• Adjusted EBITDA: Grew 13% in constant currency to a record $535 million for the full year 2024.
• Free Cash Flow: Record $294 million for the year, with $116 million generated in the fourth quarter.
• Net Sales Growth: Increased 6% organically in Q4, with Semiconductor Solutions up 19% and Circuitry Solutions up 10%.
• Full Year Organic Sales Growth: 4%, driven by a 7% increase in the Electronics business.
• Adjusted EBITDA Margin: Improved 120 basis points on a constant currency basis for the full year.
• Semiconductor Solutions Revenue: Exceeded $300 million for the first time, with a 5-year CAGR of 14%.
• CapEx: $68 million spent in 2024, with an expectation of $65 million in 2025.
• Net Leverage: 2.8x at year-end, with a pro forma net leverage of 2.3x if the Graphics transaction had closed as of January 1, 2024.
• FX Headwind: $12 million year-on-year impact on adjusted EBITDA and $0.03 on adjusted EPS.
• 2025 Adjusted EBITDA Guidance: High single-digit growth at the midpoint of the range, with Q1 expected to be approximately $125 million.
• 2025 Adjusted EPS Guidance: Approximately $1.40, excluding any benefit from capital allocation.

• Warning! GuruFocus has detected 6 Warning Sign with ESI.

Release Date: February 19, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Element Solutions Inc (NYSE:ESI) delivered record adjusted EBITDA of $535 million in 2024, growing 13% in constant currency.
• The company achieved a record free cash flow of $294 million, converting over 50% of adjusted EBITDA to free cash flow.
• ESI outperformed its markets by penetrating fast-growing niches in the electronics industry, particularly in Semiconductor and Circuitry Solutions.
• The sale of Macdermid Graphics Solutions for $325 million is expected to enhance the company's portfolio and improve growth and margins.
• ESI's balance sheet is strong, with net leverage at 2.8x and no debt maturities until 2028, providing substantial capacity for capital deployment.

Negative Points

• The company faced a $12 million year-on-year headwind to adjusted EBITDA due to foreign exchange translation.
• Industrial and Specialty segment sales declined 1% year-over-year, with soft European industrial end markets impacting performance.
• Higher pass-through metals in the assembly business generated an 80 basis point headwind to company margins.
• The sale of Graphics Solutions is expected to impact adjusted EBITDA by approximately $30 million in 2025.
• Potential tariffs and uncertain global industrial production pose risks to the company's 2025 outlook.

Q & A Highlights

Q: How did Element Solutions perform relative to the electronics market in 2024, and what is the outlook for future performance? A: Ben Gliklich, CEO, stated that Element Solutions outperformed the electronics market in 2024, with high single-digit growth in their electronics segment compared to low single-digit growth in the market. This was achieved by penetrating the fastest-growing subsegments of the electronics hardware market. The company expects this level of outperformance to continue due to their focus on high-value niches.

Q: What are the expectations for Element Solutions' business in 2025, considering the short-cycle nature of the business? A: Ben Gliklich explained that the company bases its guidance on expectations for key indicators like MSI, PCB square meters, and smartphone units. While there is uncertainty in the industrial market, the company expects robust demand at the leading edge, particularly in advanced chips. Potential upside could come from an accelerated replacement cycle in devices or improved industrial market health.

Q: Are tariffs impacting Element Solutions' business, and how is the company positioned in light of potential tariff changes? A: Ben Gliklich noted that while there has been no real impact from tariffs yet, the company is benefiting from supply chain realignment, with manufacturing capacity moving to regions like Mexico and Southeast Asia. This shift is advantageous for Element Solutions, as they are well-positioned in these markets.

Q: What are the key factors that could lead to an upside or downside surprise in Element Solutions' 2025 performance? A: Ben Gliklich highlighted FX volatility as a significant variable, with potential impacts on adjusted EBITDA. Upside could come from recovery in Western automotive markets or increased smartphone units, while downside risks include weaker industrial production.

Q: How is Element Solutions approaching capital allocation, particularly regarding M&A and share repurchases? A: Ben Gliklich stated that the company is on the front foot for tuck-in M&A opportunities, looking for high-quality businesses at reasonable values. The balance sheet is strong, providing flexibility for share repurchases and debt paydown, with a focus on compounding per share value.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.