Luxfer Holdings reports Q3 sales growth of 1.6%, raises 2025 EPS guidance to $1.04-$1.08, driven by defense and aerospace momentum.

OPERATOR - (00:00:00)

Margin opportunities and we were pleased to announce the addition of Stuart Watson to our board. With heavy experience in the aerospace and defence industry, footprint optimisation is advancing through our Centres of Excellence programme. The Pomona to Riverside composite cylinder relocation announced last quarter remains on track. This automation led initiative will capitalise on our technology and is expected to deliver up to $4 million of annualized savings when fully ramped. New this quarter we've announced plans to establish a Powders center of Excellence in Saxenburg, Pennsylvania next year which will concentrate operations to improve throughput and service for both our growing defence and specialty industrial customers while providing approximately $2 million of additional annualised savings. In short, the third quarter underscores our portfolio quality, operational resilience and our ability to align the business to higher value sectors for stronger profitability. With that, I'll hand over to Steve to take you through the financials and our raised 2025 guidance.

Steve - (00:01:17)

Steve thanks Andy and good morning everyone. Let's turn to Slide 4 for a review of our consolidated financial Results. In the third quarter sales were $92.9 million, up 1.6% year over year, reflecting continued strength in defence and aerospace partially offset by softer demand in certain gas cylinder end markets. Adjusted EBITDA was $13.6 million, up slightly from last year with margins at 14.6%. Profitability was driven primarily by Electron, where favorable mix and higher volumes in defence and aerospace, particularly in MREs and other specialty programs, supported strong margins. Pricing improvements in gas cylinders also contributed, helping to offset softer industrial and automotive demand. Adjusted earnings per share was $0.30, an increase of 11% year over year. Cash generated from operations was $11.8 million, reducing net debt to 37.3 million, resulting in a leverage of 0.7 times.

UNKNOWN - (00:02:30)

Year to date.

Steve - (00:02:30)

To date sales have increased 5.3% to $280.5 million, driven by strength in defence, aerospace, space exploration and steady SCBA demand. Adjusted EPS improved 18.6% to $0.83, reflecting higher margins from mix improvement and disciplined execution across both segments. Turning to the quarterly prior year sales bridge on the right, positive price action, largely in gas cylinders contributed $2.1 million. Volume mix declined by approximately $0.8 million, with softer demand in clean energy and automotive markets partially offset by defence and aerospace.

UNKNOWN - (00:03:15)

For our adjusted EBITDA, higher pricing and inflation recovery together added approximately $2.9 million.

Steve - (00:03:17)

And inflation recovery together added approximately $2.9 million, complemented by a $0.6 million benefit from favorable volume mix driven by Electron. These gains were offset by $3.4 million in planned investments to support defence and aerospace programs as well as higher operating expenses primarily related to overhead costs. For a full breakdown, please see the detailed waterfall in the appendix to Slide 12. Overall, the quarter demonstrated strong execution, steady profitability and mix improvement across our core markets. With that, let's move to Slide 5 for a closer look at Electron's Quarter 3 performance. Q3 marked another strong quarter for Electron, powered by ongoing defense and aerospace momentum driving higher volumes and positive mix sales were $50 million up 2.5% year over year reflecting elevated demand in higher value programs. This in turn delivered adjusted EBITDA of $9.9 million at a 19.8% margin, up 160 basis points from last year. Defence and aerospace remained the primary growth drivers supported by steady demand across major programs and further strength in core platforms such as flameless heating in transportation, commercial, aerospace related alloy demand stayed firm offsetting lower activity in auto catalysis. Specialty Industrial was softer this quarter due to weaker industrial demand in zirconium, partially offset by improved activity in oil and gas applications. Looking ahead to strengthen future efficiency, I'm pleased that we are establishing a Powder center of Excellence. This initiative is expected to deliver approximately $2 million of annualized savings while enhancing quality throughput and service for defense and specialty customers. Overall, Electron continues to execute well with elevated performance in its core markets, strong CAT conversion and sustaining margins near 20%. With that, let's turn to Slide 6 for our gas cylinders.

UNKNOWN - (00:05:36)

Results.

Steve - (00:05:38)

Gas cylinders performance was stable overall with sales of $42.9 million up slightly year over year driven by steady demand in SCBA and helping offset broader market softness in clean energy. Adjusted EBITDA was $3.7 million with margins holding near 9% while mix and volume were lower in several end markets. Increased pricing and ongoing cost control helped maintain profitability in line with expectations within the segment. SCBA remained the primary driver continuing to deliver stable demand for first response and defense applications. Aerospace inflatables demand remains solid though space shipments were lower this quarter due to expected off cycle timing following a strong first half. Importantly, we still view space exploration as a meaningful long term growth opportunity. Our Pomona to Riverside center of Excellence remains on track. This automation led consolidation is expected to deliver up to $4 million in annualized savings while leveraging technology for long term efficiency gains. Let's now move to Slide 7 for a review of our updated 2025 guidance. We have raised our full year guidance reflecting strong performance from the first three quarters of the year. We have increased the adjusted eps range to $1.04 to $1.08 up from $0.97 to $1.05 from last quarter. Adjusted EBITDA has been refined to a tighter range of $50 to $51 million, reflecting increased confidence in our outlook. We are maintaining our free cash flow guidance of 20 million to $25 million and continue to expect low single digit sales growth versus 2024. Momentum remains centered in defense and aerospace, driven by sustained demand for defense programs and ongoing aerospace build rates, the latter supported by solid backlog visibility. That said, we continue to see some softness in automotive within electron and alternative fuels within gas cylinders and these are reflected in our guidance ranges. Operational discipline remains strong with consistent performance as defence production levels stabilize following elevated early year activity. From a risk management standpoint, the direct impact from tariffs remains modest and our teams continue to monitor and manage our supply chains. With 1/4 to go, we're focused on closing out and positioning our investments in innovation towards markets where we have the greatest opportunities. Now I'd like to turn the call back to Andy.

