Element Solutions Inc.

Good morning and welcome to the Element Solutions Q2 2023 financial results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, again, press star one. Thank you. I would now like to 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 second quarter 2023 earnings conference call. Joining me are Executive Chairman Sir Martin Franklin, CEO Ben Glicklich, 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 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 or 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 Investors 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 Element Solutions CEO, Ben Glicklich.

Thank you, Varun, and good morning, everyone. Thank you for joining. Element Solutions reported sequential adjusted EBITDA growth in what we believe is the trough of the most severe dislocation in the electronics market in recent history. Key drivers and inputs to the electronics market, such as smartphone shipments and semi-production, declined more than 10% year over year, and this impacted our results. We believe we outperformed our market, and are pleased to see indicators of a recovery in our order book and the electronic supply chain generally as we entered the third quarter. We also took advantage of this period of dislocation to significantly improve our position in the highest value, fastest growing subsectors of the electronics ecosystem, and did so at what we consider attractive values with significant potential upside. Challenging economic conditions were not limited to electronics, with the broader Chinese economy soft and certain countries in Europe on the brink of recession. Nonetheless, our non-electronics portfolio is growing earnings through solid execution, margin expansion from cross-deflation, and synergy realization. Overall, gross margins improved over 200 basis points year-over-year, despite lower volumes. Though it was deeper than expected, we believe we can call the second quarter the trough in electronics. Our semiconductor customers are ramping activity in their FATs. We see this in our July orders. Historically, this has been a leading indicator for an improvement in mobile phone production that also drives demand for our circuit board chemistries and assembly materials. Smartphone sell-in has been lower than sell-through for the last two quarters, suggesting channel inventories continue to be digested. These dynamics are reflected in our second half outlook. It was also a productive quarter. We completed two exciting strategic transactions that materially improve our semiconductor capabilities ahead of an expected market recovery. In June, we agreed to pay $200 million, or roughly $185 million net of estimated cash tax benefits, to buy in a longstanding distribution agreement for our Viaform electrochemical deposition products from Integris. Element Solutions has historically manufactured these semiconductor materials, and now we have complete ownership from innovation and manufacturing through to sales and support. Early feedback from customers has been consistently positive, and we're excited to grow this high-value product line in the future. Based on its run rate as of closing, we expect to realize annual incremental revenue of $18 million and adjusted EBITDA of $15 million at current demand levels, which should reflect a low point in the cycle. This transaction should be growth, margin, and CRI-accreted and increase the contribution of our electronic segment to the company's annual adjusted EBITDA to over 70%. The purchase price implies an attractive multiple relative to comparable front-end-of-line semiconductor assets and off of trough earnings. We believe this is a high-quality profit stream with upside potential from commercial optimization and minimal execution risk given our deep knowledge of the technology and existing manufacturing. We also purchased Cuprion, a developer of next-generation nanocopper technology for the semiconductor, circuit board, and electronics assembly markets. The acquisition brings a highly differentiated capability to our portfolio, together with a world-class R&D and application team who developed it. Their active copper technology addresses emerging, complex challenges associated with thermal management and adhesion in leading-edge electronics. This should be industry-changing technology. with broad applications across our portfolio, including power electronics for electric vehicles, infrastructure to support high-frequency 5G networks, advanced semiconductor packaging, and IC substrate metallization. Element Solutions is well-positioned to commercialize Couprion solutions and technical capability, given our presence across each of these markets. We bring applications know-how and deep relationships to support the adoption of this technology in our customer base. Customer engagement and the pace of development and qualification work has already exceeded our expectations. Taken together, these transactions solidify ESI's position as an integral partner and solutions provider to the leading electronics companies in the world. They increase our participation in compelling long-term growth markets propelled by the proliferation of high-performance computing supporting AI, industrial automation, and other emerging applications. Our perception and importance to the companies innovating in electronics hardware have improved dramatically. As we said last quarter, periods of low demand and market uncertainty often generate unique opportunities. We believe 2023 is such an environment and expect to exit this year better positioned than when we entered it. Our core electronics markets are returning to growth, and we are positioned to benefit from that growth and more profitably. Our portfolio weight towards higher growth, higher profit markets is increasing, and our commercial pipeline in these markets is growing disproportionately. These are very promising leading indicators. Kerry will now take you through second quarter business results in more detail.