Luxfer Holdings PLC

Good morning. My name is Lisa and I will be your conference operator today. Welcome to Luxor's 2021 Second 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 Luxor. Heather, please go ahead.

Thank you, Lisa. Welcome to Luxor's Second Quarter 2021 Earnings Call. We're happy to have you all with us today. I'm Heather Harding, Luxor's Chief Financial Officer. With me today is Alok Mascara, Luxor's Chief Executive Officer. On today's call, we will provide details on our second quarter 2021 performance as outlined in the press release issued yesterday. Today's webcast is accompanied by a presentation that can be accessed at luxor.com. Please note any references to non-GAAP financials are reconciled in the appendix of this 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 two of today's presentation for further details. Now let me turn the call over to Alok.

Thanks, Heather, and welcome everyone. Please turn to slide three for highlights from our second quarter results. I want to highlight three key messages on this page. First, successful execution of our growth initiatives and strong recovery in our end markets combined with the benefit of the SCI acquisition resulted in 29% year-over-year growth in our second quarter revenues. Our adjusted diluted EPS was $0.36, an increase 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 and concerned about the impact of persistent material and talent shortages on our near-term results. I am grateful to the Luxfer 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 a net debt to EBITDA ratio of 0.6 times, enabling us to maintain and accelerate investments in organic growth and operational excellence projects. In addition, we will remain thoughtful and disciplined 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 turn to slide four 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 for this opportunity will be $300 million by 2025. We serve a small part of this total addressable market and 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. Luxfer's value proposition for this product line is driven by our decades of experience during which we had developed proprietary technology and relevant engineering capability. We offer a 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 filling and are planning to introduce a larger diameter hydrogen cylinder in 2022. I want to point out that we offer solutions for both CNG and hydrogen and have established positions in both. The hydrogen end market is currently small but is expected to grow faster and become larger than CNG beyond 2025. We are proud of our ability to meet our customers' need for CNG and hydrogen transport storage solution for public buses, commercial trucks, and bulk gas transportation. We believe that alternative fuel will drive long-term growth for Luxfer. While 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 five, I am excited to share recent innovations in our magnesium product line. Luxfer is the world's leading producer of magnesium alloys for a range of niche applications across multiple industries, including aerospace and industrial packaging. Today, I want to highlight three innovative magnesium growth opportunities being pursued by Luxfer. For graphic arts application, We are launching a new magnesium alloy photo engraving plate that will increase the life of magnesium dye and make it more competitive versus other materials 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 Grignard reactions that are used in a wide variety of manufacturing processes, including production of lithium ion batteries, hydrogen storage, lightweight composites, and 3D printing. As part of core innovation to develop new capabilities, our Manchester location has recently enhanced the billet and slab casting process that is expanding LuxFor 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 also enabling growth in other product lines. For an example of growth fueled by transformation plan success, please turn to slide six. Our graphic art business has been going through the Luxford transformation plan for the past three years and is now embarking on the growth and continuous improvement phase. The transformation journey at the Luxor Graphic Arts Business Unit started with simplification, which included de-layering the organization to increase accountability and consolidating two US sites into one to reduce customer lead times while generating savings. The larger consolidated site allowed us to attract and deploy Stronger management and manufacturing leadership while purposefully deploying the Luxor values to a leader-led training program. In addition to cost savings, these changes 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 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 seven. Just like many other manufacturing companies, Luxfor 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 talent availability. In the second quarter, two of our critical suppliers declared force majeure, which is forcing our teams to identify additional suppliers for these critical raw materials to serve our customers. Attracting manufacturing hourly employees remains a challenge, particularly in the U.S. We are proactively adjusting our wage structure and shift pattern while implementing one-time actions such as 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, Alok. I'll start the current quarter review on slide 8 with a summary of our performance by end market. 