- Net sales of $599 million, a decrease of 3% from the third
quarter last year on a reported basis and organic basis
- GAAP diluted loss per share of $0.13, inclusive of a $0.33
negative impact from Graphics Solutions' goodwill impairment
- Reported net loss of $32 million, as compared to net income of
$53 million in the same period last year
- Adjusted EPS of $0.36
- Adjusted EBITDA of $134 million, an increase of 2% from the
third quarter of last year on a constant currency basis
- Third quarter 2023 cash from operating activities of $87
million and free cash flow of $75 million
Element Solutions Inc (NYSE:ESI) (“Element Solutions” or the
“Company”), a global and diversified specialty chemicals company,
today 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.
Conference Call
Element Solutions will host a webcast/dial-in conference call to
discuss its 2023 third quarter financial results at 8:30 a.m.
(Eastern Time) on Thursday, October 26, 2023. Participants on the
call will include President and Chief Executive Officer Benjamin
Gliklich, Chief Financial Officer Carey J. Dorman and Executive
Chairman Sir Martin E. Franklin.
To listen to the call by telephone, please dial 888-510-2346
(domestic) or 646-960-0111 (international) and provide the
Conference ID: 3799230. The call will be simultaneously webcast at
www.elementsolutionsinc.com. A replay of the call will be available
after completion of the live call at
www.elementsolutionsinc.com.
About Element Solutions
Element Solutions Inc is a leading global specialty chemicals
company whose businesses supply a broad range of solutions that
enhance the performance of products people use every day. Developed
in multi-step technological processes, these innovative solutions
enable customers' manufacturing processes in several key
industries, including consumer electronics, power electronics,
semiconductor fabrication, communications and data storage
infrastructure, automotive systems, industrial surface finishing,
consumer packaging and offshore energy.
More information about the Company is available at
www.elementsolutionsinc.com.
Forward-Looking
Statements
This release is intended to qualify for the safe harbor from
liability established by the Private Securities Litigation Reform
Act of 1995 as it contains "forward-looking statements" within the
meaning of the federal securities laws. These 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. Examples of forward-looking statements
include, but are not limited to, statements, beliefs, projections
and expectations regarding meaningful improvements against the
first half of 2023; focus on commercial excellence; accelerated
customer activity for next-generation handset production; changing
demand dynamics across regions and end-markets impacting the
Company's industrial performance; cash flow generation; delivering
leverage below 3.5 times by year end; seasonal slowdown in the
fourth quarter in electronics; impacts of incremental foreign
exchange headwind and order patterns from the Company's
semiconductor customers; overall macro environment; execution and
secular growth in key portions of the Company's business delivering
growth in the fourth quarter and into 2024; electronics market
recovery; the Company's trajectory; and full-year 2023 guidance for
adjusted EBITDA, adjusted EPS and free cash flow. These projections
and statements are based on management's estimates, assumptions or
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 these
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 continuing economic
impact of the coronavirus (COVID-19) and its variants on the global
economy, the Company's business, financial results, customers,
suppliers, vendors and/or stock price, including the impact of
related governmental responses, the efficacy of vaccines and
treatments targeting COVID-19 and/or its variants; the general
impact of the ongoing conflict between Russia and Ukraine and the
evolving nature of the conflicts in the Middle East on economic
activity, including financial market instability and disruption of
global supply chains, and on the Company's customers, employees,
suppliers, vendors and other stakeholders; inflation and
fluctuations in foreign exchange rates; business and management
strategies; outstanding debt and debt leverage ratio; shares
repurchases; debt and/or equity issuance or retirement; 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 Company's periodic and
other reports filed with the Securities and Exchange Commission.
The Company undertakes no obligation to update or revise any
forward-looking statements, whether as a result of new information,
future events or otherwise.
Certain information contained in this release is based on
historical results and forecasts provided in connection with the
ViaForm® and Kuprion transactions. Use of different methods for
preparing, calculating or presenting such information may lead to
different results and such differences may be material. While the
Company believes this information is reliable and appropriate,
investors are cautioned not to place undue reliance on this
information.
