Q1 2020 Earnings Call

Good morning, My name is brandy and over your conference operator today.

Well some talks first 2021st quarter earnings conference call.

Oh mine seven place I mean.

After the figures you March there'll be a question and answer session.

Now I was trying to call them <unk> Mary Please fan.

Thank you Brandy welcome to look for the first quarter 2020 earnings call. We're happy to have you are with us today.

<unk> from Luxfer and with me today is a lopeman scar Chief Executive Officer, and Heather Harding, our Chief Financial Officer.

Today's call we will provide details on our first quarter 2020 performance as outlined in the press release issues yesterday.

Today's webcast is accompanied by a presentation that can be accessed that luxfer dot com.

No any references to non gap financials are reconciled indie appendix of this presentation.

Before we begin a friendly reminder, that any forward looking statements made about the company's expected financial results are subject to future risks and uncertainty.

Please refer to fly to have two days presentation for further details now let me turn the call over to elope.

Thanks Mary.

Welcome everyone.

During this call I will provide an overview of our first caught up a fireman and a summary of luck for response to the <unk> pandemic.

After that <unk> had their Harding will provide D.D. is off our recent financial performance.

Provide estimated <unk> for the rest of the 2020.

Before I summarize our Q1 results I would like the time, all our employee for continuing to serve our customers and shareholders during d.'s unprecedented time.

The safety off our employees.

Customers and the communities in which we work and live remains our number one priority.

During this pandemic, we have taken significant additional measures to enhance safety protocols as we continue to operate most of our facilities to deliver essential products to our customers.

I am proud of the company's performance culture, which ensures that we continue to safely operate our central <unk>.

While we also achieve significant cost reduction to mitigate the impact of Kobe.

No. Please don't to slide three or a summary of the first quarters financial results.

<unk> fourth quarter 2020 financial results were impacted by the challenging industrial micro condition worsened by the corporate pandemic.

Our dog, who sailed excluding the impact of the non core truck recycling divesture declined 10.5%.

Our first quarter.

Decline, 18.4% to $15.1 million.

We were unable to fully offset the gross margin <unk> with cost reductions.

Power adjusted <unk> for the fourth quarter, what Codis $10, 25%.

Our balance sheet remains in good shape.

Our net debt to eat it all ratio was 1.4 times at the end of the quarto richest significantly lower than the level at which any your financial covenants become relevant.

During the quarter, we use 7 million in cash, which is a reduction compared to our cash music 11 million in the fourth quarter of 2019.

As a reminder, we usually have negative cashed integration into fourth quarter due to business seasonality and timing.

I worried go known invested capita finished about 15%.

Well the fully you're 2020, our ability to provide reliable forecast and guidance is impacted by the unprecedented volatility.

N market and customer demand due to call me.

When we issued are fully your garden could only mark we have to consider the immediate impact of corporate outbreak in China, but we had not anticipated the impact on the global <unk>.

Given the current global uncertainties, we are with drawing are fully your financial guidance.

No. Please don't to slide for for an overview of the employee and customer action being implemented that looks for to address the significant impact opted covert pandemic.

As a company.

Our performance culture, and strong focus on safety is allowing us to responsibly deal with the coffee pandemic.

We have activated Oh crisis response plan and our executing the necessary steps to maintain business continuity.

We are working even more closely with our customers to understand that changing demands and expectations. So that'd be can appropriately prioritize our own efforts.

Based on customer demand, we are increasing our production capacity in some locations, while we have suspended operations at other sites.

In all locations, we have implemented enhanced sanitation and cleaning protocols, while increasing employee training an awareness or handwashing, an infection control <unk>.

I spoke to C.D.C.N.N.H.S. guidelines.

We have the evaluated and redo dot operations to enable see social distancing by changing shifts good deals and production floor layouts.

We have been able to maintain enough style costs safety and disinfecting supplies.

Sometimes with the help of our large customers at our facility in China.

When possible our employees are working remotely from home enabled by our previously implemented cloud B.S.I.T. entirely communication infrastructure.

Well, where are we are confident that we have provided greater protection for employees customers and communities in which we so why are they quickly fulfilling the essential needs all customers.

Given the diverse and markets be so let's review the related revenue impact on slide five.

As a reminder, our currency it can be classified into three approximately equal and markets.

Defend flux response in health care.

Transportation and industrial.

Before we give you the performance on each end user segment.

Let me give you a sense of the shifting demand patterns during the quarter.

At the beginning of the quarter, we anticipated I'm experienced Lord you're on your industrial says do you do ongoing industrier downturn and also lowered defensive given be expected timing off a few large orders.

