Q2 2021 Luxfer Holdings PLC Earnings Call
Good morning, My name is Lisa and I will be your conference operator today.
Welcome to look the first 2021 second quarter earnings Conference call.
All lines have been placed on mute.
After the Speakers' remarks, there will be a question and answer session.
Now I will turn the call over to Heather from Luxor Kepler. Please go ahead.
Thank you Lisa welcome to look for second.
The quarter 2021 earnings call. We're happy to have you all of us today.
Heather Harding <unk>, Chief Financial Officer with.
With me today of the local Mascara work Force Chief Executive Officer.
On today's call, we will provide details on our second quarter 2021 performance that's outlined in the press release issued yesterday.
Today's webcast is accompanied by a presentation that can be accessed at Luxor Dot com.
Please note any references to non-GAAP financials are reconciled in the appendix of the presentation.
And 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 uncertainties.
Please refer to the Safe Harbor statement on slide 2 of today's presentation for further details now let me turn the call over to Luke.
Thanks, Heather and welcome everyone.
Please turn to slide 3 for highlights from our second quarter results.
I want to highlight 3 key messages.
On this page.
First <unk>.
Successful execution of our growth initiatives and strong recovery in our end markets combined with the benefit of the Sci acquisition.
Adjusted and 29% year over year of growth in our second quarter revenues.
Oh.
Our adjusted diluted EPS was <unk> 36 cents an increase.
<unk> of almost 90% from the prior year.
The resulting EBITDA margin expanded 370 basis points to 17, 5% driven by volume leverage and operational excellence.
We remain confident of sustaining and improving our margins in the long term.
Second we have been able to timely satisfy our customers' growing demand despite the ongoing material supply and talent availability challenges. However, we remain cautious.
Cautious and concerned about the impact of persistent material and talent shortages on our near term results.
I am grateful to the luxury of team who continue to work diligently to secure material and attract talent. So that we can minimize any customer disruption.
Third we further strengthened our balance sheet this quarter with the net debt to EBITDA ratio of 0.6 times, the enabling us to maintain and accelerate investments in organic growth and operational excellence projects.
In addition, we will remain thoughtful and.
The plant in our approach to acquisitions, while increasing shareholder returns through dividends and share buybacks.
During the quarter. We also made significant progress on our key strategic and operational initiatives.
And I'm going to highlight them in the next few pages.
Please.
Slide 4 for an update on alternative fuel growth initiatives.
We are optimistic about the growth potential of our alternative fuel product line.
We believe that the industry is growing at 20% to 25% per year.
And that the total addressable market.
<unk> for this opportunity with $300 million by 2025.
We saw a small part of the total addressable market, hence have the opportunity to expand our offering in addition to capturing market growth.
We continue to make growth investments.
To expand our product offerings and geographical reach to increase our compressed natural gas and hydrogen sales.
Lots of course value proposition for this product line is driven by our decades of experience during which we have developed proprietary technology and relevant engineering capability.
The ability.
We all 4 of growing range of large diameter cylinders that range from 16 inch diameter typically used for buses to 27 inch diameter typically used for trucks.
For hydrogen we offer a high temperature version that enables fast.
Fosterling and are planning to introduce a larger diameter of hydrogen cylinders in 2022.
I want to point out that we offer solutions for both <unk> and hydrogen and have established positions in book.
The hydrogen and market is currently small.
But it is expected to grow faster and become larger than CMG beyond 2025.
We are proud of our ability to meet our customers' need for CMG and hydrogen transport storage solution for public buses.
The commercial trucks and bulk gas transportation.
We believe that alternative fuels will drive long term growth for Luxor.
While the composite cylinders for alternative fuel is our fastest growing product line. We also continue to drive innovation and growth.
In our other product lines.
Turning to slide 5.
I'm excited to share recent innovations in our magnesium product line.
Looks for is the world's leading producer of magnesium alloys for the range of niche applications across multiple industries, including aerospace and industrial packaging.
Today, I want to highlight 3 innovative magnesia growth opportunities being pursued by <unk>.
For graphic Arts application, we are launching of new magnesium alloy photo engraving plate that will increase the life of magnesia die and make it more competition versus the other materials.
