Q2 2024 Luxfer Holdings PLC Earnings Call
Todd: Good morning. My name is Todd, and I will be your conference operator today. Welcome to Luxfer's second quarter 2024 earnings conference call. All lines have been placed on mute.
Todd: My name is Todd, and I will be your conference operator today.
Todd: Good morning. My name is Todd and I will be your conference operator today. Welcome to Luxfer's second quarter 2024 earnings conference call. All lines have been placed on mute.
Todd: Welcome to Luxfer's second quarter 2024 earnings conference call. All lines have been placed on mute.
Todd: After the speakers' prepared remarks, we will hold a question-and-answer session.
Kevin Cornelius Grant: After the speaker's prepared remarks, we will hold a question and answer session. Now, I will turn the call over to Kevin Grant, Vice President of Investor Relations and Business Development at Luxfer. Kevin, please go ahead.
Kevin Grant: Now, I will turn the call over to Kevin Grant, Vice President of Investor Relations and Business Development at Luxfer.
Todd: After the speaker's prepared remarks, we will hold a question and answer session. Now, I will turn the call over to Kevin Grant, Vice President of Investor Relations and Business Development at Luxfer. Kevin, please go ahead.
Kevin Grant: Kevin, please go ahead. Thank you, Todd, and good morning, everyone. Welcome to Luxfer's second quarter, 2024 earnings conference call. This morning, we'll be reviewing Luxfer's financial results for the second quarter ended June 30th, 2024. I'm pleased to be joined today by Andy Butcher, our Chief Executive Officer, and Steve Webster, our Chief Financial Officer. Today's webcast is accompanied by a presentation that can be accessed at Luxfer.com. Please note any references to non-GAAP financials are reconciled in the appendix of the 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 uncertainties.
Kevin Cornelius Grant: Thank you, Todd, and good morning, everyone. This morning, we'll be reviewing Luxfer's financial results for the second quarter ended June 30th, 2024. I'm pleased to be joined today by Andy Butcher, our Chief Executive Officer, and Steve Webster, our Chief Financial Officer. This webcast is accompanied by a presentation that can be accessed at www.luxfer.com.
Speaker Change: Thank you, Todd, and good morning, everyone. Welcome to Luxfer's second quarter 2024 earnings conference call. This morning, we'll be reviewing Luxfer's financial results for the second quarter ended June 30, 2024.
Speaker Change: I'm pleased to be joined today by Andy Butcher, our Chief Executive Officer, and Steve Webster, our Chief Financial Officer.
Speaker Change: Today's webcast is accompanied by a presentation that can be accessed at Luxfer.com.
Speaker Change: Please note, any references to non-GAAP financials are reconciled in the appendix of the presentation.
Kevin Cornelius Grant: Please note that any references to non-GAAP financials are reconciled in the appendix of the 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. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise.
Speaker Change: 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.
Kevin Grant: We undertake no obligation to update any forward-looking statements, whether it's as a result of new information, future events, or otherwise. Please refer to the safe harbor statement on slide two of today's presentation for further details.
Speaker Change: We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise.
Kevin Cornelius Grant: Please refer to the Safe Harbor Statement on slide 2 of today's presentation for further details. During today's call, we'll be providing adjusted second quarter 2024 financial results that exclude graphic cards based on our strategic review decision to divest that business. Now, let me introduce Luxfer's CEO, Andy Butcher. Please turn to slide three. Andy, please go ahead.
Speaker Change: Please refer to the Safe Harbor Statement on slide 2 of today's presentation for further details.
Kevin Grant: During today's call, we'll be providing adjusted second quarter 2024 financial results that exclude graphic arts based on our strategic review decision to invest in that business.
Speaker Change: During today's call, we'll be providing adjusted second quarter 2024 financial results that exclude graphic cards based on our strategic review decision to divest that business.
Kevin Grant: Now, let me introduce Lux for CEO Andy Butcher. Please turn to slide three.
Speaker Change: Now let me introduce Luxfer's CEO , Andy Butcher.
Andy Butcher: Andy, please go ahead. Thank you, Kevin.
Speaker Change: Please turn to slide 3.
Andrew William John Butcher: Thank you, Kevin, and good morning, everyone. Thank you for joining us. The Luxfer team made steady progress and continued to deliver good results in the second quarter. However, we faced challenges in certain markets. We achieved sequential improvement in sales, two consecutive quarters of sequential profitability, and we delivered solid cash flow throughout the first half of 2024, reflecting our success in enhancing our financial performance. Sales for the quarter came in at $91.8m, a 10.5% increase from Q1 2024, though still down 9.6% year-over-year as we continue to see variable demand across markets. The sequential recovery in defense applications and the strength in SCBA markets are encouraging.
Andy Butcher: Good morning, everyone. Thank you for joining us. The Luxfer team made steady progress and continued to deliver good results in the second quarter. While we face challenges in certain markets, we achieve sequential improvement in sales, two consecutive quarters of sequential profitability, and we delivered solid cash flow throughout the first half of 2024, reflecting our success in enhancing our financial performance. Sales for the quarter came in at $91.8 million, a 10.5% increase from Q1 2024, though still down 9.6% year-over-year, as we continue to see variable demand across markets. The sequential recovery in defence applications and the strength in SCBA markets is encouraging.
