Good morning. My name is Lisa, and I'll be your conference operator today. Welcome to Luxfer's 2021 Second Quarter Earnings Conference Call. All lines have been placed on mute. After the speakers' remarks, there will be a question-and-answer session. Now, I will turn the call over to Heather from Luxfer. Heather, please go ahead..

Thank you, Lisa. Welcome to Luxfer's second quarter 2021 earnings call. We're happy to have you with us today. I'm Heather Harding, Luxfer's Chief Financial Officer. With me today is Alok Maskara, Luxfer's Chief Executive Officer.

On today's call, we will provide details on our second quarter 2021 performance as outlined 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 this presentation.

And 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. Please refer to the Safe Harbor statement on slide two of today's presentation for further details. Now, let me turn the call over to Alok..

Thanks, Heather, and welcome, everyone. Please turn to slide three or highlights from our second quarter results. I want to highlight three key messages on this page.

First, successful execution of our growth initiatives and strong recovery in our end markets, combined with the benefit of the SCI acquisition, resulted in 29% year-over-year growth in our second quarter revenues. Our adjusted diluted EPS was $0.36, an increase of almost 90% from the prior year.

The resulting EBITDA margin expanded 370 basis points to 17.5% driven by volume leverage and operational excellence. We remain confident of sustaining and improving our margins in the long-term. Second, we have been able to timely satisfy our customer's growing demand, despite the ongoing material supply and talent availability challenges.

However, we remain cautious and concerned about the impact of persistent material and talent shortages on our near-term results. I am grateful to the Luxfer team who continue to work diligently to secure material and attract talent so that we can minimize any customer disruption.

Third, we further strengthened our balance sheet this quarter, with a net debt to EBITDA ratio of 0.6 times, enabling us to maintain and accelerate investments in organic growth and operational excellence projects.

In addition, we will remain thoughtful and disciplined in our approach to acquisitions, while increasing shareholder returns through dividends and share buybacks. During the quarter, we also made significant progress on our key strategic and operational initiatives, and I'm going to highlight them in the next few pages.

Please turn to slide four for an update on alternative fuel growth initiatives. We are optimistic about the growth potential of our alternative fuel product line. We believe that the industry is growing at 20% to 25% per year, and that the total addressable market for this opportunity will $300 million by 2025.

We serve a small part of this total addressable market, hence have the opportunity to expand our offering in addition to capturing market growth. We continue to make growth investments to expand our product offerings and geographical reach to increase our compressed natural gas and hydrogen sales.

Luxfer's value proposition for this product line is driven by our decades of experience during which we had developed proprietary technology and relevant engineering capability. We offer a growing range of large diameter cylinders that range from 16-inch diameter typically use for buses to 27-inch diameter typically use for trucks.

For hydrogen, we offer a high temperature version that enables fast filling and are planning to introduce a larger diameter hydrogen cylinder in 2022. I want to point out that we offer solutions for both CNG and hydrogen, and have established positions in both.

The hydrogen end market is currently small, but is expected to grow faster and become larger than CNG beyond 2025. We are proud of our ability to meet our customer's need for CNG and hydrogen transport storage solution for public buses, commercial trucks, and bulk gas transportation.

We believe that alternative fuel will drive long-term growth for Luxfer. While composite cylinders for alternative fuel is our fastest growing product line, we also continue to drive innovation and growth in our other product lines. Turning to slide five. I am excited to share recent innovations in our magnesium product line.

Luxfer is the world's leading producer of magnesium alloys for a range of niche applications across multiple industries, including aerospace and industrial packaging. Today, I want to highlight three innovative magnesium growth opportunities being pursued by Luxfer.

For graphic arts application, we are launching a new magnesium alloy photoengraving plate that will increase the life of magnesium die and make it more competitive versus other materials, such as copper and brass. This innovation is expected to greatly enhance the total addressable market for magnesium alloy in the graphic arts application.

