Element Solutions Inc Announces 2022 Second Quarter Financial Results

• Net sales of $677 million, an increase of 15% from the second quarter last year on a reported basis or an increase of 6% on an organic basis
• GAAP diluted EPS of $0.25, compared to $0.32 in the same period last year; adjusted EPS of $0.38, compared to $0.35 in the same period last year
• Reported net income of $64 million, compared to $79 million in the same period last year
• Adjusted EBITDA of $140 million, an increase of 13% from the second quarter last year on a constant currency basis
• Second quarter 2022 cash from operating activities of $74 million and free cash flow of $66 million

MIAMI–(BUSINESS WIRE)–Element Solutions Inc (NYSE:ESI) (“Element Solutions” or the “Company”), a global and diversified specialty chemicals company, today announced its financial results for the three and six months ended June 30, 2022.

Executive Commentary

President and Chief Executive Officer Benjamin Gliklich said, “This quarter, Element Solutions continued to demonstrate the resilience and quality of its businesses amidst a period of heightened macro and supply chain disruption. Durable growth in many of our end-markets and solid execution against our strategies led to above-market sales growth and double-digit constant currency adjusted EBITDA growth. We grew organically in each of our business verticals with strong performance in Electronics that we expect to continue through the remainder of the year. Despite a weaker automotive market, our Industrial business also grew while benefiting from cost synergy realization from our recent acquisitions.”

Mr. Gliklich continued, “Business activity in the second quarter remained robust in our Electronics markets despite an extended lockdown in China while the automotive business continued to suffer from supply chain disruptions. Our outlook for our end markets in the second half of 2022 is roughly similar to what we have seen in the second quarter with only a modest sequential improvement in automotive. This quarter, our teams executed at a very high level building a record sales pipeline and record new business wins, taking ongoing actions designed to offset persistent inflation and protect margins, and nimbly managing the supply chain to deliver for our customers in this complex environment. However, the rapid rise in the U.S. dollar over the last 3 months has created material foreign exchange translation headwinds. We now expect a greater than $35 million year-over-year headwind to full year 2022 adjusted EBITDA due to FX translation, as opposed to the $20 million we had expected at the end of Q1 2022. This is driving the revision of our full-year 2022 adjusted EBITDA guidance to a range of $565 million to $575 million. While global macro conditions are deteriorating, we expect our full-year 2022 constant currency adjusted EBITDA growth rate to be modestly better than the prior range we provided in April this year given the strength of our execution, the demonstrated durability of our profits, improved synergy realization, and cost management. This guidance implies 12% reported dollar and greater than 20% constant currency adjusted EBITDA growth in the second half of 2022, despite a challenging economic picture. Our second quarter and outlook only further our conviction in the quality of our team and in the secular trends of high-power computing, next generation wireless, data storage and vehicle electrification propelling our business. Combined with the eventual recovery in the automotive market, Element Solutions is well positioned for long-term growth.”

Second Quarter 2022 Highlights (compared with second quarter 2021)

• Net sales on a reported basis for the second quarter of 2022 were $677 million, an increase of 15% over the second quarter of 2021.  Organic net sales, which exclude the impact of currency changes, certain pass-through metal prices and acquisitions, increased 6%.
  • Electronics: Net sales increased 11% to $439 million.  Organic net sales increased 8%.
  • Industrial & Specialty: Net sales increased 24% to $238 million.  Organic net sales increased 2%.
• Second quarter of 2022 earnings per share (EPS) performance:
  • GAAP diluted EPS was $0.25 for the second quarter of 2022 as compared to $0.32 for the second quarter of 2021.
  • Adjusted EPS was $0.38, as compared to $0.35 per share in prior year.
• Reported net income was $64 million for the second quarter of 2022, as compared to $79 million for the second quarter of 2021. 
• Adjusted EBITDA for the second quarter of 2022 was $140 million, an increase of 7%.  On a constant currency basis, adjusted EBITDA increased 13%.
  • Electronics: Adjusted EBITDA was $102 million, an increase of 8%.  On a constant currency basis, adjusted EBITDA increased 13%.
  • Industrial & Specialty: Adjusted EBITDA was $39 million, an increase of 2%.  On a constant currency basis, adjusted EBITDA increased 13%.
  • Adjusted EBITDA margin decreased 180 basis points to 20.7% on a reported basis.  On a constant currency basis, adjusted EBITDA margin decreased 170 basis points.
• Net debt to adjusted EBITDA ratio of 3.2x on a trailing twelve months basis.

Updated 2022 Guidance

For the full-year 2022, the Company updated its financial guidance for adjusted EBITDA to a range of $565 million to $575 million to reflect translational foreign exchange headwind. Full year constant currency adjusted EBITDA growth expectations are modestly higher than prior quarter guidance. Taking into consideration the translational currency headwind, the Company now expects full-year 2022 adjusted EPS of $1.52 to $1.55 and free cash flow of approximately $270 million. For the third quarter of 2022, adjusted EBITDA is expected to be approximately $140 million.

Recent Developments

As part of its stock repurchase program, during the second quarter of 2022, the Company repurchased 2.2 million shares of its common stock. These repurchases were in addition to 0.8 million of shares repurchased previously during 2022. The remaining authorization under the stock repurchase program was approximately $670 million at June 30, 2022.

In the second quarter of 2022, the Company adjusted its reporting segments to include results from its Films business in the Circuitry vertical within its Electronics segment instead of the Industrial Solutions vertical in its Industrial & Specialty segment. This change reflects the increasing commercial activity and opportunities it anticipates in printed and in-mold electronics. The impact of this change is reflected in the current and prior periods in this release and the other financial information provided today.