Speaker Change: Andy, please go ahead.
Andrew William John Butcher: Thank you, Kevin, and good morning, everyone. Thank you for joining us.
Andrew William John Butcher: The Luxfer team made steady progress and continue to deliver good results in the second quarter.
Speaker Change: Well, we faced challenges in certain markets. We achieved sequential improvement in sales, two consecutive quarters of sequential profitability, and we delivered solid cash flow throughout the first half of 2024, reflecting our success in enhancing our financial performance.
Andrew William John Butcher: Sales for the quarter came in at $91.8 million, a 10.5% increase from Q1 2024, though still down 9.6% year-over-year as we continue to see variable demand across markets.
Andrew William John Butcher: The sequential recovery in defense applications and the strength in SCBA markets is encouraging.
Andy Butcher: While the overall market remains soft, we are making headway. We achieve an adjusted EBITDA of $17.3 million, a 65% improvement from the previous quarter, and reached adjusted earnings per share of $0.39. Solid underlying business performance was complemented by the recovery of $1.1 million of historical legal cost, with both the timing and the amount exceeding previous expectations. We delivered $8.9 million in operating cash this quarter, maintaining a healthy balance sheet with a net leverage of 1.6 times. Looking ahead, we have a bit of a steady outlook for the remainder of 2024 and expect to accelerate our momentum in 2025.
Andrew William John Butcher: While the overall market remains soft, we are making headway. We achieved an adjusted EBITDA of $17.3 million, a 65% improvement from the previous quarter, and reached adjusted earnings per share of 39 cents. Solid underlying business performance was complemented by the recovery of $5.1 million of historical legal costs, with both the timing and the amount exceeding previous expectations. We delivered $8.9 million in operating cash this quarter, maintaining a healthy balance sheet with a net leverage of 1.6 times.
Andrew William John Butcher: While the overall market remains soft, we are making headway.
Andrew William John Butcher: Solid underlying business performance was complemented by the recovery of $5.1 million of historical legal cost, with both the timing and the amount exceeding previous expectations.
Andrew William John Butcher: We delivered $8.9 million in operating cash this quarter, maintaining a healthy balance sheet with a net leverage of 1.6 times.
Andrew William John Butcher: Looking ahead, we have a steady outlook for the remainder of 2024 and expect to accelerate our momentum in 2025. The trajectory in the first half of the year positions us well to meet our full-year guidance. We will continue to manage our resources carefully, to both navigate ongoing challenges and capitalize on recovery trends as they develop.
Andrew William John Butcher: Looking ahead, we have a quiet, steady outlook for the remainder of 2024 and expect to accelerate our momentum in 2025.
Andy Butcher: The trajectory in the first half of the year positions us well to meet our full-year guidance. We will continue to manage our resources carefully to both navigate ongoing challenges and capitalize on recovery trends as they develop.
Andrew William John Butcher: The trajectory in the first half of the year positions us well to meet our full year guidance.
Andrew William John Butcher: We will continue to manage our resources carefully to both navigate ongoing challenges and capitalise on recovery trends as they develop.
Andy Butcher: These operational and investment decisions are positioning Luxfer for long-term growth. Now, I'd like to give a quick update on our comprehensive strategic review with a focus on the style of the Graphic Arts business. Please turn to slide four. Actions taken in favourable market conditions are gradually repositioning the graphic arts segment to improve following the losses experienced in 2023 and the first quarter of 2024. The competitive process to sell this business is now reaching its detailed final stages, and we're currently working closely with a potential buyer. We are targeting completion of the sale as early as the third quarter, which will thereafter enable us to concentrate fully on our core operations and growth areas.
Andrew William John Butcher: These operational and investment decisions are positioning Luxfer for long-term growth. Now, I'd like to give a quick update on our comprehensive strategic review, with a focus on the sale of the graphic arts business. Please turn to slide 4. Actions taken and favorable market conditions are gradually repositioning the graphic arts segment to improve following the losses experienced in 2023 and the first quarter of 2024. The competitive process to sell this business is now reaching its detailed final stages, and we are currently working closely with a potential buyer.
Andrew William John Butcher: These operational and investment decisions are positioning Luxfer for long-term growth.
Andrew William John Butcher: Please turn to slide 4.
Andrew William John Butcher: Actions taken and favourable market conditions are gradually repositioning the graphic art segment to improve following the losses experienced in 2023 and the first quarter of 2024.
Andrew William John Butcher: The competitive process to sell this business is now reaching its detailed final stages, and we are currently working closely with a potential buyer.
Andrew William John Butcher: We are targeting completion of the sale as early as the third quarter, which will thereafter enable us to concentrate fully on our core operations and growth areas. We've made further adjustments to asset valuation to reflect the expected net proceeds from the sale.
Andrew William John Butcher: We are targeting completion of the sale as early as the third quarter, which will thereafter enable us to concentrate fully on our core operations and growth areas.