ELEMENT SOLUTIONS INC
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended September
30,
Nine Months Ended September
30,
(dollars in millions, except per share
amounts)
2023
2022
2023
2022
Net sales
$
599.3
$
618.5
$
1,759.8
$
1,975.6
Cost of sales
357.4
396.6
1,061.6
1,240.9
Gross profit
241.9
221.9
698.2
734.7
Operating expenses:
Selling, technical, general and
administrative
149.9
131.4
445.8
431.3
Research and development
12.9
11.3
54.3
38.2
Goodwill impairment
80.0
—
80.0
—
Total operating expenses
242.8
142.7
580.1
469.5
Operating (loss) profit
(0.9
)
79.2
118.1
265.2
Other (expense) income:
Interest expense, net
(13.3
)
(12.3
)
(37.0
)
(39.6
)
Foreign exchange (loss) gain
(5.3
)
0.9
8.6
2.9
Other income, net
3.1
2.0
1.8
5.2
Total other expense
(15.5
)
(9.4
)
(26.6
)
(31.5
)
(Loss) income before income taxes and
non-controlling interests
(16.4
)
69.8
91.5
233.7
Income tax expense
(15.3
)
(16.5
)
(53.4
)
(60.4
)
Net (loss) income from continuing
operations
(31.7
)
53.3
38.1
173.3
Income from discontinued operations, net
of tax
—
—
2.9
1.8
Net (loss) income
(31.7
)
53.3
41.0
175.1
Net income attributable to non-controlling
interests
(0.1
)
(0.1
)
—
(0.6
)
Net (loss) income attributable to
common stockholders
$
(31.8
)
$
53.2
$
41.0
$
174.5
(Loss) earnings
per share
Basic from continuing operations
$
(0.13
)
$
0.22
$
0.16
$
0.70
Basic from discontinued operations
—
—
0.01
0.01
Basic attributable to common
stockholders
$
(0.13
)
$
0.22
$
0.17
$
0.71
Diluted from continuing operations
$
(0.13
)
$
0.22
$
0.16
$
0.70
Diluted from discontinued operations
—
—
0.01
0.01
Diluted attributable to common
stockholders
$
(0.13
)
$
0.22
$
0.17
$
0.71
Weighted average
common shares outstanding
Basic
241.5
244.7
241.4
246.4
Diluted
241.5
245.0
241.8
247.2
ELEMENT SOLUTIONS INC
CONDENSED CONSOLIDATED BALANCE
SHEETS
(Unaudited)
September 30,
December 31,
(dollars in millions)
2023
2022
Assets
Cash & cash equivalents
$
329.6
$
265.6
Accounts receivable, net of allowance for
doubtful accounts of $14.0 and $14.4 at September 30, 2023 and
December 31, 2022, respectively
449.5
455.8
Inventories
322.8
290.7
Prepaid expenses
31.3
38.5
Other current assets
166.3
138.1
Total current assets
1,299.5
1,188.7
Property, plant and equipment, net
279.2
277.2
Goodwill
2,281.5
2,412.8
Intangible assets, net
889.6
805.5
Deferred income tax assets
49.8
51.5
Other assets
169.2
168.0
Total assets
$
4,968.8
$
4,903.7
Liabilities and stockholders'
equity
Accounts payable
$
143.8
$
132.2
Current installments of long-term debt
11.5
11.5
Accrued expenses and other current
liabilities
221.4
200.7
Total current liabilities
376.7
344.4
Debt
2,027.8
1,883.8
Pension and post-retirement benefits
34.6
36.7
Deferred income tax liabilities
104.4
121.2
Other liabilities
179.1
168.5
Total liabilities
2,722.6
2,554.6
Stockholders' equity
Common stock: 400.0 shares authorized
(2023: 266.2 shares issued; 2022: 265.1 shares issued)
2.7
2.7
Additional paid-in capital
4,197.7
4,185.9
Treasury stock (2023: 24.6 shares; 2022:
24.3 shares)
(341.9
)
(334.2
)
Accumulated deficit
(1,241.2
)
(1,223.8
)
Accumulated other comprehensive loss
(387.1
)
(298.1
)
