Element Solutions Announces 2023 Q2 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, 2023.

Executive Commentary

President and Chief Executive Officer Benjamin Gliklich said, "Element Solutions reported sequential adjusted EBITDA growth in what we believe is the trough of the most severe dislocation in the electronics market in recent history. Our results demonstrate outperformance relative to a market that saw double digit declines in key electronics drivers, such as smartphone units and semiconductor production. We seized the opportunity created by this backdrop to improve our capabilities in leading-edge technologies at the bottom of the cycle. Bringing our ViaForm® product line fully in-house and adding Kuprion’s ActiveCopper™ applications to our portfolio immediately improved our offering at the leading edge. Customers' feedback has been extremely positive, and we have active commercial engagements associated with both offerings. These investments strengthen our ability to deliver technologies to the most demanding and innovative customers in the market, positioning our business to benefit disproportionately from the fastest growing and highest value segments in the electronics supply chain.”

Gliklich concluded, “We believe the second quarter was the trough and see evidence of acceleration in electronics already in July. Our semiconductor customers are increasing utilization and smartphone channel inventories are being digested based on third party sell-through and sell-in data. However, the baseline from which we are growing is lower than expected, compounded by additional currency headwinds from the Chinese renminbi, and therefore our expectations for 2023 full year earnings have moderated. We are reducing our full year 2023 adjusted EBITDA guidance to a range of $490 million to $500 million, which assumes recovering demand and the impact of certain cost actions underway. The expected exit velocity of our business together with the full year impact of our cost activity position us well for strong earnings growth in 2024. Our investments this quarter support significant longer-term outperformance.”

Second Quarter 2023 Highlights (compared with second quarter 2022) 

- Net sales on a reported basis for the second quarter of 2023 were $586 million, a decrease of 13% over the second quarter of 2022. Organic net sales decreased 6%.

• Electronics: Net sales decreased 19% to $356 million. Organic net sales decreased 9%.
• Industrial & Specialty: Net sales decreased 2% to $230 million. Organic net sales decreased 2%.

- Second quarter of 2023 earnings per share (EPS) performance:

• GAAP diluted EPS was $0.11 for the second quarter of 2023 as compared to $0.25 for the second quarter of 2022.
• Adjusted EPS was $0.31, as compared to $0.38 for the same period last year.

- Reported net income was $27 million for the second quarter of 2023 as compared to $64 million for the second quarter of 2022.

- Adjusted EBITDA for the second quarter of 2023 was $116 million, a decrease of 17%. On a constant currency basis, adjusted EBITDA decreased 14%.

• Electronics: Adjusted EBITDA was $76 million, a decrease of 25%. On a constant currency basis, adjusted EBITDA decreased 22%.
• Industrial & Specialty: Adjusted EBITDA was $40 million, an increase of 2%. On a constant currency basis, adjusted EBITDA increased 5%.
• Adjusted EBITDA margin decreased 90 basis points to 19.8% on a reported basis. On a constant currency basis, adjusted EBITDA margin decreased 60 basis points.

Updated 2023 Guidance

The Company expects third quarter 2023 adjusted EBITDA of approximately $125 million. For the full-year 2023, the Company now expects adjusted EBITDA to be in the range of $490 million to $500 million. For 2023, the Company expects adjusted EPS of approximately $1.30 and free cash flow of approximately $265 million.

Recent Developments

ViaForm Distribution Rights - On June 1, 2023, the Company terminated its long-standing distribution agreement related to its ViaForm® electrochemical deposition products for $200 million, including $170 million paid at closing and a deferred payment of $30.0 million which remains contingent upon satisfaction of certain conditions during the applicable transition period. Following the transition period, the Company expects to manage all aspects of the ViaForm® product line in-house, which it believes will result in a more efficient supply chain and improved customer outcomes for leading semiconductor fabricators. Based on the run rate of adjusted EBITDA from the ViaForm® product line as of the closing date and at current demand levels, the Company expects the ViaForm® business to contribute a baseline of approximately $15 million to annual adjusted EBITDA, with significant growth potential from expected synergies and market opportunities.

The transaction was funded with $150 million of term loans A under the Company's senior credit facility and cash on hand. The Company also entered into interest rate swaps and cross-currency swaps to effectively convert the term loans A from U.S. dollar denominated debt obligations into fixed-rate euro-denominated debt through January 2026.

Kuprion Acquisition - On May 19, 2023, the Company completed the acquisition of Kuprion, Inc. for approximately $15.9 million, net of cash with potential additional payments in various installments to be made upon the achievement of certain milestones associated with product qualification and revenue through December 31, 2030. Kuprion is a developer of next-generation nano-copper technology to the semiconductor, circuit board and electronics assembly markets.