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 expenses 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 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; (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 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 of highway construction and
infrastructure funding, changes to tax laws, legislative impasses, extended
governmental shutdowns, trade wars, tariffs, international incidents, including
the Russian invasion of 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
supplies; (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, 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, 2021 and subsequent
Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.
13
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 and cattle feed 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
within a single geographic region in the United States.
In addition to our lime and limestone operations, we hold natural gas interests
through our wholly owned subsidiary, U.S. Lime Company - O&G, LLC. The revenues,
gross profit and operating profit from our natural gas interests are included in
Other for our reportable segment disclosures. 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. Upon acquisition, Mill Creek's assets and liabilities were
recorded at fair value, with $5.4 million of the purchase price allocated to
property, plant, and equipment. Mill Creek contributed $1.3 million and $3.1
million to our revenues for the three- and nine-months ended September 30, 2022,
respectively. We believe that this acquisition will complement our existing
geographic footprint.
Our revenues increased 27.0% and 24.2% in the third quarter and first nine
months 2022, respectively, compared to the third quarter and first nine months
2021. The increase in our revenues in the third quarter 2022, compared to the
third quarter 2021, resulted primarily from a 14.7% increase in the average
selling prices for our lime and limestone products and a 12.3% increase in sales
volumes of our lime and limestone products, principally due to increased demand
from our construction, agriculture, roofing, and oil and gas services customers.
The increase in our revenues in the first nine months 2022, compared to the
first nine months 2021, resulted primarily from an 11.7% increase in sales
volumes of our lime and limestone products, principally due to increased demand
from our construction, agriculture, and oil and gas services customers, and a
7.4% increase in the average selling prices for our lime and limestone products.
Our gross profit increased 30.3% in the third quarter 2022 and 16.5% in the
first nine months 2022, compared to the third quarter and first nine months
2021. The increases in gross profit in the third quarter and first nine months
2022, compared to the comparable 2021 periods, resulted primarily from the
increased revenues discussed above, partially offset by increased lime and
limestone production costs, principally from higher transportation, energy,
labor, and supplies costs. The pace of increases in production costs slowed
during the third quarter 2022, relative to the inflation of the first half of
the year. However, risks to our production costs, supply chain, and freight and
transportation are still present. These risks include, but are not limited to,
the impact foreign oil production cuts may have on the price of petroleum and
petroleum-based products, and the risk potential railroad labor disruptions pose
to our supply chain.
In the third quarter 2022, the strong demand from our construction customers
benefited from long stretches of dry weather in the Texas markets. Increases in
the average selling price of our lime and limestone products in the third
quarter 2022 helped pass along the cost increases that we have experienced
during the year.
Liquidity and Capital Resources.
Net cash provided by operating activities was $43.9 million in the first nine
months 2022, compared to $44.1 million in the first nine months 2021, a decrease
of $0.2 million, or 0.5%. 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 nine months 2022, net
cash provided by operating activities was principally composed of $34.6 million
net income, $16.5 million DD&A, $2.2 million deferred income taxes, $1.9 million
stock-based compensation, and a $11.1 million decrease from changes in operating
assets and liabilities. Changes in operating assets and liabilities in the first
nine months 2022
14
included an increase of $12.4 million in trade receivables, net, due primarily
to increased sales in the third quarter 2022 compared to the fourth quarter
2021, an increase of $2.4 million in inventories, a $2.5 million increase in
accounts payable and accrued expenses, and a decrease of $1.1 million in prepaid
expenses and other current assets. In the first nine months 2021, net cash
provided by operating activities was principally composed of $29.4 million net
income, $15.6 million DD&A, $2.0 million deferred income taxes, $1.7 million
stock-based compensation, and a $4.7 million decrease from changes in operating
assets and liabilities. Changes in operating assets and liabilities in the first
nine months 2021 included an increase of $6.3 million in trade receivables, net,
due primarily from increased sales in the third quarter 2021 compared to the
fourth quarter 2020, a decrease of $0.8 million in prepaid and other assets, and
a decrease of $0.5 million in inventories.
We had $23.8 million in capital expenditures in the first nine months 2022,
including $5.6 million for the acquisition of Mill Creek, compared to $23.7
million in the first nine months 2021. In the first nine months 2022, we
experienced increased costs associated with our normal recurring capital and
re-equipping projects at our plants and other facilities, as part of the current
overall inflationary environment. We expect that the increase in these capital
costs will result in increased DD&A expense in future periods. Net cash used in
financing activities was $3.4 million in the first nine months 2022, compared to
$2.7 million in the first nine months 2021, consisting primarily of cash
dividends paid in each period.
