ESI - Earnings call transcript Q2 2022

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Operator

Good morning, ladies and gentlemen, and welcome to the Element Solutions Q2 2022 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. [Operator Instructions] Please note that this call may be recorded, and I will be standing by should you need any assistance. I would now turn the call over to Varun Gokarn, Senior Director of Strategy and Finance. ahead. go Please

Varun Gokarn

thank XXXX and participating our in Good conference you call. quarter earnings second morning, for

Joining our fair is Element In retransmission form accordance webcasting me without Carey conference strictly or with CFO, are this written call Regulation prohibited. CEO, rebroadcast Ben the of FD in Any expressed Solutions or call. disclosure, this are and we redistribution, Gliklich; any Dorman. of consent

earnings the Investors include and at be with These actual future views performance website make www.elementsolutionsinc.com certain company’s financial U.S. can that forward-looking Ben GAAP. that information to about and financial During the to expectations the our Element reconciliations It to now predictions. for refer measures. definitions to GAAP are most to Today’s these the risks in discussion of prepared non-GAAP Events. differ call, current company’s to not slides filings events and Please refer that statements and SEC we will These and are release, has measures cause found for supplemental of in comparable today’s assumptions pleasure a materials been my accordance News under subject is supplemental factors Gliklich, expectations Please financial results and and release future recent risk CEO reflect results. statements of from our on introduce uncertainties. material earnings our slides based materials on could and of Solutions. section also that

Ben Gliklich

in healthy, this half constant opportunities not and quarter. EBITDA team. results longer our was The Organic sales chains is supply sales a on currency hold. weaker. disruptions of Europe. and of financial in everybody. met once over commitments geopolitical chain complicated in stability our and markets solid weighed growth was was in in XXXX growth. ongoing capitalize generating our second dollar, was adjusted recent automotive, The and it and present rates. by driven well, better-than-expected while XX% the before second into headwinds took new volatility more by than long-term our our around unit surcharges was pricing going growth material resilient, markets, of certain synergies, demand as such China actions others to chemistry. of sustainable Overall, and in acquisitions we’ve raw started our year and In integration on headwind X% the additional Auto lockdowns We and to Solutions We Varun, based difficult QX moved on quarter joining. FX another the which sales biggest strengthening grew the comparable, in good which continued against inflation current quarter yet the grew weak U.S. the by underlying net industrial our delivered EV execution macro by the adjusted segment China from our remain quarter significantly Element again the hubs expected. businesses than penetration. and in market ongoing Nonetheless, vertical, The a morning, you, EBITDA verticals major we us. for remained grew growth generally you challenged. and across commercial believe Thank the recovered environment. across Supply Thank on the currencies persisted earnings had electronics talented the We of Demand driven our automotive guidance. despite strategy and in overhang we every continued production demonstrates our modestly of by in have XG

our sentiment markets has worsened, resilient. While remain macroeconomic many end of

new launches for from business grow We smartphone the and sequentially and demand half expect ongoing in mobile the infrastructure and second platform EV electronics to year-over-year markets.

of portfolio expectations personal an with been Softness the coming computers impact on has electronics such our in our year. white into in as and consumer sectors, has other and less goods line

higher remains automotive the expect demand still also production modest levels. recovery in industry’s We a where than market, the structural underlying

summary managing see multiple organically, to Slide similar to continue of focus the keep also we’ve growth second our top as XXXX a XXX long-term with As actively EBITDA deliver against our our strong targets. prices basis, sequentially a a navigate recovery. basis, grew years, the metal demonstrated the strategic near-term line of will while EBITDA a points last half dollar first a several basis benefited pass-through half and can prices XX% business On the over declined business we on as X% We and performance. first quarter comparison times year-on-year. XXX On constant grew you though results. comes to driving year-over-year financial assembly quarter first X, can in margin fell. our This on adjusted basis difficult higher a headwind of points, COVID metals currency metal declined of the value Adjusted from volatility margin

of the our margin sales EBITDA the our adjusted been Excluding would in impact Solutions $XXX business, pass-through of quarter. metal million in Assembly XX% have

