- Net sales of $619 million, approximately flat from the third
quarter last year on a reported basis; an increase of 5% on an
organic basis
- GAAP diluted EPS of $0.22, compared to $0.15 in the same period
last year; adjusted EPS of $0.36 as compared to $0.34 in the same
period last year
- Reported net income of $53 million, as compared to $36 million
in the same period last year
- Adjusted EBITDA of $134 million, an increase of 11% from the
third quarter last year on a constant currency basis
- Third quarter 2022 cash from operating activities of $127
million and free cash flow of $116 million, an increase of 42% from
the third quarter last year
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 nine months
ended September 30, 2022.
Executive Commentary
President and Chief Executive Officer Benjamin Gliklich said,
"Element Solutions delivered another strong quarter of growth,
despite the accelerating macro headwinds in many of our end
markets. Typical seasonal patterns did not materialize. In
September, demand in Europe did not recover from August holidays.
Electronics markets weakened, particularly in China, in contrast to
their normal third quarter ramp. Nonetheless, we grew organically
in both our operating segments as pricing actions, new business
wins and a focus on high-growth electronics applications helped to
offset soft volume. Our sales outpaced our markets. Inflation in
raw materials and logistics together with mix were headwinds to
adjusted EBITDA in the quarter as was the strengthening U.S.
dollar; however cost management from synergies and actions taken in
the quarter offset these impacts. Adjusted EBITDA grew year over
year.”
Mr. Gliklich continued, “While we continue to execute well
commercially and operationally, the combination of weak electronics
markets, economic stress in Europe and record U.S. dollar strength
will drive a greater than typical sequential decline in the fourth
quarter. Accordingly, we are aligning our guidance with this
backdrop. While we do not expect an imminent recovery in certain
key end-markets, our conviction in their long-term health is
unbroken. Customers remain highly engaged with our commercial and
technical teams, and we have seen an acceleration in interest in
several of our newer technology offerings, including products in
semiconductor assembly, high-end circuit board and sustainable
industrial surface treatment amongst others. The growth
opportunities in markets and applications for power electronics, 5G
technologies and more sustainable chemistry should be substantial
over time. In the interim, we will continue to take actions
designed to protect profits and generate outsized free cash flow to
reinvest behind our businesses.”
Third Quarter 2022 Highlights (compared
with third quarter 2021)
- Net sales on a reported basis for the third quarter of 2022
were $619 million, approximately flat over the third quarter of
2021. Organic net sales, which exclude the impact of currency
changes, certain pass-through metal prices and acquisitions,
increased 5%.
- Electronics: Net sales decreased 6% to $388 million. Organic
net sales increased 5%.
- Industrial & Specialty: Net sales increased 13% to $231
million. Organic net sales increased 6%.
- Third quarter of 2022 earnings per share (EPS) performance:
- GAAP diluted EPS was $0.22 for the third quarter of 2022 as
compared to $0.15 for the third quarter of 2021.
- Adjusted EPS was $0.36, as compared to $0.34 per share in prior
year.
- Reported net income was $53 million for the third quarter of
2022 as compared to $36 million for the third quarter of 2021.
- Adjusted EBITDA for the third quarter of 2022 was $134 million,
an increase of 2%. On a constant currency basis, adjusted EBITDA
increased 11%.
- Electronics: Adjusted EBITDA was $91 million, a decrease of 5%.
On a constant currency basis, adjusted EBITDA increased 2%.
- Industrial & Specialty: Adjusted EBITDA was $42 million, an
increase of 22%. On a constant currency basis, adjusted EBITDA
increased 38%.
- Adjusted EBITDA margin increased 40 basis points to 21.6% on a
reported basis. On a constant currency basis, adjusted EBITDA
margin increased 40 basis points.
- Net debt to adjusted EBITDA ratio of 3.1x on a trailing twelve
month basis.
Updated 2022 Guidance
For the full-year 2022, the Company updated its financial
guidance for adjusted EBITDA in a range of $525 million to $530
million to reflect increased translational foreign exchange
headwinds and lowered macro-economic growth assumptions. The
Company's expectation is for Q4 2022 adjusted EBITDA to be
approximately flat year-over-year on a constant currency basis.
