Good morning. My name is Todd, and I will be your conference operator today. Welcome to Luxfer's Fourth Quarter 2023 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 Kevin Grant, Vice President of Investor Relations and Business Development at Luxfer. Kevin, please go ahead.

Thank you, Todd, and good morning, everyone. Welcome to Luxfer's Fourth Quarter 2023 Earnings Conference Call. This morning, we'll be reviewing Luxfer's financial results for the fourth quarter ended December 31st, 2023. I'm pleased to be joined today by Andy Butcher, our Chief Executive Officer; and Steve Webster, Chief Financial Officer. Today's webcast is accomplished 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 2 of today's presentation for further details. During today's call, we will be providing adjusted fourth quarter and full year 2023 financial results that exclude Graphic Arts based on our strategic review decision to divest that business. Now let me introduce Luxfer's CEO, Andy Butcher. Please turn to Slide 3. Andy, please go ahead.

Thank you, Kevin, and good morning, everyone. Thank you for joining us. I would like to begin by acknowledging the dedication of the Luxfer team as they served our customers and focused with an optimized lens on all aspects of our operations. They delivered solid and improved results against the backdrop of challenging market conditions as well as the added demand of our strategic review process, I am very grateful for their commitment. Today, we will provide details on our 2023 fourth quarter and full year financial performance. Additionally, we will share important positive information on our self-help actions including new SCBA agreements, go-forward insurance coverage for our elevated legal expenses and some lower upcoming costs for magnesium. We will also provide an update on the initial decisions from our strategic review and lastly provide our 2024 guidance. We have a lot to cover today, so let's get started. We achieved adjusted fourth quarter sales of $87.8 million, approximately 3% above the midpoint of guidance, underpinned by an increase in gas cylinder demand. For the full year 2023, adjusted sales were $373.5 million, a decline of 2.9% from the prior year, reflecting the industrial macro challenges we faced, particularly during the third quarter. Full year adjusted EPS of $0.80 exceeded our most recent expectations and full year adjusted EBITDA was $43.3 million. In addition to better-than-expected sales and earnings, we generated improved operating cash flow and full year free cash flow more than doubled the prior year. Our balance sheet remains healthy with net debt leverage of approximately 1.6 times. This gives us additional assurance and the flexibility to continue investing in areas where we can grow in support of our customer value proposition. Steve will walk through the financial performance for the quarter and full year in more detail…

Thanks, Andy. I first want to echo Andy's sentiment about our excitement and the positive momentum we have made regarding the strategic review process. The acceleration and expansion of our annual strategic review has clearly identified optionality to the Board of Directors and the Luxfer leadership, which we can execute successfully. Now I'll begin on Slide 6 with a summary of our sales performance by end market. Please note that these financials and my comments exclude the Graphic Arts business, for which we are in the process of identifying a suitable buyer. Defense, First Response and Healthcare sales remained strong, growing 9.7% compared with last year, driven by ongoing strength in lightweight SCBA as well as medical cylinders, offsetting anticipated lower fourth quarter demand for flameless ration heaters and chemical kits. For the full year, Defense, First Response and Healthcare was up 23.9%, demonstrating both the strength and secular nature of our largest end market. Transportation sales decreased 22.3% in the quarter and full year sales decreased 10.2% compared with the prior year. In the quarter, areas of softer demand included auto catalysis material and aerospace applications. General industrial end markets continued to face macro headwinds resulting in sales decreasing by 42.8% in quarter four. As was the case in previous quarters, this impacted demand in applications such as commercial magnesium powders, industrial zirconium and oil and gas. Full year adjusted sales decreased 25.6%. Please turn to Slide 7 for a summary of our consolidated fourth quarter financial results. Fourth quarter sales decreased 17.4% from the prior year to $87.8 million. While we delivered strong favorable pricing of $7.2 million and received benefits of $1.2 million in foreign exchange, these were more than offset by lower volume and unfavorable mix of $26.9 million, primarily in industrial and transportation markets. Fourth…