X% from stronger results a a impact basis take on X% Our now despite our translation business through dollar. quarter will quarter adjusted healthy a more second detail. from Carey? FX the reported negative Carey in you EPS in the U.S. grew

Carey Dorman

additional quarter. Good the electronics electronics On applications in X% the in growth net detail for growth Organic morning. year-over-year steady. X our Slide of Demand was organic sales for remain second X, on drivers segments. we share high-end

from impact which growth categories Semiconductor sustained revenue, core organic In our business, assembly ongoing costs, growth benefits This overall electric grew the for COVID-related electronics our from by driven market. Our offset X% in the Solutions strength vehicle strong market growth production from data raw we through exposure its seeing the end demand products. Semiconductor of electronics for vertical demand in to business material advanced chain in roughly by of most products. greater saw supply This segment. plating, surcharge despite half our XX% in its automotive. packaging account across power increases advanced the product XX% shutdowns storage driven organically, grew and constraints continued China. Circuitry Solutions of wafer Circuitry assembly the higher helped and organically, benefited pricing and and Both

it adjusted our in also the both has a electronics greater XX exposure a segment slower to declined and margins relatively year-over-year On China, EBITDA ICE growth. basis which points. automotive However, explains basis,

Specialty the and The and However, X reflected in financial pass-through is million our segment for current to this market years. here of and we make to significant the today. The change basis in Organic pricing of other associated opportunities of segment. our & All that sales responsibility films to expanded which in the the approximately. and verticals growth generates this represents a XXX transitioned the the inflation. is and actions impact opportunity year-over-year. note of operational increase the business, commercial company activity annually provided from electronics. One our in in net impact surcharges circuitry increased periods X% $XX both specialty was in posted sales driven our Industrial within X quarter. anticipate This and Industrial the primarily prior quarter, segment which electronics printed next metals, in release I&S organically, information in in-mold of in margins we with our X change excluding X% business reflects by roughly earnings Solutions Industrial grew commodity points

Graphic improving half of the year-over-year. cautiously organically auto second Solutions quarter. the year, the grew about enter fourth we production, optimistic X% remain especially in As we

this segment pricing profitability as inflation. lagged However, in declined cost

half of grew market, XX% the and prior costs, a up of increased surcharges oil slower businesses, roughly currency on decline. periods again business negative activity The adjusted our a increasing this high growth from half XXXX. last We expect grew into the EBITDA but basis, than continuing from organically, mix contribution are The EBITDA inflation, been of in material sales have Energy late well and one back in the drive auto rebound especially second this next in combination business for and adjusted which to as of online. some actions contributed the Coventya rigs to year Solutions stronger should levels X smaller X% Margins we beginning margin in weak percentage drive prices, freight bodes growth raw including sector, points. and rising back I&S that pricing and Synergies. constant will declined Industrial Specialty logistics we see has all drop also and prices in to recovery year. energy

supply ongoing As strong margins Slide chain investment this largely flow supply inventory. balance those disruption a inventory the given free X continued into and disruptions chain sheet. in and the the overall million, improvement sequential despite cash flow improves, working in segment. should of address We reflecting auto primarily in of quarter, capital regions. of million This Asia, increase in in cash and Southeast Europe recovers build $XX $XX was generated sequential

came investment in cash the quarter, Our cash in interest, expectations. other than of and better our all slightly taxes, uses CapEx including

majority working stock sales for these estimates of decreased have driven invested which of our $XX by was into building. Year-to-date, We year a million safety and cash over full modestly metrics. we’ve capital, growth

to our activity revising accelerated of our year X.X value. significant in cash discount quarter, million the We and to X% our almost active reflect roughly share we intrinsic timing the or shares are market of capital meaningfully a revised stock trading million repurchase guidance the back our of believe stock in the at uncertainty to and when opportunistic is be to $XX shares, We working around EBITDA buying guidance approximately flow for release. $XXX expect outstanding. million remain We its

as authorization June of buyback million Our remaining stock XX. was $XXX

returning despite $XX quarter. leverage million net over Our X.Xx to at investors the remained ratio in steady

our All loan of floating to term fixed. been borrowings have swapped rate

the that currency meaningfully interest increased quarter expense. turn leverage reducing swapped Note, to adjusted I And end, cross our subsequently that loans rising Ben. of call that, million money swap to EBITDA. are are swap back euros has will with the the our at impacting not it. strengthened, interest with ratio in along and was has $XX X.Xx rates the dollar also cash as term So These to effectively value

