | $ | |
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9. Income Taxes
The Company has estimated that its effective income tax rate for 2023 will be
10. Dividends
On March 17, 2023, the Company paid $
11. Subsequent Event
On
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ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements. Any statements contained in this Report that are not statements of historical fact are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements in this Report, including without limitation statements relating to the Company’s plans, strategies, objectives, expectations, intentions, and adequacy of resources, are identified by such words as “will,” “could,” “should,” “would,” “believe,” “possible,” “potential,” “expect,” “intend,” “plan,” “schedule,” “estimate,” “anticipate” and “project.” The Company undertakes no obligation to publicly update or revise any forward-looking statements. The Company cautions that forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from expectations, including without limitation the following: (i) the Company’s plans, strategies, objectives, expectations, and intentions are subject to change at any time at the Company’s discretion; (ii) the Company’s plans and results of operations will be affected by its ability to maintain and increase its revenues and manage its growth; (iii) the Company’s ability to meet short-term and long-term liquidity demands, including meeting the Company’s operating and capital needs, including possible acquisitions and paying dividends, and conditions in the credit and equity markets, including the ability of the Company’s customers to meet their obligations; (iv) interruptions to operations and increased costs at the Company’s facilities resulting from changes in mining methods or conditions, variability of chemical or physical properties of the Company’s limestone and its impact on process equipment and product quality, inclement weather conditions, including more severe and frequent weather events resulting from climate change, natural disasters, accidents, IT systems failures or disruptions, including due to cyber-security incidents or ransomware attacks, utility disruptions, supply chain delays and disruptions, labor shortages, disputes, and disruptions, or regulatory requirements; (v) volatile coal, petroleum coke, diesel, natural gas, electricity, and transportation costs and the consistent availability of trucks, truck drivers, and rail cars to deliver the Company’s products to its customers and solid fuels to its plants on a timely basis at competitive prices, including the impact of new or proposed additional rail regulations; (vi) the Company’s ability to expand its lime and limestone operations through projects and acquisitions of businesses with related or similar operations and the Company’s ability to obtain any required financing for such projects and acquisitions, to integrate the projects and acquisitions into the Company’s overall operations, and to sell any resulting increased production at acceptable prices; (vii) inadequate demand and/or prices for the Company’s lime and limestone products due to increased competition from competitors, increasing competition for certain customer accounts, conditions in the U.S. economy, recessionary concerns and pressures in, and the impact of government policies on, particular industries, including oil and gas services, utility plants, steel, construction, and industrial, effects of governmental fiscal and budgetary constraints, including the level and pace of highway construction and infrastructure funding, changes to tax laws, legislative impasses, extended governmental shutdowns, default on U.S. government obligations, trade wars, tariffs, international incidents, including the Russian conflict with Ukraine, oil cartel production and supply actions, sanctions, economic and regulatory uncertainties under state governments and the United States Administration and Congress, inflation, Federal Reserve responses to inflationary concerns, including increased interest rates, and inability to continue to maintain or increase prices for the Company’s products, including passing through the increased costs of energy, transportation, labor, and services; (viii) ongoing and possible new regulations, investigations, enforcement actions and costs, legal expenses, penalties, fines, assessments, litigation, judgments and settlements, taxes and disruptions and limitations of operations, including those related to climate change, health and safety, human capital, diversity, and other environmental, social, governance and sustainability considerations, and those that could impact the Company’s ability to continue or renew its operating permits or successfully secure new permits in connection with its modernization and expansion and development projects; (ix) estimates of reserves and remaining lives of reserves; (x) the impact of future variants of the novel coronavirus (“COVID-19”) virus or other potential global pandemics and governmental responses thereto, including decreased demand, lower prices, tightened labor and other markets, supply chain delays and disruptions, and increased costs, and the risk of non-compliance with health and safety protocols, social distancing and mask guidelines, and vaccination mandates, on the Company’s financial condition, results of operations, cash flows, and competitive position; (xi) the impact of social or political unrest; (xii) risks relating to mine safety and reclamation and remediation; and (xiii) other risks and uncertainties set forth in this Report or indicated from time to time in the Company’s filings with the Securities and Exchange Commission (the “SEC”), including the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 and subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.