Total stockholders' equity
2,230.2
2,332.5
Non-controlling interests
16.0
16.6
Total equity
2,246.2
2,349.1
Total liabilities and stockholders'
equity
$
4,968.8
$
4,903.7
ELEMENT SOLUTIONS INC
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
Nine Months Ended
September 30,
(dollars in millions)
September 30,
2023
June 30,
2023
March 31, 2023
2023
2022
Cash flows from operating
activities:
Net (loss) income
$
(31.7
)
$
29.7
$
43.0
$
41.0
$
175.1
Net income from discontinued operations,
net of tax
—
2.9
—
2.9
1.8
Net (loss) income from continuing
operations
(31.7
)
26.8
43.0
38.1
173.3
Reconciliation of net (loss) income to net
cash flows provided by operating activities:
Depreciation and amortization
44.5
41.1
39.1
124.7
122.0
Deferred income taxes
(10.6
)
2.9
(0.4
)
(8.1
)
3.9
Foreign exchange loss (gain)
5.6
(8.8
)
(7.3
)
(10.5
)
(1.0
)
Incentive stock compensation
2.9
3.3
4.4
10.6
12.8
Goodwill impairment
80.0
—
—
80.0
—
Other, net
2.3
21.3
2.2
25.8
10.7
Changes in assets and liabilities, net of
acquisitions:
Accounts receivable
(6.2
)
2.2
(2.6
)
(6.6
)
(23.3
)
Inventories
2.4
(10.5
)
(29.1
)
(37.2
)
(63.1
)
Accounts payable
2.8
(8.1
)
18.6
13.3
32.1
Accrued expenses
3.9
10.4
(22.3
)
(8.0
)
(47.9
)
Prepaid expenses and other current
assets
1.4
(0.7
)
2.7
3.4
(22.0
)
Other assets and liabilities
(9.9
)
1.0
5.2
(3.7
)
(2.1
)
Net cash flows provided by operating
activities
87.4
80.9
53.5
221.8
195.4
Cash flows from investing
activities:
Capital expenditures
(13.4
)
(13.8
)
(9.1
)
(36.3
)
(32.8
)
Proceeds from disposal of property, plant
and equipment
0.9
—
0.5
1.4
3.4
Acquisitions, net of cash acquired
(0.3
)
(188.3
)
—
(188.6
)
(22.6
)
Other, net
0.3
—
(3.0
)
(2.7
)
(9.9
)
Net cash flows used in investing
activities
(12.5
)
(202.1
)
(11.6
)
(226.2
)
(61.9
)
Cash flows from financing
activities:
Debt proceeds
—
150.0
—
150.0
—
Repayments of borrowings
(2.8
)
(2.9
)
(2.9
)
(8.6
)
(11.9
)
Repurchases of common stock
—
—
—
—
(113.5
)
Dividends
(19.4
)
(19.3
)
(19.4
)
(58.1
)
(59.2
)
Payment of financing fees
(0.3
)
(0.7
)
—
(1.0
)
—
Other, net
(0.2
)
(0.3
)
(7.2
)
(7.7
)
(27.0
)
Net cash flows (used in) provided by
financing activities
(22.7
)
126.8
(29.5
)
74.6
(211.6
)
Net cash flows provided by operating
activities of discontinued operations
—
2.9
—
2.9
1.8
Effect of exchange rate changes on cash
and cash equivalents
(5.0
)
(5.1
)
1.0
(9.1
)
(19.8
)
Net increase (decrease) in cash and
cash equivalents
47.2
3.4
13.4
64.0
(96.1
)
Cash and cash equivalents at beginning of
period
282.4
279.0
265.6
265.6
330.1
Cash and cash equivalents at end of
period
$
329.6
$
282.4
$
279.0
$
329.6
$
234.0
ELEMENT SOLUTIONS INC
ADDITIONAL FINANCIAL
INFORMATION
(Unaudited)
I. SEGMENT RESULTS (1)
Three Months Ended September
30,
Nine Months Ended September
30,
(dollars in millions)
2023
2022
Reported
Constant
Currency
Organic
2023
2022
Reported
Constant
Currency
Organic
Net sales
Electronics
$
367.0
$
389.4
(6)%
(5)%
(5)%
$
1,062.4
$
1,271.8
(16)%
(14)%
(8)%
Industrial & Specialty
232.3
229.1
1%
(1)%
(1)%
697.4
703.8
(1)%
0%
0%
Total
$
599.3
$
618.5
(3)%
(3)%
(3)%
$
1,759.8
$
1,975.6
(11)%
(9)%
(6)%
Adjusted EBITDA
