Element Solutions Inc Announces 2021 Third Quarter Financial Results

• Net sales of $616 million, an increase of 29% from the third quarter last year on a reported basis or an increase of 13% on an organic basis
• GAAP diluted EPS of $0.15, unchanged from the prior year period; adjusted EPS of $0.35, compared to $0.22 in the same period last year
• Reported net income of $36 million, unchanged from the prior year period
• Adjusted EBITDA of $132 million, an increase of 25% from the third quarter last year on a constant currency basis
• Third quarter 2021 cash from operating activities of $92 million and free cash flow of $81 million
• Full-year 2021 guidance raised to an adjusted EBITDA range of $515 million to $525 million, and adjusted EPS of greater than $1.35

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, 2021.

Executive Commentary

President and Chief Executive Officer Benjamin Gliklich said, “Despite a problematic supply chain environment and turbulence in the automotive market, Element Solutions had a terrific third quarter. We grew net sales, maintained strong margins, and generated substantial free cash flow. This is a testament to the persistence of our excellent team all over the world delivering daily for our customers in the face of challenges in raw material procurement, logistics, and ongoing COVID-related matters. It is also a reflection of the powerful secular trends in next generation wireless technology and vehicle electrification propelling our electronics business to record performance. We are off to a running start with the Coventya integration, and the expected benefits of this combination in terms of growth opportunities and cost savings are becoming increasingly tangible just two months after closing.”

Mr. Gliklich continued, “While last year we had a very strong sequential and overall performance in the fourth quarter driven by the catch up in production post-COVID shutdowns and delayed mobile launches, the fourth quarter is traditionally slower than the third, and, with headwinds from supply chain disruptions, this year should be no different. Despite a far weaker automotive market, our full-year 2021 adjusted EBITDA guidance today remains in the range we communicated last quarter even before any contribution from our Coventya acquisition. To support top-line growth and build adequate safety stock, we have invested a significant amount in working capital this year. Nonetheless, we expect to grow free cash flow year over year. With the benefit of a full twelve months’ contribution from Coventya, our net debt ratio at the end of the quarter would have been below 3.0x, providing us with flexibility to continue to invest in growth and return capital in the forms of buybacks and/or cash dividend increases. Given this dynamic backdrop, it is early to comment on 2022, but our expectations are for robust growth. With the secular trends in our electronics business, an anticipated cyclical recovery in our industrial businesses, and our proven ability to outgrow both of these markets through strong execution, we expect another record year in 2022.”

Third Quarter 2021 Highlights (compared with third quarter 2020)

• Net sales on a reported basis for the third quarter of 2021 were $616 million, an increase of 29% over the third quarter of 2020. Organic net sales, which exclude the impact of currency changes, certain pass-through metal prices and acquisitions, increased 13%.
  • Electronics: Net sales increased 30% to $399 million. Organic net sales increased 11%.
  • Industrial & Specialty: Net sales increased 27% to $218 million. Organic net sales increased 15%.
• Third quarter of 2021 earnings per share (EPS) performance:
  • GAAP diluted EPS was $0.15 for the third quarter of 2021 and 2020, respectively.
  • Adjusted EPS was $0.35, as compared to $0.22 per share in prior year.
• Reported net income was $36 million for the third quarter of 2021 and 2020, respectively.
• Adjusted EBITDA for the third quarter of 2021 was $132 million, an increase of 29%. On a constant currency basis, adjusted EBITDA increased 25%.
  • Electronics: Adjusted EBITDA was $92 million, an increase of 28%. On a constant currency basis, adjusted EBITDA increased 24%.
  • Industrial & Specialty: Adjusted EBITDA was $39 million, an increase of 31%. On a constant currency basis, adjusted EBITDA increased 27%.
  • Adjusted EBITDA margin remained flat at 21.3% on a reported basis. On a constant currency basis, adjusted EBITDA margin decreased 20 basis points.
• Net debt to adjusted EBITDA ratio of 3.1x on a trailing twelve months basis.

2021 Guidance

The Company updated its full-year 2021 guidance and now expects adjusted EBITDA in the range of $515 million to $525 million, and adjusted EPS of greater than $1.35. In addition, the Company expects fourth quarter 2021 adjusted EBITDA to be approximately $118 million and full-year 2021 free cash flow of at least $265 million.

Recent Developments

Coventya Acquisition

On September 1, 2021, the Company completed the acquisition of Coventya Holding SAS and its subsidiaries for $486 million, net of cash. Coventya is a global provider of specialty chemicals for the surface finishing industry which complements the Company’s industrial portfolio. Coventya is included in the Company’s Industrial Solutions business line within our Industrial & Specialty business segment. The acquisition was funded with $400 million of add-on debt to the Company’s existing tranche B term loans and cash on hand.

Conference Call

Element Solutions will host a webcast/dial-in conference call to discuss its 2021 third quarter financial results at 8:30 a.m. (Eastern Time) on Thursday, October 28, 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 866-831-8713 (domestic) or 203-518-9822 (international) and provide the Conference ID: ESIQ321. 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 secular trends propelling the Company’s electronics business; integration of the Coventya acquisition and expected benefits from this transaction, including growth opportunities and cost savings; fourth quarter trend; the Company’s fourth quarter 2021 guidance with respect to adjusted EBITDA and full-year 2021 guidance with respect to adjusted EBITDA, adjusted EPS and free cash flow; growing free cash flow year over year; net debt ratio; flexibility to continue to invest in growth and return capital in the forms of buybacks and/or cash dividend increases; Board approval of future cash dividend payments; growth expectations for the full-year of 2022; secular trends in the Company’s electronics business, anticipated cyclical recovery in its industrial businesses, and its ability to outgrow both of these markets through execution; and another record year in 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 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, fourth 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. 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.

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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