Andy Butcher: We've made further adjustments to asset valuation to reflect the expected net proceeds from the sale. Meanwhile, we continue the important work to enhance our gas cylinders and electron segments by reducing costs and executing profitable growth opportunities driven by innovation and strategic investments. We also remain vigilant in assessing market conditions with optionality to maximize future shareholder value.
Andrew William John Butcher: We've made further adjustments to asset valuation to reflect the expected net proceeds from the sale.
Andrew William John Butcher: Meanwhile, we continue the important work to enhance our gas cylinders and electron segments by reducing costs and executing profitable growth opportunities driven by innovation and strategic investment. We also remain vigilant in assessing market conditions with optionality to maximize future shareholder value. I'd like to start this morning by reviewing our consolidated financial results and bridges for the second quarter of 2024. Adjusted EBITDA for the second quarter reached $17.3 million, with a margin of 18.8%
Andrew William John Butcher: Meanwhile, we continue the important work to enhance our gas cylinders and electron segments by reducing costs and executing profitable growth opportunities driven by innovation and strategic investments.
Andrew William John Butcher: We also remain vigilant in assessing market conditions with optionality to maximise future shareholder value.
Kevin Grant: At this time, I'll turn the call over to Steve to discuss our second quarter results in greater detail and update on the 2024 guidance.
Andrew William John Butcher: At this time, I'll turn the call over to Steve to discuss our second quarter results in greater detail and update on the 2024 guidance.
Steve Webster: Steve, thanks Andy, and good morning everyone. I'd like to start this morning by reviewing our consolidated financial results and bridges for the second quarter 2024. Please note that any non-gap numbers I refer to are on an adjusted basis, excluding the graphic arts business. Let's attempt to slide five. Looking at the top of the slide, while our sales of $91.8 million reflected a decline from the prior year, we saw a 10.5% improvement from the prior quarter. Adjusted EBITDA for the second quarter reached $17.3 million, with margin at 18.8%. This represents a significant uptick from both the previous year and the last quarter.
Andrew William John Butcher: This includes a $6.4 million benefit from legal and other items and a $1.9 million benefit from price and net deflation. Our adjusted EBITDA margin improved to 18.8% from last year's 14.2% and the prior quarter's 12.6%. The business has improved for two consecutive quarters, with manufacturing efficiencies maintaining its margin profile. Despite lower year-over-year sales, we saw quarter-over-quarter improvement, especially in defense applications within the defense, first response, and healthcare markets. Improved demand in transportation was offset by lower general industry.
Stephen M. D. Webster: I'd like to start this morning by reviewing our consolidated financial results and bridges for the second quarter 2024.
Stephen M. D. Webster: Please note that any non-GAP numbers I refer to are on an adjusted basis, excluding the Graphic Arts business.
Stephen M. D. Webster: Let's turn to slide five.
Stephen M. D. Webster: This represents a significant uptick from both the previous year and the last quarter.
Steve Webster: Additionally, our adjusted earnings per share rose to 39 cents from 29 cents in the prior year and 20 cents in the first quarter, highlighting our improved profitability. Stronger underlying business performance was boosted by historic legal cost recovery this quarter, contributing approximately 15 cents per share. Shifting to our balance sheet and cash, cash flow from operations was solid, generating $8.9 million, and our free cash delivered $6.2 million. We maintained strong liquidity, ending the quarter with improved net debt of $69.9 million and leverage around 1.6 times. Looking at the sales bridge, our revenue of $91.8 million compared to $101.5 million last year.
Stephen M. D. Webster: Stronger underlying business performance was boosted by historic legal cost recovery this quarter, contributing approximately 15 cents per share.
Stephen M. D. Webster: We maintain strong liquidity, ending the quarter with improved net debt of $69.9 million and leverage around 1.6 times.
Steve Webster: Here, we experienced the $9.4 million volume decrease from general industrial and defense applications, along with a $0.4 million dollar for an exchange headwind. We were nonetheless encouraged by the sequential growth of $8.7 million. Now turning to the profit bridge, our second quarter adjusted EBITDA was $17.3 million, up to $2.9 million from the previous year. This included a $6.4 million benefit from legal and other items, and a $1.9 million benefit from price and net deflation. Our adjusted EBITDA margin improved to 18.8% from last year's 14.2% and the prior quarter's 12.6%.
Stephen M. D. Webster: Here, we experienced a $9.4 million volume decrease from general industrial and defense applications along with a $0.4 million foreign exchange headwind.
Stephen M. D. Webster: We were nonetheless encouraged by the sequential growth of $8.7 million.
Stephen M. D. Webster: Now turning to the profit bridge, our second quarter adjusted EBITDA was $17.3 million, up $2.9 million from the previous year.
Stephen M. D. Webster: This includes a $6.4 million benefit from legal and other items and a $1.9 million benefit from price and net deflation.
Steve Webster: Please tend to slide six for a detailed review of Electron's second quarter financial results. Electron's second quarter of 2024 shows a strong turnaround in profitability despite year-over-year sales and their market headwinds. The business has improved for two consecutive quarters, with manufacturing efficiencies maintaining its margin profile.
