Element Solutions (ESI) Q1 2025 Earnings Call April 25, 2025 12:45 AM ET Company Participants Varun Gokarn - Vice President - Strategy and IntegrationBenjamin Gliklich - President and CEOBhavesh Lodaya - US Chemicals Equity ResearchSir Martin Franklin - Executive ChairmanRock Hoffman - Equity Research AssociateChristopher Parkinson - Managing DirectorCarey Dorman - EVP and CFOJohn Roberts - Managing DirectorJonathan Tanwanteng - Managing DirectorRyan Weis - Equity Research Associate Conference Call Particip ...

First Quarter 2025 Earnings Presentation Enabling Technology. Growing Sustainably. Legal Notices NON-GAAP FINANCIAL MEASURES To supplement the financial measures prepared in accordance with generally accepted accounting principles in the United States ("GAAP"), the Company presents in this presentation the following non-GAAP financial measures: EBITDA, adjusted EBITDA, adjusted EBITDA growth (including growth excluding the MacDermid Graphics Solutions business) adjusted EBITDA margin (including margin exclu ...

Core Insights - Element Solutions reported strong Q1 2025 results with a 5% year-over-year organic sales growth, driven by a 10% growth in the Electronics segment [2][3] - The company maintained its full-year 2025 adjusted EBITDA guidance at $520 million to $540 million, despite macroeconomic uncertainties [10][9] - The net leverage ratio reached 2.1x, the lowest in the company's history, indicating a strong balance sheet [9][10] Financial Performance - Q1 2025 adjusted EBITDA was $128 million, exceeding guidance [2][9] - Wafer-Level Packaging sales grew over 20%, supported by high bandwidth memory applications [2][4] - The Electronics segment's organic growth was broad-based, with significant contributions from circuitry, semiconductor, and assembly materials [4][7] Market Dynamics - The Industrial and Specialty segment experienced a 2% decline in organic sales, primarily due to weakness in Europe [4][8] - Data center exposure across business units is projected to approach $200 million in 2025 [4][15] - The company is focused on new product launches in wafer-level packaging expected later in 2025 [4][19] Strategic Initiatives - The company emphasized its ability to mitigate potential tariff impacts through a diversified manufacturing footprint [4][10] - There is a strong focus on capital deployment to drive long-term shareholder value, with substantial capacity available for investments [4][10] - The company is actively localizing sourcing and manufacturing to adapt to changing trade dynamics [10][41] Growth Opportunities - The Electronics segment is expected to continue benefiting from trends in AI, advanced packaging, and data center markets [3][7] - The company is seeing strong demand in high-performance computing and electric vehicle applications, particularly in Asia [7][8] - The transition towards B2B end markets is anticipated to reduce quarterly seasonality and cyclicality over time [9][10]

Financial Performance - Net sales for Q1 2025 were $593.7 million, an increase of 3.7% from $575.0 million in Q1 2024[15] - Gross profit for Q1 2025 was $250.5 million, up from $245.0 million in Q1 2024, reflecting a gross margin of 42.2%[15] - Net income for Q1 2025 increased to $98.0 million, compared to $56.0 million in Q1 2024, representing a growth of 75.0%[16] - Earnings per share (EPS) for Q1 2025 were $0.40, compared to $0.23 in Q1 2024, marking a 73.9% increase[15] - The company reported a comprehensive income of $155.5 million for Q1 2025, significantly higher than $17.7 million in Q1 2024[16] - Operating profit for Q1 2025 was $77.4 million, slightly down from $77.8 million in Q1 2024[15] - Adjusted EBITDA for the three months ended March 31, 2025, was $128.4 million, slightly up from $127.0 million in 2024[92] - Total adjusted EBITDA for the company was $128.4 million in Q1 2025, slightly up from $127.0 million in Q1 2024, reflecting a 1.1% increase[93] Assets and Liabilities - Total assets as of March 31, 2025, were $4,794.6 million, a decrease from $4,873.9 million as of December 31, 2024[18] - Total liabilities decreased to $2,259.6 million as of March 31, 2025, from $2,475.5 million at the end of 2024[18] - The balance of accumulated deficit decreased to $(938.6) million as of March 31, 2025, from $(1,017.1) million at December 31, 2024, showing an improvement of 7.7%[22] - The company’s total stockholders' equity increased to $2,535.0 million as of March 31, 2025, compared to $2,398.4 million at December 31, 2024, reflecting a growth of 5.7%[22] - The total debt as of March 31, 2025, was $1,623.8 million, a decrease from $1,824.0 million as of December 31, 2024[45] - The carrying value of the Company's long-term debt was $1.62 billion as of March 31, 2025, down from $1.82 billion at December 31, 2024[73] - The estimated fair value of long-term debt was $1.59 billion at March 31, 2025, compared to $1.81 billion at December 31, 2024[73] Inventory and Expenses - The total inventories increased to $269.9 million as of March 31, 2025, up from $246.2 million at December 31, 2024, reflecting a 9.5% growth[38] - The company’s finished goods inventory increased to $146.9 million as of March 31, 2025, up from $137.4 million at December 31, 2024, representing a 6.4% increase[38] - Research and development expenses increased to $15.3 million in Q1 2025 from $13.6 million in Q1 2024, marking a 12.5% rise[93] - Selling, technical, general, and administrative expenses totaled $117.2 million in Q1 2025, up from $113.8 million in Q1 2024, reflecting a 3.0% increase[93] Segment Performance - The Electronics segment reported net sales of $394.3 million for the three months ended March 31, 2025, an increase from $349.2 million in 2024[90] - The Industrial & Specialty segment's net sales decreased to $199.4 million in the three months ended March 31, 2025, from $225.8 million in 2024, a decline of 11.7%[90] - Net sales for the Electronics segment reached $394.3 million in Q1 2025, up from $349.2 million in Q1 2024, representing a 12.4% increase[93] - The Industrial & Specialty segment reported net sales of $199.4 million in Q1 2025, compared to $225.8 million in Q1 2024, indicating a decline of 11.7%[93] Cash Flow and Financing - Cash and cash equivalents increased to $499.2 million as of March 31, 2025, up from $359.4 million at the end of 2024[18] - The Company prepaid $200 million of its term loans B-3, reducing the principal outstanding from $1.04 billion to $836 million[48] - The Company has a revolving credit facility of $375 million, maturing in 2027, with full availability of its unused borrowing capacity of $368 million as of March 31, 2025[52] Market and Strategic Initiatives - The company continues to focus on market expansion and new product development as part of its strategic initiatives[93] - There have been no material changes in the quantitative and qualitative disclosures about market risk since the 2024 Annual Report[145]