Ben Gliklich

reducing currency. year. revising are guidance expected adjusted as of new not This to a in growth the guidance an strength and electronics range we $XXX QX. on half expectation modestly our the we’ve second of production quarter other of our the mid-July million modest from challenging of $XXX has constant strong adjusted markets sustained now EBITDA what prior results than full higher Consequently, million. million greater FX in due Based greater are to automotive growing range million than implies We’ll expect second the] significantly the U.S. to $XX line in That’s the strengthening and over headwind of a dollar rates, durability adjusted translational we profits. that growth headwind and recent demonstrate EBITDA, grown top more [bug execution year-over-year to months. on The efficiently Our in our converting into on a markets. over the $XX impact of recovery guidance growth many XXXX in by we sales the based market EBITDA FX end of It’s currency end translation. at

Although market are these our still than end dynamics year. weaker entering expectation

reflect be macro we’ve delivering at to those profits and and Should macros. in historically in been market ability our the on do expected, cost than challenging over However, an worse we so preserve once costs synergies have a second half. levers demonstrated We’ve other to further again disposal. end shift to intend conditions managing environments in

first on in to half our also dollars XX% adjusted into currency usage full EPS a the $X.XX substantial lower higher absolute This EBITDA approximately account year-over-year half. growth reflecting than largely a cash capital basis. in our $X.XX, and free updating year implies to taking growth constant We’re guidance more in guidance and second and the guidance $XXX to million, range flow the of working

air and next continue We’ve of did year to to won positioned our in reflection we approximately profit quarter is We’ve way. those the ability XX% more deliver not Solutions be business Electric favorable more business constant period the the would adjusted in generation where to And This level are are momentum impacts an all the secular over believe than be EBITDA pass-through a gives There quarter infrastructure, pockets growing Element of entrenched in results in data propelling which conviction longer-term are we well will improved be trends that currency of and in us of internet convert entering that third belief from These or XXXX, year-to-date opportunities. year. today the this the than growth. going we entering sequentially approximately were adjusted $XXX is may represent XXXX, but and less the are markets to currency. For more always said higher our we well. is million, metal units quickly, markets a in our a the constant XXXX. strong lower of expect revenue they short macros as third linear. along margins XXXX vehicle full growth our mobile storage growth EBITDA term,

technical secular a are should challenges We’re them. solving complex as to the offer started, believe time, electronics been from over boards our critical hardware role circuit growth an Element These production the semiconductors Solutions to demand playing drivers benefit getting disproportionately the for and automotive this and term. automotive converge. same At continue year and industry the don’t for smartphone long the has below relative the is is operating industrial component industry We business activity. in sustainable XXXXlevels well shortfall just of

that, responsible all making to quarter chains line With appreciation a their world drive and think improve. continued stakeholders please wrap Element open To for questions. we Solutions which around our our markets substantial dedicated to talented Our I’d another spring, support these of people growth. when particular recovery of supply will coiled the operator, the inevitable, growth of for ultimately express for like up, my and thank is earnings

Operator

question Instructions] with Byrne come [Operator from Our of first America. Bank will Steve

Rock Hoffman

This if question is did XQ industry is And it My compared rates? to is for content? or how manufacturers different, Byrne. Rock due first my volumes auto share Hoffman gains to question for in your is on -- bill increased Steve

Ben Gliklich

the appreciate I Yes, question, Rob.

auto that. outperformed were in the volumes XX%, So down bill rates our quarter

sales auto quarter. on Our was the up in business X%

and most team pieces very, course between market. winning but was price clearly Of share Hard business. executing to very that a perspective, driven commercial big gain gain content the from well . by been outperformed versus of we from but has them of disaggregate