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 industrial. In the defense first response and healthcare end markets, sales increased by 14.2% for the second quarter versus the same quarter last year. We saw increased demand for our military products as well as an increase in SCBA sales. Sales in transportation grew 32.7% in the second quarter. The recent SCI acquisition positively impacted sales performance of this end market. In addition, we generated solid growth in our auto catalyst products, driven by industry recovery and 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, and we exceeded the industrial sales levels from the second quarter of 2019. Now, please turn to slide nine 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 SCI acquisition added $8 million in second quarter sales, or a little more than 10%. Growth in our general industrial products was a major contributor, along with increases in both the transportation and the defense and first response end markets. Consolidated adjusted EBITDA $17.3 million for the quarter, increased 63.2% versus the prior year. In addition to the strong impact of operating leverage on incremental volumes, we were 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 segment results on slide 10. Electron 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 $12 million 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 and posted growth in our SCBA 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 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 0.6 times. Second quarter operating working capital finished at $79.6 million, or 20.1% of sales, which is a significant improvement over the prior year's 28% level, even with the unfavorable impact of STI. Going forward, we aim to maintain a targeted operating working capital range of 20 to 23% of sales. After a strong cash flow start in the first quarter, we continued our cash focus, generating free cash flow with $7 million in the second quarter, bringing our year-to-date cash total to $20.8 million. On a trailing 12-month basis, free cash flow totaled more than $57 million, which really illustrates the success our transformation plan has achieved. Also on a trailing 12-month basis, we delivered 18.7% ROIC on adjusted earnings. We have a strong balance sheet, and are well positioned to generate consistent pre-cash flow. Let's review 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 the second quarter, we maintained our quarterly dividend of 3.4 million and also initiated our share repurchase plan spending $900,000 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 year guidance range to $1.15 to $1.30 compared to our previously communicated range of $1.10 to $1.30. While our order book remains healthy, we remain cautious given the ongoing material supply challenges, freight disruptions, and labor shortages experienced throughout the world. We'll 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, before the wrap up, I wanted to provide a brief update on ESG activities on slide 14. Luxor has made meaningful progress against the environmental commitments that we made in our November 2020 ESG report. We're pleased that our efforts so far have been acknowledged by external ESG rating firms like ISS. Throughout the year, we made continued improvements in all three categories. During the second quarter, we successfully commissioned new equipment at our St. Louis facility that separates waste oil from ground magnesium, allowing us to recycle both materials and reuse them in our manufacturing processes as well as generated cost savings. In addition, we are currently in the process of conducting carbon life cycle analyses on our key products, 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. For increased awareness and targeted recruiting practices, we expect to attract and maintain a stronger workforce. Given the heightened awareness around IT and cybersecurity risk, we maintain a strong IT infrastructure and governance process. As such, we published our IT and cybersecurity policy statement on our website earlier this month that describes the actions we take to safeguard our IT infrastructure, systems, and networks against cyber attacks. So to wrap up on slide 15, I'd like to highlight four key points. Luxor serves attractive niche markets with proprietary products and technology. Our transformation plan has delivered results by simplifying our business, by reducing our cost structure, and reshaping our portfolio towards higher growth. The final phase of this 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 by deploying the Luxor Business Excellence Standard Toolkit to drive additional improvement and accelerate our growth. So once again, Alok and I want to thank all our employees around the world for safely operating our facilities during the pandemic while always putting our customers first. So thank you for listening, and Alok 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 and the number one on your telephone keypad. Your first question comes from the line of Chris Moore with CJS Securities.