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Overview.
We are a manufacturer of lime and limestone products, supplying primarily the construction (including highway, road and building contractors), industrial (including paper and glass manufacturers), metals (including steel producers), environmental (including municipal sanitation and water treatment facilities and flue gas treatment processes), roof shingle manufacturers, agriculture (including poultry producers), and oil and gas services industries. We are headquartered in Dallas, Texas and operate lime and limestone plants and distribution facilities in Arkansas, Colorado, Louisiana, Missouri, Oklahoma and Texas through our wholly owned subsidiaries, Arkansas Lime Company, ART Quarry TRS LLC (DBA Carthage Crushed Limestone), Colorado Lime Company, Mill Creek Dolomite, LLC (“Mill Creek”), Texas Lime Company, U.S. Lime Company, U.S. Lime Company-Shreveport, U.S. Lime Company-St. Clair, and U.S. Lime Company-Transportation.
We have identified one reportable segment based on the distinctness of our activities and products: lime and limestone operations. All operations are in the United States. Our Other operations consists of natural gas interests through our wholly owned subsidiary, U.S. Lime Company-O&G, LLC. Assets related to our natural gas interests, unallocated corporate assets, and cash items are included in Other identified assets. We do not believe that our natural gas interests are material to the current or prior periods.
On February 9, 2022, we acquired 100% of the equity interest of Mill Creek, a dolomite mining and production company located in Mill Creek, Oklahoma, for $5.6 million cash. Mill Creek contributed $1.2 million and $0.8 million to our revenues for the three months ended March 31, 2023 and 2022, respectively.
Our revenues increased 31.2% in the first quarter 2023, compared to the first quarter 2022. Revenues from our Lime and Limestone Operations increased 32.3% in the first quarter 2023, compared to the first quarter 2022, primarily due to a 23.5% increase in the average selling prices for our lime and limestone products, and an 8.8% increase in sales volumes of our lime and limestone products, principally due to increased demand from our construction customers.
Our gross profit increased 65.8% in the first quarter 2023, compared to the first quarter 2022. Gross profit from our Lime and Limestone Operations increased 69.5% in the first quarter 2023, compared to the first quarter 2022, primarily from the increased revenues discussed above, partially offset by increased production costs, principally from higher energy, transportation, and labor costs. Looking ahead for the remainder of 2023, we anticipate continuing pressure on our lime and limestone production costs and believe general recessionary concerns could potentially impact future demand for our products.
Liquidity and Capital Resources.
Net cash provided by operating activities was $20.6 million in the first quarter 2023, compared to $8.1 million in the first quarter 2022, an increase of $12.6 million, or 156.2%. Our net cash provided by operating activities is composed of net income, depreciation, depletion and amortization (“DD&A”), deferred income taxes, stock-based compensation, other non-cash items included in net income and changes in working capital. In the first quarter 2023, net cash provided by operating activities was principally composed of $17.1 million net income, $5.8 million DD&A, and $0.8 million stock-based compensation, partially offset by $0.2 million deferred income taxes and a $2.9 million decrease from changes in operating assets and liabilities. Changes in operating assets and liabilities in the first quarter 2023 included an increase of $4.8 million in trade receivables, net, due primarily to increased sales in the first quarter 2023 compared to the fourth quarter 2022, and an increase of $2.5 million in inventories, partially offset by a $3.7 million increase in accounts payable and accrued expenses and a decrease of $0.6 million in prepaid expenses and other current assets. In the first quarter 2022, net cash provided by operating activities was principally composed of $8.7 million net income, $5.3 million DD&A, $0.4 million deferred income taxes, $0.7 million stock-based compensation, and a $6.9 million decrease from changes in operating assets and liabilities. Changes in operating assets and liabilities in the first quarter 2022 included an increase of $5.7 million in trade receivables, net, due primarily from increased sales in the first quarter 2022 compared to the fourth quarter 2021, an increase of $1.3 million in inventories, and a $1.0 million decrease in accounts payable and accrued expenses, partially offset by a decrease of $1.0 million in prepaid and other assets.