Rock Hoffman

Got a you. quick it, And just follow-up. thank

and And to how shifting between as over your semiconductor such So that you how PCB and this pricing it other from would are supply fabs the for flexible you in volumes? market shift shifting handsets markets? products

Ben Gliklich

Yes.

running some were in end close many we fabs capacity, variability to markets similar a level general market. very PCB markets. fabs in terms that’s those And added of in been in what and we’re to dynamic and of So PCB have supply capacity full a what seen have have seeing semiconductor

Operator

comes Josh UBS. question Spector Our from with next

Josh Spector

structural your curious Just to between parse performance quarter you kind the of about half. projecting outlook, if buckets volume growth and of Are out volume, mix? you pricing the as think just in still organic your and kind in could second of trying part the the surcharges

Ben Gliklich

Yes, absolutely.

certain semiconductor of you end in volume see quarter, second volume, story. a assembly said, look we American market. in had the grew than we circuitry we of was business data The nicely. more but market, a price as example, Power our The in strong story So was if a quarter business business, a I&S markets. the in price in driver more of did the growth nicely. in Korean The than Particularly volume grew business volumes the in for storage, Electronics

As we look observations. the second out a couple to half, of

the so Then basis we quarter typically third year-over-year biggest comping second a sequential comps, and the organically year-over-year in on half. First, basis, we our easier quarter. should on against are grow is

platform XX% basis. That’s a electronics X% normally ramp sequential a the bump on business smartphone in a to new launches. see with associated You

by only autos. Given in sequentially of see that couple so market smartphone market volume And underwriting QX weakness, we’re to expecting I&S driven growth quarter, growth in percentage in an auto recovery then we’re space business. really should and we in points market fourth some in the line research, with a of

Josh Spector

under-earning at this, production where helpful. to Coventya, That’s if remains know are level to versus you a would you a clearly, much plus you’ve similar bit would How some headwind I this your I’d or normalized curious, production say minus? a XXXX acquired to of tailwind. you’re just point since be mix. if EVs but willing don’t quantify you’re be And for auto

Ben Gliklich

been But sustainable those XXXX. is million, years, been there’s question it call the at, build driving introduced $XX in deficit a Yes. was it, unit XXXX, million we’ve auto we’ve $XX we’ve gains. It’s to share tricky answer. the years. Over simply, units right? several operating very over significant a investing, production of that last chemistry So north

it this then, for And share normalized the deeply add back we focus is in that the the believe And substantial electronics content an And I’d so We today secular associated driving got smartphone our as year -- that’s chain. automotive market also growth that’s is earnings off industrial the market well. -- driving opportunity was this there’s than automotive the we’ve so market. in and us, that’s and to a market and better supply think growing have with for made economy. that, I a general

and growing we it So be be business than will would XXXX the will longer-term as for base growth lower this off unchanged are exit prospects normally. the

lot of company. the for a there’s in So outlook the earnings pent-up

Josh Spector

one Would if Or is, comeback of incremental? some similar? thing that’s production above or we look those to X/X should at quick business. so growing so your think just margins Just with your again about more X/X pretty that auto that a at endpoint, significantly we normal

Ben Gliklich

They would above I&S segment. normal incrementals come the in the back

Operator

Capital Our with Chris Markets. next comes from Loop question Kapsch

Chris Kapsch

had follow-up auto builds. relative So the on a businesses to outperformance

curious Just the feed there’s might if building if evidence to seen chain in that that been you you inventory supply into have any that. contributed that

outperformance that confidence to Just that your wondering market. a been about your level has contributor addressing

Ben Gliklich

Chris. that, for looking been We’ve Yes.