Stephen M. D. Webster: Please turn to slide 6 for a detailed review of Electron's second quarter financial results.
Stephen M. D. Webster: Electron's second quarter of 2024 shows a strong turnaround in profitability despite year-over-year sales and end-market headwinds.
Stephen M. D. Webster: The business has improved for two consecutive quarters, with manufacturing efficiencies maintaining its margin profile.
Steve Webster: Adjusted EBITDA margin reached 29.5%, up over 1,000 basis points due to legal recovery. Without this, margin would have been approximately 17.4% down from around 20% a year ago, but up 40 basis points sequentially, demonstrating our team's effectiveness in enhancing efficiencies and managing costs.
Stephen M. D. Webster: Adjusted EBITDA margin reached 29.5%, up over 1,000 basis points due to legal recovery.
Speaker Change: Without this, margin would have been approximately 17.4%, down from around 20% a year ago, but up 40 basis points sequentially, demonstrating our team's effectiveness in enhancing efficiencies and managing costs.
Steve Webster: Despite lower year-over-year sales, we saw quarter-over-quarter improvement, especially in defence applications within the defence first response and healthcare markets. Improved demand in transportation was offset by lower general industrial. While overall market demand remains challenging, the business has improved from its low in the fourth quarter, and we remain positive about the long-term outlook.
Speaker Change: Despite lower year-over-year sales, we saw quarter-over-quarter improvement, especially in defence applications within the defence, first response and healthcare markets. Improved demand in transportation was offset by lower general industrial.
Speaker Change: While overall market demand remains challenging, the business has improved from its low in the fourth quarter, and we remain positive about the long-term outlook.
Steve Webster: Now please tend to slide seven for a detailed review of the gas cylinders' second quarter financial results. Gas cylinders demonstrated continued growth in Q2, with sales of $49.8 million up 2.7% year-over-year and 9.7% from quarter one. This growth was primarily driven by the self-contained breathing apparatus market. The margin profile is stabilising with long-term contracts signed in Q4 of last year. Gross margin improved by 80 basis points to 16.7%, while adjusted EBITDA margins slightly decreased to 9.8%. Enhancements to cost structures and efficiencies are taking hold, which sequential adjusted EBITDA up 19.5% and margin up 80 basis points.
Speaker Change: Now please turn to slide 7 for a detailed review of the gas cylinder's second quarter financial results.
Speaker Change: Gas cylinders demonstrated continued growth in Q2 with sales of $49.8 million, up 2.7% year-over-year and 9.7% from Q1.
Speaker Change: This growth was primarily driven by the self-contained breathing apparatus market.
Speaker Change: The margin profile is stabilising with long-term contracts signed in Q4 of last year.
Andrew William John Butcher: Gross margin improved by 80 basis points to 16.7 percent, while adjusted EBITDA margin slightly decreased to 9.8 percent. Our update now shows an increase in our projected adjusted EBITDA to be between $47 million and $50 million, with stronger adjusted diluted EPS ranging from $0.90 to $1, and higher free cash flow now anticipated to be between $24 million and $27 million. Looking ahead, our focus is on driving profitable long-term growth and preparing for future opportunities.
Speaker Change: Gross margin improved by 80 basis points to 16.7%, while adjusted EBITDA margin slightly decreased to 9.8%.
Speaker Change: Enhancements to cost structures and efficiencies are taking hold, with sequential adjusted EBITDA up 19.5% and margin up 80 basis points.
Steve Webster: Defence first response and healthcare sales increased year-over-year, driven by demand for lightweight SCBA and medical cylinders.
Speaker Change: Defence first response and healthcare sales increased year over year, driven by demand for lightweight SCBA and medical cylinders.
Steve Webster: Transportation demands slowed, particularly for hydrogen alternative fuels, and the general industrial market remains challenging; although there were some positive signs with a moderate sequential improvement this quarter.
Speaker Change: Transportation demand slowed, particularly for hydrogen alternative fuels, and the general industrial market remained challenging, although there were some positive signs with a moderate sequential improvement this quarter.
Steve Webster: We are encouraged by the increased revenue and profitability in gas cylinders and the prospects for long-term profitable growth.
Speaker Change: We are encouraged by the increased revenue and profitability in gas cylinders and the prospects for long-term profitable growth.
Steve Webster: Now please tend to slide eight for an update on our full year 2024 financial guidance. As a reminder, our 2024 guidance does not include the graphic arts business.
Speaker Change: Now please turn to slide 8 for an update on our full year 2024 financial guidance.
Speaker Change: As a reminder, our 2024 guidance does not include the graphic arts business.
Steve Webster: We are cautious regarding the short-term revenue outlook, but we have raised our financial guidance to reflect the recent recovery of historical legal costs amounting to $5.1 million. Our update now shows an increase in our projected adjusted EBITDA to be between $47 million and $50 million, with stronger adjusted diluted EPS ranging from $0.90 to $1, and higher free cash flow now anticipated to be between $24 million and $27 million. We continue to emphasize maintaining a robust balance sheet and enhancing our free cash flow, allowing for continued investment in growth opportunities, while also paying down debt and returning cash capital to shareholders.
