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Element Solutions Inc Announces 2022 Second Quarter Financial Results

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·12 min read
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  • 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, July 27, 2022--(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.

ELEMENT SOLUTIONS INC

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

Three Months Ended June 30,

Six Months Ended June 30,

(dollars in millions, except per share amounts)

2022

2021

2022

2021

Net sales

$

676.9

$

586.6

$

1,357.1

$

1,136.7

Cost of sales

427.1

348.1

844.3

657.2

Gross profit

249.8

238.5

512.8

479.5

Operating expenses:

Selling, technical, general and administrative

146.5

154.7

299.9

284.3

Research and development

12.8

12.8

26.9

24.3

Total operating expenses

159.3

167.5

326.8

308.6

Operating profit

90.5

71.0

186.0

170.9

Other (expense) income:

Interest expense, net

(13.2

)

(12.9

)

(27.3

)

(25.8

)

Foreign exchange gain (loss)

2.7

(5.2

)

2.0

22.8

Other income (expense), net

7.5

(5.7

)

3.2

(7.3

)

Total other (expense) income

(3.0

)

(23.8

)

(22.1

)

(10.3

)

Income before income taxes and non-controlling interests

87.5

47.2

163.9

160.6

Income tax (expense) benefit

(23.9

)

31.9

(43.9

)

0.8

Net income from continuing operations

63.6

79.1

120.0

161.4

Income from discontinued operations, net of tax

1.8

2.0

1.8

2.0

Net income

65.4

81.1

121.8

163.4

Net income attributable to non-controlling interests

(0.2

)

(0.5

)

Net income attributable to common stockholders

$

65.2

$

81.1

$

121.3

$

163.4

Earnings per share

Basic from continuing operations

$

0.25

$

0.32

$

0.48

$

0.65

Basic from discontinued operations

0.01

0.01

0.01

0.01

Basic attributable to common stockholders

$

0.26

$

0.33

$

0.49

$

0.66

Diluted from continuing operations

$

0.25

$

0.32

$

0.48

$

0.65

Diluted from discontinued operations

0.01

0.01

0.01

0.01

Diluted attributable to common stockholders

$

0.26

$

0.33

$

0.49

$

0.66

Weighted average common shares outstanding

Basic

247.1

247.5

247.2

247.4

Diluted

247.5

247.9

248.3

248.0

ELEMENT SOLUTIONS INC

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

June 30,

December 31,

(dollars in millions)

2022

2021

Assets

Cash & cash equivalents

$

215.6

$

330.1

Accounts receivable, net of allowance for doubtful accounts of $14.5 and $12.2 at June 30, 2022 and December 31, 2021, respectively

527.1

492.2

Inventories

337.7

274.4

Prepaid expenses

33.7

29.4

Other current assets

123.7

88.4

Total current assets

1,237.8

1,214.5

Property, plant and equipment, net

265.7

278.1

Goodwill

2,425.4

2,526.3

Intangible assets, net

866.9

956.7

Deferred income tax assets

58.4

81.5

Other assets

155.5

81.3

Total assets

$

5,009.7

$

5,138.4

Liabilities and stockholders' equity

Accounts payable

$

175.6

$

138.4

Current installments of long-term debt

13.5

12.7

Accrued expenses and other current liabilities

205.9

264.1

Total current liabilities

395.0

415.2

Debt

1,889.9

1,894.2

Pension and post-retirement benefits

31.9

36.1

Deferred income tax liabilities

131.7

140.0

Other liabilities

146.0

152.1

Total liabilities

2,594.5

2,637.6

Stockholders' equity

Common stock: 400.0 shares authorized (2022: 265.0 shares issued; 2021: 261.9 shares issued)

2.7

2.6

Additional paid-in capital

4,176.4

4,166.6

Treasury stock (2022: 19.2 shares; 2021: 15.2 shares)

(244.9

)

(159.2

)

Accumulated deficit

(1,250.6

)

(1,331.9

)

Accumulated other comprehensive loss

(285.4

)

(197.4

)

