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.
11
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
12$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.
13
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%.
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UNITED STATES LIME & MINERALS, INC. 