Luxfer Holdings PLC Q3 FY2025 earnings call

• The third quarter demonstrated strong execution, with adjusted earnings per share at $0.30 and adjusted EBITDA at $13.6 million. - Elektron was a key revenue and profit driver, boosted by defense and aerospace, with sales up 2.5% and an adjusted EBITDA margin of 19.8%. - Gas Cylinders performed in line with expectations, with higher SCBA volumes and a significant increase in aerospace inflatables. - The company completed the sale of the Graphics Arts business, sharpening focus on core businesses. - Establishing a Powders Center of Excellence in Saxonburg is expected to bring $2 million of annualized savings, and the Pomona to Riverside composite cylinder relocation project is on track to deliver $4 million of annualized savings. - There was strong cash generation in the quarter, with $10 million of free cash flow, and net debt reduced to $37.3 million.

In the third quarter, Elektron achieved sales of $50 million, a year - over - year increase of 2.5%, with adjusted EBITDA of $9.9 million and a margin of 19.8%. Gas Cylinders had sales of $42.9 million, showing a slight year - over - year increase, and adjusted EBITDA was $3.7 million with a margin near 9%. Elektron's growth was driven by defense and aerospace momentum, while Gas Cylinders was supported by SCBA and significant growth in aerospace inflatables, offsetting softness in the clean energy sector.

• The full - year adjusted EPS range has been raised to $1.04 to $1.08 from the previous $0.97 to $1.05. - Adjusted EBITDA has been refined to a range of $50 million to $51 million. - The free cash flow guidance remains at $20 million to $25 million. - Expect low single - digit sales growth compared to 2024, with momentum in defense and aerospace.

• The direct impact from tariffs remains modest, but the teams continue to monitor and manage supply chains.

Q: Andy, I guess the surprise to me was the strength in Elektron given you were comping to what was by far the strongest quarter of the year last year for Elektron. I know you had some pull forwards in the year ago quarter. I'm trying to figure out how you even top that revenue and the significant margin expansion. Can you sort of walk through what led to that given what was clearly a challenging comp?

A: Yes. Thanks, Steve. It was a very nice result in Elektron. The strong demand continued in both aerospace and defense. We match that with increased orders. We also saw slightly better order intake in zirconium. The mix was nice with some higher - value products, pushed our margins up towards 20%. So yes, broad - based strength in Elektron, very pleased about that.

Q: Can you talk a little bit about pricing and costs and how much that could be reflected in those margins? Or is it purely mix that we're looking at?

A: It was mainly a mix for Elektron, a nice mix around those aerospace and defense products, continuing strength in the MRE heaters, which have been good all year with that baseline FRH demand, the add - on order and some exports. The pricing came mainly from the cylinders part of the business, where we were pleased with the improvements we were able to make there.

Q: Turning to Gas Cylinders a little bit. I mean you've highlighted the weakness in alternative energy that we were expecting, but you've offset a lot of that this year. Can you talk a little bit about commercial space market and what you think the opportunities ahead are, which seems to be really helping out?

A: Yes. The market for clean energy is down at the moment, not too much demand for CNG and hydrogen. Still winning some nice orders. But as you've said, we've been able to repurpose much of our large cylinder capacity to the space exploration market, which has been a nice win for us. Sales in Q2 were up on a strong Q1. And although Q3 was lower, that was expected, and we're now ramped up again with strong order visibility for Q4. Space exploration is a demanding application, and we operate at tight tolerances and we achieve good margins. And we believe we excel in that field and the market growth rates are high.

Q: Okay. We know the ongoing trend consolidation on Gas Cylinders with relocation to Riverside you've said $4 million in annual savings. Now if you can provide a little bit more detail on the Powders Center for Excellence. You talked about that being $2 million in annual cost savings. I guess 2 questions here. One, if you could talk a little bit more about what's going on with the powder side because it's the first, I think I'm hearing about it. And then two, what's the timing on this net $6 million in cost savings between those 2 moves?

A: Yes. So talking about the Powders Center of Excellence first. We currently operate 2 manufacturing locations in the U.S. for production of our magnesium powder. So as part of continuing our Centers of Excellence program, we've identified and we're actioning an opportunity to invest significantly in our Saxonburg site. We'll invest over $6 million of CapEx there to create a greatly improved footprint that will support our customers' needs for growth for high quality, tighter particle tolerance and also bring those efficiency and automation benefits worth around $2 million a year. And in terms of timing, we intend to complete the project over the course over the next year. With the Riverside Center of Excellence, the move from Pomona, that project was announced last quarter. That's underway. And we broke ground on that last week in Riverside, pouring some foundations. And so we'll start to see that ramp through 2026.

Q: Okay. I know we won't hear from you again until the next conference call will be the 4Q when you're going to -- and I know it's way too early to start guiding for 2026. But are you seeing pockets for growth in 2026? Or is that going to be more of a margin story as you see things right now?

A: Yes. I think you're right. It's a little early to be talking about 2026. We will give our guidance for that at the end of our full year earnings call. I do believe that we'll be seeing some areas of growth as part of that. And of course, we just covered the cost reduction programs that we're working on as well.