Element Solutions (US:ESI)2021-10-28 18:22Financial Data and Key Metrics Changes - The company achieved record net sales, growing 13% organically year-over-year, and adjusted EBITDA increased by 29% on a reported basis [16][36] - Adjusted EBITDA margins were roughly flat year-over-year, with a slight improvement on a metals-adjusted basis [14][20] - Free cash flow for the quarter was $81 million, with a year-to-date total exceeding $175 million [32] Business Line Data and Key Metrics Changes - The electronics segment grew net sales by 11% organically, with all three verticals achieving double-digit growth [22] - Circuitry solutions grew 14% organically, driven by strength in high-end electronics and memory disk markets [22] - The industrial and specialty segment grew net sales by 15% organically, with graphics solutions growing by 19% [26][27] Market Data and Key Metrics Changes - The electronics industry continued to grow, supported by expansion in communications infrastructure, consumer electronics, and automotive electronics [10] - The industrial business faced challenges from automotive supply chain constraints but still grew year-over-year [11] - Offshore solutions saw a decline in net sales by 9% organically, attributed to lower energy prices and stagnant investment in drilling and production [30] Company Strategy and Development Direction - The company is focusing on strategic growth priorities, including power electronics for electric vehicles and sustainability solutions [7] - The acquisition of Coventya is expected to provide growth opportunities and cost savings, with integration efforts already underway [8][34] - The company anticipates continued growth in the electronics business, driven by secular trends and increased content per vehicle in the automotive sector [40] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about long-term prospects despite current supply chain challenges, indicating strong underlying demand [6][8] - The automotive market is expected to recover, but the timing remains uncertain, impacting the industrial segment's performance [36][56] - The company expects to deliver adjusted EBITDA in the range of $515 million to $525 million for the full year 2021, despite a challenging automotive backdrop [37][39] Other Important Information - The company has built safety stocks in inventory to meet customer demand amid ongoing supply chain shortages, which is expected to impact cash flow conversion temporarily [15][32] - The net leverage ratio at the end of the quarter was 3.1 times, reflecting the financing of the Coventya acquisition [34] Q&A Session Summary Question: Outlook on Coventya acquisition - Management sees opportunities for both productivity improvements and cross-selling, with strong momentum in the Coventya business despite a weaker automotive backdrop [42][43] Question: Potential lag in automotive production recovery - Management does not expect a material lag when the automotive market recovers, citing strong performance in other industrial segments [47][48] Question: Supply chain constraints visibility - Customers are optimistic about recovery, but management acknowledges that the recovery in automotive will be delayed into 2022 [56] Question: Price increases and customer pushback - Management has been effective in taking price increases, but there is a lag in passing through logistics costs [57] Question: Growth expectations for electronics business - Management expects to outperform the market due to increased content per vehicle and strong commercial execution [62] Question: Safety stock levels and inventory days - Typical inventory days are in the mid to high 60s, with a slight increase due to safety stock buildup to support customer demand [72]