Deals such as copper and brass.
This innovation is expected to greatly enhance the total addressable market for magnesium alloys in the graphic arts application.
To penetrate new applications, we are increasing focus on engineered magnesium powders for Greg <unk>.
Good reactions that are used in a wide variety of manufacturing processes, including production of lithium ion batteries hydrogen storage lightweight composites and 3 D printing.
Okay.
As part of core innovation to develop new capabilities, our Manchester location.
<unk> has recently enhanced the bullet and slab casting process that is expanding <unk> reach into new customers and applications.
While reducing our own manufacturing carbon footprint.
In addition to growth through the focused investment highlighted.
Success of our transformation plan is.
Is also enabling growth in other product lines.
For an example of growth fueled by transformation plan success, Please turn to slide 6.
Our graphic art business has been going through the luxury of transformation plan for the past 3 years and is now <unk>.
Embarking on the growth and continuous improvement phase.
The transformation journey at the lesser of graphic cards business unit.
<unk> simplification.
Which included Delayering, the organization to increase accountability and consolidating 2 U S sites into 1 to reduce customer lead.
While generating savings.
The larger consolidated site allowed us to attract and deploy stronger management and manufacturing leadership, while purpose fully deploying the lots for values through a leader led training program.
In addition to cost savings these changes.
These have resulted in significant improvements in many operating metrics such as safety on time delivery lead times and customer quality.
As a result of these improved customer service levels and deployment of global growth talent and growth processes. The business is poised for growth.
And the expected to capture greater share of the end market through innovation and customer excellence.
In addition to maintaining our growth focus our teams are proactively responding to the current manufacturing challenges as summarized on slide 7.
Just like many other.
The manufacturing companies luxury is facing a difficult set of challenges in ramping up production to meet the demand recovery.
Our teams are diligently working around the clock to address and mitigate these challenges including material supply issues freight delivery lead times and.
<unk> talent availability.
In the second quarter 2 of our critical suppliers declared force majeure, which is forcing our teams to identify additional suppliers for this critical raw materials to serve our customers.
Attracting manufacturing hourly employees.
The remains a challenge, particularly in the U S.
We are proactively adjusting our REIT structure and shift pattern, while implementing onetime actions such as the larger incentives to attract and retain talent.
While we are making solid progress we remain cautious about the impact.
Of these disruptions on our results for the remainder of the year.
Now, let me turn the call over to Heather for details of our second quarter financials.
Thanks, Luke I'll start the current quarter review on slide 8 with the summary of our performance by end market.
And part of Minder, our sales can be classified into 3 key end user markets. The.
First response and health care.
<unk>, which is the combination of alternative fuel aerospace and automotive and general industrial.
And the defense first response and health care end market sales increased by 14, 2% per the second quarter.
That's it from the same quarter last year.
We saw increased demand for our military products as well as an increase in SBA sales sales.
Sales and transportation grew 32, 7% from the second quarter. The recent Sci acquisitions positively impacted sales performance of this end market. In addition, we generated solid growth in our auto catalyst.
The reverse of products driven by industry recovery and the wider adoption of gas particulate filtration.
Sales in the general industrial end market increased 45, 3% in the quarter driven by the strong market recovery every product category within this end market grew relative to prior year.
We exceeded the industrial sales levels.
Catalyst the second quarter of 2019.
Now please turn to slide 9 for a summary of our second quarter P&L results.
Second quarter sales of $99 million increased 29, 2% from the prior year with favorable FX contribution of 5.9% the.
The Sci acquisition added 8.
From the second quarter sales were a little more than 10 per cent.
Growth in our general industrial products was the major contributor along with increases in both the transportation and the defense first response and market.
Consolidated adjusted EBITDA of $17.3 million per the quarter increased 63, 2% versus the prior year.
In addition to the strong impact of operating leverage on incremental volume we.
We're able to offset material inflation with price and generate net cost reductions as part of our ongoing productivity efforts.
Overall, we achieved strong performance with sales growth strong profitability and cash generation.
Now, let's look at our product segments.
Segment results on slide 10.
Elektron sales of $52.5 million increased 34, 3% from the prior year.
The sales increase was most pronounced in our general industrial products with additional growth in military sales and auto catalysis.
