First Quarter 2024
Earnings Presentation
Enabling Technology.
Growing Sustainably.
Legal Notices
SAFE HARBOR
Please note that in this presentation, we may discuss events or results that have not yet occurred or been realized, commonly referred to as forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on behalf of the Company. Such discussion and 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, and relate in this presentation, without limitation, to Kuprion commercialization; markets recovery; free cash flow generation; FY 2024 cash flow outlook, including cash interest, cash taxes and net capex; net debt to adj. EBITDA ratio below 3.0x by year-end;non-GAAP effective tax rate; full year 2024 financial guidance for adjusted EBITDA, constant currency adjusted EBITDA growth, adjusted earnings per share (EPS) and free cash flow; Q2 2024 financial guidance for adjusted EBITDA; FX headwinds, margin tailwind from raw materials and logistics; market trends; and margin recapture and market recovery.
These projections and statements are based on management's estimates, assumptions and 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 war between Russia and Ukraine and the Israel-Hamas conflict and other hostilities in the Middle-East as well as actions in response thereto and their impact on market conditions and the global economy; the continuing economic impact of the coronavirus (COVID-19) and its variants on the global economy and supply chains; price volatility and cost environment; inflation and fluctuations in foreign exchange rates; outstanding debt and debt leverage ratio; shares repurchases; debt and/or equity issuance or retirement; expected 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 periodic and other reports of Element Solutions filed with the Securities and Exchange Commission. Element Solutions undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. This presentation also includes FY 2024 free cash flow outlook. This data is provided for informational purposes only and is not necessarily, and should not be assumed to be, an indication of the results that may be achieved in the future.
NON-GAAP FINANCIAL MEASURES
To supplement its financial measures prepared in accordance with generally accepted accounting principles in the United States ("GAAP"), the Company presents the following non-GAAP financial measures: EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted EPS, adjusted common shares outstanding, free cash flow, net leverage ratio, organic net sales growth, full year 2024 financial guidance for adjusted EBITDA, constant currency adjusted EBITDA growth, adjusted EPS and free cash flow; and Q2 2024 financial guidance for adjusted EBITDA. The Company also evaluates and presents its results of operations on a constant currency basis. The definitions and reconciliations of these non-GAAP measures to the most directly comparable financial measures calculated and presented in accordance with GAAP can be found in the footnotes and appendix of this presentation and in the Company's earnings release dated April 29, 2024 (the "Release"), a copy of which can be found on the Company's website at www.elementsolutionsinc.com. This presentation should be read in conjunction with the Release.
Management internally reviews these non-GAAP measures to evaluate performance and liquidity 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 as well as their ability to generate cash 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 the Company reports in accordance with GAAP. Investors are encouraged to review the definitions and reconciliations of these non-GAAP financial measures to their most comparable GAAP financial measures included herein and in the Release, and not to rely on any single financial measure to evaluate the Company's businesses.
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First Quarter 2024 Financial Results
Q1 Highlights | |||||||||||
• Constant currency Adj. EBITDA* growth of 17% | • High-teens volume growth in semiconductor vertical | ||||||||||
• Adj. EBITDA* margins +260 bps | • Another step towards Kuprion commercialization | ||||||||||
with first product qualification payment | |||||||||||
Constant | |||||||||||
Currency* | Organic* | ||||||||||
($ in millions) | Q1 2024 | Q1 2023 | YoY | YoY | YoY | ||||||
Net Sales | $575 | $574 | 0% | 2% | 1% | ||||||
Electronics | 349 | 340 | 3% | 5% | 4% | ||||||
Industrial & Specialty | 226 | 235 | (4)% | (3)% | (3)% | ||||||
GAAP Diluted EPS | $0.23 | $0.18 | |||||||||
Adj. EBITDA* | $127 | $112 | 13% | 17% | |||||||
% margin | 22.1% | 19.5% | 260 bps | 290 bps | |||||||
Electronics | 84 | 73 | 15% | 20% | |||||||
% margin | 24.0% | 21.4% | 260 bps | 300 bps | |||||||
Industrial & Specialty | 43 | 40 | 9% | 11% | |||||||
% margin | 19.1% | 16.9% | 220 bps | 240 bps | |||||||
Adj. EPS* | $0.34 | $0.30 | 13% | ||||||||
- Organic net sales* increased 1% year-over-year
- Constant currency adj. EBITDA* increase of 17% and adj. EBITDA* margin increase of 290 bps o Mix benefits and raw materials deflation drove improved gross margins in both segments
o Excluding net sales from Assembly pass-through metals ($79 million), adj. EBITDA* margin would have been 26%1 - Adj. EPS* increase of 13%
Note: Totals may not sum due to rounding or due to varying sizes of the two reportable segments | |
* These financial measures, on this slide and on subsequent slides, are not prepared in accordance with GAAP. For definitions, discussions of adjustments and reconciliations, please refer to the appendix of this presentation | 3 |
1. Calculation for adjusted EBITDA* margin excluding net sales form Assembly pass-through metals is $127 million in adjusted EBITDA* divided by ($575 million net sales less $79 million metals net sales) |