Andy - (00:08:29)

Thank you Steve. Please turn to Slide 8. Our Luxfer Business System system provides a clear, structured framework to innovate, drive efficiency and stay agile. Always focused on meeting customer needs and delivering profitable growth, this slide highlights how we differentiate through the Luxor business system and our leadership in strategic markets such. As aerospace and defence. At Electron, our advanced magnesium alloys remain a key competitive advantage. These lightweight materials deliver high strength and heat resistance at roughly 2/3 the weight of aluminum, improving range, payload and efficiency for our customers most demanding platforms. We use operational excellence to underpin this success. We are a trusted material supplier to major OEM programs with precision manufacturing and process control that ensure mission critical reliability. Our performance advantage lies in light weighting that directly enhances mobility, response time and equipment handling in the field. Whether it's a lighter gearbox housing that improves aircraft performance or a rugged magnesium component that reduces weight in, for example night vision systems. Our materials provide measurable advantages where strength, precision and endurance matter most. And finally, we are seeing proven results in higher revenues. The Luxfer Business System continues to drive performance, quality and innovation, positioning us for sustained growth in core markets. But we are consistently winning new opportunities. Now Please turn to Slide 9. As we close, I want to take a step back from operations and highlight how we are driving value creation for Lux. For shareholders, our strategic approach is centred on focus and prioritisation. We are aligning the business around specialised high value products and markets where we hold leading positions and can sustain pricing power. We are strengthening customer partnerships across defence, aerospace and key industrial programs by building deeper, longer term relationships that provide both stability and growth opportunity. Financially, we maintain a healthy balance sheet, investing selectively and quickly for growth and generating consistent free cash flow to support shareholder returns. Our operational optimization continues through the Centers of Excellence which will deliver tangible cost savings and improved capital efficiency across both segments. We are also evaluating nearer term opportunities to drive additional value including portfolio simplification, operational partnerships and technology driven growth. We remain focused on driving greater operational performance while also monitoring conditions to maintain full optionality and preparation to take strategic action at any time to maximize shareholder value. Ultimately, we have sharpened our execution focus, strengthened our balance sheet and created the foundation for sustained earnings growth and long term stand alone value creation. We will now turn the call back to the operator for questions. Angela, please go ahead.

Angela - Operator - (00:12:10)

At this time if you would like to ask a question, please press Star one on your telephone keypad. You may remove your soul from the queue at any time by pressing Star two once again. That is Star one to ask a. Question. And we'll go to Steve Farazani with Sidoti. Your line is open. Please go ahead.

Steve Farazani - (00:12:33)

Morning Andy. Steve, thanks for all the detail on the call this morning. Andy. I guess the surprise to me was the strength in Electron given you were comping to what was by far the strongest quarter of the year last year for Electron. I know you had some, some pull forwards in the year ago quarter. 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?

Andy - (00:13:03)

Yes, thanks Steve, and good morning. It was a very nice result in Electron. The strong demand continued in both aerospace and defence. We matched 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 Electron. Very pleased about that.

Steve Farazani - (00:13:37)

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?

Andy - (00:13:45)

It was, it was mainly mix for Electron. 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 demands, the add on order and some export. The pricing came mainly from the cylinders part of the business. We were pleased with the improvements we were able to make there.

Steve Farazani - (00:14:12)

Yeah, 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.

Andy - (00:14:31)

Yes, the market for clean energy is down at the moment. Not, 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 is, which has been a nice win for, 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.

Steve Farazani - (00:15:24)

We know that the ongoing trend consolidation on gas cylinders with relocation to Riverside. You've said 4 million in annual savings. Now you can provide a little more detail on the Powder center for Excellence. You talk about that being 2 million in annual cost savings. I guess two questions here. One, if you could talk a little bit more about what's going on with the powder side because 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 two moves?

UNKNOWN - (00:15:57)

Yes.

Andy - (00:15:58)

So talking about the Powder center of Excellence first, we currently operate two manufacturing locations in the US 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 Saxenberg 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 of the, over the next year.

UNKNOWN - (00:16:47)

With.

Andy - (00:16:48)

The Riverside Centre 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.

Steve Farazani - (00:17:09)

Okay, I know we won't hear from you again until the next conference call. Will be the fourth quarter 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?

Andy - (00:17:29)

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.

Steve Farazani - (00:17:53)

Excellent. Thanks Andy. Thanks Steve.

Andy - (00:17:57)

Thanks Steve.

Angela - Operator - (00:18:00)

Thank you. There are no more questions in the queue at this time. I'll turn the call over to CEO Andy Butcher for final remarks.

Andy - (00:18:11)

Thank you Angela. We are very proud of the progress the team delivered this quarter and we remain focused on delivering long term shareholder value. I'd like to close by thanking the entire Luxor team for their exceptional execution and commitments and thank you for your continued support.

UNKNOWN - (00:18:33)

This concludes Luxfer's third quarter 2025 earnings call. A recording of this conference call will be available in about two hours. A link to a recording of this webcast will be available on the luxfer website@www.luxfer.com. Thank you.