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Element Solutions Inc. Announces 2020 Third Quarter Financial Results

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   |    Tuesday,October 27,2020

Element Solutions reported financial results for the three and nine months ended September 30, 2020.

Chief Executive Officer Benjamin Gliklich said, "Element Solutions had a strong third quarter. Our automotive and industrially oriented businesses recovered robustly from the second quarter lows, and our high-end electronics business continued its momentum from the first half. We could not be prouder of our team's ability to pivot from a cost-focused posture to accommodating a sharp increase in volume, all while operating within the strict health and safety protocols driven by COVID-19. Adjusted EBITDA margins were flat sequentially primarily due to a rebuild of year-to-date compensation accruals driven by the pace of the recovery in the business. As a result, third quarter operating expenses exceed the baseline we expect entering 2021. Free cash flow conversion remains very solid, and our successful bond refinancing built additional cash flow growth going into next year. We also continued to drive growth through prudent, bolt-on acquisitions this quarter bringing the DMP business into the ESI family and launching MacDermid Envio Solutions. We are very excited, as are our customers, about the addition of sustainability solutions to our portfolio of product offerings."

Mr. Gliklich continued, "We expect adjusted EBITDA in the fourth quarter to be between $90 million and $95 million, despite the expected normal seasonal slowdown. We are also increasing our free cash flow forecast to approximately $215 million for the full year 2020. This business generates far more free cash flow than it needs to invest internally to fund capex and more than we normally expect to deploy into acquisitions that fit our criteria. In that context, we believe it appropriate to begin to return some of that capital to investors in the form of cash dividends. Subject to final approval from our Board, we expect to pay a 5 cents per share dividend on a quarterly basis which equates to approximately 20% of our expected annual free cash flow. We believe that doing so does not materially impact our ability to compound earnings, reduce debt or opportunistically invest in inorganic growth. Between the megatrends driving our end markets evidenced in the strength of our electronics business year-to-date and our ability to outperform our markets through sound strategic execution, we should have ample growth opportunities and look forward to returning a portion of our surplus to investors along the way."

Third Quarter 2020 Highlights

• Net sales on a reported basis for the third quarter of 2020 were $478 million, an increase of 3% over the third quarter of 2019. Organic net sales, which exclude the impact of currency changes, certain pass-through metal prices and acquisitions, decreased 2%.
  • Electronics: Net sales increased 10% to $307 million. Organic net sales increased 2%.
  • Industrial & Specialty: Net sales decreased 8% to $171 million. Organic net sales decreased 10%.
• Third quarter of 2020 earnings per share (EPS) performance:
  • GAAP diluted earnings per share was $0.15 for the third quarter of 2020, as compared to a loss per share of $0.02 for the third quarter of 2019.
  • Adjusted EPS was $0.22, as compared to $0.26 per share in prior year.
• Reported net income for the third quarter of 2020 was $36 million, as compared to a net loss of $6 million for the third quarter of 2019.
• Adjusted EBITDA for the third quarter of 2020 was $102 million, a decrease of 12%. On a constant currency basis, adjusted EBITDA decreased 11%.
  • Electronics: Adjusted EBITDA was $72 million, a decrease of 3%. On a constant currency basis, adjusted EBITDA decreased 3%.
  • Industrial & Specialty: Adjusted EBITDA was $30 million, a decrease of 28%. On a constant currency basis, adjusted EBITDA decreased 26%.
  • Adjusted EBITDA margin decreased 350 basis points to 21% on a reported basis. On a constant currency basis, adjusted EBITDA margin decreased 330 basis points.

2020 Guidance

For the fourth quarter of 2020, the Company expects adjusted EBITDA to be between $90 million and $95 million. The Company increased its full year 2020 free cash flow outlook and now expects to generate free cash flow of approximately $215 million for the full year. However, the impact of COVID-19 continues to make it difficult to forecast macroeconomic conditions or operating results.