On July 27, 2022, the Company filed a universal shelf registration statement on Form S-3 with the Securities and Exchange Commission to replace its expiring shelf registration statement filed on August 2, 2019. This registration statement was a routine filing and became effective upon filing.

Conference Call

Element Solutions will host a webcast/dial-in conference call to discuss its 2022 second quarter financial results at 8:30 a.m. (Eastern Time) on Thursday, July 28, 2022. Participants on the call will include President and Chief Executive Officer Benjamin Gliklich and Chief Financial Officer Carey J. Dorman.

To listen to the call by telephone, please dial 800-343-1703 (domestic) or 203-518-9859 (international) and enter the Passcode/ID: 34776. The call will be simultaneously webcast at www.elementsolutionsinc.com. A replay of the call will be available after completion of the live call at www.elementsolutionsinc.com.

About Element Solutions

Element Solutions Inc is a leading global specialty chemicals company whose businesses supply a broad range of solutions that enhance the performance of products people use every day. Developed in multi-step technological processes, these innovative solutions enable customers’ manufacturing processes in several key industries, including consumer electronics, power electronics, semiconductor fabrication, communications and data storage infrastructure, automotive systems, industrial surface finishing, consumer packaging and offshore energy.

More information about the Company is available at www.elementsolutionsinc.com.

Forward-Looking Statements

This release is intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995 as it contains “forward-looking statements” within the meaning of the federal securities laws. These statements will often contain words such as “expect,” “anticipate,” “project,” “will,” “should,” “believe,” “intend,” “plan,” “assume,” “estimate,” “predict,” “seek,” “continue,” “outlook,” “may,” “might,” “aim,” “can have,” “likely,” “potential,” “target,” “hope,” “goal,” “priority,” “guidance” or “confident” and variations of such words and similar expressions. Examples of forward-looking statements include, but are not limited to, statements, beliefs, projections and expectations regarding strong performance in Electronics through the remainder of 2022; Industrial benefiting from cost synergy realization relating to the Company’s recent acquisitions; outlook for the Company’s end-markets in the second half of 2022; secular trends propelling the Company’s business; recovery of the automotive market; the Company’s position for long-term growth; increasing commercial activity and opportunities in printed and in-mold electronics; the impact of foreign exchange translation for the full year 2022 and expected year-over-year headwind to adjusted EBITDA due to the impact of foreign exchange translation; expected full year 2022 constant currency adjusted EBITDA growth based on execution, durability of profits, synergy realization and cost management; full-year 2022 guidance for adjusted EBITDA, adjusted EPS and free cash flow; third quarter 2022 guidance for adjusted EBITDA; and outlook for reported dollar and constant currency adjusted EBITDA growth in the second half of 2022. These projections and statements are based on management’s estimates, assumptions or expectations with respect to future events and financial performance, and are believed to be reasonable, though are inherently uncertain and difficult to predict. Such projections and statements are based on the assessment of information available as of the current date, and the Company does not undertake any obligations to provide any further updates. Actual results could differ materially from those expressed or implied in the forward-looking statements if one or more of the underlying estimates, assumptions or expectations prove to be inaccurate or are unrealized. Important factors that could cause actual results to differ materially from those suggested by the forward-looking statements include, but are not limited to, the duration and scope of the COVID-19 pandemic; the efficacy, availability and/or public acceptance of vaccines and treatments targeting COVID-19 and/or its variants; governments’, businesses’, and individuals’ actions in response to the pandemic; the general impact of the pandemic and the invasion of Ukraine by Russia on economic activity, including financial market instability and disruption of global supply chains, and on the Company’s customers, employees, suppliers, vendors and other stakeholders; inflation and fluctuations in foreign exchange rates; business and management strategies; outstanding debt and debt leverage ratio; shares repurchases; debt and/or equity issuance or retirement; returns to stockholders; and the impact of acquisitions, divestitures, restructurings, refinancings, impairments and other unusual items, including the Company’s ability to integrate and obtain the anticipated benefits, results and synergies from these items or other related strategic initiatives. Additional information concerning these and other factors that could cause actual results to vary is, or will be, included in the Company’s periodic and other reports filed with the Securities and Exchange Commission. The Company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

Non-GAAP Measures

To supplement the financial measures prepared in accordance with GAAP, Element Solutions presents in this release the following non-GAAP financial measures: EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted EPS, adjusted common shares outstanding, free cash flow, net debt to adjusted EBITDA ratio, organic net sales growth, full year 2022 guidance for adjusted EBITDA, adjusted EPS and free cash flow, second half 2022 guidance for constant currency adjusted EBITDA growth, and third quarter 2022 guidance for adjusted EBITDA. The Company also evaluates and presents its results of operations on a constant currency basis.

Management internally reviews these non-GAAP measures to evaluate performance on a comparative period-to-period basis in terms of absolute performance, trends and expected future performance of the Company’s business, and believes that these non-GAAP measures provide investors with an additional perspective on trends and underlying operating results on a period-to-period comparable basis. The Company also believes that investors find this information helpful in understanding the ongoing performance of its operations separate from items that may have a disproportionate positive or negative impact on its financial results in any particular period or that are considered to be associated with its capital structure. These non-GAAP financial measures, however, have limitations as analytical tools, and should not be considered in isolation from, a substitute for, or superior to, the related financial information that Element Solutions reports in accordance with GAAP. The principal limitation of these non-GAAP financial measures is that they exclude significant expenses and income that are required by GAAP to be recorded in the Company’s financial statements, and may not be completely comparable to similarly titled measures of other companies due to potential differences in calculation methods.

Contacts

Investor Relations:

Varun Gokarn

Senior Director, Strategy and Finance

Element Solutions Inc

1-561-406-8465

Media:

Liz Cohen

Managing Director

Kekst CNC

1-212-521-4845

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