Element Solutions Announces 2023 Q3 Financial Results

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Element Solutions Inc, a global and diversified specialty chemicals company, announced its financial results for the three and nine months ended September 30, 2023.

Executive Commentary

President and Chief Executive Officer Benjamin Gliklich said, “Element Solutions reported strong sequential adjusted EBITDA growth this quarter driven by a recovery in electronics and increasing margins, in line with our expectation for meaningful improvement against the first half of 2023. With our ongoing focus on operational excellence and accelerated customer activity for next-generation handset production, we experienced a stronger than expected third quarter. Our industrial performance was consistent with the first half despite changing demand dynamics across regions and end-markets. Cash flow generation remains strong, and we are on track to deliver leverage below 3.5 times by year end.”

Mr. Gliklich continued, “Heading into the fourth quarter, we expect to see a typical seasonal slowdown in electronics. An incremental foreign exchange headwind since our prior guidance and a shift in order patterns from our semiconductor customers due to our ViaForm transaction earlier in the year account for a modest reduction in our full year 2023 outlook. We see an uncertain macro environment given ongoing industrial weakness in Europe and China and the UAW strike, but solid execution around cost recovery and durable secular growth in key portions of our business, such as electric vehicles and advanced packaging applications, should deliver year-over-year growth in the fourth quarter. This should not change as we enter 2024, and, with the electronics market recovering, we are optimistic about our trajectory."

Third Quarter 2023 Highlights (compared with third quarter 2022)

- Net sales on a reported basis for the third quarter of 2023 were $599 million, a decrease of 3% over the third quarter of 2022. Organic net sales decreased 3%.

• Electronics: Net sales decreased 6% to $367 million. Organic net sales decreased 5%.
• Industrial & Specialty: Net sales increased 1% to $232 million. Organic net sales decreased 1%.

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

• GAAP diluted loss per share was $0.13 for the third quarter of 2023 as compared to earnings per share of $0.22 for the third quarter of 2022.
• Adjusted EPS was $0.36 for the third quarter of 2023 and 2022, respectively.

- Reported net loss was $32 million for the third quarter of 2023 as compared to net income of $53 million for the third quarter of 2022.

- Adjusted EBITDA for the third quarter of 2023 was $134 million, relatively flat when compared to the third quarter of 2022. On a constant currency basis, adjusted EBITDA increased 2%.

• Electronics: Adjusted EBITDA was $90 million, a decrease of 1%. On a constant currency basis, adjusted EBITDA increased 1%.
• Industrial & Specialty: Adjusted EBITDA was $44 million, an increase of 3%. On a constant currency basis, adjusted EBITDA increased 2%.
• Adjusted EBITDA margin increased 80 basis points to 22.4% on a reported basis. On a constant currency basis, adjusted EBITDA margin increased 110 basis points.

Updated 2023 Guidance

The Company expects full year 2023 adjusted EBITDA of approximately $485 million, adjusted EPS of approximately $1.30 and free cash flow of approximately $265 million.

Graphics Solutions Goodwill Impairment

During the third quarter of 2023, the Company conducted an interim goodwill impairment test on its Graphics Solutions reporting unit which resulted in an $80.0 million impairment charge to reduce the carrying value of this reporting unit to its estimated fair value. This impairment charge was primarily driven by the reduction of the expected future cash flows for the business due to profit margin pressures from raw material inflation across the packaging supply chain, the recent loss of a significant newspaper customer and a higher weighted average cost of capital (WACC) as compared to the assumptions used by the Company for its 2022 annual goodwill impairment test. This charge is a non-cash expense and is not tax deductible.