- Net sales of $645 million, an increase of 8% on a reported
basis or 6% on an organic basis from the third quarter of 2023
- Reported net income of $40 million, compared to a net loss of
$32 million in the same period last year
- Adjusted EBITDA of $143 million, compared to $134 million in
the same period last year, an increase of 6% on a reported basis
and 8% on a constant currency basis
- Third quarter 2024 cash flows from operating activities of $99
million and free cash flow of $86 million
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, 2024.
Executive Commentary
President and Chief Executive Officer Benjamin Gliklich
commented, “Element Solutions delivered strong results once again
this quarter. Financially, operationally and strategically, we
executed well. The Electronics segment continued to capitalize on
developing technology trends like advanced packaging and
high-performance computing, which represent the highest value and
fastest growing portions of our markets. We have invested
deliberately over several years to build capabilities oriented
towards these emerging opportunities, and our results reflect
progress, particularly in the context of ongoing softness in
several historical core markets, including Western smartphones and
automotive. Our Industrial & Specialty business also grew
earnings despite a weakening industrial macro backdrop over the
course of the quarter, particularly in Europe. Taken together, we
continue to deliver on our commitments and to outperform our
markets in each of our segments. Our narrowed full year 2024
adjusted EBITDA guidance range implies record earnings despite
overall end-markets remaining well below prior peak levels."
Mr. Gliklich continued, "Our actions this quarter repositioned
our portfolio and improved our overall business quality and balance
sheet. The previously announced sale of MacDermid Graphics
Solutions will further focus our company on its core markets and
should improve our underlying growth rate, margins and cash return
on investment. The transaction is expected to close between year
end and the end of the second quarter of 2025, pending closing
conditions and regulatory approvals. Including the expected
proceeds from the transaction, our net leverage ratio at year end
2024 would be approximately 2.5x leaving more capacity for
strategic capital deployment than we have had in several years.
Element Solutions is well-positioned for another record year in
2025.”
Third Quarter 2024 Highlights (compared
with third quarter 2023)
- Net sales on a reported basis for the third quarter of 2024
were $645 million, an increase of 8% over the third quarter of
2023. Organic net sales increased 6%.
- Electronics: Net sales increased 14% to $419 million. Organic
net sales increased 9%.
- Industrial & Specialty: Net sales decreased 3% to $226
million. Organic net sales remained relatively flat.
- Third quarter of 2024 earnings per share (EPS) performance:
- GAAP diluted EPS was $0.17, as compared to a loss per share of
$0.13 for the same period last year.
- Adjusted EPS was $0.39, as compared to $0.36 for the same
period last year.
- Reported net income for the third quarter of 2024 was $40
million, as compared to a net loss of $32 million for the third
quarter of 2023.
- Net income margin increased to 6.3%.
- Adjusted EBITDA for the third quarter of 2024 was $143 million,
as compared to $134 million for the third quarter of 2023, an
increase of 6%. On a constant currency basis, adjusted EBITDA
increased 8%.
- Electronics: Adjusted EBITDA was $99 million, an increase of
9%. On a constant currency basis, adjusted EBITDA increased
10%.
- Industrial & Specialty: Adjusted EBITDA was $44 million, an
increase of 1%. On a constant currency basis, adjusted EBITDA
increased 4%.
- Adjusted EBITDA margin decreased by 30 basis points to 22.1%.
On a constant currency basis, adjusted EBITDA margin decreased by
20 basis points.
Updated 2024 Guidance
The Company expects full year 2024 adjusted EBITDA to be in the
range of $535 million to $540 million. In addition, the Company
expects its full year 2024 free cash flow to be in the range of
$280 million to $300 million.
Recent Developments
MacDermid Graphics Solutions Transaction — On September 1, 2024,
the Company entered into an agreement to sell its flexographic
printing plate business, MacDermid Graphics Solutions, for
approximately $325 million. MacDermid Graphics Solutions
constitutes substantially all of the Company's Graphics Solutions
business. The transaction is expected to close in the fourth
quarter of 2024 or the first half of 2025, subject to customary
closing conditions, adjustments and regulatory approvals.