We had $5.5 million in capital expenditures in the first quarter 2023, compared to $11.4 million in the first quarter 2022, which included $5.9 million for the acquisition of Mill Creek. Net cash used in financing activities was
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$1.1 million in the first quarter 2023, compared to $1.2 million in the first quarter 2022, consisting primarily of cash dividends paid in each period.
Cash and cash equivalents increased $14.2 million to $147.6 million at March 31, 2023 from $133.4 million at December 31, 2022.
We are not committed to any planned capital expenditures until actual orders are placed for equipment. As of March 31, 2023, we did not have any material commitments for open purchase orders.
Our credit agreement with Wells Fargo Bank, N.A. (the “Lender”), as amended as of May 2, 2019 and November 21, 2019, provides for a $75 million revolving credit facility (the “Revolving Facility”) and an incremental four-year accordion feature to borrow up to an additional $50 million on the same terms, subject to approval by the Lender or another lender selected by us. The credit agreement also provides for a $10 million letter of credit sublimit under the Revolving Facility. The Revolving Facility and any incremental loans mature on May 2, 2024.
Interest rates on the Revolving Facility are, at our option, LIBOR (or a replacement rate as determined by the Lender and the Company) plus a margin of 1.000% to 2.000%, or the Lender’s Prime Rate plus a margin of 0.000% to 1.000%; and a commitment fee range of 0.200% to 0.350% on the undrawn portion of the Revolving Facility. The Revolving Facility interest rate margins and commitment fee are determined quarterly in accordance with a pricing grid based upon our Cash Flow Leverage Ratio, defined as the ratio of our total funded senior indebtedness to earnings before interest, taxes, depreciation, depletion, amortization and stock-based compensation expense (“EBITDA”) for the 12 months ended on the last day of the most recent calendar quarter, plus pro forma EBITDA from any businesses acquired during the period. Pursuant to a security agreement, dated August 25, 2004, the Revolving Facility is secured by our existing and hereafter acquired tangible assets, intangible assets and real property. The maturity of the Revolving Facility and any incremental loans can be accelerated if any event of default, as defined under the credit agreement, occurs. Our maximum Cash Flow Leverage Ratio is 3.50 to 1.
We may pay dividends so long as we remain in compliance with the provisions of our credit agreement, and we may purchase, redeem or otherwise acquire shares of our common stock so long as our pro forma Cash Flow Leverage Ratio is less than 3.00 to 1.00 and no default or event of default exists or would exist after giving effect to such stock repurchase.
At March 31, 2023, we had no debt outstanding and no draws on the Revolving Facility other than $0.3 million of letters of credit, which count as draws against the available commitment under the Revolving Facility. We believe that, absent a significant acquisition, cash on hand and cash flows from operations will be sufficient to meet our operating needs, ongoing capital needs, including current and possible future modernization, expansion, and development projects, and liquidity needs and allow us to pay regular quarterly cash dividends for the near future.
Results of Operations.
Revenues in the first quarter 2023 were $66.8 million, compared to $50.9 million in the first quarter 2022, an increase of $15.9 million, or 31.2%. Revenues from our Lime and Limestone Operations were $66.5 million in the first quarter 2023, compared to $50.3 million in the first quarter 2022, an increase of $16.2 million, or 32.3%. The increase in our revenues in the first quarter 2023, compared to the first quarter 2022, resulted from increases in both the average selling prices for our lime and limestone products, and increased sales volumes of our lime and limestone products, principally due to increased demand from our construction customers.