Full-year constant currency adjusted EBITDA growth implied by the
Company's guidance is 8%. The Company also now expects full-year
2022 adjusted EPS of $1.40 to $1.42 and free cash flow of
approximately $250 million.
Recent Developments
As part of its stock repurchase program, during the third
quarter of 2022, the Company repurchased 3.0 million shares of its
common stock. Through September 30, 2022, the Company has
repurchased 6.0 million shares in 2022. The remaining authorization
under the stock repurchase program was approximately $616 million
at September 30, 2022.
Conference Call
Element Solutions will host a webcast/dial-in conference call to
discuss its 2022 third quarter financial results at 8:30 a.m.
(Eastern Time) on Thursday, October 27, 2022. Participants on the
call will include President and Chief Executive Officer Benjamin
Gliklich and Chief Financial Officer Carey J. Dorman.
To listen to the call by telephone, please dial 888-510-2346
(domestic) or 646-960-0111 (international) and enter 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 and economic trends, including
accelerating macro headwinds in many of the Company's end markets,
weak electronic markets, economic stress in Europe and record U.S.
dollar strength; key end-markets recovery and long-term health;
customer engagement; interest in the Company's newer technology
offerings; growth opportunities; actions designed to protect
profits and generate outsized free cash flow; reinvestment in the
Company's businesses; fourth quarter 2022 guidance for adjusted
EBITDA on a constant currency basis; and full-year 2022 guidance
for adjusted EBITDA, constant currency adjusted EBITDA growth,
adjusted EPS and free cash flow. 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
duration and scope of the COVID-19 pandemic; the efficacy,
availability and/or public acceptance of vaccines and treatments
targeting COVID-19 and/or its variants; governments', businesses',
and individuals' actions in response to the pandemic; the general
impact of the pandemic and the invasion of Ukraine by Russia on
economic activity, including financial market instability and
disruption of global supply chains, and on the Company's customers,
employees, suppliers, vendors and other stakeholders; inflation and
fluctuations in foreign exchange rates; business and management
strategies; outstanding debt and debt leverage ratio; shares
repurchases; debt and/or equity issuance or retirement; 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 CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended September
30,
Nine Months Ended September
30,
(dollars in millions, except per share
amounts)
2022
2021
2022
2021
Net sales
$
618.5
$
616.2
$
1,975.6
$
1,752.9
Cost of sales
396.6
371.7
1,240.9
1,028.9
Gross profit
221.9
244.5
734.7
724.0
Operating expenses:
Selling, technical, general and
administrative
131.4
163.5
431.3
447.8
Research and development
11.3
12.5
38.2
36.8
Total operating expenses
142.7
176.0
469.5
484.6
Operating profit
79.2
68.5
265.2
239.4
Other (expense) income:
Interest expense, net
(12.3
)
(13.8
)
(39.6
)
(39.6
)
Foreign exchange gain (loss)
0.9
(0.6
)
2.9
22.2
Other income (expense), net
2.0
(0.9
)
5.2
(8.2
)
Total other expense
(9.4