Electronics
$
90.4
$
90.9
(1)%
1%
$
239.4
$
293.0
(18)%
(15)%
Industrial & Specialty
43.7
42.6
3%
2%
123.1
125.7
(2)%
1%
Total
$
134.1
$
133.5
0%
2%
$
362.5
$
418.7
(13)%
(10)%
Three Months Ended September
30,
Constant Currency
Nine Months Ended September
30,
Constant Currency
2023
2022
Change
2023
Change
2023
2022
Change
2023
Change
Adjusted EBITDA Margin
Electronics
24.6%
23.3%
130bps
24.8%
150bps
22.5%
23.0%
(50)bps
22.8%
(20)bps
Industrial & Specialty
18.9%
18.6%
30bps
19.3%
70bps
17.7%
17.9%
(20)bps
17.9%
0bps
Total
22.4%
21.6%
80bps
22.7%
110bps
20.6%
21.2%
(60)bps
20.9%
(30)bps
(1)
Reflects the transfer in the first quarter
of 2023 of the operational responsibility of the Company's Films
business from itsGraphics Solutions business in its Industrial
& Specialty segment to its Circuitry Solutions business in its
Electronics segment and the transfer of certain product lines
between its Assembly Solutions business and its Semiconductor
Solutions business, both of which are part of its Electronics
segment. Historical information has been reclassified to reflect
these changes for all periods presented.
II. CAPITAL STRUCTURE
(dollars in millions)
Maturity
Interest Rate
September 30,
2023
Instrument
Term Loans A
(1)
1/31/2026
SOFR plus 1.75%
$
150.0
Term Loans B
(1)
1/31/2026
SOFR plus 2.00%
1,105.4
Total First Lien Debt
1,255.4
Senior Notes due 2028
9/1/2028
3.875
%
800.0
Total Debt
2,055.4
Cash Balance
329.6
Net Debt
$
1,725.8
Adjusted Shares Outstanding
(2)
243.9
Market Capitalization
(3)
$
4,782.9
Total Capitalization
$
6,508.7
(1)
Element Solutions swapped its floating
term loan rate to a fixed rate for all of its outstanding term
loans through the use of interest rate swaps and cross-currency
swaps which mature in January 2024, January 2025 or January 2026,
as applicable. At September 30, 2023, approximately 100% of the
Company's debt was fixed.
(2)
See "Adjusted Common Shares Outstanding at
September 30, 2023 and 2022" following the footnotes under the
"Adjusted Earnings Per Share (EPS)" reconciliation table below.
(3)
Based on the closing price of the shares
of Element Solutions of $19.61 at September 29, 2023.
III. SELECTED FINANCIAL DATA
Three Months Ended September
30,
Nine Months Ended September
30,
(dollars in millions)
2023
2022
2023
2022
Interest expense
$
15.7
$
13.1
$
43.5
$
41.1
Interest paid
22.9
19.2
48.7
43.7
Income tax expense
15.3
16.5
53.4
60.4
Income taxes paid
17.5
14.0
49.0
45.6
Capital expenditures
13.4
11.1
36.3
32.8
Proceeds from disposal of property, plant
and equipment
0.9
—
1.4
3.4
Non-GAAP Measures
To supplement its financial measures prepared in accordance with
GAAP, Element Solutions presents in this release the following
non-GAAP financial measures: EBITDA, adjusted EBITDA, adjusted
EBITDA margin, adjusted EPS, adjusted common shares outstanding,
free cash flow, net debt to adjusted EBITDA ratio (including with
the estimated annual benefit from the ViaForm® transaction),
organic net sales growth and full year 2023 guidance for adjusted
EBITDA, adjusted EPS and free cash flow. The Company also evaluates
and presents its results of operations on a constant currency
basis.
