Good morning, my name is Katie and I'll be your conference operator today. Welcome to the Luxfer's Third Quarter 2022 Earnings Conference Call. All lines have been placed on mute. After the speakers' prepared remarks, we will hold a question-and-answer session. Now, I will turn the call over to Mike Gaiden, Vice-President of Investor Relations and Business Development for Luxfer. Mike, please go ahead.

Thank you, Katie. Welcome everyone to Luxfer’s third quarter 2022 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 third quarter and year-to-date 2022 performance as detailed 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, after which Steve will provide details of our financial results. 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 third quarter performance, which includes year-over-year growth in both revenues and profits. I want to start though by expressing my appreciation to the entire Luxfer team who once again took on a challenging supply chain environment to serve our customers. Our team's ongoing focus and dedication have helped to sustain the momentum of our first-half results. On this slide, I want to highlight three key messages. Firstly, regarding our Q3 financial performance, we delivered nearly 10% year-over-year sales growth, continuing the gains realized in both quarters one and two. This quarter three revenue growth was primarily driven by our ongoing success in passing through cost inflation, which more than offset foreign-exchange headwinds. Our Q3 adjusted diluted earnings per share of $0.35 continued our progress towards the achievement of our existing full-year guidance. Elektron again led our performance, driven by successful execution in a wide variety of end markets. Gas Cylinders continues to work through inflation-related challenges, passing through current cost increases wherever allowed by contract. Our capital position remains a source of strength with a net debt to EBITDA ratio of 1.2 times. Secondly, we continue to see solid overall demand in Q3. We realized 30% revenue growth in the general industrial end markets, and 7% growth in defense, first response, and healthcare. Supply chain challenges persist with continued pressure on both material availability in some areas and higher costs. Although we are seeing indications of a slowing demand in certain European end markets, we still benefit from a healthy overall backlog at the end of Q3, well ahead of the prior year. Thirdly, based on a combination of our sound year-to-date results and our assessment of the macroeconomic outlook and supply chain, we now expect to deliver 2022 adjusted diluted EPS of $1.35 to $1.40 compared to our prior range of $1.35 to $1.50. And we remain committed to achieving our longer-term EPS goal of $2 or more. We are also focused on cash flow conversion by mitigating the impact of higher material prices on our working capital levels. Turning to slide four. I would like to provide more details on the current business conditions. During the third quarter, we again realized a solid pace of overall order flow. We've seen early evidence of some modest slowing in certain European sectors, such as industrial gas cylinders and some magnesium roll products. We are encouraged though by medium-term demand for alternative fuel cylinders and for flameless ration heaters among other products. We ended the quarter with a healthy order book upon which to execute through year-end and into 2023. At the same time, supply chain challenges persist in certain key areas. I wanted to first update you on the force majeure status of US magnesium. Towards the end of the quarter, the supply from US magnesium powders business was halted to undergo some essential maintenance. There is a low impact on our business in Q3 and Q4 due to the strategic stocks we have in place. And with the support of our customers, we have secured some limited supply from an alternative supplier to cover medium-term demand. We are underway with initial work to qualify this material. We're also seeing sustained tight supply conditions for our mid aerospace fiber and zircon sand, although our work in identifying alternatives is gaining momentum. The availability of manufacturing labor has improved somewhat, although it still limits our ability in certain areas to capitalize on strong demand conditions. Freight bottlenecks have reduced, which is helpful. We continue to work through the latest market developments, including volatility around energy and raw material costs, most notably the higher electricity prices in Europe and the continued increases in the cost of carbon fiber. New activities on further cost pass-through are underway in response to these. While the strong dollar has served as a headwind to our revenue results, it has had a positive impact on our bottom line results year-to-date. We are also pleased to acknowledge the incremental long-term positives created by the passage of the Inflation Reduction Act in August, which will help the development of the domestic hydrogen markets. Given this backdrop, we continue to emphasize a tactical focus on successful execution with close coordination with both customers and suppliers. We also remain ready to respond to any softening macro conditions. As part of this, we've built a recession case scenario into our medium-term planning which recognizes the risk of further weakening in the outlook for the global economy. This brings the possibility of lower demand in 2023 and the need for us to manage discretionary spend, although this would likely be accompanied by an easing of the supply chain constraints, which have provided a headwind to us throughout the year. You will also remember that our balanced portfolio holds many diversification benefits, including supply to resilient industries like defense, first response, and healthcare. Our top line also benefits from the recurring replacement cycles associated with several of our products. From a cost standpoint, we benefit from our simplified manufacturing footprints and the ability to adjust capacity and pivot our cost profile. Our low leverage and high liquidity position also bring flexibility. For all these reasons, I remain confident in our business performance, even if macroeconomic conditions slow. Now, let me turn the call over to Steve for details on our third quarter financial performance.

