Luxfer Holdings PLC

Good morning. My name is Lori, and I'll be your conference operator today. Welcome to Luxfer's 2021 first quarter earnings conference call. All lines have been placed on mute. After the speaker's remarks, there will be a question and answer session. Now, I will turn the call over to Heather from Luxfer. Heather, please go ahead.

Thank you, Lori. Welcome to Luxfer's first quarter 2021 earnings call. We're happy to have you with us today. I'm Heather Harding, Luxor's Chief Financial Officer, and with me today is Alok Mascara, Luxor's Chief Executive Officer. On today's call, we will provide details on our first quarter 2021 performance as outlined in the press release issued yesterday. Today's webcast is a simplified presentation that can be accessed at Luxor.com. Please note that any references to non-GAAP financials are reconciled in the appendix of the presentation. Also, All the numbers in our press release and presentation exclude the results of our aluminum forming businesses that have been classified as discontinued operations based on accounting guidelines. Now, 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 two of today's presentation for further details. Now, let me turn the call over to Alok.

Thanks Heather and welcome everyone. I want to start with my appreciation of our employees for their continued focus on serving customers while maintaining steadfast adherence to safety protocols as we navigate the COVID-19 pandemic. Thanks to the hard work of our leaders and employees, we delivered record margins and strong cash flow in the first quarter of 2021. Let me begin by highlighting three key developments during the quarter. First, we delivered solid Q1 earnings and EBITDA margin of more than 20% despite the pandemic's negative sales impact. Conversion of these strong earnings into cash resulted in a net debt to EBITDA ratio of 0.7, the lowest level in the past eight years. Second, We meaningfully upgraded our portfolio by acquiring structural composite industries to increase our presence in aerospace and alternative fuel applications such as CNG and hydrogen storage. With the addition of SEI, alternative fuel now makes up 20% of LuxForce total revenues. Third, we achieved our long-term transformation cost reduction goal ahead of schedule by delivering a total of $31 million in cash savings, including $25 million in P&L savings and $6 million in capital spend reductions. We also continued to simplify our portfolio by completing the divestiture of a Graham aluminum plant, which was part of the previously announced discontinued operations. I will provide more details on these themes before our CFO, Heather Harding, reviews our financial performance in greater depth. Now, please turn to slide three for a summary of our first quarter financial results. During the first quarter, total sales of $85.2 million decreased 3.6% year over year as the pandemic continued to negatively impact our industrial product sales. First quarter adjusted EBITDA of $17.7 million increased 12%, primarily driven by productivity improvements. Our adjusted diluted EPS was 39 cents for the quarter, an increase of 15% from the prior year. Our Q1 cash flow was driven by lean working capital improvements as we generated $13.8 million of free cash A reversal from the 2020 outflow of $7 million. This strong cash flow enabled us to reduce our net debt to $41 million compared to net debt of $92 million at the end of Q1 last year. This reduction was in addition to the $13.6 million of dividends we returned to shareholders during the past 12 months. As mentioned earlier, Our net debt to EBITDA ratio improved to 0.7 times at the end of the quarter. Our balance sheet remains strong, providing us with significant financial and strategic flexibility. Now, please turn to slide four for an overview of our recent acquisition, Structural Composites Industries, or SCI. On March 15th, Luxfor acquired Structural Composite Industries from Worthington for approximately $20 million in cash. We are excited to welcome the 150 SCI employees into the Luxfor family and remain committed to putting customers first while we generate significant value for Luxfor shareholders. SCI was founded in 1971 and has significant market presence in aerospace CNG, hydrogen transportation and storage, and other niche applications. SEI's proprietary technology is frequently specified in mission-critical applications given its strong reputation and long history of quality and