Management internally reviews these non-GAAP measures to
evaluate performance 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 separate from items that may
have a disproportionate positive or negative impact on its
financial results in any particular period or 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 Element Solutions
reports in accordance with GAAP. The principal limitation of these
non-GAAP financial measures is that they exclude significant
expenses and income that are required by GAAP to be recorded in the
Company’s financial statements and may not be completely comparable
to similarly titled measures of other companies due to potential
differences in calculation methods. In addition, these measures are
subject to inherent limitations as they reflect the exercise of
judgment by management about which items are excluded or included
in determining these non-GAAP financial measures. Investors are
encouraged to review the definitions and reconciliations of these
non-GAAP financial measures to their most comparable GAAP financial
measures included in this press release, and not to rely on any
single financial measure to evaluate the Company's businesses.
The Company only provides the expected contribution of the
ViaForm® transaction to annual adjusted EBITDA and full year 2023
guidance for adjusted EBITDA, adjusted EPS and free cash flow on a
non-GAAP basis. Reconciliations of such forward-looking non-GAAP
measures to GAAP are excluded in reliance upon the exception
provided by Item 10(e)(1)(i)(B) of Regulation S-K due to the
inherent difficulty in forecasting and quantifying, without
unreasonable efforts, certain amounts that are necessary for such
reconciliations, including adjustments that could be made for
restructurings, refinancings, impairments, divestitures,
integration and acquisition-related expenses, share-based
compensation amounts, non-recurring, unusual or unanticipated
charges, expenses or gains, adjustments to inventory and other
charges reflected in reconciliations of historic numbers, the
amount of which, based on historical experience, could be
significant.
Constant Currency:
The Company discloses net sales and adjusted EBITDA on a
constant currency basis by adjusting results to exclude the impact
of changes due to the translation of foreign currencies of its
international locations into U.S. dollar. Management believes this
non-GAAP financial information facilitates period-to-period
comparison in the analysis of trends in business performance,
thereby providing valuable supplemental information regarding its
results of operations, consistent with how the Company internally
evaluates its financial results.
The impact of foreign currency translation is calculated by
converting the Company's current-period local currency financial
results into U.S. dollar using the prior period's exchange rates
and comparing these adjusted amounts to its prior period reported
results. The difference between actual growth rates and constant
currency growth rates represents the estimated impact of foreign
currency translation.
Organic Net Sales Growth:
Organic net sales growth is defined as net sales excluding the
impact of foreign currency translation, changes due to the
pass-through pricing of certain metals and acquisitions and/or
divestitures, as applicable. Management believes this non-GAAP
financial measure provides investors with a more complete
understanding of the underlying net sales trends by providing
comparable net sales over differing periods on a consistent
basis.
The following table reconciles GAAP net sales growth to organic
net sales growth for the three and nine months ended September 30,
2023:
Three Months Ended September
30, 2023
Reported Net Sales
Growth
Impact of Currency
Constant Currency
Change in Pass-Through Metals
Pricing
Acquisitions
Organic Net Sales
Growth
Electronics
(6)%
1%
(5)%
0%
0%
(5)%
Industrial & Specialty
1%
(2)%
(1)%
—%
0%
(1)%
Total
(3)%
0%
(3)%
0%
0%
(3)%
Nine Months Ended September
30, 2023
Reported Net Sales
Growth
Impact of Currency
Constant Currency
Change in Pass-Through Metals
Pricing
Acquisitions
Organic Net Sales
Growth
Electronics
(16)%
2%
(14)%
6%
0%
(8)%
Industrial & Specialty
(1)%
1%
0%
—%
(1)%
0%
Total
(11)%
2%
(9)%
4%
0%
(6)%
NOTE: Totals may not sum due to
rounding.
For the three months ended September 30, 2023, Electronics'
consolidated results were positively impacted by $1.4 million of
pass-through metals pricing and negatively impacted by $0.3 million
of acquisitions and Industrial & Specialty's consolidated
results were positively impacted by $1.1 million of acquisitions.
For the nine months ended September 30, 2023, Electronics'
consolidated results were negatively impacted by $73.5 million of
pass-through metals pricing and positively impacted by $1.1 million
of acquisitions and Industrial & Specialty's consolidated
results were positively impacted by $3.8 million of
acquisitions.