EBITDA increased over 125% to.
With the positive impact of sales leverage coupled with productivity improvements in the quarter.
Gas cylinder segment sales grew 24% to $46.5 million, including $8 million in sales from Sci.
In addition, we saw strong demand for industrial specialty cylinders imposed.
Most of growth in our CBA products.
EBITDA of $5.3 million was flat to prior year as productivity benefits were offset by Sci losses, and lower core volumes.
Now, let's review, our key balance sheet and cash flow of metrics on slide 11.
We ended the second quarter with a stronger balance sheet.
Our net debt position improved to $39.5 million, leading to a net debt to EBITDA ratio of <unk> 6 times.
Second quarter operating working capital finished at $79.6 million or 21% of sales, which is of significant improvement over the prior year's 28 per cent level even.
Even with the unfavorable impact of the S. T I going forward, we aim to maintain of targeted operating working capital range of 20 to 23 per cent of sales.
After a strong cash flow start in the first quarter. We continued our cash focus generating free cash flow of $7 million in the second quarter, bringing our year to date cash total to.
$1.8 million.
On a trailing 12 month basis free cash flow totaled more than $57 million, which really illustrates the success of our transformation plan had the cheap.
Also on a trailing 12 month basis, we delivered $18, 7% ROIC from adjusted earnings we have a strong balance sheet and are well.
The 20th to generate consistent free cash flow.
Let's review of our capital allocation priorities on slide 12.
Our capital allocation priorities remain unchanged, we expect to create value through internal execution, while remaining open to strategic acquisitions to supplement our organic growth in.
In the second.
Well pause the we maintained our quarterly dividend of $3.4 million and also initiated our share repurchase plan spending $900000 in cash for share buybacks.
Now I'd like to review, our updated 2021 guidance on slide 13.
Given the Q2 performance, we have narrowed our full.
Your guidance range to $1.15 to $1.30, compared to our previously communicated range of $1.10 to $1.30.
Well our order book remains healthy we remain cautious given the ongoing material supply challenges freight disruptions and labor shortages experienced throughout the world.
We will continue our execution.
The fusion on cash management initiatives targeting 100% free cash flow conversion for the full year excluding restructuring.
We remain confident in our ability to successfully navigate through the recovery this year and be well positioned to capture growth now.
Now before the Brown wrap up I wanted to provide a brief update on ESG activities.
On slide 14.
<unk> made meaningful progress against the environmental commitments that we made in our November 2020 ESG report.
He used that our efforts so far have been acknowledged by external ESG rating firms like ISS.
The year, we made continued improvements in all 3 categories.
During the second quarter, we successfully commission new equipment at our St. Louis facility, the separates waste oil from ground magnesium, allowing us to recycle of both materials and we use them in our manufacturing processes as well of generate the cost savings.
In addition, we are currently in the process of conducting carbon lifecycle analyses on our key products.
<unk>, which will help us identify and address the most carbon intensive parts of our supply chain, enabling us to achieve our 2025 environmental goals.
In the social category, we remain committed to building a diverse and equitable workplace for all of our team members.
As part of that commitment we've increased our focus on diversity during the recruitment process.
The increased awareness and targeted recruiting practices, we expect to attract and maintain a stronger workforce.
Given the heightened awareness around the I T and cyber security risks, we maintain a strong infrastructure and governance process.
As such we published our I T and cyber security policy statement on our.
Earlier this month that describes the actions we take the safeguard our it infrastructure systems and networks against cyber attacks.
So to wrap up on slide 15, I'd like to highlight 4 key points.
It looks for serves attractive niche markets with proprietary products and technology.
Transfer.
Formation plan has delivered results by simplifying our business by reducing our cost structure and reshaping our portfolio towards higher growth the.
The final phase of the transformation plan will take place over the next few years and focus on accelerating growth and delivering margin expansion.
We have plenty of runway to create additional shareholder value.
<unk> by deploying the look through business excellence standard toolkit to drive additional improvement and accelerate our growth.
So once again of Logan I want to thank all of our employees around the world for safely operating our facilities during the pandemic, while always putting our customers first.
Thank you for listening and of Luke and I will now take questions.