Thanks, Steve. I will conclude my prepared remarks on Slide 10. 2023 was a challenging year with several factors having an adverse impact on our full year results. The focused actions we have taken to improve performance and profitability have been effective in turning the corner and we expect to make further progress as we move through 2024. Throughout this time, I've remained extremely proud of our global team's ability to execute through difficult circumstances. As we conclude this update, I'd like to highlight again the significant progress we have made over the last few months that give us confidence in our ability to deliver improved results. Concluding new commercial arrangements for our SCBA cylinders, recovering our carbon fiber costs, improving margins and restoring profitability. Capitalizing on early signs of demand recovery in some of our Elektron, Industrial and Transportation sectors with an uptick in orders. Resolving our insurance coverage for the abnormal legal charges that we have been incurring in Elektron, eliminating this expense going forward. Completing our two consolidation programs, improving our cost base in both Elektron and Gas Cylinders provided annualized cost savings of $0.9 million and $1.1 million, respectively. Lastly, reducing our inventories, delivering higher levels of free cash flow and reducing our net debt below $70 million. The Board and I are encouraged by these developments, and we enter 2024 with strengthened levels of confidence. While the industrial macro environment remains uncertain, we're already seeing a rebound in demand for a number of higher-margin Elektron applications, and we are pleased with the recent elevated performance of Gas Cylinders. As we continue to navigate the future together, we are following a clear path to value creation, solving our customers' challenges with our materials engineering expertise while improving profitability and margins, maintaining strong levels of cash generation and executing on the outcome of our accelerated strategic review. We are making substantial progress on actions that we expect to unlock shareholder value and gaining confidence that we will return Luxfer to a path of margin improvement and sustainable earnings growth. With that, I'd like to turn the call back to the operator to begin the Q&A session. Todd, please go ahead.

At this time, the floor is now open for questions. [Operator Instructions] Our first question comes from Steve Ferazani with Sidoti. Please go ahead.

Good morning, Andy, Steve. Thanks for the detailed call. Obviously, it's been a very, very busy quarter and the guidance, which seems to indicate you've taken significant steps to improve profitability going into the New Year. A lot to cover here. Can we touch on first the decision to divest Graphic Arts. What went into that? What differentiates issues with Graphic Arts from the rest of Elektron. And then I know probably you can't answer it, but timing and what the value of Graphic Arts could be.

Thanks for joining us, Steve. A lot of questions there. First of all, the decision to sell Graphic Arts and why it no longer fits with our portfolio. We originally purchased that business, Steve, back in 2003 when it traded as Magnesium Elektron North America. And at that time, we envisaged it as a high-volume aerospace and automotive supplier. Increasingly, of course, the business opportunity grew in Graphic Arts very successfully, but moving more and more away from Elektron's core competence in material technology and allies. So we think that now Graphic Arts will do better under a new owner. Helped, no doubt by the upcoming lower magnesium costs, which should provide higher levels of profitability. And frankly, I'm excited that the successful sale of that business will release resources to the rest of Luxfer, results in both time and money for us to deploy on some of our core organic opportunities elsewhere in the business, materials technology, lightweighting, clean energy. In terms of timing, I can't answer that. We're aiming for completion in 2024. The work we've done to date with the help of XMS Capital Partners suggest that this is achievable. As you suspected, I probably wouldn't want to discuss the transaction price. But I would note, the inventory is currently valued at around $17 million. And the business operates with substantial, although somewhat aged capital assets. We're just initiating the process. We're going to be running a comprehensive process to ensure we deliver the very best outcome. Look, this is a good business, delivering quality products, led by a strong team with some significant assets. We don't doubt there is a good buyer out there for the business.

Very helpful. Thanks for covering all that. Just, I guess, a question for Steve. Since you're guiding with audit. Are you going to be able to include this into discontinued operations moving forward? Or what would be necessary to predicate that.

Yes, there's some technical accounting there, Steve, which I won't go into, but it doesn't quite meet the criteria in terms of size, strategic shift, et cetera, to be a discontinued operation. What we will be doing from quarter one is classifying it as available for sale or held for sale. And then we will, as you've seen with these results, continue to adjust out Graphic Arts from our ongoing results, as I have on the guidance, reflecting that it is no longer strategically part of Luxfer.