performance. Examples of these critical applications include carbon fiber composite cylinders for transporting and storing hydrogen and compressed natural gas, Lightweight Cylinders for Inflation and Breathing Applications in Aircrafts and Compressed Gas Storage for Defense Vehicles and Spacecrafts. The SCI acquisition meets all our strategic criteria and will be accretive to earnings in 2022 and beyond. In 2021, we expect the acquisition to be dilutive to EPS by about 15 cents given the impact of short-term losses. We will be investing in SCI and our alternative fuel products such as Type IV 350 bar hydrogen cylinders to ensure long-term growth and profitability. In addition to financial benefits, the SCI acquisition also provides us with compelling strategic benefits as outlined on slide five. About half of SCI sales are from high-growth alternative fuel end market, which has been an ongoing growth driver for Luxfer, given increasing demand for CNG and hydrogen solutions. Adding SCI's technology, manufacturing capability, and customer base to Luxfer's existing presence strengthens our market position. Luxfer's increased scale and scope will enable us to capture higher share of this fast growing end market. SEI also has a strong presence in the aerospace end market where our consolidated presence will better position Luxfer for growth recovery. In addition to increasing our presence in aerospace and alternative fuel end markets, the SEI acquisition will also allow Luxfer to better serve niche applications and critical customers in SCBA and other end markets. One of the benefits of this acquisition is the proximity of SCI's manufacturing location to Luxfer's largest composite cylinder manufacturing location in Riverside, California. This proximity will enable Luxfer to share expertise and talent and optimize manufacturing capacity to better serve customers while generating $5 to $7 million in total synergies. Given the SCI acquisition and discontinuation of the majority of our aluminum forming operations, our gas cylinder portfolio is simpler and less dependent on lower margin cyclical passenger automotive products. Alternative fuel now makes up 40% of gas cylinder segment sales with significant growth potential due to increased demand for hydrogen and CNG solutions. For an overview of LuxForce Simplified Portfolio, please turn to slide six. LuxForce Simplified Portfolio consists of three core product lines, high performance magnesium alloys, speciality zirconium catalyst, and high pressure composite cylinders. This is a significant simplification compared to the past and is going to drive greater focus on generating growth by innovative new products and by improving customer service. As a reminder, portfolio simplification was driven by the divestment of over $100 million in revenue and multiple consolidation projects over the past three years as we sold non-core product lines and locations to improve our growth profile and profitability outlook. The three product lines manufactured in about 10 core locations are positioned in higher growth and markets and offer differentiated value propositions to our customers in niche applications. We will continue to report our financial results in two segments, electron and gas cylinders, as we create greater value for our shareholders through growth and productivity. Please turn to slide seven for an overview of future growth drivers. Growth at Luxor is enabled by five key factors that include growth talent, portfolio positioning, commercial excellence, new products, and bolt-on acquisitions. We continue to make progress on laying a solid growth foundation. Our recent accomplishments include increasing revenue from new products from 9% to 17% over the past three years while continuing to refresh innovation talent and the project pipeline. Other recent accomplishments include changing the portfolio's growth profile through divestment of underperforming slow growth businesses while bolting on businesses with better growth profile such as our previously mentioned acquisition of structural composite industries as well as ESM speciality metals. We have plenty of future improvement opportunities to accelerate growth in our portfolio. These include geographic expansion to penetrate fast growth regions, further increasing revenue from new products, and completing more bolt-on acquisitions. Now, let me turn the call over to Heather Harding for details on our transformation plan savings and first quarter financials.