)
(15.3
)
(31.5
)
(25.6
)
Income before income taxes and
non-controlling interests
69.8
53.2
233.7
213.8
Income tax expense
(16.5
)
(17.3
)
(60.4
)
(16.5
)
Net income from continuing
operations
53.3
35.9
173.3
197.3
Income from discontinued operations, net
of tax
—
—
1.8
2.0
Net income
53.3
35.9
175.1
199.3
Net (income) loss attributable to
non-controlling interests
(0.1
)
0.1
(0.6
)
0.1
Net income attributable to common
stockholders
$
53.2
$
36.0
$
174.5
$
199.4
Earnings per
share
Basic from continuing operations
$
0.22
$
0.15
$
0.70
$
0.80
Basic from discontinued operations
—
—
0.01
0.01
Basic attributable to common
stockholders
$
0.22
$
0.15
$
0.71
$
0.81
Diluted from continuing operations
$
0.22
$
0.15
$
0.70
$
0.79
Diluted from discontinued operations
—
—
0.01
0.01
Diluted attributable to common
stockholders
$
0.22
$
0.15
$
0.71
$
0.80
Weighted average
common shares outstanding
Basic
244.7
247.6
246.4
247.5
Diluted
245.0
248.0
247.2
248.0
ELEMENT SOLUTIONS INC CONDENSED
CONSOLIDATED BALANCE SHEETS (Unaudited)
September 30,
December 31,
(dollars in millions)
2022
2021
Assets
Cash & cash equivalents
$
234.0
$
330.1
Accounts receivable, net of allowance for
doubtful accounts of $12.4 and $12.2 at September 30, 2022 and
December 31, 2021, respectively
467.6
492.2
Inventories
309.9
274.4
Prepaid expenses
35.2
29.4
Other current assets
131.9
88.4
Total current assets
1,178.6
1,214.5
Property, plant and equipment, net
263.4
278.1
Goodwill
2,326.2
2,526.3
Intangible assets, net
804.1
956.7
Deferred income tax assets
50.1
81.5
Other assets
247.3
81.3
Total assets
$
4,869.7
$
5,138.4
Liabilities and stockholders'
equity
Accounts payable
$
158.4
$
138.4
Current installments of long-term debt
11.9
12.7
Accrued expenses and other current
liabilities
183.7
264.1
Total current liabilities
354.0
415.2
Debt
1,886.8
1,894.2
Pension and post-retirement benefits
29.7
36.1
Deferred income tax liabilities
122.9
140.0
Other liabilities
171.6
152.1
Total liabilities
2,565.0
2,637.6
Stockholders' equity
Common stock: 400.0 shares authorized
(2022: 265.0 shares issued; 2021: 261.9 shares issued)
2.7
2.6
Additional paid-in capital
4,180.6
4,166.6
Treasury stock (2022: 22.2 shares; 2021:
15.2 shares)
(299.7
)
(159.2
)
Accumulated deficit
(1,217.1
)
(1,331.9
)
Accumulated other comprehensive loss
(378.4
)
(197.4
)
Total stockholders' equity
2,288.1
2,480.7
Non-controlling interests
16.6
20.1
Total equity
2,304.7
2,500.8
Total liabilities and stockholders'
equity
$
4,869.7
$
5,138.4
ELEMENT SOLUTIONS INC CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended
Nine Months Ended September
30,
(dollars in millions)
September 30,
2022
June 30,
2022
March 31,
2022
2022
2021
Cash flows from operating
activities:
Net income
$
53.3
$
65.4
$
56.4
$
175.1
$
199.3
Net income from discontinued operations,
net of tax
—
1.8
—
1.8
2.0
Net income from continuing operations
53.3
63.6
56.4
173.3
197.3
Reconciliation of net income from
continuing operations to net cash flows provided by (used in)
operating activities:
Depreciation and amortization
39.8
40.6
41.6
122.0
120.7
Deferred income taxes
(4.0
)
5.4
2.5
3.9
(37.4
)
Foreign exchange (gain) loss
(1.1
)
0.2
(0.1
)
(1.0
)
(13.1
)
Incentive stock compensation
4.0
3.6
5.2
12.8