Syndication of $1.04 billion Term Loans and Debt Reduction — On
October 15, 2024, the Company completed the syndication of $1.04
billion of new term loans B-3 which resulted in an interest rate
reduction of 25 basis points to SOFR plus a spread of 1.75% per
annum. In connection with this repricing, the Company fully paid
down its $1.14 billion term loans B-2, therefore reducing its
borrowing under its credit agreement by $100 million. The Company
also terminated $100 million notional of the interest rate swaps
and cross-currency swaps that would have matured in January 2025.
The net proceeds of the new term loans and cash on hand were used
to prepay in full the Company's term loans B-2.
Conference Call
Element Solutions will host a webcast/dial-in conference call to
discuss its 2024 third quarter financial results at 8:30 a.m.
(Eastern Time) on Tuesday, October 29, 2024. 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 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
or expectations regarding capitalizing on developing technology
trends and emerging opportunities; market trends and growth;
commitment to outperform end-markets; expected benefits of the
MacDermid Graphics Solutions transaction; the timing for completion
of this transaction; the ability of the parties to close this
transaction, including obtaining regulatory approvals and meeting
other closing conditions; net debt leverage ratio at year end 2024
including the expected proceeds of this transaction; capital
deployment; non-GAAP effective tax rate; full year 2024 guidance
for adjusted EBITDA, constant currency adjusted EBITDA growth and
free cash flow; and expected record year in 2025. 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, 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
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended September
30,
Nine Months Ended September
30,
(dollars in millions, except per share
amounts)
2024
2023
2024
2023
Net sales
$
645.0
$
599.3
$
1,832.7
$
1,759.8
Cost of sales
377.5
357.4
1,053.0
1,061.6
Gross profit
267.5
241.9
779.7
698.2
Operating expenses:
Selling, technical, general and
administrative
157.6
149.9
462.1
445.8
Research and development
14.9
12.9
48.6
54.3
Goodwill impairment
—
80.0
—
80.0
Total operating expenses
172.5
242.8
510.7
580.1
Operating profit (loss)
95.0
(0.9
)
269.0
118.1
Other (expense) income:
Interest expense, net
(14.2
)
(13.3
)
(42.4
)
(37.0
)
Foreign exchange gains (losses)
11.1
(5.3
)
24.0
8.6
Other (expense) income, net
(14.7
)
3.1
(29.7
)
1.8
Total other expense
(17.8
)
(15.5
)
(48.1
)
(26.6
)
Income (loss) before income taxes and
non-controlling interests
77.2
(16.4
)
220.9
91.5
Income tax expense
(36.8
)
(15.3
)
(32.8
)
(53.4
)
Net income (loss) from continuing
operations
40.4
(31.7
)
188.1
38.1
Income from discontinued operations, net
of tax
—
—
1.6
2.9
Net income (loss)
40.4
(31.7
)
189.7
41.0
Net income attributable to non-controlling
interests
(0.1
)
(0.1
)
(0.2
)
—
Net income (loss) attributable to
common stockholders
$
40.3
$
(31.8
)
$
189.5
$
41.0
Earnings (loss)
per share
Basic from continuing operations
$
0.17
$
(0.13
)
$
0.77
$