Speaker Change: We are cautious regarding the short-term revenue outlook, but we have raised our financial guidance to reflect the recent recovery of historical legal costs amounting to $5.1 million.
Speaker Change: Our update now shows an increase in our projected adjusted EBITDA to be between $47 million and $50 million, with stronger adjusted diluted EPS ranging from $0.90 to $1, and higher free cash flow now anticipated to be between $24 million and $27 million.
Andy Butcher: Now I would like to turn the call back to Andy. Thanks, Steve, and now I want to take some time with you highlighting the innovation that will help drive Luxfer to future sustainable growth. Please turn to slide 9.
Stephen M. D. Webster: Thanks, Steve.
Speaker Change: I now want to take some time with you highlighting the innovation that will help drive Luxfer to future sustainable growth. Please turn to slide 9.
Andy Butcher: Looking ahead, our focus is on driving profitable long-term growth and preparing for future opportunities. As you know, many of our important internal tools for executing this are embedded in the Luxfer business system. The principles and practices that guide us to serve our customers and deliver sustainable growth and value creation. Today, I'm highlighting three key initiatives within this: our cylinders and systems to support growth in use of CNG, the upcoming launch of our new bulk gas transportation modules, and the uptake of our UGRE Flameless Russian heater. First, we're continuing to deploy our high-pressure tank technology with a market-leading global engine manufacturer.
Speaker Change: Looking ahead, our focus is on driving profitable long-term growth and preparing for future opportunities.
Speaker Change: Today I'm highlighting three key initiatives within this. Our cylinders and systems to support growth and use of CNG, the upcoming launch of our new bulk gas transportation modules, and the uptake of our UGRE flameless ration heater.
Andrew William John Butcher: First, we're continuing to deploy our high-pressure tank technology with a market-leading global engine manufacturer. Our initiatives in clean energy have included refining the footprint of our North American cylinder operations and constructing our transportation module production facility in the UK. Its utility as an effective interim alternative to field kitchens has been well demonstrated, providing a substantial boost to our magtech solutions portfolio. Innovation, exemplified by the three initiatives I just mentioned, is a critical element of the Luxfer business system and is part of a cohesive plan aimed at achieving significant milestones in 2025. Now, please turn to slide 10.
Speaker Change: First, we're continuing to deploy our high-pressure tank technology with a market-leading global engine manufacturer.
Andy Butcher: All necessary stock and inventory are now in place for the new CNG product launch, positioning us and our systems partner to meet future demand increases. This initiative is expected to drive significant growth and contribute positively to our results, beginning early in 2025. Second, the development of our next-generation transportation modules, the hydrosphere trailers and the multi-cylinder packs, are also notable growth drivers for 2025. Our initiatives in clean energy have included refining the footprint of our North American cylinder operations and constructing our transportation module production facility in the UK. We expect to complete the first modules this year, and indeed last month I witnessed the commencement of our new manufacturing operations.
Speaker Change: All necessary stock and inventory are now in place for their new CNG product launch, positioning us and our systems partner to meet future demand increases.
Speaker Change: This initiative is expected to drive significant growth and contribute positively to our results beginning early in 2025.
Speaker Change: Our initiatives in clean energy have included refining the footprint of our North American cylinder operations and constructing our transportation module production facility in the UK.
Speaker Change: We expect to complete the first modules this year, and indeed last month I witnessed the commencement of our new manufacturing operations.
Andy Butcher: Third, we've seen strong recent market uptake for our innovative UGRE flameless Russian heater launch last year. This product allows simultaneous heating of a meal for a whole team, significantly enhancing operational efficiency. Its utility as an effective interim alternative to field kitchens has been well demonstrated, providing a substantial boost to our MagTech solutions portfolio. This product reinforces our commitment to self-help actions that support our revenue line for the future.
Speaker Change: Third, we've seen strong recent market uptake for our innovative UGR-E flameless ration heater, launched last year.
Speaker Change: This product allows simultaneous heating of a meal for a whole team, significantly enhancing operational efficiency.
Speaker Change: Its utility as an effective interim alternative to field kitchens has been well demonstrated, providing a substantial boost to our magtech solutions portfolio.
Speaker Change: This product reinforces our commitment to self-help actions that support our revenue line for the future.
Andy Butcher: Innovation, exemplified by the three initiatives I just mentioned, is a critical element of the Luxor business system and is part of a cohesive plan aimed at achieving significant milestones in 2025. We are excited about the opportunities ahead of us and committed to capitalising on them.
Speaker Change: Innovation, exemplified by the three initiatives I just mentioned, is a critical element of the Luxfer business system and is part of a cohesive plan aimed at achieving significant milestones in 2025.
Speaker Change: We are excited about the opportunities ahead of us and committed to capitalising on them.