33.8
Other, net
3.0
3.4
4.3
10.7
11.1
Changes in assets and liabilities, net of
acquisitions:
Accounts receivable
36.5
(10.2
)
(49.6
)
(23.3
)
(59.0
)
Inventories
12.8
(28.4
)
(47.5
)
(63.1
)
(78.5
)
Accounts payable
(11.1
)
2.0
41.2
32.1
41.6
Accrued expenses
(4.7
)
6.4
(49.6
)
(47.9
)
13.2
Prepaid expenses and other current
assets
(6.7
)
(4.8
)
(10.5
)
(22.0
)
(15.8
)
Other assets and liabilities
4.9
(7.5
)
0.5
(2.1
)
(9.2
)
Net cash flows provided by (used in)
operating activities
126.7
74.3
(5.6
)
195.4
204.7
Cash flows from investing
activities:
Capital expenditures
(11.1
)
(12.2
)
(9.5
)
(32.8
)
(27.7
)
Proceeds from disposal of property, plant
and equipment
—
3.4
—
3.4
—
Acquisition of business, net of cash
acquired
—
—
(22.6
)
(22.6
)
(536.5
)
Other, net
(4.8
)
(0.1
)
(5.0
)
(9.9
)
14.0
Net cash flows used in investing
activities
(15.9
)
(8.9
)
(37.1
)
(61.9
)
(550.2
)
Cash flows from financing
activities:
Debt proceeds, net of discount
—
—
—
—
398.0
Repayments of borrowings
(5.6
)
(3.2
)
(3.1
)
(11.9
)
(6.7
)
Repurchases of common stock
(53.8
)
(41.4
)
(18.3
)
(113.5
)
(1.7
)
Dividends
(19.6
)
(19.7
)
(19.9
)
(59.2
)
(42.1
)
Payment of financing fees
—
—
—
—
(5.1
)
Other, net
(3.2
)
2.0
(25.8
)
(27.0
)
(6.2
)
Net cash flows (used in) provided by
financing activities
(82.2
)
(62.3
)
(67.1
)
(211.6
)
336.2
Net cash flows provided by (used in)
operating activities of discontinued operations
—
1.8
—
1.8
(0.4
)
Effect of exchange rate changes on cash
and cash equivalents
(10.2
)
(8.1
)
(1.5
)
(19.8
)
(2.9
)
Net increase (decrease) in cash and
cash equivalents
18.4
(3.2
)
(111.3
)
(96.1
)
(12.6
)
Cash and cash equivalents at beginning of
period
215.6
218.8
330.1
330.1
291.9
Cash and cash equivalents at end of
period
$
234.0
$
215.6
$
218.8
$
234.0
$
279.3
ELEMENT SOLUTIONS INC ADDITIONAL
FINANCIAL INFORMATION (Unaudited)
I. SEGMENT RESULTS (1)
Three Months Ended September
30,
Nine Months Ended September
30,
(dollars in millions)
2022
2021
Reported
Constant Currency
Organic
2022
2021
Reported
Constant Currency
Organic
Net sales
Electronics
$
387.7
$
411.6
(6
)%
1
%
5
%
$
1,266.5
$
1,172.9
8
%
13
%
7
%
Industrial & Specialty
230.8
204.6
13
%
26
%
6
%
709.1
580.0
22
%
33
%
4
%
Total
$
618.5
$
616.2
0
%
9
%
5
%
$
1,975.6
$
1,752.9
13
%
20
%
6
%
Adjusted EBITDA
Electronics
$
91.2
$
95.9
(5
)%
2
%
$
293.8
$
287.1
2
%
7
%
Industrial & Specialty
42.3
34.7
22
%
38
%
124.9
113.1
10
%
22
%
Total
$
133.5
$
130.6
2
%
11
%
$
418.7
$
400.2
5
%
11
%
Three Months Ended September
30,
Constant Currency
Nine Months Ended September
30,
Constant Currency
2022
2021
Change
2022
Change
2022
2021
Change
2022
Change
Adjusted EBITDA Margin
Electronics
23.5
%
23.3
%
20bps
23.5
%
20bps
23.2
%
24.5
%
(130)bps
23.2
%
(130)bps
Industrial & Specialty
18.4
%
16.9
%
150bps
18.5
%
160bps
17.6
%
19.5
%
(190)bps
17.8
%
(170)bps
Total
21.6
%
21.2
%
40bps
21.6
%
40bps
21.2
%
22.8
%
(160)bps
21.2
%
(160)bps
(1) In the second quarter of 2022, the Company transferred its
Films business from its Industrial business in the Industrial &
Specialty segment to its Circuitry business in the Electronics
segment. Historical information has been reclassified to include
the Films business in the Electronics segment for all periods
presented.