At this time I would like to inform everyone. If you would like to ask a question. Please press Star then the number 1 on your telephone keypad.
Your first question comes from the line of Chris Moore with CJS Securities.
Thanks for taking a few questions.
Hi, Good morning, maybe just good morning.
Maybe just start with on the kind of all the fuel landscape. So I don't you know looks for and hexagon on your own.
On IP on the on the bigger hydrogen tanks I'm, just trying to understand a little bit better. The the partnership you talked about the a couple of days ago without the pits.
It.
Does that.
Create any kind of unique capabilities.
4 of luxury maybe you can just talk a little bit about the partnership and what you expect from that.
1 of the key growth areas, Chris and the Montana fuel area.
The cash transportation.
<unk> of you think about hydrogen.
There is a lot for demand.
The green trucks.
And 1 critical step to get there just to make sure.
Options to transport hydrogen.
From the.
Our production process.
The point of usage and Thats, where the partnership with Dr.
Octopus would do that.
Working together with them, we would create these modules, which would be able to go on.
What we call the hydrogen haulers.
And the much more efficient than the current transportation assets by increasing the amount of hydrogen that can be carried in a trailer.
Wouldn't want to get into details of some of the IP or the proprietary Knowhow I do believe this is going to be.
Huge step forward and creating the right infrastructure.
Dr deliver hydrogen to the point of use so that could be used in.
Because as you know the no pipelines or anything out of that got the hydrogen.
As hydrogen haulers are very critical and we are very excited about partnerships.
Like the ones, we announced with the octopus.
Okay.
Got it very helpful. I appreciate that.
It may be you could just talk a little bit about the.
The drivers of leverage in fiscal 'twenty, 2 and beyond you know gross.
All of which were were 26, 2% in Q2.
Is it possible to get to a 30% gross margin. It's you know it's some day.
Yeah.
If you think about of the gross margin in Q2, but there's.
There's some impact of seasonality, which is positive, but there's a lot.
Also of significant impact of Sci, which we talked about the loss decremental on the margin Toms.
And of course, I don't want to commit to a 30% number.
I mean that remains.
Our long term target the victory or 30% margin and quite of few of our product lines are in fact with are we already.
It's a matter of.
As volume.
Comes back because in places like aerospace and outdoors, we still don't have the volume back from the political the times and.
All of our new products typically have higher margins than our existing products. So putting it all together I think of that sort of.
Really good target for us.
Got.
Well how about on the on the Opex side I mean.
When you when you look at the kind of the the growth in Opex versus the growth in revenue you know kind of how do you see that relationship.
Our opex has been relatively flat to down over the past few years as you can see as we continue.
To reduce fatalities control of the G&A.
Going forward I mean, if you look at Opex growing that no more than half the rate of the revenue.
Now, there's obviously going to be quarter over quarter Mediations here on day, Chris, but that's the kind of internal models that we won't cost the opex growing no more than half the rate on the revenue growth.
Got it got it that's helpful.
The last 1 from me just you talked about 2 critical suppliers declared force majeure.
Any kind of specifics in terms of the the raw materials or youre kind of your inventory status at this point in time on that front.
Sure.
I think the 1 main supplier that we are very concerned about is.
Get our supplier with supplies zircon sand to us. This is the Rio Tinto owned mine and Richard The Africa, and that's kind of of public news. They have declared force majeure and have suspended operation.
While we have secondary supply.
Sure there have been a primary supplier or has it gone sideways that can be used for auto catalyst industrial catalyst medical applications. So.
So that's the 1 that concerns us the most.
We always keep a few weeks of inventory, but at this.
Stage because of that.
Causing conservatism.
Supply in half outlook.
And we have had to pull out of any new beds.
Make sure we can sort of our existing customers first.
So that's the 1 that's more concerning to US right now Chris the other 1 I think it's also concerning its a smaller supplier.
I think the Tonight.
The product where.
Second we feel like our secondary suppliers can ramp up and they can get back in action quickly.
All right I'll leave it there I appreciate it guys.
Chris.
Your next question comes from the line of Craig Irwin with Roth Capital Partners.
Hi, good morning, and thanks.
<unk> My question.