Thanks, Andy. I'll begin on slide five with a summary of our performance by end market. In the defense, first response, and healthcare end markets, quarter three sales rose by 6.8%, as growth in defense aerospace alloys and medical cylinders more than offset lower demand for flameless ration heaters, which was expected given the low levels of US troop deployments in the field. Quarterly sales in transportation decreased 6.1%, with a contraction in alternative fuel sales more than offsetting expansion in the autocatalysis and commercial aerospace buckets, which continue to rebound towards pre-COVID levels of activities. We expect alternative fuels to build upon the sequential improvement seen in quarter three and signs of deepening commercial commitments to hydrogen transportation and storage applications, backed by government funding initiatives. Our general industrial sales grew 30% year-over-year in Q3, leading our overall revenue expansion for the quarter. Elektron sales increased in nearly all industrial categories, continuing the broad-based strength in quarter two. Commercial magnesium powders, zirconium applications, and various industrial products fueled this industrial strength. Overall, we are encouraged by Q3 sales results, helped by our differentiated product offerings. Now please turn to slide six for a summary of our third quarter financial results. Third quarter sales of $100.2 million increased $9.0 million or 9.9% from the prior year. Our quarterly revenue benefited from $13.3 million of price actions taken to address input cost increases, as well as from volume and mix contributions of $0.6 million. We experienced foreign-exchange headwinds of $4.9 million, meaning sales revenues increased by 15% excluding foreign-exchange. Consolidated adjusted EBITDA of $16.1 million for the quarter increased $2.3 million or 16.7% from the prior year, helped by our success in passing along inflationary costs and growing volume in a challenging environment. FX contributed a positive $0.8 million to EBITDA and our active cost reduction and efficiency efforts added another $0.7 million. We are pleased with our Q3 year-to-date performance amid the challenges posed by the current operating environments. Now let's review our segment results on slide seven. Elektron revenues of $56.8 million increased 24.6% from the prior year. Driven by our timely efforts to pass-through inflation as well as sustained strong demand in our transportation and industrial end markets. Our Elektron EBITDA of $12.7 million increased by 51.2%, helped by strong execution, foreign-exchange uplift, and ongoing cost-saving initiatives. Gas Cylinders segment sales of $43.4 million decreased $3.2 million or 4.8% from the year-ago quarter, driven by a $2.6 million adverse foreign-exchange impact. EBITDA of $3.4 million decreased $2.0 million in the prior year, as timing constraints on our ability to push through cost inflation on certain contracts detracted from profitability. As a reminder, we've taken actions, and we're committed to recouping materials inflation which will start to bear fruit from quarter one of next year. Now let's turn to our key balance sheet and cash-flow metrics on slide eight. Luxfer’s capital position remains one of our key business strengths. Our balance sheet continues to enable us to support our customers amid the strained supply chain seen in recent quarters. We generated $1.3 million of free cash flow in Q3, up from a $0.6 million delivered in Q2. Though our working capital of 29% of annualized sales exceeds our targeted range, we are finding that our ongoing investments in inventory are serving as a key differentiator in our customer-first strategy. Accelerating sales volumes realized in the quarter further contributed to our elevated working capital position at the period end. We remain committed to our long-standing 21% to 23% working capital target and project to be near 20% to 25% at year-end. We will progress back toward the target level when supply chains normalize. Our net debt of $75.6 million and related net debt to EBITDA ratio of 1.2 times afford flexibility that serves us well in the current climate. Our trailing 12-month ROIC of 14.7% demonstrates the attractiveness of the Luxfer platform. Let's now review our updated 2022 financial guidance on slide nine. Given the current macroeconomic outlook and supply chain challenges, we now expect to deliver full-year adjusted EPS of $1.35 to $1.40. We also currently project 2022 revenue growth of 9% to 12%, constrained by the negative impact of foreign exchange translation, certain raw materials availability, and the aforementioned signs of softening demand in Europe. On foreign exchange, a weak pound is generally favorable to the profitability of our UK business, with a sizable portion of sales invoiced in currencies other than Sterling, complementing a lower operating cost base when translated into dollars. However, given that many of the key inputs to the UK are sourced from the United States, the actual impact can be somewhat variable. We expect 2022 capital expenditure of $8 million to $10 million and while we are scrutinizing investment plans amid signs of a softening macro-economy, we remain confident in our ability to back our many rewarding long-term growth opportunities. As we've said previously, we expect no pension contributions in 2022 compared to our $18 million contribution in 2021. We expect exceptional restructuring cash outlays of around $10 million for the year. Given the challenges posed by the external environment, we're very pleased to remain on track to deliver full-year EPS results within our existing 2022 guidance range and we remain committed to our $2 or more long-term EPS goal. Finally, I'd like to review our capital allocation priorities on slide 10. We continue to employ a balanced approach to redeployment of free cash flow. Overall, Luxfer operates from a position of capital strength, which is an advantage against the backdrop of an evolving business climate. We're prioritizing the investments in our business as the highest return and lowest risk use of our growth capital and we're proceeding judiciously in the current environment. We do expect these investments in innovation and productivity to drive our organic revenue and profit growth over time. During quarter three, we again accelerated our share repurchase activity. Year-to-date through the third quarter, we’ve repurchased $6.9 million of shares, which already outstripped the $6.4 million total for all of calendar 2021. We also continued to scrutinize and add to our bolt-on M&A pipeline for opportunities that meet our selective growth and return objectives. Recent macroeconomic developments reinforce the importance of our discerning framework for acquisitions. This balanced approach of investing our free cash flow has served us well historically and will generate positive outcomes in the current environment. And now, I'd like to turn the call back over to Andy.