Financial Data and Key Metrics Changes - Organic sales and constant currency adjusted EBITDA both grew 5% year over year, with adjusted EBITDA of $128 million exceeding guidance for the quarter [17][18] - Adjusted EBITDA margin declined roughly 30 basis points year over year in constant currency terms, negatively impacted by higher pass-through metal prices [18][19] - Currency negatively impacted total company net sales in the first quarter by roughly 3% and adjusted EBITDA by approximately $5 million [18][19] Business Line Data and Key Metrics Changes - Electronics organic growth was 10%, driven by strong performance across higher margin categories in circuitry and semiconductor, as well as lower margin assembly materials for consumer electronics [17][20] - Semiconductor Solutions organic net sales grew 17%, with robust demand in wafer-level packaging for semi-fab OSAT customers in Asia [22] - Industrial and specialty organic net sales declined 2%, primarily due to a 1% decline in the core industrial business concentrated in Europe [24][25] Market Data and Key Metrics Changes - Demand from fast-growing AI, advanced packaging, and data center markets continued to drive performance, while Western automotive and smartphone markets showed ongoing softness [10][12] - Strong growth in consumer electronics markets in Asia offset weaknesses in Western markets, particularly in smartphones [10][12][132] - The Asian EV market contributed positively, with significant growth in the automotive sector in China [24][74] Company Strategy and Development Direction - The company is focused on long-term investments to develop strategic capabilities that support technologies expected to drive market growth [15][35] - A shift towards B2B end markets is anticipated, which should dampen quarterly seasonality and general cyclicality over time [21] - The company is increasing manufacturing capacity for future growth areas such as nano copper and power electronics [35] Management's Comments on Operating Environment and Future Outlook - Management maintains full-year guidance of adjusted EBITDA between $520 million and $540 million, citing no signs of demand destruction from tariffs [32][33] - The company is prepared to react quickly to shifts in demand and cost, leveraging a highly variable OPEX structure [33][52] - Despite macroeconomic uncertainties, the company sees a strong pipeline of large leading-edge opportunities and margin-enhancing industrial projects [35] Other Important Information - The company generated $30 million of adjusted free cash flow in Q1, with a net leverage ratio of 2.1 times, the lowest in its history [26][29] - The balance sheet is strong, with $500 million in cash available for deployment, positioning the company well for potential M&A or buybacks [86] Q&A Session Summary Question: Guidance range and macro indicators - Management indicated that the guidance range is based on modest tariff impacts and strong April trading, with no signs of demand destruction year to date [41][42] Question: Data center strength exposure - The company has over $200 million exposure in data center applications across circuitry and assembly businesses, with significant growth in these areas [47] Question: Actions to defend annual guidance amid potential demand slowdown - Management highlighted the ability to quickly reduce costs without harming long-term growth, leveraging a highly variable cost structure [52] Question: Impact of tariffs on customer behavior - No clear evidence of prebuying due to tariffs was observed, with growth driven by B2B sales in data centers and electric vehicles [92] Question: Margin performance in industrial and specialty segment - Margins improved due to price discipline and raw material deflation, with expectations for further improvement as the energy business recovers [95] Question: Customer collaboration and R&D activities - No notable impact on long-term projects or customer behavior was reported, with ongoing engagement in breakthrough technologies [128] Question: Consumer electronics market performance - Strength in the local Chinese smartphone market was noted, contrasting with softness in Western markets, particularly in smartphones [132]

