Element Solutions Inc Announces 2023 Fourth Quarter and Full Year Financial Results

Rhea-AI Summary

Element Solutions Inc (NYSE:ESI) reported a decrease in net sales and net income for 2023 but demonstrated resilience and quality in a challenging year. The company introduced 2024 financial guidance with adjusted EBITDA expected to be between $510 million and $530 million. Fourth quarter results showed growth in adjusted EBITDA and a positive outlook for 2024.

Positive

• Element Solutions reported 2023 net sales of $2.33 billion, an 8% decrease from 2022 on a reported basis.
• Reported net income for 2023 was $118 million, down by 37% from 2022.
• Adjusted EBITDA for 2023 was $482 million, an 8% decrease from 2022 on a reported basis.
• The company introduced 2024 financial guidance with adjusted EBITDA expected to be between $510 million and $530 million.
• Fourth quarter results showed growth in adjusted EBITDA of 11% and positive outlook for 2024.
• Element Solutions completed the syndication of $1.15 billion term loans in December 2023 and reduced its debt.
• A cash dividend of $0.08 per outstanding share of common stock was declared by the Board of Directors for 2023.

Negative

• None.

Insights

Financial Analyst

The reported decline in Element Solutions' net sales and net income for the full year 2023 is a critical indicator of the company's performance, particularly in a challenging market environment for the electronics industry. The 8% decrease in net sales on a reported basis and the 37% decrease in reported net income suggest a significant impact on the company's revenue and profitability. This performance could be attributed to various factors, including market saturation, increased competition, or operational inefficiencies.

However, it is important to note the company's adjusted EBITDA, which is a measure of a company's operating performance. A decrease of 8% on a reported basis and 6% on a constant currency basis indicates that while earnings before interest, taxes, depreciation and amortization have declined, the rate of decline is more moderate when accounting for currency fluctuations. This could imply that the company's underlying business operations remain relatively stable despite the revenue downturn.

The free cash flow growth of 12% is a positive sign, as it suggests that the company is generating more cash from its operations after accounting for capital expenditures. This is an important metric for investors as it indicates the company's ability to sustain operations, invest in growth and return value to shareholders. The introduction of the 2024 financial guidance with an anticipated increase in adjusted EBITDA could signal management's confidence in the company's strategic direction and potential for recovery.

Market Research Analyst

Element Solutions' strategic acquisitions within the electronics industry, particularly in the high end, demonstrate a targeted approach to capitalizing on market dislocations. By focusing on areas with higher growth potential, the company aims to strengthen its competitive position and create additional value. The organic and inorganic investments made during a downturn suggest a proactive approach to positioning the company for future market recoveries.

Despite the overall decline in sales and net income, the company's performance in the fourth quarter indicates a potential turnaround, with the electronics segment returning to organic growth. This could be indicative of the cyclical nature of the electronics industry and the potential for Element Solutions to benefit from the upswing. The growth in adjusted EBITDA during this period, especially in the context of a recovering semiconductor market, is a noteworthy trend that stakeholders should monitor closely.

Looking ahead, the company's guidance for 2024, with expected growth in adjusted EBITDA, reflects a cautiously optimistic outlook. The mention of cleared inventory in supply chains and improved customer order activity could signal improving market conditions. Additionally, the expectation of growth in smartphone units and the semiconductor market recovery are external factors that could positively influence Element Solutions' performance.

Economist

The financial results of Element Solutions must be contextualized within the broader economic environment, especially given the global challenges faced by the electronics industry in 2023. The company's performance, particularly the decline in net sales and income, could be reflective of macroeconomic headwinds such as trade tensions, supply chain disruptions, or shifts in consumer demand.

It is also essential to consider the impact of currency fluctuations on the company's financials. The constant currency basis adjustments indicate an attempt to provide a clearer picture of the company's operational performance without the noise of exchange rate movements. This is especially relevant for a global company like Element Solutions, which may have significant exposure to foreign currency risk.

The syndication of new term loans and the subsequent debt reduction is a strategic financial move that could have long-term implications for the company's capital structure and interest expense. The effective interest rate of approximately 3.3% and the fixed capital structure through 2028 provide insights into the company's debt management approach and financial stability. Investors should consider how these financial maneuvers could affect the company's ability to invest in growth and manage economic cycles.

• 2023 net sales of $2.33 billion, a decrease of 8% on a reported basis or 5% on an organic basis from 2022
• 2023 reported net income of $118 million, compared to $188 million in 2022, a decrease of 37% on a reported basis
• 2023 adjusted EBITDA of $482 million, compared to $527 million in 2022, a decrease of 8% on a reported basis and 6% on a constant currency basis
• 2023 cash flows from operating activities of $334 million; 2023 free cash flows of $282 million
• Introduces 2024 full year financial guidance:
  • Adjusted EBITDA in the range of $510 million and $530 million
  • 2024 expected free cash flow in the range of $280 million to $300 million

MIAMI--(BUSINESS WIRE)-- Element Solutions Inc (NYSE:ESI) (“Element Solutions” or the “Company”), a global and diversified specialty chemicals company, today announced its financial results for the three and twelve months ended December 31, 2023.

Executive Commentary

President and Chief Executive Officer Benjamin Gliklich commented, “Element Solutions demonstrated the resilience and quality of its businesses in a challenging 2023 for the electronics industry. We delivered on our through-the-cycle commitment to outperform our end markets, preserve profitability and generate strong cash flow. Though sales and volumes declined, through proactive cost management and prudent pricing discipline, we saw no degradation in our margins. We seized the market dislocation to enhance our value proposition in the highest end of the electronics industry with two highly strategic acquisitions. We also grew free cash flow 12%. Overall, through organic and inorganic investment, we positioned the business to benefit disproportionately from a recovery in our core markets. Fourth quarter results demonstrate that recovery is underway. Our circuitry and semiconductor businesses returned to organic growth, and overall, we delivered adjusted EBITDA growth of 11%.”