Thanks for taking a few questions. Maybe just good morning. Maybe just start with on the kind of old fuel landscape. So I know, you know, Luxfer, and Hexagonal owns IP on the bigger hydrogen tanks. I'm just trying to understand a little bit better the partnership you talked about a couple days ago with Octopus Hydrogen. Does that create any kind of unique capabilities for Lux or maybe just talk a little bit about the partnership and what you expect from that?

Sure. One of the key growth areas, Chris, in the alternate fuel area is is bulk gas transportation. As we think about hydrogen, there's a lot for demand for green trucks. And one critical step to get there is to make sure options to transport hydrogen from the production process to the point of usage. And that's what the partnership with Octopus would do. Working together with them, you would create these modules which would be able to go on what we call the hydrogen haulers and be much more efficient than the current transportation process by increasing the amount of hydrogen that can be carried in a trailer. I wouldn't want to get into details of some of the IP or the proprietary know-how. I do believe this is going to be a huge step forward in creating the right infrastructure that will deliver hydrogen to the point of use so that could be used in. As you know, there are no pipelines or anything else that carry hydrogen. Hydrogen haulers are very critical, and we are very excited about partnerships like the ones we announced with Octopus.

Got it. Very helpful. Appreciate that. Maybe you could just talk a little bit about the drivers of leverage in fiscal 22 and beyond. Gross margins were 26.2% Q2. Is it possible to get to a 30% gross margin someday?

Yeah. If you think about it, the gross margin in Q2, there's some impact of seasonality, which is positive, but there's also a significant impact of SCI, which we talked about was decremental on the margin terms. Chris, I don't want to commit to a 30% number, but that remains our long-term target to get to a 30% margin. And in quite a few of our product lines, in fact, we're already there. So it's a matter of as volume comes back, because in places like aerospace and others, we still don't have the volume back from the pre-COVID times. And all our new products typically have higher margins than our existing products. So putting it all together, I think that's a really good target for us.

Got it. Well, how about on the OPEX side? I mean, when you look at the kind of the growth in OPEX versus the growth in revenue, you know, kind of how do you see that relationship?

You know, our OPEX has been relatively flat to down over the past few years, as you can see, and we continue to reduce facilities, control GNAs, You know, going forward, I mean, we would look at OPEX growing at no more than half the rate of the revenue. Now, there's obviously going to be quarter over quarter variations here and there, Chris, but that's the kind of internal model that we work on, with OPEX growing no more than half the rate that the revenue grows.

Got it. That's helpful. Last one for me. You talked about two critical suppliers that declared force majeure. Any kind of specifics in terms of the raw materials or your inventory status at this point in time on that front?

Sure. I think the one main supplier that we are very concerned about is our supplier which supplies zircon sand to us. This is a Rio Tinto-owned mine in Richardsby, Africa, and that's kind of public news. They have declared force majeure and have suspended operation. While we have secondary suppliers, they have been our primary supplier for Zircon Sand that we use for auto catalyst, industrial catalyst, medical applications. So that's the one that concerns us the most. We always keep a few weeks of inventory, but at this stage, that's causing conservatism in our second half outlook. And we have had to pull out of any new bids to make sure we can serve our existing customers first. So that's the one that's more concerning to us right now, Chris. The other one I think is also concerning. It's a smaller supplier and I think it's a product where we feel like our secondary suppliers can ramp up and they can get back in action quickly too.

All right, I'll leave it there. I appreciate it, guys.

Thanks, Chris.

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

Good morning, and thanks for taking my questions.

Hi, Greg.

Hi. It seems like SCI is off to a particularly strong start, an $8 million contribution in the quarter, kind of points towards execution at the high end of your $20 to $25 million range that you gave us. Can you maybe talk us through the integration of these assets? Are you seeing sales synergies or other intangible benefits that are always difficult to quantify ahead of an acquisition? Are you seeing other things play out that might contribute to stronger execution of this business than originally thought?

That's a great question, and you're right. SEI is off to a good start. We originally talked about 20 to 25, and Q2 was a strong 8 million quarter. Now, from our perspective, we did talk about 20 to 25 sort of, you know, in this year range. It's a little better than expected. From an overall position, given the ongoing material and supply challenges, you know, 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 to SCI. So, you know, on-time delivery is getting better. to be able to work through customer relationship. So at this stage, it's still early days. We are three months into it. We are pleased with the first quarter. We have taken some immediate steps such as we have announced that currently they were occupying two buildings and we are going to, within the same existing space, reduce one of the buildings and consolidate footprint. We are putting more capital into the business. So things are going as expected or slightly better. and our focus in the short term is to serve our customers, work with our customers, and make sure that this becomes a win-win situation for everybody.

