Element Solutions Inc.

Good morning, ladies and gentlemen. Welcome to the Element Solutions third quarter 2020 conference call. All lines are currently in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. You may press star 1 at any time to enter the question queue. Please note today's call is being recorded. I will now turn the call over to Yash Naheti, Associate Director of Corporate Development and IR. Please go ahead.

Good morning, and thank you for participating on our third quarter earnings conference call. Joining me are Executive Chairman Sir Martin Franklin, CEO Ben Glickwich, and CFO Kerry Dorman. In accordance with Regulation FD or Fair Disclosure, we are webcasting this conference call. Any redistribution, retransmission, or rebroadcast of this call in any form without the express written consent of Element Solutions is strictly prohibited. During today's call, we'll make certain forward-looking statements that reflect our current views about the company's future performance and financial results. These statements are based on assumptions and expectations of future events that are subject to risks and uncertainties. Please refer to our most recent SEC filings for a discussion of the most significant risk factors that could cause actual results to differ from our expectations and predictions. In the earnings release and supplemental slides issued and posted yesterday afternoon, Element Solutions has provided financial information that has not been prepared in accordance with U.S. GAAP. For definitions and reconciliations of these non-GAAP measures to comparable GAAP financial measures, refer to the release and slides which can be found on the company's website at www.elementsolutionsinc.com in the investor section under news and events. It is now my pleasure to introduce Ben Glicklich, CEO of Element Solutions.

Thank you, Yash, and good morning, everyone. Thank you for joining. For a third consecutive quarter, the team at ESI managed a challenging environment gracefully and with resilience. I'd like to start by recognizing all of my global teammates for navigating COVID-related disruptions exceptionally well through focus, hard work and sacrifice. In a period of uncertainty, What began earlier this year with dropping volumes driving pay cuts and furloughs was followed by a sharp increase in activity this quarter. The team was consistently on task and delivered the quality products and services our customers demand, all without seeing other longer-term improvement projects derailed. We could not be prouder of our people. While COVID is still with us, in the third quarter, our most impacted end markets rallied meaningfully from the 2020 second quarter lows. At the same time, strength in our high-end electronics businesses continued to demonstrate the same macro outperformance that characterized the first half of the year. The recovery we saw in our automotive and industrially-oriented businesses beginning in June and July accelerated into August and September. Sequentially, net sales across our industrial and assembly businesses increased roughly 40% in the quarter. We ended the third quarter with our industrial vertical down 7% organically year over year, after having been down more than 40% in May. We entered the third quarter cautious about our high-end electronics businesses, given their marked outperformance relative to the broader economy. Additionally, the third quarter of 2019 was particularly strong, making a tougher comparison. Despite a lower than normal seasonal uptick from the circuitry business, our electronics business grew year over year on the back of a robust rebound in our assembly business and the continued strength in our semi business. Overall, this translated to a strong quarter. We generated $102 million of adjusted EBITDA on net sales of $478 million. Sequentially, adjusted EBITDA grew 20%, sequential net sales growth of 23%. Year-to-date, net sales are down 7% organically, and adjusted EBITDA is down 4%, which reflects a margin of 23%. Good results in a turbulent time. Adjusted EBITDA margins in the quarter declined year over year, which we expected due to the third quarter 2019 mix of business. They are flat sequentially and would have been stronger were it not for year-to-date incentive compensation-related accrual true-ups in the quarter, driven by the sharp increase in full-year earnings expectations. We expected operating costs to increase in the third quarter, and they did modestly even before the compensation true-up. We expect OPEX to decline from Q3 to Q4, and the Q4 level of spend should be more reflective of the quarterly rate we expect in 2021 as well. Adjusted EPS in the quarter was 22 cents and 65 cents year-to-date, nearly flat versus the same period in 2019. We generated $63 million of free cash flow in Q3 and $174 million of free cash flow through nine months of the year. That compares to $166 million in the same period last year on an adjusted basis. This is textbook performance from our business, showing that we can preserve profits in difficult markets and generate outsized cash flows. During Q3, we announced our acquisition of DMP Corp and the formation of a new business, McDermott & Vio Solutions. The acquisition was modest in size but not in ambition. We paid a mid-single-digit multiple for a few million dollars of adjusted EBITDA. It fits our acquisition criteria perfectly, a tuck-in transaction opening an immediate adjacency with synergy potential and available at a reasonable multiple. But we believe this acquisition also creates a pathway for terrific growth into a large and new addressable market for us. Our customers are clamoring for help managing their waste streams. We did a survey of the top 50 customers in our industrial solutions business, and 90% of them said sustainability was a top three priority. 25% said it was their primary priority. McDermott and BioSolutions through DMP and our Chemtech metal recycling business offer capabilities that will allow us to help customers with sustainability. Both businesses have good technology, but we're limited to the Americas. We believe we can bring them global and win mindshare and market share by adding to our already extensive list of critical solutions offered to our customer base. The commercial integration of this business is ongoing, and the MES sales backlog is growing fast. I look forward to providing more detail on our progress with this initiative in coming quarters. Carrie will now take you through our third quarter financials in more detail.