Mr. Gliklich continued, “We have solid grounding for optimism in 2024. Inventory in our supply chains has largely cleared, and customer order activity year-to-date has improved sequentially. Smartphone units are expected to grow this year, and the semiconductor market is recovering. Additionally, our gross margins have continued to expand as input pressure has eased. We expect adjusted EBITDA for this year of between $510 million and $530 million. This represents constant currency growth of between 8% and 12%, which is even more significant given the headwinds of reversing certain variable cost actions taken in 2023. This would be a new record in adjusted EBITDA for ESI, on a constant currency basis, despite the semiconductor and smartphone markets being forecast to remain below their previous peaks. We have growing evidence that the drivers of our market growth and our ability to outperform should be durable beyond 2024.”

Fourth Quarter 2023 Highlights (compared with fourth quarter 2022):

• Net sales on a reported basis for the fourth quarter of 2023 were $573 million, relatively flat over the fourth quarter of 2022. Organic net sales decreased 3%.
  • Electronics: Net sales increased 4% to $352 million. Organic net sales decreased 1%.
  • Industrial & Specialty: Net sales decreased 6% to $221 million. Organic net sales decreased 7%.
• Fourth quarter of 2023 earnings per share (EPS) performance:
  • GAAP diluted EPS was $0.32, as compared to $0.05 for the same period last year.
  • Adjusted EPS was $0.32, as compared to $0.29 for the same period last year.
• Reported net income for the fourth quarter of 2023 was $77 million, as compared to $13 million for the fourth quarter of 2022, an increase of 498%.
  • Net income margin increased by 1,120 basis points to 13.5%.
• Adjusted EBITDA for the fourth quarter of 2023 was $120 million, as compared to $108 million for the fourth quarter of 2022, an increase of 11%. On a constant currency basis, adjusted EBITDA increased 11%.
  • Electronics: Adjusted EBITDA was $78 million, an increase of 15%. On a constant currency basis, adjusted EBITDA increased 16%.
  • Industrial & Specialty: Adjusted EBITDA was $42 million, an increase of 4%. On a constant currency basis, adjusted EBITDA increased 3%.
  • Adjusted EBITDA margin increased by 210 basis points to 20.9%. On a constant currency basis, adjusted EBITDA margin increased by 220 basis points.

Full Year 2023 Highlights (compared with full year 2022):

• Net sales on a reported basis for the full year 2023 were $2.33 billion, a decrease of 8% over the prior full year period. Organic net sales decreased 5%.
  • Electronics: Net sales decreased 12% to $1.41 billion. Organic net sales decreased 7%.
  • Industrial & Specialty: Net sales decreased 2% to $919 million. Organic net sales decreased 2%.
• Full year 2023 EPS performance:
  • GAAP diluted EPS was $0.48, as compared to $0.75 for 2022.
  • Adjusted EPS was $1.29, as compared to $1.41 for 2022.
• Reported net income for the full year 2023 was $118 million, as compared to $188 million for 2022.
  • Net income margin decreased by 230 basis points to 5.1%.
• Adjusted EBITDA for the full year 2023 was $482 million, as compared to $527 million for 2022. On a constant currency basis, adjusted EBITDA decreased 6%.
  • Electronics: Adjusted EBITDA was $318 million, a decrease of 12%. On a constant currency basis, adjusted EBITDA decreased 9%.
  • Industrial & Specialty: Adjusted EBITDA was $165 million, a decrease of 1%. On a constant currency basis, adjusted EBITDA increased 1%.
  • Adjusted EBITDA margin remained relatively flat at 20.7%. On a constant currency basis, adjusted EBITDA margin increased by 20 basis points.

2024 Guidance

For the full year 2024, the Company expects adjusted EBITDA to be in the range of $510 million to $530 million and free cash flow in the range of $280 million to $300 million. In addition, the Company expects first quarter 2024 adjusted EBITDA to be in the range of $120 million to $125 million.

Recent Developments

Syndication of $1.15 Billion Term Loans and Debt Reduction - In December 2023, the Company successfully completed the syndication of $1.15 billion of new term loans B-2, which mature in December 2030. The proceeds of this transaction, together with cash on hand, were used to prepay its then existing $1.11 billion term loans B-1 and $150 million term loans A, reducing the Company's gross debt by approximately $105 million. As a result of the swap agreements associated with the new term loans B-2, the Company's effective interest rate was approximately 3.3% at December 31, 2023 with approximately 80% of its capital structure fixed through 2028.

Cash Dividends - On February 13, 2024, the Board of Directors of the Company declared a cash dividend of $0.08 per outstanding share of its common stock. The dividend is expected to be paid on March 15, 2024 to stockholders of record at the close of business on March 1, 2024. For the full year 2023, approximately $77.4 million was returned to the Company's stockholders in the form of cash dividends.

Conference Call

Element Solutions will host a webcast/dial-in conference call to discuss its 2023 fourth quarter and full year financial results at 8:30 a.m. (Eastern Time) on Wednesday, February 21, 2024. Participants on the call will include President and Chief Executive Officer Benjamin Gliklich, Chief Financial Officer Carey J. Dorman, and Executive Chairman Sir Martin E. Franklin.

To listen to the call by telephone, please dial 888-510-2346 (domestic) or 646-960-0111 (international) and provide the Conference ID: 3799230. The call will be simultaneously webcast at www.elementsolutionsinc.com. A replay of the call will be available after completion of the live call at www.elementsolutionsinc.com.

About Element Solutions

Element Solutions Inc is a leading global specialty chemicals company whose businesses supply a broad range of solutions that enhance the performance of products people use every day. Developed in multi-step technological processes, these innovative solutions enable customers' manufacturing processes in several key industries, including consumer electronics, power electronics, semiconductor fabrication, communications and data storage infrastructure, automotive systems, industrial surface finishing, consumer packaging and offshore energy.