Thanks, Alok, and good morning to everyone again. Before I review the first quarter financial results, I will start with a summary of our cost reduction efforts on slide eight. We are very pleased to announce the completion of the cost reduction component of our transformation plan. We executed our planned actions and realized more than $4 million of net cost savings in the first quarter, bringing our total P&L savings to $25 million. This focus over the past three years has positioned the company well for the future, with a lower fixed cost structure, fewer manufacturing locations, and a relentless focus on working capital. In addition, we reduced our annual capital requirements by $6 million from historic levels through facility rationalization, resulting in $31 million of total cash savings over the past three years. Going forward, we expect to continue our focus on lean manufacturing, including automation projects with the goal of delivering around 2% annual manufacturing cost productivity. Ongoing capital requirements are expected to be between $10 to $12 million annually. Now, let's review those first quarter financial results with a look at our sales performance by in-market on slide nine. As a reminder, our sales can be classified into three key end-user markets, defense, first response, and healthcare, transportation, which is a combination of alternative fuel, aerospace, and automotive, and general industrials. In the defense, first response, and healthcare end markets, sales increased by 2% for the first quarter versus the same quarter last year. We saw significant increased demand for our disaster relief products and a recovery in military sales. Sales in transportation grew 10.8% in the first quarter, driven by a strong demand for hydrogen and compressed natural gas products. We also experienced growth in our auto catalyst products, driven by industry recovery and wider adoption of gas particulate filtration. Sales of aerospace products also returned to growth in the quarter versus the same period last year. Sales in the general industrial end market declined 18.9% in the quarter. Relative to the prior year, the single largest impact was the timing of new product stocking orders in Q1 of 2020. Outside of these orders, current year overall industrial products continue to be impacted by COVID in certain applications, such as packaging and food service. In addition, Industrial product shipments in Q1 of 2021 were negatively impacted by transportation and supply disruption. Given the improved order rate during the first quarter, we remain optimistic about the continued industrial recovery over the coming quarters. Now, please turn to slide 10 for a summary of our first quarter P&L results. First quarter sales at $85.2 million declined 3.6% from the prior year. with favorable FX contribution of 3.4% in price trends, more than offset by volume declines. The SCI acquisition added 1.2 million to first quarter sales. Growth within the transportation end market driven by alternative fuel sales was offset by the COVID impact within the general industrial market. Consolidated adjusted EBITDA 17.7 million for the quarter improved 12% versus the prior year. Despite the volume decline, The company delivered more than $4 million of net cost savings in the quarter due to its previously communicated transformation plan. Overall, we made great progress in the quarter as we expanded sales and key-in markets and delivered strong profitability in cash. Now let's look at the product segment results on slide 11. Electron sales of $49 million decreased 4.3% from the prior year. The sales decline was primarily due to the COVID impact on industrial magnesium products. Despite the volume decline, EBITDA increased around 1% due to net cost savings realization in the quarter. Gas cylinder segment sales declined 2.7% to 36.2 million as COVID continued to negatively impact industrial products while alternative fuel posted strong double-digit growth. Despite the sales decline, EBITDA of $6 million was 43% higher than the prior year, as cost savings offset the lower sales volume. Now let's review our key balance sheet and cash flow metrics on slide 12. We ended the first quarter with a stronger balance sheet. Our net debt position improved to $41.2 million, leading to a net debt to EBITDA ratio of 0.7 times our lowest level since 2013. First quarter operating working capital finished at $71.9 million, or 21.4% of sales, which is a significant improvement over prior year's 24.5% level and was a key contributor to our $13.8 million free cash flow generation. Going forward, we've targeted an operating working capital range of 20% to 22% sales. On a trailing 12-month basis, we delivered 16.2% ROIC from adjusted earnings. Our balance sheet remains solid, so we are generating a significant amount of free cash flow, and we are well positioned for strong free cash flow conversion going forward. I'd like to review our capital allocation priorities on slide 13. Alok reviewed the compelling benefits from our recent SCI acquisition. This demonstrates our disciplined approach to capital allocation using our strategic acquisition filters in identifying potential candidates. With our strong cash and excellent financial position, we have ample liquidity to take further steps to drive profitable growth. This includes strategically evaluating our business portfolio and identifying organic and inorganic options to drive additional shareholder value. As a reminder, our first capital allocation priority is to create value through internal execution, which includes funding of new product innovation and talent development. For the remainder of the year, we expect to spend $16 to $20 million in restructuring cash, which includes the remaining transformation plan cash outlay plus funds for SCI integration. We expect to spend approximately $10 to $12 million for capital expenditures in 2021, which is an increase from our $8 million of 2020 spend that was negatively impacted by COVID. Next, we remain open to strategic acquisitions to supplement our organic growth. and finally, we will return cash to shareholders via dividends. As a reminder, we have paid out $96 million in dividends since 2013, including 3.4 million in the first quarter. And we are maintaining our current dividend program. We did not buy back shares in the first quarter, but intend to repurchase shares over the remainder of this year. Now I'd like to review our updated 2021 guidance on slide 14. Our 2021 guidance announced in February was $1.05 to $1.25 for the year. We now expect earnings per share to be $1.10 to $1.30. Most importantly, this revised guidance now includes the first year impact of our recent SCI acquisition, which we estimate to be approximately 15 cents dilutive. As Alok mentioned earlier, we will execute our synergy plans of $5 to $7 million and expect the acquisition to become accretive in 2022. We expect full-year 2021 revenues to grow between 10% to 15%. This range includes approximately 3% to 4% of a favorable currency benefit and acquisition revenues of $20 million to $25 million. We expect defense first response and healthcare products to grow in the mid-single digits, based in part on strong MRE and military sales. Transportation products are expected to grow by double digits, driven by alternative fuel, including hydrogen, new products, We will continue our execution 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 I'll turn the call back over to Alok for a wrap-up.