Total stockholders' equity

2,398.2

2,480.7

Non-controlling interests

17.0

20.1

Total equity

2,415.2

2,500.8

Total liabilities and stockholders' equity

$

5,009.7

$

5,138.4

ELEMENT SOLUTIONS INC

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Three Months Ended

Six Months Ended June 30,

(dollars in millions)

June 30, 2022

March 31, 2022

2022

2021

Cash flows from operating activities:

Net income

$

65.4

$

56.4

$

121.8

$

163.4

Net income from discontinued operations, net of tax

1.8

1.8

2.0

Net income from continuing operations

63.6

56.4

120.0

161.4

Reconciliation of net income from continuing operations to net cash flows provided by (used in) operating activities:

Depreciation and amortization

40.6

41.6

82.2

79.2

Deferred income taxes

5.4

2.5

7.9

(35.7

)

Foreign exchange loss (gain)

0.2

(0.1

)

0.1

(20.4

)

Incentive stock compensation

3.6

5.2

8.8

21.3

Other, net

3.4

4.3

7.7

0.8

Changes in assets and liabilities, net of acquisitions:

Accounts receivable

(10.2

)

(49.6

)

(59.8

)

(38.0

)

Inventories

(28.4

)

(47.5

)

(75.9

)

(67.9

)

Accounts payable

2.0

41.2

43.2

37.8

Accrued expenses

6.4

(49.6

)

(43.2

)

(8.8

)

Prepaid expenses and other current assets

(4.8

)

(10.5

)

(15.3

)

(14.8

)

Other assets and liabilities

(7.5

)

0.5

(7.0

)

(1.9

)

Net cash flows provided by (used in) operating activities

74.3

(5.6

)

68.7

113.0

Cash flows from investing activities:

Capital expenditures

(12.2

)

(9.5

)

(21.7

)

(17.3

)

Proceeds from disposal of property, plant and equipment

3.4

3.4

Acquisition of business, net of cash acquired

(22.6

)

(22.6

)

(50.9

)

Other, net

(0.1

)

(5.0

)

(5.1

)

19.1

Net cash flows used in investing activities

(8.9

)

(37.1

)

(46.0

)

(49.1

)

Cash flows from financing activities:

Repayments of borrowings

(3.2

)

(3.1

)

(6.3

)

(3.7

)

Repurchases of common stock

(41.4

)

(18.3

)

(59.7

)

Dividends

(19.7

)

(19.9

)

(39.6

)

(27.2

)

Other, net

2.0

(25.8

)

(23.8

)

(6.4

)

Net cash flows used in financing activities

(62.3

)

(67.1

)

(129.4

)

(37.3

)

Net cash flows provided by operating activities of discontinued operations

1.8

1.8

Effect of exchange rate changes on cash and cash equivalents

(8.1

)

(1.5

)

(9.6

)

(0.1

)

Net (decrease) increase in cash and cash equivalents

(3.2

)

(111.3

)

(114.5

)

26.5

Cash and cash equivalents at beginning of period

218.8

330.1

330.1

291.9

Cash and cash equivalents at end of period

$

215.6

$

218.8

$

215.6

$

318.4

ELEMENT SOLUTIONS INC

ADDITIONAL FINANCIAL INFORMATION

(Unaudited)

I. SEGMENT RESULTS (1)

Three Months Ended June 30,

Six Months Ended June 30,

(dollars in millions)

2022

2021

Reported

Constant
Currency

Organic

2022

2021

Reported

Constant
Currency

Organic

Net sales

Electronics

$

438.9

$

394.9

11

%

16

%

8

%

$

878.8

$

761.3

15

%

19

%

8

%

Industrial & Specialty

238.0

191.7

24

%

35

%

2

%

478.3

375.4

27

%

37

%

3

%

Total

$

676.9

$

586.6

15

%

23

%

6

%

$

1,357.1

$

1,136.7

19

%

25

%

6

%

Adjusted EBITDA

Electronics

$

101.5

$

93.7

8

%

13

%

$

202.6

$

191.2

6

%

9

%

Industrial & Specialty

38.9

38.1

2

%

13

%

82.6

78.4

5

%

15

%

Total

$

140.4

$

131.8

7

%

13

%

$

285.2

$

269.6

6

%

11

%

...