More information about the Company is available at www.elementsolutionsinc.com.

Forward-Looking Statements

This release is intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995 as it contains "forward-looking statements" within the meaning of the federal securities laws. These statements will often contain words such as "expect," "anticipate," "project," "will," "should," "believe," "intend," "plan," "assume," "estimate," "predict," "seek," "continue," "outlook," "may," "might," "aim," "can have," "likely," "potential," "target," "hope," "goal," "priority," "guidance" or "confident" and variations of such words and similar expressions. Examples of forward-looking statements include, but are not limited to, statements, beliefs, projections and expectations regarding market position to benefit disproportionately from a recovery in core markets in 2024, including in the smartphone and semiconductor markets; growth in the Company's circuitry and semiconductor businesses; gross margin improvements; first quarter 2024 guidance for adjusted EBITDA; full year 2024 guidance for adjusted EBITDA, constant currency adjusted EBITDA growth, and free cash flow; and growing evidence in drivers of market growth and ability to outperform in 2024. These projections and statements are based on management's estimates, assumptions or expectations with respect to future events and financial performance, and are believed to be reasonable, though are inherently uncertain and difficult to predict. Such projections and statements are based on the assessment of information available as of the current date, and the Company does not undertake any obligations to provide any further updates. Actual results could differ materially from those expressed or implied in the forward-looking statements if one or more of the underlying estimates, assumptions or expectations prove to be inaccurate or are unrealized. Important factors that could cause actual results to differ materially from those suggested by the forward-looking statements include, but are not limited to, the war between Russia and Ukraine and the Israel-Hamas conflict and other hostilities in the Middle-East as well as actions in response thereto and their impact on market conditions and the global economy; the continuing economic impact of the coronavirus (COVID-19) and its variants on the global economy and supply chains; price volatility and cost environment; inflation and fluctuations in foreign exchange rates; outstanding debt and debt leverage ratio; shares repurchases; debt and/or equity issuance or retirement; expected returns to stockholders; and the impact of acquisitions, divestitures, restructurings, refinancings, impairments and other unusual items, including the Company's ability to integrate and obtain the anticipated benefits, results and synergies from these items or other related strategic initiatives. Additional information concerning these and other factors that could cause actual results to vary is, or will be, included in the Company's periodic and other reports filed with the Securities and Exchange Commission. The Company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

ELEMENT SOLUTIONS INC CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
	Three Months Ended December 31,								Twelve Months Ended December 31,
(dollars in millions, except per share amounts)	2023				2022				2023				2022
Net sales	$	573.4			$	573.8			$	2,333.2			$	2,549.4
Cost of sales		353.1				355.8				1,414.7				1,596.7
Gross profit		220.3				218.0				918.5				952.7
Operating expenses:
Selling, technical, general and administrative		151.0				147.3				596.8				578.6
Research and development		13.8				10.6				68.1				48.8
Goodwill impairment		—				—				80.0				—
Total operating expenses		164.8				157.9				744.9				627.4
Operating profit		55.5				60.1				173.6				325.3
Other (expense) income:
Interest expense, net		(12.3	)			(11.6	)			(49.3	)			(51.2	)
Foreign exchange (loss) gain		(0.7	)			(7.9	)			7.9				(5.0	)
Other (expense) income, net		(4.9	)			(2.3	)			(3.1	)			2.9
Total other expense		(17.9	)			(21.8	)			(44.5	)			(53.3	)
Income before income taxes and non-controlling interests		37.6				38.3				129.1				272.0
Income tax benefit (expense)		40.4				(25.4	)			(13.0	)			(85.8	)
Net income from continuing operations		78.0				12.9				116.1				186.2
(Loss) income from discontinued operations, net of tax		(0.8	)			—				2.1				1.8
Net income		77.2				12.9				118.2				188.0
Net income attributable to non-controlling interests		(0.1	)			(0.2	)			(0.1	)			(0.8	)
Net income attributable to common stockholders	$	77.1			$	12.7			$	118.1			$	187.2
Earnings per share
Basic from continuing operations	$	0.32			$	0.05			$	0.48			$	0.75
Basic from discontinued operations		—				—				0.01				0.01
Basic attributable to common stockholders	$	0.32			$	0.05			$	0.49			$	0.76
Diluted from continuing operations	$	0.32			$	0.05			$	0.48			$	0.75
Diluted from discontinued operations		—				—				0.01				0.01
Diluted attributable to common stockholders	$	0.32			$	0.05			$	0.49			$	0.76
Weighted average common shares outstanding
Basic		241.5				241.2				241.4				245.1
Diluted		241.9				241.6				241.8				245.8

ELEMENT SOLUTIONS INC CONSOLIDATED BALANCE SHEETS (Unaudited)
	December 31,
(dollars in millions)	2023				2022
Assets
Cash & cash equivalents	$	289.3			$	265.6
Accounts receivable, net of allowance for doubtful accounts of $12.6 and $14.4 at December 31, 2023 and 2022, respectively		461.8				455.8
Inventories		298.9				290.7
Prepaid expenses		32.5				38.5
Other current assets		115.0				138.1
Total current assets		1,197.5				1,188.7
Property, plant and equipment, net		296.9				277.2
Goodwill		2,336.7				2,412.8
Intangible assets, net		879.3				805.5
Deferred income tax assets		120.5				51.5
Other assets		143.2				168.0
Total assets	$	4,974.1			$	4,903.7
Liabilities and stockholders' equity
Accounts payable	$	140.6			$	132.2
Current installments of long-term debt		11.5				11.5
Accrued expenses and other current liabilities		217.3				200.7
Total current liabilities		369.4				344.4
Debt		1,921.0				1,883.8
Pension and post-retirement benefits		28.1				36.7
Deferred income tax liabilities		108.9				121.2
Other liabilities		202.4				168.5
Total liabilities		2,629.8				2,554.6
Stockholders' equity
Common stock, 400.0 shares authorized (2023:266.2 shares issued; 2022: 265.1 shares issued)		2.7				2.7
Additional paid-in capital		4,196.9				4,185.9
Treasury stock (2023: 24.6 shares; 2022: 24.3 shares)		(341.9	)			(334.2	)
Accumulated deficit		(1,183.3	)			(1,223.8	)
Accumulated other comprehensive loss		(345.9	)			(298.1	)
Total stockholders' equity		2,328.5				2,332.5
Non-controlling interests		15.8				16.6
Total equity		2,344.3				2,349.1
Total liabilities and stockholders' equity	$	4,974.1			$	4,903.7