To penetrate new applications, we are increasing focus on engineered magnesium powders for Grignard reactions that are used in a wide variety of manufacturing processes, including production of lithium-ion batteries, hydrogen storage, lightweight composites, and 3-D printing.

As part of core innovation to develop new capabilities, our Manchester location has recently enhanced the billet and slab casting process that is expanding Luxfer reach into new customers and applications, while reducing our own manufacturing carbon footprint.

In addition to growth through the focus investment highlighted, success of our transformation plan is also enabling growth in other product lines. For an example of growth fueled by transformation plan success, please turn to slide six.

Our graphic art business has been going through the Luxfer transformation plan for the past three years and is now embarking on the growth and continuous improvement phase.

The transformation journey are the Luxfer graphic arts business unit started with simplification, which included delayering the organization to increase accountability and consolidating two U.S. sites into one to reduce customer lead-times while generating savings.

The larger consolidated site allowed us to attract and deploy stronger management and manufacturing leadership, while purposefully deploying the Luxfer values through a leader led training program.

In addition to cost savings, these changes have resulted in significant improvements in many operating metrics, such as safety, on time delivery, lead-times and customer quality.

As a result of these improved customer service levels and deployment of global growth talent and growth processes, the business is poised for growth and expected to capture greater share of the end market through innovation and customer excellence.

In addition to maintaining our growth focus, our teams are proactively responding to the current manufacturing challenges as summarized on slide seven. Just like many other manufacturing companies, Luxfer is facing a difficult set of challenges in ramping up production to meet the demand recovery.

Our teams are diligently working around the clock to address and mitigate these challenges, including material supply issues, breach delivery lead-times and talent availability.

In the second quarter, two of our critical suppliers declared force majeure, which is forcing our teams to identify additional suppliers for this critical raw material to serve our customers. Attracting manufacturing hourly employees remains a challenge, particularly in U.S.

We are proactively adjusting our wage structure and shift patterns, while implementing one-time actions, such as larger incentives to attract and retain talent. While we are making solid progress, we remain cautious about the impact of the disruptions on our results for the remainder of the year.

Now, let me turn the call over to Heather for details of our second quarter financials..

Thanks, Alok. I'll start the current quarter review on slide eight, with the summary of our performance by end markets. As a reminder, our sales can be classified into three key end user markets, defense, first response, and healthcare; transportation, which is a combination of alternative fuel aerospace and automotive and general industrial.

In the defense, first response and healthcare end market, sales increased by 14.2% for the second quarter versus the same quarter last year. We saw increased demand for our military products, as well as an increase in SCBA sales.

Sales in transportation grew to 32.7% in the second quarter, the recent SCI acquisition positively impacted sales performance of this end market.

In addition, we generated solid growth in our auto catalyst products, driven by industry recovery and wider adoption of gas, particulate filter Sales in the general industrial end market increased 45.3% in the quarter, driven by the strong market recovery.

Every product category within this end market grew relative to prior year, and we exceeded the industrial sales levels from the second quarter of 2019. Now, please turn to slide nine for a summary of our second quarter P&L results. Second quarter sales of $99 million increased 29.2% from the prior year, with favorable FX contribution of 5.9%.

The SCI acquisition added $8 million in second quarter sales or a little more than 10%. Growth in our general industrial products was a major contributor along with increases in both the transportation and the defense and first response end markets. Consolidated adjusted EBITDA $17.3 million for the quarter increased 63.2% versus the prior year.

In addition to the strong impact of operating leverage on incremental volumes, we were able to offset material inflation with price and generate net cost reductions as part of our ongoing productivity efforts. Overall, we achieved strong performance with sales growth, strong profitability and cash generation.

Now, let's look at our product segment results on slide 10. Elektron sales of $52.5 million increased 34.3% from the prior year. The falls [ph] increase was most pronounced in our general industrial products, with additional growth in military sales and auto catalysts.