On the correct.
Hi.
It seems like like S. C is off to a particularly strong start in $8 million contribution in the quarter kind of points towards the execution of the the high end of your your $20 million to $25 million range that you gave us.
Can you maybe talk us through the integration of all of these assets.
Are you seeing sales synergies or other <unk>.
Tangible benefits, it's always difficult to quantify.
Ahead of the ahead of an acquisition are you seeing other things play out there that might contribute to stronger execution.
All of this business than originally thought.
That's a great question and you're right. The SCA is off to a good start the reason they talk about 20 to 25 in the Q2 was a strong.
Strong 8 million quarter now from our perspective.
Perspective, we did talk about 20 to 25 out of you know and this year range.
The range, so it's a little better than expected from our overall position given the ongoing material and supply challenges of current focus is to make sure. We can serve our customers well and we have got good reception from the customers who are benefiting a lot from this acquisition.
And getting more stability.
I see I sort of color on time deliveries getting better because we need to be able to work through customer relationship.
So I cannot at this stage of its still early days, we are 3 months into it we are pleased with the first quarter we.
We have taken some immediate steps such as we have announced that Youre. Currently they were occupying 2 buildings and we are going on.
Within the same existing space because of reduced 1 of the buildings and consolidate footprint, we are putting more capital into the business.
Things are going as expected of slightly better and our focus in the short term is to serve our customers work with our customers and.
And make sure that this becomes a win win situation for.
Everybody.
Excellent excellent.
My second question is about the the mixed benefit particularly in elektron.
Can you can you can you help us understand which products are lifting.
Lifting the the EBITDA margins there.
Which products are outperforming in this current environment.
And do you see the spin this improvement in mix, that's something that's likely to be sustained over the next couple of quarters.
Heather do you want to take that.
Good morning, Good morning, Craig.
It's always difficult.
The cult to predict mix [laughter], However, what I would say in the in the current quarter. When you when you Peel back the onion, we talked at great length about industrial products and certainly in the Elektron segment those performed well.
And I think that's 1 of 1 of the main contributors to the increased mix.
And we also talked about some increase in military products and those tend to have a good mix benefit as well I wouldn't want to predict what will happen going forward, it's difficult with our our range of product because of mix can be very tricky, but those are some of the major contributors in Q2.
Okay excellent.
Another thing that's sort of moving in the right direction.
Next thing is sure a return on invested capital.
Can you remind us sort of what what you you'd like to achieve there over the next few quarters you have had a very nice rebound off the trough.
But what are the what are the what are the goals and what do you think.
You know.
Sure.
Erections are that we should monitor to see our progress towards those goals.
Sure Craig I mean, if you think of Arctic we had not a very capital intensive business and over the past few years. The team has done a great job ensuring that any new capital deployed has good returns and also with the portfolio of cleanup that we execute.
He thinks that that is moving the right direction, we like to be over 20% I think kind of in the past as you've seen we were there.
This is the pre Covid days, so our goal would be to kind of get back of that level and.
Good of any of the acquisitions that come in I mean, that's the key.
Metrics that we use.
And looking at what's gonna be of ROIC in year, 2 or 3.
So it kind of good progress we are pleased with that but we're not done I think I don't really want to get up to 20%.
Uh huh.
Great.
Last question of if I may I'm free.
Free cash flow I know this can be volatile based on.
On the timing.
Were there any specific sort of you know last week of the quarter items that.
There were an impact on free cash flow anything that.
You can potentially call out.
And.
How should how should we look at the free.
Cash flow potentially tracking with the.
With the EBITDA over the next number of quarters.
Yeah, Craig I'll take that 1 so when I think about the second quarter. You know there there's nothing I could point to in that last week, we tend to have a pretty thoughtful and disciplined approach to the cash and you know since the transformation plan with our focus.
Operating working capital I think you see some of the benefit there. So I would say it was it was pretty pretty disciplined throughout the quarter. There wasn't there wasn't anything unusual at the end of the quarter as I said and as we outlined in the presentation of our goal is to deliver you know free cash flow of that 100% conversion.
But in restructuring so we continue to look at that over and over the the back half of the year and that would be our expectation as you mentioned quarter to quarter. It can be a little volatile, but certainly that's our expectation for the full year.