ELEMENT SOLUTIONS INC CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
	2023																						2022
(dollars in millions)	Q1				Q2				Q3				Q4					FY					FY
Cash flows from operating activities:
Net income (loss)	$	43.0			$	29.7			$	(31.7	)		$	77.2				$	118.2				$	188.0
Net income (loss) from discontinued operations, net of tax		—				2.9				—				(0.8	)				2.1					1.8
Net income (loss) from continuing operations		43.0				26.8				(31.7	)			78.0					116.1					186.2
Reconciliation of net income (loss) to net cash flows provided by operating activities:
Depreciation and amortization		39.1				41.1				44.5				42.0					166.7					161.3
Deferred income taxes		(0.4	)			2.9				(10.6	)			(61.8	)				(69.9	)				15.1
Foreign exchange (gain) loss		(7.3	)			(8.8	)			5.6				(0.1	)				(10.6	)				3.4
Incentive stock compensation		4.4				3.3				2.9				(1.2	)				9.4					17.7
Goodwill impairment		—				—				80.0				—					80.0					—
Other, net		2.2				21.3				2.3				16.4					42.2					11.4
Changes in assets and liabilities, net of acquisitions:
Accounts receivable		(2.6	)			2.2				(6.2	)			(0.2	)				(6.8	)				6.4
Inventories		(29.1	)			(10.5	)			2.4				27.7					(9.5	)				(31.2	)
Accounts payable		18.6				(8.1	)			2.8				(13.0	)				0.3					(0.1	)
Accrued expenses		(22.3	)			10.4				3.9				17.9					9.9					(33.0	)
Prepaid expenses and other current assets		2.7				(0.7	)			1.4				(1.5	)				1.9					(26.6	)
Other assets and liabilities		5.2				1.0				(9.9	)			7.6					3.9					(14.7	)
Net cash flows provided by operating activities		53.5				80.9				87.4				111.8					333.6					295.9
Cash flows from investing activities:
Capital expenditures		(9.1	)			(13.8	)			(13.4	)			(16.4	)				(52.7	)				(47.8	)
Proceeds from disposal of property, plant and equipment		0.5				—				0.9				—					1.4					4.8
Acquisitions, net of cash acquired		—				(188.3	)			(0.3	)			(26.2	)				(214.8	)				(22.6	)
Other, net		(3.0	)			—				0.3				18.6					15.9					(9.6	)
Net cash flows used in investing activities		(11.6	)			(202.1	)			(12.5	)			(24.0	)				(250.2	)				(75.2	)
Cash flows from financing activities:
Debt proceeds, net of discount		—				150.0				—				1,147.1					1,297.1					—
Repayments of borrowings		(2.9	)			(2.9	)			(2.8	)			(1,255.5	)				(1,264.1	)				(16.4	)
Repurchases of common stock		—				—				—				—					—					(151.0	)
Dividends		(19.4	)			(19.3	)			(19.4	)			(19.3	)				(77.4	)				(78.4	)
Payment of financing fees		—				(0.7	)			(0.3	)			(5.3	)				(6.3	)				(1.9	)
Other, net		(7.2	)			(0.3	)			(0.2	)			(0.3	)				(8.0	)				(27.9	)
Net cash flows (used in) provided by financing activities		(29.5	)			126.8				(22.7	)			(133.3	)				(58.7	)				(275.6	)
Net cash flows provided by (used in) operating activities of discontinued operations		—				2.9				—				(0.7	)				2.2					1.8
Effect of exchange rate changes on cash and cash equivalents		1.0				(5.1	)			(5.0	)			5.9					(3.2	)				(11.4	)
Net increase (decrease) in cash and cash equivalents		13.4				3.4				47.2				(40.3	)				23.7					(64.5	)
Cash and cash equivalents at beginning of period		265.6				279.0				282.4				329.6					265.6					330.1
Cash and cash equivalents at end of period	$	279.0			$	282.4			$	329.6			$	289.3				$	289.3				$	265.6
Supplemental disclosure information of continuing operations:
Cash paid for interest	$	21.3			$	4.5			$	22.9			$	7.4				$	56.1				$	46.9
Cash paid for income taxes	$	12.7			$	18.8			$	17.5			$	24.7				$	73.7				$	66.5

ELEMENT SOLUTIONS INC ADDITIONAL FINANCIAL INFORMATION (Unaudited)
I. SUMMARY RESULTS (1)
	Three Months Ended December 31,															Twelve Months Ended December 31,
(dollars in millions)	2023			2022			Reported			Constant Currency			Organic			2023			2022			Reported			Constant Currency			Organic
Net Sales
Electronics	$	352.3		$	339.4		4	%		4	%		(1	)%		$	1,414.7		$	1,611.2		(12	)%		(10	)%		(7	)%
Industrial & Specialty		221.1			234.4		(6	)%		(7	)%		(7	)%			918.5			938.2		(2	)%		(2	)%		(2	)%
Total	$	573.4		$	573.8		0	%		(1	)%		(3	)%		$	2,333.2		$	2,549.4		(8	)%		(7	)%		(5	)%
Net Income
Total	$	77.2		$	12.9		498	%								$	118.2		$	188.0		(37	)%
Adjusted EBITDA
Electronics	$	78.3		$	67.7		15	%		16	%					$	317.7		$	360.7		(12	)%		(9	)%
Industrial & Specialty		41.5			40.2		4	%		3	%						164.6			165.9		(1	)%		1	%
Total	$	119.8		$	107.9		11	%		11	%					$	482.3		$	526.6		(8	)%		(6	)%