EBITDA increased over 125% to $12 million, with the positive impact of sales leverage coupled with productivity improvements in the quarter. Gas Cylinder segment sales grew 24% to $46.5 million, including $8 million in sales from SCI. In addition, we saw a strong demand for industrial specialty cylinders and posted growth in our SCBA products.

EBITDA $5.3 million was flat to prior year. This productivity benefits were offset by SCI losses and lower core volumes. Now let's review our key balance sheet and cash flow metrics on slide 11. We ended the second quarter with a stronger balance sheet. Our net debt position improved to $39.5 million, leading to a net debt to EBITDA ratio of 0.6 times.

Second quarter operating working capital finished at $79.6 million or 20.1% of sales, which is a significant improvement over the prior year's 28% level even with the unfavorable impact of the SCI. Going forward, we had to maintain a targeted operating working capital range of 20% to 23% of sales.

After a strong cash flow start in the first quarter, we continued our cash focus. Generating free cash flow is $7 million in the second quarter, bringing our year-to-date cash total to $20.8 million. On a trailing 12-month basis, free cash flow total more than $57 million, which really illustrates the success our transformation plan has achieved.

Also on a trailing 12-month basis, we delivered 18.7%. ROIC on adjusted earnings. We have a strong balance sheet and are well-positioned to generate consistent free cash flow. Let's review our capital allocation priorities on slide 12. Our capital allocation priorities remain unchanged.

We expect to create value for internal execution, while remaining open to strategic acquisitions to supplement our organic growth. In the second quarter, we maintained our quarterly dividend of $3.4 million and also initiated our share repurchase plan spending $900,000 in cash for share buybacks.

Now, I'd like to review our updated 2021 guidance on slide 13. Given the Q2 performance, we have narrowed our full year guidance range to $1.15 to $1.30 compared to our previously communicated range of $1.10 to $1.30.

While our order book remains healthy, we remain cautious given the ongoing material supply challenges, freight disruptions and labor shortages experienced throughout the world. We'll continue our execution on cash management initiatives, targeting a 100% free cash flow conversion for the full year excluding restructuring.

We remain confident in our ability to successfully navigate through the recovery this year and be well-positioned to capture growth. Now, before to wrap up, I wanted to provide a brief update on ESG activities on slide 14. Luxfer has made meaningful progress against the environmental commitments that we made in our November, 2020 ESG Report.

We're pleased that our efforts so far have been acknowledged by external ESG rating firms like ISS. Throughout the year, we made continued improvements in all three categories. During the second quarter, we successfully commissioned new equipment at our St.

Louis facility that separates waste oil from ground magnesium, allowing us to recycle both materials and reuse them in our manufacturing processes, as well as generate a cost savings.

In addition, we are currently in the process of conducting carbon lifecycle analysis on our key products, which will help us identify and address the most carbon-intensive parts of our supply chain, enabling us to achieve our 2025 environmental goals.

In the social category, we remain committed to building a diverse and equitable workplace for all of our team members. As part of that commitment, we've increased our focus on diversity during the recruitment process. Through increased awareness and targeted recruiting practices, we expect to attract and maintain a stronger workforce.

Given the heightened awareness around IT and cybersecurity risks, we maintain a strong IT infrastructure and governance process. As such, we published our IT and cybersecurity policy statement on our website earlier this month that describes the actions we take to safeguard our IT infrastructure, systems and networks against cyber attacks.

So, to wrap up on slide 15, I'd like to highlight four key points. Luxfer serves attractive niche market with proprietary products and technology. Our transformation plan has deliberate results by simplifying our business, by reducing our cost structure and reshaping our portfolio towards higher growth.

The final phase of the transformation plan will take place over the next few years and focus on accelerating growth and delivering margin expansion. We have plenty of runway to create additional shareholder value by deploying the Luxfer business excellence standard toolkit to drive additional improvement and accelerate our growth.

So, once again, Alok and I want to thank all our employees around the world for safely operating our facilities during the pandemic, while always putting our customers first. So, thank you for listening and Alok and I will now take questions..