Towards the end of the fourth quarter, we started experiencing significant contraction in our transportation and market as many of our customers in U.S. Army Europe suspended the production in response to call me.

In addition result for the weakness in our industrial design as oil price decline and some of the industrial customers four door reduced production.

We did see an increase in defense demand towards the end of the quarter and we expect the defense end users tend to remain strong in the near term.

Despite the strength in Mark the defense plus response in health care and market solid decline of 7.1% for the fourth quarter due to the anticipated lower stocked with the year.

So usually not transportation and market.

Line, 15.2% in the quarter.

Demand for passenger auto were sent during the quarter and we also saw a decline in some aerospace applications.

Alternative fuel says.

You need to grow year over year, but we expect those sense to slow down in the second quarter as many of our customers have suspended operations during the corporate outbreak.

We expect to see continued declines in transportation for the remainder of the year as demand for auto isn't expected to recover in the near town and aerospace demand is likely to remain sock.

Our industrial and market sales decline, 9.4% in the quarter.

The Lord I.S.M.P.M.I. index, coupled with the covert crisis, it having a significant negative impact.

<unk> Oh I live <unk> fans were flat you or whether you're in the quarter. We are not forecasting any significant near term saved up this brought up until the W.T.I. or bright expedient to a meaningful recovery.

No eastern too slight six what a deeper review Oh specific luxfer products used to fight the covert crisis.

Not for is proud to play a small rolled toward enabling the U.S. military first responders and medical professionals to fight the covert pandemic.

However, he told me you <unk>, providing nutrition to U.S. military.

After relief agencies in the field and often also in their home basis as many of the canteens have suspended operation to stop the spread of course.

Our aluminum oxygen cylinders or a critical part of the medical infrastructure for patient care in field hospitals temporary hospitals or home care.

We made the was highest performance high pressure at a minimum cilento for medical oxygen applications.

Our lightweight high pressure composite cylinders are a white part of the first responders S.C.B.A. girlfriend, so that they always have access to lightweight oxygen supply and can confidently respond to emergencies without worrying about unsafe breeding conditions.

What would the past few weeks, we have experienced and increase auto read for all three of these products.

We are actively wrapping up production to meet the high demand levels. So that we can continue to supply these essential products to health care professionals and first responders.

No. Please turn to slide seven which highlights how r. transformations line has positioned up for success.

<unk> initiated the transformation plan and only 2018 with the goal of delivering greater value for shareholders to simplification growth productivity and continuous improvement.

In addition to delivering on those objectives.

Information fly and it's also enabling looks for two whether the current covert crisis.

Our focus on cost reduction and restarting elimination has added $15 million up net cost savings to our profitability through the first quarter, thus, reducing the impact of coding volume decline.

The continuous improvement mindset in our workforce positions is very bad deliver for their cost action throughout the coming year.

Hour before performance culture has become more than what organization that is quick to react to current conditions.

And focus on business continuity for our customers, while generating automatic cost savings when performing deteriorates.

Or low cost scaling well I.D. infrastructure.

Labeled fostered option remote working practices, which is critical given the global nature of operation and team members.

In summary, we are facing unprecedented conditions and are confident that despite potentially adverse shocked on financial results. We've been continuous transferring the company for the long term and emerge stronger through this crisis to recover growth and profitability.

No let me doing the call it over to Heather Hardy <unk>, Chief Financial Officer for B.D. is auto financial results.

Thanks to lugs and good morning, everyone.

Let's walk through the first quarter financial results on Friday.

First quarter reported sales of 183.8 million declined 13.8%.

Excluding the impact of the check recycling divestiture poor sales decline, 10.5%, including a 1.1 per cent impact of unfavorable foreign exchange.

Quarterly sales decline with primarily due to lower demand in passenger autumn sarcone catalyst and other industrial products.

Consolidated adjusted EBITDA off with a quarter of 15.1 million with down 3.4 million or 18.4% from the prior year.

Despite the volume decline the company executed on the transformation plan.

Deliberate approximately $1 million of net cost reductions in the quarter, despite unfavorable reserves related to the transportation market downturn.

We continue to execute favorable pricing accent to offset material inflation.

There were deeper dive into our two products like adults, whose turn slide nine.

Electrons sales with 51.2 million declines 11.1% from the prior year.

Excluding the impact of the 2019 check recycling business divestiture.

Sales declines primarily due to weakness in Catholicism and magnesium mental space products.

Blood with unfavorable tiny Mari products.

<unk>, Oh 11.6 million declined 17.1%.