Great well congratulations on a really solid result, this quarter, we look forward to continued.
Success.
Thanks Cranking.
Your next question comes from the line of Sarkis Your bet Sheehan with B Riley Securities.
Hey, good morning look another.
Good morning.
Yeah, Hey, just had a few quick ones here.
Of local wanted to kind of get a sense for any potential adjustments to your critical supply stock.
Are you anticipating on maybe increasing that safety stock going forward any thoughts there just kind of given the environment and maybe if that shifts your way of thinking and.
A few more.
Sure I think if you go back to our working capital guidance, we'd talk about 20% to 23% with the range of our working capital.
At this stage.
The thing we see are some growing beyond the 23%, but clearly given the supply situation and things of that I talked about and whether the <unk>.
And then I own of carbon fiber or anything else, yes, we are increasing safety stock too.
Any of the constrained supply chain.
Now Fortunately for us.
Most of our supply chain is very local with suppliers. So in the same region. So we have to how to increase the safety stock only for the few ones. So I don't see assets.
Zero, calling the 2023% range that we have mentioned in the past.
But we have making a huge conscious effort, but anytime youre constrained our material coming from overseas to increase the supply, but it should not impact our cash flow guidance for the full year socket.
That's helpful.
Was the carbon fiber of the other.
The.
Product that that you are looking for alternative suppliers on.
Carbon fiber and kind of.
Associated Hardeners and resin the entire supply chain so of the carbon fiber, we buy through multiple sources and yes, we are concerned, but every material, including carbon fiber the force majeure.
Situation was with the 1 of the components that go in carbon fiber and manufacturing of.
The tanks.
Got you and would that be the resin.
That's right.
Residents, Okay cool.
Yes, no that's good to know I've I've been hearing the same from others on the resin. So good luck on getting some of that stuff.
And then with regards to kind of of the labor I think in your slide you, you're calling out maybe some accelerated investments in automation and you know as you kind of look at your playbook here do you think this is an opportunity to really do some homework on.
Which areas of your manufacturing processes, you can automate further and.
Obviously, if you look at kind of your your human worker versus the automation.
Maybe get a better mix in place to avoid any of these potential hiccups going forward just wanted to get your sense there.
Yes, absolutely and I think the.
I mean I actually believe.
The labor shortages, especially on the hours of the 1 or more permanent and are not going to go away, but any changes in federal incentives it might ease a little bit. So yes, we are very much a gain of <unk>.
Massively moving towards automating our equipment the automated production lines looking at Newell.
The ways of manufacturing and frankly.
Looking at automating most of the workers that are going to work that we're doing using temporary labor.
We still need very quantified workers and we will continue pushing those but the.
Those are the more towards the machine operators can of people who are actually program.
Grameen are using program machines for the lower end of the work force, we have no choice, but to automate and we aren't going to move aggressively including all.
Out of Cincinnati operation out of Riverside operation in our St. Louis operations.
So we can continue moving in that direction. So.
So I do think it's a step change needed not just for.
And all of the sort of from the U S European based manufacturing companies.
Mhm.
And and just kind of on the start point right and are you finding it difficult to get the robotics and automation or is this more of a longer term kind of planning process and you feel comfortable with.
We're not deploying the day investments overtime.
We feel comfortable with deploying the investments over time now we started on the journey 2 years ago and of Covid may have had for the limit of falls and that sort of quite a few cases, we have our machines backed out and our vendors identified and we are moving forward.
The lead times are longer than we'd like.
But no I'm not concerned about supply because those are the different types of workers, our largest shortage in the eye.
Our lead.
Low wage workers, the lander competing with the kind of warehouse operators and others and on the hiring the skills.
Keep in mind, the majority of our workers have been with the company for many years.
And of risk and I think that same true for some of our automation suppliers.
So got it.
Net.
No. That's good day I wanted to kind of come back to the mix of electronics I think in the 10-Q.
The oil and gas magnesium alloy product out of shot out so.
Anything changed.
Changing there in regards to expectations. There are you seeing some of those higher margin products or the demand for that I should say come back and kind of given where.