[Operator Instructions] Your first question comes from the line of Chris Moore with CJS Securities..

Thanks for taking a few questions. Maybe just ….

Good morning, Chris..

Good morning. Maybe just start with -- on the kind of alt fuel landscape. So, I know, Luxfer and Hexagon owns IP on the bigger hydrogen tanks.

I'm just trying to understand a little bit better that the partnership you talked about a couple of days ago with Octopus Hydrogen, does that create any kind of unique capabilities for Luxfer? Maybe just talk a little bit about the partnership and what you expect from that?.

Sure. One of the key growth areas, Chris, the alternate fuel area is bulk gas transportation. As we think about hydrogen, there's a lot demand for green bean [ph] trucks and one critical step to get there is to make sure options to transport hydrogen from the -- your production process to the point of usage.

And that's what the partnership with Octopus would do. With working together with them, it would create these modules, which would be able to go on -- what's it called the hydrogen haulers and a much more efficient than the current transportation process by increasing the amount of hydrogen that can be carried in a trailer.

While I wouldn't want to get into details of sort of the IP or the proprietary know-how, I do believe this is going to be a huge step forward in creating the right infrastructure that will deliver hydrogen, builds a point out for use so that could be used in that, because as you know, there are no pipelines or anything else that carry hydrogen.

Hydrogen haulers are very critical and we are very excited about partnerships like the ones we announced with Octopus..

Got it. Very helpful. Appreciate that. And maybe you could just talk a little bit about the drivers of leverage in fiscal 2022 and beyond. Gross margins were 26.2% in Q2.

Is it possible to get to a 30% gross margin someday?.

Yeah. I mean, if you think about the gross margin in Q2, which -- because there's some impact of seasonality, which is positive, but there's also a significant impact of SCI, which we talked about was detrimental on the margin terms. Chris, I don't want to commit to a 30% number, but I mean, that remains our long-term target to get to a 30% margin.

And in quite a few of our product lines are in fact we already there, so it's a matter of as volume comes back, because places like aerospace and others, we still don't have the volume back on the pre-COVID times. And all our new products typically have higher margins than our existing products.

So, putting it all together, I think that's a really good target for us..

Got it.

How about on the OpEx side? I mean, when you look at the kind of the growth in OpEx versus the growth in revenue, kind of how do you see that relationship?.

Our OpEx has been relatively flat to down over the past few years, as you can see, as we've continued to reduce facilities, control G&A. Going forward, I mean, we will look at OpEx growing that no more than half the rate of the revenue.

Now, there's obviously going to be quarter-over-quarter variations here and there, Chris, but that's a kind of internal model that we work on that OpEx growing no more than half the rate than the revenue growth..

Got it. That's helpful. Last one from me. Just -- you talked about two critical suppliers had declared force majeure, any kind of specifics in terms of the raw materials or your -- kind of your inventory status at this point in time on that front..

Sure. I think the one main supplier that we are very concerned about is -- our supplier who supplies zircon sand to us. This is the Rio Tinto own mine in Richards Bay Africa. And that's going to be public news. They have declared force majeure and have suspended operation.

While we have secondary suppliers, they have been a primary supplier, or is there a concern that we use for auto catalyst, industrial catalyst, medical applications. So that's the one that concerns us the most. We always keep a few weeks of inventory, but at this stage that's causing conservatism in our second half outlook.

And we have had to pull out of any new bids to make sure we can serve our existing customers first. So that's the one that's more concerning to us right now, Chris.

The other one, I think it's also concerning, it's a smaller supplier and I think it's a product where we feel like our secondary suppliers can ramp up and they can get back in action quickly..

All right. I'll leave it there. I appreciate it guys..

Thanks, Chris..

Your next question comes from the line of Craig Irwin with ROTH Capital Partners..

Hi. Good morning and thanks for taking my questions..

Good morning, Craig..

