Luxfer Q1 2024 Earnings Report

SelectQuote EPS Results

• Actual EPS: $0.18
• Consensus EPS: $0.06
• Beat/Miss: Beat by +$0.12
• One Year Ago EPS: N/A

SelectQuote Revenue Results

• Actual Revenue: $89.40 million
• Expected Revenue: $82.90 million
• Beat/Miss: Beat by +$6.50 million
• YoY Revenue Growth: N/A

SelectQuote Announcement Details

• Quarter: Q1 2024
• Date: 4/30/2024
• Time: N/A
• Conference Call Date: Wednesday, May 1, 2024
• Conference Call Time: 8:30AM ET

SelectQuote (NYSE:SLQT) operates a technology-enabled, direct-to-consumer distribution platform that sells a range of insurance products and healthcare services in the United States. The company operates through three segments: Senior; Life; and Auto & Home. It distributes senior health policies, such as medicare advantage, medicare supplement, medicare part D, and other ancillary senior health insurance related products, including prescription drugs, dental, vision, and hearing plans; life insurance products, such as term life, final expense, and other ancillary products, including critical illness, accidental death, and juvenile insurance; homeowners, auto, dwelling fire, and other ancillary insurance products; and non-commercial auto and home property, and casualty policies. The company also provides SelectRx, an accredited patient-centered pharmacy home pharmacy, which offers essential prescription medications, OTC medications, customized medication packaging, medication therapy management, and long-term pharmacy care; and population health that helps members understand the benefits available under their health plans, and contracts with insurance carriers. SelectQuote, Inc. was incorporated in 1999 and is headquartered in Overland Park, Kansas.

SelectQuote Q1 2024 Earnings Call Transcript

[Operator]

Now, I will turn the call over to Kevin Grant, Vice President of Investor Relations and Business Development at Luxfer. Kevin, please go ahead.

[Speaker 1]

Thank you, Shelby, and good morning, everyone. Welcome to Luxford's Q1 2024 earnings conference call. This morning, we'll be reviewing Luxford's financial results for the Q1 ended March 31, 2024. I'm pleased to be joined today by Andy Butcher, our Chief Executive Officer and Steve Webster, Chief Financial Officer. Today's webcast is accompanied by a presentation that can be accessed at luxfer.com.

[Speaker 1]

Please note any references to non GAAP financials are reconciled

[Speaker 2]

in the appendix of the

[Speaker 1]

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 obligations 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 2 of today's presentation for further details. During today's call, we'll be providing an adjusted Q1 2024 financial results that exclude Graphic Arts based on our strategic review decision to divest that business.

[Speaker 1]

Now let me introduce Luxford's CEO, Andy Butcher. Please turn to Slide 3. Andy, please go ahead.

[Speaker 2]

Thank you, Kevin, and good morning, everyone. Thank you for joining us. I'm pleased to report that Luxfer made good progress in the Q1 of 2024, increasing profitability and generating solid cash flow despite variable demand in certain end markets. The Q1 was slightly ahead of our internal expectations and reinforced our outlook for the remainder of 2024. I want to take a moment to commend and thank our dedicated team for their efforts that underpinned this result.

[Speaker 2]

Sales came in at $83,100,000 reflecting some ongoing softness. However, we saw encouraging signs of recovery in some important areas, most notably for flameless ration heaters. In the quarter, we achieved an adjusted EBITDA of $10,500,000 and reached adjusted earnings per share of $0.20 This represents a significant improvement over the last quarter of 20 23, driven primarily by enhanced profitability in our Electron segment. Additionally, we delivered $3,600,000 of operating cash, holding our lower levels of net debt, resulting in reduced interest payments and maintaining our low leverage. These overall results reflect the effectiveness of our recent operational adjustments.

[Speaker 2]

We have maintained our service to our customers, restructured our manufacturing footprint and ensured rigorous control over expenses. At the same time, we've initiated the sale of Graphic Arts, while also collecting a first significant legal repayment from our insurance company. So a good start to the year. I look forward to sharing more details over the next few minutes. Let's first move to Slide 4 for an update on our comprehensive strategic review.

[Speaker 2]

In October, we accelerated and expanded our annual strategic review to enhance business performance and unlock shareholder value. As you may recall, this effort produced 3 important conclusions. First, we initiated the sale of our Graphic Arts business. We retained XMS Capital Partners to advise on the sale. The process is well underway with significant engagement from potential buyers.

