Element Solutions (ESI) - 2022 Q2 - Quarterly Report

Part I. Financial Information Condensed Consolidated Financial Statements (Unaudited) These unaudited statements detail Element Solutions Inc's financial position, operations, and cash flows, showing increased sales and gross profit but reduced net income due to a prior-year tax benefit Condensed Consolidated Statements of Operations Q2 2022 net sales increased to $676.9 million, with operating profit up, but net income decreased to $65.2 million due to a prior-year tax benefit Condensed Consolidated Statements of Operations ($ millions) | Financial Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $676.9 M | $586.6 M | $1,357.1 M | $1,136.7 M | | Gross Profit | $249.8 M | $238.5 M | $512.8 M | $479.5 M | | Operating Profit | $90.5 M | $71.0 M | $186.0 M | $170.9 M | | Net Income Attributable to Common Stockholders | $65.2 M | $81.1 M | $121.3 M | $163.4 M | | Diluted EPS | $0.26 | $0.33 | $0.49 | $0.66 | Condensed Consolidated Balance Sheets Total assets were $5.01 billion as of June 30, 2022, slightly down from year-end 2021, with total liabilities at $2.59 billion Condensed Consolidated Balance Sheets ($ millions) | Balance Sheet Item | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Current Assets | $1,237.8 M | $1,214.5 M | | Goodwill | $2,425.4 M | $2,526.3 M | | Total Assets | $5,009.7 M | $5,138.4 M | | Total Current Liabilities | $395.0 M | $415.2 M | | Total Debt (Long-term) | $1,889.9 M | $1,894.2 M | | Total Liabilities | $2,594.5 M | $2,637.6 M | | Total Stockholders' Equity | $2,398.2 M | $2,480.7 M | Condensed Consolidated Statements of Cash Flows Net cash from operating activities decreased to $68.7 million for H1 2022, primarily due to higher working capital, with significant cash used in financing activities Condensed Consolidated Statements of Cash Flows ($ millions) | Cash Flow Activity (Six Months Ended June 30) | 2022 | 2021 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $68.7 M | $113.0 M | | Net Cash used in Investing Activities | $(46.0) M | $(49.1) M | | Net Cash used in Financing Activities | $(129.4) M | $(37.3) M | | Net (Decrease) Increase in Cash | $(114.5) M | $26.5 M | | Cash at End of Period | $215.6 M | $318.4 M | Notes to the Condensed Consolidated Financial Statements Detailed notes cover accounting policies, the $23 million HSO acquisition, $1.90 billion in debt, derivative usage, and $61.7 million in share repurchases - On January 26, 2022, the Company completed the acquisition of HSO, a developer of technology for surface finishing, for approximately $23 million[34] - Total debt obligations stood at $1.90 billion as of June 30, 2022, primarily consisting of $1.11 billion in term loans and $790 million in senior notes[38][149] - The company actively uses derivative financial instruments, including interest rate swaps, cross-currency swaps, and commodity contracts, to manage risks associated with interest rates, foreign currency, and metal prices[48][50][58] - During the six months ended June 30, 2022, the company repurchased approximately 3.0 million shares of its common stock for $61.7 million, with approximately $670 million remaining authorized under the stock repurchase program[64] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 2022 performance, noting a 15% reported net sales increase, gross margin decline due to higher costs, and 7% Adjusted EBITDA growth to $140.4 million Overview Element Solutions operates as a global specialty chemicals company with two core segments: Electronics and Industrial & Specialty, serving diverse industries - The company operates through two reportable segments: Electronics and Industrial & Specialty[87] - The Electronics segment formulates specialty chemicals for electronics hardware, including printed circuit boards and semiconductor packaging[87][89] - The Industrial & Specialty segment provides chemicals that enhance surfaces and improve industrial processes in sectors like automotive, construction, printing, and offshore energy[89][90] Results of Operations Q2 2022 net sales increased 15% to $676.9 million, with gross margin declining 380 bps to 36.9% due to higher costs, while Adjusted EBITDA grew 7% to $140.4 million Results of Operations (Q2 2022 vs Q2 2021) ($ millions) | Metric (Q2 2022 vs Q2 2021) | Q2 2022 | Q2 2021 | Reported Change | Organic Change | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $676.9 M | $586.6 M | +15% | +6% | | Gross Profit | $249.8 M | $238.5 M | +5% | N/A | | Gross Margin | 36.9% | 40.7% | -380 bps | N/A | | Operating Profit | $90.5 M | $71.0 M | +27% | N/A | | Adjusted EBITDA | $140.4 M | $131.8 M | +7% | N/A | - Electronics segment net sales grew 11% reported (8% organic) in Q2 2022, driven by growth across all business lines, particularly Circuitry and Semiconductor Solutions[112] - Industrial & Specialty segment net sales grew 24% reported (2% organic) in Q2 2022, largely due to the positive impact of the Coventya and HSO acquisitions[113] Liquidity and Capital Resources The company's liquidity is supported by cash from operations and credit facilities, with $1.90 billion in debt and $346 million available credit as of June 30, 2022 - Primary uses of cash in H1 2022 included funding operations, share repurchases ($59.7 million), dividend payments ($39.6 million), and the HSO Acquisition (~$23 million)[137][146][148] - As of June 30, 2022, total indebtedness was $1.90 billion, with the first significant principal payment of ~$1.08 billion not due until 2026[137][149] - Total availability under the revolving credit facility and other lines of credit was $346 million at the end of the quarter[150] - Of the $216 million in cash and cash equivalents, $180 million was held by foreign subsidiaries[143] Quantitative and Qualitative Disclosures About Market Risk No material changes occurred in the quantitative and qualitative disclosures about market risk compared to the 2021 Annual Report on Form 10-K - Disclosures about market risk have not changed materially from the 2021 Annual Report[152] Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures are effective to provide reasonable assurance[153] - No material changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[154] Part II. Other Information Legal Proceedings The company is involved in various legal proceedings, primarily related to environmental matters at current and former operational sites - The company is involved in various legal proceedings, including claims related to environmental matters at current and former plant and waste management sites[156] Risk Factors No material changes occurred in the company's risk factors compared to those disclosed in the 2021 Annual Report on Form 10-K - There have been no material changes in risk factors from those set forth in the 2021 Annual Report[157] Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2022, the company repurchased 2,162,646 shares at an average price of $19.84, with $670 million remaining for future repurchases Common Stock Repurchases (Q2 2022) | Period (2022) | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | April | 493,522 | $20.69 | | May | 883,985 | $20.31 | | June | 785,139 | $18.78 | | Total Q2 | 2,162,646 | $19.84 | - The remaining authorization under the company's stock repurchase program was approximately $670 million at the end of June 2022[158] Exhibits This section lists exhibits filed with the quarterly report, including corporate governance documents, officer certifications, and Inline XBRL data - The report includes standard corporate governance documents, CEO/CFO certifications (Sections 302 and 906), and XBRL data files as exhibits[161]