Thank you, Heather. Let me conclude by reviewing the global growth trends shaping our portfolio on slide 15. The three mega trends shaping Luxfer's future growth are light weighting, a safe and healthy lifestyle, and a clean environment, including clean emissions. Luxfer's historic growth has been driven by a demand for light weighting. We believe that this trend will continue for many more years. Our magnesium alloys play a critical role in reducing the weight of key high-temperature, high-performance aerospace and industrial components. We are also the world leaders in lightweight high-pressure composite cylinders for SCBA and other applications. The lighter nature of our products enables firefighters and first responders to be ergonomically safe while carrying sufficient oxygen for the difficult tasks. A desire for a safe and healthy lifestyle also shapes our growth profile as demand grows for healthier meals ready to eat using our flameless ration heater technology in defense and emergency response applications. Additionally, sales of our zirconium products used in pharmaceutical and water treatment applications and our portable medical oxygen cylinders also benefit from the global trend towards safe and healthy lifestyles. The megatrend towards a clean environment and lower emissions has fueled growth of our alternative fuel products and is also accelerating the growth of our autocatalyst product line. For example, our newly introduced gas particulate filtration product is being adopted in multiple platforms to meet increasingly stringent environmental regulations. As a result, we believe that our autocatalyst content per vehicle will continue increasing for the foreseeable future. Next, I wanted to update you on our ESG efforts on slide 16. We published our first ESG report in November 2020. Since then, we have been busy making further improvements across the company to meet or exceed our ESG commitments, including 22% reduction in carbon dioxide equivalent emissions, 10% reductions in freshwater usage and 20% reduction in waste to landfill. Recent investments to improve our environmental footprint includes initiative to reduce energy demand, increased use of recycling to reduce waste, and upgrades to our manufacturing processes to make them more carbon dioxide friendly. As we continue our ESG journey, We are finding new opportunities to reduce and recycle waste that is also generating cost savings. For example, our St. Louis facility installed a new capability to separate waste oil from ground magnesium, allowing us to both recycle materials and generate additional cost savings. We are proud of our significant progress on our ESG initiatives, which have resulted in improvements in our third party ESG ratings from agencies such as ISS. Now, please turn to slide 17 for a recap on how we are building the foundation for our company's long-term success. Four thoughts to remember. Luxforce serves attractive niche markets with proprietary products and technology. Our transformation plan has delivered results by simplifying our businesses, reducing our cost structure, and reshaping our portfolio towards higher growth. The final phase of the transformation plan that will take place over the next few years will focus on accelerating growth and delivering margin expansion. We have plenty of runway to create additional shareholder value by deploying the Luxor Business Excellence Standard Toolkit to drive operational improvement and accelerate our growth. Once again, I want to thank all our employees around the world for safely operating our facilities during the pandemic while always putting our customers first. Thank you for listening. We will now take questions.

