Element Solutions Inc Announces 2021 Second Quarter Financial Results

• Net sales of $587 million, an increase of 52% from the second quarter last year on a reported basis or an increase of 30% on an organic basis
• GAAP diluted EPS of $0.32, compared to $0.01 in the same period last year; adjusted EPS of $0.35, compared to $0.18 in the same period last year
• Reported net income of $79 million, compared to $2 million in the same period last year
• Adjusted EBITDA of $133 million, an increase of 47% from the second quarter last year on a constant currency basis
• Second quarter 2021 cash from operating activities of $80 million and free cash flow of $72 million
• Full year 2021 guidance raised to an adjusted EBITDA range of $505 million to $520 million, and adjusted EPS of at least $1.35
• Coventya acquisition expected to close in September 2021, subject to customary closing conditions

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, 2021.

Executive Commentary

President and Chief Executive Officer Benjamin Gliklich said, “Element Solutions had a terrific second quarter. We continued to execute against our growth strategy, driving strong organic performance and deploying capital prudently to compound earnings per share. This quarter was a record on the top-line — and included our first month with net sales in excess of $200 million — since we founded Element Solutions. Our teams have been navigating supply chain constraints and raw material shortages attentively to meet the robust demand in our end-markets. While COVID continues to impact our business, as well as those of our customers and suppliers, it has not stopped us from executing our strategy effectively. We announced two highly strategic acquisitions in the second quarter of 2021 that we believe will allow us to provide a wider array of world-class solutions to our customers, growth opportunities for our people, and accelerated earnings growth for our shareholders. We are incredibly grateful to our people who have enabled this execution in a challenging environment.”

Mr. Gliklich continued, “We expect demand to remain strong through the third quarter in our key end markets and a return to a more typical second half seasonal pattern with a stronger third quarter and deceleration in the fourth quarter. While the impact of increasing logistics costs will continue into the third quarter, year-to-date pricing actions associated with raw material inflation should help support margins. In that context, we expect adjusted EBITDA in the third quarter of 2021 to be between $125 million and $130 million. We are increasing our full year 2021 adjusted EBITDA guidance range to $505 million to $520 million reflecting our recent outperformance and continued strength in our markets. We expect adjusted EPS to be at least $1.35 for the full year of 2021, representing a compound annual growth rate of more than 26% from our adjusted EPS in 2018 prior to our launch as Element Solutions. This guidance does not include the impact of our pending acquisition of Coventya, which we expect to contribute approximately 7 cents to adjusted EPS on an annualized basis.”

Second Quarter 2021 Highlights (compared with second quarter 2020)

• Net sales on a reported basis for the second quarter of 2021 were $587 million, an increase of 52% over the second quarter of 2020. Organic net sales, which exclude the impact of currency changes, certain pass-through metal prices and acquisitions, increased 30%.
  • Electronics: Net sales increased 51% to $382 million. Organic net sales increased 25%.
  • Industrial & Specialty: Net sales increased 53% to $205 million. Organic net sales increased 41%.
• Second quarter of 2021 earnings per share (EPS) performance:
  • GAAP diluted EPS was $0.32 for the second quarter of 2021, as compared to $0.01 for the second quarter of 2020.
  • Adjusted EPS was $0.35, as compared to $0.18 per share in prior year.
• Reported net income for the second quarter of 2021 was $79 million, as compared to $2 million for the second quarter of 2020.
• Adjusted EBITDA for the second quarter of 2021 was $133 million, an increase of 57%. On a constant currency basis, adjusted EBITDA increased 47%.
  • Electronics: Adjusted EBITDA was $91 million, an increase of 56%. On a constant currency basis, adjusted EBITDA increased 46%.
  • Industrial & Specialty: Adjusted EBITDA was $42 million, an increase of 58%. On a constant currency basis, adjusted EBITDA increased 50%.
  • Adjusted EBITDA margin increased 80 basis points to 22.7% on a reported basis. On a constant currency basis, adjusted EBITDA margin increased 50 basis points.
• Net debt to adjusted EBITDA ratio of 2.4x on a trailing twelve months basis.

2021 Guidance

The Company increased its full year 2021 guidance and now expects adjusted EBITDA in the range of $505 million to $520 million, and adjusted EPS of at least $1.35, excluding the potential impact of the Coventya acquisition. Based on Coventya’s projected adjusted EBITDA of approximately $35 million for its fiscal year ending on September 30, 2021, the Company expects the Coventya acquisition to contribute approximately $0.07 per share of adjusted EPS to Element Solutions on an annualized basis. In addition, the Company expects third quarter 2021 adjusted EBITDA to be between $125 million and $130 million, excluding any potential impact from the Coventya acquisition.