	Three Months Ended December 31,								Constant Currency					Twelve Months Ended December 31,								Constant Currency
	2023			2022			Change		2023			Change		2023			2022			Change		2023			Change
Net Income Margin
Total	13.5	%		2.3	%		1,120bps							5.1	%		7.4	%		(230)bps
Adjusted EBITDA Margin
Electronics	22.2	%		20.0	%		220bps		22.3	%		230bps		22.5	%		22.4	%		10bps		22.7	%		30bps
Industrial & Specialty	18.8	%		17.1	%		170bps		19.0	%		190bps		17.9	%		17.7	%		20bps		18.2	%		50bps
Total	20.9	%		18.8	%		210bps		21.0	%		220bps		20.7	%		20.7	%		0bps		20.9	%		20bps

(1)

Reflects the transfer in the first quarter of 2023 of the operational responsibility of the Company's Films business from its Graphics Solutions business in its Industrial & Specialty segment to its Circuitry Solutions business in its Electronics segment and the transfer of certain product lines between its Assembly Solutions business and its Semiconductor Solutions business, both of which are part of its Electronics segment. Historical information has been reclassified to reflect these changes for all periods presented.

II. CAPITAL STRUCTURE
(dollars in millions)			Maturity		Interest Rate		December 31, 2023
Instrument
Term Loans	(1)		12/18/2030		SOFR plus 2.00%		$	1,150.0
Total First Lien Debt								1,150.0
Senior Notes due 2028			9/1/2028		3.875%			800.0
Total Debt								1,950.0
Cash Balance								289.3
Net Debt							$	1,660.7
Adjusted Shares Outstanding	(2)							243.8
Market Capitalization	(3)						$	5,641.5
Total Capitalization							$	7,302.2

(1)	Element Solutions swapped its floating term loan rate to a fixed rate for all of its outstanding term loans through the use of interest rate swaps and cross-currency swaps which mature in January 2025 or December 2028, as applicable. At December 31, 2023, 100% of the Company's debt was fixed.
(2)	See "Adjusted Common Shares Outstanding at December 31, 2023 and 2022" following the footnotes under the "Adjusted Earnings Per Share (EPS)" reconciliation table below.
(3)	Based on the closing price of the shares of Element Solutions of $23.14 at December 29, 2023, which was the last business day of the year.

III. SELECTED FINANCIAL DATA
	Three Months Ended December 31,							Twelve Months Ended December 31,
(dollars in millions)	2023				2022			2023			2022
Interest expense	$	15.4			$	12.7		$	58.9		$	53.8
Interest paid		7.4				3.2			56.1			46.9
Income tax (benefit) expense		(40.4	)			25.4			13.0			85.8
Income taxes paid		24.7				20.9			73.7			66.5
Capital expenditures		16.4				15.0			52.7			47.8
Proceeds from disposal of property, plant and equipment		—				1.4			1.4			4.8

IV. SUPPLEMENTAL INFORMATION
	2023													2022
(dollars in millions)	Q1			Q2			Q3				Q4			Q1			Q2			Q3			Q4
Net Sales
Electronics	$	339.6		$	355.8		$	367.0			$	352.3		$	441.6		$	440.8		$	389.4		$	339.4
Industrial & Specialty		234.8			230.3			232.3				221.1			238.6			236.1			229.1			234.4
Total	$	574.4		$	586.1		$	599.3			$	573.4		$	680.2		$	676.9		$	618.5		$	573.8
Net Income
Total	$	43.0		$	29.7		$	(31.7	)		$	77.2		$	56.4		$	65.4		$	53.3		$	12.9
Adjusted EBITDA
Electronics	$	72.7		$	76.3		$	90.4			$	78.3		$	100.9		$	101.2		$	90.9		$	67.7
Industrial & Specialty		39.6			39.8			43.7				41.5			43.9			39.2			42.6			40.2
Total	$	112.3		$	116.1		$	134.1			$	119.8		$	144.8		$	140.4		$	133.5		$	107.9

Non-GAAP Measures

To supplement its financial measures prepared in accordance with GAAP, Element Solutions presents in this release the following non-GAAP financial measures: EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted EPS, adjusted common shares outstanding, free cash flow, organic net sales growth, first quarter 2024 guidance for adjusted EBITDA, and full year 2024 guidance for adjusted EBITDA, constant currency adjusted EBITDA growth, and free cash flow. The Company also evaluates and presents its results of operations on a constant currency basis.

Management internally reviews these non-GAAP measures to evaluate performance and liquidity on a comparative period-to-period basis in terms of absolute performance, trends and expected future performance with respect to the Company’s business, and believes that these non-GAAP measures provide investors with an additional perspective on trends and underlying operating results on a period-to-period comparable basis. The Company also believes that investors find this information helpful in understanding the ongoing performance of its operations as well as their ability to generate cash separate from items that may have a disproportionate positive or negative impact on its financial results in any particular period or that are considered to be associated with its capital structure. These non-GAAP financial measures, however, have limitations as analytical tools, and should not be considered in isolation from, a substitute for, or superior to, the related financial information that Element Solutions reports in accordance with GAAP. The principal limitation of these non-GAAP financial measures is that they exclude significant expenses and income that are required by GAAP to be recorded in the Company’s financial statements, and may not be completely comparable to similarly titled measures of other companies due to potential differences in calculation methods. In addition, these measures are subject to inherent limitations as they reflect the exercise of judgment by management about which items are excluded or included in determining these non-GAAP financial measures. Investors are encouraged to review the definitions and reconciliations of these non-GAAP financial measures to their most comparable GAAP financial measures included in this press release, and not to rely on any single financial measure to evaluate the Company's businesses.