Thank you. At this time, I would like to remind everyone, if you would like to ask a question, please press star, then the number one on your telephone keypad. If your question has been answered and you wish to remove yourself from the queue, press the pound key. Our first question comes from the line of Chris Moore of CJS Securities.

Hey, good morning, guys. Thanks for taking a few questions.

Good morning, Chris.

So, good morning. I look at you guys have made significant progress on multiple fronts. I was just hoping to focus maybe a little bit more on the growth strategy. Specifically, you know, is there kind of a reasonable expectation in terms of organic growth over the next

Chris, that's a great question because the next phase of our transformation plan is focused on accelerating growth. Historically, we have talked about our company being a GDP plus type growth profile. I think with the current momentum around clean emissions and alternative fuels, You know, we expect our transportation end-user segment to grow much faster than that. And a lot of this depends on the macro, but industrial and defense should also get positive tailwind. That wouldn't give out a number at this stage, Chris, but we do expect our growth profile to be better than we had previously expected, simply because of the momentum from the three end-user market and our new products and the SEI acquisition, which further... Thank you very much. for the past few years. Last year with COVID, a lot of those activities did not make much progress. So yes, we are increasing. I wouldn't use the word significantly. We use less than 1% of our revenue in R&D. Would we look to double that over the next few years? Yes, but it's not gonna be much more than that. I think it still would be 2% or less of our total spend over a long range planning period, Chris.

Got it. Last one for me, just a little bit more on SCI in terms of the mix of the business. It looks like it's roughly half alternative fuel and half on aerospace. I think you talked about 10% EBITDA margins a couple years out. Can you do better than that? I would think that CNG and hydrogen will be above that. Is the aerospace the piece that's that's lower, or how do you look at that?

Yeah, you know, we clearly aspire to be more than that, Chris. I think at this stage, if you look at our total synergies of $5 to $7 million, you know, this year losses, which are probably going to be around $4 million, you know, we easily would get to above 10% over the next couple of years. That assumes no recovery in growth and aerospace and other niche applications. Currently, I think the revenue breakdown is roughly about half alternative fuel, a quarter of aerospace, and a quarter of various niche applications. So I think as we put aerospace recovery in perspective and continued growth in alternate fuel, we think it will come up to our overall composite cylinder margin profile, which, as you know, is higher than 10%.

Exactly. Okay. I appreciate it. I'll jump back in line. Thanks, guys.

Thanks, Chris.

Our next question comes from the line of Craig Irwin of Roth Capital Partners.

Good morning and congratulations on the strong result.

Hi, Craig.

Hi, Alok and Heather. Your EBITDA margins at Electron were particularly strong this quarter. To go back to a number that was higher, we have to go back something like three years to find stronger performance. Can you talk about... What's driving this specifically in the quarter? Was there anything maybe one time in nature, or is this the result of the repositioning and restructuring you've done over the last couple years and more sort of business mix and momentum with the products you're selling now?

Heather, do you want to start on that?

Yeah, good morning, Craig. It's good to speak with you. I would say as I think through the margins and some of the items that you highlighted, primarily it is really a result of some of the repositioning and a lot of the work we've done on cost reduction. There weren't any real significant one-timers in the results. And we certainly, as we talked about, we saw nice growth in aerospace. You know, as we said, that returned to growth. Some of that would have been in that segment, of course. and then some of our other businesses within the Electron segment continue to really realize the benefits of that cost reduction momentum and all the efforts we've been doing over the past three years.

Excellent, excellent. And just to continue on the theme of the cost reductions, $4 million in a cheap savings this quarter, that's an impressive result. I think the last time you had savings like that was at the front end of the program. when I guess you were picking the low-hanging fruit. Can you maybe give us a little bit of detail about where that came from? And is it possible that we see additional savings later on this year where you could exceed the total forecast savings from the overall program?