II. CAPITAL STRUCTURE
(dollars in millions)
Maturity
Interest Rate
September 30, 2022
Instrument
Corporate Revolver
1/31/2024
LIBOR plus 2.25%
$
—
Term Loans
(1
)
1/31/2026
LIBOR plus 2.00%
1,116.9
Total First Lien Debt
1,116.9
Senior Notes due 2028
9/1/2028
3.875
%
800.0
Other Debt
1.6
Total Debt
1,918.5
Cash Balance
234.0
Net Debt
$
1,684.5
Adjusted Shares Outstanding
(2
)
245.2
Market Capitalization
(3
)
$
3,989.4
Total Capitalization
$
5,673.9
(1) Element Solutions swapped its floating term loan rate to a
fixed rate for its initial $750 million term loans through January
2024 and its incremental $400 million add-on term loans through
January 2025, which could vary in the future due to changes in the
euro and the U.S. dollar exchange rate. At September 30, 2022,
approximately 100% of the Company's debt was fixed. (2) See
"Non-GAAP Adjusted Common Shares Outstanding at September 30, 2022
and 2021" 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 $16.27 at September 30,
2022.
III. SELECTED FINANCIAL DATA
Three Months Ended September
30,
Nine Months Ended September
30,
(dollars in millions)
2022
2021
2022
2021
Interest expense
$
13.1
$
14.0
$
41.1
$
40.4
Interest paid
$
19.2
$
20.2
$
43.7
$
45.2
Income tax expense
$
16.5
$
17.3
$
60.4
$
16.5
Income taxes paid
$
14.0
$
16.1
$
45.6
$
51.1
Capital expenditures
$
11.1
$
10.4
$
32.8
$
27.7
Proceeds from disposal of property, plant
and equipment
$
—
$
—
$
3.4
$
—
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, net debt to adjusted EBITDA ratio, organic net
sales growth, full year 2022 guidance for adjusted EBITDA and
constant currency adjusted EBITDA growth, adjusted EPS and free
cash flow, and fourth quarter 2022 guidance for constant currency
adjusted EBITDA. The Company also evaluates and presents other
results of operations on a constant currency basis.
Management internally reviews these non-GAAP measures to
evaluate performance 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 separate from items that may
have a disproportionate positive or negative impact on its
financial results in any particular period or 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 only provides full year 2022 guidance for adjusted
EBITDA, constant currency adjusted EBITDA growth, adjusted EPS and
free cash flow, and fourth quarter 2022 guidance for constant
currency adjusted EBITDA on a non-GAAP basis and does not provide
reconciliations of such forward-looking non-GAAP measures to GAAP
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 its reconciliation 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 nine months ended September 30,
2022:
Three Months Ended September
30, 2022
Reported Net Sales
Growth
Impact of Currency
Constant Currency
Change in Pass-Through Metals
Pricing
Acquisitions
Organic Net Sales
Growth
Electronics
(6)%
7%
1%
4%
—%
5%
Industrial & Specialty
13%
13%
26%
—%
(21)%
6%
Total
0%
9%
9%
3%
(7)%
5%
Nine Months Ended September
30, 2022
Reported Net Sales
Growth
Impact of Currency
Constant Currency
Change in Pass-Through Metals
Pricing
Acquisitions
Organic Net Sales
Growth
Electronics
8%
5%
13%
(5)%
(1)%
7%
Industrial & Specialty
22%
11%
33%
—%
(29)%
4%
Total
13%
7%
20%
(3)%
(10)%
6%
NOTE: Totals may not sum due to rounding.
For the three months ended September 30, 2022, Electronics'
consolidated results were negatively impacted by $18.3 million of
pass-through metals pricing and Industrial & Specialty's
consolidated results were positively impacted by $41.9 million of
acquisitions. For the nine months ended September 30, 2022,
Electronics' consolidated results were positively impacted by $54.7
million of pass-through metals pricing and $13.5 million of
acquisitions and Industrial & Specialty's consolidated results
were positively impacted by $170.5 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 attributable to common
stockholders 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% for the
three and nine months ended September 30, 2022 and 2021,
respectively, as described in footnote (8) under the reconciliation
table below.