Andy Butcher: Please turn to slide 10. We are proud of the significant progress we've made amid a challenging market landscape. We have achieved sequential improvements in both sales and profitability, demonstrating our resilience and strategic execution, and reinforcing my confidence in our long-term success. We continue to emphasise a strong balance sheet and generating free cash flow, supporting our growth investments and returning capital to shareholders. We have seen consistent margin improvements from our focus on streamlining processes and optimising our operations. We will continue to enhance productivity and control costs effectively. Our clean energy strategies, including advancements in CNG and bulk gas transportation, are positioning the business for notable growth in 2025 and beyond.
Speaker Change: Now please turn to slide 10.
Speaker Change: We are proud of the significant progress we've made amid a challenging market landscape. We have achieved sequential improvements in both sales and profitability, demonstrating our resilience and strategic execution, and reinforcing my confidence in our long-term success.
Speaker Change: We continue to emphasise a strong balance sheet and generating free cash flow, supporting our growth investments and returning capital to shareholders.
Andrew William John Butcher: We've seen consistent margin improvements from our focus on streamlining processes and optimizing our operations. We will continue to enhance productivity and control costs effectively. The sale of the graphic arts business is progressing smoothly and on track to our expectations, allowing us to focus on core growth areas. We remain focused on delivering results for the remainder of 2024 with a clear path to achieving our four-year guidance. If at any point your question has been answered, you may remove yourself by pressing star 2.
Speaker Change: We are seeing consistent margin improvements from our focus on streamlining processes and optimising our operations. We will continue to enhance productivity and control costs effectively.
Speaker Change: Our clean energy strategies, including advancements in CNG and bulk gas transportation, are positioning the business for notable growth in 2025 and beyond.
Andy Butcher: The sale of the graphic arts business is progressing smoothly and on track to our expectations, allowing us to focus on core growth areas. All these accomplishments underscore our commitment to driving value and enhancing performance. We remain focused on delivering results for the remainder of 2024, with a clear path to achieving our four-year guidance. Our strategic focus remains on leveraging our materials engineering expertise, fostering innovation, and delivering sustainable long-term growth.
Speaker Change: The sale of the graphic arts business is progressing smoothly and on track to our expectations, allowing us to focus on core growth areas.
Speaker Change: All these accomplishments underscore our commitment to driving value and enhancing performance.
Speaker Change: We remain focused on delivering results for the remainder of 2024, with a clear path to achieving our full year guidance.
Speaker Change: Our strategic focus remains on leveraging our materials engineering expertise, fostering innovation and delivering sustainable long-term growth.
Todd: With that, I'd like to turn the call back to the operator for the Q&A session.
Speaker Change: With that, I'd like to turn the call back to the operator for the Q&A session.
Todd: Todd, please go ahead. Thank you at this time.
Speaker Change: Todd, please go ahead.
Todd: We will open the floor for questions. If you would like to ask a question, please press star one on your telephone keypad. If at any point your question has been answered, you may remove yourself by pressing Star Two. Again, to ask a question, please press star one.
Todd: Thank you. At this time, we will open the floor for questions. If you would like to ask a question, please press Star 1 on your telephone keypad. If at any point your question has been answered, you may remove yourself by pressing Star 2.
Steve Farazani: Our first question will come from Steve Farazani with Sedoti. Please go ahead. Wendy Steve, thanks for all the detail on the call. I did want to ask about guidance, because congratulations on the $5 million legal expense recovery. But if we back that out, it looks like the high end of your guidance on EPS came down a little bit. Obviously, your sales growth is down a bit. Can you give us a sense of what's changed in the last three months in terms? We are going slightly more negative in your outlook.
Todd: Again, to ask a question, please press star 1. Our first question will come from Steve Ferazani with Sidoti. Please go ahead.
Speaker Change: Again, to ask a question, please press star 1.
Speaker Change: Our first question will come from Steve Ferazani with Sidoti. Please go ahead.
Stephen Michael Ferazani: Thank you, Wendy, Steve. Thanks for all the detail on the call. I did want to ask about guidance, and congratulations on the $5 million legal expense recovery. But if we back that out.
Stephen Michael Ferazani: It looks like the high end of your guidance on EPS came down a little bit and obviously your sales growth is down a bit. Can you give us a sense of what's changed in the last three months in terms where you're going slightly more negative in your outlook?
Andy Butcher: Thanks, Steve.
Andrew William John Butcher: Thanks, Steve. This is Andy. Let me first of all underscore that I'm very encouraged by the progress we've made over the last six months. We have seen the expected initial recovery in demand across certain of our electron applications and a robust performance in the gas cylinders segment. The operational optimizations we've made have been successful. Our teams are motivated and engaged.
Andy Butcher: This is Andy. Let me, first of all, say that I'm very encouraged by the progress we've made over the last six months. We have seen the expected initial recovery in demand across certain of our electron applications and the robust performance in the gas cylinders segment. The operational optimisations we've made have been successful. Our teams are motivated and engaged. At the midpoint, we're up 12 and a half cents on our initial guidance. That's coming from a solid business execution in the first half of the year. Especially from those $5.1 million legal cost recovery. We're in good shape, Steve, as we enter the last half of the year.