Recent Developments

HKW Acquisition

On May 5, 2021, the Company completed the HKW acquisition for $50.9 million, net of cash, subject to post-closing adjustments. The H.K. Wentworth business specializes in conformal coatings, encapsulation resins, thermal interface materials, contact lubricants and cleaning chemistry and complements our broader electronics portfolio with many applications overlapping with semiconductor technologies. The operations of the H.K. Wentworth business are included in the Company’s Electronics business segment.

Proposed Coventya Acquisition

On June 11, 2021, the Company announced its planned acquisition of Coventya Holdings SAS, a global provider of specialty chemicals for the surface finishing industry, for a purchase price expected to be approximately €420 million, subject to adjustments. This acquisition is expected to close in September 2021, subject to customary closing conditions. The Company expects to fund this acquisition with $400 million of add-on debt to its existing term loans and cash on hand. The add-on transaction, which was priced and allocated on June 23, 2021, is expected to close concurrently with the Coventya acquisition, subject to the finalization and execution of its definitive documentation. On June 29, 2021, the Company also entered into forward starting swaps to effectively convert the $400 million of anticipated add-on debt into fixed-rate euro-denominated debt through their maturity in January 2025. The forward starting swaps are expected to become effective when the add-on transaction closes.

Conference Call

Element Solutions will host a webcast/dial-in conference call to discuss its 2021 second quarter financial results at 8:30 a.m. (Eastern Time) on Thursday, July 29, 2021. Participants on the call will include Executive Chairman Sir Martin E. Franklin, President and Chief Executive Officer Benjamin Gliklich and EVP, Chief Financial Officer Carey J. Dorman.

To listen to the call by telephone, please dial 877-876-9177 (domestic) or 785-424-1672 (international) and provide the Conference ID: ESIQ221. 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 the Company’s continued execution against its growth strategy to drive organic performance and deploy capital prudently to compound earnings per share; recent and pending acquisitions providing wider array of solutions to the Company’s customers, growth opportunities and accelerated earnings growth; strong demand in the third quarter of 2021 in the Company’s key end markets; return to a more typical second half seasonal pattern; impact of increasing logistics costs to continue into the third quarter 2021; pricing actions associated with raw material inflation to help support margins; trend relating of logistics costs in the near term; third quarter 2021 adjusted EBITDA guidance; full year 2021 guidance with respect to adjusted EBITDA, adjusted EPS and free cash flow; the Coventya acquisition’s contributions to the Company’s adjusted EBITDA and adjusted EPS for the full year 2021; the parties’ ability to satisfy the closing conditions of the Coventya acquisition and to finalize and execute the definitive documentation relating to the add-on debt, including the execution of an amendment to the Company’s credit agreement and closing of the incremental facility for the increase of the existing term loans; the timing of the closing of the Coventya acquisition, the purchase price for the Coventya acquisition, funding of the add-on transaction and effective date of the related swaps; and the use of proceeds from the add-on transaction. 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 of the pandemic; the efficacy, availability and/or public acceptance of vaccines targeting COVID-19; the impact of variants of COVID-19 that may affect its spread or virulence or the effectiveness of vaccines on the virus; the impact of actions taken or that might be taken by governments, businesses or individuals to contain or reduce its repercussions and mitigate its economic implications; evolving macroeconomic factors, including general economic uncertainty, unemployment rates, and recessionary pressures; decreased consumer spending levels; reduction or changes in customer demand for the Company’s products and services; the Company’s ability to manufacture, sell and provide its products and services, including as a result of travel restrictions, closed borders, operating restrictions imposed on its facilities or reduced ability of its employees to continue to work efficiently; increased operating costs (whether as a results of changes to the Company’s supply chain or increases in employee costs or otherwise); collectability of customer accounts; additional and prolonged devaluation of other countries’ currencies relative to the U.S. dollar; the general impact of the pandemic on the Company’s customers, employees, suppliers, vendors and other stakeholders; the Company’s ability to realize the expected benefits of its cost containment and cost savings measures; business and management strategies; outstanding debt and debt leverage ratio; shares repurchases; expected returns to stockholders; and the impact of acquisitions, divestitures, restructurings, refinancings, impairments and other unusual items, including the Company’s ability to raise and/or retire new debt and/or equity and 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, third quarter 2021 guidance for adjusted EBITDA and full year 2021 guidance for adjusted EBITDA, adjusted EPS and free cash flow. 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.

Contacts

Investor Relations Contact:

Varun Gokarn

Senior Director, Strategy and Finance

Element Solutions Inc

1-561-406-8465

Media Contact:

Liz Cohen

Managing Director

Kekst CNC

1-212-521-4845

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