Well, certainly with the $4 million this year, as we highlighted in the presentation, we've already exceeded the $24 million, right? So we're currently kind of life-to-date sitting at $25 million. So from that perspective, we're very pleased. As we continue to look forward in time, will there continue to be some cost savings? Yes. I certainly don't expect that this particular level will continue every quarter. There will be, as Alok mentioned, investments that are required. And certainly, we're very pleased with the performance we had this quarter. In terms of where it came from, when you look, we do highlight the two segments in the back of the presentation, but it was pretty equal, right? You know, in terms of the split between gas cylinders and electron, they were, gas cylinders was slightly more, but they were each around two, you know, $2 million. So that's also, I think, you know, important to note that our cost reduction plans, which really, you know, encompass a full, you know, full acceptance by the entire enterprise. And I think you see that when you look at the cost reduction mix between the two segments, which was, as I said, fairly equal. So that would be my response, Craig.

Understood. Thank you. So then, Alok, one of the key things over the next couple of years is where you're able to get to on your margin expansion. I understand the reticence to respond to a growth rate question. You know, you don't control the markets and things are improving, but, you know, I guess visibility is better, but not as good as everyone wants. But, you know, margins, you've really demonstrated excellence as far as being able to operate and improve and manage the mix, et cetera. How would you look at a potential, you know, margin target over the next decade? I mean, can you see several hundred basis points in margin expansion as you sort of move the mix into higher growth, higher margin products? And does Luxor have potential to be a 30% plus gross margin company?

You know, Craig, that's a very futuristic question, and I appreciate that. You know, I think three years earlier we were talking about would Luxor ever get to a team's margin and then we talked about getting to 20s margin and listen we are today at 20s margin and our first aim is to hold that you know as we look at it one quarter doesn't make a trend so you know we are going to work really hard to make sure we hold and exceed this level and given the shift in portfolio given the strong cost reduction effort fewer factories and frankly a huge focus on sort of lean working capital and using the 80-20 principle to shape our portfolio and SKUs. I think we are confident we'll be able to hold the current number. Aspirationally, do we aspire for higher? Absolutely, yes. But would we commit to a number that's much higher? Not yet. Our focus is to complete the SCI integration, which itself, as you know, we talked about, delivers $5 to $7 million in overall synergies. you know we want to make sure we capture growth in hydrogen and make the appropriate investments for that which is a good margin and a great growth business for us and the only reason we called an end to the transformation plan cost savings is we committed to achieving a certain numbers going forward I expect continuous margin expansion with two percent manufacturing cost productivity you know every year and Let's see where it takes us in the long term. But as you can imagine, obviously still reluctant to commit to a much higher number yet.

Understood, understood. And then, you know, maybe you can correct me, but I believe that one of the gaps in your portfolio, at least on the tank side, is the opportunity for hydrogen hauler products, you know, some of the high-pressure hydrogen tank trucks, right? Can you comment about sort of what it might take for you to add those to the portfolio? And given that there are now five green hydrogen plants in development by plug with the first one supposed to commission fairly soon, it looks like there's going to be third parties purchasing the green hydrogen from these plants. An obvious need for some of these hydrogen haulers just to sort of avoid the incremental cost of liquefaction. What do you think about that as a product opportunity? Do you already serve it? And do you see long-term growth there?

It's a very exciting opportunity for us. We do see long-term growth there, Craig. I mean, you're right. I mean, green hydrogen is the wave of the future. We totally believe in that and work with our customers, whether that be customers named by you and others. You know, there is a small gap in our portfolio, and I referenced earlier in my transcript, we are working on a type four 350 bar product that would essentially fill that gap. And then it's just a matter of coming up with the custom sizes required for that market. So we already have the core technology. It's a matter of getting the right DOT certifications and approvals to enter that market. So we remain committed to it, and we are on our way to get there.