Gross profit was $24.0 million in the first quarter 2023, compared to $14.5 million in the first quarter 2022, an increase of $9.5 million, or 65.8%. Gross profit from our Lime and Limestone Operations in the first quarter 2023 was $24.1 million, compared to $14.2 million in the first quarter 2022, an increase of $9.9 million, or 69.5%. The increase in lime and limestone gross profit in the first quarter 2023, compared to the first quarter 2022, resulted primarily from the increased revenues discussed above, partially offset by increased production costs, principally from higher energy, transportation, and labor costs.
Selling, general and administrative (“SG&A”) expenses were $4.2 million in the first quarter 2023, compared to $3.6 million in the first quarter 2022, an increase of $0.5 million, or 14.2%. The increase in SG&A expenses was primarily due to increased personnel expense.
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Interest expense was $64 thousand and $63 thousand in the first quarter 2023 and 2022, respectively. We had no outstanding debt during any of the periods. Interest and other income, net was $1.6 million and $60 thousand in the first quarter 2023 and 2022, respectively. The $1.5 million increase in interest and other income, net during the first quarter 2023, compared to the first quarter 2022, was due to higher interest rates on higher average balances in our cash and cash equivalents.
Income tax expense was $4.2 million in the first quarter 2023, compared to $2.2 million in the first quarter 2022. The increase in income tax expense in the first quarter 2023, compared to the first quarter 2022, was due to the increase in income before taxes.
Our net income was $17.1 million ($3.00 per share diluted) in the first quarter 2023, compared to net income of $8.7 million ($1.53 per share diluted) in the first quarter 2022, an increase of $8.4 million, or 97.3%.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk.
We could be exposed to changes in interest rates, primarily as a result of floating interest rates on the Revolving Facility. There was no outstanding balance on the Revolving Facility subject to interest rate risk at March 31, 2023. Any future borrowings under the Revolving Facility would be subject to interest rate risk. See Note 7 of Notes to Condensed Consolidated Financial Statements.
ITEM 4: CONTROLS AND PROCEDURES
Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Report. Based upon that evaluation, the CEO and CFO concluded that our disclosure controls and procedures as of the end of the period covered by this Report were effective.
No change in our internal control over financial reporting occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Our Amended and Restated 2001 Long-Term Incentive Plan allows employees and directors to pay the exercise price for stock options and the tax withholding liability upon the lapse of restrictions on restricted stock by payment in cash and/or delivery of shares of common stock. In the first quarter 2023, pursuant to these provisions, we purchased 646 shares at a price of $151.70, the fair market value of one share of our common stock on the date they were tendered for payment of tax withholding liability upon the lapse of restrictions on restricted stock.
ITEM 4: MINE SAFETY DISCLOSURES
Under Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of SEC Regulation S-K, each operator of a coal or other mine is required to include disclosures regarding certain mine safety results in its periodic reports filed with the SEC. The operation of our quarries, underground mine and plants is subject to regulation by the federal Mine Safety and Health Administration (“MSHA”) under the Federal Mine Safety and Health Act of 1977. The required information regarding certain mining safety and health matters, broken down by mining complex, for the quarter ended March 31, 2023 is presented in Exhibit 95.1 to this Report.
We believe we are responsible to employees to provide a safe and healthy workplace environment. We seek to accomplish this by: training employees in safe work practices; openly communicating with employees; following safety
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standards and establishing and improving safe work practices; involving employees in safety processes; and recording, reporting and investigating accidents, incidents and losses to avoid reoccurrence.
Following passage of the Mine Improvement and New Emergency Response Act of 2006, MSHA significantly increased the enforcement of mining safety and health standards on all aspects of mining operations. There has also been an increase in the dollar penalties assessed for citations and orders issued in recent years.
ITEM 6: EXHIBITS
The Exhibit Index set forth below is incorporated by reference in response to this Item.
