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ES

Element Solutions Inc (ESI)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 delivered solid top-line growth and margin stability: revenue $624.2M (+9% YoY), adjusted EBITDA $129.9M (+8% YoY) with adjusted EBITDA margin 20.8% (down 10 bps) .
  • EPS mixed: GAAP diluted EPS $0.23 (down vs $0.32 LY) and adjusted EPS $0.35 (up vs $0.32 LY), reflecting non-GAAP adjustments and FX headwinds (~$3M in Q4) .
  • 2025 outlook introduced: adjusted EBITDA $520–$540M, Q1 2025 adjusted EBITDA ≈$125M; headwinds include ~$30M from Graphics divestiture and ~$15M FX translation; full-year adjusted EPS ≈$1.40 (ex capital allocation) .
  • Electronics remained the growth engine (Q4 electronics net sales +14% YoY; semi +19% organic; circuitry +10% organic), offset by softer industrial mix; management emphasized AI/data center and EV power electronics as structural drivers .
  • Capital/cash: record FY free cash flow $293.6M; net leverage 2.8x YE (pro forma 2.3x post-Graphics), enabling tuck-in M&A and potential buybacks; quarterly dividend maintained at $0.08/share .

What Went Well and What Went Wrong

  • What Went Well

    • High-end electronics momentum: Semiconductor Solutions +19% organic and Circuitry Solutions +10% in Q4; VIAForm demand “particularly robust,” supporting advanced logic and DRAM stacking for AI .
    • Mix and pricing discipline: “over 100 bps” FY EBITDA margin expansion, with ex-pass-through metals Q4 adjusted EBITDA margin at ~25% (60 bps expansion YoY) .
    • Cash generation and balance sheet: Q4 FCF $116.4M; FY FCF $293.6M; YE net leverage 2.8x, >90% fixed-rate through 2028; pro forma leverage 2.3x post-Graphics closing .

  • What Went Wrong

    • GAAP net income/GAAP EPS declined in Q4 despite revenue growth: GAAP diluted EPS $0.23 vs $0.32 LY; net income margin fell 470 bps to 8.8%, reflecting items and mix .
    • FX volatility: incremental ~$3M Q4 FX headwind; 2025 planning assumes ~$15M translational headwind at Jan-end rates, underscoring variability (recent $30M swing over months) .
    • Industrial softness and pass-through metals headwind: higher pass-through metals in assembly drove ~80 bps margin headwind company-wide YoY; Western automotive and broader industrial end markets remained weak .

Financial Results

MetricQ4 2023Q3 2024Q4 2024
Revenue ($USD Millions)$573.4 $645.0 $624.2
GAAP Diluted EPS ($)$0.32 $0.17 $0.23
Adjusted EPS ($)$0.32 $0.39 $0.35
Adjusted EBITDA ($USD Millions)$119.8 $142.7 $129.9
Adjusted EBITDA Margin (%)20.9% 22.1% 20.8%
Net Income ($USD Millions)$77.2 $40.4 $54.8
Net Income Margin (%)13.5% 6.3% 8.8%

Segment Breakdown

Segment MetricQ4 2023Q3 2024Q4 2024
Electronics Net Sales ($USD Millions)$352.3 $419.1 $401.4
Industrial & Specialty Net Sales ($USD Millions)$221.1 $225.9 $222.8
Electronics Adjusted EBITDA ($USD Millions)$78.3 $98.6 $86.8
Industrial & Specialty Adjusted EBITDA ($USD Millions)$41.5 $44.1 $43.1

KPIs

KPIQ3 2024Q4 2024
Cash from Operations ($USD Millions)$98.5 $138.7
Free Cash Flow ($USD Millions)$85.9 $116.4
Capital Expenditures ($USD Millions)$12.6 $22.3
Net Leverage (x)3.0x 2.8x (YE)
Cash And Equivalents ($USD Millions)$376.0 $359.4
Net Debt ($USD Millions)$1,565.4 $1,479.4