Adjusted Earnings Per Share (EPS):
Adjusted EPS is a key metric used by management to measure
operating performance and trends as management believes the
exclusion of certain expenses in calculating adjusted EPS
facilitates operating performance comparisons on a period-to-period
basis. Adjusted EPS is defined as net income attributable to common
stockholders adjusted to reflect adjustments consistent with the
Company's definition of adjusted EBITDA. Additionally, the Company
eliminates amortization expense associated with intangible assets,
incremental depreciation associated with the step-up of fixed
assets and incremental cost of sales associated with the step-up of
inventories recognized in purchase accounting for acquisitions.
Further, the Company adjusts its effective tax rate to 20% for the
three and nine months ended September 30, 2023 and 2022,
respectively, as described in footnote (9) under the reconciliation
table below.
The resulting adjusted net income is then divided by the
Company's adjusted common shares outstanding. Adjusted common
shares outstanding represent the shares outstanding as of the
balance sheet date for the quarter-to-date period and an average of
each quarter for the year-to-date period plus shares issuable upon
exercise or vesting of all outstanding equity awards (assuming a
performance achievement target level for equity awards with targets
considered probable).
The following table reconciles GAAP "Net (loss) income
attributable to common stockholders" to "Adjusted net income
attributable to common stockholders" and presents the number of
adjusted common shares outstanding used in calculating adjusted EPS
for each period presented below:
Three Months Ended
Nine Months Ended
September 30,
September 30,
(dollars in millions, except per share
amounts)
2023
2022
2023
2022
Net (loss) income attributable to
common stockholders
$
(31.8
)
$
53.2
$
41.0
$
174.5
Net income from discontinued operations
attributable to common stockholders
—
—
2.9
1.8
Net (loss) income from continuing
operations attributable to common stockholders
(31.8
)
53.2
38.1
172.7
Reversal of amortization expense
(1)
32.7
29.2
93.3
90.5
Adjustment to reverse incremental
depreciation expense from acquisitions
(1)
0.4
0.5
1.2
1.7
Inventory step-up
(1)
—
—
—
0.5
Restructuring expense
(2)
2.1
2.9
6.3
6.1
Acquisition and integration expense
(3)
5.0
2.2
13.3
6.2
Foreign exchange loss (gain) on
intercompany loans
(4)
6.5
2.5
(7.6
)
3.2
Goodwill impairment
(5)
80.0
—
80.0
—
Kuprion Acquisition research and
development charge
(6)
—
—
15.7
—
Adjustment of stock compensation
previously not probable
(7)
—
—
—
1.3
Other, net
(8)
(0.9
)
4.0
1.6
6.1
Tax effect of pre-tax non-GAAP
adjustments
(9)
(25.2
)
(8.3
)
(40.8
)
(23.1
)
Adjustment to estimated effective tax
rate
(9)
18.6
2.6
35.1
13.6
Adjusted net income attributable to
common stockholders
$
87.4
$
88.8
$
236.2
$
278.8
Adjusted earnings per share
(10)
$
0.36
$
0.36
$
0.97
$
1.12
Adjusted common shares
outstanding
(10)
243.9
245.2
243.9
247.9
(1)
The Company eliminates the amortization
expense associated with intangible assets, incremental depreciation
associated with the step-up of fixed assets and incremental cost of
sales associated with the step-up of inventories recognized in
purchase accounting for acquisitions. The Company believes these
adjustments provide insight with respect to the cash flows
necessary to maintain and enhance its product portfolio.
(2)
The Company adjusts for costs of
restructuring its operations, including those related to its
acquired businesses. The Company adjusts these costs because it
believes they are not reflective of ongoing operations.
(3)
The Company adjusts for costs associated
with acquisition and integration activity, including costs of
obtaining related financing, legal and accounting fees and transfer
taxes. The Company adjusts these costs because it believes they are
not reflective of ongoing operations.
(4)
The Company adjusts for foreign exchange
gains and losses on intercompany loans because it expects the
period-to-period movement of the applicable currencies to offset on
a long-term basis and because these gains and losses are not fully
realized due to their long-term nature. The Company does not
exclude foreign exchange gains and losses on short-term
intercompany and third-party payables and receivables.