Stephen Michael Ferazani: Thanks Steve, this is Andy. Let me first of all underscore that I'm very encouraged by the progress we've made over the last six months.
Speaker Change: We have seen the expected initial recovery in demand across certain of our Electron applications.
Speaker Change: and the robust performance in the gas cylinders segment. The operational optimizations we've made have been successful. Our teams are motivated and engaged.
Andrew William John Butcher: At the midpoint, we're up 12.5 cents on our initial guidance, and that comes from solid business execution in the first half of the year. And yes, especially from the $5.1 million legal cost recovery, we're in good shape, Steve, as we enter the latter half of the year. So we've already seen some increased demand from that. Sales of our high-performance lightweight cylinders for that have already increased by almost $6 million year-to-date, 2024 versus 2023. Now, some of that is pre-built.
Speaker Change: At the midpoint, we're up 12½ cents on our initial guidance.
Speaker Change: That's coming from a solid business execution in the first half of the year, and yes, especially from those $5.1 million legal cost recovery, we're in good shape, Steve, as we enter the latter half of the year.
Steve Farazani: Can you talk a little bit? You mentioned the CNG engine, which I know a lot of people are very excited about that are involved in it, and have exposure to it.
Stephen M. D. Webster: Okay, can you talk a little bit, you mentioned the CNG engine, which I know a lot of people are very excited about that are involved in it and have exposure to it. Sounded like you said you think it's a benefit starting in 2025. Any reason to think it could come earlier than that?
Andy Butcher: Sounded like you said, you think it's a benefit starting in 2025. Any reason to think it could come earlier than that? Yeah, we're really excited about this new engine that's coming out.
Speaker Change: Yeah, we're really excited about this new engine that's coming out, and I'm glad we had the opportunity to talk about that a little bit in the prepared remarks.
Andy Butcher: I'm glad we had opportunities to talk about that a little bit in the prepared remarks. As you know, in the process of launching this new CNG engine, the X-15N, it's expected to greatly enhance the adoption of clean fuels in heavy-duty trucks. It's offering extended range and reduced emissions. So we've already seen some increased demand from that. Sales of our high performance lightweight cylinders for that have already increased by almost $6 million year-to-date, 2024 versus 2023. Now, some of that is pre-build. It's priming the pump for the product launch, but we should see strong follow-on demand once the product gets some traction in the marketplace.
Speaker Change: As you know, Cummins are in the process of launching this new CNG engine, the X15N. It's expected to greatly enhance the adoption of clean fuels in heavy-duty trucks.
Speaker Change: It's offering extended range and reduced emissions.
Speaker Change: So we've already seen some increased demand from that. Sales of our high-performance lightweight cylinders for that have already increased by almost $6 million year-to-date.
Speaker Change: 2024 versus 2023.
Andrew William John Butcher: It's priming the pump for the product launch, but we should see strong follow-on demand once the product gets some traction in the marketplace. We're modeling that as a notable opportunity for us in 2025, but yes, it's one of the things that could drive us towards the upside of our guidance if we see some demand in Q4. Thank you, Todd.
Speaker Change: Now, some of that is pre-built, it's priming the pump for the product launch, but we should see strong follow-on demand once the product gets some traction in the marketplace.
Andy Butcher: We're modelling that as a notable opportunity for us in 2025. But yes, it's one of the things that could drive us towards the upside of our guidance if we see some demand in Q4.
Speaker Change: We're modelling that as a notable opportunity for us in 2025. But yes, it's one of the things that could drive us towards the upside of our guidance if we see some demand in Q4.
Andy Butcher: Great, and if I could just ask about the gas modules as well, the UK plant, is that up and running now, and is that also you're thinking more of a 2025 impact? We'll see some benefit from that later in 2024, so the manufacturing facility is all constructed, and I saw the first module start to go through that facility just a couple of weeks ago. I'm so excited what introducing a very lightweight means of transporting gas in modules might mean to the market for the future. It's our intention to have the first module or modules built this year, and indeed the first sale right at the end of this year, so it gives us a slight uptick in 2024, and then yes, very excited about that for 2025 and beyond.
Speaker Change: Great. And if I could just ask about the gas modules as well, the UK plant, is that up and running now? And is that also, you're thinking more of a 2025 impact?
Speaker Change: We'll see some benefit from that later in 2024.
Speaker Change: So the manufacturing facility is all constructed.
Speaker Change: and I saw the first module start to go through that facility just a couple of weeks ago.
Speaker Change: So, excited what introducing a very lightweight means of transporting gas in modules might mean to the market for the future.
Speaker Change: It's our intention to have the first module or modules built this year, and indeed the first sale right at the end of this year, so it gives us a slight uptick in 2024.
Andy Butcher: You'll recall perhaps the facility has a total capacity for 40, 40 million dollars of modules. We won't see all of that in 2025, but it will be a notable and meaningful contributor to our higher sales in 2025.
Speaker Change: And then, yes, very excited about that for 2025 and beyond. You'll recall, perhaps, that the facility has a total capacity for $40 million.