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 attributable to
common stockholders" to "Adjusted net income attributable to common
stockholders" and presents the number of adjusted common shares
outstanding used in calculating adjusted EPS for each period
presented below:
Three Months Ended September
30,
Nine Months Ended September
30,
(dollars in millions, except per share
amounts)
2022
2021
2022
2021
Net income attributable to common
stockholders
$
53.2
$
36.0
$
174.5
$
199.4
Net income from discontinued operations
attributable to common stockholders
—
—
1.8
2.0
Net income from continuing operations
attributable to common stockholders
53.2
36.0
172.7
197.4
Reversal of amortization expense
(1
)
29.2
31.9
90.5
92.0
Adjustment to reverse incremental
depreciation expense from acquisitions
(1
)
0.5
0.7
1.7
2.4
Inventory step-up
(1
)
—
4.3
0.5
6.5
Restructuring expense
(2
)
2.9
1.3
6.1
5.2
Acquisition and integration expense
(3
)
2.2
7.1
6.2
10.3
Foreign exchange loss (gain) on internal
debt
(4
)
2.5
0.6
3.2
(22.8
)
Adjustment of stock compensation
previously not probable
(5
)
—
7.6
1.3
21.2
Unrealized loss (gain) on metals
derivative contracts
(6
)
2.3
(0.9
)
(2.0
)
(2.3
)
Other, net
(7
)
1.7
2.1
8.1
8.0
Tax effect of pre-tax non-GAAP
adjustments
(8
)
(8.3
)
(10.9
)
(23.1
)
(24.1
)
Adjustment to estimated effective tax
rate
(8
)
2.6
6.6
13.6
(26.3
)
Adjusted net income attributable to
common stockholders
$
88.8
$
86.4
$
278.8
$
267.5
Adjusted earnings per share
(9
)
$
0.36
$
0.34
$
1.12
$
1.06
Adjusted common shares
outstanding
(9
)
245.2
252.1
247.9
251.4
(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 2022
adjustments primarily relate to costs associated with the
integration of our recent acquisitions. The 2021 adjustments
primarily relate to costs associated with the acquisitions of
Coventya Holding SAS, H.K. Wentworth Limited and their respective
subsidiaries, partially offset by a gain of $3.9 million on the
sale of a dormant facility in New Jersey during the first quarter
of 2021 which was included in our Electronics business segment. 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 debt 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 relating to certain stretch target
performance-based RSUs granted to certain key executives in 2019 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
to provide a meaningful comparison of its performance between
periods. (6) The Company adjusts for unrealized gains/losses on
metals derivative contracts to provide a meaningful comparison of
its performance between periods. (7) The Company's adjustments are
primarily comprised of certain professional consulting fees. The
Company adjusts these costs because it believes they are not
reflective of ongoing operations. (8) The Company adjusts its
effective tax rate to 20% for the three and nine months ended
September 30, 2022 and 2021, respectively. This adjustment does not
reflect the Company’s current or near-term tax structure, including
limitations on its ability to utilize net operating losses and
foreign tax credits in certain jurisdictions. The Company also
applies an effective tax rate of 20% to pre-tax non-GAAP
adjustments for the three and nine months ended September 30, 2022
and 2021, respectively. These effective tax rate adjustments are
made because the Company believes they provide a meaningful
comparison of its performance between periods. (9) 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 to provide an understanding of the
Company’s results of operations on a per share basis. See table
below for further information:
Adjusted Common Shares Outstanding at September 30, 2022 and
2021
The following table shows the Company's adjusted common shares
outstanding at each period presented:
September 30,
Year-to-Date Average September
30,
(amounts in millions)
2022
2021
2022
2021
Basic common shares outstanding
242.8
247.5
245.5
247.5
Number of shares issuable upon vesting of
granted Equity Awards
2.4
4.6
2.4
3.9
Adjusted common shares
outstanding
245.2
252.1
247.9
251.4
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, including unrealized
gains/losses on metals derivative contracts, 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 Element
Solutions' business and facilitate comparisons of its profitability
to prior and future periods.