Thank you, Steve. Before concluding our prepared comments, I would like to reflect briefly on two milestones reached this year, as well as our growth strategy development. Please turn to slide 11. 2022 brings the 125th anniversary since our founding in Chicago, as well as the 10th anniversary of our public listing on the New York Stock Exchange. We have accomplished much since we began manufacturing innovative glass prisms back in 1997, and I'm proud to have been with Luxfer for 30 years of this journey. If I think about our mission to help create a safe, clean, energy-efficient world, I want to highlight some of our successes. Delivering technological advances has reduced the weight of breathing apparatus cylinders by using carbon fiber, helping to increase safety for first responders; introducing proprietary magnesium alloys that have enhanced the capabilities of commercial and military aircraft; deploying fully integrated systems for the hydrogen markets across varying transportation modes which are contributing to a cleaner environment; developing zirconium and magnesium-based solutions aimed at lifting performance and reducing costs of both rechargeable batteries and fuel cells; and supplying safe flameless ration heaters to those impacted by natural disasters, including recent shipments to those affected by flooding in Kentucky and by hurricane Ian in Florida. And finally, simplifying our facilities and our footprint to manufacture our products in a more integrated, more flexible, more automated, and ultimately more sustainable way. These successes and many others provide a great platform, and we have resourced the whole Luxfer team to continue to build on this platform to deliver long-term profitable growth. Now, I would like to discuss one of the key tools that will enable our future success, the Luxfer Business System. Please turn to slide 12. On our last call, we talked about the successful work of the last five years to simplify our manufacturing footprint, our product range, and our cost base. We discussed the opportunities that this now creates over the next five years for a focus on profitable growth and how this drive needs to be supported by the development of an enhanced internal operating model. Over the last four months, we've created a definitive outline of what we're calling the Luxfer Business System. Customer commitments and growth form the very center of our framework. And to deliver this, we will execute best practices in six critical areas, carefully selected after reviewing operating models in other leading manufacturing companies, as well as evaluating the many pockets of excellence already existing within Luxfer. Detailed development of all areas of the business system are underway, personally led by some of the key members of our leadership team. I was excited over the last few weeks to participate in Global Luxfer conferences on both sustainability and lean operations. I look forward to the execution of these programs which will be introduced in stages over the next 18 months. In many ways my confidence in the medium to long-term opportunities for our business has improved over the last three months. Government incentives are helping to propel US investments in clean energy. The aerospace market is recovering and is requiring lightweight materials. Demand for products related to safety, health, and technology are accelerating. So we will continue to focus on near-term execution while also taking actions to invest with confidence for our long-term growth. The Luxfer Business System is a key part of this. Now, I would like to conclude by highlighting briefly our strong position for value creation. Please turn to slide 13. As you know, Luxfer’s mission is to help create a safe, clean, and energy-efficient world with leading products that generate attractive financial returns. We are working to harness the tailwinds of secular growth embedded in our portfolio. We are bringing to market innovative products that target compelling commercial opportunities to further unlock value for our shareholders. There is a bright future ahead of us. We've been pleased to share our quarter three results with you today and we are focused on sustaining our momentum into year-end and beyond. Now, I would like to turn the call over to the operator to begin the Q&A session. Katie, please go ahead.

