Element Solutions Inc.

Good morning, ladies and gentlemen, and welcome to the Element Solutions Q1 2021 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. You can register to ask a question at any time by pressing star and one on your touchtone phone. Please note today's call may be recorded, and I will be standing by if you should need any assistance. I will now turn the call over to Varun Gokarn, Senior Director of Strategy and Finance. Please go ahead.

Good morning, and thank you for participating in our first quarter 2021 earnings conference call. Joining me are Executive Chairman, Sir Martin Franklin, CEO, Ben Glicklich, and CFO, Carrie 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 will 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 earnings release, supplemental slides, and most recent SEC filings for a discussion of material risk factors that could cause actual results to differ from our expectations and predictions. These materials can be found on the company's website at www.elementsolutionsinc.com in the investor section under news and events. Today's materials also include financial information that has not been prepared in accordance with U.S. GAAP. Please refer to the earnings release and supplemental slides for definitions and reconciliations of these non-GAAP measures to comparable GAAP financial measures. It is now my pleasure to introduce Ben Glicklich, CEO of Element Solutions.

Thank you, Varun. Good morning, everyone. Thanks for joining. We had an outstanding quarter to begin 2021, continuing our momentum exiting our record fourth quarter of 2020. Underlying demand remained robust in the electronic supply chain, and the broader industrial economy continued to accelerate. These results demonstrate the positive inflection we've seen in our core markets, driven by the secular megatrends of increasing electronics and automotive applications, increasing penetration of electric vehicles, and increasing content value in higher-end 5G mobile technology. Our team is executing well on its strategy of positioning the business in attractive growth markets and capturing value above and beyond market growth, even in these faster growing areas. Our volumes across our circuitry, assembly, semi, and industrial businesses were very strong. The increase in demand in our end markets stretched our broader supply chains and created challenges in the first quarter. Logistics became complicated due to unavailability of containers and delays at ports, and certain raw materials are becoming scarce and more expensive. We're fortunate to have a nimble supply chain that helped insulate us from significant disruptions. Our teams navigated these pressures well to meet the surge in demand. The benefit of volume and higher growth from higher margin products, which we believe should be a recurring trend, more than offset the supply chain cost inflation realized in the first quarter. Our cash flow reflects the decision to build stocks in case of persisting raw material shortages. We also saw an impact from shortages of semiconductors on the automotive supply chain. The industrial business saw muted growth from automotive customers in the West, which was more than offset by strong demand in the broader construction, machinery, and building products markets. While the global economy is proving resilient, the pandemic is far from over in many of the countries in which we operate. The accelerating pace of vaccination has caused for hope that there is a long road ahead of us. The safety and security of our employees and partners around the world remain our number one priority, and we continue to operate under company-wide health and safety protocols. We're deeply grateful to our colleagues who have remained focused on supporting our company and our customers in the midst of this extended, challenging backdrop. On slide three, you can see a summary of our record first quarter financial results. We grew the top line 11% organically year over year and adjusted EBITDA by 25%. This level of organic growth, slightly higher than the pace of growth in the fourth quarter of 2020, reflects sustained sequential strength in high-end electronics markets and our industrially oriented businesses, further improved by our lapping the shutdowns in Asian automotive markets that accompanied COVID-19 in the first quarter of 2020. Both FX translation and pass-through metal pricing positively impacted our net sales results by 4% and 5%, respectively. In constant currency terms, first quarter adjusted EBITDA grew 20%, and adjusted EBITDA margin expanded 60 basis points year over year. Volume and mix drove positive margins, partially offset by an increase in pass-through metals. At the same time, our operating expense reflects muted travel across all regions. We expect OPEX to increase sequentially over the course of the year as the pace of vaccination accelerates and economies begin to reopen more fully. However, we expect to manage OPEX to grow less than sales. Our adjusted EBITDA margin excluding the impact of the $87 million of pass-through metal sales in our assembly solutions business was 29.8%. Adjusted earnings per share growth of 48% in the quarter reflects the improvement in operating profit, lower interest expense due to our 2020 bond refinancing, and a lower adjusted tax rate. And it demonstrates our ability to compound earnings per share growth well in excess of adjusted EBITDA growth through prudent allocation of capital and liability management. Carrie will now take you through our first quarter performance in more detail. Carrie?