The Company provides first quarter 2024 and full year 2024 guidance for adjusted EBITDA and constant currency adjusted EBITDA growth only on a non-GAAP basis. Reconciliations of such forward-looking non-GAAP measures to GAAP are excluded in reliance upon the exception provided by Item 10(e)(1)(i)(B) of Regulation S-K due to the inherent difficulty in forecasting and quantifying, without unreasonable efforts, certain amounts that are necessary for such reconciliations, including adjustments that could be made for restructurings, refinancings, impairments, divestitures, integration and acquisition-related expenses, share-based compensation amounts, non-recurring, unusual or unanticipated charges, expenses or gains, adjustments to inventory and other charges reflected in reconciliations of historic numbers, the amount of which, based on historical experience, could be significant.

Constant Currency:

The Company discloses net sales and adjusted EBITDA on a constant currency basis by adjusting results to exclude the impact of changes due to the translation of foreign currencies of its international locations into U.S. dollar. Management believes this non-GAAP financial information facilitates period-to-period comparison in the analysis of trends in business performance, thereby providing valuable supplemental information regarding its results of operations, consistent with how the Company internally evaluates its financial results.

The impact of foreign currency translation is calculated by converting the Company's current-period local currency financial results into U.S. dollar using the prior period's exchange rates and comparing these adjusted amounts to its prior period reported results. The difference between actual growth rates and constant currency growth rates represents the estimated impact of foreign currency translation.

Organic Net Sales Growth:

Organic net sales growth is defined as net sales excluding the impact of foreign currency translation, changes due to the pass-through pricing of certain metals, and acquisitions and/or divestitures, as applicable. Management believes this non-GAAP financial measure provides investors with a more complete understanding of the underlying net sales trends by providing comparable net sales over differing periods on a consistent basis.

The following table reconciles GAAP net sales growth to organic net sales growth for the three and twelve months ended December 31, 2023:

		Three Months Ended December 31, 2023
		Reported Net Sales Growth		Impact of Currency		Constant Currency		Change in Pass-Through Metals Pricing		Acquisitions		Organic Net Sales Growth
Electronics		4%		0%		4%		(4)%		(1)%		(1)%
Industrial & Specialty		(6)%		(1)%		(7)%		—%		0%		(7)%
Total		0%		(1)%		(1)%		(2)%		(1)%		(3)%

NOTE: Totals may not sum due to rounding.

		Twelve Months Ended December 31, 2023
		Reported Net Sales Growth		Impact of Currency		Constant Currency		Change in Pass-Through Metals Pricing		Acquisitions		Organic Net Sales Growth
Electronics		(12)%		2%		(10)%		4%		(1)%		(7)%
Industrial & Specialty		(2)%		1%		(2)%		—%		0%		(2)%
Total		(8)%		1%		(7)%		2%		(1)%		(5)%

NOTE: Totals may not sum due to rounding.

For the three months ended December 31, 2023, Electronics' consolidated results were positively impacted by $12.0 million of pass-through metals pricing and $3.2 million of acquisitions and Industrial & Specialty's consolidated results were positively impacted by $0.1 million of acquisitions.

For the twelve months ended December 31, 2023, Electronics' consolidated results were negatively impacted by $61.5 million of pass-through metals pricing and positively impacted by $9.8 million of acquisitions and Industrial & Specialty's consolidated results were positively impacted by $3.9 million of acquisitions.

Adjusted Earnings Per Share (EPS):

Adjusted EPS is a key metric used by management to measure operating performance and trends as management believes the exclusion of certain expenses in calculating adjusted EPS facilitates operating performance comparisons on a period-to-period basis. Adjusted EPS is defined as net income adjusted to reflect adjustments consistent with the Company's definition of adjusted EBITDA. Additionally, the Company eliminates amortization expense associated with intangible assets, incremental depreciation associated with the step-up of fixed assets and incremental cost of sales associated with the step-up of inventories recognized in purchase accounting for acquisitions.

Further, the Company adjusts its effective tax rate to 20%, as described in footnote (10) under the reconciliation table below. This effective tax rate, which reflects the Company’s estimated long-term expectations for taxes to be paid on its adjusted non-GAAP earnings, is consistent with how management evaluates the Company’s financial performance. The Company also believes that providing a fixed rate facilitates comparisons of business performance from period to period. This non-GAAP effective tax rate is lower than the average of the statutory tax rates applicable to the Company’s jurisdictional mix of earnings, primarily because it reflects tax benefits derived from U.S. tax attribute carryforwards, which consist of operating losses and tax credits.

The resulting adjusted net income is then divided by the Company's adjusted common shares outstanding. Adjusted common shares outstanding represent the shares outstanding as of the balance sheet date for the quarter-to-date period and an average of each quarter for the year-to-date period, plus shares issuable upon exercise or vesting of all outstanding equity awards (assuming a performance achievement target level for equity awards with targets considered probable).