Excellent, excellent. My second question is about the mixed benefit, particularly at Electron. Can you help us understand which products are lifting the EBITDA margins there? which products are outperforming in this current environment? And do you see this improvement in mix as something that's likely to be sustained over the next couple quarters?

Heather, do you want to take that?

Morning, Craig. You know, it's always difficult to predict mix. However, what I would say in the current quarter, when you peel back the onion, we talked at great length about industrial products. and certainly in the electron segment, those performed well. And I think that's one 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 mixed benefit as well. I wouldn't wanna predict what will happen going forward. It's difficult with our range of products because 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 is your return on invested capital. Can you remind us sort of what 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 goals and what do you think key things are that we should monitor to see progress towards those goals?

Sure, Craig. I mean, if you think about it, we are 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 cleanup that we executed, you know, that's moved in the right direction. You know, we like to be over 20%. In the past, as you've seen, we were there, and this is the pre-COVID days. Our goal would be to kind of, you know, get back to that level. And... Any of the acquisitions that come in, I mean, that's a key metric that we use is looking at what's going to be our ROIC in year two or year three. So, good progress. We are pleased with that, but we are not done. We want to get up to 20%.

Great. Last question, if I may. Pre-cash flow, you know, I know this can be volatile based on timing. Were there any specific sort of, you know, last week, the quarter items that were an impact on free cash flow? Anything, you know, that you can potentially call out? And, you know, how should we look at the free cash flow potentially tracking with EBITDA over the next number of quarters?

Yeah, Craig, I'll take that one. So when I think about the second quarter, There's nothing I could point to in that last week. We tend to have a pretty thoughtful and disciplined approach to cash. And since the transformation plan with our focus on operating working capital, I think you see some of the benefit there. So I would say it was pretty disciplined throughout the quarter. There wasn't anything unusual at the end of the quarter. As I said, and as we outlined in the presentation, our goal is to deliver free cash flow that's 100% conversion, excluding restructuring. So we continue to look at that over 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, Craig. Thank you.

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

Hey, good morning, Alok and Heather.

Good morning, Sarkis. Good morning.

Hey, just had a few quick ones here. Alok, I 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, you know, if that shifts your way of thinking and then I have a few more.

Sure. I think if you go back to a working capital guidance, you know, we talk about 20 to 23% with a range of a working capital. At this stage, you know, I don't think we see ourselves going beyond the 23%, but clearly given the supply situation and things that I talked about and whether it's zircon or carbon fiber or anything else, yes, we are increasing safety stock to any of the constrained supply chain. Unfortunately for us, most of our supply chain is very local with suppliers in the same region. We have to have increased the safety stock only for a few months. I don't see ourselves breaching the 20-23% range that we have mentioned in the past, but we are making a huge conscious effort for any time we are constrained or material coming from overseas to increase the supply, but it should not impact our cash flow guidance for the future.

That's helpful. And was carbon fiber the other product that you are looking for alternative suppliers on?

Yeah, carbon fiber and kind of Associated Hardeners and Resin, the entire supply chain. So the carbon fiber we buy through multiple sources. And yes, we are concerned about every material, including carbon fiber. The force majeure situation was with one of the components that go in carbon fiber manufacturing of the tanks.

Gotcha. And would that be the resin?

That's right.

Okay, cool.

Yeah, no, that's good to know. 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 the labor, I think in your slide you're calling out maybe some accelerated investments in automation. 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 human worker versus automation, you know, maybe get a better mix in place to avoid any of these, you know, potential hiccups going forward. Just want to get your sense there.

Yes, absolutely. And I think, I mean, I actually believe that these labor shortages, especially on the hourly one, are more permanent and are not going to go away with Any changes in federal incentives? It might ease a little bit. So yes, we are very much aggressively moving towards automating our equipment, automating production lines, looking at newer ways of manufacturing, and frankly, looking at automating most of the work that we were doing using temporary labor. We still need very qualified workers, and we will continue pushing those. but those would be more towards machine operators, people who are actually programming or using program machines. At the lower end of the workforce, we have no choice but to automate and we are gonna move aggressively, including in our Cincinnati operation, our Riverside operation, operations. So we're gonna continue moving in that direction. So I do think it's a step change needed, not just for us, but all sort of US, European based manufacturing companies.