First Quarter 2024 Segment Details
Electronics | |||
Net Sales | Organic | Key Drivers | |
($ in millions) | Growth* | ||
Assembly | $168 | (2)% | Soft automotive market impacting demand primarily in the Americas and Europe |
Circuitry | $112 | 8% | Memory disk growth with demand recovery in cloud and enterprise server markets |
Semiconductor | $70 | 11% | Strength in advanced and wafer level packaging |
Total | $349 | 4% | |
Industrial & Specialty |
Net Sales | Organic | |
($ in millions) | Growth* | |
Industrial | $167 | (6)% |
Graphics | $37 | 5% |
Energy | $22 | 14% |
Total | $226 | (3)% |
Key Drivers
Lower commodity price-based surcharges year-over-year and demand softness in Western automotive, construction and general industrial end markets
Increased demand for flexographic plates in North America and new customer wins
Increases in drilling and production activity driving high utilization rates
Note: Totals may not sum due to rounding
* See non-GAAP definitions and reconciliations in footnotes and in the appendix
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Balance Sheet and Cash Flow Considerations
Key Cash Flow Items
- Q1 2024 free cash flow* of $39 million
- In-linewith FY 2024 expectations despite larger seasonal capex due to timing of project spend
- Semi-annualbond payment and annual incentive compensation uniquely burden Q1
- Working capital investment of $28 million primarily in inventory build to support growth
Balance Sheet Management
- Net debt to adj. EBITDA ratio* of 3.3x on a LTM basis as of March 31, 2024
- Based on guidance, on track for net debt to adj. EBITDA ratio* below 3.0x by year end
- Capital structure remains fully fixed-rate until 2025 (and greater than 80% though 2028) with no maturities until 2028
- Term loan effective interest rate of 3.2% at March 31, 2024
- Returned $20 million in cash dividends to shareholders in Q1 2024
Q1 2024 Cash Flow Uses and FY 2024 Outlook
$ millions | Q1 2024 | FY 2024 |
Cash Interest | $24 | ~$65 |
Cash Taxes | $14 | ~$85 |
Net Capex* | $19 | $50 - $60 |
Q1 2024 Capital Structure
Instrument | (in millions) |
Term Loans | $1,147 |
Senior Notes due 2028 | 800 |
Total Debt | $1,947 |
Cash Balance | 286 |
Net Debt | $1,661 |
Adjusted Shares Outstanding1 | 245 |
Market Capitalization2 | $6,108 |
Total Capitalization | $7,768 |
Note: Totals may not sum due to rounding | ||
* See non-GAAP definitions and reconciliations in the appendix | ||
1. | See p.8 for reconciliation to Adjusted Share Counts | |
2. | Based on Element Solutions' closing stock price of $24.98 at March 28, 2024, the last business day of the quarter | 5 |
2024 Financial Guidance
As of April 2024
FY Adj. EBITDA*
$515M - $530M
Free Cash Flow*
$280M to $300M
- Cash interest: approximately $65M
- Cash taxes: approximately $85M
- Capital expenditures: $50M - $60M
- Other cash uses: working capital investment in-line to revenue growth & ongoing integration activity
Q2'24 Adj. EBITDA*
Approximately $125M
Additional Considerations
- Q2 Adj. EBITDA guidance approximately flat sequentially ex-currency
- FX Headwind (at mid-April rates):
- Expect $15M year-over-year
- $5M greater than at prior guidance
- Full year adj. EBITDA guidance implies constant currency growth of 10% to 14%
- Expect FY24 Adj. EPS* of between $1.34 and $1.40
Margin recapture and electronics market recovery drive increased guidance range
* See non-GAAP definitions and reconciliations in the appendix
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Appendix
Enabling Technology.
Growing Sustainably.
Reconciliation to Adjusted Share Counts
(amounts in millions) | Q1 2024 | Q1 2023 |
Basic common shares outstanding | 242 | 241 |
Number of shares issuable upon vesting of granted Equity Awards1 | 2 | 3 |
Adjusted common shares outstanding | 245 | 244 |
Note: Totals may not sum due to rounding
1. Equity awards with targets that are considered probable of achievement vested at target level
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Net Income Reconciliation to Adjusted EBITDA
($ millions) | Q1 2024 | Q1 2023 |
Net income | $56 | $43 |
Add (subtract): | ||
Income tax expense | 14 | 17 |
Interest expense, net | 14 | 12 |
Depreciation expense | 10 | 10 |
Amortization expense | 30 | 30 |
EBITDA | 124 | 111 |
Adjustments to reconcile to Adjusted EBITDA: | ||
Restructuring expense | 2 | 2 |
Acquisition and integration expense | 2 | 4 |
Foreign exchange gains on intercompany loans | (7) | (6) |
Kuprion Acquisition research and development charge | 4 | - |
Other, net | 2 | 1 |
Adjusted EBITDA | $127 | $112 |
Net income margin % | 9.7% | 7.5% |
Adjusted EBITDA margin % | 22.1% | 19.5% |
Note: Totals may not sum due to rounding
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Net Income Reconciliation to Adjusted EPS
($ millions, except per share amounts) | Q1 2024 | Q1 2023 |
Net income | $56 | $43 |
Net income attributable to non-controlling interests | 0 | (0) |
Reversal of amortization expense | 30 | 30 |
Adjustment to reverse incremental depreciation expense from acquisitions | 0 | 0 |
Restructuring expense | 2 | 2 |
Acquisition and integration expense | 2 | 4 |
Foreign exchange gains on intercompany loans | (7) | (6) |
Kuprion Acquisition research and development charge | 4 | - |
Other, net | 2 | 1 |
Tax effect of pre-taxnon-GAAP adjustments | (7) | (6) |
Adjustment to estimated effective tax rate | (0) | 5 |
Adjusted net income | $83 | $73 |
Adjusted earnings per share | $0.34 | $0.30 |
Adjusted common shares outstanding1 | 245 | 244 |
Note: Totals may not sum due to rounding
1. See p.8 for a reconciliation to Adjusted Share Counts
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Element Solutions Inc. published this content on 29 April 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 29 April 2024 20:48:00 UTC.