Thanks for that, Steve. If I could shift gears on to very, very strong performance for Gas Cylinders. Just trying to walk through the pieces a little bit on the SCBA agreements and how much they were a part of that. Did you get the full benefit of the new agreements in the quarter because this is your highest margin for that business in quite some time. So I'm trying to mix the much stronger volume versus the benefits from the new agreements. And also, I think you mentioned Q1 will be softer after a particularly strong volume quarter. Can you just sort of walk through the pieces of that margin and how you're thinking about that moving forward?

Yes, pleased to do that. Steve, we're very proud to be a leading supplier into the firefighter SCBA market and to be able to provide our lightweight high-pressure cylinders into what is a very important life-saving application. And so, yes, we're very pleased that Luxfer Gas Cylinders and their two largest customers have recently formalized these new multiyear supply agreements. As part of this, Luxfer Gas Cylinders has been able to make the necessary adjustments related to cost increases. Those did take effect from October, the start of Q4 2023. And those adjustments will now be executed on a quarterly basis going forward. Quarter Four was also a very strong period for demand in SCBA cylinders and we're really pleased with the way the Luxfer operations in Riverside stepped up to address that. Products for firefighters have been a bedrock of the cylinder business over the last 20 years. It's -- and in turn, very important for our customers' businesses. So we're very, very satisfied that these agreements are now in place with the associated supply continuity.

Excellent. Thanks for that, Steve. When I think about -- I think I may have the language wrong here, but gradual improvement in Elektron. Can you talk about strengthening versus not strengthening end markets for your Elektron -- varied Elektron businesses. And also, timing of seeing some of this additional magnesium supply, I would assume lower cost, how that can affect margins as we go through the year and into '25.

Yes. So magnesium supply is obviously an important part of the Elektron business. And you'll recall that the US magnesium plant has been offline since late in 2022 for some major maintenance and capital engineering work. We do maintain a regular dialogue with them, but the time line for a restart is still a little unclear. The overall landscape for magnesium supply has improved, though, especially over the last six months as some of the supply chains even out. And we've proactively developed and approved some alternative suppliers. And in 2024, we bought another one of those online, which is beneficial. So yes, while magnesium pricing is still up from historic levels, it's considerably lower than we saw at the peak in 2022. And as we work through our inventory as quickly as we can, we will see lower overall costs, which will be helpful as we seek to rebuild demand in the Elektron segment. And we do think that quarter four represents a low mark for Elektron last year. And we'd flagged some lower sales of products such as military, meals ready-to-eat, flameless ration heaters. And we're already seeing that demand coming back in quarter one. And some further strengthening in Elektron in quarter two in some of the general industrial and transportation products. So a difficult Q4 for Elektron and an increasingly brighter period ahead.

Thank you. At this time, I'll now turn the call back to CEO, Andy Butcher for final remarks.

Well, thank you for the questions, Steve, and thank you to everyone for joining the Luxfer call today. We are entering 2024 with favorable momentum as the structural changes to our operations, improve our cost base, our strategic pricing drives sustainable margin improvements and the definitive directions from our strategic review process gives us the opportunity to further unlock shareholder value. I'm really very pleased with the work on the strategic review process, and I look forward to discussing those three elements with you further in the quarters ahead, the disposal of the Graphic Arts business, the improved performance that we will see in Gas Cylinders and Elektron as we deliver profitable growth and the optionality that we now have in our portfolio. I hope that like me, you are excited about the prospects for 2024. Before I conclude, I'd like to mention that we will be attending the ROTH Conference on March 19th in Dana Point, California. In addition, we will also be attending numerous other conferences throughout the year. And I hope to have the opportunity to connect with many of you soon. As always, thank you for your interest and support in Luxfer. We look forward to updating you on our progress next quarter.

This concludes Luxfer's Q4 2023 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 at www.luxfer.com. You may now disconnect and have a wonderful day.