Core Insights - Element Solutions (ESI) reported revenue of $593.7 million for the quarter ended March 2025, reflecting a 3.3% increase year-over-year and surpassing the Zacks Consensus Estimate of $584.63 million by 1.55% [1] - The company's EPS remained stable at $0.34, matching the year-ago quarter and exceeding the consensus estimate of $0.33 by 3.03% [1] Financial Performance Metrics - Net Sales in the Industrial & Specialty segment were $199.40 million, slightly above the estimated $199.07 million, but down 11.7% compared to the previous year [4] - Net Sales in the Electronics segment reached $394.30 million, exceeding the average estimate of $385.57 million and showing a year-over-year increase of 12.9% [4] - Adjusted EBITDA for the Industrial & Specialty segment was $39.50 million, surpassing the estimated $37.37 million [4] - Adjusted EBITDA for the Electronics segment was $88.90 million, slightly above the average estimate of $87.90 million [4] Stock Performance - Over the past month, shares of Element Solutions have declined by 24.3%, contrasting with a 6.6% decrease in the Zacks S&P 500 composite [3] - The stock currently holds a Zacks Rank 4 (Sell), indicating potential underperformance relative to the broader market in the near term [3]

Core Viewpoint - Element Solutions (ESI) reported quarterly earnings of $0.34 per share, exceeding the Zacks Consensus Estimate of $0.33 per share, with a year-over-year comparison showing no change in earnings [1][2] Financial Performance - The company achieved revenues of $593.7 million for the quarter ended March 2025, surpassing the Zacks Consensus Estimate by 1.55% and showing an increase from $575 million in the same quarter last year [2] - Over the last four quarters, Element Solutions has exceeded consensus EPS estimates three times and topped revenue estimates four times [2] Stock Performance - Element Solutions shares have declined approximately 25.8% since the beginning of the year, compared to a decline of 10.1% for the S&P 500 [3] - The stock currently holds a Zacks Rank 4 (Sell), indicating expectations of underperformance in the near future [6] Earnings Outlook - The current consensus EPS estimate for the upcoming quarter is $0.35 on revenues of $603.7 million, and for the current fiscal year, it is $1.41 on revenues of $2.45 billion [7] - The trend of estimate revisions for Element Solutions has been unfavorable leading up to the earnings release [6] Industry Context - The Chemical - Specialty industry, to which Element Solutions belongs, is currently ranked in the bottom 34% of over 250 Zacks industries, suggesting potential challenges ahead [8]

EXHIBIT 99.1 Element Solutions Inc Announces 2025 First Quarter Financial Results Executive Commentary President and Chief Executive Officer Benjamin Gliklich commented, "Element Solutions started 2025 strong. We grew profits, meaningfully reduced leverage, and continued to execute on breakthrough growth strategies. Our markets were similar to last year's – soft industrial demand with pockets of strength in high-value electronics niches, most particularly data centers and AI applications. Considering that b ...

Core Insights - Element Solutions (ESI) is expected to report quarterly earnings of $0.33 per share, a decline of 2.9% year-over-year, with revenues forecasted at $586.13 million, reflecting a 1.9% increase compared to the previous year [1] - The consensus EPS estimate has been revised downward by 1.9% in the last 30 days, indicating a reassessment by analysts [2] - Analysts emphasize the importance of earnings estimate revisions in predicting investor reactions and stock price performance [3] Financial Metrics - Analysts estimate 'Net Sales- Industrial & Specialty' at $199.13 million, a decrease of 11.8% from the prior-year quarter [5] - 'Net Sales- Electronics' is projected to reach $387.03 million, representing a year-over-year increase of 10.8% [5] - 'Adjusted EBITDA- Industrial & Specialty' is expected to be $37.63 million, down from $43.10 million in the same quarter last year [6] - 'Adjusted EBITDA- Electronics' is forecasted at $88.77 million, an increase from the previous year's figure of $83.90 million [6] Stock Performance - Over the past month, Element Solutions shares have declined by 29.7%, compared to a 8.9% decline in the Zacks S&P 500 composite [7] - ESI holds a Zacks Rank of 3 (Hold), suggesting that its performance is likely to align with the overall market in the near term [7]

The market expects Element Solutions (ESI) to deliver a year-over-year decline in earnings on higher revenues when it reports results for the quarter ended March 2025. This widely-known consensus outlook is important in assessing the company's earnings picture, but a powerful factor that might influence its near-term stock price is how the actual results compare to these estimates.The stock might move higher if these key numbers top expectations in the upcoming earnings report, which is expected to be relea ...