Yeah, some of their segments sales decline 9.9 per cent.

I really do to lower passenger auto an industrial cylinders man, coupled with fire extinguisher product.

These declines were partially offset by the continued growth in alternative fuel products.

<unk> 3.5 million declined 22.2%.

No, let's review, our key balance sheet in cash flow metrics on lifetime.

We ended the first quarter with a strong balance sheet.

Net debt totaled 91.5 million at the end of the quarter and are not just to eat the tall ratio was 1.4 times.

Our first quarter operating working capital per cent of sales did increase sequentially from your rent.

This increase was exacerbated by macro condition.

Business units were unable to fully execute improvement plans enlighten decline sales.

Remain committed to wear improvement plan unexpected favorable results to materialize in the second half of the year.

We consume 7 million free cash in the quarter using approximately 2.6 million in cash for restructuring activity.

This compares favorably to our player your performance.

Swimming 11 million in cash for the first quarter of 2000 in 19.

On a trailing 12 month basis, we deliver 15.4% Oh I see from adjusted earnings.

Our balance sheet remain solid and we are well position for strong cash conversion 2020.

Even the significant market uncertainty.

To review some downturn playbook action on slide 11.

Given the unprecedented in volatile nature of the current market.

We have initiated many actually to support our employees customers in shareholders.

As we've evaluated various downturn scenarios, we first review self adjusting action.

These include.

Volume based savings and our manufacturing operation lower management compensation and headcount optimization.

<unk> executive team target compensation, well produced by approximately 30% due to pay for performance incentive plan.

We reviewed all calls for discretionary reduction.

I'll be playing hiring decision eliminating travel plan accelerating M.R.O. saving.

Further reduction in professional services training and marketing spend.

We expect around $2 million savings from exactly.

We have reevaluating our capital spending plans for reduction opportunity.

We began to year, we expect you to spend 13 to 15 million annual capital.

And like a current demand profiles, we've looked at the lake capacity upgrades in productivity projects, while maintaining investments for growth.

As a result.

We expect to 30 to 50 per cent capital reduction with the revised annual spend between $810 million.

Ah cast generation is the key consideration <unk>.

We have explored additional cash preservation opportunities in addition to Capitol spend production.

This includes partial suspension of our attention deficit funding.

Implementing furloughs, an other headcount action.

We evaluating the timing the share buyback program.

Reconsideration eliminate.

These efforts have potential cash outside of two to 5 million.

All of these items highlight our ability to take action so limit contain the impact of the current macro condition.

As we look to the remainder of the year.

We have withdrawn full your financial guidance based on the unprecedented volatility and uncertainty in the market.

However, we want to provide a guide pose for our full your outlook on flight 12.

Clearly the current market environment will have a significant impact on the business.

Argue is shaped by some key macro assumption.

First.

We expect our defensive first responder product sales to be flat year over year. These products are used to combat the current crisis.

Next.

We expect continued erosion in both transportation and industry a landmark.

We were expecting the second quarter to be our weakest quarter of the year and we're expecting you shaped recovery after cute too.

In addition to the cost reductions already highlighted you're focused on cash preservation Wow.

We expect to reduce our annual capital spend spend less cash on pension deficit funding and restructuring.

The resulting free cash flow, excluding restructuring, we converted approximately 100% for the year.

Well the current market conditions represented significant business challenge, we remain competent and our organizations ability to take the necessary steps put limits the impact supported by a strong balance sheet position.

I'll turn to call back over to vote for a wrap up.

Thank you Heather.

Listen to slide 13.

Let me wrap up by recapping they'd resource me attractive and market with proprietary products and technology.

Oh transformation plan has delivered result, and will continue to make a positive impact for the next few years.

After the transformation plan is complete we have plenty of runway to create more shareholder value by deploying but not for business excellence <unk> to drive improvement and grow time productivity.

Once again I want a tank all employees are on the war for safety operating office P.B.Y., putting our customer forest.

Thank you for listening, we will not be questions.

Thank you the floors, hoping for your questions.

Asking audio question. Please press star one on your telephone keypad.

Your first question 'cause plan of Chris more of C.G.I. Securities.

Hey, good morning Gosh.

A crash you could yeah, maybe start with the on the positive side. So the the high pressure aluminum Saunders can you M-, maybe just give the sense in terms of you know kind of what you're <unk>.

Maximum production capacity is there.

You know at this stage, yeah, because we had a soldier in orders and we do have capacity to move production from industrial cylinders to medical calendars.

But I think to answer your question.

Thinking about $5 billion to $10 billion <unk>.

