Element Solutions Inc Q3 FY2024 earnings call

• Element Solutions delivered strong results with 6% organic sales growth and 8% constant currency adjusted EBITDA growth. The Electronics segment outperformed traditional electronics markets, while the Industrial and Specialty segment saw improved profitability despite headwinds.
• The company announced the divestiture of MacDermid Graphic Solutions, a business that doesn't align with its core operations, which is expected to be accretive to CRI.
• Free cash flow in Q3 was $86 million, with the full year on track for $280 million to $300 million. CapEx was in line at $13 million, and the balance sheet was strong with a trailing 12-month net leverage ratio of 3.0x, and $100 million of term loan debt paid down.

The Electronics segment grew 9% organically in the quarter, driven by standout volume growth in wafer level packaging and semiconductor assembly, with advanced packaging applications and power electronics businesses accelerating sequentially. Circuitry Solutions also grew over 9% organically, driven by demand for data storage, certain EV applications, and circuit boards for high-performance computing. The Industrial and Specialty segment had net sales flat organically, facing headwinds from softening demand in Europe and lower revenue from metal price surcharges in the core industrial portfolio, but profitability improved with adjusted EBITDA from raw material cost actions and energy business growth (double-digit sales growth at high incrementals). The Graphic Solutions business was divested, valuing the business at an attractive double-digit multiple.

• 2024 adjusted EBITDA guidance range is $535 million to $540 million, retaining the midpoint of prior guidance.
• Expect broader-based growth in electronics end markets in 2025, but industrial end markets are weaker than expected. Confident in the company's positioning for future growth with a strong balance sheet and focused strategy.

• Softening demand in Europe and lower revenue from metal price surcharges impacted the Industrial and Specialty segment.
• Macroeconomic uncertainty, including potential interest rate cuts and Chinese stimulus impact on industrial sectors like construction and automotive, poses risks.

Q: Josh Spector on electronic trends and 2025 outlook A: Ben Gliklich discusses that the electronics market has not been uniformly improving, but indicators point to more general improvement in 2025 with forecasts showing mid-to-high single-digit to double-digit growth in MSI and PCB square meters.

Q: John Roberts on Advanced Packaging impact across segments A: Ben Gliklich states that Advanced Packaging impacts all three electronics businesses, with traction lifting the broader Electronics business, though it's a small slice in some segments and a bigger slice in others.

Q: Mike Harrison on Advanced Packaging capacity and pricing A: Ben Gliklich says existing capacity is adequate, working to scale Kuprion manufacturing, and there are incremental pricing opportunities in Advanced Packaging with healthy margins.

Q: Bhavesh Lodaya on Advanced Packaging growth and market share A: Ben Gliklich notes growing market share in Advanced Packaging with increased mind share with qualifiers and specifiers, seeing growth in existing customers and new business wins.

Q: Steve Byrne on auto end market and COGS A: Ben Gliklich comments on ICE auto business share gain opportunities and challenges, and COGS mostly due to metal price inflation with some procurement rationalizations offsetting it.

Q: Jon Tanwanteng on power electronics outlook A: Ben Gliklich says power electronics business will outstrip EV market growth with strong pipeline and new business wins across various OEMs.

Q: Chris Parkinson on margin progression and portfolio positioning A: Ben Gliklich discusses ex-pass-through metals EBITDA margin of 27% in Q3, with runway to reach 30s, and the portfolio is well-positioned with investments in new technologies enhancing value proposition.

Q: Mike Leithead on electronics growth rate and returns A: Ben Gliklich explains the shift to emerging growth drivers in electronics, expecting mid-to-high single-digit growth in the business with higher margins from the electronics segment becoming a larger percentage of the company.

Q: David Silver on Kuprion progress and resource needs A: Ben Gliklich talks about ViaForm's strong growth and Kuprion's progress with first product qualification expected this year, and key resource needs in applications labs close to customers in growth geographies.