Element Solutions Inc Announces 2022 Third Quarter Financial Results

• Net sales of $619 million, approximately flat from the third quarter last year on a reported basis; an increase of 5% on an organic basis
• GAAP diluted EPS of $0.22, compared to $0.15 in the same period last year; adjusted EPS of $0.36 as compared to $0.34 in the same period last year
• Reported net income of $53 million, as compared to $36 million in the same period last year
• Adjusted EBITDA of $134 million, an increase of 11% from the third quarter last year on a constant currency basis
• Third quarter 2022 cash from operating activities of $127 million and free cash flow of $116 million, an increase of 42% from the third quarter last year

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 nine months ended September 30, 2022.

Executive Commentary

President and Chief Executive Officer Benjamin Gliklich said, “Element Solutions delivered another strong quarter of growth, despite the accelerating macro headwinds in many of our end markets. Typical seasonal patterns did not materialize. In September, demand in Europe did not recover from August holidays. Electronics markets weakened, particularly in China, in contrast to their normal third quarter ramp. Nonetheless, we grew organically in both our operating segments as pricing actions, new business wins and a focus on high-growth electronics applications helped to offset soft volume. Our sales outpaced our markets. Inflation in raw materials and logistics together with mix were headwinds to adjusted EBITDA in the quarter as was the strengthening U.S. dollar; however cost management from synergies and actions taken in the quarter offset these impacts. Adjusted EBITDA grew year over year.”

Mr. Gliklich continued, “While we continue to execute well commercially and operationally, the combination of weak electronics markets, economic stress in Europe and record U.S. dollar strength will drive a greater than typical sequential decline in the fourth quarter. Accordingly, we are aligning our guidance with this backdrop. While we do not expect an imminent recovery in certain key end-markets, our conviction in their long-term health is unbroken. Customers remain highly engaged with our commercial and technical teams, and we have seen an acceleration in interest in several of our newer technology offerings, including products in semiconductor assembly, high-end circuit board and sustainable industrial surface treatment amongst others. The growth opportunities in markets and applications for power electronics, 5G technologies and more sustainable chemistry should be substantial over time. In the interim, we will continue to take actions designed to protect profits and generate outsized free cash flow to reinvest behind our businesses.”

Third Quarter 2022 Highlights (compared with third quarter 2021)

• Net sales on a reported basis for the third quarter of 2022 were $619 million, approximately flat over the third quarter of 2021. Organic net sales, which exclude the impact of currency changes, certain pass-through metal prices and acquisitions, increased 5%.
  • Electronics: Net sales decreased 6% to $388 million. Organic net sales increased 5%.
  • Industrial & Specialty: Net sales increased 13% to $231 million. Organic net sales increased 6%.
• Third quarter of 2022 earnings per share (EPS) performance:
  • GAAP diluted EPS was $0.22 for the third quarter of 2022 as compared to $0.15 for the third quarter of 2021.
  • Adjusted EPS was $0.36, as compared to $0.34 per share in prior year.
• Reported net income was $53 million for the third quarter of 2022 as compared to $36 million for the third quarter of 2021.
• Adjusted EBITDA for the third quarter of 2022 was $134 million, an increase of 2%. On a constant currency basis, adjusted EBITDA increased 11%.
  • Electronics: Adjusted EBITDA was $91 million, a decrease of 5%. On a constant currency basis, adjusted EBITDA increased 2%.
  • Industrial & Specialty: Adjusted EBITDA was $42 million, an increase of 22%. On a constant currency basis, adjusted EBITDA increased 38%.
  • Adjusted EBITDA margin increased 40 basis points to 21.6% on a reported basis. On a constant currency basis, adjusted EBITDA margin increased 40 basis points.
• Net debt to adjusted EBITDA ratio of 3.1x on a trailing twelve month basis.