[Speaker 2]

We are targeting closing a transaction by year end. 2nd, we continue to optimize costs and invest in our Gas Cylinders and Electron businesses, enhancing their competitive positioning to provide attractive Electron is starting to show a promising demand recovery, benefiting also from our efforts to lower costs. Gas Cylinders will continue to capitalize on growth in alternative fuel products, which we expect to begin accelerating in the near to intermediate term. As a result, we remain optimistic about the sustainable profitable growth prospects for both businesses in 2025 and beyond. And third, as previously communicated, we concluded that our Gas Cylinders and Electron segments operate with minimal strategic synergies.

[Speaker 2]

So as we drive improved financial outcomes in both businesses, we will continuously monitor both business performance and market conditions to maintain full optionality to maximize shareholder value. Now turning to Slide 5, let me update you in more detail on the impact of the actions we've taken to enhance our performance in 2024. The first quarter results were encouraging with significant margin expansion in our Electron business, supported by our footprint simplification and a reduction in fixed costs. These moves not only enhanced profitability, but have also positioned us for the anticipated uplift in demand for military flare powders, which is now materializing. Also in Elektron, our leading flameless Russian heater technology continues to establish Luxfer as the supplier of choice for food packages and assemblers.

[Speaker 2]

The Defense Logistics Agency's 2024 award is in line with prior year, confirming our critical role in the production of meals ready to eat and contributing to our improved Q1 sales. During our last call, I announced our renewed multi year supply customers. Today, I'd like to mention our collaboration with one of those customers in supplying the U. S. Air Force with our superlight cylinders, which is ongoing through the first half of this year.

[Speaker 2]

This partnership demonstrates our commitment to providing top tier safety equipment as well as our dedication to ensuring our service men and women have access to the most advanced reliable technology. Our initiatives in clean energy have included refining the footprint of our North American alternative fuel operations now complete and the construction of our bulk gas transportation module facility in the UK. The latter effort is pivotal for our future growth and I was pleased to participate in discussions with 2 potential module customers last month. Both are keen on leveraging our innovative products for transportation and their excitement reaffirms the potential for near term growth in this arena. Additionally, we're making promising strides in product development assisted by a recent clean technology grant awarded by Alberta Innovates in Canada.

[Speaker 2]

This funding not only accelerates our development of our cutting edge Type 4 hydrogen cylinder, but also symbolizes another step forward in our commitment to Energy Solutions. And finally, we have received an initial insurance recovery payment, recouping approximately $1,300,000 of our historical legal costs. We're continuing to make strong efforts to reclaim other prior legal expenses and I look forward to updating you on our progress. In conclusion, our strategic decisions are driving improved profitability and strong cash generation. We are on our way to achieving profitability levels that reflect the value that our innovative engineering brings to our customers and our industries.

[Speaker 2]

At this time, I'll turn the call over to Steve to discuss our Q1 results in greater detail, explain our improved profitability from the prior quarter and update on the 2024 outlook.

[Speaker 3]

Steve? Thanks, Andy, and good morning, everyone. I'd like to start this morning by reviewing our consolidated financial results and bridges for the Q1 2024. Please note that the non GAAP net numbers I referred to are on an adjusted basis excluding the Graphic Arts business. Let's turn to Slide 6.

[Speaker 3]

Looking at the top of the slide, while our sales of $83,100,000 reflect an 11.5 percent decrease from the prior year, it's important to highlight the considerable profitability improvements seen since the previous quarter. Adjusted EBITDA for the Q1 was $10,500,000 with margins at 12.6 percent, comparing favorably to the $8,000,000 9.1 percent of the prior quarter. Additionally, our adjusted earnings per share rose to $0.20 from $0.13 in the 4th quarter, underlining the improvement in our profitability. Shifting to our balance sheet and our cash flow dynamics. Cash flow from operations was solid, generating 3 point $6,000,000 and our free cash flow reached $2,200,000 significantly improved from the seasonal outflow we experienced in the Q1 of the previous year.

[Speaker 3]

And we have maintained strong liquidity ending the quarter with net debt of $71,600,000 and a leverage ratio of 1.7 times. Looking at the sales bridge, our revenue of $83,100,000 compared to $93,900,000 in the prior year. We saw a favorable impact from pricing adjustments contributing an additional $1,600,000 alongside a $600,000 benefit from foreign exchange. However, these gains were offset by a $13,000,000 decrease in volume with tough prior year comps in the general industrial and military flare markets. Turning to the adjusted EBITDA bridge, our first quarter adjusted EBITDA was $10,500,000 down $1,500,000 from the previous year, with the impact of adverse volumes partially offset by some cost deflation, incremental price in cylinders, considerably lower legal costs and favorable manufacturing efficiencies in Elektron.