0.16
Basic from discontinued operations
—
—
0.01
0.01
Basic attributable to common
stockholders
$
0.17
$
(0.13
)
$
0.78
$
0.17
Diluted from continuing operations
$
0.17
$
(0.13
)
$
0.77
$
0.16
Diluted from discontinued operations
—
—
0.01
0.01
Diluted attributable to common
stockholders
$
0.17
$
(0.13
)
$
0.78
$
0.17
Weighted average
common shares outstanding
Basic
242.1
241.5
242.0
241.4
Diluted
242.6
241.5
242.5
241.8
ELEMENT SOLUTIONS INC
CONDENSED CONSOLIDATED BALANCE
SHEETS
(Unaudited)
September 30,
December 31,
(dollars in millions)
2024
2023
Assets
Cash and cash equivalents
$
376.0
$
289.3
Accounts receivable, net of allowance for
doubtful accounts of $10.6 and $12.6 at September 30, 2024 and
December 31, 2023, respectively
474.9
461.8
Inventories
285.7
298.9
Prepaid expenses
28.2
32.5
Other current assets
116.4
115.0
Current assets held for sale
70.0
—
Total current assets
1,351.2
1,197.5
Property, plant and equipment, net
273.9
296.9
Goodwill
2,220.2
2,336.7
Intangible assets, net
782.2
879.3
Deferred income tax assets
159.3
120.5
Other assets
120.0
143.2
Non-current assets held for sale
191.4
—
Total assets
$
5,098.2
$
4,974.1
Liabilities and stockholders'
equity
Accounts payable
$
127.1
$
140.6
Current installments of long-term debt
11.5
11.5
Accrued expenses and other current
liabilities
228.8
217.3
Current liabilities held for sale
16.6
—
Total current liabilities
384.0
369.4
Debt
1,914.7
1,921.0
Pension and post-retirement benefits
24.4
28.1
Deferred income tax liabilities
105.6
108.9
Other liabilities
198.5
202.4
Non-current liabilities held for sale
16.3
—
Total liabilities
2,643.5
2,629.8
Stockholders' equity
Common stock: 400.0 shares authorized
(2024: 267.1 shares issued; 2023: 266.2 shares issued)
2.7
2.7
Additional paid-in capital
4,210.4
4,196.9
Treasury stock (2024: 25.0 shares; 2023:
24.6 shares)
(349.5
)
(341.9
)
Accumulated deficit
(1,052.4
)
(1,183.3
)
Accumulated other comprehensive loss
(371.9
)
(345.9
)
Total stockholders' equity
2,439.3
2,328.5
Non-controlling interests
15.4
15.8
Total equity
2,454.7
2,344.3
Total liabilities and stockholders'
equity
$
5,098.2
$
4,974.1
ELEMENT SOLUTIONS INC
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
Nine Months Ended
September 30,
June 30,
March 31,
September 30,
(dollars in millions)
2024
2024
2024
2024
2023
Cash flows from operating
activities:
Net income
$
40.4
$
93.3
$
56.0
$
189.7
$
41.0
Net income from discontinued operations,
net of tax
—
1.6
—
1.6
2.9
Net income from continuing operations
40.4
91.7
56.0
188.1
38.1
Reconciliation of net income to net cash
flows provided by operating activities:
Depreciation and amortization
39.4
40.1
40.3
119.8
124.7
Deferred income taxes
9.2
(37.4
)
(5.4
)
(33.6
)
(8.1
)
Foreign exchange gains
(12.4
)
(4.7
)
(7.8
)
(24.9
)
(10.5
)
Incentive stock compensation
3.8
3.6
4.1
11.5
10.6
Goodwill impairment
—
—
—
—
80.0
Other, net
13.6
1.3
3.7
18.6
25.8
Changes in assets and liabilities, net of
acquisitions:
Accounts receivable
(12.2
)
(27.4
)
(4.8
)
(44.4
)
(6.6
)
Inventories
22.6
(20.1
)
(23.9
)
(21.4
)
(37.2
)
Accounts payable
(15.1
)
14.3
0.7
(0.1
)
13.3
Accrued expenses
18.9
13.5