Let's say oil prices have reset and maybe those customers are feeling a little bit better just wanted to get a sense for that if anything's changed or if we should kind of still expect that's the baseline.
And kind of trough.
The COVID-19 levels.
Yeah, I'll take that and talk to you see you know last year. We said you know oil and gas was around 7 or $8 million and we guided to something flat to that for this year and certainly Q2 was slightly stronger than Q1, but were talking about sales and term.
As you know.
Low single.
Dollars.
So we did continue to see sales volume AG and we kind of maintain that we expect it to be flat to maybe slightly up from from prior year, but we haven't built in a huge increase certainly we're actively watching what goes on in the in the oil and gas with regards to the price of oil.
But we arent planning per a huge rebound nothing like we saw in.
Some of our historical periods. So it was it was.
Stronger in Q2, but.
It was in the low single million dollar range.
No no understood and I guess, if I were to step back and think about that product in general I mean I think.
The feedback was that it's a fantastic product and it could displace some of the older things that were you. So maybe it's not of $8 million per year of product, but maybe it's not also what we saw I think it was <unk> 17 of our 18th so like what would you think is an appropriate aspirational level to get that product maybe in the next year or 2 on an annual basis.
So I think let me take back on the sake.
Clearly some of the peaks that we hit in 2018 was caused with some stocking levels being higher than non mall and then we saw destocking going forward right. So I think part of an impact and then we saw the covered loans, which was not good as well.
Going forward, we remain very optimistic.
Think about the product we have added new customers, which is 1 of our key strategic initiatives in there and the products getting especially the new formulations continues to get very positive reviews in terms of substitution.
So I think going forward, we do expect the product to continue growing, especially as the oil prices improve.
We would say it needs to go back into the double digit millions of an annual run rate and sort of sticking around in the single digit millions.
And then lets the can talk more in Q3 Q4, when we have more numbers to share there.
No fantastic that's all from me. Thank you.
Thanks, Okay.
Optimists. Your next question comes from the line of Michael of the shock with Keybanc capital markets.
Hey of Logan and good morning.
Hey, good morning, Michael.
So firstly I just wanted to ask on some of the recent market and supply chain challenges how will those impact.
The year to day cost reduction progress going forward.
See any give back there given inflationary pressures or otherwise.
Okay.
Michael Let me take that I mean from our perspective as you saw of Q2 was a strong quarter from net cost reductions.
That's kind of net of any additional cost impact.
Yeah face because of freight inflation and others now for things like.
General inflation, we have always done well and continue to expect doing well and matching that with pricing.
Turns out in the long term not to be of big winner or loser.
That continues.
While we don't like.
Many cases of you had to do 3 price increases since the beginning of the year given really happen material inflation. So I think we'll be able to do that.
Net net from cost reductions.
I think some of the freight disruptions in air Freighting in other expenses did impact us negatively this quarter and we hope that the.
And plan to make sure we don't become less so no major impact beyond the guidance that would be of already looked at.
Which is going to do a better job managing things of that can create cost and material. We will continue the offsetting from pricing.
Got it and then how much in cash restructuring cost.
Do you have remaining for the year.
Yeah and of our guidance, Michael I think what we talked about it's unchanged from the prior quarter at $16 million to $20 million.
And year to date, it's been you know low single millions that we paid out so far.
Yeah.
Okay and lastly from me how should we think about top line in the third quarter versus second quarter, given some of the macro and other market challenges that youre seeing and what do you see primarily driving your view there.
So Michael from a backlog perspective, we're in a very strong.
Trunks at right now so they can all of our concern which is why I'm not actually going to give you a quantitative answer to your question. Michael is all around supply disruptions and labor availability and raw material availability. So.
So we have very strong.
The kind of backlog, but we are concerned.
Given some of the material supply issues on the overall the ability to fulfill the dose.
So.
We need some time to work through the uncertainty and we hope to report the okay.
The better numbers in the Q3, but there's lots of uncertainty with the flight disruptions.
Okay.
Thank you.
At this time there are no further questions.
Thank you for joining us today. The next regularly scheduled call will be in October of 2021, when the company discusses his 2021 third quarter financial results.
And as it looks for the conference calls you may now disconnect.
Okay.
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