[Speaker 3]

Despite the ongoing macro challenges, our adjusted EBITDA margin came in at 12 6% this quarter, only slightly down from last year's 12.8% and confirming our prior projections of a Q1 rebound. Please turn to Slide 7 for a detailed review of Elektron's Q1 financial results. Elektron's Q1 of 2024 exhibited a strong turnaround in profitability despite a year over year sales decline. We saw significant sequential improvement with an 840 basis point increase in gross margin and a substantial rise in adjusted EBITDA margin to 17 percent from 4.4%. This positive shift was driven by anticipated volume recovery, enhanced manufacturing efficiencies and the streamlining of our cost structure through ongoing initiatives.

[Speaker 3]

Despite lower sales across all segments compared to a busy Q1 2023, we are seeing pockets of recovery, notably in flameless ration heaters within our defense, first response and healthcare market. However, broader declines were noted in this end market due to decreased military flare magnesium powder sales following customer destocking. The transportation segment was also lower, primarily due to softer demand for auto catalysis materials. Finally, the general industrial market declined modestly this quarter compared to prior year, but demonstrated significant sequential improvement over quarter 4. All that said, given Electron's weaker performance in the second half of last year, we are very encouraged by the significant recovery in margins as we start this year.

[Speaker 3]

Now please turn to Slide 8 for a detailed review of the Gas Cylinders' 1st quarter financial results. Gas Cylinders is seeing positive momentum, particularly in the firefighter self contained breathing apparatus market, enhanced by renewed long term contracts, which have lifted our margins towards historic norms. In the quarter, sales rose to $45,400,000 up 9.4% year over year and achieved a notable gross margin improvement of 4.50 basis points, reaching 17%. Our adjusted EBITDA margin increased by 300 basis points to 9%. In our market segments, defense, 1st response and healthcare sales increased over the previous year, thanks to continued demand for lightweight SCBA and medical cylinders.

[Speaker 3]

Transportation sales also grew with stronger demand for alternative fuels products. Meanwhile, the general industrial end market still encounters headwinds with sales decline this quarter, although this continues to represent a relatively small part of the Gas Cylinders business. We are encouraged by the operational achievements demonstrated this quarter. As we capitalize on our strengths and technical know how, Gas Cylinders remains committed to driving value and excellence for our stakeholders and customers. Now please turn to Slide 9 for an update on our full year 2024 financial guidance.

[Speaker 3]

As a reminder, our 2024 guidance does not include the Graphic Arts business. Our financial outlook has been raised to reflect the better than expected improvements in the Q1 and the recent recovery of historical legal fees. While sales do remain a challenge, we are now projecting adjusted EBITDA to be between $4,000,000 $48,000,000 with adjusted diluted EPS ranging from $0.75 to $0.90 and with free cash flow anticipated to be between $21,000,000 $25,000,000 We continue to emphasize maintaining a robust balance sheet and enhancing our free cash flow. This strategy supports a dual approach to capital management, allowing for continued investment in growth opportunities, while also returning capital to shareholders through steady dividends and share repurchases. In summary, I'm genuinely excited about the recent uptick in performance of Elektron, the sustainable improvement in Gas Cylinders margins and the robust cash conversion rates we've achieved.

[Speaker 2]

Thanks, Steve. I will conclude my prepared remarks on Slide 10. As we progress through 2024, I'm pleased to see that we are on the right track. The latter half of twenty twenty three presented various challenges and there is a long road ahead, but the outlook for 2024 is promising, bolstered by both improvements in end market demand and our operational performance. As we conclude this update, I'd like to highlight the significant progress we have made over the last few months that maintains my confidence in our long term success.

[Speaker 2]

We have secured multi year supply agreements with key SCBA customers, incorporating our supply to the U. S. Air Force of super light cylinders. We are capitalizing on early signs of demand recovery within certain electron, industrial and defense sectors. We have streamlined our North American alternative fuel operations and constructed a new capability in Nottingham, UK, enhancing our role in the green energy transition.

[Speaker 2]

We have addressed our insurance coverage issues and have recently started to recover some of the historical fees. And we have carefully managed our working capital, which has improved our free cash flow and maintained our low net debt, driving lower capital charges and providing resilience and future optionality. I am encouraged by our progress and cautiously optimistic about the rest of 2024. Despite the current industrial market environment, we are seeing a recovery in demand for electron applications and strong performance in our gas cylinder segments. Luxfer's long term strategy remains focused on leveraging our materials engineering expertise to solve customer challenges, improve profitability and generate strong cash flows.