(14.5
)
17.9
(8.0
)
Prepaid expenses and other current
assets
(0.9
)
(9.3
)
6.7
(3.5
)
3.4
Other assets and liabilities
(8.8
)
1.0
3.1
(4.7
)
(3.7
)
Net cash flows provided by operating
activities
98.5
66.6
58.2
223.3
221.8
Cash flows from investing
activities:
Capital expenditures
(12.6
)
(14.5
)
(19.0
)
(46.1
)
(36.3
)
Proceeds from disposal of property, plant
and equipment
—
—
—
—
1.4
Acquisitions, net of cash acquired
—
—
(3.9
)
(3.9
)
(188.6
)
Other, net
—
(6.4
)
—
(6.4
)
(2.7
)
Net cash flows used in investing
activities
(12.6
)
(20.9
)
(22.9
)
(56.4
)
(226.2
)
Cash flows from financing
activities:
Debt proceeds
—
—
—
—
150.0
Repayments of borrowings
(2.8
)
(2.9
)
(2.9
)
(8.6
)
(8.6
)
Dividends
(19.4
)
(19.4
)
(20.0
)
(58.8
)
(58.1
)
Payment of financing fees
—
—
(2.1
)
(2.1
)
(1.0
)
Other, net
(6.0
)
0.9
(7.7
)
(12.8
)
(7.7
)
Net cash flows (used in) provided by
financing activities
(28.2
)
(21.4
)
(32.7
)
(82.3
)
74.6
Net cash flows provided by operating
activities of discontinued operations
—
1.6
—
1.6
2.9
Effect of exchange rate changes on cash
and cash equivalents
9.0
(2.9
)
(5.6
)
0.5
(9.1
)
Net increase (decrease) in cash and
cash equivalents
66.7
23.0
(3.0
)
86.7
64.0
Cash and cash equivalents at beginning of
period
309.3
286.3
289.3
289.3
265.6
Cash and cash equivalents at end of
period
$
376.0
$
309.3
$
286.3
$
376.0
$
329.6
ELEMENT SOLUTIONS INC
ADDITIONAL FINANCIAL
INFORMATION
(Unaudited)
I. SEGMENT RESULTS
Three Months Ended September
30,
Nine Months Ended September
30,
(dollars in millions)
2024
2023
Reported
Constant Currency
Organic
2024
2023
Reported
Constant Currency
Organic
Net Sales
Electronics
$
419.1
$
367.0
14
%
15
%
9
%
$
1,160.0
$
1,062.4
9
%
11
%
7
%
Industrial & Specialty
225.9
232.3
(3
)%
0
%
0
%
672.7
697.4
(4
)%
(2
)%
(2
)%
Total
$
645.0
$
599.3
8
%
9
%
6
%
$
1,832.7
$
1,759.8
4
%
6
%
3
%
Net Income (Loss)
Total
$
40.4
$
(31.7
)
(nm)
$
189.7
$
41.0
362
%
Adjusted EBITDA
Electronics
$
98.6
$
90.4
9
%
10
%
$
274.7
$
239.4
15
%
18
%
Industrial & Specialty
44.1
43.7
1
%
4
%
130.1
123.1
6
%
9
%
Total
$
142.7
$
134.1
6
%
8
%
$
404.8
$
362.5
12
%
15
%
Three Months Ended September
30,
Constant Currency
Nine Months Ended September
30,
Constant Currency
2024
2023
Change
2024
Change
2024
2023
Change
2024
Change
Net Income Margin
Total
6.3
%
(5.3
)%
(nm)
10.3
%
2.3
%
800bps
Adjusted EBITDA Margin
Electronics
23.5
%
24.6
%
(110)bps
23.6
%
(100)bps
23.7
%
22.5
%
120bps
23.9
%
140bps
Industrial & Specialty
19.5
%
18.9
%
60bps
19.7
%
90bps
19.3
%
17.7
%
160bps
19.6
%
190bps
Total
22.1
%
22.4
%
(30)bps
22.2
%
(20)bps
22.1
%
20.6
%
150bps
22.3
%
170bps
(nm) Calculation not meaningful.
II. CAPITAL STRUCTURE
(dollars in millions)
Maturity
Interest Rate
September 30,
2024
Instrument
Term Loans
(1)
12/18/2030
SOFR plus 2.00%
$
1,141.4
Total First Lien Debt
1,141.4
Senior Notes due 2028
9/1/2028
3.875%
800.0
Total Debt
1,941.4
Cash Balance
376.0
Net Debt
$
1,565.4
Adjusted Shares Outstanding
(2)
244.6
Market Capitalization
(3)
$
6,643.3
Total Capitalization
$
8,208.7
(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 September 30, 2024, 100% of the Company's debt was fixed.