EXHIBIT INDEX
EXHIBIT | | |
NUMBER |
| DESCRIPTION |
| | |
| | |
31.1 | | Rule 13a-14(a)/15d-14(a) Certification by the Chief Executive Officer. |
| | |
31.2 | | Rule 13a-14(a)/15d-14(a) Certification by the Chief Financial Officer. |
| | |
32.1 | | |
| | |
32.2 | | |
| | |
95.1 | | |
| | |
101 | | Interactive Data Files (formatted as Inline XBRL). |
| | |
104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| UNITED STATES LIME & MINERALS, INC. | |
| | |
| | |
May 4, 2023 | By: | /s/ Timothy W. Byrne |
| | Timothy W. Byrne |
| | President and Chief Executive Officer |
| | (Principal Executive Officer) |
| | |
| | |
May 4, 2023 | By: | /s/ Michael L. Wiedemer |
| | Michael L. Wiedemer |
| | Vice President and Chief Financial Officer |
| | (Principal Financial and Accounting Officer) |
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EXHIBIT 31.1
RULE 13a-14(a)/15d-14(a) CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER
I, Timothy W. Byrne, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of United States Lime & Minerals, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Dated: May 4, 2023 | /s/ Timothy W. Byrne |
| Timothy W. Byrne |
| President and Chief Executive Officer |
EXHIBIT 31.2
RULE 13a-14(a)/15d-14(a) CERTIFICATION BY THE CHIEF FINANCIAL OFFICER
I, Michael L. Wiedemer, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of United States Lime & Minerals, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Dated: May 4, 2023 | /s/ Michael L. Wiedemer |
| Michael L. Wiedemer |
| Vice President and Chief Financial Officer |
EXHIBIT 32.1
SECTION 1350 CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER
I, Timothy W. Byrne, Chief Executive Officer of United States Lime & Minerals, Inc. (the “Company”), hereby certify that, to my knowledge:
(1) | The Company’s periodic report on Form 10-Q for the quarterly period ended March 31, 2023 (the “Form 10-Q”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
(2) | The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: May 4, 2023 | /s/ Timothy W. Byrne |
| Timothy W. Byrne |
| President and Chief Executive Officer |
EXHIBIT 32.2
SECTION 1350 CERTIFICATION BY THE CHIEF FINANCIAL OFFICER
I, Michael L. Wiedemer, Chief Financial Officer of United States Lime & Minerals, Inc. (the “Company”), hereby certify that, to my knowledge:
(1) | The Company’s periodic report on Form 10-Q for the quarterly period ended March 31, 2023 (the “Form 10-Q”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
(2) | The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: May 4, 2023 | /s/ Michael L. Wiedemer |
| Michael L. Wiedemer |
| Vice President and Chief Financial Officer |
EXHIBIT 95.1
MINE SAFETY DISCLOSURES
The following disclosures are provided pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of SEC Regulation S-K, which require certain disclosures by companies required to file periodic reports under the Securities Exchange Act of 1934, as amended, that operate mines regulated under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”).
The Mine Act has been construed as authorizing MSHA to issue citations and orders pursuant to the legal doctrine of strict liability, or liability without fault. If, in the opinion of an MSHA inspector, a condition that violates the Mine Act or regulations promulgated pursuant to it exists, then a citation or order will be issued regardless of whether the operator had any knowledge of, or fault in, the existence of that condition. Many of the Mine Act standards include one or more subjective elements, so that issuance of a citation or order often depends on the opinions or experience of the MSHA inspector involved and the frequency and severity of citations and orders will vary from inspector to inspector.
Whenever MSHA believes that a violation of the Mine Act, any health or safety standard, or any regulation has occurred, it may issue a citation or order which describes the violation and fixes a time within which the operator must abate the violation. In some situations, such as when MSHA believes that conditions pose a hazard to miners, MSHA may issue an order requiring cessation of operations, or removal of miners from the area of the mine, affected by the condition until the hazards are corrected. Whenever MSHA issues a citation or order, it has authority to propose a civil penalty or fine, as a result of the violation, that the operator is ordered to pay.
The table that follows reflects citations, orders, violations and proposed assessments issued to the Company by MSHA during the quarter ended March 31, 2023, and all pending legal actions as of March 31, 2023. Due to timing and other factors, the data may not agree with the mine data retrieval system maintained by MSHA. The proposed assessments for the quarter ended March 31, 2023 were taken from the MSHA system as of May 2, 2023.