The following table reconciles GAAP "Net income" to "Adjusted net income" and presents the number of adjusted common shares outstanding used in calculating adjusted EPS for each period presented below:

			Three Months Ended December 31,								Twelve Months Ended December 31,
(dollars in millions, except per share amounts)			2023				2022				2023				2022
Net income			$	77.2			$	12.9			$	118.2			$	188.0
Loss (income) from discontinued operations, net of tax				0.8				—				(2.1	)			(1.8	)
Net income attributable to the non-controlling interests				(0.1	)			(0.2	)			(0.1	)			(0.8	)
Reversal of amortization expense	(1)			30.8				29.2				124.1				119.7
Adjustment to reverse incremental depreciation expense from acquisitions	(1)			0.3				0.5				1.5				2.2
Inventory step-up	(1)			3.3				—				3.3				0.5
Restructuring expense	(2)			5.1				3.4				11.4				9.5
Acquisition and integration expense	(3)			3.5				4.4				16.8				10.6
Foreign exchange (gain) loss on intercompany loans	(4)			(2.1	)			4.6				(9.7	)			7.8
Debt refinancing costs	(5)			7.8				—				7.8				—
Goodwill impairment	(6)			—				—				80.0				—
Kuprion Acquisition research and development charge	(7)			—				—				15.7				—
Adjustment of stock compensation previously not probable	(8)			—				—				—				1.3
Other, net	(9)			10.3				6.3				11.9				12.4
Tax effect of pre-tax non-GAAP adjustments	(10)			(11.8	)			(9.7	)			(52.6	)			(32.8	)
Adjustment to estimated effective tax rate	(10)			(47.9	)			17.8				(12.8	)			31.4
Adjusted net income			$	77.2			$	69.2			$	313.4			$	348.0
Adjusted earnings per share	(11)		$	0.32			$	0.29			$	1.29			$	1.41
Adjusted common shares outstanding	(11)			243.8				243.1				243.9				246.7

(1)	The Company eliminates the amortization expense associated with intangible assets, incremental depreciation associated with the step-up of fixed assets and incremental cost of sales associated with the step-up of inventories recognized in purchase accounting for acquisitions. The Company believes these adjustments provide insight with respect to the cash flows necessary to maintain and enhance its product portfolio.
(2)	The Company adjusts for costs of restructuring its operations, including those related to its acquired businesses. The Company adjusts these costs because it believes they are not reflective of ongoing operations.
(3)	The Company adjusts for costs associated with acquisition and integration activity, including costs of obtaining related financing, legal and accounting fees and transfer taxes. The Company adjusts these costs because it believes they are not reflective of ongoing operations.
(4)	The Company adjusts for foreign exchange gains and losses on intercompany loans because it expects the period-to-period movement of the applicable currencies to offset on a long-term basis and because these gains and losses are not fully realized due to their long-term nature. The Company does not exclude foreign exchange gains and losses on short-term intercompany and third-party payables and receivables.
(5)	The Company adjusts for costs related to the prepayment of its prior term loans because it believes these costs are not reflective of ongoing operations.
(6)	The Company recorded a non-cash impairment charge of $80.0 million related to its Graphics Solutions reporting unit in its Industrial & Specialty segment in the third quarter of 2023. The Company adjusts this cost because it believes it is not reflective of ongoing operations.
(7)	The Company adjusts for research and development costs associated with the purchase accounting related to the acquisition of Kuprion, Inc. The Company adjusts these costs because it believes they are not reflective of ongoing operations.
(8)	The Company adjusts for costs relating to certain stretch target performance-based restricted stock units granted to certain key executives as the achievement of the performance target for these awards was not deemed probable prior to the second quarter of 2021 and, therefore, compensation expense for these awards did not begin to be recognized until the second quarter of 2021 when achievement of the performance target became probable. The Company adjusts these costs as it believes it provides a more meaningful comparison of its performance between periods.
(9)	The Company's adjustments consist primarily of highly inflationary accounting losses for its operations in Turkey of $9.9 million and $4.9 million, certain professional consulting fees and unrealized gains/losses on metals derivative contracts for the years ended December 31, 2023 and 2022, respectively. The Company adjusts for highly inflationary accounting impacts for its operations in Turkey and unrealized gains/losses on metals derivative contracts as it believes it provides a more meaningful comparison of its performance between periods. The Company adjusts for certain professional consulting fees because it believes they are not reflective of ongoing operations.
(10)	The Company uses a non-GAAP effective tax rate of 20%. This rate, which reflects the Company's estimated long-term expectations for taxes to be paid on its adjusted non-GAAP earnings, is consistent with how management evaluates the Company's financial performance. The Company also believes that providing a fixed rate facilitates comparisons of business performance from period to period. This non-GAAP effective tax rate is lower than the average of the statutory tax rates applicable to the Company's jurisdictional mix of earnings, primarily because it reflects tax benefits derived from U.S. tax attribute carryforwards, which consist of operating losses and tax credits. These economic benefits are expected to recur through 2028. Without taking into account these benefits derived from its U.S. tax attribute carryforwards and other similar adjustments, the Company's non-GAAP effective tax rate would have been 23.9% which would have resulted in a $0.07 reduction in Adjusted EPS for the year ended December 31, 2023.
(11)	The Company defines "Adjusted common shares outstanding" as the number of shares of its common stock outstanding as of the balance sheet date for the quarter-to-date period and an average of each quarter for the year-to-date period, plus the shares issuable upon exercise or vesting of all outstanding equity awards (assuming a performance achievement target level for equity awards with targets considered probable). The Company adjusts the number of its outstanding common shares for this calculation as it believes it provides a better understanding of its results of operations on a per share basis. See the table below for further information.

Adjusted Common Shares Outstanding at December 31, 2023 and 2022

The following table shows the Company's adjusted common shares outstanding at each period presented:

	2023				2022
(amounts in millions)	Q4		FY Average		Q4		FY Average
Basic common shares outstanding	241.5		241.5		240.8		244.3
Number of shares issuable upon vesting of granted Equity Awards	2.3		2.4		2.3		2.4
Adjusted common shares outstanding	243.8		243.9		243.1		246.7

EBITDA and Adjusted EBITDA:

EBITDA represents earnings before interest, provision for income taxes, depreciation and amortization. Adjusted EBITDA is defined as EBITDA, excluding the impact of additional items included in GAAP earnings which the Company believes are not representative or indicative of its ongoing business or are considered to be associated with its capital structure, as described in the footnotes located under the "Adjusted Earnings Per Share (EPS)" reconciliation table above. Adjusted EBITDA for each segment also includes an allocation of corporate costs, such as compensation expense and professional fees. Management believes adjusted EBITDA and adjusted EBITDA margin provide investors with a more complete understanding of the long-term profitability trends of the Company's business and facilitate comparisons of its profitability to prior and future periods.