(2)
See "Adjusted Common Shares Outstanding at
September 30, 2024 and 2023" 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 $27.16 at September 30, 2024.
III. SELECTED FINANCIAL DATA
Three Months Ended September
30,
Nine Months Ended September
30,
(dollars in millions)
2024
2023
2024
2023
Interest expense
$
17.4
$
15.7
$
50.9
$
43.5
Interest paid
24.3
22.9
56.9
48.7
Income tax expense
36.8
15.3
32.8
53.4
Income taxes paid
21.3
17.5
60.8
49.0
Capital expenditures
12.6
13.4
46.1
36.3
Proceeds from disposal of property, plant
and equipment
—
0.9
—
1.4
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, organic net sales growth, 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 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 its 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 nine months ended September 30,
2024:
Three Months Ended September
30, 2024
Reported Net Sales
Growth
Impact of Currency
Constant Currency
Change in Pass-Through Metals
Pricing
Acquisitions
Organic Net Sales
Growth
Electronics
14%
0%
15%
(5)%
—%
9%
Industrial & Specialty
(3)%
2%
0%
—%
—%
0%
Total
8%
1%
9%
(3)%
—%
6%
Nine Months Ended September
30, 2024
Reported Net Sales
Growth
Impact of Currency
Constant Currency
Change in Pass-Through Metals
Pricing
Acquisitions
Organic Net Sales
Growth
Electronics
9%
2%
11%
(3)%
(1)%
7%
Industrial & Specialty
(4)%
2%
(2)%
—%
0%
(2)%
Total
4%
2%
6%
(2)%
0%
3%
NOTE: Totals may not sum due to
rounding.
For the three months ended September 30, 2024, Electronics'
consolidated results were positively impacted by $19.2 million of
pass-through metals pricing. For the nine months ended September
30, 2024, Electronics' consolidated results were positively
impacted by $36.1 million of pass-through metals pricing and $8.1
million of acquisitions and Industrial & Specialty's
consolidated results were positively impacted by $0.5 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 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, as applicable,
recognized in purchase accounting for acquisitions.
Further, the Company adjusts its effective tax rate to 20%, as
described in footnote (9) 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 (loss)" 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
Nine Months Ended
September 30,
September 30,
(dollars in millions, except per share
amounts)
2024
2023
2024
2023
Net income (loss)
$
40.4
$
(31.7
)
$
189.7
$
41.0
Income from discontinued operations, net
of tax
—
—
(1.6
)
(2.9
)
Net income attributable to non-controlling
interests
(0.1
)
(0.1
)
(0.2
)
—
Reversal of amortization expense
(1)
29.4
32.7
89.4
93.3
Adjustment to reverse incremental
depreciation expense from acquisitions
(1)
0.3
0.4
1.0
1.2
Restructuring (income) expense
(2)
(0.1
)
2.1
5.7
6.3
Acquisition, divestiture and integration
expense
(3)
6.3
5.0
11.3
13.3
Foreign exchange (gains) losses on
intercompany loans
(4)
(13.5
)
6.5
(24.2
)
(7.6
)
Debt refinancing costs
(5)
0.4
—
0.4
—
Goodwill impairment
(6)
—
80.0
—
80.0
Kuprion Acquisition research and
development charge
(7)
—
—
3.9
15.7
Other, net
(8)
18.8
(0.9
)
24.6
1.6
Tax effect of pre-tax non-GAAP
adjustments
(9)
(8.3
)
(25.2
)
(22.4
)
(40.8
)
Adjustment to estimated effective tax
rate
(9)
21.3
18.6
(11.4
)
35.1
Adjusted net income
$
94.9
$
87.4
$
266.2
$
236.2
Adjusted earnings per share
(10)
$
0.39
$
0.36
$
1.09
$
0.97
Adjusted common shares
outstanding
(10)
244.6
243.9
244.5
243.9
(1)
The Company eliminates the amortization
expense associated with intangible assets and incremental
depreciation associated with the step-up of fixed assets 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, divestiture 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
debt refinancing because it believes these costs are not reflective
of ongoing operations.