On the maximum that we won't get out of that incremental volume dumps.

Okay.

And in terms of the <unk>, it's sounds like you're starting to see some increased demand. There is is that you expect that to kinda peeking cute too or continued through the year from from what you're seeing at this stage.

It does depend on how the crisis unfolds in the next few months what did we definitely have strong orders the going into came to.

And if the situation continuously not that good extending two Q.T.N. Q4, Wow I think that's where some of the also going to be comes in question. We're not sure on how long does what continue on what nature.

I'm going to me.

God It alright.

On on <unk> just in your estimation, you know where does the the price of oil need to be in order for song you Mac to be meaningful part of of flux for revenue.

You know in the poor me because that a new car that's isn't working and it's working quite well I mean, that's one reason I Q1 sales of off my P. I don't Wanna Young.

I'm not a sport <unk> needs to be around 30 to $40 a barrel the W.T.I. cool.

Or they can afford to invest in new well.

Drilling in the format.

No the other industry experts, who might have better view and we are holding back and looking at this time.

Funny, which is what we hear from customers as well.

God that's helpful.

I appreciate it I'll jump back in line thanks, guys.

<unk>.

Thank you your next question.

F.B.R.

Hey, good morning, guys.

Money soccer.

Oh, just a quick question on some of the capacity you know you mention I think you temporarily suspended some I'm operating capacity can you may be talk about how much you've taken off line in what product categories.

Yeah.

Okay. So most of the capacity or if I call. The capacity that you have taken all tried nowadays Holland, the automotive sector, which was really hard hit task.

Oh customers, both in Europe, and the U.S. how suspended operations.

So.

You know passenger automotive as our own nothing 10% up our revenue. So that's kind of the capacity, which we have taken off line.

And it's just a shock them setback as far as we are concerned so at least customer start operating I've had you wouldn't be kinda looking to start then backup.

Got it and can you maybe help us understand what that implies for maybe the cost structure right does it help you.

Kind of conserve cash just kind of hopeless frame what that means.

Yeah. So I guess the first thing when we look at this as a good food and exercise because we don't want to build up finished <unk>, we usually ship out.

Customer demand.

Or just good practice for us not to hopefully.

Costs, yes, absolutely hub stuff so of course dropped trembled comedian things cost.

So I can be for knowing employees.

<unk>.

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I'll be able to thing.

Aren't they don't have any better.

<unk> back on that altogether.

Woken up <unk>.

And finally, you know for us and does allow us to do some preventive maintenance and if you Wanna things in the <unk> nice.

All of these on line.

Good track record and discuss the marketing man frankly I'm briefing.

Mhm, thanks for that and in the prepared remarks, I think you know other mentioned d. shape recovery. After two q. can you maybe help us understand you know what the assumptions or backing up that statement.

Sure I think had mentioned, though you shape recovery after two two.

Soccer's, none of Fucker X. box you know some of this is what we're hearing trekkie from our customers.

Most people don't expect that beyond.

Oh, the immediate impact all production shuts down.

Demand will recover but it would not be a v. shaped recovery.

Okay.

Two two is gonna be our weekend, you don't expect to see to come back in to be normally.

Oh.

You don't.

Going towards the end of the.

<unk> no highest time.

You wake on Sars, just looking at Boeing.

According to predictions.

But.

Huge amount of until it can be your pocket.

And three $4.

Yeah.

<unk>.

Okay.

Guarded things for that Okay. So you shape not be shape my mistake on that all back into the cube. Thank you.

Thanks.

Again.

Please press star one on your telephone keypad.

Next question comes sign of my call a shock of keeping capital.

<unk> good morning.

Hi, how are you.

Good. So you you alluded to defense in first responders sales to be flat issue every year and 2020 and you said you. So you said one piece a a lower start to the year, which led to the decline in the corridor, but I I would have expected to see some year over year growth here, just given the nature of the coded response.

Can you talk about what is dragging that segment down or or what counts you face last year.

Yeah, and these are just timing of some large order, sometimes you know S.C.B. and medical oxygen are often driven by some large $10.

So we had a slow start which we anticipate there.

<unk> part process.

Where we all right now as we saw this call orders and Mark <unk> and we expect that to continue.

So we had a lincoln.

Good recovery from John Rhys That'd be store stuff, we had hopping up for adoption nine seem to have a strong background getting into the recipe yourself.

Okay, and and are there any lingering supply disruptions just given the Kobe it impacts specifically in electron from Chinese bass drum materials.

Not any more when we talking to talk about <unk>. So they want to be fed there <unk>.

I'm not going to beat into our guidance it'd be tough one model.

