Atotech Reports Q1 2021 Results, Raises 2021 Full Year Guidance

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Atotech, a leading specialty chemicals technology company and a market leader in advanced electroplating solutions, reported its financial results for the first quarter of 2021 and raised its revenue and adjusted EBITDA guidance for full year 2021. Chemistry organic revenue growth, a key performance indicator for the Company, increased 13% over the first quarter of 2020. Chemistry organic revenue growth reflects chemistry revenue growth excluding the impact of foreign exchange translation (FX) and palladium pass-through (palladium).

Management Commentary

Geoff Wild, Atotech’s Chief Executive Officer said, “We are very pleased with our first quarter performance.  As we lap the first quarter of the Covid-19 pandemic, we delivered strong revenue and EBITDA growth, driven by an acceleration in the secular trends that are fueling demand for our products. Whether it is the robust smartphone cycle, the increasing adoption of 5G, work-from-home and higher PC demand, or the electrification of automobiles, our comprehensive solutions address customer requirements and we continue to lead the market with our customer service approach.”

“Despite several external disruptions putting pressure on global supply chains this quarter, we feel confident about delivering strong revenue and earnings growth this year and are actively engaged in multiple initiatives to mitigate the impact of current supply chain shortages and disruptions.”

“I was also very pleased to have successfully completed our refinancing during the first quarter.  We moved quickly to leverage our stronger balance sheet as a result of the IPO, as well as our positive business outlook, to significantly lower our cost of borrowing. The combination of healthy markets and an improved capital structure have Atotech well-positioned to generate meaningful free cash flow in 2021.”

First Quarter 2021 Results

Total revenue was $353 million for the first quarter, an increase of 25% over the prior year period. Total organic revenue, which reflects total revenue excluding the impact of FX and palladium, increased 17%.  FX was a 7% tailwind and palladium increased total revenue by 1% for the quarter. These strong quarterly results were driven by organic growth in chemistry revenue of 13%, reflecting double-digit increases in both the Electronics (EL) and General Metal Finishing (GMF) segments.

Adjusted EBITDA was $110 million for the first quarter, a 32% increase over the prior year period, reflecting strong chemistry organic volume growth, stable pricing, and FX tailwinds, partially offset by increased costs associated with supply chain inefficiencies.

Diluted earnings per share was $(0.55) for the quarter ended March 31, 2021, primarily reflecting one-time costs associated with the Company’s recent refinancing.

Adjusted EBITDA margin was 31.2% for the first quarter of 2021, a gain of 150 basis points. The improvement reflects operating leverage on chemistry organic revenue, offset in part by the impact of palladium pass-through, the product mix of chemistry versus equipment, and supply chain inefficiencies.

First Quarter 2021 Segment Highlights

Electronics: Revenue for the first quarter in our Electronics segment of $226 million increased 31% over the prior year period. Total organic revenue grew 21%, consisting of 15% chemistry organic growth and a 77% increase in equipment organic revenue. Palladium pass-through increased revenue by 2% and FX was an 8% tailwind for the quarter.

The Electronics organic revenue increase was driven by strong demand for the Company’s leading IC substrate and advanced semiconductor packaging solutions, as we experienced an acceleration in the secular trends of 5G infrastructure and smartphone growth, as well as auto electrification and advanced consumer electronics. These trends are also driving strong demand for our equipment, as our customers actively upgrade technology and expand production capacity.

Adjusted EBITDA for our Electronics segment was $76 million for the quarter, an increase of 38% over the prior year period, primarily driven by strong chemistry volume growth, as well as ongoing pricing and cost measures. Adjusted EBITDA margin increased 180 basis points to 33.6%, largely reflecting operating leverage on chemistry organic growth, offset by the palladium pass-through and the cost of supply chain disruptions.

General Metal Finishing: Revenue for the first quarter in our GMF segment of $128 million increased 15% over the prior year period. Total organic GMF revenue increased 9%, consisting of 11% chemistry revenue growth, partially offset by a decline in equipment revenue. Palladium and FX added 1% and 5% to revenue for the quarter, respectively.

Chemistry organic revenue growth was primarily driven by the continued global automotive market recovery and solid demand in other industrial end-markets.

Adjusted EBITDA for our GMF segment was $35 million, an increase of 19% over last year, reflecting operating leverage on chemistry volume growth, partially offset by supply chain inefficiencies. Adjusted EBITDA margin increased 90 basis points to 27.2%.

Initial Public Offering

The Company closed its initial public offering of 29,268,000 common shares at $17.00 per share on February 8, 2021. The gross proceeds to Atotech from the offering were approximately $498 million, before deducting the underwriting discount and offering expenses, and were used to repay indebtedness and to pay underwriting discounts and offering expenses. On March 9, 2021, investment funds affiliated with The Carlyle Group sold an additional 4,390,200 common shares pursuant to the over-allotment option granted to the underwriters in the initial public offering. The shares, representing the full over-allotment option, were sold at $17.00 per share less underwriting discounts, and we did not receive any proceeds from the sale of these shares by The Carlyle Group.

Refinancing

On March 18, 2021, the Company successfully refinanced its existing senior secured credit facilities and entered into a new credit agreement which provided for a U.S. dollar-denominated senior secured term loan facility in an initial aggregate principal amount of $1.35 billion (the “USD Term Loan”), a Euro-denominated senior secured term loan facility in an initial aggregate principal amount of €200.0 million (the “EUR Term Loan”), and a senior secured multi-currency revolving credit facility that provides for revolving loans and letters of credit in an aggregate principal amount of up to $250.0 million. The net proceeds of the USD Term Loan and EUR Term Loan were used to fund the refinancing in full of the Company’s then-outstanding term loan credit facilities, which were set to mature in January 2024, and to repay and replace its then-existing revolving credit agreement, which was set to mature in January 2022.

Full Year 2021 Guidance

Regarding the Company’s 2021 outlook, Peter Frauenknecht, Atotech’s Chief Financial Officer said, “As a result of our very strong first quarter and our improved outlook for the entire year, we are raising our revenue and adjusted EBITDA guidance. We now expect full year 2021 total organic revenue growth to be in the range of 11% to 13%, including full year organic growth in chemistry revenue of approximately 9%, which excludes the impact of FX and palladium pass-through. Additionally, we now expect full year 2021 adjusted EBITDA to be in the range of $415 million to $435 million, which represents a $10 million improvement over our prior guidance, at the mid-point.”