Element Solutions Reports Q2 2021 Financial Results

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Element Solutions Inc., a global and diversified specialty chemicals company, 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.”

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.