[Speaker 2]

We are making significant progress in our initiatives to unlock shareholder value and are confident in our ability to achieve enhanced margins and sustained earnings growth. With that, I'd like to turn the call back to the operator for the Q and A session. Shelby, please go ahead.

[Operator]

And we'll take our first question from Steve Farizzoni with Sidoti. Your line is open.

[Speaker 4]

Good morning, Andy. Good morning, Steve. Obviously, really surprised and impressed with the sequential margin improvement in Electron that was coming a lot faster than we suspected, not sure how much faster it was on your side. You provided a lot of color on the call, but if you could add a little bit of detail on where you were seeing it and the ability to generate further margin improvement given what we expect to be some deflationary impact raw material costs?

[Speaker 2]

Yes. Thank you, Steve, and thanks for joining the call. Yes, we are pleased with our Q1 results and they were a little ahead even of our internal expectations. So

[Speaker 1]

that was

[Speaker 2]

good. On the sales side, we were especially pleased to be able to deliver on the higher level of sales of flameless Russian heaters. That was something we projected, it was very, very pleasing that the award from the Defense Logistics Agency came in at the normal levels as we had expected. So we saw a strong rebound from Q4 on that very important product line. I'll perhaps ask Steve to make a couple of extra comments on margins.

[Speaker 4]

Yes, I mean, I think,

[Speaker 3]

I mean, certainly the majority of the margin improvement was in or the majority of the margin improvement was in Electron. And if you look at that, there's 3 main areas. The third one of them is volume and mix. I mean the FRH sales are one of our better margin products. So that contributed roughly a third, I'd say, the margin improvement.

[Speaker 3]

I talked about manufacturing efficiencies and also some cost savings from some of the projects we've done. That's probably about another third. And then finally, the significant lower legal cost is the remaining third. So 3 buckets there, volume and mix, manufacturing efficiencies, cost savings and then lower legal costs.

[Speaker 4]

Given how much it improved, so the sustainability upside and any reason why you wouldn't raise guidance more given the yearly strength in that margin recovery on Elektron?

[Speaker 2]

Yes, thanks for that. This is Andy. Again, let me start by underscoring that I am encouraged Steve by the recent developments that we've seen, especially in Electron and we do approach the remainder of 2024 with some cautious optimism Despite ongoing uncertainties in the industrial macro environment, we have witnessed the expected recovery in demand across certain electron applications and we're pleased with the robust performance in our Gas Cylinder segment. It does increase our confidence in the annual guidance we provided and we are pleased to have been able to uplift the guidance. That's a mix I think of the improved performance we've delivered and those legal fee recoveries.

[Speaker 4]

Any update on timing of the bulk gas facility? And can you provide a little bit of detail on I think what you noted was some strength in the North American CNG market?

[Speaker 2]

Yes, yes, great. First of all, on hydrogen, of course and bulk gas, of course, the hydrogen economy needs infrastructure to move hydrogen from where it's produced, maybe a remote wind farm to where it's used in a city or industrial center. And containers of multi element gas containers are the preferred solution. So with our lightweight cylinder technology, we developed these range of containers. The development of the facility is going well and we do expect that we'll make the first sales from our Nottingham, UK facility later this year with the opportunity then for rapid growth in 2025.

[Speaker 2]

On the CNG side, compressed natural gas, CNG North American demand remains high. Sales of our lightweight high capacity Type 4 cylinders doubled to almost $8,000,000 in the quarter compared to prior year. It's been a pretty exciting start to the year there and we expect that to continue, particularly highlight the upcoming tailwinds from the new X15 Cummins CNG engine that's being introduced throughout the summer and should give us some additional momentum there as we move towards the end of the year into 2025. So yes, quite excited, Steve, about both Gulf Gas and CNG.

[Operator]

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

[Speaker 2]

Thank you for your questions, Steve, and thanks to everyone for joining the Luxfer call. Today, we've covered vital areas. Our strategic commercial developments are setting a strong pace. We're seeing an initial recovery in market demand. Our operational consolidations are enhancing efficiencies.

[Speaker 2]

We successfully started to recover historic legal fees and our financial health continues to strengthen. Each of these points is a testament to our resilience our determined approach to improving our business. As always, thank you for your interest and support in Luxfer. We look forward to updating you on our progress next quarter.

[Operator]

This