We’re something automotive supply particularly evidence we chain, haven’t not in looking it really that anywhere of that concerned that’s the for found were about. and

Chris Kapsch

your in could Okay. you Got a if some new release, business wins. sales record curious just it. color. record pipeline you formal And then bright mentioned I’m and more

ecosystem. turnkey the systems board these of print into some about talking circuit You’re

some and looks like? to business harbinger future elaborate might as case hoping interpret that the Just for what

Ben Gliklich

which half in business Chris. the appreciate XXXX. from I something ramp detail. of in at It’s look first It’s certainly We our we XXXX one we in is years, the surprising we of of time, did or that project line, all real economic value it question, At of that business same in perspective. given new more harbinger a than other lockdowns a piece normal Yes. the won slower conditions in saw with a China in was and some been But customer. than business we’ve the isn’t new the experiencing. new a is

helping us that that is to our term indicates driving markets so the And the the customers what that and over momentum we’re end are and innovation medium our in support.

builds our the market in And disproportionately. it conviction our in it and our from longer-term ability benefit to growth so

Carey Dorman

Chris, Yes, would it’s Carey. this our spread verticals. of just across is I add all

verticals business, the electronics the new are that in all of just not wins. So but expansion seeing

Chris Kapsch

one semiconductor business. of And follow-up still bit good. that a negative at whereas well, little and the are is looking at one there’s doing bifurcation comments out weaker. just coming sounds pretty a It memory guys, then now bit the logic on leading of units overcapacity, a a make big some last There’s overhang, industry, particularly edge. big a where right foundry

curious to Now plating to into those just different exposure your doing chip into seems -- be pretty fab, makers about because the you’re it good. that chemistry

just of wondering So one bucket versus chip to there’s the if other. makers outsized exposure

Ben Gliklich

Sure. And thanks for that question, Chris.

couple of So reactions. a

First, volumes strong driven our remain And business semiconductor the price. in by not market. is volume,

business semiconductor the second our market. side in The logic disproportionately of is that is the

the so memory is in overall same market. And market the it noise to extent the not is as impacting us the

Operator

next De will Our Brun with question Mizuho. Kieran Instructions] [Operator from come

Kieran De Brun

think when subsiding the keep, in of how be headwinds say, that, touching you about bit? costs subside? how on was much guess, throughout and into we pricing the and second are to last, start just And think as pushing some let’s a able about what you’re go ‘XX kind When you months kind of going I little should prices that pricing so wondering, the or to down these I of going we to the XX pushed be half, that it, of call we side.

Ben Gliklich

Yes. Good Kieran. question,

buckets. then X then So negotiated we are there’s price pass-through of of and commodity price. where metal those first by the There’s surcharges And the driven and X there’s those metal are. buckets really commodities the pricing break into

do some as those go And those begun in to prices so decline they’ve instances. away when

been we’ve to keep. able historically, prices, negotiated other The

a period go We retain to we’ve been past, had that we’ve where the haven’t to in short a this such price price. But back seen for in able window. frequently

the mix. is is opportunity the margin auto the exception in growing our faster we’re of And segment. blended where than higher-margin driver other businesses exposure, of auto of margin higher with average The I&S

growth terms we cyclical And should so to organic recovery of be the continue tailwind a in expect. in and auto that mix

Kieran De Brun

on maybe some was part about in driving we impacted XQ demand general, saw China. And just a half of quarter, of in and or kind just didn’t in And even that of follow-up in second you that The Great. you year? should business what when then demand from But assembly obviously of the half demand towards results? of the are lockdowns seeing the in think see the pent-up XQ the pushed about maybe whether business. quick pickup other out the any parts XQ of we you think and kind the how back the that your

Ben Gliklich

the The business and Electronics have didn’t the Chinese the same see didn’t example, our -- automotive from Yes. exposure. lockdowns of same other the of parts impact business, for

-- So expect a we down was consensus coming to up And slower lockdowns. the the in after those pick business, of some don’t substantial sequentially is which auto, the market back to the from quarter China. for electronics we ramp auto stronger lock as a fourth have lap

have do our we plan. that in So

Operator

CJS from Tanwanteng next come Jon Our question with Securities. will

Jon Tanwanteng

smartphones would to for I the it a would grow customer a, on-off markets, is ‘XX. irons could event have like high recession? with level be of it stronger in your I actual one of maybe guess, give you was or sounds how if having lot business It with auto view wondering hard fire first you My easy just a an the on year. be in

how me a are you sensitive or to at this help consumer wider a guys understand recession point? Just