Excellent. And last question, if I may, before I hop back in the queue. So your automotive catalysis opportunity is exciting for the growth that you're seeing, incremental content per vehicle. What is the potential increase there? If you could maybe frame out for us, you know, are we seeing a 50% increase in content per vehicle, potentially, you know, a doubling? How does this fit together as sort of the available opportunity per vehicle over the next couple years?

Sure. So, in dollar terms, if you think about, well, I guess I answered in the percentage term. So, yes, we look at it as a 40 to 50% increase in our content per vehicle. For AutoCAD business, from where it is, remember last year was a slow year because of COVID and hardly any production going on in Q2, Q3 timeframe. We do look at that business growing to 30 to 50% in the near future. And that content increase is very good. What we are also excited about is higher standards for emissions in US because today almost all the market for that product is outside U.S. given some of the U.S. emission requirements are still lagging. But with the California regulations having a higher chance of becoming more in the federal level, we are excited about just higher emission standards in U.S. and then expanding the market to beyond just the Europe and other markets today.

Great. Well, thanks for taking my questions and congratulations again on the impressive results. Thanks, Craig.

Your next question comes from the line of Sarkis Sherbetchian of B. Reilly Securities.

Hi, good morning, Loke and Heather. Thanks for taking my question here.

Morning, Sarkis.

Hey, just wanted to touch firstly on the SDI acquisition. I think you mentioned about a $4 million loss for this first year here. And with your synergies, probably getting to, let's call it a million to 3 million of accretion next year on 20 to 25 million in sales. Is it right to think about the margin profile of that business eventually looking like the margins we're seeing in your gas cylinders business today? Or do you think with the combined SCI portfolio and your portfolio, you can eventually get to better fixed cost absorption and therefore better margins than what we're seeing in gas cylinders today?

Yeah, good morning, Sarkis. I'll start on that one. You know, certainly we're very excited about the addition of this acquisition. And as we talked about, you know, we'll be on this journey here to deliver the five to seven million of synergies and expect that to, you know, to turn accretive to us in 2022. As we look ahead, you know, part of the reason that, you know, we thought through the compelling benefits and used our strategic filters when we looked at this, you know, I think you're thinking about it correctly. There are potential opportunities, right? As we think about, you know, additional growth, additional, you know, opportunities of leveraging fixed costs. And so we're going to work through that. But our main focus right now over these next 18, 24 months is to work on this initial, you know, synergy plan and deliver those five to seven.

Great. Thanks for that, Heather. And as I kind of think about The divestiture of the aluminum product lines, and I think divesting Superform is still pending. Would it be correct to think that the entire portfolio in gas cylinders is now wholly composite, or there are certain aluminum lines that are lingering?

I'll take that one, Sarkis. You know, there are a small amount of aluminum products that are made in factories that are shared factories. Those are typically high-quality aluminum alloys like L7X. used in applications such as medical oxygen. But the vast majority of our sales are now in the composites, which include both type 2, type 3, and now the new type 4 cylinders. There is a small amount of type 1 pure aluminum, mostly focused on medical oxygen.

Mm-hmm. And as far as kind of the growth rates of that small piece of business that's left, is that comparable to kind of what you're seeing in composite and therefore you're holding on to it? Or is there a different kind of game plan after you've digested SCI?

We obviously want to make sure we focus on digesting the SCI business. We like the medical oxygen business. It's a specialty alloy where we have differentiated value proposition compared to our competition in that space. and because these are shared locations, while the growth profile is probably not as good as alternative fuels in other areas, it's still a very good business, good ROIC and not worth for us to kind of look at separating just that piece out. So for now, I think our transition is complete.

No, thanks for that. And just want to touch on the timeline for divesting super forms. Any thoughts on kind of a timeline here and maybe how much cash this could potentially bring to the balance sheet.

Sure, Heather.

Yes, sir. Go ahead, Heather.

Yes, Sarkis, sorry, I'll take that one. You know, we're still committed to divesting the remaining operations by, you know, during this year, so by the end of 2021, and our current expectation is somewhere between $5 and $10 million.