Thank you. Our first question will come from Chris Moore with CJS Securities. Your line is now open.

Good morning, guys. Thanks for taking a couple of questions. So, good morning, you talked about kind of early signs of softness in Europe affecting Gas Cylinders and graphic arts. I was hoping maybe you could go just a little bit further there?

Yes. Thank you, Chris. Good to talk to you this morning. Yes, those would be the two areas in Europe that have impacted our outlook a little bit. So in the Gas Cylinders business, with the specialty gas industrial market that can go into some electronic applications and some environmental applications, as well as some calibration gas applications, we've seen a reduction in the order intake over the last four or six weeks there. And then on our roll product side for graphic arts, we've also seen lower bookings there for quarter four. Now that's balanced to a certain extent by some stronger orders now coming in on our magnesium products, SCBA cylinders, and on alternative fuel, but yes, we're seeing some early signs of slowing in Europe.

Got it. Helpful. So it looks like pricing is still in catch-up mode in Gas Cylinders, as you talked about constrained by contractual pass-throughs. If I heard correctly, you will start seeing improvement there in Q1, is that right?

Yeah. So we're passing through our material cost increases to customers wherever allowed by contracts and agreements. Overall, 99% year-to-date of our cost increases have been recovered. So we're encouraged by that. In Gas Cylinders, I guess, there are two different elements to this; the European business where we tend to have more spot business. We've just come through our latest round of increases on both aluminum cylinder and alternative fuel cylinders. Then at the composite business, we do have some spot business where prices have already moved, as well as some customer agreements that we're navigating and a decent-sized segment of business where we realized carbon pass-throughs in January of 2023. All of which is communicated to customers, so that's helpful. As I think we discussed before, we don't fully catch up until carbon prices normalize, by which I mean carbon prices stop increasing and perhaps even decrease. But overall, yes, 99% year-to-date of our cost increases have been recovered across the business.

I appreciate that. My last question is regarding the previously mentioned target of over $2 adjusted EPS by 2025. Today's presentation referred to it more as a long-term adjusted EPS goal without specifically mentioning 2025. Is there anything we should interpret from that?

We certainly remain committed to the 2025 goal and at the $2 EPS level. So, no change to that, because we are conscious of the macroeconomic changes that we're seeing at the moment and we're thinking carefully about 2023, but we still at this time expect to deliver the $2 EPS in 2025. Thanks for the clarification on that, Chris.

Got it. I will leave it there. I appreciate it, guys.

Thank you. Our next question will come from Phil Gibbs with KeyBanc Capital Markets. Your line is now open.

Hey, good morning.

Hi, Phil.

In terms of Europe, could you remind us of your total revenue exposure there as a percentage of overall sales? Additionally, considering you have a significant amount of production in Europe, how should we view your production footprint in light of the recent energy price increases in the region? How are you managing through that?

Yes. Thanks. So in terms of our revenue breakdown, a little over 60% in North and South America, a little over 20% in Europe, and a little under 20% in Asia. Obviously, that varies over time, but that's typically how you see our revenues. In terms of our manufacturing footprint, the weight of our footprint is in North America, with two facilities in the UK. One of those, the Nottingham plant, makes aluminum cylinders and assembles alternative fuel systems. The other is our Elektron plant, involved in both making magnesium and zirconium. So that's the footprint. Steve, anything to add on that?

No, I think that's fair enough. Did you also have a question, Phil, on energy cost?

No, just in terms of those two assets in the UK in terms of how you're managing through the energy cost escalation there, at least in terms of what we're seeing broadly, if you're hedged or you've got some other things going on to manage through that?

We are closely monitoring the energy market and see opportunities for hedging, particularly in Europe. We are planning our energy needs for up to two years in advance and can purchase up to 100% or more of our requirements, with the option to sell back any excess. We will watch forward prices and lock in favorable rates when they arise, although a portion will remain subject to spot prices. In North America, we rely more on contracts, which are currently active but will be expiring early next year, so we are negotiating new agreements. We anticipate some increase in costs beyond what we have been paying so far.