And just kind of on this thought point, right, 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 deploying the investments over time?

We feel comfortable with deploying the investments over time. Now, we started on this journey two years ago. COVID may have put a little bit of pause in that. In quite a few cases, we have our machines backed out and our vendors identified and we are moving forward. So our lead times are longer than we'd like, but no, I'm not concerned about supply. Those are different types of workers. Our largest shortage is in the hourly low-wage workers where you land up competing with warehouse operators and others. And on the higher-end scale, keep in mind, the majority of our workers have been with the company for many years and are very skilled. and I think that's same true for some of our automation suppliers. Got it.

No, that's good. I want to kind of come back to the mixed out electron. I think in the 10Q, the oil and gas magnesium alloy product got a shout out. So, you know, anything 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 in kind of given where You know, let's say oil prices have reset and maybe those customers are feeling a little bit better. Just want to get a sense for that. If anything's changed or, you know, we should kind of still expect that to baseline and kind of trough at, you know, kind of COVID levels.

Yeah, I'll take that one, Sarkis. 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, you know, for this year. and certainly Q2 was slightly stronger than Q1, but we're talking about sales in terms of low single million dollars. So we did continue to see sales of Solumag and we kind of maintain that we expect it to be flat to maybe slightly up from prior year, but we haven't built in a huge increase. Certainly we're actively watching what goes on in the oil and gas with regards to the price of oil. But we aren't planning for a huge rebound, nothing like we saw in some of our historical periods. So 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 used. Maybe it's not an $8 million per year product, but maybe it's not also what we saw. I think it was in 2017 or 2018. So what would you think is an appropriate aspirational level to get that product maybe in the next year or two on an annual basis?

Sure. I think let me take that one, Sarkis. So clearly some of the peaks that we hit in 2018 was caused with some stocking levels being higher than normal, and then we saw destocking going forward, right? So I think that has an impact. And then we saw the COVID lows, which was not good as well. I think going forward, we remain very optimistic about the product. We have added new customers, which is one of our key strategic initiatives in there. And the product's 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 on annual run rate instead of sticking around in the single-digit millions. And then let's talk more in Q3, Q4 when we have more numbers to share there.

So fantastic. That's all from me. Thank you.

Thanks, Akshay.

Your next question comes from the line of Michael Leshock with KeyBank Capital Markets.

Hey, Alok and Heather. Good morning.

Hi, good morning, Michael.

So first, I just wanted to ask on some of the recent market and supply chain challenges, how will those impact your year-to-date cost reduction progress going forward? Do you see any giveback there given inflationary pressures or otherwise?

Michael, let me take that. I mean, from our perspective, as you saw, Q2 was a strong quarter from net cost reductions and That kind of net of any additional cost impact that we may have faced because of rate 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. So it turns out in the long term not to be a big winner or loser. That continues. While we don't like it, in many cases we have had to do two to three price increases since the beginning of the year given really rapid material inflation. Net net from cost reductions you know I think some of the freight disruptions and air freighting and other expenses did impact us negatively this quarter and we hope that those and plan to make sure those become less so no major impact beyond the guidance that we have already looked at which is going to do a better job managing things like air freight cost and material we will continue offsetting through pricing

Got it. And then how much in cash restructuring costs do you have remaining for the year?

Yeah, in our guidance, Michael, I think, you know, what we talked about, it's unchanged from the prior quarter at $16 to $20 million. And year to date, it's been, you know, low single millions that we've paid out so far.

Okay. And lastly, for 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 you're seeing, and what do you see primarily driving your view there?

Michael, from a backlog perspective, we're in a very strong spot right now. 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 we have very strong backlog, but we are concerned given some of the material supply issues on the overall ability to fulfill those. So we need some time to work through the uncertainty and we hope to report better numbers in Q3, but there's lots of uncertainty.

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 its 2021 third quarter financial results. This ends the Luxor conference call. You may now disconnect.