(6)
The Company recorded a non-cash goodwill
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 contingent consideration and 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's adjustments include a
non-cash available-for-sale debt security impairment charge of
$11.4 million in the third quarter of 2024 and highly inflationary
accounting losses for its operations in Turkey of $1.0 million and
$2.0 million for the three months ended September 30, 2024 and
2023, respectively and $3.1 million and $8.4 million for the nine
months ended September 30, 2024 and 2023, respectively. In
addition, the Company adjusts for certain professional consulting
fees and unrealized gains/losses on metals derivative
contracts. The Company adjusts for the available-for-sale
debt security impairment and certain professional consulting fees
because it believes they are not reflective of ongoing
operations. 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.
(9)
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 projects its non-GAAP effective tax rate
would be 24.3% based on its estimated results for the full year
2024. This rate would have resulted in a $0.06 reduction in
Adjusted EPS for the nine months ended September 30, 2024.
(10)
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 September 30, 2024 and
2023
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)
2024
2023
2024
2023
Basic common shares outstanding
242.2
241.5
242.1
241.5
Number of shares issuable upon vesting of
granted Equity Awards
2.4
2.4
2.4
2.4
Adjusted common shares
outstanding
244.6
243.9
244.5
243.9
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:
Three Months Ended
Nine Months Ended
September 30,
September 30,
(dollars in millions)
2024
2023
2024
2023
Net income (loss)
$
40.4
$
(31.7
)
$
189.7
$
41.0
Add (subtract):
Income from discontinued operations, net
of tax
—
—
(1.6
)
(2.9
)
Income tax expense
36.8
15.3
32.8
53.4
Interest expense, net
14.2
13.3
42.4
37.0
Depreciation expense
10.0
11.8
30.4
31.4
Amortization expense
29.4
32.7
89.4
93.3
EBITDA
130.8
41.4
383.1
253.2
Adjustments to reconcile to Adjusted
EBITDA:
Restructuring (income) expense
(2)
(0.1
)
2.1
5.7
6.3
Acquisition, divestiture and integration
expense
(3)
6.3
5.0
11.3
13.3
Foreign exchange (gains) losses on
intercompany loans
(4)
(13.5
)
6.5
(24.2
)
(7.6
)
Debt refinancing costs
(5)
0.4
—
0.4
—
Goodwill impairment
(6)
—
80.0
—
80.0
Kuprion Acquisition research and
development charge
(7)
—
—
3.9
15.7
Other, net
(8)
18.8
(0.9
)
24.6
1.6
Adjusted EBITDA
$
142.7
$
134.1
$
404.8
$
362.5
NOTE: For the footnote descriptions,
please refer to the footnotes located under the "Adjusted Earnings
Per Share (EPS)" reconciliation table above.
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 flow" for the periods presented and the
Company's free cash flow outlook for the full year 2024:
Three Months Ended
Nine Months Ended
September 30,
September 30,
Outlook
(dollars in millions)
2024
2023
2024
2023
2024
Cash flows from operating
activities
$
98.5
$
87.4
$
223.3
$
221.8
~$340-$360
Capital expenditures
(12.6
)
(13.4
)
(46.1
)
(36.3
)
~(60)
Proceeds from disposal of property, plant
and equipment
—
0.9
—
1.4
~0
Free cash flow
$
85.9
$
74.9
$
177.2
$
186.9
~$280-$300
View source
version on businesswire.com: https://www.businesswire.com/news/home/20241028362293/en/
Investor Relations Contact: Varun Gokarn Vice President,
Strategy and Integration 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
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