The following table reconciles GAAP "Net income (loss)" to "Adjusted EBITDA" for each of the periods presented:

			2023
(dollars in millions)			Q1				Q2				Q3				Q4				FY
Net income (loss)			$	43.0			$	29.7			$	(31.7	)		$	77.2			$	118.2
Add (subtract):
(Income) loss from discontinued operations, net of tax				—				(2.9	)			—				0.8				(2.1	)
Income tax expense (benefit)				16.9				21.2				15.3				(40.4	)			13.0
Interest expense, net				11.7				12.0				13.3				12.3				49.3
Depreciation expense				9.5				10.1				11.8				11.2				42.6
Amortization expense				29.6				31.0				32.7				30.8				124.1
EBITDA				110.7				101.1				41.4				91.9				345.1
Adjustments to reconcile to Adjusted EBITDA:
Inventory step-up	(1)			—				—				—				3.3				3.3
Restructuring expense	(2)			2.3				1.9				2.1				5.1				11.4
Acquisition and integration expense	(3)			3.9				4.4				5.0				3.5				16.8
Foreign exchange (gain) loss on intercompany loans	(4)			(5.6	)			(8.5	)			6.5				(2.1	)			(9.7	)
Debt refinancing costs	(5)			—				—				—				7.8				7.8
Goodwill impairment	(6)			—				—				80.0				—				80.0
Kuprion Acquisition research and development charge	(7)			—				15.7				—				—				15.7
Other, net	(9)			1.0				1.5				(0.9	)			10.3				11.9
Adjusted EBITDA			$	112.3			$	116.1			$	134.1			$	119.8			$	482.3

NOTE: For the footnote descriptions, please refer to the footnotes located under the "Adjusted Earnings Per Share (EPS)" reconciliation table above.

			2022
(dollars in millions)			Q1			Q2				Q3			Q4			FY
Net income			$	56.4		$	65.4			$	53.3		$	12.9		$	188.0
Add (subtract):
Income from discontinued operations, net of tax				—			(1.8	)			—			—			(1.8	)
Income tax expense				20.0			23.9				16.5			25.4			85.8
Interest expense, net				14.1			13.2				12.3			11.6			51.2
Depreciation expense				10.6			10.3				10.6			10.1			41.6
Amortization expense				31.0			30.3				29.2			29.2			119.7
EBITDA				132.1			141.3				121.9			89.2			484.5
Adjustments to reconcile to Adjusted EBITDA:
Inventory step-up	(1)			0.5			—				—			—			0.5
Restructuring expense	(2)			1.9			1.3				2.9			3.4			9.5
Acquisition and integration expense	(3)			2.9			1.1				2.2			4.4			10.6
Foreign exchange loss (gain) on intercompany loans	(4)			1.6			(0.9	)			2.5			4.6			7.8
Adjustment of stock compensation previously not probable	(8)			1.3			—				—			—			1.3
Other, net	(9)			4.5			(2.4	)			4.0			6.3			12.4
Adjusted EBITDA			$	144.8		$	140.4			$	133.5		$	107.9		$	526.6

Free Cash Flow:

Free cash flow is defined as net cash flows from operating activities less net capital expenditures. Net capital expenditures include capital expenditures less proceeds from the disposal of property, plant and equipment. Management believes that free cash flow, which measures the Company’s ability to generate cash from its business operations, is an important financial measure for evaluating the Company's liquidity. Free cash flow should be considered as an additional measure of liquidity to, rather than as a substitute for, net cash provided by operating activities.

The following table reconciles "Cash flows from operating activities" to "Free cash flows" for the periods presented and the Company's free cash flow outlook for the full year 2024:

		Three Months Ended December 31,								Twelve Months Ended December 31,									Outlook
(dollars in millions)		2023				2022				2023				2022					2024
Cash flows from operating activities		$	111.8			$	100.5			$	333.6			$	295.9				~$330-$360
Capital expenditures			(16.4	)			(15.0	)			(52.7	)			(47.8	)			~(50)-(60)
Proceeds from disposal of property, plant and equipment			—				1.4				1.4				4.8				~0
Free cash flow		$	95.4			$	86.9			$	282.3			$	252.9				~$280-$300

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20240220705873/en/

Investor Relations Contact:

Varun Gokarn

Senior Director, Strategy and Finance

Element Solutions Inc

1-203-952-0369

IR@elementsolutionsinc.com

Media Contact:

Scott Bisang / Ed Hammond / Tali Epstein

Collected Strategies

1-212-379-2072

esi@collectedstrategies.com

Source: Element Solutions Inc

FAQ

What was Element Solutions Inc's (ESI) reported net income for 2023?

Element Solutions Inc reported a net income of $118 million for 2023.

What was the adjusted EBITDA for Element Solutions Inc in 2023?

Element Solutions Inc's adjusted EBITDA for 2023 was $482 million.

What is Element Solutions Inc's (ESI) 2024 financial guidance for adjusted EBITDA?

Element Solutions Inc's 2024 financial guidance projects adjusted EBITDA to be between $510 million and $530 million.

What was the growth in adjusted EBITDA for Element Solutions Inc in the fourth quarter of 2023?

Element Solutions Inc saw growth in adjusted EBITDA of 11% in the fourth quarter of 2023.

What recent debt-related development did Element Solutions Inc announce in December 2023?

In December 2023, Element Solutions Inc completed the syndication of $1.15 billion term loans and reduced its debt.