Hi. It seems like SCI is off to particularly strong start, an $8 million contribution in the quarter, kind of points towards execution at the high end of your $20 million to $25 million range that you gave us.

Can you maybe talk us through the integration of these assets? Are you seeing sales synergies or other intangible benefits, that's always difficult to quantify ahead of an acquisition? Are you seeing other things play out that might contribute to stronger execution of this business than originally thought?.

That's a great question. And then you are right. The SCI is off to a good start. We'd originally talk about $20 million to $25 million and Q2 was within a strong $8 million quarter. So, from our perspective, we did talk about $20 million to $25 million sort of in this year range.

That's a little better than expected from a overall position given the ongoing material and supply challenges. Our current focus is to make sure we can serve our customers well, and we've got good reception from the customers who are benefiting a lot from this acquisition and getting more stability to SCI.

Like our on-time delivery is getting better, to being able to work through customer relationship. So, at this stage, it's still early days. You know what I mean? We three months into it, we are pleased with the first quarter.

We have taken some immediate steps such as we have announced that currently they were occupying two buildings and we are going to within the same existing space, reduce one of the buildings and consolidate footprint. We are putting more capital into the business. So, things are going as expected, a slightly better.

And our focus in the short-term is to serve our customers, work with our customers and make sure that this becomes a win-win situation for everybody..

Excellent. Excellent. My second question is about the mixed benefit, particularly at Elektron.

Can you help us understand, which products are lifting the EBITDA margins there? Which products are outperforming in this current environment? And do you see this improvement in mix, that something that's likely to be sustained over the next couple quarters?.

Heather, do you want to take that?.

Good morning. Morning, Craig. It's always difficult to predict mix. However, what I would say is that in the current quarter, when you peel back the onion, we talked at great length about industrial products and certainly in the Elektron segment, those performed well. And I think that's one of the main contributors to the increased mix.

And we also talked about some increase in military products and those tend to have a good mix benefit as well. I wouldn't want to predict what will happen going forward. It's difficult with our range of product, because mix can be very tricky, but those are some of the major contributors in Q2..

Okay. Excellent. And another thing that's sort of moving in the right direction is your return on invested capital. Can you remind us sort of what you'd like to achieve there over the next few quarters? You have had a very nice rebound off the trough.

But what are the goals and what do you think key things are that we should monitor to see progress towards those goals?.

Sure. Craig, I mean, if I think about it, we are not a very capital-intensive business. And over the past few years, the team has done a great job, ensuring that any new capital deployed has good returns. And also with the portfolio cleanup that we executed, that's moved in the right direction. We like to be over 20%.

I think in the past, as you've seen, we were there and this is the pre-COVID days. Our goal would be to kind of get back to that level. And any of the acquisitions that come in I mean, that's a key metric that we use is looking at what's going to be ROIC in year two or year three. So we have good progress. We are pleased with that, but we are not done.

We want to get up to 20%..

Great. Last question, if I may. Free cash flow, I know this can be volatiles based on timing.

Were there any specific sort of last week, the quarter items that were an impact on free cash flow? Anything that you can potentially call out? And how should we look at the free cash flow potentially tracking with EBITDA over the next couple of quarters?.

Yeah. Craig, I'll take that one. So, when I think about the second quarter, there's nothing I could point to in that last week. We tend to have a pretty thoughtful and disciplined approach to cash. And since the transformation plan with our focus on operating working capital, I think you see some of the benefit there.

So, I would say it was pretty disciplined throughout the quarter. There wasn't anything unusual at the end of the quarter. As I said and as we outlined in the presentation, our goal is to deliver free cash flow, that a 100% conversion excluding restructuring.

So, we continue to look at that over the back half of the year and that would be our expectation. As you mentioned, quarter-to-quarter, it can be a little volatile, but certainly that's our expectation for the full year..

Great. Well, congratulations on a really solid result this quarter. We look forward to continued success..

Thanks, Craig..

Thank you..

Your question comes from the line of Sarkis Sherbetchyan with B. Riley Securities..