Ben Gliklich

Yes.

an ability grow mixed proven good look, business So to it’s a markets. our And question. in has

we’re year. demonstrating this think that I

right of big continues business. be The up, deficit to supply it XX improve, And durable storage that said we the where this period business a demand in for of not are ramps has driver cycle, significant year. during And we’ve the is earlier, on production slowdown as if will between economic unit infrastructure seen if need around The market, to and a million for the very built for that encoded, a our of supply have trends a weakness make happens data big what an auto if assumptions chains side. these One despite secular at we’ve the economic year-to-date. it’s XG the electronic demand. period weak levels, we smartphone were propelling slowed

So to business there are could an to believe proven continue economic And in. an does preserve reasons ability grow profit slack demand we’ve in when this to slowdown.

Jon Tanwanteng

Got it.

then in white a more obviously, orders Okay. like said, And provided? the guidance if China your just short-term question. room rest the types smartphone fall? the any you in Is I year How of of confident does the wiggle products. in it to we’ve you demand customers’ continue and are you mean, there for seen

Ben Gliklich

Yes.

is baseline a in electronics of ramp weakness ramp the noted in earlier, as our quarter smartphone for third expectation smartphone softer because market. So -- the

So that our is guide. in taken into consideration

got to your the we’ve that the If answer costs thing to line on cost going number is and question what we demonstrated, there, we the guidance. ways throw that ensure to committed first to. again, isn’t is that to levers bottom know have other back The to manage how multiple our and demand we we’ve deliver

Operator

Angel come Our from Castillo next with question Stanley. Morgan will

Angel Castillo

last just maybe follow that around to discussion on So up recession.

number of cost you trough. levers lot as end a of and are mentioned, to maybe think I closer a your markets have you

that the done and would have recession, a you you with positions of downside the of could of not go what’s as maybe maybe number maybe a portfolio that EBITDA terms anticipate given do in us past today, So is if kind that just you for you’ve into apples-to-apples. the an we

Ben Gliklich

Yes.

the question an you to resilient before, could line we’ve EBITDA the look we you in about most recession. a time ago, recent the line a a down, So what is be why top the as if assumption need we was, profit, talked performance proven as at top But John’s ability same top make preserve is which COVID, to the line in minute percentage of around example. was said an reasons just

and the GFC. down didn’t year XXXX, current little back down go these top the businesses XXXX full just to configuration. their maybe in more, in the line was a of you XX-ish If period, was XX% bit But exist period EBITDA

the a cost believe we demand resilient comes But have operating we to demand highly through reason in of should So the there, trends propelling lived secular be have the dislocation economic isn’t over weakness because between and growth couple and that And auto period the years. we’ve past out. the of business in demand that market of variable model. are cost supply if a

Angel Castillo

very helpful. That’s

that of we the some of your look and palladium, is move we’ve second prepared highlighted it’s of nickel, As at kind in part the you I seen prices, whether over, think metals remarks half. some this maybe of

out the through? to So how the for just quantify of just some of I of us, terms flow guess, you could coming what’s of things about kind these in impact think maybe margin and we should

Ben Gliklich

of profit we percentage pass-through. of most a not dollars. margin, drivers right? these part, So They’re are just have drivers the for direct So

of $X, more the metal dollar. up goes So price sell X we

metal going metal that of third basis, percentage tailwind On incremental be an year-over-year it the sort have margin. shouldn’t so declined. to depend line, the basis, a profit has of should will another And negate the magnitude into prices percentage prices as months. the there tailwind headwind optical but a But be next on there they on margin one an several sequential On impact a settle on quarter. where over

Operator

Thank Q&A. concludes remarks. turn over closing I to you. additional now back today’s program This or Ben any for the will

Ben Gliklich

very joining, everybody. for Thanks much

great of Have you near a the future. see We many are to forward in day. looking

Operator

event. gentleman. concludes and today’s ladies you Thank This

You may now disconnect.

Element Solutions (ESI) 30 Jul 222022 Q2 Earnings call transcript