As we consider the net working capital in the fourth quarter, it's usually a seasonal release, and you might be referencing that. What kind of release should we anticipate for Q4? Additionally, regarding the cash side, you mentioned a $10 million restructuring for the year; how much of that will be released in Q4? Thank you.

Okay. Yeah, the first point, so yeah, you've obviously seen our working capital remains elevated. As I said in the prepared remarks, that’s very much in investments in inventory which continues. We've always said that the supply chains are continuing to be challenging, we would keep that; we envision that level being elevated. We are still seeing those challenges. So hence it's not come down; in fact, it's gone up sequentially. We would expect it to come down to, I said, 23% to 25% of annualized revenue in the fourth quarter. I think that's a reasonable expectation; it will free up some cash. Although I think we're not going to start making significant cash contributions and inroads into our current net debt level, probably until quarter one next year. Even I think if supply chain conditions don't normalize in quarter one, I expect quarter one to be better than quarter four in terms of cash generation. Sorry, the second part of your question.

So the cash restructuring you outlined in your deck, how much of that is expected in Q4?

It's about $1 million to $1.5 million we're expecting to go through in quarter four.

Thank you. Our next question will come from Chip Moore with EF Hutton. Your line is now open.

Yeah. Good morning. Thanks for taking the question. I wanted to follow up on the potential recession scenario that you talked about. It sounds like you have some levers you can pull if the environment does take a turn for the worse. I guess, how do you balance any of those near-term uncertainties versus the medium-term demand that you see on the horizon?

Yes. Thanks, Chip. Good morning. We have built a recession case scenario into our medium-term planning as an option. That was quite advanced, it’s not completed yet, and of course, we're seeing volatility in upcoming indicators at the moment. Whatever happens, I think we're probably preparing for that, and we like the mix in our portfolio and the strength on our balance sheet. So, we're very conscious of developments in the market. At the moment though, we like where our order book is sitting. We have a good order book for quarter four; most of our markets are booking well into quarter one and quarter two. So we're pleased about that. We are particularly pleased with what we're seeing next year, especially in magnesium alloys, in SCBA cylinders; we expect alternative fuel to continue some of the momentum we picked up in quarter three. We like what we're looking at in the order bank, but we're just making sure that we're not blind to what's happening in the outside world. But approaching 2023 and beyond with a spirit of optimism.

Perfect. Thank you, Andy. It is a follow-up just on innovation. In terms of the new product pipeline, maybe you can kind of walk us through what to expect there over the next 12 to 24 months? And then look back at some of your more recent areas that you're excited about, how those are progressing?

Yes. So, it's been exciting over the three months to be reviewing the commercial opportunities that we're seeing with the new products. Thanks for the chance to comment on that. I think some of the things I'd like to highlight include our zirconium solutions for electrolyzers and fuel cells, the magnesium electrode technology for rechargeable batteries. I'm pleased with the progress on the magnesium alloys for lightweighting and high-performance automobiles. The pharmaceutical zirconium products that we have find good use in the growing medical application. We're starting to replace some of our old aramid Aerospace Cylinders with lighter weight carbon visions. The type three hydrogen cylinders are doing well with fast-filling ethylene technology, magnesium roll products unitized through Russian supplies; I could go on and on. I really like where the business is moving regarding some of the new developments.

That's pretty clear. And just a last follow-up on that. Just in terms of flexibility, you're very flexible, you've been active on the buyback, and the leverage is quite low. M&A, are you seeing more on the bolt-on side, maybe in some of those innovative areas that we're taking more organically? Thanks.

Yes to both of those. Our pipeline remains active. We're seeing some evidence of a slowdown in transactions in the market. We remain engaged; we visited a potential target a couple of weeks ago, and we've got a meeting coming up next week, but nothing imminent; all early-stage. Valuations seem to remain pretty high, and we've not yet seen much of a multiple correction. I would expect that to change, but we do remain selective, especially given the macro uncertainties. So I'd say we're active and alert to the possibilities, but we continue to prefer reinvestment in organic growth as the best use of our capital.

Got it. It makes sense. Thanks very much.

Thanks, Chip.

Thank you. This does conclude today's Q&A. An encore recording of this conference call will be available in about two hours. A link to a recording of the webcast will be available on the Luxfer website at www.luxfer.com. Thank you for joining us today. The next regularly scheduled call will be in Q1 of 2022 when the company discusses its fourth quarter 2022 financial results. This ends the Luxfer conference call. Have a great day.