Speaker Change: We won't see all of that in 2025, but it will be a notable and meaningful contributor to our higher sales in 2025.
Steve Farazani: Thank you so much. Congratulations on getting that up and running.
Steve Farazani: If I could just get one more in, update on the timing of the graphic arts sale. Sounded like in the commentary you said that business was getting a little bit better. Does that have any impact on pricing? Can you not really comment on that?
Speaker Change: Fantastic. Well, congratulations on getting that up and running. If I could just get one more update on the timing of the Graphic Arts sale. It sounded like in the commentary you said that business was getting a little bit better. Does that have any impact on pricing or can you not really comment on that?
Andy Butcher: Steve's running that process for us. Very pleased with how that's going. I'll let him comment on that. Yeah, as we said in the prepared remarks, Steve, it's probably slightly ahead of schedule in terms of what we said previously. We had said by the end of the year, it's making good progress, so we are working with an exclusive buyer, and we're getting towards the closing stages we believe of that project, so we're certainly targeting it for quarter three, but obviously these things can slip, but certainly quarter three is most likely, I think. In terms of price, you may have noted we have made some adjustments to the asset values, so we are expecting it to be slightly lower than our previous expectations.
Speaker Change: Steve's running that process for us, very pleased with how that's going and I'll let him comment on that.
Speaker Change: Yeah, I mean, as we said in the prepared remarks, Steve, it's probably slightly ahead of...
Steve: schedule in terms of what we said previously, we had said by the end of the year. It's making good progress so we are working with a prospective, an exclusive buyer and we are getting towards the closing stages we believe of that project. So we are certainly targeting it for quarter
Steve: But obviously these things can slip, but certainly Quarter 3 is most likely, I think.
Speaker Change: In terms of price, I mean, you may have noted we have made some adjustments to the asset values, so we are expecting it to be slightly lower than our previous expectations.
Steve Webster: It's important to recognise that this business did lose a best part of $5 million last year, and one and a half to $2 million in quarter one. It has just approached and break even, so there is some sign that it's turning around, but nonetheless it has struggled a little bit. So we have expected the price to fall a little bit there. We have run a very comprehensive process, though, of over 100 prospective suitors, so we believe we will get the best price we can for that business in the circumstances.
Speaker Change: It is important to recognize that this business has distributed most of $5,000,000 during the year, and $1,500,000-$2,000,000 during the quarter.
Speaker Change: It has just approached break-even, so there is some sign that it's turning around, but nonetheless it has struggled a little bit. So we have expected the price to fall a little bit there. We have run a very comprehensive process of over 100 prospective suitors, so we believe we will get the best price we can for that business in the circumstances.
Steve Farazani: Great, thanks, Andy. Thanks, Steve. Thank you, Steve. Thanks.
Speaker Change: Thanks for that. Thanks, Andy. Thanks, Steve.
Todd: Thank you. There are no more questions in the queue at this time.
Speaker Change: Thank you, Steve. Thanks.
Andy Butcher: I'll turn the call back to CEO Andy Butcher for closing remarks. Thank you, Todd. In closing, I'd like to reiterate the significant progress we've made amid a challenging market landscape. We have achieved sequential improvements in both sales and profitability, underscoring our resilience and strategic execution. Our strong balance sheet focused on operational efficiencies and strategic initiatives in clean energy positions us for sustainable growth in 2025 and beyond. We remain committed to delivering value and enhancing performance for our shareholders. Thank you for your continued support and confidence in Luxfer. We look forward to updating you on our progress next quarter.
Speaker Change: Thank you. There are no more questions in the queue at this time. I'll turn the call back to CEO Andy Butcher for closing remarks.
Andrew William John Butcher: In closing, I'd like to reiterate the significant progress we've made amid a challenging market landscape. We have achieved sequential improvements in both sales and profitability, underscoring our resilience and strategic execution. Our strong balance sheet, focus on operational efficiencies, and strategic initiatives in clean energy position us well for sustainable growth in 2025 and beyond. We remain committed to delivering value and enhancing performance for our shareholders.
Todd: Thank you, Todd.
Andrew William John Butcher: In closing, I'd like to reiterate the significant progress we've made amid a challenging market landscape. We have achieved sequential improvements in both sales and profitability, underscoring our resilience and strategic execution.
Todd: Our strong balance sheet, focus on operational efficiencies, and strategic initiatives in clean energy position us well for sustainable growth in 2025 and beyond.
Todd: We remain committed to delivering value and enhancing performance for our shareholders.
Speaker Change: Thank you for your continued support and confidence in Luxfer. We look forward to updating you on our progress next quarter.
Todd: This concludes Luxfer's Q2 2024 earnings call. A recording of this conference call will be available in about two hours. A link to our recording of this webcast will be available on the Luxfer website at www.luxfer.com.
Speaker Change: This concludes Luxfer's Q2 2024 earnings call. A recording of this conference call will be available in about two hours.
Speaker Change: A link to our recording of this webcast will be available on the Luxfer website at www.luxfer.com.