Cash and cash equivalents increased $17.3 million to $122.7 million at September
30, 2022 from $105.4 million at December 31, 2021.
We are not committed to any planned capital expenditures until actual orders are
placed for equipment. As of September 30, 2022, 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 September 30, 2022, 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 third quarter 2022 were $66.5 million, compared to $52.3 million
in the third quarter 2021, an increase of $14.1 million, or 27.0%. For the first
nine months 2022, revenues were $177.9 million, compared to $143.1 million in
the first nine months 2021, an increase of $34.7 million, or 24.2%. Revenues
from our lime and limestone
15
operations were $65.7 million in the third quarter 2022, compared to $51.7
million in the third quarter 2021, an increase of $14.0 million, or 27.0%. For
the first nine months 2022, lime and limestone revenues were $175.6 million,
compared to $141.8 million in the first nine months 2021, an increase of $33.8
million, or 23.8%. The increase in our revenues in the third quarter 2022,
compared to the third quarter 2021, resulted primarily from an increase in sales
volumes of our lime and limestone products, principally due to increased demand
from our construction, agriculture, roofing, and oil and gas services customers,
as well as an increase in the average selling prices for our lime and limestone
products. The increase in our revenues in the first nine months 2022, compared
to the first nine months 2021, resulted primarily from an increase in sales
volumes of our lime and limestone products, principally due to increased demand
from our construction, agriculture, and oil and gas services customers, and an
increase in the average selling prices for our lime and limestone products.
Gross profit was $22.6 million in the third quarter 2022, compared to $17.3
million in the third quarter 2021, an increase of $5.2 million, or 30.3%. Gross
profit from our lime and limestone operations in the third quarter 2022 was
$22.2 million, compared to $17.1 million in the third quarter 2021, an increase
of $5.0 million, or 29.4%. Gross profit was $53.5 million in the first nine
months 2022, compared to $45.9 million in the first nine months 2021, an
increase of $7.6 million, or 16.5%. Gross profit from our lime and limestone
operations in the first nine months 2022 was $52.3 million, compared to $45.6
million in the first nine months 2021, an increase of $6.7 million or 14.7%. The
increases in lime and limestone gross profit in the third quarter and first nine
months 2022, compared to the comparable 2021 periods, resulted primarily from
the increased revenues discussed above, partially offset by increased production
costs, principally from higher transportation, energy, labor, and supplies
costs.
Selling, general and administrative ("SG&A") expenses were $3.6 million in the
third quarter 2022, compared to $3.1 million in the third quarter 2021, an
increase of $0.4 million, or 12.7%. SG&A expenses were $11.0 million in the
first nine months 2022, compared to $9.2 million in the first nine months 2021,
an increase of $1.9 million, or 20.3%. The increases in SG&A expenses in the
2022 periods were primarily due to increased personnel expense, including stock
compensation.
Interest expense was $64 thousand and $190 thousand in the third quarter and
first nine months 2022, respectively, compared to $63 thousand and $187 thousand
in the comparable 2021 periods. We had no outstanding debt during any of the
periods. Interest and other income, net was $578 thousand and $815 thousand in
the third quarter and first nine months 2022, respectively, compared to $147
thousand and $272 thousand in the comparable 2021 periods. The increase in
interest and other income, net during the third quarter and first nine months
2022, compared to the comparable 2021 periods, was due to higher interest rates
on higher average balances in our cash and cash equivalents.
Income tax expense was $3.8 million and $8.5 million in the third quarter and
first nine months 2022, respectively, compared to $3.0 million and $7.4 million
in the comparable 2021 periods. Our effective income tax rate was reduced from
the federal rate primarily due to statutory depletion, which is allowed for
income tax purposes and is a permanent difference between net income for
financial reporting purposes and taxable income.
Our net income was $15.7 million ($2.77 per share diluted) in the third period
2022, compared to net income of $11.3 million ($1.99 per share diluted) in the
third period 2021, an increase of $4.4 million, or 39.1%. For the first nine
months 2022, our net income was $34.6 million ($6.10 per share diluted),
compared to $29.4 million ($5.19 per share diluted) in the first nine months
2021, an increase of $5.2 million, or 17.7%.
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