Okay, no, that sounds good. And then just kind of coming back onto the Electron division, You know, that's been historically pretty high margin business, really kind of niche applications going on there. Right. And as you've remixed the entire portfolio, both on the gas owners front and as we kind of see in the electron side, at what point do you think that, you know, the two portfolios look very different from one another? And, you know, are there any strategic actions that may come about or do you think it's find and will to run the two different businesses with the different growth trajectories and margins and capital requirements kind of together under one roof.

You know, our focus is to create the value for our shareholders and maximize that value. And so from that perspective, you know, we remain open to broader strategic moves. So we are very pleased with how far the improvements on both segments have come over the past few years. both from a growth profile and margin profile. But from our perspective, we'll remain open to other broader strategic opportunities that could further enhance shareholder value. They're both great businesses, as you mentioned. They both work in advanced material. They both have good ROIC. One still has slightly better ROS than the others, but the growth profiles of hydrogen and CNG is also very exciting. I would never say never, but we had to do this part to make sure that we captured all the internal opportunities, which there's still significant runway for us to continue doing. But if there are broader external opportunities, we'll remain open to that as long as it creates more shareholder value.

Fantastic. That's all for me. I'll hop back in the queue.

Once again, if you would like to ask a question, please press star, then the number one on your telephone keypad. Your next question comes from the line of Phil Gibbs of KeyBank Capital Markets.

Hey, Alok and Heather. Good morning.

Hey, good morning, Phil. Yeah, morning, Phil.

Good. Okay. You're 110 to 130 in terms of earnings. Can you give an implied EBITDA within that framework and then also implied DNA for the year? I know there's lots of moving pieces, so just trying to square in on what you're trying to – communicate for that?

Yeah, so when I, I'll take that one, Phil. So when I think about, first of all, DNA is around $13.5 million, and you're right, there are some moving pieces with regards to that, but it's around $13.5 million is what we're anticipating. In terms of EBITDA, the 110 to 130 would imply EBITDA somewhere between Call it, let's say, 56 to 63, somewhere in that range is kind of how we're thinking about it.

Okay, that's helpful. And then your cash restructuring costs that you outlined in your deck of about $18 million at the midpoint, how much of that $18 million is from the SCI integration?

Right. So if you think about the transformation plan, we had, call it 11-ish, could be 11 or 12 left from the, you know, the former transformation plan. So the rest then would be that SCI integration. So at the midpoint, we're talking around, call that seven-ish, something like that.

Seven from SCI, you're saying?

Yes.

Okay. And the cadence of of the losses, the 15 cents. I talked to Alok last night. I think he said about a penny in the first quarter. But how does that split for the rest of the year?

So if I think about how that splits for the rest of the year, I would tell you it's pretty evenly split. are all split between Q2, 3, and 4 at this point. Slightly heavier in 2 and 3, but I don't know that it's meaningful. So I would say, you know, from a modeling perspective, you could almost divide by 3 just about.

Okay. And I appreciate that. And the last question, you said aerospace comped up in terms of top line year over year. Does this include defense? in that aerospace commentary. Is that just purely commercial? Anything there would be appreciated. Thank you.

You know, I think we do separate aerospace and defense, especially if it comes to the overall portfolio. So I think from aerospace, we are starting to see signs of recovery, and that's driven by, you know, our focus is more on helicopters, as you know. A fixed wing focus is much lower, and I think that's been showing signs of recovery, and we encourage Military, you know, post-election and as the government looks to replenish many of their stocks and both for flares and MREs, I think that's going to get back to more normal level quicker. I think defense, we expect the rebound to be faster than in aerospace, but both showing good signs of recovery.

Thanks, everyone. Appreciate it.

An encore recording of this conference call will be available in about two hours. Telephone numbers to access the recording will be available on the Luxfor website at www.luxfor.com. Thank you for joining us today. The next regularly scheduled call will be in July of 2021 when the company discusses its 2021 second quarter financial results. This ends the Luxfor conference call.