Hey, good morning, Alok and Heather..

Good morning, Sarkis..

Good morning..

Yeah. Hey, just had a few quick ones here. Look, I wanted to kind of get a sense for any potential adjustments to your critical supply stock. Are you anticipating on maybe increasing that safety stock going forward? Any thoughts there just kind of given the environment and maybe if that shifts your way of thinking? And then I have a few more..

Sure. I think if you go back to our working capital guidance, we talk about 20% to 23% in a range of our working capital. At this stage, I don't think we see ourselves going beyond the 23%, but clearly given the supply situation and things that I talked about and whether it's zircon or carbon fiber or anything else.

Yes, we are increasing safety stock to do any further constraints supply chain. Unfortunately, for us, most of our supply chain is very local with suppliers in the same region.

We have to have increase the safety stock only for a few ones, but I don't see ourselves reaching the 20%, 23% range that we have mentioned in the past, but we have making a huge conscious effort for any time constraint or material coming from overseas, we increase by, but it should not impact our cash flow guidance for the full year..

That's helpful.

And was carbon fiber, the other product that you are looking for alternative suppliers on?.

Yeah. Carbon fiber and kind of associated hardeners and resin, the entire supply chain. So, the carbon fiber, we buy through multiple sources and yes, we are concerned. But every material, including carbon fiber, the force majeure situation was with one of the components that go into carbon fiber manufacturing of the tanks..

Gotcha.

And would that be the resin?.

That's right. Resin and hardener..

Okay. Cool. Yeah. No, that's good to know. I've been hearing the same from others on the resin, so, could look on getting some of that stuff. And then, with regards to kind of the labor, I think in your slide you're calling out maybe some accelerated investments in automation.

As you kind of look at your playbook here, do you think this is an opportunity to really do some homework on which areas of your manufacturing processes you can automate further? And obviously, if you look at kind of your human worker versus automation, maybe get a better mix in place to avoid any of these potential hiccups going forward.

Just want to get your sense there..

Yes. Absolutely. And I think, I mean, I actually believe that these labor shortages, especially on the hourly one, are more permanent and are not going to go away, but any changes in federal incentives, it might ease a little bit.

So yes, we are very much aggressively moving towards automating our equipment, automating production lines, looking at newer ways of manufacturing and frankly looking at automating most of the workers that -- the good work that we were doing using temporary labor. We still need very qualified workers and we will continue pushing those.

But those would be more towards the machine operators and people who are actually programming or using the program machines. So, the lower end of the workforce, we have no choice, but to automate, and we are going to move aggressively, including like in our Cincinnati operation, our Riverside operation includes operations.

We will continue moving in that direction. So, I do think it's a step change needed, not just for us, but all sort of in U.S., European based manufacturing companies..

And just kind of on this thought point, right, are you finding it difficult to get the robotics and automation, or is this more of a longer term kind of planning process and you feel comfortable with deploying the investments over time?.

We feel comfortable we are applying the investments over time. Now we started on this journey two years ago. COVID may have put a little bit of pause in that. In quite a few cases, we have our machines specked out and our vendors are in decline and we are moving forward.

So, our lead times are longer than we'd like, but no, I'm not concerned about supplies, but those are different types of workers. Our largest shortage is in the hourly, low wage workers where you land up competing with the warehouse operators and others.

And on the higher end of scope, keep in mind, majority of our workers have been with the company for many years and have pay scale. And I think that same true for some of our automation suppliers, that end..

That’s good. I want to kind of come back to the mix at Elektron, I think in the 10-Q, the oil and gas, magnesium alloy product got a shout out.

So, anything changing there in regards to expectations there? Are you seeing some of those higher margin products or the demand for that, I should say, come back in kind of given where -- let's say oil prices have reset and maybe those customers are feeling a little bit better? Just want to get a sense for that if anything's changed or we should kind of still expect that to baseline and kind of trough at kind of COVID levels?.