That seems to have recall more no faster than.

Anticipated.

<unk> some off on defense part outline.

I don't even invite.

From China.

No the supply disruptions did lead us to have a bit extra inventory into Florida.

There is no sofidel according to sales impact funding green.

Well for us.

Okay, and then just last week for me I I didn't understand the cap X. revisions just given the near term uncertainties, but [noise].

Wondering if you're being too aggressive in the sense. The meeting your long term goals in improving new product momentum. We're we're hearing some some other similar aspirations a bit more balanced in their cat backs cuts and so I'm just wondering how that impacts the timeline on your investment goals.

Sure I think if it take a step back from two years ago, the companies to spend $18 million to $20 million in Caprica.

And as we have reduced the number especially piece from $20 tool.

<unk>.

There's automatic reduction in Catholic and that happens when you have few office C.D.'s for maintenance and Catholics.

But that was of course, there no guidance at the beginning of the U.

As we go forward you know that's sort of line in this time that we can revisit doesn't moves along did not cutting back on any good projects.

Cutting back on and maybe necessary customer upgrade.

Simply looking at a higher more about being back let me look at productivity projects.

And in some cases and the demand is don't we don't necessarily need to upgrade the capacity right now we can do for some old goes.

So are we being too aggressive right now.

I hope you're right, maybe it'd be too aggressive and we can revisit been created coupon.

Back on those things, but given the current situation, we just harmless pool that to be very conservative at least for the time being.

Okay, and just one more actually what what products are in your pipeline right now yeah, you're going forward in in what markets and markets would they be in.

You know in the medical field, we haven't talked about like Gonium caught up.

I'm only successes and there's more in the pipeline that <unk>.

That's.

An area that we continue to invest in I'm not as that's still moving ahead of you know.

Cringing back from that.

Look at from a gas it ended up perspective on the alternate fuel inside the type four cylinders, which I've, let's do a lot of grown you're clearly coming up with the next generation then more expansion of the <unk>. So that's been a gold try one for us so.

In addition on a minute Korean Air Defense I, we have the decontamination part of light, which you have talked about earlier.

I didn't have much of an impact in q. why it'd be a tornado rank you do Q.T.Q. for Doc the not the significant revenue and be a coming up with next generation apart I'm trying to be contamination.

Yeah.

Among the Arsenal off many <unk> due to treat I would highlight so I'll be automated few type four cylinders.

Gonium for medical applications.

Decontamination in the U.S. military sounds.

God. It that's helpful. Thank you.

Your next question 'cause sign of Craig or one of Ross capital.

Good morning, and thanks for taking my question.

So look you're you're mentioning the the alternative fuels market is a nice <unk> into my my first question. So can you discuss the puts and takes on a revenue growth hi, there sequentially or your your every year in the gas cylinders business.

Are there specific product lines, you would call out for strength and is there anything I'm strategic you're doing their that you might be able to share with us that's that's impacting the the revenue progression.

Mm.

Sure. So the alternative fuel unless you don't have.

Q1.

My dog, though.

<unk>.

Unfortunately, I'd be going to to to notify cost tomorrow.

Susan <unk>.

<unk> response.

We expect to talk to.

Meaningful decline and we expect to be temporary or doors and things are not.

Revenue progression, though.

Oh, just design we had.

<unk>.

Which clearly given the market based on some.

Things, we have been sit down and stuff.

The back seat for now.

We need to deal with the current situation.

Dr because the longer.

<unk>.

No.

No weathering through the current situation, but in there we have been able to get some nice new smaller customers and continue to walk with a larger uncle customers.

To get into next generation more profitable type opportunities.

And then finally on a long term set up a new project Colorizing perspective.

Oh, seven X.B.S. might go to an indoors, which or something I highlighted far you know disaster relief fund.

I mean, that's been doing well that's going to continue getting us grow old.

And by porcelain.

He was part of next generation alternative fuels.

Seem to be doing ready rent as well, that's what I'm continuing to bring that kind of growth forward.

<unk>. Some destruction then Q1 on just applying to assumption based on products that we got from overseas, but hang dog was minor.

Windfall work on the new products growth of mine done one alternative fuels and the backlog in defense, what all contribute to watch.

I don't why you're still screen optimistic about got cylinders.

Thank you and ask recording of this call conference call will be available in about two hours.

The phone numbers checks is the recording will be available extra website at W.W.W. Dot com.

Thank you for joining us J. The next regular please can call will be in July of she doesn't 20.

2022nd quarter of financial results.

Looks for conference call.

[laughter].

[music].