Luxfer Holdings PLC

Good morning, my name is Chelsea and I will be your conference operator today. Welcome to Luxfer's second quarter 2023 earnings conference call. All lines have been placed on mute. After the speaker's prepared remarks, we will hold a question and answer session. Now I will turn the call over to Mike Gaydon, Vice President of Investor Relations and Business Development from Luxfer. Mike, please go ahead.

Thank you, Chelsea. Welcome everyone to Luxfer's second quarter 2023 earnings call. With me today is Andy Butcher, Luxfer's chief executive officer, and Steve Webster, Luxfer's chief financial officer. On today's call, we will provide details of our second quarter performance as reported in the press release issued yesterday. 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. We undertake no obligation to update any forward-looking statements, whether 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. Now, I will turn the call over to Andy for his summary comments on the quarter and our outlook. after which Steve will provide details of our financial results and updated 2023 guidance. Andy will then offer some additional comments before Q&A. Andy, please go ahead.

Thank you, Mike, and welcome, everyone. Please turn to slide three. I'm pleased to share with you details of our second quarter performance that included sequential gains in both adjusted EPS and cash flow. Our team at Luxa, again, worked successfully to deliver for our customers in a dynamic environment and to take actions to improve our bottom line results. Combined, these efforts enabled us to deliver quarterly adjusted EPS of 27 cents ahead of the expectations outlined in our Q1 call. Total sales increased to $110 million, led by gas cylinders, which increased sales by 5% with success in alternative fuel and medical markets. Gas cylinders adjusted EBITDA measured the highest since Q4 2021, underscoring our ongoing efforts to both further recover inflation of the last few years and to manage our costs in that business segment. Luxor Magtech Solutions delivered the highest revenue since Q4 2017, anchoring strong results in our defense, first response, and healthcare markets. Similar to Q1, however, transportation and general industrial sectors weighed on our overall performance. The softness we discussed last quarter in these areas became more pronounced in Q2, impacting our short-term outlook. Against this demand backdrop, we've undertaken action to reduce costs, drive cash flow, and reinforce our strong capital position. Our $10 million in Q2 free cash flow and related $5 million reduction in net debt reflects our drive to operate our business efficiently in the current environment. And while our back half outlook is pressured, we remain optimistic about our opportunities for growth in sales and earnings over the long term. I would now like to turn to slide four to provide an update on current business conditions. Over the last 90 days, we've experienced an increase in the external headwinds facing Luxfer. The broadest base phenomenon impacting our outlook is the destocking that we are seeing as customers take a more cautious approach to inventory holding. In an environment of higher interest rates, some customers have shown increased price sensitivity, and tight labor conditions continue to inhibit the conversion of end-user demand into orders in otherwise more buoyant markets. Turning to the supply chain, there are now further competitive pressures in our graphic arts business. As we discussed previously, the ongoing outage of U.S. magnesium has driven us to source non-domestic raw magnesium at a higher cost. In addition, increasingly aggressive competition from Asian manufacturers in the European market has impacted performance for this product line. In response, we are working to reduce variable costs and to launch a new, differentiated product to help reinforce our positioning. In hydrogen, growth continues, although the rate of market development remains constrained by the push out of fuel availability government approvals and project delays. We remain optimistic about the attractiveness of this promising market. Two other macro factors also weighing somewhat on our results. The recent weakening of the US dollar against the pound will inhibit our reported profitability given our appreciable UK manufacturing footprint. In addition, higher interest rates are also pulling our profits lower year over year. We are taking meaningful action across the organization in response to these external challenges, which I will detail later in the call. Despite the pressure brought by these external factors, we remain focused on our business objectives for 2023 and beyond, having made investments in talents and capabilities to position us for sustained profitable growth. Steve will now discuss our updated outlook for 2023 after reviewing more details about our Q2 performance.