Yeah. I'll take that. And Sarkis, last year we said, oil and gas was around $7 million or $8 million and we guided to something flat to that for this year. And certainly, Q2 was slightly stronger than Q1, but we're talking about sales in terms of low single million dollars. So, we did continue to see sales of SoluMag, and we kind of maintain that.

We expect it to be flat to maybe slightly up from prior year, but we haven't built in a huge increase. Certainly, we're actively watching what goes on in the oil and gas with regards to the price of oil, but we aren't planning for a huge rebound, nothing like we saw in some of our historical periods.

So, it was stronger in Q2, but it was in the low single million dollar range..

No. No, understood. And I guess, if I were to step back and think about that product in general, I mean, I think the feedback was that it's a fantastic product and it could displace some of the older things that were used. So, maybe it's not $8 million per year product, but maybe it's not also what we saw -- I think it was in 2017 or 2018.

So, what would you think is an appropriate aspirational level to get that product maybe in the next year or two on an annual basis?.

Sure. I think, let me take that one, Sarkis. So, I mean, clearly some of the peaks that we hit in 2018 was caused with some stocking levels being higher than normal. And then, we saw destocking going forward, right? So, I think that has an impact. And then, we saw the COVID lows, which was not good as well.

I think going forward, we remain very optimistic about the product. We have added new customers, which is one of our key strategic initiatives in there. And the products getting -- especially the new formulations continues to get very positive reviews in terms of substitution.

So, I think, going forward, we do expect the product to continue growing, especially as -- with oil prices improve. We would say it needs to go back into the double-digit millions on annual run rate, sticking around in the single digit million. And then, let's -- we can talk more in Q3, Q4 when we have more numbers to share there..

No. Fantastic. That's all for me. Thank you..

Thanks, Sarkis..

Your next question comes from the line of Michael Leshock with KeyBanc Capital Markets..

Hey, Alok and Heather, good morning..

Hi. Good morning..

Good morning, Michael..

So, firstly, I just wanted to ask on some of the recent market and supply chain challenges, how will those impact your year-to-date cost reduction progress going forward? Do you see any give back there given inflationary pressures or otherwise?.

Michael, let me take that. I mean, from our perspective, as you saw, Q2 was a strong quarter from net cost reductions and that's got a net up any additional cost impact that we may have faced because of great inflation and others.

Now, for things like general inflation, we have always done well and continue to expect doing well and matching that with pricing. So, it turns out in the long-term not to be a big winner or loser, that continues.

So, while we don't like it, in many cases, we have had to do two to three price increases since the beginning of the year, given really rapid material impact back. Net-net from cost reductions, I think some of the freight disruptions and air freighting and other expenses did impact us negatively this quarter.

And we hope that those -- and plan to make sure that those become less, so no major impact beyond the guidance that we have already looked at, which is going to do a better job, managing things like air freight cost and material we will continue offsetting to pricing..

Got it.

And then, how much in cash restructuring costs do you have remaining for the year?.

Yeah. In our guidance, Michael, I think, what we talked about, it's unchanged from the prior quarter at $16 million to $20 million. And year-to-date, it's been low single millions that we've paid out so far..

Okay.

And lastly, for me, how should we think about top line in the third quarter versus second quarter, given some of the macro and other market challenges that you're seeing and what do you see primarily driving your view there?.

So, Michael, from a backlog perspective, very strong spot right now, so our concern, which is why I'm not actually going to give you a quantitative answer to your question, Michael, is all around supply disruptions and labor availability and raw material available.

So, we have very strong backlog, but we are concerned given some of the material supply issues on the overall ability to fulfill those. So, we need some time to work through the uncertainty and we hope to report better numbers in Q3. But there is lots of uncertainty..

Thank you..

At this time, there are no further questions. Thank you for joining us today. The next regularly scheduled call will be in October of 2021 when the company discusses its 2021 third quarter financial results. This ends the Luxfer conference call. You may now disconnect..