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted EBITDA ($)FY 2025—$520–$540M New
Adjusted EPS ($)FY 2025—≈$1.40 (ex capital allocation) New
Adjusted EBITDA ($)Q1 2025—≈$125M New
FX translational impact on adj. EBITDA ($)FY 2025—≈−$15M at Jan-end rates New
Graphics divestiture impact on adj. EBITDA ($)FY 2025—≈−$30M (incl. modest Jan–Feb contribution) New
Free Cash Flow ConversionFY 2025Comparable YoYComparable YoY Maintained
Dividend per share ($)Q1 2025$0.08 (rate)$0.08 declared Maintained
Electronics organic growth (segment)FY 2025LT high single-digit targetHigh single-digit expected Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2024, Q3 2024)Current Period (Q4 2024)Trend
AI/Advanced PackagingQ2: wafer-level packaging strength; circuitry +22% organic; pipeline accelerated via VIAForm/Kuprion . Q3: advanced packaging a “couple of hundred million” revenue and growing; capacity adequate .Demand in high-performance computing/data storage to drive wafer-level/advanced packaging; electronics organic growth high single-digit in 2025 .Strengthening
Supply chain & capacityQ2: scaling Kuprion, building labs in Vietnam/Thailand/India . Q3: materials tight but ESI capacity sufficient; scaling Kuprion .Active copper commercialization focus on supply chain; revenue in 2025/EBITDA contribution in 2026 .Improving capacity build-out
Tariffs/macroQ3: Europe industrial softness; I&S −3% sales .2025 risk from potential tariffs; “Not yet” seeing impact; monitoring .Risk watch
Power electronics (EV)Q2: softness then expected rebound; diversified wins; outstrip EV unit growth . Q3: profit growth despite exposures; mix benefits .Continued EV penetration (ex-China stronger, but high-end China EV adopting); 2025 growth expected .Recovering/expanding
Regional trends (China/SE Asia)Q2: Asia a bright spot; Chinese export demand up . Q3: China EVs strong; data storage/AI circuitry .China revenue up low teens in 2024; local sourcing; diversification to Indonesia/Thailand/Vietnam/India (higher margin) .Growing in China/SE Asia
R&D & labsQ2: R&D center in India; capacity projects . Q3: continued investment .R&D spend ticking up slightly with labs; technical service integral; intensity modestly higher post-Graphics .Investing steadily
Portfolio optimizationQ3: Graphics sale announced, accretive to growth/margins; leverage improves .Closing expected Q1 2025; ~−$30M EBITDA impact; balance sheet flexibility for M&A/buybacks .Focus sharpened

Management Commentary

  • CEO: “We delivered 13% constant currency adjusted EBITDA growth…penetrating the fastest-growing, highest value niches in the electronics consumables market” .
  • CFO: “Constant currency adjusted EBITDA grew 9% YoY…excluding pass-through metals, adjusted EBITDA margin would have been 25%, representing 60 bps expansion” .
  • CEO on 2025: “Guiding to high single-digit adjusted EBITDA growth at the midpoint…Q1 adjusted EBITDA ≈ $125M, ~ $5M FX headwind” .
  • CEO on capital allocation: “Balance sheet…on the front foot for tuck-in M&A; expect repurchase interest in 2025” .

Q&A Highlights

  • Relative market outperformance: Electronics up high single-digit vs PCB square meters ~6–7% and smartphones ~6%; strategy is to penetrate fastest-growing hardware subsegments .
  • FX volatility: ~$30M swing Sept–Jan; 2025 headwind ~$15M at Jan rates; key variable for upside/downside .
  • Tariffs: No immediate impact; ongoing supply chain realignment to Mexico/SE Asia/Japan/North America; ESI benefiting .
  • EV/smartphone exposure: Better penetration ex-China; high-end Chinese EVs adopting ESI power electronics; smartphones less core but replacement cycle upside possible .
  • Active copper (Kuprion): “Reasonable revenue in 2025 and EBITDA contribution in 2026”; focus on scaling supply chain and customer applications .

Estimates Context

  • Wall Street consensus from S&P Global was unavailable during this session due to API limits; therefore, a beat/miss comparison versus consensus cannot be provided. Results: revenue $624.2M, adjusted EPS $0.35, adjusted EBITDA $129.9M for Q4 2024 .
  • We will refresh and compare to S&P Global consensus when data access is restored.

Key Takeaways for Investors

  • Electronics growth and mix are driving durable margin leverage: Q4 electronics net sales +14% YoY; semi +19% organic; circuitry +10%—positioned to benefit from AI/data center and EV trends .
  • Margins resilient despite pass-through metals: company adjusted EBITDA margin 20.8%; ex-pass-through metals Q4 margin ~25% and expanding, underscoring mix/pricing discipline .
  • 2025 setup: headline adjusted EBITDA $520–$540M includes −$30M Graphics and ~−$15M FX; underlying growth mid/high single-digit with potential upside from smartphone refresh and Western auto recovery .
  • Cash/capital deployment: FY FCF $293.6M; YE net leverage 2.8x (pro forma 2.3x) enables tuck-in M&A and opportunistic buybacks while sustaining dividend ($0.08) .
  • Regional strategy: China/SE Asia/India growth vectors with local manufacturing and higher-margin diversification—tailwind to earnings mix .
  • Watch FX and tariffs: FX is the largest non-operational swing factor; tariff developments could affect end-market demand, especially industrial; management monitoring but no impact seen yet .
  • Near-term trading: Q1 guide ≈$125M adjusted EBITDA with ~−$5M FX headwind; any relief in USD strength or positive smartphone/auto datapoints could support sentiment; conversely, rising metals or tariff headlines could pressure margins/mix .