(5)
The Company recorded a non-cash impairment
charge of $80.0 million related to its Graphics Solutions reporting
unit in its Industrial & Specialty segment in the third quarter
of 2023. The Company adjusts this cost because it believes it is
not reflective of ongoing operations.
(6)
The Company adjusts for research and
development costs associated with the purchase accounting related
to the acquisition of Kuprion, Inc. The Company adjusts these costs
because it believes they are not reflective of ongoing
operations.
(7)
The Company adjusts for costs relating to
certain stretch target performance-based restricted stock units
granted to certain key executives as the achievement of the
performance target for these awards was not deemed probable prior
to the second quarter of 2021 and, therefore, compensation expense
for these awards did not begin to be recognized until the second
quarter of 2021 when achievement of the performance target became
probable. The Company adjusts these costs to provide a meaningful
comparison of its performance between periods.
(8)
The Company's adjustments are primarily
comprised of certain professional consulting fees and unrealized
gains/losses on metals derivative contracts. The Company adjusts
for professional consulting fees because it believes they are not
reflective of ongoing operations. The Company adjusts for
unrealized gains/losses on metals derivative contracts to provide a
meaningful comparison of its performance between periods.
(9)
The Company adjusts its effective tax rate
to 20% for the three and nine months ended September 30, 2023 and
2022, respectively. This adjustment does not reflect the Company’s
current or near-term tax structure, including limitations on its
ability to utilize net operating losses and foreign tax credits in
certain jurisdictions. The Company also applies an effective tax
rate of 20% to pre-tax non-GAAP adjustments for the three and nine
months ended September 30, 2023 and 2022, respectively. These
effective tax rate adjustments are made because they provide a
meaningful comparison of its performance between periods.
(10)
The Company defines "Adjusted common
shares outstanding" as the number of shares of its common stock
outstanding as of the balance sheet date for the quarter-to-date
period and an average of each quarter for the year-to-date period,
plus the shares issuable upon exercise or vesting of all
outstanding equity awards (assuming a performance achievement
target level for equity awards with targets considered probable).
The Company adjusts the number of its outstanding common shares for
this calculation to provide an understanding of its results of
operations on a per share basis. See the table below for further
information.
Adjusted Common Shares Outstanding at September 30, 2023 and
2022
The following table shows the Company's adjusted common shares
outstanding at each period presented:
September 30,
Year-to-Date Average
September 30,
(amounts in millions)
2023
2022
2023
2022
Basic common shares outstanding
241.5
242.8
241.5
245.5
Number of shares issuable upon vesting of
granted Equity Awards
2.4
2.4
2.4
2.4
Adjusted common shares
outstanding
243.9
245.2
243.9
247.9
EBITDA and Adjusted EBITDA:
EBITDA represents earnings before interest, provision for income
taxes, depreciation and amortization. Adjusted EBITDA is defined as
EBITDA, excluding the impact of additional items included in GAAP
earnings which the Company believes are not representative or
indicative of its ongoing business or are considered to be
associated with its capital structure, as described in the
footnotes located under the "Adjusted Earnings Per Share (EPS)"
reconciliation table above. Adjusted EBITDA for each segment also
includes an allocation of corporate costs, such as compensation
expense and professional fees. Management believes adjusted EBITDA
and adjusted EBITDA margin provide investors with a more complete
understanding of the long-term profitability trends of Element
Solutions' business and facilitate comparisons of its profitability
to prior and future periods.