The following table reconciles GAAP "Net income attributable to
common stockholders" to "Adjusted EBITDA" for each of the periods
presented:
Three Months Ended September
30,
Nine Months Ended September
30,
(dollars in millions)
2022
2021
2022
2021
Net income attributable to common
stockholders
$
53.2
$
36.0
$
174.5
$
199.4
Add (subtract):
Net income (loss) attributable to
non-controlling interests
0.1
(0.1
)
0.6
(0.1
)
Income from discontinued operations, net
of tax
—
—
(1.8
)
(2.0
)
Income tax expense
16.5
17.3
60.4
16.5
Interest expense, net
12.3
13.8
39.6
39.6
Depreciation expense
10.6
9.6
31.5
28.7
Amortization expense
29.2
31.9
90.5
92.0
EBITDA
121.9
108.5
395.3
374.1
Adjustments to reconcile to Adjusted
EBITDA:
Inventory step-up
(1
)
—
4.3
0.5
6.5
Restructuring expense
(2
)
2.9
1.3
6.1
5.2
Acquisition and integration expense
(3
)
2.2
7.1
6.2
10.3
Foreign exchange loss (gain) on internal
debt
(4
)
2.5
0.6
3.2
(22.8
)
Adjustment of stock compensation
previously not probable
(5
)
—
7.6
1.3
21.2
Unrealized loss (gain) on metals
derivative contracts
(6
)
2.3
(0.9
)
(2.0
)
(2.3
)
Other, net
(7
)
1.7
2.1
8.1
8.0
Adjusted EBITDA
$
133.5
$
130.6
$
418.7
$
400.2
NOTE: For the footnote descriptions, please refer to the
footnotes located under the "Net income attributable to common
stockholders" reconciliation table above.
Net Debt to Adjusted EBITDA Ratio:
Net debt to adjusted EBITDA ratio is defined as total debt
(current installments of long-term debt, revolving credit
facilities and long-term debt), excluding unamortized discounts and
debt issuance costs, which totaled $19.8 million at September 30,
2022, less cash divided by adjusted EBITDA.
The following table presents the Company's net debt to adjusted
EBITDA ratio of 3.1x on a trailing twelve month basis:
2022
2021
Trailing Twelve Months
(dollars in millions)
YTD
Q4
Net income attributable to common
stockholders
$
174.5
$
3.9
$
178.4
Add (subtract):
Net income attributable to non-controlling
interests
0.6
0.5
1.1
(Income) loss from discontinued
operations, net of tax
(1.8
)
1.7
(0.1
)
Income tax expense
60.4
31.8
92.2
Interest expense, net
39.6
14.6
54.2
Depreciation expense
31.5
11.0
42.5
Amortization expense
90.5
32.2
122.7
EBITDA
395.3
95.7
491.0
Adjustments to reconcile to Adjusted
EBITDA:
Inventory step-up
0.5
6.4
6.9
Restructuring expense
6.1
6.5
12.6
Acquisition and integration expense
6.2
3.9
10.1
Foreign exchange loss on internal debt
3.2
6.2
9.4
Adjustment of stock compensation
previously not probable
1.3
2.7
4.0
Unrealized (gain) loss on metals
derivative contracts
(2.0
)
2.2
0.2
Other, net
8.1
1.0
9.1
Adjusted EBITDA
$
418.7
$
124.6
$
543.3
Net debt
$
1,684.5
Net debt to adjusted EBITDA
ratio
3.1x
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 financial performance. However, free cash
flow should be considered in addition to, rather than as a
substitute for, net cash provided by operating activities as a
measure of the Company’s liquidity.
The following table reconciles "Cash flows from operating
activities" to "Free cash flows:"
Three Months Ended September
30,
Nine Months Ended September
30,
(dollars in millions)
2022
2021
2022
2021
Cash flows from operating
activities
$
126.7
$
91.7
$
195.4
$
204.7
Capital expenditures
(11.1
)
(10.4
)
(32.8
)
(27.7
)
Proceeds from disposal of property, plant
and equipment
—
—
3.4
—
Free cash flows
$
115.6
$
81.3
$
166.0
$
177.0
View source
version on businesswire.com: https://www.businesswire.com/news/home/20221025006134/en/
Investor Relations: Varun Gokarn Senior Director, Strategy and
Finance Element Solutions Inc 1-561-406-8465
Media: Liz Cohen Managing Director Kekst CNC 1-212-521-4845
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