Updated 2022 Guidance

For the full-year 2022, the Company updated its financial guidance for adjusted EBITDA in a range of $525 million to $530 million to reflect increased translational foreign exchange headwinds and lowered macro-economic growth assumptions. The Company’s expectation is for Q4 2022 adjusted EBITDA to be approximately flat year-over-year on a constant currency basis. Full-year constant currency adjusted EBITDA growth implied by the Company’s guidance is 8%. The Company also now expects full-year 2022 adjusted EPS of $1.40 to $1.42 and free cash flow of approximately $250 million.

Recent Developments

As part of its stock repurchase program, during the third quarter of 2022, the Company repurchased 3.0 million shares of its common stock. Through September 30, 2022, the Company has repurchased 6.0 million shares in 2022. The remaining authorization under the stock repurchase program was approximately $616 million at September 30, 2022.

Conference Call

Element Solutions will host a webcast/dial-in conference call to discuss its 2022 third quarter financial results at 8:30 a.m. (Eastern Time) on Thursday, October 27, 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 888-510-2346 (domestic) or 646-960-0111 (international) and enter the Conference ID: 3799230. 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 market and economic trends, including accelerating macro headwinds in many of the Company’s end markets, weak electronic markets, economic stress in Europe and record U.S. dollar strength; key end-markets recovery and long-term health; customer engagement; interest in the Company’s newer technology offerings; growth opportunities; actions designed to protect profits and generate outsized free cash flow; reinvestment in the Company’s businesses; fourth quarter 2022 guidance for adjusted EBITDA on a constant currency basis; and full-year 2022 guidance for adjusted EBITDA, constant currency adjusted EBITDA growth, adjusted EPS and free cash flow. 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.

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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CONDENSED CONSOLIDATED BALANCE SHEETS

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

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ADDITIONAL FINANCIAL INFORMATION

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⁽¹⁾ In the second quarter of 2022, the Company transferred its Films business from its Industrial business in the Industrial & Specialty segment to its Circuitry business in the Electronics segment. Historical information has been reclassified to include the Films business in the Electronics segment for all periods presented.

⁽¹⁾ Element Solutions swapped its floating term loan rate to a fixed rate for its initial $750 million term loans through January 2024 and its incremental $400 million add-on term loans through January 2025, which could vary in the future due to changes in the euro and the U.S. dollar exchange rate. At September 30, 2022, approximately 100% of the Company’s debt was fixed.

⁽²⁾ See “Non-GAAP Adjusted Common Shares Outstanding at September 30, 2022 and 2021″ following the footnotes under the “Adjusted Earnings Per Share (EPS)” reconciliation table below.

⁽³⁾ Based on the closing price of the shares of Element Solutions of $16.27 at September 30, 2022.

Non-GAAP Measures

To supplement its 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 and constant currency adjusted EBITDA growth, adjusted EPS and free cash flow, and fourth quarter 2022 guidance for constant currency adjusted EBITDA. The Company also evaluates and presents other 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 with respect to 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 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. In addition, these measures are subject to inherent limitations as they reflect the exercise of judgment by management about which items are excluded or included in determining these non-GAAP financial measures. Investors are encouraged to review the definitions and reconciliations of these non-GAAP financial measures to their most comparable GAAP financial measures included in this press release, and not to rely on any single financial measure to evaluate the Company’s businesses.

The Company only provides full year 2022 guidance for adjusted EBITDA, constant currency adjusted EBITDA growth, adjusted EPS and free cash flow, and fourth quarter 2022 guidance for constant currency adjusted EBITDA on a non-GAAP basis and does not provide reconciliations of such forward-looking non-GAAP measures to GAAP due to the inherent difficulty in forecasting and quantifying, without unreasonable efforts, certain amounts that are necessary for such reconciliations, including adjustments that could be made for restructurings, refinancings, impairments, divestitures, integration and acquisition-related expenses, share-based compensation amounts, non-recurring, unusual or unanticipated charges, expenses or gains, adjustments to inventory and other charges reflected in its reconciliation of historic numbers, the amount of which, based on historical experience, could be significant.

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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