Element Solutions (ESI) - 2020 Q3 - Quarterly Report

Part I. Financial Information Condensed Consolidated Financial Statements (Unaudited) Presents Element Solutions Inc.'s unaudited condensed consolidated financial statements for Q3 and 9M 2020 and 2019, including key financial statements and notes Condensed Consolidated Statements of Operations Net sales reached $477.5 million in Q3 2020, with net income attributable to common stockholders at $36.0 million, a significant improvement from a $6.9 million loss in Q3 2019 Condensed Consolidated Statements of Operations (Q3 & 9M 2020 vs 2019) | (in millions, except per share) | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $477.5 | $464.7 | $1,317.1 | $1,381.2 | | Gross profit | $203.5 | $205.7 | $563.3 | $597.0 | | Operating profit | $58.6 | $66.9 | $152.7 | $167.5 | | Net income (loss) from continuing operations | $36.2 | $(6.0) | $46.9 | $5.2 | | Net income (loss) attributable to common stockholders | $36.0 | $(6.9) | $45.8 | $17.8 | | Diluted EPS attributable to common stockholders | $0.15 | $(0.03) | $0.19 | $0.07 | Condensed Consolidated Balance Sheets Total assets remained stable at $4.33 billion as of September 30, 2020, with cash increasing to $248.4 million and total equity rising to $2.24 billion Condensed Consolidated Balance Sheet Highlights | (in millions) | September 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total current assets | $946.6 | $833.4 | | Goodwill | $2,189.6 | $2,179.6 | | Total assets | $4,326.8 | $4,324.4 | | Total current liabilities | $302.4 | $293.8 | | Debt | $1,509.7 | $1,513.2 | | Total liabilities | $2,083.8 | $2,105.1 | | Total equity | $2,243.0 | $2,219.3 | Condensed Consolidated Statements of Cash Flows Net cash from operating activities significantly increased to $194.3 million for 9M 2020, while investing and financing activities used $31.4 million and $87.8 million respectively Cash Flow Summary (Nine Months Ended Sep 30) | (in millions) | 2020 | 2019 | | :--- | :--- | :--- | | Net cash flows provided by operating activities | $194.3 | $92.1 | | Net cash flows (used in) provided by investing activities | $(31.4) | $4,270.3 | | Net cash flows used in financing activities | $(87.8) | $(4,425.0) | | Net increase (decrease) in cash | $58.3 | $(215.2) | Notes to the Condensed Consolidated Financial Statements Notes detail the DMP Acquisition, debt refinancing, segment performance, and a significant tax benefit from new U.S. Treasury regulations - On July 1, 2020, the Company completed the DMP Acquisition, a provider of wastewater treatment solutions, which was integrated into the Industrial & Specialty segment[42] - In August 2020, the company issued $800 million of 3.875% senior notes due 2028 and used the proceeds to redeem its $800 million 5.875% senior notes due 2025, incurring a $45.7 million expense for the make-whole premium and write-off of debt costs[58] - During Q3 2020, the company repurchased approximately 0.2 million shares for $2.6 million. For the first nine months of 2020, it repurchased 4.0 million shares for $35.7 million[80] - New U.S. Treasury regulations related to GILTI and interest expense limitations resulted in an estimated $42 million tax benefit for the 2018 and 2019 tax years, which was recorded in the third quarter of 2020[94] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 2020 performance, highlighting 3% net sales growth, debt refinancing, COVID-19 impact, and a 12% decrease in Adjusted EBITDA to $101.8 million Recent Developments Recent developments include senior note refinancing, the launch of MacDermid Envio Solutions, and ongoing share repurchases - Completed a private offering of $800 million in 3.875% notes due 2028 to redeem the 5.875% notes due 2025, reducing annual interest payments by $16.0 million[112] - Launched MacDermid Envio Solutions, a new business within the Industrial & Specialty segment focused on environmental impact reduction and wastewater treatment[113] - Repurchased 0.2 million shares for $2.6 million in Q3 2020 and an additional 1.5 million shares for $17.3 million on October 6, 2020[117] Results of Operations Q3 2020 net sales grew 3% reported, with Electronics showing organic growth and Industrial & Specialty declining, leading to a 12% fall in Adjusted EBITDA Q3 2020 Net Sales Growth vs. Q3 2019 | Segment | Reported Growth | Organic Growth | | :--- | :--- | :--- | | Total Company | 3% | (2)% | | Electronics | 10% | 2% | | - Assembly Solutions | 13% | 1% | | - Circuitry Solutions | (1)% | (3)% | | - Semiconductor Solutions | 26% | 19% | | Industrial & Specialty | (8)% | (10)% | | - Industrial Solutions | (4)% | (7)% | | - Graphics Solutions | (16)% | (16)% | | - Energy Solutions | (16)% | (14)% | Q3 2020 Adjusted EBITDA Performance | (in millions) | Q3 2020 | Q3 2019 | % Change (Reported) | | :--- | :--- | :--- | :--- | | Total Adjusted EBITDA | $101.8 | $115.4 | (12)% | | Electronics | $72.0 | $73.6 | (3)% | | Industrial & Specialty | $29.8 | $41.8 | (28)% | - Gross margin for Q3 2020 decreased to 42.6% from 44.3% in Q3 2019, a contraction of 170 basis points, primarily due to lower sales volumes and unfavorable product mix in the Industrial & Specialty segment[146][147] Liquidity and Capital Resources Liquidity is strong with $194.3 million in operating cash flow for 9M 2020, $248 million cash, and $349 million available credit, with no major debt payments until 2028 - Net cash from operating activities for the nine months ended Sep 30, 2020, was $194.3 million, a significant increase from $92.1 million in the same period of 2019[171][172] - As of September 30, 2020, the company had $248 million in cash and cash equivalents and $349 million available under its revolving credit facilities[170][177] - The company expects to pay a quarterly dividend of 5 cents per share, subject to Board approval[166] Quantitative and Qualitative Disclosures About Market Risk No material changes to market risk disclosures from the 2019 Annual Report on Form 10-K - Disclosures about market risk have not changed materially from those disclosed in the 2019 Annual Report[180] Controls and Procedures Disclosure controls and procedures were effective as of September 30, 2020, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by the report[182] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal controls[184] Part II. Other Information Legal Proceedings The company is involved in various legal proceedings and environmental claims, with further details in Note 11 - The company is involved in various legal proceedings and environmental claims incidental to its business; more information is available in Note 11[186] Risk Factors A new risk factor addresses the uncertain and potentially adverse impact of the COVID-19 pandemic on operations and financial condition - A new risk factor was added highlighting that the extent of the impact of the COVID-19 pandemic on the company's results of operations and overall financial performance remains uncertain and subject to change[187] - Potential adverse effects from the pandemic include disruptions to global supply chains, reduced customer demand, increased operating costs, and potential impairment of goodwill or intangible assets[188] Unregistered Sales of Equity Securities and Use of Proceeds In Q3 2020, the company repurchased 237,629 shares for $2.6 million, with $207 million remaining under the $750 million repurchase program Share Repurchases for Q3 2020 | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | July 1 - July 31 | — | — | | August 1 - August 31 | — | — | | September 1 - September 30 | 237,629 | $11.24 | | Total | 237,629 | $11.24 | - As of September 30, 2020, $207 million remained authorized for repurchase under the company's $750 million program[190] Defaults Upon Senior Securities None - None[192] Mine Safety Disclosures None - None[192] Other Information None - None[192] Exhibits This section lists exhibits filed with the quarterly report, including corporate governance documents and required certifications - Lists exhibits filed with the report, including corporate governance documents, debt agreements, and required certifications[193]