The following table reconciles GAAP "Net (loss) income
attributable to common stockholders" to "Adjusted EBITDA" for each
of the periods presented:
Three Months Ended
Nine Months Ended
September 30,
September 30,
(dollars in millions)
2023
2022
2023
2022
Net (loss) income attributable to
common stockholders
$
(31.8
)
$
53.2
$
41.0
$
174.5
Add (subtract):
Net income attributable to non-controlling
interests
0.1
0.1
—
0.6
Income from discontinued operations, net
of tax
—
—
(2.9
)
(1.8
)
Income tax expense
15.3
16.5
53.4
60.4
Interest expense, net
13.3
12.3
37.0
39.6
Depreciation expense
11.8
10.6
31.4
31.5
Amortization expense
32.7
29.2
93.3
90.5
EBITDA
41.4
121.9
253.2
395.3
Adjustments to reconcile to Adjusted
EBITDA:
Inventory step-up
(1)
—
—
—
0.5
Restructuring expense
(2)
2.1
2.9
6.3
6.1
Acquisition and integration expense
(3)
5.0
2.2
13.3
6.2
Foreign exchange loss (gain) on
intercompany loans
(4)
6.5
2.5
(7.6
)
3.2
Goodwill impairment
(5)
80.0
—
80.0
—
Kuprion Acquisition research and
development charge
(6)
—
—
15.7
—
Adjustment of stock compensation
previously not probable
(7)
—
—
—
1.3
Other, net
(8)
(0.9
)
4.0
1.6
6.1
Adjusted EBITDA
$
134.1
$
133.5
$
362.5
$
418.7
NOTE: For the footnote descriptions,
please refer to the footnotes located under the "Net (loss) income
attributable to common stockholders" reconciliation table
above.
Net Debt to Adjusted EBITDA Ratio:
Net debt to adjusted EBITDA ratio is defined as total debt
(current installments of long-term debt, revolving credit
facilities and long-term debt), excluding unamortized discounts and
debt issuance costs, which totaled $16.1 million at September 30,
2023, less cash divided by adjusted EBITDA.
The following table presents the Company's net debt to adjusted
EBITDA ratio of 3.7x on a trailing twelve month basis:
2023
2022
Trailing Twelve Months
(dollars in millions)
YTD
Q4
Net income attributable to common
stockholders
$
41.0
$
12.7
$53.7
Add (subtract):
Net income attributable to non-controlling
interests
—
0.2
0.2
Income from discontinued operations, net
of tax
(2.9
)
—
(2.9
)
Income tax expense
53.4
25.4
78.8
Interest expense, net
37.0
11.6
48.6
Depreciation expense
31.4
10.1
41.5
Amortization expense
93.3
29.2
122.5
EBITDA
253.2
89.2
342.4
Adjustments to reconcile to Adjusted
EBITDA:
Restructuring expense
6.3
3.4
9.7
Acquisition and integration expense
13.3
4.4
17.7
Foreign exchange (gain) loss on
intercompany loans
(7.6
)
4.6
(3.0
)
Goodwill impairment
80.0
—
80.0
Kuprion Acquisition research and
development charge
15.7
—
15.7
Other, net
1.6
6.3
7.9
Adjusted EBITDA
$
362.5
$
107.9
$470.4
Net debt
$1,725.8
Net debt to adjusted EBITDA
ratio
3.7x
Reacquired ViaForm® distribution rights
adjusted EBITDA (8 months)
10.1
Adjusted EBITDA including ViaForm®
transaction
480.5
Net debt to adjusted EBITDA ratio
including ViaForm® transaction
3.6x
Free Cash Flow:
Free cash flow is defined as net cash flows from operating
activities less net capital expenditures. Net capital expenditures
include capital expenditures less proceeds from the disposal of
property, plant and equipment. Management believes that free cash
flow, which measures the Company’s ability to generate cash from
its business operations, is an important financial measure for
evaluating the Company's financial performance. However, free cash
flow should be considered in addition to, rather than as a
substitute for, net cash provided by operating activities as a
measure of the Company’s liquidity.
The following table reconciles "Cash flows from operating
activities" to "Free cash flow:"
Three Months Ended
Nine Months Ended
September 30, 2023
September 30, 2023
(dollars in millions)
2023
2022
2023
2022
Cash flows from operating
activities
$
87.4
$
126.7
$
221.8
$
195.4
Capital expenditures
(13.4
)
(11.1
)
(36.3
)
(32.8
)
Proceeds from disposal of property, plant
and equipment
0.9
—
1.4
3.4
Free cash flow
$
74.9
$
115.6
$
186.9
$
166.0
View source
version on businesswire.com: https://www.businesswire.com/news/home/20231025724148/en/
Investor Relations: Varun Gokarn Senior Director, Strategy and
Finance Element Solutions Inc 1-203-952-0369
IR@elementsolutionsinc.com
Media: Scott Bisang / Ed Hammond / Tali Epstein Collected
Strategies 1-212-379-2072 esi@collectedstrategies.com
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