Additional information follows about MSHA references used in the table:
| ● | Section 104(a) Citations: The total number of citations received from MSHA under section 104(a) of the Mine Act for alleged violations of health or safety standards that could significantly and substantially contribute to a serious injury if left unabated. |
| ● | Section 104(b) Orders: The total number of orders issued by MSHA under section 104(b) of the Mine Act, which represents a failure to abate a citation under section 104(a) within the period of time prescribed by MSHA. This results in an order of immediate withdrawal from the area of the mine affected by the condition until MSHA determines that the violation has been abated. |
| ● | Section 104(d) Citations and Orders: The total number of citations and orders issued by MSHA under section 104(d) of the Mine Act for unwarrantable failure to comply with mandatory health or safety standards. |
| ● | Section 110(b)(2) Violations: The total number of flagrant violations issued by MSHA under section 110(b)(2) of the Mine Act. |
| ● | Section 107(a) Orders: The total number of orders issued by MSHA under section 107(a) of the Mine Act for situations in which MSHA determined an imminent danger existed. |
Citations and orders can be contested before the Federal Mine Safety and Health Review Commission (the “Commission”), and as part of that process, are often reduced in severity and amount, and are sometimes dismissed. The Commission is an independent adjudicative agency that provides administrative trial and appellate review of legal disputes arising under the Mine Act. These cases may involve, among other questions, challenges by operators to citations, orders and penalties they have received from MSHA, or complaints of discrimination by miners under section 105 of the Mine Act.
1
|
| |
| |
| Section |
| |
| |
| |
| |
| |
|
| | | | | | 104(d) | | | | | | Proposed | | | | |
|
| | Section | | Section | | Citations | | Section | | Section | | MSHA | | | | Pending |
|
| | 104 S & S | | 104(b) | | and | | 110(b)(2) | | 107(a) | | Assessments(2) | | | | Legal |
|
Mine(1) | | Citations | | Orders | | Orders | | Violations | | Orders | | ($ in thousands) | | Fatalities | | Actions(3) |
|
Texas Lime Company |
| — |
| — |
| — |
| — |
| — |
| — |
| 1 |
| — | |
Arkansas Lime Company | | | | | | | | | | | | | | | | | |
Plant |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — | |
Limedale Quarry |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — | |
U.S. Lime Company - St. Clair |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — | |
Carthage Crushed Limestone | | 1 | | — | | — | | — | | — | | — | | — | | 2 | |
Mill Creek | | 5 | | — | | — | | — | | — | | — | | — | | 1 | |
Colorado Lime Company | | | | | | | | | | | | | | | | | |
Monarch Quarry |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — | |
Delta Plant |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — | |
| (1) | The definition of a mine under section 3 of the Mine Act includes the mine, as well as other items used in, or to be used in, or resulting from, the work of extracting and processing limestone, such as roads, land, structures, facilities, equipment, machines, tools, kilns, and other property. These other items associated with a single mine have been aggregated in the totals for that mine. |
| (2) | The proposed MSHA assessments issued during the reporting period do not necessarily relate to the citations or orders issued by MSHA during the reporting period or to any pending contests reported above. |
| (3) | Includes any pending legal actions before the Commission involving such mine as of March 31, 2023. Any pending legal actions were initiated by the Company. The pending legal actions may relate to the citations or orders issued by MSHA during the reporting period or to citations or orders issued in prior periods. Due to timing and other factors, the data may not agree with the mine data retrieval system maintained by MSHA. There was 1 legal action resolved and 1 legal action instituted during the reporting period. |
Pattern or Potential Pattern of Violations. During the quarter ended March 31, 2023, none of the mines operated by the Company received written notice from MSHA of either (a) a pattern of violations of mandatory health or safety standards that are of such nature as could have significantly and substantially contributed to mine health or safety hazards under section 104(e) of the Mine Act or (b) the potential to have such a pattern.
2